ISRAEL-

The Tel Aviv Stock Exchange Clearing House Limited

Rating Report Type: Public Rating

Overall Risk Rating: A+ Overall Outlook: Stable

Contents

Summary

Settlement Process

1.0 Asset Commitment Risk

2.0 Liquidity Risk

3.0 Counterparty Risk

4.0 Asset Safety Risk

5.0 Asset Servicing Risk

6.0 Financial Risk

7.0 Operational Risk

8.0 Governance and Transparency

General Key Indicators

Copyright © 2013 Thomas Murray Ltd.

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service provided by Thomas Murray is a rating, endorsement or guarantee of any Depository or its financial strength or a recommendation to enter into any agreement with

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Summary The Tel Aviv Stock Exchange Clearing House Limited

Role of the Depository

The Tel Aviv Stock Exchange Clearing House Ltd (TASECH) is a whollyowned subsidiary of the Tel Aviv Stock Exchange Ltd (TASE). Until 2006TASECH was a company owned by its members and limited by its membersguarantee, without share capital. During 2005-2006 a reorganisation of theTASECH was completed. As a result, TASECH became a company limited byshares and its ownership was changed so it became a wholly ownedsubsidiary of TASE.

Though TASECH is a separate legal entity functionally, it was and is anintegral part of the TASE. Both TASECH and TASE are private limited liabilitycompanies. Under the Securities Law, TASE is not allowed to distribute itsprofits amongst its members, so any profits made are retained by TASE.

TASECH started operations in 1962. It is governed by its articles ofassociation and its by-laws. TASECH is subject to the supervision of ISA andthe TASE. The by-laws of TASECH are the result of decisions made by theTASECH board of directors, subject to the approval of TASE’s board ofdirectors.

The depository works according to an immobilised model whereby securitiesare registered in the names of the nominee companies belonging to one ofthe four largest local commercial banks that have been appointed by theissuer for this purpose. Physical jumbo certificates are issued by thecompany, registered in their appointed nominee company name and areheld in safe custody by the bank concerned, for the account of TASECH.

In addition, the Bank of Israel (Israel Central Bank) acts as a nomineecompany for MAKAMs (T-Bills) while the Ministry of Finance acts as anominee company for all Israeli Government Instruments. There are nocertificates for government bonds and MAKAMs.

Securities traded on the TASE (equities, corporate bonds, government debt,and treasury bills), government bonds traded on MTS-Israel and mutualfund participation units are eligible for custody and settlement at TASECH.Derivatives traded on the TASE are cleared via the MAOF Clearing House, afully-owned subsidiary of the TASE.

TASECH has a link with the Depository Trust Company (USA), for selectedIsraeli dual-listed securities.

About the Depository

Date Commenced Operations: 1962

Legal status: Incorporated under CompaniesLaw 5759 - 1999

Regulated by: Israeli Securities Authority

Type of legal entity: Wholly owned subsidiaryof TASE

Region: Middle East

Services Provided

ClearingSecurities SettlementAsset Servicing

Instruments Supported

EquitiesCorporate BondsGovernment BondsTreasury Bills (MAKAMs)

Overall Risk Summary

On 25 April 2013, Thomas Murray confirmed the Overall Central Securities Depository risk rating of the Tel Aviv Stock ExchangeClearing House (TASECH) as ‘A+’, which translates as low risk. The rating is a weighted average of six different risk componentscomprising of Asset Commitment risk, Liquidity risk, Counterparty risk, Financial risk, Operational risk and Asset Servicing risk.

Although the overall rating remains as 'A+' there have been improved ratings to the risk components, Asset Commitment ('AA' to'AA+'), Counterparty ('A+' to 'AA-') and Asset Servicing Risks ('A+' to 'AA-').

There have been several new developments over the last two years which have contributed to an improved risk position withinTASECH and for their participants:- The movement of equities to the T+1 cycle has completed the adoption of a T+1 cycle for all securities. This has improved the

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quality of DVP available for these instruments.- Disaster Recovery and Business Continuity facilities have been further improved by the development of facilities especially byproviding workstations for 90 staff at the BCP facilities and ensuring full synchronisation of data and redundancy of communicationlines.- Specialist IT audits are now undertaken which has served to improve audit arrangements.- The increased number of audits being undertaken by the Membership and Supervision department on the non-bank clearingmembers has strengthened surveillance over this group.- The Risk fund is now calculated using a risk analysis approach that includes partial stress testing of the Fund based on historicalinformation of the potential default of the largest member.

Settlement is on an inter-dependent DVP basis for client-side and market-side transactions on a BIS Model 3 basis (i.e. netsecurities and cash). Cash settlement is via the Bank of Israel’s ZAHAV RTGS payment system on the morning of T+1. However,foreign investors generally settle on T+2 meaning local brokers often employ stock lending and credit lines to settle client orderswith the market (particularly for equities). Brokers source funding from local banks and recover the costs through their commission,which is adding to transaction costs in the market.

According to TASECH's By-Laws safekeeping of certificates of corporate securities is the responsibility of four banks known as‘Coordinating Banks’ (being Bank Hapoalim Ltd, Bank Leumi Le-Israel Ltd, Israel Discount Bank Ltd, Mizrahi-Tefahot Bank Ltd. Thereare no certificates for government bonds and MAKAMs. Although issuers choose their Coordinating bank upon initial issuance ofsecurities, not all securities within each issue are immobilised within the Coordinating bank, and the decentralised model results invarying standards of safekeeping practices across the market.

TASECH is able, through its close association with TASE, to provide timely primary-sourced corporate action information. Allcorporate events information has to be routed through TASE by law. Information on corporate events are now beingelectronically sent to participants, but some paper reporting still exists (primarily for tax withholding information). Although manystandard corporate actions can be executed automatically, some voluntary corporate events require manual intervention by TASECHstaff involving re-keying and data input.

TASECH was, until 2006 a company owned by its members and limited by its members guarantee, without share capital. During2005-2006 a reorganisation of the TASECH was completed. As a result, TASECH became a company limited by shares and itsownership was changed so it became a wholly owned subsidiary of TASE, with its own capital, amounting to ILS 38.9 million (USD10.2 million) as at 31 December 2011. TASE and TASECH share operating resources and as such, all operating revenues areattributed to TASE. The revenues of TASECH are only derived from its investment portfolio, which has varied in profitability over theyears, achieving a net profit of ILS 266,000 (USD 74,000) in 2011 after posting profits in the two previous years.

TASECH acts as settlement guarantor/ central counterparty (CCP), so it is theoretically possible that it may need to call upon itscapital in the event of a significant default in the market. However, it maintains a Risk Fund that is periodically stress-tested andre-sized on a quarterly basis. TASECH carries substantial insurance policies covering Professional Indemnity and Directors & Officersliability which should be sufficient to set-off against even large claims against them.

