In the second part of an interview, Steven Schoenfeld (pictured), founder and chief investment officer of BlueStar, the New York based financial company that specialises in developing and commercialising indexes and exchange traded funds (ETF's) with a focus on Israel, spoke to SRP about the pending listing of ETF's on the Tel Aviv Stock Exchange (Tase), for which, after years of preparation, finally a target date has been set. He also talked about the impact of Brexit on the Israeli market.
The Israel Securities Authority (ISA) is in the final stage of changing the securities law which, once implemented, will enable and encourage ETF's to be listed and trade on Tase. Schoenfeld spend time in Israel in June during which he met with regulators, clients and the exchange who are all preparing for the change.
"The official legislation was published, meaning that it still has to pass but it is there on a tangible piece of legislation. ISA, the regulator that has the responsibility to implement the legislation, are very determined to move this forward," said Schoenfeld.
The industry had been trying to stall somewhat, and in some ways deflect the change, but now there is an acceptance and recognition that the final destination is clear and a target date has been set for end of 2017 or early 2018, according to Schoenfeld. "Whether the target date moves, whether there will be other modifications I cannot tell you but the road to Israel evolving to a more ETF oriented market is clear. They are putting in the road signs.
"What also is very clear is that the issuers are preparing for it, and several new players who were deterred from entering the ETN market because it was essentially an oligopoly and had very high capital requirements, are getting ready to enter the market.
"If anything, the ETF market will be more competitive, but the capital requirement won't be as high and BlueStar is positioning itself as an innovative index provider to both the current incumbent participant and new participants so that they can help have to most innovative and best practices indexes for their products," said Schoenfeld.
The market is changing fast, according to Schoenfeld. "For the past three or four years, every time when I asked: 'when is the market going to move from ETN's to ETF's?' the answer would be 'next year'. Now I can really say it is going to be next year and the industry is starting to intensely prepare for it.
"I think there will be very innovative products developed out of Israel because the market is big, it's highly competitive and new players are going to enter. Additionally, foreign ETF issuers are now able to market their funds in Israel too. So you'll have competition and that will affect primarily the products in Israel that track foreign indexes.
"It's going to be very interesting and also likely to be an important industry experiment, including the possibility that Israel will pioneer the concept of incentive fees for outperformance within an ETF structure.
"Just like Israel and technology, whether it is for water technology or cyber security, they take it to the world. I think some of the interesting index and ETF innovations in the next two years that are developed in Israel could have relevance well beyond it. We are very excited to be a part of it," said Schoenfeld.
Schoenfeld, who was in Tel Aviv during the British referendum, doesn't think Brexit will have a negative impact on the Israeli market. "Israel has weathered it quite well. I think from the people I have spoken to, and also from our own perspective, that Israel is going to be either neutral or positively impacted by Brexit," he said. "Not only has Israel very strong trade ties with both the UK and the EU, it has also strong investment ties. They don't anticipate any major change unless it triggers a recession in Europe, which at the moment it doesn't seem like it will.
"The other factor, which is much more speculative, but I have had several conversations with economists about this, is that on the margin Israel will benefit because [...] in this very dangerous environment with lone wolf terrorist attacks and more organised terrorist attacks, tragically proliferating in Europe, Israel, which has been dealing with this for 20 to 30 years, is actually quite secure," said Schoenfeld.
"In fact, Israel has been swamped with government delegations from European countries and cities that want to learn both how Israeli security capabilities protect their citizens from terror attacks, and also how cities like Haifa have so successfully integrated its diverse minority population of Christian, Muslim and Druze Arabs as well as adherents of the Bahai religion.
"Brexit and the current situation in the world is neutral to positive for Israel and I think people will see that in relative performance and relative low volatility during these very volatile times," said Schoenfeld.
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