Securities are not automatically listed on the stock exchange, and not all of them can be admitted to the stock exchange. The procedure for admitting securities to trading on an exchange is called listing. According to the Law of the Russian Federation “On the Securities Market” (1996), the stock exchange independently establishes the procedure for inclusion in the list of securities admitted to circulation on the exchange, listing and delisting procedures. Thus, the five largest stock exchanges in Russia have established such qualitative criteria for assessing and admitting securities to circulation as the number of shares in circulation and the period of existence without loss, the minimum limit of the authorized capital. On all Russian exchanges, the listing procedure begins with the submission of an application to the listing department accompanied by a number of notarized documents. An application can only be submitted by the issuer whose securities are issued and registered in accordance with current legislation. It is presented on company letterhead, has the seal and signature of the manager, information about the registered issue of securities, name, issue number, denomination, a guarantee of the accuracy of the documents submitted to the listing department, as well as a notice of agreement with the existing rules for admission to quotation (listing).

The listing fee is only the first barrier that securities must overcome before being listed on the exchange. Another barrier is the quotation commission. Its task is to determine the price of a security upon its first sale. During the quotation process, the primary price may change (increase and decrease).

The quotation commission also determines whether the security offered for quotation has the necessary liquidity, i.e. will it be in demand? They try to keep illiquid securities off the exchange floor. If it is determined that the security does not have the necessary liquidity, then the commission invites the issuer to revise it, i.e. provide additional properties that will make it attractive to investors, expand information about the issue, change the denomination, etc. As a result of the actions of the listing and quotation commissions, only full-fledged stock instruments are in circulation on the stock exchange.

The quotation of a security is a mechanism for identifying the price, fixing it during each day of the exchange's operation and publishing it in exchange bulletins.

The exchange concentrates supply and demand for the purchase and sale of securities, determines the relationship between current supply and demand, as a result of which the price is revealed as an expression of temporary and relative equilibrium, but sufficient for the implementation of a particular transaction.

The price at which transactions are concluded and securities change hands is called the exchange rate. The exchange rate is used as a reference point when concluding transactions both on the exchange and in over-the-counter transactions.

Exchange legislation does not fix the procedure for determining the exchange rate of securities.

It should be noted that the more the listing rules of one exchange correspond to the listing rules of another, the wider the opportunities for trading securities. Securities accepted for quotation on one exchange can also be sold on another exchange located in another country. For example, in the spring of 2000, the St. Petersburg Stock Exchange received confirmation that its listing complies with the listing rules of the London Stock Exchange, which means that depositary receipts listed on the St. Petersburg Stock Exchange can be listed on the London Stock Exchange.

Once the securities have undergone the listing procedure and are included in the quotation list, exchange transactions can be carried out with them, i.e. enter into purchase and sale transactions.

An exchange operation is a purchase and sale transaction of valuables admitted to the exchange, concluded between exchange trading participants in the exchange premises at a specified time.

All exchange transactions can be divided into two types: cash transactions and time-based transactions.

A cash transaction (spot) is characterized by the fact that it is concluded on the securities available to the seller. Calculation for cash transactions, i.e. Delivery of securities by the seller to the buyer and payment for them by the buyer is carried out within the next few days after the conclusion of the transaction.

The main characteristic of a transaction for a period is that the fulfillment of their obligations by the seller and the buyer must be carried out in the future, for example, a transaction was concluded on September 1 and must be executed on December 1. At the time of concluding the transaction, the seller may not have the securities being sold, and the buyer may not have the money to pay for them.

conclusions

An exchange is an institutionalized market where transactions with certain types of goods are made. A feature of exchange trading is that transactions are always made in the same place, at a strictly designated time - the time of the exchange session (or exchange session) and according to clearly established rules that are binding on all participants.

Self-test questions

History of the emergence and development of stock exchanges.

What are the essence and objectives of the stock exchange?

Organizational and managerial structure of the stock exchange.

Name the distinctive features of the stationary structure of the stock exchange.

What is the procedure for admitting securities to the stock exchange?

What is the role of the quotation commission?

Classification of exchange transactions.

What is an exchange transaction?

Types of exchange operations and the mechanism of organization and technology for concluding transactions with securities.

What is a cash transaction?

Literature

Berdnikova T.B. Valuation of securities: Textbook. allowance. - M.: Infra-M, 2004.

Burenin A.N. Market of securities and derivative financial instruments. - M.: Exam, 2005

Civil Code of the Russian Federation. - Parts 1, 2, 3 with changes. and additional

Securities market and exchange business: Textbook. for universities / Ed. O.I. Degtyareva, N.M. Korshunova, E.F. Zhukova - M.: UNIT-Dana, 2003.

Securities: Textbook. / Ed. IN AND. Kolesnikova, V.S. Torkanovsky. - 2nd ed. - M.: Finance and Statistics, 2006.

Securities trading has been carried out by Jews in Palestine since 1935, since the Anglo-Palestine Bank, together with leading Palestinian banks, created the Securities Exchange Bureau, the trading system of which was constantly developed and improved. With the establishment of the State of Israel in 1948, there was an urgent need to formalize securities trading. In September 1953, the Tel Aviv Exchange (TASE) was created and officially registered on the world stock market.

Today it is the only securities trading platform in Israel. At the end of 2014, 473 companies were listed on TASE (which is 7% less than in 2013, 25% less than in 2011) from various sectors of the economy, including the chemical industry, trade and services, banks, real estate and construction , electronics, biomedicine. The daily trading volume on the Tel Aviv Exchange at the end of 2014 amounted to $339 million, and the market capitalization of traded companies was $200.6 billion, which was equal to 74.85% of Israel's GDP last year (according to the IMF classification). In addition to shares of companies listed on the Tel Aviv Exchange, about 180 funds and 530 bonds are also traded on the platform (at the end of 2013, TASE took tenth place among the members of the WSE in terms of trading volumes, improving its indicator compared to 2012 by 12%, see Table 1) and more than 1000 mutual funds, the volume of funds raised in 2014 amounted to a record amount for Israel of 58.7 billion shekels.

Table 1.

Top 10 exchanges by bond trading volumes

Stock Exchange	Bond trading volume for 2013 (billion dollars)	% change in dollars (compared to 2012)
1. BME Spain	8 499	-24%
2. London	3 953	-14%
3. NASDAQ OMX Nordic Exchange	2 537	-16%
4. Johannesburg Stock Exchange	2 123	-24%
5. Korean	1 208	-2%
6. Colombian	936	12%
7. Oslo Stock Exchange	675	34%
8. Istanbul	521	0%
9. Moscow	434	30%
10. Tel Aviv	282	12%

Until recently, the largest investors in the Israeli stock market were national banks, reserve and pension funds, but thanks to ongoing reforms to make the market more attractive, the share of international institutional investors has begun to grow in recent years. In 2013, they invested about $1.9 billion in government bonds, and more than $1.5 billion in securities of Israeli companies.

