The author is a senior vice president, director of the trading department, derivatives and indices on the Tel Aviv Stock Exchange. The opinions and conclusions presented in the article are merely an expression of the author’s opinion. This should not be construed as a representation or undertaking of the stock exchange or as a recommendation or advice to act in one way or another, including with regard to making an investment decision, and is not a substitute for personal investment advice that takes into account the needs and data of each person.
Day-to-day trading volumes in the Tel Aviv stock market jumped from an average level of NIS 1.9 billion in 2020 and 2021 to more than NIS 2.5 billion on average in the first quarter of 2022. The average daily trading turnover in 2016-2019 was about 1.3 NIS 1 billion, so that current trading volumes reflect a dramatic increase in daily trading.
The overperformance of local stock indices relative to global indices in 2021, and no less so since the beginning of 2022, has increased the interest of Israeli and international investors in the Israeli stock market. And the result is an increase in daily trading volumes as exemplified above.
Some attribute the jump in trading volumes in January-February to investors’ preparations for the entry of the Israeli stock market into MSCI Europe indices (last month the global index company announced that it had finally decided not to include Israel in its leading European stock indices). , But this thesis was falsified, since the high trading volumes were maintained even after the disappointing decision.
In any case, the efforts made to recruit foreign investors to support Israel joining the European index led to increased exposure to the Israeli story among active investment managers overseas, and accordingly a significant increase in foreign activity in the local capital market, which broke a record of the last decade. .
The Tel Aviv Stock Exchange / Photo: Shlomi Yosef
The dramatic increase in the supply of companies that have joined the Tel Aviv Stock Exchange in the last two years also contributes to the increase in trading volumes, but it must be said that most of the increase is reflected in the companies included in the index. Tel Aviv-125 . The companies with the lowest market capitalization on the stock exchange, which usually concentrate lower turnover, do not really enjoy the escalation in the liquidity of first-line shares.
5 stages of trading and opportunities for investors
Despite the tremendous momentum in trading volumes, there is still a long way to go when it comes to encouraging liquidity and tradability, and especially in third-tier stocks, which are not enjoying enough of the rise in local blue-chip stocks.
In this context, it is important to know the structure of the trading day in Tel Aviv, which is divided into 5 stages: pre-opening stage, opening trade, continuous trading, pre-closing stage and closing auction. An investor will recognize.
Opening trading is the second stage, in which multilateral trading takes place on each security separately, and at the end, a price is set for each security that constitutes the opening price. Orders submitted in the pre-opening phase are executed according to the opening rate, and this happens for a few seconds.
Opening trading accounts for about 3% of the average daily turnover, ie about NIS 60-70 million in relation to the turnover in 2022. This average figure is skewed upwards due to Expiration of derivatives, Which occurs once a week, with the monthly expiration taking place on the last Thursday of the month, and concentrating a relatively high trading turnover. Investors looking for liquidity can take advantage of the opening phase on expiration days to enjoy improved liquidity.
The closing trading phase, which takes place at the end of the trading day, is conducted as a multilateral trading, in which a price is set separately for each security. The transactions resulting from the orders that were in the order book at the pre-lock stage are carried out at the lock gate. At the end of the process the closing rate is set and it produces a major liquidity event on the trading day.
This trading phase centers about 10.5% of the average daily turnover, ie about NIS 240 million per day, but this figure is also skewed upwards in relation to the median daily figure of about 7% of the turnover. The reason for the gap between the average and median tradability data is the updates of the indices that take place at the closing stage, as well as the fact that the end of trading in Tel Aviv occurs in parallel with the opening of trading in the US.
When US trade opens and when indices update
Given the increased economic information flowing at the opening of the US trading day, and the increased activity in the dual stocks traded in both Israel and the US, liquidity on the Tel Aviv Stock Exchange is increasing significantly during these hours. For them, it also supports increased liquidity in the closing tender.
Investors should be aware of the benefits of the various trading stages on the stock exchange as well as the notable liquidity events, which include the expiration dates of the derivatives, monthly and semi-annual parameter updates of stock indices and bonds, as well as index update dates and prominent global index editors such as MSCI , FTSE RUSSELL and S&P, which have indices that include significant holdings in Israeli shares.