Study on Special Exchanges and Trading Platforms for SMEs for Israel
Israel is considering the introduction of an exchange (or similar platform) to list and trade SMEs. The report, developed by EBESM, surveys relevant global experience. SME exchanges have not made great strides in North America, but markets in Europe and Asia have registered steady gains in the past twenty years.
In Europe the main innovation has been platforms organised as Multilateral Trading Facilities (MTFs) which are not fully regulated. Following the launch of AIM (London) in 1995, about 20 MTFs now operate in Europe. MTFs designate specialized intermediaries which are assigned the task of providing primary regulatory oversight as well as assuring minimal liquidity and providing research on the company. A simplified offering document replaces the prospectus. Requirements about minimum numbers of shareholders, free float, disclosure and corporate governance are more flexible than for listed companies. MTFs specialize in high-growth companies, but not necessarily tech companies. The investor base for most MTFs consists of institutional investors, but the NewConnect market in Poland has attracted retail investors.
In Asia where SME markets are organized as exchanges (not MTFs), the investor base is predominantly retail and trading volumes are higher than in Europe. Probably the most relevant case for Israel in Asia is KOSDAQ (Korea), which since 1996 has specialized in emerging technology companies. With government support, KOSDAQ is building an infrastructure that identifies promising smaller companies and provides various kinds of support for companies to facilitate listing on entry platforms with the final objective of full listing on KOSDAQ. Because both countries have strong tech sectors and venture capital industries, KOSDAQ may be highly relevant for Israel.
Most exchanges and platforms agree that the smallest viable companies that are those with market capitalization in the range of $15-20 million equivalent. The principal exception is NewConnect in Poland which has listed much smaller companies.