The Israel Securities Authority is changing its audit model for institutional investors in the capital market. For the first time, it will examine unusual rates of return by them and the reasons for them, instead of just examining specific transactions.
The Securities Authority, under chairman Zohar Goshen, will also broadly examine the trading of provident funds, pension funds, and insurance companies that are under the authority of the Ministry of Finance Supervisor of Capital Markets, Insurance and Savings.
In effect, the Securities Authority is completely changing its oversight concept on capital market activity and by the companies in it. Until now, the Securities Authority applied a bottom-up system, in which it would spot and investigate an unusual transaction or movement in a share. When the new system comes on line, the Securities Authority will have a top-down perspective and will be able to review the activities of financial institutions.
If a provident fund has an usually high return compared with other provident funds managed by the same company, or if a mutual fund has an unusually high return compared with its peers in the same sector, the Securities Authority will swing into action. It will examine the trading by the financial institution in question, the transactions made, and the prices for them in order to figure out how the unusual return was achieved. The Securities Authority will emphasize activity in thinly traded securities, where a small volume transaction can have a major effect on the share price.
The Securities Authority will use a business intelligence system that will come online in the summer of 2009, when the legal groundwork is ready. In addition to unusual capital market activity, the new system will be able to spot extraordinary conduct by financial institutions, map their activity, and greatly increase their transparency vis-a-vis the Securities Authority.
The Securities Authority will coordinate its activity on long-term savings institutional investors with Supervisor of Capital Markets, Insurance and Savings Yadin Antebi and with his consent. If the Securities Authority finds failures or transgressions that fall under Antebi's jurisdiction, it will send him the material for handling.
A senior Ministry of Finance official praised the cooperation with the Securities Authority. He said, "Collaboration of this kind between regulators is rare, and is driven by a common interest. Information about financial institutions will increase and the regulators' response time to unusual activity will shorten."
Published by Globes [online], Israel business news - www.globes-online.com - on September 8, 2008
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