Israeli securities lending market

The Israeli securities lending market is the set of arrangements through which securities held by investors are temporarily transferred to borrowers, commonly to facilitate short sales or cover short positions. Lenders receive an agreed borrowing fee, while borrowers provide collateral and return equivalent securities at the end of the loan. Trading and lending infrastructure is centred on the Tel Aviv Stock Exchange (TASE) and its clearing house. ^[1][2]

Market structure

The market connects holders of securities with borrowers who need securities for a defined period. According to the TASE, institutional investors—including provident funds, insurance companies, mutual funds and exchange-traded fund issuers—are among the principal lenders. A TASE member commonly mediates between the lender and borrower. ^[1] The supply available for lending therefore depends partly on whether securities held by these institutions are unencumbered and made available for loan.

The TASE Clearing House operates a central securities lending pool using an automated platform. Lenders can submit offers specifying information such as the security, quantity, proposed lending fee and lending period; borrowers can respond to offers in the lending book. The clearing house transfers the security and administers the transaction over its lifecycle. ^[2] The platform is designed to bring lending offers and demand together in a shared venue rather than relying only on bilateral or institution-specific arrangements.

The TASE describes the clearing house as acting as central counterparty (CCP) for transactions conducted through the pool. It says the CCP guarantees the return of the security at the end of the loan period even if the borrower fails to meet its obligations, and that the platform manages collateral. ^[2] These features distinguish the pool’s centrally cleared transactions from a loan in which the lender and borrower rely solely on one another. They do not eliminate all risks: participants remain subject to the platform’s rules, collateral arrangements and operational processes.

Securities loans and short selling

A short sale is a sale of a security that the seller does not own. The TASE explains that the seller must first borrow the security from another party. In Israel, the exchange identifies equities, ETFs, bonds and Treasury bills as securities that may be sold short. ^[1] Borrowing also has uses other than establishing a short position, such as obtaining securities to cover an existing short balance or meet a securities-delivery need. The TASE lending pool lists both short-position management and pending transactions among possible borrowing uses. ^[2]

A securities loan is documented through a loan note. The TASE says this records, among other details, the agreed lending period and the arrangements between the parties, including the lending fee and the treatment of dividends, bonus shares and other corporate actions. It also describes a waiver of the lender’s voting rights during the loan period as a measure to avoid the creation of dual holders of record. ^[1] The borrower generally provides collateral because the value of the security may rise while it is on loan. ^[1]

During the loan, the borrower pays the agreed borrowing fee and compensates the lender for relevant corporate actions, such as dividends, rights or interest, as set out in the loan arrangements. At the end of the lending period, the borrower returns the securities. ^[1] In a short-sale strategy, the borrower typically sells the borrowed securities and later buys securities to return to the lender. The strategy’s gain or loss depends in part on how the market price changes, as well as borrowing costs and other transaction expenses. ^[1]

Central securities lending pool

The TASE lending pool provides an electronic venue for presenting securities available to lend and matching those offers with borrowing interest. The exchange describes the lending book as publishing information about securities available for lending and established transactions in real time. It also says the platform is based on blockchain technology and includes collateral management and lifecycle administration. ^[2]

TASE has described the central pool as a way to connect lenders and borrowers across the market and expand access to securities inventory. A 2020 industry report on the launch said the platform was intended to address fragmentation and provide a central point for lending activity. That report described the earlier market as relying on inter-bank mechanisms within, and where needed outside, banking-group limits. ^[3] This historical description helps explain the rationale for central infrastructure, but it should not be read as a current measurement of market concentration or a complete account of every lending channel now in use.

By centralising the matching and administration functions, the pool can make offers and transactions visible through a common platform and reduce the need for each participant to locate counterparties independently. The TASE identifies transparency, operational efficiency and access to a broader inventory as intended benefits. ^[2] These are descriptions of the platform’s design and aims, rather than evidence that every eligible security is continuously available or that every user can access the same terms.

