Disclosure of Costs of Securities Services

Bank of Israel
Banking Supervision Department
Bank-Customer Division
Regulation (Bank-Customer) Unit
April 2, 2014
Circular no. C-06-2415
Attn:
The banking corporations
Re: Disclosure of costs of securities services (Proper Conduct of Banking Business Directive no. 414)

Introduction

1. It has been found that in the securities area there is a wide gap between the fee
   listed in the fee schedule and the fee actually charged, which makes comparisons difficult for customers. In order to assist customers in making an informed decision regarding the cost of a service, and to encourage competition, and after consulting with the Advisory Committee on Banking Matters and with the approval of the Governor, I have established this Directive. Main provisions of the Directive

2. Banking corporations are to present customers who were charged fees in
   respect of purchases, sales, or redemptions of Israeli and/or foreign securities or who were charged a securities deposit management fee with comparative information regarding the rates of the fees paid by customers holding deposits with values similar to that of the customer. It should be clarified that the presentation to the customers who are charged the fees in respect of purchases, sales, or redemptions of Israeli securities is to be broken down by equities, bond, and "makam" (central bank bills).

3. The presentation of the data by the banking corporations is to be based on the
   value of the deposit, including Israeli and foreign securities.

4. The information that is presented to the customers within the framework of the
   notice sent to them as warranted by the Banking (Service to Customer) Law, 5741-1981, is to include the weighted average rate of the fee, with regard to a fee for securities purchases, sales, or redemptions, as well as the weighted average rate with regard to the securities deposit management fee, as detailed in Addendum A of the Directive. It should also be clarified that the calculation of the information presented in Addendum A of the Directive shall not take into account the fees, if any, that were charged in accordance with Note 2 of Paragraph 1 of Item 4(a) and Note 1 of Paragraph 4 of Item 4(a) of the First Addendum to the Banking (Service to the Customer) (Fees) Rules, 5768-2008.

5. The method of calculating the rates of the fees that are presented shall be as
   follows:
   a. Regarding securities purchases, sales, or redemptions—the rate of the actual fee shall be the total fee divided by the value of the activity. b. Regarding securities deposit management fees—the rate of the actual annual fee shall be the total actual fee divided by the value of the activity, or the security value that was used for calculating the management fees, respectively. This quotient is to be multiplied by 365 divided by the number of days according to which the fee was calculated.

6. The comparative information that is to be sent to the Customer is to be published
   on the banking corporation’s website as well, so that the Customer will be able to compare the cost of a service at various banks. The data to be presented are to be arranged in accordance with the table in Addendum A of the Directive, and will be based on data received during the course of a six month period (January–June, July–December), which the bank will update within 30 days of the end of each period.

7. The comparative information that is to be sent to the Customer within the
   framework of the Notice is to be presented alongside detailed information on the fees for securities purchases, sales or redemptions that the Customer was charged during the six month period (January–June, July–December). The manner of presenting the details, and the fees that the customer was charged, shall be arranged in accordance with the table in Addendum B.

8. The comparative information that is to be sent to the Customer within the
   framework of the Notice shall be presented alongside the securities deposit management fee that the Customer was charged during the course of a six month period (January–June, July–December), in accordance with the table in Addendum C. Notwithstanding the above, it is clarified that if a Customer held a specific security for a time made up of various holding periods (tiers/layers), instead of presenting the holding period as required in Addendum C, the banking corporation shall reference the information in the Notice, which explains the calculation method of the number of holding days of that security, as carried out by the banking corporation for establishing the amount of the fee that the Customer was actually charged.

9. The banking corporation is not required to present data regarding options, as
   those securities do not reflect typical activity of households or small business.

Incidence
10. The provisions of the Directive shall only be imposed with regard to
transactions carried out by a “Customer” as defined in Section 9i(f) of the Banking Law. Start
11. This Directive shall go into effect on January 1, 2015, with the initial
presentation of the data to the customer and its publication accordingly on the website, as noted in the sections of the Directive, based on data received during the months July–December 2014.

However, regarding the “holding period” as required in Addendum C of the Directive, the banking corporation has the option of presenting this data to the customer beginning with the report of July 1, 2015, which will be based on data received during the months January–June 2015 and onward, and not on the dates noted in the opening paragraph of this section. Revised file
12. Update pages for the Proper Conduct of Banking Business Directive file are
attached. Following are the provisions of the update:
Insert page Remove page
(04/14) [1] 414-1-4
Respectfully,
David Zaken
Supervisor of Banks

Supervisor of Banks: Proper Conduct of Banking Business [1] (4/14) Disclosure of costs of securities services Page 414-1

