ISA Proposes to Update Recognition of Foreign Corporations as “Sophisticated Investors”

Background: Legal Obligation to Publish a Prospectus and the Sophisticated Investor Exception

As a rule, a public offering of securities in Israel requires the publication of a prospectus with the ISA’s permission. Section 15A of the Securities Law provides several exceptions to this requirement, including offers to no more than 35 offerees over a 12-month period. Investors listed in the First Addendum to the Securities Law are excluded from this count, because they are considered not to need the protection a prospectus provides.

Section 15A(b)(2) of the Securities Law authorizes the ISA to recognize a foreign corporation as a sophisticated investor if it considers that the corporation is capable of obtaining the information necessary to make an investment decision and that would have been included in a prospectus had one been published. Such recognition means that the foreign corporation is not counted among the offerees for purposes of the prospectus requirement.

Current Situation: Two Separate Recognition Tracks

To date, the ISA has exercised this authority through two separate tracks: the ISA plenum’s 2019 decision on the definition of a “classified investor” in the Securities Regulations (Mode of Offering Securities to the Public), as it applies to a corporation purchasing securities for itself; and the ISA staff’s 2014 position on listing and trading on the continuous trading platform for institutional investors (TASE-UP). Both referred to the same foreign regulatory provisions in the United States and Europe, but amendments over the years created disparities between the two tracks. The ISA therefore proposes to consolidate them into a single decision.

Proposed Amendment Highlights: Updating Recognized Entities in the US, Europe, and the UK

In addition to consolidating the decisions, the ISA proposes updating the list of foreign corporations recognized as “foreign institutional investors”:

• US – Updating the reference to the definition of a “qualified institutional buyer” (QIB) under Rule 144A to reflect its current wording, which also includes entities such as a “rural business investment company” and a “limited liability company,” and adding a clarification concerning special-purpose entities established to execute the transaction.
• Europe – Expanding the reference to the definition of “professional clients” in Annex II to the MiFID II Directive to include governments, public entities managing public debt, central banks, and international and supranational institutions, such as the World Bank and the International Monetary Fund. Unlike financial institutions, these entities will not need to be licensed or supervised in a member state of the European Economic Area. The ISA also proposes updating the references to MiFID II and the European Prospectus Regulation to their current versions.
• UK – Following the UK’s withdrawal from the European Union, the ISA proposes to clarify that British entities meeting the criteria of the European definition will be covered by the decision without the need for a case-by-case assessment.

Updates relating to European and UK regulation have already been incorporated into the ISA plenum’s decision. The ISA now proposes to apply them uniformly to institutional continuous trading on TASE-UP as well.

Recognition Prerequisites: Offering Documents, Distributors, and TASE Members

Recognition depends not only on falling within one of the categories but also on meeting the following conditions, depending on the applicable track:

• Offering to classified investors – The offering documents must state that, by subscribing to the offering, investors confirm that they are foreign institutional investors. In addition, distributors must confirm to the issuer that they will take reasonable measures to ensure that the securities distributed through them outside Israel are distributed solely to foreign institutional investors and that orders from other investors are not accepted in the institutional tender.
• Initial listing on TASE-UP – The offering documents must clarify that the offering outside Israel is intended solely for foreign institutional investors, is not subject to Israeli securities laws for the purposes of the offering procedure and the disclosure obligations, and is not carried out under the ISA’s supervision. Here, too, distributors must confirm to the issuer that they will take reasonable measures to ensure distribution solely to foreign institutional investors.
• Trading on TASE-UP – TASE members must either obtain a declaration from the investor in advance, which must be renewed annually, or take other reasonable measures to verify that the person placing the order qualifies as a foreign institutional investor.

Practical Implications

If approved, the amendment is likely to create a clearer and more uniform framework for corporations raising capital from foreign investors and expand the list of foreign sophisticated investors to which securities may be offered without a prospectus. Recognition would, however, remain subject to the proposed requirements. Accordingly, issuers, underwriters, and distributors should ensure that their offering documents, distribution agreements, and control mechanisms comply with the amendment’s requirements. We also recommend that TASE members active on TASE-UP review their procedures for obtaining investor declarations.

Public comments will be accepted until November 12, 2026. We recommend that entities involved in securities offerings with an international component and trading on TASE-UP examine the proposal’s implications for their operations and consider submitting comments during the consultation period. We are available to assist with this assessment and with preparing comments to the ISA.

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Adv. Avihai Tal is an associate in the firm’s Regulation Department.

Barnea Jaffa Lande’s Regulation Department advises Israeli and foreign corporations, underwriters, distributors, and TASE members on all aspects of securities law and capital market regulation, including offerings with an international component and trading on TASE-UP. In connection with the proposed amendment, the department helps clients assess whether investors can qualify as foreign institutional investors, revise offering documents and distribution agreements to meet the proposed requirements, develop control procedures, obtain investor declarations, and prepare comments to the ISA during the consultation period.