Although TASECH operates a highly automated clearing and settlement environment, improvements are still being made in theoperational areas especially around voluntary corporate actions. A Disaster Recovery plan is in place which includes the real-timemirroring of all computer data, the storage of data off-site, the use of an off-site facility (business continuity site) and therequirement that all back-up files are safely stored.

Risk Analysis Summary Rating

Overall Risk A+

Asset Commitment RiskThe asset commitment period for all security types that settle in the 1st batch window is around 40 minutesfor purchasers as securities are not available until 9.30am when the system opens while a shorter period ofaround 1 minute applies to sellers. Securities and cash are settled on a simultaneous DVP mechanismstarting at 8.50am SD and ending at 9.15am SD. There is a second settlement batch that starts at 3.45pmand ends at 4.00pm SD. The asset commitment period for the second window is from around 1 minute to15minutes for both buyers and sellers.

AA+

Liquidity RiskBIS model 3 settlement is used for settlement of all transactions, with most settlement occurring in the8.50am - 9.15am morning batch. Fails in the T+1 markets can be recycled in subsequent batches in the day(3.45pm - 4.00pm). A commercial stock lending market exists for all securities types although of varyingquality and lending across custodians’ programs. A lending program for government bonds is provided by the

A+

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Ministry of Finance. Securities that are not registered under a nominee company name cannot be traded.

Fails management procedures for securities settling on T+1 include daily penalties, a buy-in procedure whichis initiated on T+4, and cash compensation on T+21. There is no partial settlement. The market settlementrate for equities is around 99.28%. The settlement rate for government bonds/MAKAMs is around 99.75 -99.67%.

Counterparty RiskTASECH acts as settlement guarantor for TACT and as central counterparty for MTS-Israel transactions, withthe backing of a pooled risk fund reviewed on a quarterly basis. As at 31 January 2013, the value of the riskfund was NIS 539 million (USD 144 million) which would be sufficient to cover replacement cost risk in mostcases. The fund is stress-tested and reviewed on a quarterly basis.

TASECH does not act as central counterparty for off-exchange transactions. For off-exchange transactions,the conditional settlement of securities until cash settlement is confirmed ensures non-simultaneous DVP,thereby reducing counterparty exposure.

All TASE members are entitled to become a clearing member of TASECH. However, the membership criteriafor TASE includes minimum liquidity, capital, operational and risk control standards and there are frequentreports required and regular audits undertaken by TASE’s Membership and Surveillance department.

AA-

Asset Safety RiskAsset safety controls are supported with recognition of the nominee concept in Israeli law and through theTASECH By-Laws. Members are required to segregate their proprietary assets from their clients' assets. Amember can open a dedicated account for a specific client; however this account is still the member accountand therefore does not give any legal benefit to the client. All securities are either dematerialised orimmobilised as jumbo certificates held in safe custody by the coordinating bank. Account controls are wellestablished with processing of transfers through dual matching. Reconciliations are on a daily basis throughan automated reconciliation process.

AA-

Asset Servicing RiskIssuers are legally obliged to supply both ISA and TASE with all corporate action information which ispublished on the TASE website, MAYA. TASECH publishes corporate event information in the daily 400Report. Corporate actions instructions are received via the TASECH Extranet system. Entitlements are paid ondue date. TASECH is subject to the general civil law and accepts liability for losses due to inaccurateprocessing or missed deadlines although specific liability has not been tested in court. TASECH does notprovide corporate governance services since Israeli Law establishes that voting can only be exercised inperson.

AA-

Financial RiskTASECH is a wholly owned subsidiary of TASE. Although TASECH is a separate legal entity, its revenues andexpenditures are directly attributed to the TASE, as they are affiliated operationally.

The main area of Financial Risk is TASECH’s exposure as a settlement guarantor/central counterpartywhereby should other resources such as the Risk Fund be insufficient to cover the obligations of a defaultingcounterparty, at some point the capital of TASECH may be called upon. However, TASECH also has access toaround NIS 80 million (USD 22 million) of credit lines which can be used to settle their obligations.

Neither TASE nor TASECH have suffered any operational claims against them in the last five years, and TASEcarries substantial insurance to protect itself.

A

Operational RiskTASECH has reasonably good controls in place and a methodology to identify risks through its risk officer. Itsprocesses are fully documented. The major shortcoming is the limited audit arrangements as there is noexternal operational audit although an outsourced internal audit exists in line with the conventional Israelimodel. However, the audit does not cover all core activities on an annual basis but only every five years.

Although some manual intervention is still required in some operations, processes are now largelyautomated. The implementation of SWIFT messaging is expected to further enhance straight throughprocessing with participants.

Robust disaster recovery and business continuity procedures are in place and tested regularly withparticipants. However, testing in a live environment has not yet been conducted.

A+

Governance and Transparency RiskAlthough TASECH is a separate wholly-owned subsidiary company of TASE, it does have its own Board ofDirectors with participation from the banks and non-banks. However, there is only one Board committee with

A

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important risk and audit issues and IT matters being covered in TASE Board committees. The auditors reportto the CEO and Audit committee. At a management level TASECH has adopted management appraisalsystems and there is regular communication with the CEO. A formal User group has not been establishedalthough there are some other avenues for communicating with participants. Disclosure of information on theclearing and settlement system is via the TASE website although this is not a comprehensive informationsource with little statistical information.

Outlook SummaryThomas Murray has assigned an Outlook of ‘Stable’ to the Overall Rating. However, TASECH has a number of projects in progressthat should help to mitigate risk once they have been successfully implemented . These include the adoption of a newcapital/liquidity model, the strengthening of the audit and risk management activities with new additional resources employed, thecommencement of the settlement account at the Bank of Israel, the use of SWIFT messages for settlement instructions by moreparticipating banks, the automation of dividend payment information and the move to new high-tech premises.

Eligible Securities Depository under SEC Rule 17f-7

System of central handling of securities Yes

Regulated by a financial regulatory authority Yes

Holds assets of all participants on equivalent terms Yes

Identifies and segregates participant assets Yes

Periodic reports to participants Yes

Periodic examination by a regulator or independentaccountant

Yes

Regulatory and Independent Examination of the Depository

TASECH is regulated by the Israeli Securities Authority according to Sections 50B and 50C of the Israeli Securities Law. TASE acts inthe capacity of a self-regulatory organisation (SRO). ISA has regular formal meetings with TASE, at least four times per year, andISA representatives may be present at TASECH Board of Directors meetings . Any change in fees sought by TASE is subject to theapproval of ISA.