Regulation and exchange oversight

The securities market’s regulatory and exchange framework includes the Israel Securities Authority (ISA) and TASE rules. The TASE states that its rules require approval by the ISA and the Minister of Finance, and that rule changes are subject to the specified approval and notification process. ^[4] Its rules cover such areas as TASE membership, trading and clearing and settlement. ^[4] TASE members conduct trading subject to the exchange’s rules, and the exchange says it supervises members’ compliance. ^[4]

The Bank of Israel describes the ISA as responsible for the proper functioning of the securities market, while the Bank of Israel’s Banking Supervision Department is responsible for the stability of the banking system. ^[5] This division is relevant because securities lending can involve banks and other financial institutions, while securities-market oversight is assigned to the securities regulator. The particular obligations applying to any participant or transaction depend on applicable legislation, ISA requirements, TASE rules and contractual arrangements. The TASE cautions that the English versions of its rule guides may not be current or binding, and that the Hebrew text prevails in case of discrepancy. ^[4]

Market data and measurement

Short-sale balances are one observable indicator related to securities borrowing, although they do not describe the whole lending market. The TASE publishes weekly short-sale balance information by security and includes a short interest ratio (SIR). ^[6] The exchange defines SIR as the monetary value of the short-sale balance divided by its average daily turnover, using turnover over the preceding 90 calendar days. It describes the ratio as an estimate of the number of trading days needed to close open short positions. ^[1]

This measure should be interpreted as a market statistic, not as a direct count of loan contracts, lenders, or available securities. Short-sale balances reflect reported short positions, while the total securities lending market may also include borrowing for settlement or other purposes. Moreover, a published balance is dated: the TASE’s weekly report identifies the reporting week, so figures should be compared using consistent dates and definitions. ^[6]

Participants and economic functions

Lenders may earn fees on securities that would otherwise remain in their portfolios, subject to their investment mandates and lending arrangements. The TASE identifies institutional investors as major lenders and notes that lending can provide fee income on securities held by them. ^[1] Borrowers obtain temporary access to securities they do not currently own, which can support short sales, the management of short positions and completion of pending transactions. ^[1][2]

Securities lending also supports market functions associated with short selling. The TASE states that short selling can contribute to market liquidity and price discovery. ^[1] These functions do not mean that every short sale has the same effect or that lending is risk-free. The relevant economics depend on the specific security, supply and demand for borrowing, agreed fees, collateral, corporate-action terms and the duration of the loan.

Risks and operational considerations

Lending transfers possession of securities temporarily and creates obligations between participants. The principal operational concerns include ensuring that the correct securities and collateral are transferred, tracking the loan through its term, processing corporate actions and returning securities when due. The TASE pool’s stated functions include collateral management and administration across the transaction lifecycle. ^[2]

Collateral is intended to protect against the risk that the borrower fails to return securities or that the position’s value changes. The TASE describes collateral as generally required because the borrowed security can rise in price; it also specifies that a non-bank TASE member lending securities must collect collateral from the borrower. ^[1] The exact collateral requirements, valuation practices and remedies are governed by applicable rules and the relevant transaction documentation. A central counterparty may alter the structure of counterparty exposure, but participants must still understand the platform’s rules and potential operational, liquidity and market risks.

Scope and development

The Israeli securities lending market is linked to the wider domestic capital market, including listed equities, funds and debt securities. The TASE pool provides a central route for lending transactions, while the exchange’s short-sale information offers a separate view of short-position balances. ^[1][2][6] Those sources describe market infrastructure and activity, but do not establish a single comprehensive measure of all lending across every bilateral, custodial or institutional arrangement.

The market’s scale and composition can change with securities availability, investor participation, borrowing demand, regulation and trading conditions. Historical commentary about the market’s fragmentation and the launch of a central platform should therefore be distinguished from current market data. ^[3] For current activity, the TASE’s dated short-sale reports and product information are more appropriate starting points than undated general descriptions. ^[2][6]