Tel Aviv Stock Exchange (TASE) Special Report on Israel to be distributed with The Wall Street Journal. Israel: The World s Greenhouse of Innovation

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1 INTERVIEW WITH Mr. Saul Bronfeld Tel Aviv Stock Exchange (TASE) June, 2009 Special Report on Israel to be distributed with The Wall Street Journal Israel: The World s Greenhouse of Innovation

2 PANORAMA REPORTS: Since July last year, the Bank of Israel has increased its rate of purchasing U.S. currency to $100 million per day as part of a plan to increase foreign currency reserves to $35 billion to $40 billion and prevent the shekel from growing much stronger against the U.S. currency. The key is to stimulate the economy to absorb all the shekels. What is your opinion about this policy? MR. SAUL BRONFELD: All this is nothing more than media hype. From a purely economic point of view, you cannot have both inflation and deflation. What Israel and the other economies in the world are fighting against is the effects of recession and a decline in demand and economic activity. What the experts have prescribed in London, Washington, Frankfurt, and Tel Aviv is an injection of liquidity. In due course, after the world economy recovers, that will be the time when we have to start worrying about inflation. We certainly hope that the wisdom that guided our financial leaders at the time of recession will guide them in the next stage of the business cycle, when it will be the right time to take anti-inflationary measures. Let s see how we can get over the present recession first, before starting to worry if our financial leaders will know when the right time to change our policy is. PANORAMA REPORTS: You mentioned the importance of liquidity in the financial sector and the Tel Aviv Stock Exchange (TASE). In March 2009, you approved the Market Makers, which is geared towards giving more liquidity to TASE. Today, TASE is one of the most technological financial institutions in the sector worldwide. Can you give us a brief overview of TASE? MR. SAUL BRONFELD: TASE is a mid-sized exchange. Israel is not a world-class economy and TASE is not a world-class stock exchange. However, TASE is very efficient, orderly, and well-regulated. I think we have succeeded in serving our users, whether they are listed companies or investors, be they private or institutional, domestic or international. They are quite satisfied with our services. Not everybody can be Wall Street or London. We are realistic. We don t have any aspirations to compete with these two major players. Nevertheless, we are very diligent in providing the best possible service to our users. So far, we have had no complaints. PANORAMA REPORTS: You signed the dual-listing law in October 2000, and entered into an MOU with the U.S. in How important are those types of agreements between Israel and the U.S. for TASE? MR. SAUL BRONFELD: It is very important for Israeli companies and TASE to have dual-listings. We look at this as a service that enhances the value of Israeli companies that are dually traded. Because it is good for the companies, it is good for us. We are in a very fortunate position that by the time trading finishes in Tel Aviv, trading starts in New York. It s not a competition. We don t have a conflict because we see the dual listing as a continuation or a lengthening of the trading day. It starts here in Tel Aviv at around 10 o clock and ends in NASDAQ at about 11:30 our time. That s more than 12 2

3 hours of continuous trading where we have an hour of overlapping trading which is also very good for everybody concerned. There are more than 50 companies that are dually listed. It is only natural that we cooperate with our senior sister exchanges in the U.S. There are a lot of practical issues that you have to deal with if you have a stock which is traded in two exchanges. Trading stops at the date of dissemination. As such, for many years, we have had a very good relationship between TASE, NASDAQ and NYSE. There are also a lot of Israelis who still trade in New York in relation to trading here in Tel Aviv, and vice versa. PANORAMA REPORTS: From 2010 Israel will be considered a developed country, that means a whole new spectrum of investment, we may see more mutual funds than hedge fund investing in the Israeli economy, and a whole new horizon of investors is open. What main challenges will TASE have to face to take advantage of these new opportunities? MR. SAUL BRONFELD: The question about Israel s classification is an old issue. It reminds me of a proverbial question that we have here: Is it better to be the head of a mouse or the tail of a lion? For me, there is no doubt that our classification should reflect reality. Israel, by any standard, is a developed economy. Nobody can deny this. I think that the people who argue that Israel should be classified as an emerging market are looking for the coin nearer the light, rather than where they lost it. Everybody can calculate the amount of capital that is invested in the emerging market indices very precisely, but nobody knows how much you can get if you are classified as a developed market. On the other hand, you cannot show how much money will come from other sources that refrain from investing in Israel because of its emerging market status. The whole comparison doesn t make sense because nobody knows how much will be gained by changing your status. I am sure that there will be a net gain for TASE, and more funds will be invested in Israeli shares. I haven t seen any evidence that proves my theory wrong so I ll stick to it. PANORAMA REPORTS: What is your vision for TASE in the coming two years? MR. SAUL BRONFELD: What is interesting (or worth mentioning) is that the Israeli financial sector was hardly affected by the turmoil in the international financial system. The bottom line is that the Bank of Israel and the Ministry of Finance didn t have to inject capital or liquidity into the Israeli financial system. That is a fact. It is not that we are smarter than the rest of the world. It is because we went through a financial crisis in 1983 where practically the entire Israeli banking industry was nationalized after some very poor risk management in the late 1970s and early 1980s. We learned our lesson and paid the price for it. In the last 25 years, our financial regulation, as headed by the Bank of Israel, was very conservative. As a result, we didn t have a real estate bubble. We certainly did not have a sub-prime problem. Our banking system came out of last year s crisis without needing governmental support or financial assistance. 3