Today TASE is a modern exchange that fully complies with Western standards, and is the central link of a developed mechanism for trading securities in the country. The Tel Aviv Stock Exchange is an important infrastructure element for attracting investment for Israeli companies, as well as a platform for the privatization of state-owned companies.

Electronic trading system on the Tel Aviv Stock Exchange - TAST

Securities trading transactions on the Israel Stock Exchange are carried out through the TAST computerized continuous trading system, due to which transactions are carried out in real time. TASE introduced it in August 1997. By the end of the following year, all stocks, bonds and treasury bills were traded through the electronic trading system, and in October 1999, derivatives trading was switched to it.

TAST was created on the basis of a system that is successfully used on the Chicago Stock Exchange, since it is able to ensure transparency of transactions and reveal the prices of financial instruments during trading. The system is based on the principle of simultaneous submission of bids for purchase and sale. If the prices of the two bids match, then the deal is concluded. Such a system (order driven system) is used for the most liquid securities, i.e. in situations where a large number of orders are placed on the market.

Trading of shares on the Tel Aviv Stock Exchange through the TACT electronic trading system is carried out from Sunday to Thursday, excluding weekends and holidays. The trading process is divided into several phases. The first phase (pre-opening) is carried out immediately before the opening of trading and lasts from 9.00 to 9.45 for shares of group A (which includes shares of the main exchange indices, ETN (Exchange-Traded notes), shares of closed-end mutual funds) and from 9.00 to 10.15 for shares group B (all other shares, including convertibles). During this time, players can submit their orders to buy/sell shares in the form of either limit orders or orders to trade only during the opening phase at a predetermined price. The peculiarity of the opening session of exchange trading is that market players are given a fairly large period of time to adjust their expectations for price changes. Before the opening of trading, all orders are recorded in the order book, but the shares do not yet change owners. From 9.10 the exchange begins to generate theoretical prices, indices and the value of the expected turnover of shares per day (theoretical prices and theoretical turnover), updating these data every 15 seconds. Information about the three best bids, along with the opening price, is published and made publicly available to all stock market participants. Exchange players have the right to cancel their orders without any consequences until 9.40 (for shares of the main indices) and until 10.10 (for all other securities).

The second phase - opening of trading - begins at 9.45 am (for shares of group A). During this period, the volume of exchange trading reaches its greatest value. This phase is conducted in the form of a multi-party auction, where prices are automatically calculated based on the number of bids submitted by participants before the opening of bidding. The opening session is based on the TA-100, which is an index of the stock price of the 100 companies with the highest market capitalization on the Tel Aviv Stock Exchange. These shares make up about 80% of the capitalization of the Israeli securities market.

It is known that until 2000, the opening time of the trading session was strictly fixed, which had a number of negative consequences in the form of high volatility at the beginning of the day due to the inability to instantly form a fair price for shares and, as a result, the high probability of speculative transactions on the stock exchange. The opening time interval, recently introduced into the trading system, avoids such manipulations and provides market participants with time to navigate the new situation and respond to incoming orders in a timely manner. This allows you to stabilize the market and is an effective way to reduce volatility during periods of “market shocks” and high liquidity of securities. The opening session for the remaining shares not included in group A (these are the so-called “Yeter” shares) begins at 10.15 am.

On the Tel Aviv Stock Exchange, the sale/purchase of shares is carried out according to the order of priority, i.e. securities are ranked according to the order of satisfaction of claims. The priority of orders is assigned based on their restrictions and the time of registration on the market. Therefore, a buy order with a higher price has priority over a similar order with a lower price; A sell order with a low stop loss takes precedence over an order with a higher stop. Based on the time of registration, an earlier order has priority over a later registered order. It is important to note that when determining the priority of orders, the type to which they belong (LMT (limit order) or LMO (limit at the opening)) is not taken into account.

For some financial instruments there are fixed limits on price changes. Thus, the stock price can fluctuate up to 35% of the base price, and for bonds and treasury bills the fluctuation limit is within 6%.

In some cases, there may be no limit on price changes: for example, if the shares were placed on the stock market for the first time, or if the securities have not been traded on the stock exchange for quite a long time.

Continuous trading is the next phase of the trading process on TASE. It lasts from 9.45 to 17.14 for all securities (until 16.14 on Sundays) and is an intermediate phase between the opening and closing of trading on the exchange floor. During this period, bilateral computerized transactions are concluded non-stop. New orders are placed in the TAST electronic trading system, and when orders to buy/sell securities that match each other are found, the transaction is executed. It is important to note that there are no restrictions on changes in prices of financial instruments at this stage.

In the third phase of exchange trading, LMT and MKT (market order) are used, and the minimum transaction size is clearly indicated. So, for shares that are included in the main index of the Tel Aviv Stock Exchange - TA-25, it is 5 thousand shekels, for TA-75 and shares of the "Yeter" category - 2 thousand, for bonds - 30 thousand shekels. In the treasury bills market, the minimum transaction size is fixed at their nominal value and is 100 thousand. Since December 28, 2014, two new types of trading orders have been introduced on TASE: Stop Limit and Iceberg, which apply to all securities traded on the exchange.

In general, the trading process on the Tel Aviv platform is built on the basis of the classical model and is not much different from the trading system organized, for example, on Euronext, the Tokyo Stock Exchange, etc.

The last phase of the TASE trading process lasts 10 minutes. Trading finally closes at 5:25 pm Monday to Thursday and an hour earlier on Sunday. At the end of the trading day, the computerized system automatically calculates the closing price for each financial instrument. The only order carried out by brokers at the final stage of trading is ATC (at the closing price). Buy and sell orders in the “continued trading” phase at prices more favorable than the closing price are automatically transferred to the closing phase. Orders not executed before the end of the trading day are cancelled.

Main indices of the Tel Aviv Stock Exchange

Main indicesTASE

Since TASE began operating, the indexes used on it have been frequently regrouped and renamed.

Let's consider indices that are calculated taking into account the capitalization and industry focus of companies. Currently, the country's stock market is tracked by TA-25, TA-75, TA-100, Mid Cap-50, Mid Cap-TA and TA-composite index.

Index TA-25 was developed and introduced to the Israeli stock exchange on January 2, 1992. It reflects the share price performance of the 25 Israeli companies with the highest market capitalization on the TASE, with their largest weight being no more than 10.1% of the entire index. Therefore, several large companies can be represented in TA-25 with a weight equal to 10%, even if they have different capitalization indicators. The shares of the companies included in this index account for about 50% of the volume of the entire Israeli stock market. Indicators of the top 25 Israeli companies are updated on the exchange every 15 seconds during the trading session. It is known that investors often use options and futures based on TA-25 for hedging.