Deloitte & Touche have been appointed external auditors for the financial accounts. The IT department selects specialists to providean IT audit on specific applications. Reports are presented to the Finance Committee, Audit Committee and Board of Directors ofthe Stock Exchange.

Relevent Legal Protection Mechanism

The use of nominees is common in Israel, with the law recognising the concepts of beneficial and legal ownership.

From 1 November 2001, it has been mandatory for participants to operate separate depository accounts for proprietary and clientassets.

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Settlement Processes

Settlement Process Options

Description of Settlement Processes

A T+1 settlement cycle for both cash settlement and securities settlement is applied to transactions in equities, corporate bonds,governments bonds and MAKAMs.

Because of the very tight settlement time scale (T+1), it is common for foreign investors to negotiate a different settlement periodfor the broker-to-custodian leg of the settlement (commonly T+2). It should also be noted that banks and some non-bankingTASECH members debit and credit their customers with cash considerations on the transaction date (T+0) and they bear thedifferences which derive from accelerating the value dates. Receive FOP transactions mainly settle on T+1, unless the counterpartysubmits the instruction to TASECH before 2.00pm during the normal operating days or by 11.00am on Fridays and Holidays; andthe TASECH member clearly requests to settle on the same day.

Securities

Matched on-market trades are received into the TASECH system from TACT at the end of the trading day at 4.30pm. MTS tradesare communicated by SWIFT in real-time to TASECH throughout the day. Off-market trades and transfers to custodians can bematched either through SWIFT (since June 2010) or Extranet (TASECH’s proprietary communication). The matching process waschanged from a single-sided (from deliverer) affirmation process to a full dual-instruction matching process in December 2009, atwhich time the matching process also became fully automated. Despite this enhancement, many custodians still practicepre-matching manually (telephone/fax) although this is more due to limitations in their own procedures/organisation than issueswith TASECH’s system.

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The settlement instruction deadline for off-exchange and ‘transfer to custodian’ transactions on Extranet is 6.30pm.

Equities, corporate bonds, government bonds and MAKAM transactions settle on a simultaneous DVP basis during the two dailysettlement windows (8.50am/9.15am and 3.45pm/4.00pm) on SD (T+1).

Bi-lateral gross settlements are possible from 9.30am to 1.00pm.

Cash

RTGS (ZAHAV) was introduced by the Bank of Israel in July 2007. For securities transaction-related payments, TASECH calculatesthe net value for each bank and transfers the results to the ZAHAV System for debiting/crediting of the bank's relevant accounts atthe Bank of Israel. TASECH settles the transaction in the ZAHAV system during fixed settlement windows during the business day.There are three cash settlement windows during the business day. Settlement banks receive cash settlement confirmations on areal-time basis from ZAHAV. The settlement transactions are multilateral, i.e., TASECH sends one transaction which includesinstructions to debit or credit each bank. Therefore, if one participant does not have enough credit in its settlement account, thewhole TASECH multilateral transaction is ‘on hold’. TASECH is also able to send bilateral transactions to the ZAHAV system. Thesedo not settle in settlement windows and can settle during the business day hours (from 9.30am to 1.00pm according to TASECH’sBye-Laws).

For equities, corporate bonds, government bonds and MAKAMs, cash settlement leg and securities settlement leg occur on anear-simultaneous DVP basis on T+1. Monetary clearing runs according to the following schedule:

Sundays to Thursdays• 8.50am - 9.15am: for shares and corporate bond trades conducted on the TACT trading system, MTS and Extranet as well asgovernment bonds and MAKAMs• 3.45pm - 4.00pm for pending transactions related to shares, corporate bonds, government bonds and MAKAMs• 5.45pm - 6.00pm for marked-to-market freezes of T+1 trades, corrections of corporate action payments

On Fridays and holiday eves, there are only two batches:• 8.50am - 9.15am• 12.30pm - 12.45pm

TASECH sends the multilateral cash payment orders to ZAHAV about 15mins before the opening of the clearing windows. Themanager of the clearing house can ask the Bank of Israel to postpone or extend the clearing window (as much as necessary), asappropriate, as well as open an additional clearing window (emergency window) if necessary.

TASECH members, who are not banks, obtain cash clearance through the banking members who offer this service. TASECH is ableto directly debit and credit the cash amounts due to and from each participant using these accounts, without the prior permission ofthe participant concerned. TASECH sends a statement of the cash clearing to its participants (around 7.30pm) before sending it tothe Bank of Israel. This allows participants to notify TASECH on the morning of T+1 of any disagreements they might have in thecalculation of these amounts.

Settlement Process – Key Indicators

TransactionType

Instrument Type BISModel

ClearingProvider

SettlementPeriod

Cash (Central Bank orCommercial bank funds)

On-exchangeTransactions

Equities, Corporate Bonds,Government Bonds, MAKAMs

3 TASECH T+1 Central Bank (Bank ofIsrael)

OTC Transactions Equities, Corporate Bonds,Government Bonds, MAKAMs

3 TASECH T+1 Central Bank (Bank ofIsrael)

CSD - CSD Links

TASECH maintains a two-way FOP link with the Depository Trust & Clearing Corporation (DTCC), USA. The link is used to facilitatethe settlement of Israeli firms’ dual-listed securities.

TASECH is considering the possibility of a future link up with Euroclear and Clearstream to facilitate clearing and settlement of

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securities that are traded both in Europe and Israel.

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1.0 Asset Commitment Risk RATING: AA+

1.1 Summary

The asset commitment period for all security types that settle in the 1st batch window is around 40 minutes for purchasers assecurities are not available until 9.30am when the system opens while a shorter period of around 1 minute applies to sellers.Securities and cash are settled on a simultaneous DVP mechanism starting at 8.50am SD and ending at 9.15am SD. There is asecond settlement batch that starts 3.45pm and ends at 4.00pm SD. The asset commitment period for the second window is fromaround 1 minute to15 minutes for both buyers and sellers.

1.2 Asset Commitment Periods Analysis

The majority of trades settle in the first settlement window. Assets are committed to the settlement system from thecommencement of the settlement window. For purchase transactions, the commitment period starts from the funding of theaccount with ZAHAV at 8.50am on SD until the receipt of securities within the settlement window. However, these securities are notavailable for access until 9.30am, resulting in an asset commitment period of up to 40 minutes. On the other hand, for saletransactions, the asset commitment period is usually around a minute as the cash is immediately available following the settlementof cash and securities.

1.3 Irrevocability

Transactions executed on TACT and MTS are deemed irrevocable, i.e. the counterparties to the transactions are obliged to settle thetransactions. However, matched transactions on Extranet (off-exchange transactions) can be cancelled any time if bothcounterparties to the transactions so decide.

