Israel: six months blocked, then six quarters metered

Israel does not restrict how a conversion price is set; it restricts what the investor can do afterwards. Securities allotted in a private placement cannot be sold on the Tel Aviv Stock Exchange for six months, and for six quarters after that sales are capped by reference to daily turnover and to one percent of issued capital per quarter.

Key takeaways

• Pricing is free; the exit is not. No Israeli minimum conversion price or maximum discount was found. The constraint is חסימה (hasima, blocking) under section 15C of the Securities Law 5728-1968 and regulation 5 of the regulations made under sections 15A to 15C.
• Six months absolute, then six quarters metered. An outright prohibition on selling on the exchange for six months from allotment, then six consecutive quarters of capped selling — one year and eight quarters where the allottee is a corporation controlled by the issuer.
• The meter has two dials. The permitted daily quantity is set against the average daily exchange turnover in that security over the eight weeks preceding the offer day, and no more than 1% of the issued and paid-up capital may be sold in a quarter.
• What triggers it is the exemption, not the size. Section 15C catches securities allotted under a prospectus exemption — an offering to not more than 35 offerees, an offering to sophisticated investors, or an offering outside Israel not made under a prospectus.
• The registered route is the workaround. A תשקיף מדף (shelf prospectus) drawn down by דוח הצעת מדף (shelf offering reports) produces shares that trade on issue.

The modification Israel forces: a metered exit

A market-referenced financing is a recycling business. The investor funds, converts, sells into the market, and funds again. Tenor, tranche size and pricing window all assume the stock can be turned back into cash on a timescale the investor controls.

Israel removes that assumption by statute. Under section 15C of the Securities Law 5728-1968, securities allotted without a prospectus are restricted from being offered during exchange trading, and regulation 5 of the Securities Regulations (Details regarding sections 15A to 15C of the Law), 5760-2000 puts numbers on them. The period from allotment during which the securities may not be sold at all is six months. After it come six consecutive quarters in which the daily quantity is limited by reference to the average daily turnover in that security on the exchange over the eight weeks before the offer day, and no more than 1% of the issued and paid-up capital may be sold in any quarter. Where the allottee is a corporation controlled by the issuer, the absolute period is one year and the metered period runs to eight quarters.

Read those dials against a facility. Six months of nothing, then a per-quarter ceiling of one percent of the register, means a position of any size takes years to clear even in a liquid stock, and the realisation rate is set by the market's own turnover rather than by the terms negotiated. That is not a discount problem or an approval problem. It is a capital-velocity problem, and drafting does not solve it.

The question that decides the instrument

One thing was not established and it is the decisive one: whether section 15C blocking attaches to shares issued on conversion of a privately placed אג"ח להמרה (convertible bond), or whether the clock runs from the original allotment of the instrument. Those readings produce different structures: one makes the convertible a slow-release equity position, the other a bond whose option is already seasoned when exercised. Israeli counsel should answer it in writing first.

Where Israeli company law still bites

Incorporation does not disappear because the shares also trade in New York. The Companies Law 5759-1999 governs the board's authority to allot, related-party transactions and the definition of a בעל שליטה (controlling shareholder). An הצעה פרטית חריגה, an extraordinary private offering, requires general meeting approval, and where a controlling shareholder has a personal interest the majority is stricter than a simple vote. The thresholds that make an offering “extraordinary” are deliberately not stated here: they could not be verified against the statute. Do that analysis alongside the dilution arithmetic — an ownership blocker holding an investor below a threshold can be the difference between a board resolution and a shareholder meeting.

Dual listing moves the whole transaction to another rulebook

Israel built the dual-listing arrangement in Chapter E3 of the Securities Law to stop its own companies choosing between Tel Aviv and New York. A company already trading on a qualifying foreign exchange can list on TASE on its foreign disclosure record, and continues to report under the foreign regime rather than a parallel Israeli one.

For most of the market that is the operative fact. A registered direct offering off an effective shelf, a PIPE transaction with a resale registration undertaking, or an at-the-market programme is assembled under United States law and Nasdaq or NYSE rules, and Rule 144 and S-3 shelf eligibility matter more to the board than any TASE rule. Reliefs also exist for Israeli companies traded abroad that can disapply Israeli private-placement approval requirements in favour of the foreign exchange's rules — but they are conditional on actually following those rules. A failed relief converts a two-week deal into a shareholder meeting.

The first Israeli question is which register the stock clears through, and how much of it trades in a day. Send the listing, the average daily turnover and whether the company is SEC-reporting. If you want the short version of who this works for, check the eligibility test.

Related reading

• All markets
• Vietnam: a statutory lock on the stock
• Thailand: the lock tracks the discount
• China: issuance and resale both bound
• Convertible notes

Primary sources

• Israel Securities Authority
• Tel Aviv Stock Exchange — dual listing
• SEC — revisions to Rules 144 and 145

Orientation

Commentary, press and unofficial texts: useful for orientation, never the citation of record.

• Securities Law 5728-1968 — Hebrew consolidated text
• Securities Regulations (Details regarding sections 15A to 15C of the Law), 5760-2000

Financing an Israeli issuer: frequently asked questions

Does Israel restrict how a conversion price is set?

No rule was found that restricts it. Israeli issuers issue convertible bonds routinely and nothing in the Securities Law prescribes a minimum conversion price or a maximum discount the way India, Turkey or Hong Kong do. The Israeli constraint sits on the other side of the transaction, in what the investor may do with the shares once they exist.

How long are privately allotted Israeli shares blocked?

Regulation 5 of the Securities Regulations made under sections 15A to 15C sets an absolute blocking period of six months from allotment, followed by six consecutive quarters in which the quantity that may be sold on the exchange is capped. Where the allottee is a corporation controlled by the issuer the absolute period is one year and the metered period is eight quarters.

How much can be sold during the six metered quarters?

Two limits run together and both should be read descriptively rather than as a formula. The quantity that may be offered on any trading day is set by reference to the average daily turnover in that security on the exchange over the eight weeks preceding the offer day, and no more than one percent of the issued and paid-up capital may be sold in each quarter.

Is there an Israeli route that produces immediately tradable shares?

Yes, and it is the registered one. A shelf prospectus filed with the Israel Securities Authority and drawn down by shelf offering reports produces shares that trade on issue, because the blocking rules attach to allotments made under a prospectus exemption. The trade-off is that the disclosure burden moves back onto the issuer and its board.

Does the blocking period apply to shares issued on conversion?

That was not established, and it is the single most important open question for an Israeli convertible. Whether shares created on conversion of a privately placed convertible are themselves caught by the blocking rules, or whether the clock runs from the original allotment of the instrument, changes the economics completely. Israeli counsel should settle it before any term sheet is signed.