Below is the dynamics of the index over the past five years.

Diagram 1

Dynamics of the TA-25 index 2010-2014*

The chart shows that TA-25 sharply decreased by 24% in 2011. This followed a fall on global stock exchanges amid investor concerns over rapidly rising oil prices following a fire at Libya's largest oil field, Sarir, and the cessation of fuel exports from the country.

According to the same principle as TA-25, TA-75 is grouped, which has been operating on the Tel Aviv Exchange since 1999. It represents, accordingly, 75 companies that are not included in TA-25. The TA-100 is composed of 100 varieties of stocks owned by Israeli firms with the largest market capitalization (from NIS 750 million), which in turn are included in the TA-25 and TA-75 indices. They make up about 80% of the total market capitalization. TA-100 began to be tracked on the exchange on January 3, 1999. In this index, as well as in others, the largest weight of shares is limited to 10.1%. The record TA-100 value was reached in January 2011 and amounted to 1247.92.

It is known that in the decade from 1987 to 1997, instead of the TA-100 index, the TASE calculated the “Mishtanim” index (translated from Hebrew as “changing”). In the early years there were only 30 companies, but then it was refined and significantly expanded. By 1997 The index already included 100 companies whose shares were recognized as the most stable on the market. At the end of 1997 trading of securities represented in this index took place on the so-called “double sheet”, i.e. the transaction was certified by two traders. Ultimately, the Mishtanim index was renamed TA-100.

Below is the dynamics of the TA-100 index (1992-1998 - “mishtanim”) for the period 1992-2013 in percentage.

Diagram 2 Dynamics of TA-100 in the period 1992-2013*

According to stock market indicators, for 2014. The TA-100 index grew by 10.2%, with many stock prices reaching record levels. The positive trend on TASE is due to a number of reasons. Firstly, this is the consistent growth of foreign stock exchanges, which is facilitated by the publication of information on the expected acceleration of global economic growth in the coming years and on the reduction of financial risks in the European banking system due to increased capital adequacy and the passage of new more complex stress tests.

Secondly, this is a reduction in credit risks in the Eurozone due to the reduction of budget deficits and government debts.

Thirdly, in recent years, in economically developed countries, in particular in Israel, a soft monetary policy has been pursued, the essence of which is to lower interest rates, which has led to an increase in consumption and an influx of investment, as well as a decrease in bond yields and, as a consequence, a decrease in their investment attractiveness. In addition, central banks are gradually buying back government bonds and other liquid assets, a phenomenon known as “quantitative easing.”

In such conditions, investors are actively looking for investment options with an increased risk component, which are naturally and potentially more profitable compared to government bonds and bank deposits. The greatest interest is in stocks and corporate bonds. Trading on the Tel Aviv Stock Exchange has increased significantly in recent months, with equity trusts reporting a large influx of new funds. It is known that in the first half of 2014, these funds mobilized 2.6 billion shekels (while the annual level here at the end of 2013 was 3.1 billion shekels).

Another factor that contributes to the continued positive trend in stock markets is the decline in oil prices observed in recent months. The reduction in oil prices, which can be likened to a temporary tax cut, leads to an increase in private consumption. In addition, lower energy prices mean lower costs and increased operating profits for most companies in the business sector.

It should be noted that in July-August 2014, trading on the Tel Aviv Stock Exchange was significantly influenced by Operation Protective Edge carried out by Israel in the Gaza Strip and the general increase in geopolitical tensions in the Middle East. There was no particular panic among investors; however, in the first week of the counter-terrorism operation, the main stock indices TA-25 and TA-100 were in the red zone, losing on average 0.5% and 0.9% per day, respectively. In the commercial bond market, the Tel-Bond 20 index fell by 0.5% per day, and 10-year government bonds fell by 0.3%. However, by Sunday of the following week, the Tel Aviv Exchange had fully adapted to the new situation, and the indices continued their growth, increasing their figures by 0.6% in one day.

According to the TASE report for January 2015, the market is experiencing negative dynamics: the TA-25 index fell by 0.6% since the beginning of the year, and the TA-100 index by 1.5%.

Also on the Tel Aviv Stock Exchange, until December 31, 2005, the MidCap-150 functioned within the TASE, which was an index that included shares of 150 companies that were not included in the TA-100 index, but subsequently it was edited and noticeably reduced. Since January 2, 2005, the Mid-Cap 30 TA was in effect on the Israeli stock market, which was also revised soon after. July 1, 2007 On the Tel Aviv Exchange, it was decided to expand the index lists, increasing the number of companies recorded in it by 20. The current MidCap-50 includes 50 types of shares of those companies that are located below TA-100 in the market capitalization ranking of Israeli companies.

The youngest index, MidCap, was officially registered on July 1, 2010 and was created for all Israeli companies that were successfully listed on TASE, which were not included in TA-25, TA-75, TA-100 and Mid Cap-50. The weight of company shares, as in other indices, can reach 10.1%. During the same period of time (2010), another index was founded, called the TA-composite. Its list includes shares of all companies traded on the Tel Aviv Stock Exchange. It is known that the data of the six above indices are updated twice a year: on June 15 and December 15, new lists are formed taking into account information on the market capitalization of companies correct as of May 31 and November 30, respectively.

Also on TASE there are industrial indices for the largest 15 companies in the sector by market capitalization: Tel-Tech 15, NF Real Estate 15, TA Finance 15, Tel-Bond 20, Tel-Bond 40, Tel-Bond 60 indices tracking 20, 40 and 60, respectively, of the largest corporate bonds and other fixed income securities by capitalization. The Tel Bond-Composite Index compares the yield, volatility and current value of all bonds traded on the Tel Aviv Stock Exchange.

Listing

Since 2007, the number of companies listed on the Tel Aviv Stock Exchange has been rapidly decreasing, despite the recent re-liberalization of listing conditions (company registration conditions have become less stringent and closer to American standards), the expansion of quotation lists and the developed strategy to attract new issuers. In addition, since 2010, MSCI World has annually classified the Israeli securities market as a developed market, which theoretically should have attracted foreign investors to Tel Aviv, since developed markets are considered less risky, are characterized by a well-established legislative framework, guarantees for the protection of the rights of investors, high level of liquidity and low volatility of securities.

However, if in 2007 shares of 654 companies were traded on the stock exchange, then in 2014 only 473, that is, over the past seven years, the number of companies listed in Tel Aviv has decreased by 27.7%. At the same time, since 2010, the volume of securities trading on TASE has decreased by 44%, reaching a six-year low in the second half of 2013.