1.4 Finality

Securities transfers on TASECH's books shall be final (irrevocable and unconditional) once the transfer has completed. Cashpayments through the RTGS system shall be deemed final and shall not be liable to cancellation after being cleared through thesystem.

The finality of monetary clearing is established by Chapter Six Part Two of the By-laws, and in the Payment Systems Law. Thefinality of securities clearance is established in the Clearing House By-laws.

1.5 Future plansTASECH is giving consideration to having a third settlement window for securities.

Asset Commitment Risk – Key Indicators

Transaction type Start of AC Period End of AC Period (finality) Asset Commitment Period Proportion

1st batch window(Purchasers)

8.50am SD 9.30am SD 40 minutes majority of trades

1st batch window(Sellers)

8.50am SD 8.50am - 9.15am SD 0 - 25 minutes majority of trades

2nd batch window(Purchasers)

3.45pm SD 4.00pm SD 0 - 15 minutes -

2nd batch window(Sellers)

3.45pm SD 3.45pm - 4.00pm SD 0 - 15 minutes -

Comments

-

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2.0 Liquidity Risk RATING: A+

2.1 Summary

BIS model 3 settlement is used for settlement of all transactions, with most settlement occurring in the 8.50am - 9.15am morningbatch. Fails in the T+1 markets can be recycled in subsequent batches in the day (3.45pm - 4.00pm). A commercial stock lendingmarket exists for all securities types although of varying quality and lending across custodians’ programs. A lending program forgovernment bonds is provided by the Ministry of Finance. Securities that are not registered under a nominee company name cannotbe traded.

Fails management procedures for securities settling on T+1 include daily penalties, a buy-in procedure which is initiated on T+4,and cash compensation on T+21. There is no partial settlement. The market settlement rate for equities is around 99.28%. Thesettlement rate for government bonds/MAKAMs is around 99.75 - 99.67%.

2.2 Processing Models

There is effectively one settlement model for all securities types in the market being a batch settlement model where both cash andsecurities are netted. The netting of settlement obligations for both the cash and securities decreases the demand for liquidity inthe payment and securities settlement systems. The netting efficiency is around 87%.

There are two intra-day settlement batches making it possible to recycle failed trades on the same day which should also reduceliquidity constraints. This is reflected in a low fails rate, being around 0.72% for equity trades and 0.33% (1.25% for MTS trades)for government bond transactions.

TASECH can run additional processing batches throughout the day on a gross basis. Bilateral transactions can be instructed directlyto TASECH and are settled up to 1pm.

BIS Processing Model Type of transaction % of Trades settled (gross prior to netting)

BIS Model 3 On-exchange Transactions (TACT and MTS) 90%

BIS Model 3 OTC transactions 10%

- - -

2.2.1 Processing Model Description

The settlement cycle for equities shifted to T+1 on 18 March 2012 and the settlement rate is around 99.28%. The settlementrate for corporate debt, Government debt and MAKAMs settling on the T+1 cycle is around 99.67%.

TASE Rules require that brokers check securities positions with custodians before trading. For fails in dual clearing securities(DCS) a buy-in procedure is initiated on T+4. Enhancements and automation in the matching process have benefited allparticipants in increasing settlement efficiency; however there is still no tolerance limit in the matching process.

Fund clearing for securities transactions is made during the multilateral clearing windows on the RTGS system. Members whoare not banks (Non-Bank Clearing Members (NBCMs)), are debited through their accounts with the clearing banks (calledMPMCs - Members that Perform Monetary Clearing). MPMC’s are responsible to TASECH in respect of the NBM's obligations, upto the debit ceiling. If an NBCM exceeds there limit, then the bank that clears for it must, by fax, approve the NBCM's net debitfor the window.

TASECH does not have access into the accounts of the MPMCs within RTGS prior to the opening of the windows, hence do notknow when the window opens if the MPMC will be able to honour its obligations (although settlement banks have real-timeonline access to their accounts and can actively manage their liquidity positions accordingly). Since, TASECH must ensure allobligations in ZAHAV are cleared before they are able to close the window; this has previously led to delays in the closing of thewindows (and consequent late settlement within the day). To avoid this, TASECH has instigated a fining regime, wherebyMPMCs who delay the closing of the window are fined (NIS 3,000). TASECH is also working with the Bank of Israel to provide

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them with direct access into the RTGS system and/or extending the settlement window period to around 30mins.

Processing Models - Key Indicators

BIS Model 1 BIS Model 2 BIS Model 3

Cash - - Yes

Number ofbatches

- - 3

NettingEfficiency

- - 87.70% for 2012

Securities - - Yes

Number ofbatches

- - 2

Nettingefficiency

- - -

Comments TASECH can also process the settlement of bi-lateral trades (i.e. gross settlement, BIS Model 1) from9.30am to 1.00pm. However, this type of settlement incurs higher cost and represents only a tiny proportionin comparison with the BIS Model 3 settlement type.

2.3 Fails Management

2.3.1 Fail Definition and Rate

A failed trade is defined as a trade that does not settle by the first batch on T+4. Between T+1 and T+4 the trades areconsidered to be pending.

For the period spanning from 18 March 2012 to 30 September 2012, the fails rate for TACT equities transactions is 0.72% andon average these failed trades settled on T+2.36. The fails rate for TACT government bonds, corporate bonds and MAKAMtransactions is less than 0.33% for the period spanning from 1 January 2012 to 30 September 2012. However, the fails rate forMTS government bonds transactions is higher (1.25%) for the same period; but the value of MTS transactions only representsabout 22% of TACT government bonds transactions. On average, failed debt securities transactions settled on T+1.6.

Overall the fails rate is fairly low, which implies little liquidity pressure within the settlement system.

2.3.2 Fails Management Mechanisms

Fails management procedures are in place for on-exchange transactions settling through CCP/settlement guarantor. Failedtrades are recycled for three days, after which time a buy-in is initiated (i.e. T+4). The buy-in is forced by TASECH and theprocess is fully automated. Cash compensation on T+21 will be executed if the buy-in is unsuccessful. For fails in dual clearingsecurities (DCS), a buy-in procedure is initiated on T+8.

Trades that fail to settle in the first window on T+1 are automatically sent for recycling in the second window. The thirdrecycling window is for marked-to-market freezes of T+1 trades and corrections of corporate action payments.

Trades that do not settle in the second window on T+1 are subject to pay collateral to TASECH and the trade is recycled to thefirst window of the following day. Collateral continues to be paid until the buy-in is completed after the first window on T+4 oruntil the trade settles if prior to T+4. Collateral is marked to market each day.

