Calcalist exclusive: Foreign investors' trick
Following enactment of new reporting requirements, it appears foreign investors have found loophole: Rather than investing new funds in short-term bills with a one-year maturity period, which obligates them to disclose identity, they now are acquiring Treasury bills with maturity dates of over year
One of the key objectives of the reporting directive, which came into effect 10 days ago, is to impede foreign investors engaged in speculative activity aimed at capitalizing on the increasing interest gaps between the shekel, US dollar and euro.
Such investors habitually operate sub-rosa and the new reporting directive is designed to reveal their identity to the bank.
Over the past three years, speculative bodies – predominantly foreign banks and overseas hedge funds – have been pouring considerable foreign currency into Israel, exchanging the funds into shekels and using them to acquire short-term shekel bonds – specifically short-term bills ("makam") issued by the Bank of Israel.
Consequently, foreign investors to date hold over a third of the remaining T-bills issued by the Bank of Israel. These activities are largely the cause of the current boosts in the shekel's rate.
As part of the Bank of Israel's campaign against foreign speculators, the central bank issued a draft directive on January 18, subjecting all high-value foreign currency and T-bill deals to mandatory reporting.
Reporting requirements apply to foreign residents as well as to Israeli residents who performed Shekel-foreign currency SWAP deals and foreign-currency futures deals worth over $10 million in one day and to foreign residents who made T-bill and government bond deals for a period of up to one year, worth over NIS 10 million ($3 million) a day.
Buttering bread on both sides
Some two months ago, the Bank of Israel expanded the initial scope of the directive and tightened the requirement therein. Last week it was revealed that the foreign investors found a loophole in the Bank of Israel's reporting directive thus bypassing reporting requirements.
Rather than investing new funds in T-bills with a maturity period of a year or less, obligating them report the deal to the Bank of Israel, they are now acquiring through the stock market large volumes of unlinked government bonds which although issued years ago, have a maturity date between a little over a year and 15 months.
This course of action enables such foreign bodies to butter their bread on both sides by acquiring relatively short-term high-interest shekel bonds and at the same time avoid reporting requirements which would place them under the Bank of Israel's limelight.
For example, over the past year, the average daily turnover of fixed-interest shekel government bonds (series 313) whose maturity date is March 2013 was some NIS 90 million ($26 million). In contrast, over the final four days of the previous week, the average daily turnover of the bond soared to approximately NIS 290 million ($85 million).
The average daily turnover of the 319-series government bonds, which mature on September 2013, catapulted from approximately NIS 95 million ($28 million) over the past year to some NIS 680 million ($200 million) in the past four trading days alone.
On Wednesday and Thursday, the aggregated turnover for the bonds from both series was especially high, totaling some NIS 2.7 billion ($790 million). Although aware of the problem, Bank of Israel officials have yet to chart a course of action to resolve it. Bank officials remarked off the record that they were aware that the reporting requirements directive did not cover all the options.
Raheli Bindman contributed to this report
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