As of January 2011, about 50 companies are listed both on the Tel Aviv Stock Exchange and on stock exchanges in foreign countries (mainly in the USA on NASDAQ, NYSE, AMEX and in London on the LSE).

Double listing

In October 2000, the Israeli Knesset approved the law on dual stock quotation. It immediately contributed to an increase in the liquidity of issuers' securities, an increase in trading volumes on the stock exchange and the number of foreign and national investors. In addition, TASE became more attractive in the eyes of foreign issuers, who, due to high transaction costs, were not ready to place their shares on American stock exchanges. For individual and institutional investors, dual listing also turned out to be beneficial, as it exempted them from paying some taxes and reduced the costs associated with trading and clearing shares. In addition, double quotation increased the time for securities to participate (up to 14 hours) in trading on stock exchanges (due to the difference in time zones. Thus, trading in the United States begins at 16:30 Israeli time, when trading in Tel Aviv is almost In addition, shares are traded on TASE on Sundays and American national holidays).

Those companies whose securities have been circulating for more than one year on the NASDAQ market, the New York Stock Exchange, AMEX and LSE are entitled to double quotation of their shares. Also, the possibility of dual listing is provided to young companies whose shares have been traded on the stock market for less than a year, provided that their market capitalization exceeds $150 million (for high-tech companies that have successfully listed on NASDAQ, the minimum capitalization for registration on TASE is $180 million, for Israeli firms listed on the NASDAQ Small Cap Market - NIS 135 million). An important condition is that all shares must be of the same type. In order to include shares in the quotation list of the Tel Aviv Exchange, the company is required to send a corresponding request to the Israeli Securities Commission, as well as draw up an application for dual listing in TASE, which must indicate the technical characteristics of the company, information about its financial position . Information must also be provided in English about the type and price of shares, their volatility and profitability over the past year. If listed in Tel Aviv, the company is exempt from paying a one-time registration fee, as well as an annual fee for the first year of being on the stock exchange. Trading of securities on the Israeli exchange must begin by the company no later than three days after the publication of documents on the double placement of shares.

In the process of double quotation of its shares, the company is obliged to regularly provide, at the request of TASE and the Israeli Securities Commission, reports on the dynamics of share trading on foreign stock exchanges. To refuse dual registration, the company is required to notify the Tel Aviv Exchange three months before the desired delisting date.

Clearing

The clearing (settlement) house (The TASE CH - Clearing house) was founded in 1966 by members of the stock exchange to clear all trading transactions with securities that are carried out both on the exchange and outside it. The house also originates and redeems mutual fund shares, custods shares, and makes dividend and interest payments on behalf of companies, which are often nominee holders. Israel Clearinghouse is a member of the US Depository Trust and Clearing Corporation (DTCC), which allows it to provide clearing services to dual-listed companies.

From a legal point of view, the Israel Clearing House is a limited liability company that exists separately from the exchange, but in practice the clearing house has always been an integral part of it. In September 2006, CH became a subsidiary of TASE. It is located in the same building as the Tel Aviv Stock Exchange and is serviced by its employees. TASE's internal auditor reviews the reports prepared by the Israeli Clearing House.

Clearing House Members

Members of the Israeli exchange can become members of the clearing house if they have sufficient capital in the form of shares and all the necessary infrastructure that will allow them to clear trades. According to the charter, members of the stock exchange that are not banks must have capital in the form of shares of at least 8.8 million shekels.

All mutual settlements between member banks are organized through an account in the clearing house and through a current financial account at the Bank of Israel. When any bank buys shares on the Tel Aviv Exchange, its account with the clearing house increases, and its account with the Bank of Israel decreases by the same amount. In the case of the sale of securities, the situation is the opposite. Clearing of trades by members of a clearing house that are not banks follows the same model, but financial transactions are not carried out by the Bank of Israel, but by one of the commercial banks that is a member of the clearing house. This form of work provides banks with constant financial activity.

6 of the 27 member organizations of the Tel Aviv Exchange are not members of the Israeli clearing house. They clear their trades through brokerage houses and banks that are members of the chamber. Using the same model, clearing is carried out for companies that are candidates for inclusion in the lists of members of the clearing house. Organizations that are not members of the chamber, but are full members of TASE, are forced to hold their shares with one of the members of the Israeli clearing house in a trust account. Members of the chamber, accordingly, keep their securities in the clearing house itself.

All members of the chamber undergo regular checks organized by the Membership and Control Department. In addition, all 12 commercial banks that are members of the clearing house are under constant supervision by the Comptroller of Banking.

The main activities of the Israeli Clearing House.

The Charter (“Articles of the Association”), which sets out the basic internal rules of the clearing house, governs its activities. Formally, the number of chamber members is unlimited. Today it includes 19 organizations, 12 of which are commercial banks, including the Bank of Israel. All clearing house members are members of the Tel Aviv Stock Exchange. The head of the chamber is appointed with the approval of the TASE board of directors.

The Clearing House provides a number of services to its members and companies that operate in the capital market. Firstly, it collects information on transactions concluded on the exchange, verifies the data and corrects them in case of discrepancies. Secondly, it keeps records of registered transactions on TASE, offsets mutual claims and obligations between the seller and buyer of shares and government bonds. Every trade made on and off the stock exchange goes through cash settlement at a clearing house. Thirdly, it performs the function of the TASE depository, that is, the clearinghouse provides storage and, in the event of a transaction, delivery of securities from one participant to another.

Clearing is carried out on the day the transaction is registered, and the profit received as a result of its conclusion is transferred to the seller’s account the next day. The speed and efficiency of Israel's clearing house means that the fees charged for securities trading and clearing on the Tel Aviv Exchange are among the lowest in the world.

Before considering the procedure for settlement of mutual obligations carried out by the Israeli clearing house, it is important to first pay attention to the procedure for registering securities in the country.

The vast majority of securities traded on the Israel Stock Exchange are registered (their owners are registered by the issuer). The rest are bearer securities (that is, they are not registered by the issuing company). To simplify the procedure for registering securities, instead of the name of their real owner, a nominee company is recorded. When a company issues its shares and wants to sell them to investors on the exchange floor, it acts on behalf of a nominee company, which is owned by one of the four coordination banks: Bank HaPoalim, Bank Leumi LeIsrael, Bank Israel Discount and Bank Mizrahi-Tefakhot. In the accounts of the nominee company, the exchange clearing house is mentioned as the entity that placed its share certificates in the company. As a rule, they are kept in the safe of one of the coordinating banks at all times. This procedure is called "deposit".

The opposite situation - re-registration of securities in the name of their real owner - is called “withdrawal”; it is also carried out through a clearing house, but is carried out very rarely.