4 Looking into the future, regardless of what has been said earlier, even if our behavior was excellent, we still suffer because other countries and other regulators were not tough enough. I am sure that you are aware that our country s exports are about half of our production; therefore, we are affected by the recession that is occurring abroad. It s not our fault. We have been very diligent students. We did our homework and came to school with our shoes shining. We washed our ears, but still, as a country that exports almost half of its products, the recession abroad is going to give us problems. We have already seen a rise in the rate of unemployment. It is still rather low compared to the international standards (less than 8%), but it has gone up 2%. It is a problem. However, there isn t much that can be done as long as the rest of the world is in a deep recession. PANORAMA REPORTS: How can you turn this crisis into an opportunity? MR. SAUL BRONFELD: It s very hard to say because as you know, when there is a crisis and a loss of confidence in the market, the natural impulse for the players is to act safely. That is why it is not easy to predict if our people can exploit opportunities during these times. I am more concerned about us needing to have a basic economic policy that will ensure steady, long-term growth in the economy and the export industry. I certainly hope that Israel is in a better position to exploit the opportunities during this time of crisis. We are now dealing with the secondary effects of the recession. As far as the primary effects are concerned, we were not at the center of the earthquake. It seems that the initial shock is slowly getting under control. Still, the whole world is faced with the problem of how to prevent a long recession like we had in Japan in the 1990s. PANORAMA REPORTS: What can Israel offer to those looking to participate in the local market? MR. SAUL BRONFELD: Israel is a very unique country in many ways. It has the energy and dynamics of an emerging economy, as well as the stability and the seriousness of a developed state with established social and judicial systems. Israel is a working democracy. Our judicial system is highly regarded everywhere. Our social tensions are not too strong or evident. In that respect, we have the attributes of a mature economy, as well as the vibrancy and entrepreneurial spirit of an emerging country. By coming to Israel, you have a combination of the two. This makes us rather unique compared to the rest of the world. PANORAMA REPORTS: What are some of the innovative products that TASE can offer to its new investors? MR. SAUL BRONFELD: I think we should let the new investors buy the old products first. The new products are for the old investors. 4

5 PANORAMA REPORTS: Which of these old products would you recommend? MR. SAUL BRONFELD: After leaving the Bank of Israel and coming to work for TASE, I worked for three years in a small private bank in Israel which was back then owned by Baron Edmond de Rothschild of Geneva. I was the head of the investments division. Naturally, a lot of my clients at that time came asking that very same question that you just asked me right now. My answer then remains the same to this day: if I knew what the answer was, Baron Edmond de Rothschild would be working for me and not the other way around. In my position, I am not involved in economic or securities analyses. My responsibility is to see that the infrastructure that we provide to the market is efficient, modern and competitive; that the stock exchange, being the utility, serves the needs of our users well. I m sorry, but the last time I gave advice about this sort of thing was 25 years ago. PANORAMA REPORTS: What message would you like to convey to the readers of the Wall Street Journal? MR. SAUL BRONFELD: Israel is a good place to do business. If you can come and build a company and a factory, that will be great. If you have other things to do, at least buy Israeli shares. Hopefully, it will prove to be a profitable decision. PANORAMA REPORTS: Thank you very much for your comments. 5