Partial settlement is not allowed. However, partial buy-ins are allowed until the buy-in is completed. Partial buy-ins are onlyallowed from the participant’s proprietary account. The defaulting participant is charged ILS 3,548 for buy-in handling and ILS6,996 for cash compensation handling.

On the cash side, a trade may fail due to a clearing member default, in which case the Risk Fund will be used. The failingmember will be charged a penalty of ILS 3,000.

TASECH issued a draft paper in October 2012 proposing to consider all failed transactions that are linked to a single sell orderas a single failed transaction, and therefore to cancel the maximum handling fee for multiple buy-in transactions. This proposal

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is subject to approval by the Israeli Securities Authority (ISA). Currently, the maximum fee is NIS 17,491 per day.

There are no buy-in arrangements for OTC and Transfer to Custodian transactions. If the seller does not have the securities, thetransaction is cancelled during the day or removed from the system at the end of the day.

Fails Management - Key Indicators

Fail penalties applied: Yes

Buy-in execution relative to original settlement date of trade: SD+3 for on-exchange trades

Settlement Rate

-

2.4 Access to Funds

All TASECH participants have debit caps set and monitored either by the Supervisor of Banks, or in the case of a non-bank member,the TASE. Commercial banks can provide short-term credit facilities to brokers in order to prevent fails. Banks are able to obtainliquidity from the inter-bank repo market operated by MTS Israel, but at present there is very little repo trading in this market. Repotransactions are cleared through TASECH. The trading of repos on MTS began in March 2009.

Banks are also able to obtain liquidity from the ICS collateral system which TASECH operates on behalf of The Bank of Israel. Thisprovides for intraday secured liquidity to be obtained from the central bank on an automated basis, with 4 types of collateral able tobe used by banks, i.e. Government bonds (kept at TASECH), foreign bonds (kept at Euroclear Bank), deposits in Shekel anddeposits in USD.

Access to Funds – Key Indicators

Sources of Credit

Yes/No

Commercial banks to domestic investors Yes

Commercial banks to foreign investors Yes

Interbank repo market Yes

Central bank repo Yes

- -

2.5 Securities Borrowing and Lending

2.5.1 SBL Description

TASECH does not offer open market equity lending. Members also borrow securities from bank members to cover pendingtransactions. Custodians run securities lending programmes but there is no inter-bank lending market, limiting the depth of thelending pool to that of the custodian. Although there seems to be sufficient liquidity in these pools for TASE25 securities, thedepth of liquidity pools outside of these securities is questionable.

TASECH operates, on behalf of the Ministry of Finance, a lending and borrowing reservoir for government bonds.

2.5.2 Short Selling

Intentional shorts are not permitted and must be covered by the offending member within 24 hours of their creation.

Securities Borrowing and Lending – Key Indicators

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Securities lending permitted in the market: Yes

Short Selling permitted in the market: No

Purpose of SBL: Cover pending trades.

Providers of SBL: Custodians

Minimum Settlement cycle of SBL: -

Comments Intentional short selling is not allowed.

2.6 Registration Period

Securities traded on the TASE are registered securities.

Registered securities are immobilised at one of four local banks, plus the central bank for MAKAMs and the Ministry of Finance (forgovernment bonds only) although it only holds government securities which are both immobilised and dematerialised. TheCompanies Law dictates that equities must be issued with a physical certificate which is now mainly in jumbo certificate form. Sincedebt is issued under a different law it can be issued in dematerialised form. When a company issues securities which it wishes to liston the TASE, it must first appoint a Nominee Company, which is wholly owned by one of the four local commercial banks.

Certificates are issued by the company in the nominee name of the Nominee Company concerned and are then held in the vaults ofthe parent bank for the account of and on behalf of TASECH. Securities are then held in the name of participants and theirnominees in the books of TASECH.

The nominee concept is recognised in Israeli law, which permits the underlying investor to be both legal and beneficial owner ofsecurities.

From November 2001, it has been mandatory for TASECH participants to register client securities in a client omnibus or segregatedaccounts, separate from their proprietary positions. All Israeli banks carry insurance policies covering loss of security certificates.Should a security certificate be lost and the issuer of the certificate is an Israeli institution, the Israeli institution would issue newcertificates to replace them.

When investors buy or sell shares on the TASE, no change is made in respect of the share certificate in the books of the NomineeCompany. If the transaction is performed through the same TASECH member, there will only be a change in the books of thatmember, and the balances of the other TASECH members will remain unchanged. If the transaction is made between customers ofdifferent members, the balances of the involved TASECH members will be changed in the TASECH records.

The length of time it takes to re-register shares in nominee name depends on the issuing company. Shares that are not registeredin nominee name cannot be traded on the TASE. Therefore, they cannot be sold in the market before completion of there-registration. A restriction on liquidity is the TASE rule which requires brokers to have securities registered in TASECH’s nomineename at one of the four nominee companies prior to settlement. Deposited securities cannot be used to cover sales until the issuingcompany has confirmed the registration.

The Bank of Israel acts as the nominee bank for treasury bills (MAKAMs) and the Ministry of Finance for government bonds. Most ofthese securities have been issued in dematerialised form, thereby preventing any physical withdrawals.

Registration Period – Key Indicators

Securities are blocked during registration: Yes

Period of blocking during registration: -

Period of time to deposit: 3 days but can be up to a week.

Period of time to transfer ownership: -

Number of registrars in the market: -

Comments -

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2.7 Deposited Securities

All securities listed for trading on the TASE are registered in the name of nominee companies and held in the vaults of thecoordinating banks. However, less than 100% of issues may be held by the nominee company, since beneficial owners may registerthe securities in their own name and hold them outside the nominee. Government bonds, funds and ETFs are fully dematerialisedand are held at TASECH.

Custody Arrangements.The majority of most issues (75% of equity issues) are held by the nominee companies on behalf of TASECH. TASECH registers thesecurities in the name of the nominee company to the credit of its members. The securities are deposited by the nominee companywith a coordinating bank to the credit of TASECH who will hold the securities concerned in its vaults. These banks, known asCoordinating Banks, currently are:

- Bank Hapoalim Ltd.- Bank Leumi Le-Israel Ltd.- Israel Discount Bank Ltd.- Mizrahi-Tefahot Bank Ltd.- Bank of Israel -the Central Bank (For MAKAMs).- Ministry of Finance (For government bonds only)

According to TASECH By-Laws all corporate companies must register all their securities through nominee companies, and thesystem prohibits the deposit of total holdings above 100% of the issue. The securities must be deposited by the nominee companywith a coordinating bank to the credit of TASECH. The coordinating bank and the nominee company shall act as trustee forTASECH. Securities cannot be traded on the TASE until they have been registered in the nominee company name.