According to the Charter, “deposits” to the coordination bank, nominee company and clearing house and the procedure for “withdrawal” of securities by the shareholder from the bank are considered completed in two cases: if the issuer signs consent to this or if more than three weeks have passed since the registration of the securities. Securities that have conditional registration may be traded on the Tel Aviv Exchange only with the consent of its members and provided that: 1) the total value of the shares is less than 1% of the company's authorized capital; 2) their cost is no more than $25 thousand.

When shareholders buy and sell shares on the TASE, no changes are made to the nominee company securities certificate register. In the case where a trade is recorded by participants through the same clearing house member, changes will only be made to the records of that member. If a trade is concluded by clients of different members of the chamber, this will be reflected in their balance sheets in the clearing house. During the clearing process, a clearinghouse credits or debits its members based on the trades they make.

Clearing does not involve the physical exchange of share certificates between buyers and sellers. Only the member's balance sheet entry in the clearing house accounts is changed.

The organization of the clearing system in Israel differs for the better from the work of clearing houses on stock exchanges of foreign countries, since they often require registration in company registers, which increases the time for transferring funds from buyer to seller to three to five days.

A clearing house is an intermediary between issuers and shareholders.

However, there is also a flaw in the activities of the Tel Aviv Clearing House - there are no direct contacts, constant exchange of information between companies and the owners of their securities, issuers do not know who owns their shares at the moment, since a nominee company is recorded as the owner. In Israel, this problem was solved as follows: all annual and quarterly reports, management reports, which every company must regularly deliver to individuals and legal entities, are sent to the Tel Aviv Stock Exchange. In turn, it distributes all information received about the company among its members and the media. Soon this data will fall into the hands of security holders.

The holder of securities cannot be present at the meeting of shareholders, because the shares are registered in the ledger in the name of the nominee company. However, if the owner of the shares wants to participate in the shareholder vote and exercise his voting rights, he appeals to a member of the clearing house, who in turn sends a request to the nominee company. The nominee company selects and sends to the meeting a proxy whose task is to represent the interests of the shareholder. In this case, the real owner of the securities undertakes not to sell his shares before the vote.

The Clearing House acts as a liaison between issuers and shareholders who purchased their securities. In addition to settlement of concluded transactions, the clearing house performs another important function - it provides services through which stock exchange members, on behalf of their clients, can monitor the fulfillment of issuers' obligations under securities.

Settlements for transactions concluded outside the stock exchange. Transfers

In Israel, large blocks of shares are traded outside the Tel Aviv stock exchange. When transactions of this type are registered, its participants contact the clearing house of the local exchange to carry out all the necessary calculations. Clearing is carried out according to the model discussed above.

Another type of clearing is transfer. If the owner of securities wishes to transfer them for safekeeping from the safes of one company to another, he submits a transfer application to TASE, which indicates the companies involved and the list of shares. Then the balance sheet of the company that assigns its right to the client's securities to another company is reduced, and the balance of the latter is increased by the same amount. However, no financial activity is recorded. The transfer does not in any way affect the balance of the clearing house client who is transferring his shares from one place to another.

Trusted transfer service

Private investors typically entrust their securities to be traded and held by one of the members of the Tel Aviv Stock Exchange. Institutional investors, especially non-Israeli investors, often buy and sell securities through one exchange member and deposit them with another for safekeeping. Banks that are members of the Israel Exchange simultaneously provide brokerage services to clients and provide custody of their shares.

A service that involves conducting transactions with securities by one company and storing them with another is called a “trust transfer.” It is executed through a clearing house on the same day the trade was executed.

Payment of obligations to shareholders

When the time comes to fulfill obligations by paying dividends, interest on bonds or distributing free shares to security holders, issuers turn to a clearing house, which makes all the necessary payments on behalf of the companies. The Clearing House also notes the volumes of transferred funds and the dates of payments. This information is entered into the TASE database, which is constantly updated. It also includes data on government bonds. The clearing house repays them on time and makes interest payments to bondholders.

In addition, the clearinghouse handles the redemption of warrants and converts bonds and corporate debt into equity. In addition, mutual fund securities are cleared at the Israeli Clearing House, even though they are not listed on the TASE and are not traded on the stock exchange.

Compliance with international requirements

In March 1989, a report was published on the activities of clearing houses on various exchanges around the world, prepared by an international commission that included representatives of 30 developed countries. It contained recommendations for all stock markets, compliance with which can significantly reduce costs and risks arising in the trading process. TASE fully satisfies eight of the nine requirements.

Clearing of transactions on the Tel Aviv Exchange begins on the day the transaction is concluded and ends on the next day (T+1), i.e. Market participants gain access to complete information about concluded transactions within a maximum of 24 hours.

Clients of companies learn information about auctions through direct participants (in T and T+1).

TASE meets this requirement because stock exchange members register all securities they hold with the clearing house.

The Tel Aviv Stock Exchange complies with this condition.

The Tel Aviv Exchange operates on this basis.

On the Tel Aviv Exchange, settlement transactions are carried out immediately, without lending.

On TASE, settlement ends at T+1.

Today the Tel Aviv Exchange uses ISIN standards.

Israel has not created a centralized mechanism for providing loans and borrowings through the stock exchange. Such transactions are carried out directly between the lender and the borrower.

Annual review of Tel Aviv Stock Exchange, 2014, p.11

Sasson A. Record year for mutual funds in 2013 with NIS 55 billion added to managed assets // Haaretz, 03.01.14

Compiled from World Federation of Exchanges (WFE), Annual report, 2014. URL: www.world-exchanges.org

This refers to the manipulation of the opening price through the so-called “last minute” orders, which were submitted in the last seconds before the immediate opening of trading and had a significant impact on the opening price. Such speculation occurred especially often during periods of expiration of options on shares of the main TASE index - TA-25.

Stop limit order is an order that is a combination of two types of orders: stop and limit. In fact, this is a stop order with an exercise price limit function. If prices reach the stop price, a limit order is placed. It is used mainly to avoid slippage during sudden price movements.

Iceberg is an order that allows you to place an order in the trading system for a large volume with a small visible part. As the order is executed, the broker's trading system will place additional orders until the entire volume of the original order is executed.

There are three main types of scenarios provided for the stress test model: 1) extreme events (a historical event that has already occurred is used as an event); 2) risk factor shock; 3) external risk factor (risk factor - any macroeconomic index (for example, oil prices, real estate) or established indices (for example, exchange rates)). In October 2014, the ECB added to the methods already in use a comprehensive audit of the value of property on the balance sheet of each bank and an assessment of bank assets. The bank loan portfolio was assessed as the largest package of assets.

