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Middle EastJuly 27 2010

A coming of age

Ester Levanon, Tel Aviv Stock Exchange's CEOEnjoying Israel's new status as a developed market, the Tel Aviv Stock Exchange is pushing to attract high-tech listings, planning to renew its IT system and playing its part in Israeli-Palestinian relations. Writer Michelle Price
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A coming of age

May this year marked a milestone for the Tel Aviv Stock Exchange (TASE), bringing what Ester Levanon, the exchange's CEO, calls its "graduation day": MSCI, the closely followed global index provider, upgraded Israel from 'emerging market' to 'developed market' status.

MSCI's move represents a major opportunity for TASE, which will be better able to attract a wealth of foreign portfolio investors who are restricted to tracking developed markets, and Ms Levanon is not wasting any time exploiting Israel's new status.

Formerly the exchange's IT chief and a mathematician by training, Ms Levanon has a passion for all things technology-related and she intends to develop TASE into an international listings hub for high-tech companies. Of the exchange's 596 listed companies, 133 are classified as high-tech, and together these companies account for almost 40% of the market's capitalisation. Historically, the exchange has lost technology listings to Nasdaq, and TASE has had to fight hard to prevent other Israeli-incorporated companies delisting in favour of the technology-dominated US market.

Ms Levanon recognises that US companies are unlikely to migrate in the opposite direction, but she does hope to attract European and Asia-Pacific technology firms looking for a second listing in a timezone midway between Europe and Asia. "Technology is the future for Israel: there is no way Israel can be a financial centre like London or New York, but it can be a centre for technology. Once we have a critical mass of companies, we'll be in a position to attract high-tech foreign companies," she says.

Tech focus

In the short term, however, the exchange is focusing its efforts on attracting Israeli technology companies and is working with the Israeli treasury to create a more tax-friendly listings environment for potential issuers. Ms Levanon is also looking to either establish or finance a group of dedicated analysts to produce research on Israeli listings, and the exchange is currently in discussions with a big international analyst firm on this issue. "We need research on these companies, otherwise they will get lost," says Ms Levanon.

Technology is a hot topic for the exchange in more ways than one. After more than 10 years in operation, the exchange's IT system, which has long been managed internally, is nearing the end of its natural life. Although Ms Levanon says she is by no means sold on the idea of moving to an external provider, TASE is nonetheless in initial discussions with technology operators NYSE Euronext and Nasdaq OMX regarding a potential IT contract. TASE is also being courted by Chi-X Global Technology, the technology arm of the upstart alternative trading platform operator that has been extremely successful in Canada and Europe, says Ms Levanon.

These organisations offer some of the speediest trading technology in the world, but is this really necessary for an exchange such as TASE, which is not catering to the high-frequency trading firms that have proved transformative in the US and latterly in Europe? "I do see the need," says Ms Levanon. "We may have no need for the high-frequency traders in Israel, but [high trading speed] has become the standard. Investors will expect the same latency [found in other markets]."

Mixing markets with politics

Choosing between NYSE Euronext and Nasdaq OMX, the world's two largest and most influential exchange operators, is as much a strategic decision as a technological one, however. "We are looking for the next generation, and we have to make a decision on principle as to whether we buy one of the big systems. But you're not just buying the technology, [you're buying] a relationship," explains the exchange chief, who has pursued memoranda of understanding with both NYSE Euronext and Nasdaq OMX in a bid to remain neutral. "I've always been very careful not to choose between either," she says, adding that the exchange may yet dodge the dilemma by opting to develop a new platform internally.

Ms Levanon's role remains political in other ways. In June, TASE invited the CEO of the Palestine Securities Exchange (PSE), Ahmad Aweidah, to Tel Aviv to discuss building closer co-operation between the two markets - the first time in 10 years that representatives of the two exchanges have met. "It was a very nice and friendly meeting and we intend to continue our relationship. We are in a position to work with them and to help them build their business," says Ms Levanon, who strongly believes that closer ties with Palestinian organisations are a critical means by which to promote regional stability. "This is the way to bring peace to the Middle East - by maintaining these types of relationships," she adds.

Not only is Ms Levanon planning to arrange further meetings with the PSE, but she has also extended an open invitation to so-called Israeli Arab companies - incorporated in Israel and run by ethnic Arabs - that are considering listing. This sector, which has yet to offer up a single listed company, has been neglected, she says. "We want to give those companies the message that they are welcome. They are Israeli companies, owned by Israelis, like everyone else."

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