Withdrawals.A client does not have the right to withdraw shares (except as indicated at TASECH By-laws), from the securities registered to hiscredit with a member and to have them registered in his name in the issuer's register of share holders. However if a client asks towithdraw securities that are not shares from the securities registered to his credit with a member and to have them registered inhis name in the issuer's register, then the following provisions shall apply:

The client's request must be delivered to the member in writing and must be accompanied by a transfer document. If the clientacts through an NCHM (Non Clearing House Member), then the request must be given to the NCHM, and it must transmit it to themember that clears for it. Within three trading days after the member receives the request from the client, it must give TASECH awithdrawal order. Within two trading days after it receives the withdrawal order with the request, TASECH must transmit therequest together with a copy of the withdrawal order to the nominee company and order the nominee company to transmit therequest to the issuer. Within three trading days after it was ordered to do so, the nominee company must transmit the request tothe issuer, together with an appropriate certificate. Hence, the whole withdrawal process can take up to eight trading days (nearlytwo calendar weeks), although it should be restated that withdrawals are prohibited except for exceptional circumstances.

Deposited Securities – Key Indicators

-

2008 2009 2010 2011 2012

Total Value of Securities undercustody (in local currency)

NIS 1,188billion

NIS 1,722billion

NIS 1,653billion

NIS 1,460billion

-

-

Equities

2008 2009 2010 2011 2012 2013

Lines of Equities 1,551 1,381 1,520 1,504 - -

Value held at CSD 507,900 867,600 806,100 600,100 - -

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% of Domestic Market in CSD - - - - - -

Comments Figures as at December in NIS

Fixed Income Securities

2008 2009 2010 2011 2012 2013

Lines - - - - - -

Value held at CSD 645,100 769,700 711,900 737,400 - -

% of Domestic Market in CSD - - - 100% - -

Comments Figures as at December in NIS

Money Market Instruments

2008 2009 2010 2011 2012 2013

Lines - - - - - -

Value held at CSD 72,000 85,500 135,300 122,500 - -

% of Domestic Market in CSD - - - 100% - -

Comments Figures as at December in NIS

How Securites Are Held

Equities Immobilised

Corporate Debt Dematerialised

Government Debt Dematerialised

Money Markets Dematerialised

Other Instruments -

2.8 Settlement Matching

2.8.1 On-Exchange Matching

TASECH receives matched trade details from TACT every 30 minutes via batch file (last batch at 4.30pm) and from MTS viaSWIFT in real-time.

2.8.2 OTC Matching

Matching of off-exchange related settlement introductions is done on the TASECH Extranet system. Participants send dual-sidedinstructions to Extranet mainly via batch files. Although SWIFT was introduced in 2011, few participants are using it.

Where it is practised (not all custodians pre-match), pre-matching is manual outside of TASECH via telephone and fax/physicaldocumentation comparison prior to sending the instructions to Extranet.

2.9 Future PlansIt is anticipated that the settlement amount field will become a mandatory when filing instructions through Extranet. Ifimplemented, members will be able to input the deal price and/or the settlement amount, therefore reducing the number of caseswhere the tolerance amount is used. The deal price is not required if the settlement amount is input.

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3.0 Counterparty Risk RATING: AA-

3.1 Summary

TASECH acts as settlement guarantor for TACT and as central counterparty for MTS-Israel transactions, with the backing of apooled risk fund reviewed on a quarterly basis. As at 31 January 2013, the value of the risk fund was NIS 539 million (USD 144million) which would be sufficient to cover replacement cost risk in most cases. The fund is stress-tested and reviewed on aquarterly basis.

TASECH does not act as central counterparty for off-exchange transactions. For off-exchange transactions, the conditionalsettlement of securities until cash settlement is confirmed ensures non-simultaneous DVP, thereby reducing counterparty exposure.

All TASE members are entitled to become a clearing member of TASECH. However, the membership criteria for TASE includesminimum liquidity, capital, operational and risk control standards and there are frequent reports required and regular auditsundertaken by TASE’s Membership and Surveillance department.

3.2 Participation Criteria

TASECH procedures, set by the TASE, relating to membership specify a list of criteria referring to good standing, knowledge,number of customers, volume, insurance coverage, participation in the Risk Fund, equity, a risk management framework includingrisk surveillance, and the ability to provide data processing services. The operating requirements of participants are the same for allparticipants including those which hold assets for foreign investors. Any new TASE member must wait at least two years beforebeing eligible to become a TASECH member. All TASECH members must be TASE members, with the exception that remote tradingmembers cannot be clearing house members.

TASECH by-laws state that brokers must have a minimum capital of NIS 21 million (USD 5.6 million). According to the requirementsdetermined by the Bank Commissioner in the Bank of Israel, a minimum capital requirement for a bank is NIS 50 million (USD 13.4million). Bank credit limits are also set by the Supervisor of Banks.

For the Repo market, a member wishing to receive Repo clearing services from TASECH, should equally have net capital not lessthan the capital required as indicated by TASECH By-Laws.

Should the member wish to provide clearing services for a Non-Clearing House Member (NCHM), they are required to haveadditional equity of NIS 5 million (USD 1.4 million) per NCHM they are servicing. For each additional client sub-account (after thefirst client sub-account) the member should have additional equity of NIS 5 million (USD 1.4 million). Should the member wish toprovide clearing services for a Repo participant, they are required to have additional equity of NIS 120 million (USD 32 million) perRepo participant they provide clearing services to.

Participation Criteria – Key Indicators

Number Minimum Capital Requirement Regulator

Brokers 9 ILS 21 million TASE

Banks/Custodians 11 ILS 50 million Bank of Israel

NBFIs - - -

Other - - -

3.3 Participant Surveillance and Oversight (CSD & Regulator)

3.3.1 General Monitoring (Regulator/Stock Exchange/Others)

Members of the TASE are monitored by the exchange for continuing capital adequacy and their ability to continue to operate ina safe manner. Member’s must provide a range of reports to the TASE Membership and Surveillance department on a quarterlyand annual basis, which the TASE Membership and Surveillance department analyses against a number of compliance criteria(including broker stability). On a quarterly basis, the department examines NBCMs’ compliance with capital adequacy andliquidity requirements, while the Bank of Israel supervises bank Stock Exchange members (BCMs) similarly on capital adequacy

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and liquidity requirements.

The NBCMs are supervised by TASE Membership and Surveillance department regarding TASE Rules & Regulation and TASECHby-laws.

TASE Membership and Surveillance department supervises the BCMs regarding their trade and clearing activity in TASE andTASECH, and regarding their conduct with their customer's in regards to the customers' activity in TASE.