Borzykowski B. War and peace – and Israel’s stock market // CNBC, July, 28, 2014

Rooney B. Israeli investors unshaken by Gaza conflict // CNN MoneyInvest, New York, July, 23, 2014

Backman M. Stocks plunge more as Israel invades Gaza//CNN MoneyInvest, New York, July 17,2014

Scheer S. Tel Aviv Stock Exchange sees demutualization a year away // Haaretz, dec. 30.2014

The Dual-Listing Law: an important step towards Globalization of the Israeli Capital Market // annual report of TASE, Tel Aviv, 2014, p. 1-4.

By-Laws of the Tel Aviv Stock Exchange Clearing House LTD. Part two // T.A., 2014, p.64

The Israel Clearing House does not clear derivatives traded on TASE. This is done by Maof, a subsidiary of the Tel Aviv Exchange.

By laws of the Tel Aviv stock exchange clearing house LTD, part one – General // T.A., 2014, p.36-38

Israel. Company Laws and regulations handbook // International Business Publications, Washington DC, USA, vol.1 (strategic information and basic regulations), 2008, p.144-146

Tel Aviv Stock Exchange. Annual reports 2010-2014

Every security that is traded on the stock markets is included in special lists. This is an indispensable condition. In simple words, a listing is a list or list that includes any financial instrument available for trading.

Let's take a closer look at this exchange procedure. We will analyze the rules, conditions and stages of listing securities: shares and bonds.

Listing on the stock exchange is a procedure for admitting securities to free circulation and trading. The result of its implementation is the inclusion of shares, bonds, investment shares, mortgage certificates and depository receipts in the exchange quotation list.

The term in question comes from the English word listing, which translated means adding to the list.

If we consider the listing process in more detail, we should highlight 2 important components:

• formalities and procedures that precede the inclusion of shares and bonds in the quotation list;
• control over the compliance of each investment instrument with the requirements existing on a particular exchange.

But why is it needed? What are its goals?

Listing is carried out in relation to each issuer trading on stock exchange markets. It allows you to select for trading shares of only companies that meet accepted requirements, which relate to basic financial indicators, liquidity levels and risks.

In fact, we are talking about the regime for admitting securities to the stock exchange quotation list.

Rules

Listing rules are always approved by the stock exchange. They differ for each specific site. Let's look at the rules for carrying out such a procedure using the example of Russia's largest Moscow Exchange or MICEX.

Securities are admitted to trading through listing. The decision on inclusion in the quotation list is made only by the Moscow Exchange.

The list consists of 3 sections or levels:

• first;
• second;
• third.

The process of excluding a security from being traded is carried out only by the Moscow Exchange. This procedure is also known as delisting.

Shares of a particular company apply for listing subject to mandatory compliance with the accepted conditions:

• compliance with the law;
• prospectus registration;
• acceptance by the issuer of the obligation to disclose information;
• service at the Settlement Depository.

Anyone can get acquainted with the full version of the listing rules on the official website of the Moscow Exchange in the Documents section.

Process steps

Listing is carried out in several successive stages.

1. The issuer or intermediary submits an application regarding the placement of securities on the stock market. The first stage is also known as pre-listing.

2. Signing an agreement on conducting an expert assessment by exchange specialists.

3. The issuer or authorized representative provides a package of documents that are needed for the examination: balance sheets, reports, and so on.

4. Examination of shares or bonds that apply for listing.

5. Assessment of the issuing company’s activities. The main macroeconomic indicators are considered: profitability, liquidity, amount of authorized capital, and so on.

6. Meeting of the Special Commission, at which a decision is made on the admission of the company’s securities to circulation on the trading platform.

Criteria and requirements for issuers

Each exchange approves its own requirements for inclusion of shares and bonds in the quotation list. Such criteria must include:

• an indicator of the total value of the company's assets;
• the amount of net profit based on the results of work over several years;
• the number of securities expected to be placed;
• the company's capitalization is at least 60 billion rubles;
• publication of financial statements under IFRS for the last 3 years.

Naturally, this is a non-exhaustive list of requirements that may be presented to the issuing company.

Quotation lists and levels

It is incorrect to assume that issuers that have overcome listing have become equivalent to each other. For example, the shares of the huge oil company PJSC LUKOIL cannot be compared in weight with the securities of the industrial mining and metallurgical holding company Mechel PJSC. It is a fact.

At the same time, no one will argue that Mechel is a weak or unattractive issuer for investment. Otherwise the company would not have been listed. However, the significance of the named stocks varies significantly.

The leaders of the Moscow Exchange have made life easier for investors. For this purpose, 3 levels of listing have been created, as already mentioned above. Each of them has its own quotation list.

The first level of the quotation list includes the largest issuers whose shares are traded on the MICEX. These are the so-called blue chips or first-tier companies. Among them are Sberbank, Novatek, Gazprom, MMC Norilsk Nickel, LUKOIL, Rosneft, Magnit and others.

The second level of the quotation list includes second-tier companies that do not meet the requirements for blue chips. Among them are Rosseti, RusHydro, Magnitogorsk Iron and Steel Works, Megafon, Polyus and others.

The third and fourth echelon companies are included in the third level of the quotation list. Among them are Ashinsky MZ, OGK-2, Unipro, Bashneft, Detsky Mir, Belon, AvtoVAZ, Quadra, EnergiaRKK, Mostotrest, United Wagon Company and many others.

As the level decreases, liquidity drops significantly. Simply put, fewer investors are involved in these companies' stocks. The trade turnover for such chips is small. You should invest in them exclusively for the long term. Such securities are not suitable for intraday or even medium-term trading.

Classification and types

There are primary and secondary listings. These are separate concepts.

The primary listing procedure is carried out in order to begin the circulation of securities within the Russian exchange market. Companies whose shares are traded on the MICEX participated in it.

When an issuer plans to enter an international market, it needs to go through the secondary listing process. After this, shares of such companies gain access to placement on foreign stock exchanges. For example, on London or New York.

In accordance with domestic regulations, secondary listing is possible only for issuers that have completed the primary listing procedure. The conditions for passing a secondary listing are much softer, and the duration of the procedure itself is shorter.

The issuer's securities for which the procedure in question is carried out on foreign exchanges determines the specific terminology used.

The first case of the so-called direct listing. It is carried out in order to register the issuer in a foreign country in which they plan to trade securities on one or more stock exchanges.

The second case is the so-called depositary receipts or Depository Receipts. At the same time, only depositary receipts of the issuing company will receive access to the foreign site.

In addition, there are special types of secondary listings:

• Dual listing;
• Cross-listing.

Dual listing or double listing. Consistently obtaining access to the issuer's securities on several different exchanges that are located within the same state. Such actions are taken to increase the liquidity of the company's shares.

