The Accountant General Department at the Ministry of Finance, the Markets Department of the Bank of Israel, the Israel Securities Authority, and the Tel Aviv Stock Exchange are currently assessing the feasibility of developing and advancing a market for repurchase transactions involving government bonds in Israel.
Following internal discussions held by a joint taskforce representing the authorities and in light of the economic challenges facing the Israeli economy, as well as the potential added value of developing a repo market in Israel, the authorities released a document outlining the rationale and presented selected issues for public consideration.
Israel currently lacks a developed and sophisticated repo market. The volume of repo transactions in the local market is relatively limited, especially when compared to its potential. Furthermore, many of these transactions rely on a small number of intermediaries, and the involvement of international financial institutions in the local repo market is also below its potential.
The importance of developing a sophisticated repo market has been discussed on multiple occasions by various financial regulators and key financial infrastructures in Israel. In the past, several initiatives were undertaken to establish dedicated platforms, however, these efforts have not yet come to fruition due to macroeconomic conditions, legal/tax challenges, and other barriers.
A well-developed and sophisticated repo market in Israel could significantly contribute to the development of the local capital market. A repo market could serve as an alternative investment avenue for public assets (e.g., those held by institutional investors), provide a tool for liquidity management and fundraising, increase the accessibility of the local capital market to foreign investors, and enhance liquidity and marketability in the domestic market, particularly in government debt.