The Membership & Supervision dep. (consisting of 13 people) conducts about 27 audits a year per NBCM and 5 per BCM.Members must provide a range of reports to the TASE Membership & Supervision dep. on a daily, monthly, quarterly and annualbasis, which the TASE analyses against a number of compliance criteria (including broker stability).

Au updated capital adequacy and liquidity model was introduced in June 2011. According to the model an NBCM is required tomaintain an internal mechanism for daily control of its compliance with the capital adequacy and liquidity requirements. Duringthe audits the NBCM is required to demonstrate that it undertakes the appropriate calculations on a daily basis. An NBCM mustsubmit to TASE the documentation in regards to the end of each quarter. Additionally, the minimum capital for NBCMs is NIS 21million (USD 5.5 million) which increases as the NBCM is more exposed to operating risks and financial risks. It is noted that theequity requirement of most NBCMs pursuant to the model is materially higher than the minimum requirement (NIS 21 million).

TASE has added a provision according to which an NBCM must report to TASE monthly regarding several issues, including themanner in which it complies with the aforesaid provisions. TASE Rules & Regulation determine financial sanctions due toviolation of several provisions in several subjects. In very extreme cases, TASE can complain against a member to a temporarytribunal. The tribunal is allowed to impose several sanctions on the complained.

3.3.2 Monitoring by the CSD

The Membership and Surveillance department of TASE undertakes the surveillance for both TASE and TASECH by conductingmultiple audits on both NBCMs and banks. The department has full access to all NBCMs’ books and records as well as theirexternal audit reports. There are currently 13 people in the surveillance team, and local accountants are used to outsourcesome of the more straightforward tasks.

3.3.3 Clearing/Settlement Exposure Monitoring

Apart from the monitoring by TASE Membership and Surveillance department as described above, the TASECH stress tests theRisk Fund during which it examines the highest periodic debt of a clearing member. This requires it to examine and monitorexposures on a regular basis - it undertakes quarterly adjustments of the Fund but can make further adjustments if there is aneed to do so based on the movement of members' exposure positions.

3.4 Participant Concentration

The membership of TASECH comprises 10 Israeli banks (among them the Bank of Israel), 2 foreign banks (Citibank and HSBC) and9 brokers (NBCMs) from the TASE. The remaining brokers, who are not participants of TASECH, employ a TASECH member to cleartheir business.

19.87% of transactions by value cleared through the largest participant in 2012, (up from 14.95% in 2011) while 43.29% by valuecleared through the largest 3 participants in the same year including OTC transactions (similar to the 2011 figure of 44.83%).

Participant Concentration – Key Indicators

% by value % by volume

Largest Participant in 2012 (2011):......% (11.28%) - exclude OTC transactions19.87% (14.95%) - include OTC transactions

-

Top 10% of Participants in 2012 (2011):....... (42.22%) - exclude OTC transactions43.29% (44.83%) - include OTC transactions

-

-

3.5 Delivery Versus Payment

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3.5.1 DVP Settlement

Settlement of equities, corporate bonds, government bonds and MAKAMs is on a near simultaneous DVP basis with bothsecurities and cash moving within the same 15min settlement window. The TASECH settlement system communicates withZAHAV (the Bank of Israel's RTGS system) through SWIFT with the systems fully automated - SWIFT messages areautomatically generated and transmitted.

3.5.2 FOP Settlement

Settlement is on a DVP basis - there are no FOP settlements.

DVP – Key Indicators

DVP Managed by

For all transactions Near Simultaneous TASECH

- - -

- - -

3.6 Cash Exposure

The Bank of Israel RTGS payment system was introduced in September 2007. This enabled the settlement on a nearly simultaneousDVP basis for transactions of equities, corporate bonds, government bonds and MAKAMs on T+1.

The Bank of Israel does not guarantee payments settling through the RTGS system. However, in the event of a settlement bankencountering financial difficulties such that they are in default, their payment obligations may (by mutual consent) be transferred toanother settlement bank. Alternatively, The Bank of Israel Bill, 5770-2010, defines the Bank of Israel as the lender of last resort.And the Governor may decide to act as such. The BoI does not require the commercial banks to maintain a minimum level ofreserves in the settlement account.

3.7 Central Counterparty (CCP) Risk Containment Model

3.7.1 CSD Acting as CCP

TASECH acts as settlement guarantor to all TASE transactions include broker-to-broker and broker-to-custodian equity,corporate bond, government bond and deliveries stemming from trades executed on the TACT trading system as centralcounterparty and MTS Israel. TASECH is also CCP for transactions in Government Bonds, Repos and MAKAM transactionsconducted on the MTS system. Combined, these represent around 90% of total traded value in the Israeli market.

OTC trades are not covered by a CCP.

Please note that TASECH does not become the legal counterparty to transactions executed on TACT (or their reliant custodiantransfers) in the way that a conventional CCP would. Rather, by TASECH by-laws, the clearing house has a responsibility to fulfilthe deliveries of transactions it has agreed to clear, regardless of whether the member delivers the asset.

However, for MTS transactions, the contractual agreement between MTS and TASECH states that the clearing house novates thetrades from the original bilateral counterparties, and hence can be legally considered a central counterparty. It does this uponreceipt of the trade feed from MTS which is on a real-time basis. Practically, there is very little difference between the twopositions, since TASECH utilises the same resources and fails management processes to guarantee settlements in both marketsand TASECH capital could ultimately be used to fulfil their obligations in both markets.

TASECH formed the Risk Fund in May 2002, backed by solid collateral such as T-bills, government bonds and cash. A newmethodology was adopted in 2012 to calculate the Risk fund - this was based on the highest periodic debt (after the deductionof maximum data points) due by a member that is not the Bank of Israel, during the previous 6 months. The size of the Fund isstress tested and updated on a quarterly basis as at 31 January, 30 April, 31 July and 31 October. It was valued at NIS 539million (USD 144 million) as at 31 January 2013. Risk Fund members have been obliged to deposit 25% of their contribution incash from December 2008.

In the event of losses, the Risk Fund will be utilised between participants on a pro-rata basis, based on participants’ volumes. Inthe case of non-payment, the securities are transferred to the control of TASECH who arranges the payment to the seller, usingfunds from the Risk fund, if so required.

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3.7.2 Other Entities Acting as CCP

-

CCP Risk Containment Model – Key Indicators

CCP: TASECH

Novation / OpenOffer:

Yes (MTS trades)

Novation / OpenOffer Timing:

Upon receipt of trade

Timing of MarginCalls:

N/A

Stress Testing: Risk fund is stress tested.

Stress TestingFrequency:

Quarterly

Comments TASECH mark-to-market on a daily basis the collateral in the Risk fund. Collateral can be cash(minimum 25%) and/or government bonds - there is a haircut on all government bonds and MAKAMSof 3% plus 1% per each year of redemption.