Cross-listing or cross-listing. One-time or cross-gaining access for the issuer's securities to several stock exchanges. Such actions are carried out to reduce time and financial costs.

Listing to IPO ratio

Traders sometimes confuse these concepts. Let's put everything in its place and understand how they relate.

An IPO (Initial Public Offering) is usually understood as the first public sale of a company's shares on the stock market.

One of the stages of an IPO is listing. As we already know, during this procedure the issuer agrees with the exchange on the procedure for placing its own shares on it.

In this article we will look at what the over-the-counter market is, the features of this market in contrast to the exchange market, and the practical aspects of working in the over-the-counter market.

What is the over-the-counter market

In addition to the stock exchange, securities can also be purchased on the over-the-counter market. In Russia it is called the “over-the-counter market.” In the USA, such a market is called OTC - from the English. over the counter, which literally means making a transaction directly without a central counterparty, while the central counterparty is the exchange, so it turns out that this is a transaction directly, bypassing the exchange.

The entire over-the-counter market can be divided into two large classes - the unorganized over-the-counter market and the organized over-the-counter market.

Any transaction that is formalized by a civil law contract can be considered an unorganized over-the-counter market. Therefore, in our daily life, we often encounter the unorganized over-the-counter market, buying, for example, real estate or cars. The same applies to securities; they can also be purchased under a purchase and sale agreement on an unorganized over-the-counter market, but on the condition that you can find the other half of your transaction. In this case, the securities no longer fall into the records of the depositary - an organization that is specially created for the operational recording of rights to securities (for more details, see the article ""), and when concluding an agreement, only the entry in the register of the registrar is changed, which certifies the right to change the owner of the securities papers

Organized over-the-counter market

The main feature of the organized over-the-counter securities market is the presence of a central electronic system for quoting securities, where you can see the potential supply and demand of market participants. In the over-the-counter market, this greatly simplifies the process of finding sellers and buyers. In this way, the organized over-the-counter market is similar to the traditional exchange market, but that is where the similarities end.

The most famous over-the-counter organized trading platform in Russia is the over-the-counter section of the RTS Board. This is an electronic information system where many companies are listed that are not represented on the main Moscow Exchange. Shares of small and mid-cap companies are predominantly traded on the RTS Board compared to companies traded on the stock market. Most of these companies apply there because they cannot undergo exchange listing on the Moscow Exchange (we wrote more about what a listing is in the article “”). Also, in cases where companies leave the main exchange market (go through the procedure), packages of securities that remain in the hands of investors and investment companies continue to circulate on the organized over-the-counter market.

This organized over-the-counter market allows investors to trade a large number of stocks that cover almost all sectors of the economy. Currently, about 625 different shares from 489 different issuers are traded on the organized over-the-counter market RTS Board. This is significantly more than on the Moscow Exchange, where 295 different shares from 243 different issuers are currently traded.

Now let's look in more detail at the features of the organized over-the-counter market and its differences from the exchange market.

Features of the OTC market

The over-the-counter market is a non-standardized trading market.

In the over-the-counter market, unlike the exchange market, there are no standard trading volumes and lots. Each market participant can put up for sale or purchase the volume of shares that he specifically needs. As a rule, trading is carried out in packages of securities, from several securities to several tens of thousands, depending on the cost of one security. At the same time, in the over-the-counter market, each participant can independently decide whether to agree to buy or sell the entire volume of the submitted order at once, or agree to conduct a transaction for only part of the submitted volume. Questions regarding the volume of the purchased package of securities are discussed between trading participants on an individual basis.

The over-the-counter market is a market for targeted orders.

When making transactions on the stock market, we do not know from whom we are buying shares. By purchasing multiple lots of shares, we may in fact be buying them from several different sellers and not even know it. On the exchange market, non-addressed orders are used, and on the over-the-counter market, on the contrary, addressed orders are used. In the over-the-counter market, participants can directly see from whom this order was placed, in particular from which broker.

Participants in the organized over-the-counter market are legal entities that have the status of professional participants in the securities market and are registered in the electronic trading system.

Most of the largest Russian brokers have the necessary clearances and are registered in the electronic over-the-counter trading system RTS Board. Individuals can participate in trading in the over-the-counter market only through brokers. However, the standard service packages of Russian brokers do not include providing access to quotes on the over-the-counter market through software. In order to make a transaction on the over-the-counter market, you will have to call the broker, find out the current prices for the required shares and, if the price suits you, give an order to buy or sell at the required price. Then the broker will negotiate with the second party to the transaction.

There are no listing rules for securities in the over-the-counter market.

On the over-the-counter market, any professional participant can register a package of securities of any Russian issuer in the electronic trading system and put it up for sale. At the same time, in order for a company’s shares to be listed on the main Moscow Exchange, the company must go through a mandatory process of placing securities, the so-called listing. An exchange listing has fairly stringent requirements both for the parameters of the issue of securities and for the financial position of the issuer itself. Thus, this is a rather expensive procedure and small companies simply cannot afford it. On the one hand, this gives a certain degree of protection to investors from purchasing securities of troubled companies, on the other hand, it significantly reduces the range of investment opportunities. As a result, in the over-the-counter market, investors have the opportunity to find a truly rare and unique company that cannot be listed on the exchange due to strict listing frameworks.

OTC market quotes are preliminary indicative prices.

Since there is no central counterparty in the OTC market in the form of an exchange, there is no official market price. Over-the-counter trading system quotes are purely indicative in nature to indicate potential supply or demand. That is, if you submit an order to buy or sell at the specified quote, the transaction will not be completed automatically, as in the exchange market. There is not even a guarantee that it will be possible to sell the required volume at a specific indicative price. As a result, real transactions may take place at prices different from the original quotes. To carry out a transaction, you must contact the broker who is the opposite party to the transaction and negotiate with him on specific prices for the required volume. As a rule, the principles of wholesale discounts apply here; the larger the volume of purchase or sale, the better price you can negotiate for the sale or purchase of a package of securities.

Securities are quoted on the over-the-counter section of the RTS Board in US dollars, and settlements are carried out in rubles.

Thus, despite the dollar quotes of securities, the investor does not need to convert funds into foreign currency and transfer it to the account.

Brokers charge higher commissions for trades in the over-the-counter market.

The size of the brokerage commission can be from 0.1% to 0.3% of the transaction amount. Also, some brokers have a minimum commission for one transaction. It usually ranges from 1000 to 1500 rubles.

For example, the commission for making a transaction on the over-the-counter market with the BCS broker is 0.354% of turnover. The Finam broker's tariff for a transaction on the over-the-counter market is 0.118% of turnover, but not less than 1,450 rubles per transaction.

