JERUSALEM — An agreement signed in Israel last Wednesday between the Tel Aviv Stock Exchange (TASE) and the Toronto Stock Exchange (TSX) was cause for celebration by representatives of both exchanges.
From left are Saul Bronfeld, chairman of the board of the Tel Aviv Stock Exchange (TASE); Jon Allen, ambassador of Canada in Israel; Ester Levanon, CEO of the TASE; Ungad Chadda, senior vice-president of the Toronto Stock Exchange (TSX); and Raymond King, senior manager of Global Diversified Industrials at the TSX.
After more than two years of negotiations, executives from the exchanges signed a memorandum of understanding (MoU), which signifies mutual understanding between the exchanges.
The MoU declares the exchanges’ intention to develop channels of communication and share information. It is hoped that the agreement will pave the way for the creation of a mutual recognition agreement between the regulatory authorities of each country, which would in turn enable the exchanges to develop a cross-listing agreement.
Although the TSX does have some Israel-connected listings, which are U.S. subsidiaries of companies that started in Israel, it has yet to list any direct ones.
“Over the last 2-1/2 years, I have witnessed the hard work and unequivocal commitment of the TASE and of the TSX in their efforts to make a ‘shidduch,’ a meeting of the hearts and of the minds,” said Jon Allen, Canada’s ambassador to Israel. “The signing of this MoU between the two exchanges is a truly fitting culmination of those efforts, of goodwill, and of really… hard work. I really believe this will be mutually beneficial.”
Both Ester Levanon, TASE’s CEO, and Ungad Chadda, the senior vice-president of the TSX, agreed.
“This is a really exciting moment… We are all very happy we have come to this moment. I think it’s going to be a great success for both exchanges,” Levanon said.
Chadda added, “We are very pleased to start the beginning of a great relationship in signing this MoU. We couldn’t have picked a better partner.”
Raymond King, the senior manager of Global Diversified Industrials at the TSX, said that a cross-listing agreement “would allow each exchange to list companies from the other jurisdiction without having to duplicate efforts and costs. From the listed company’s perspective, it makes the whole process easier, more cost effective, and more time efficient.”
The MoU represents the culmination of more than two years of effort on the part of the TSX and the Canada-Israel Chamber of Commerce to build relationships with and educate Israeli companies about listing on the TSX, and encourage them to launch initial public offerings, or IPOs.
The TSX decided to make the effort after losing two Israeli companies that had filed IPO prospectuses on the TSX at the end of 2007, but were prevented from following through due to the onset of the global capital market collapse.
“We have gotten a very positive response from Israeli companies. The fact that we kept coming, in a down marketplace, showed a lot of Israelis that we were serious,” said King, who has met with dozens of venture capital firms, private equity investors, and other decision makers over the course of his nine visits to Israel over the last few years.
If the economy stays stable and investors stay open, King estimates that the TSX will have five to seven Israeli companies on board by the end of 2010.
He said the exchange presents Israeli companies with a unique and valuable opportunity, not only because of the pool of financing available or because of the TSX’s free advisory service for listed companies and their venture capitals, but because of the exchange’s graduated system, ideal for earlier stage companies.
On larger exchanges such as the Nasdaq, the market capitalization ceiling for even the smallest nano cap companies, companies with a market value below $50 million (all figures US), is very high at $300 million. The TSX enables smaller companies to start out on the junior TSX Venture Exchange and then, once they are ready, to graduate to the senior TSX.
According to King, one of the major problems Israeli companies have on the Nasdaq is that, although they may meet the minimum listing requirements, they have faced a high failure rate there in terms of sustaining their listing. They are too small for the analyst and investor communities on the Nasdaq, so their liquidity drops, and in weeks they become what are called orphan companies.
The TSX offers more of a gradual, stepping-stone approach.
There are many other benefits to listing in Canada, said Alan Litwack, a lawyer with Miller Thomson LLP in Toronto, who attended the MoU ceremony. Litwack, along with colleagues from Deloitte and Mackie Research Capital, initiated a conference for Israeli companies affiliated with the MIT Enterprise Forum of Israel that followed the MoU ceremony.
“The Canadian markets haven’t suffered as much as the British and U.S. markets, and we have a strong reputation for respectability, accountability, and compliance,” Litwack said, adding that, relative to the United States, there is also a lot less litigation in the Canadian market.
“There is not the same spectre of legal threats in Canada as there is in the U.S,” he said, adding that, in all respects, it’s simply cheaper and easier to list in Canada.
The Canadian MoU is the fifth such international MoU that the TASE has signed in the past few years. It has signed others with the London Stock Exchange, Nasdaq , NYSE-Euronext (USA and Europe), and the Shanghai Stock Exchange.
Yehuda Raveh, the honorary president of the Israel-Canada Chamber of Commerce and Industry, sees this alliance as an opportunity for smaller companies.
“While Israeli companies have listed on other exchanges, the potential with the Toronto Stock Exchange is enormous and we believe that for medium-sized or smaller Israeli technology companies, this is the best stock exchange to float in,” he said.
For Allen, the agreement represents an important partnership between two countries.
“This [MoU] is part of growing co-operation between Canada and Israel,” Allen said. “It’s our 60th year of bilateral relations and this is a great cherry on the top of the cake.”