Disclosure of costs of securities services Introduction

1. The provisions in this Directive are meant to regulate the manner of presenting the
   rates of fees that were actually charged by the banking corporations to customers who conducted securities activities. Definitions
2. In this Directive:
   “Customer”—as referred to in Section 9i(f) of the Banking (Service to Customer) Law, 5741-1981 (hereinafter, the Banking Law); “Securities fees”—one or more of the following:
   Fee for the purchase, sale, or redemption of Israeli securities: as referred to in Paragraph 1 of Item 4(a) of the First Addendum to the Banking (Service to the Customer)(Fees) Rules, 5768-2008, (hereinafter, the Fees Rules); Foreign securities fees: as referred to in Paragraph 4 of Item 4(a) of the First Addendum to the Banking Rules, and excluding options; Securities deposit management fees: as referred to in Paragraph 5 of Item 4(a) of the First Addendum to the Banking Rules. Presentation of comparative data
3. A banking corporation is to present the fee rates, in accordance with Addendum
   A, as relevant, to every customer that has been charged a securities fee, as follows:
   a. The weighted average rate of a fee for the purchase, sale, or redemption of securities, which were actually charged to the banking corporation’s customers who hold deposits at similar values to that of the deposit held by the customer. b. The weighted average rate of securities deposit management fees that were actually charged to the banking corporation’s customers who hold deposits with values similar to that of the deposit held by the customer.

Supervisor of Banks: Proper Conduct of Banking Business [1] (4/14) Disclosure of costs of securities services Page 414-2

4. The banking corporation is to present the customer the data noted in Section 3 of
   the Directive, within the framework of a notice submitted to the customer under the authority of Section 5a(c)(1) of the Banking Law (hereinafter, “the Notice”). The data to be sent to the customer will be based on data received during 6 month periods (January–June or July–December).
5. The banking corporation is to publish on its website data noted in Section 3 of the
   Directive, arranged in accordance with the table in Addendum A. The data to be published on the banking corporation’s website is to be based on data received during 6 month periods (January–June or July–December), and which the banking corporation will update on the site within 30 days of the end of each period. Presentation of data on actual charges
6. Alongside the data that is to be sent to the Customer, as warranted by Sections 3
   and 4 above, the banking corporation is to present in the Notice the fees for purchase, sale and redemption of securities, which the customer was charged during a six month period (January–June or July–December). The manner of presenting the details of these fees shall be in accordance with the table in Addendum B.
7. Alongside the data that is to be sent to the Customer, as warranted by Sections 3
   and 4 above, the banking corporation is to present in the Notice the securities management fees that the customer was charged during a six month period (January–June or July–December). The manner of presenting the details of these fees shall be in accordance with the table in Addendum C. Notwithstanding the above provisions in this section, if a Customer held a specific security for a period made up of various holding periods, instead of presenting the holding period as required in Addendum C, the banking corporation shall reference the information in the Notice, which explains the calculation method of the number of holding days of that security, as carried out by the banking corporation for establishing the amount of the fee that the Customer was actually charged.

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Supervisor of Banks: Proper Conduct of Banking Business [1] (4/14) Disclosure of costs of securities services Page 414-3

Updates
Circular No. 06 Version Details Date
2415 1 Original circular April 2, 2014
Addendum A (Sections 3, 4, 5)
Distribution of data on securities fees charged to individuals and small businessesa (Weighted average rate of the feeb ) Purchase, Sale, Redemptionc Management feesc Israeli securities Value of the deposit at period end (NIS thousand)d Equities and bonds Makam (central bank bills) Foreign securities Israeli securities Foreign securities Up to 25 More than 25, up to 50 More than 50, up to 75 More than 75, up to 100 More than 100, up to 200 More than 200, up to 400 More than 400, up to 700 More than 700, up to 1,000 More than 1,000 a Does not include fees, if any, charged in respect of securities purchases or sales that were not concluded. b Data based on information for period_______. c Regarding a purchases, sales, or redemptions, the rate of the actual fee is to be presented; regarding management fees, the rate of the actual annual fee is to be presented. d Value of deposit including Israeli and foreign securities.

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Addendum B (Section 6)
Detailed listing of fees for purchase, sale, or redemption of securities (Israeli and foreign) charged to your account during the months xx/xx/xx—xx/xx/xx Date Security name Activity (purchase, sale, redemption) Quantity Activity value (NIS) Fee value (NIS) Rate of feea

a Rate of actual fee charged.
Addendum C (Section 7)
Detailed listing of securities (Israeli and foreign) management fees charged to your account during the months xx/xx/xx—xx/xx/xx Security name Security value (NIS) used to calculate the management fees Holding period (dates) Number of holding days Fee value (NIS) Rate of feea

a With regard to securities held in various holding periods, the manner of calculating the number of holding days for setting the fee amount, is as follows________ (to be filled in by the banking corporation). b Rate of actual fee charged.