In addition to the usual stocks and bonds, exclusive investment objects such as precious coins and physical precious metals are also traded on the organized over-the-counter market RTS Board.

We examined the main features of the organized over-the-counter market. It is these features that determine the key parameters of work in this market for the investor, as well as the investment strategy. Let's move on to more practical aspects and look at OTC investment returns, liquidity, and OTC trading practices and investment strategies.

Profitability on the OTC market

The large selection of securities and issuers on the organized over-the-counter market provides investors with ample opportunities to select undervalued securities with high growth potential, as well as search for securities with high dividend yields.

If we usually say that Russian companies are cheap, then the Russian over-the-counter market is a place where companies can be extremely cheap. Which ultimately leads to significant growth rates. To clearly assess the degree of attractiveness of such companies and the investment potential that they provide, it is worth comparing the dynamics of the main market indices: these are the Moscow Exchange index, the RTS exchange index and the RTS index of small and medium capitalization companies, starting from 2016, when the financial results of companies in improved significantly and investment interest began to return to the markets again.

Also, the market for small and mid-cap companies provides many opportunities to acquire companies with high dividend yields.

For example, the Machine-Building Plant named after M.I. Based on the results of work for 2016, Kalinina paid dividends on his preferred shares in the amount of 7,580.25 rubles, which, when the securities were quoted for sale on December 11, 2017 at 548.23 USD (34,633 rubles), provides a potential dividend yield of 21.88%

However, as with any investment in the over-the-counter market, higher returns come with higher risks. And in the over-the-counter market, in addition to the usual financial risks, we also bear risks associated with the liquidity of assets.

Liquidity in the OTC market

One of the significant disadvantages of the organized over-the-counter market RTS Board is that securities are traded there with significantly less liquidity. This is manifested in such trading parameters as the number of transactions and daily trading volumes, as well as in the difference between the purchase price and sale price of securities (spread). The smaller the spread, the higher the liquidity of trading and vice versa.

Spreads on securities on the over-the-counter market can vary greatly from a few percent as on the stock exchange to tens and even hundreds of percent.

The table below shows indicative stock quotes for purchase and sale in the electronic information system RTS Board, which clearly shows the size of spreads for individual securities.

Such spreads mean that when buying, for example, Lengazspetsstroy paper for 1,500 USD, it can only be sold at the same moment with a loss of 400 USD or -26.6% at 1,100 USD, provided that when selling, the transaction parameters fully satisfy the second side.

The difference between buy and sell quotes can be several times larger. However, it is always worth remembering that these are indicative quotes and do not reflect actual transaction prices. In many cases, in reality, transactions, depending on the conditions of each specific transaction, can take place at more favorable prices.

Investment strategy in the over-the-counter market

Low liquidity, as well as an increased level of brokerage commissions for conducting transactions on the over-the-counter market, impose certain behavioral limits on investors. The over-the-counter market completely lacks such a class of trading participants as speculators and medium-term traders; there are simply no working conditions for them. Therefore, quotes on the over-the-counter market have a completely different behavior. In most cases, they do not react at all to various event factors to which the stock market reacts sharply; quotes change very slowly and react mainly only to changes in fundamental factors for companies.

The over-the-counter market is a market for real long-term investments, where you cannot profitably sell securities a few minutes after purchase, where no one runs to sell securities if their quotes have fallen by 20% or 30%. Investments in the over-the-counter market are more about investing in the companies themselves and their financial results in the form of dividends, rather than in their price charts.

Transactions on the over-the-counter market

To access trading on the over-the-counter market, it is enough to open a regular brokerage account with a broker who is a member of the RTS Board electronic information system. Currently, the list of accredited brokers includes all top brokers: BCS, Finam, Otkritie, Sberbank, VTB and others (the full list can be viewed at the link).

In most cases, investors can find out quotes and give instructions when working on the over-the-counter market only by telephone. In addition, another significant nuance of working in the over-the-counter market is related to the fact that there is no official market price. Theoretically, the broker has the right to conduct transactions at any price, and announce to the client only the price that is beneficial to him and for which he has a preliminary agreement with the client. In practice, all over-the-counter transactions take place according to the following principle: the broker announces to the client in advance a slightly less favorable price for the transaction for the client, in fact carries out the transaction at a more favorable price, and this difference remains in the profit of the brokerage company. Despite the fact that this looks a little dishonest on the part of the broker, this is standard practice for making over-the-counter transactions.

Based on this, the optimal way to operate in the over-the-counter market also requires direct access to indicative quotes. Brokers do not provide such access and only provide quotes over the phone. However, at the moment, the RTS electronic information system provides the opportunity to obtain information access to trading for individual investors by connecting the RTS Board EQ terminal in client access mode. Connecting this terminal provides the opportunity for individuals to view quotes in an impersonal mode, that is, in this case, the counterparty who submitted the order will not be visible. Access to this system is paid, so it is advisable only for fairly large investments in the over-the-counter market. Free indicative quotes of the over-the-counter market can be viewed on the portal investfunds.ru. However, these quotes are broadcast with a delay of several days.

Conclusions: pros and cons of the over-the-counter market

As the main advantages, it is worth noting the wider investment opportunities, primarily in terms of the number of securities and traded issuers, among which there are opportunities to find various investment ideas. It is also worth noting that the over-the-counter market completely lacks such a class of players as short- and medium-term speculators, which makes the movement of quotes on the over-the-counter market significantly less amplitude.

As a disadvantage, it can be noted that, first of all, this is a less liquid market. By investing in such securities, you are forced to freeze your funds for a very long, and by and large, even indefinite period, since it is often simply not possible to sell many securities quickly. It is also worth remembering that commission costs when conducting a transaction on the over-the-counter market are many times higher than on the exchange market, and individuals cannot independently submit orders and negotiate with the other party to the transaction about its key parameters.

It is also worth keeping in mind the fact that investors in the over-the-counter market are extremely limited in their analysis tools. Technical analysis is not applicable here due to insufficient market liquidity, and financial analysis is often complicated by the fact that companies do not have strict requirements for publishing reports - such companies are not required to publish reports in accordance with IFRS and prepare annual reports of the issuer. They are required to publish on their website only annual reports in accordance with Russian accounting standards.

However, for all these difficulties and risks, investors in over-the-counter markets are rewarded with returns on average higher than in the exchange market, both in dividends and due to market growth.

In conclusion, it is worth saying that only very deep professional fundamental analysis is applicable to securities of this kind. You can learn more about how to conduct it from our video courses “Secrets of Fundamental Analysis”, and you can get acquainted with the concept of comprehensive fundamental analysis by attending our free seminar for practicing investors.

Profitable investments for you!