3.8 Settlement Guarantees

3.8.1 Coverage

TASECH formed the Risk Fund in May 2002, backed by solid collateral such as T-bills, government bonds and cash.Initial funding was NIS 150 million (USD 30.3 million), which is also the lower limit for the fund. The value of the fund as at 31January 2013 was about NIS 539 million (USD 144 million). The value is reviewed on a quarterly basis, on 31 January, 30 April,31 July and 31 October of each year. The members deposit either cash (minimum 25%) or government bonds to fund theirshare in the Risk Fund. The Risk Fund backs TASECH's guarantee for all TASE and MTS transactions and covers replacementcost risk.

The operation of the Risk Fund is organised around a ‘defaulter pays/survivor pays’ model, in which in the unlikely event that adefaulter’s contribution to the Fund was insufficient to close out the defaulter’s position, the other participants in the Risk Fundcould be requested to contribute on a pro-rata basis.

3.8.2 Characteristics

Stress-testing of the Risk Fund has been carried out based on the new risk-based principles methodology for calculating theRisk Fund. Stress-testing was carried out with the data between January 2010 and February 2012. In March 2012, TASECHboard of directors approved a new risk-based principles methodology for calculating the Risk Fund.

The size of the Risk Fund is based on the highest periodic debt (after deduction of maximum data points) due by a memberthat is not the Bank of Israel, during the six month prior the calculate month. The value of the Risk Fund is reviewed on aquarterly basis, on 31 January, 30 April, 31 July 31 and 31 October of each year ("update calculation date"). As at 31 January2013, the value of the Risk Fund was NIS 539 million (USD 144 million). Any refunding required is on obligation due by eachparticipant. The share of each member in the Risk Fund is calculated on every "update calculation date". In case ofnon-payment, the securities are transferred to the control of TASECH who arranges the payment to the seller, using funds fromthe Risk Fund, if so required.

The size of the Risk Fund is based on highest daily exposure of a single member during the test period. When a member is inviolation of their obligations, TASECH is entitled to exercise the collateral for the Risk Fund that the member who is in violationhas provided in order to pay all the members obligations. If this is insufficient, the remainder will be appropriated to thesurvivors on a pro-rata basis.

TASECH mark-to market the collateral in the Risk Fund on a daily basis. TASECH members are required to cover 100% of theirobligation toward the 'Risk Fund' with liquid assets (cash and/or government bonds). Although a variable proportion is possible

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in terms of the mix, there has been an obligation for 25% of the Risk Fund value to be held in cash since December 2008.TASECH imposes a haircut on all government bonds and MAKAMs (3% plus 1% per each year of redemption). Any depositedcollateral should be free of any charge, attachment, lien or other third party right at all times.

TASECH members do not hold the concerned collateral such as government bonds and Shekel deposits in their individualaccounts. Rather, as stated in chapter 3 of the TASECH regulations: "The said collateral shall be deposited in an account of theTel Aviv Stock Exchange Clearing House with a bank that is a Clearing House member or with a bank with a high short termrating". The account name is: "TASECH as a trustee of... (each specific member)". Only TASECH is authorised to use thisaccount (i.e., to release collateral or exercise the assets in case of a member's failure, etc.). Interest gained by the cashcontribution is paid back to the member contributor.

3.8.3 Analysis

Should a broker subsequently default, TASECH can call on the Risk Fund, to make good any outstanding deliveries. Given thecurrent level of floor trading on TASE and T+1 settlement, the pooled fund should be sufficient to cover the failure of a TASEmember, given that the cash should still be in the control of TASECH.

It is understood there has not been a history of TASE broker defaults in the last 10 years.

Settlement Guarantees – Key Indicators

Name of Fund Managed by Coverage Value

Risk Fund TASECH All TASE and MTS transactions ILS 539 million (USD 144 million) as at 31 January 2013

- - - -

- - - -

CommentsThe coverage is for replacement cost risk given that settlement is on a nearly simultaneous DVP basis.

The Risk Fund is reviewed on a quarterly basis.

3.9 Future plans1. A TASECH settlement account with the BOI has been approved to commence in 2013. This will enable TASECH to distributefunds to TASECH members in the event of default of a member as well as to hold collateral at BOI rather than with commercialbanks.

2. An amendment to the Securities Law is being sought that will assist the Bank to administer a defaulting participant by moreclearly establishing irrevocability at the point of trade.

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4.0 Asset Safety Risk RATING: AA-

4.1 Summary

Asset safety controls are supported with recognition of the nominee concept in Israeli law and through the TASECH By-Laws.Members are required to segregate their proprietary assets from their clients' assets. A member can open a dedicated account for aspecific client; however this account is still the member account and therefore does not give any legal benefit to the client. Allsecurities are either dematerialised or immobilised as jumbo certificates held in safe custody by the coordinating bank. Accountcontrols are well established with processing of transfers through dual matching. Reconciliations are on a daily basis through anautomated reconciliation process.

4.2 Segregation of Securities

TASECH bylaws only require members to segregate proprietary assets from clients’ assets. Investor’s assets are held in an omnibusaccount. A member can have more than one client account, and can open a dedicated account for a specific client; however thisaccount is still the member account and therefore does not give any legal benefit to the client.

There is no differentiation in the account structure for holding local and foreign investor securities.

During settlement, securities are transferred directly from the seller's account to the buyer's account and are not co-mingled withsecurities of any third party at any point of the settlement process.

Securities held as collateral for the Risk Fund e.g. government bonds are held by TASECH in designated collateral accounts.

4.3 Legal Conventions

The nominee concept is recognised under Israeli law and this permits the underlying investors to be both the beneficial and legalowner of securities.

In the event of a bankruptcy of a member, the Companies Law and the Securities Law provide that a customer's securities are notavailable for distribution among a member's creditors, thus giving protection to the beneficial owner. However, this has not beentested in court.

4.4 Forms of Securities

All securities in TASECH are either dematerialised or immobilised. All government bonds and MAKAMs (treasury bills) aredematerialised. Equities and corporate bonds are immobilised. Essentially equities are registered in the name of a nomineecompany and a global certificate is issued by the issuer and held in safe custody by the coordinating bank which is the parentcompany of the nominee company. There are no bearer securities. All transfers of securities between TASECH members areexecuted by book-entry.

4.5 Reconciliation and Audit

Reconciliations are undertaken with nominee companies and TASECH participants on a daily basis through an automatedreconciliation process.

TASECH provides participants with their securities balances through a batch file at the end of each clearing day and with on-lineaccess to view their settlements after each processing cycle and at the end of each clearing day. It is the responsibility of TASECHmembers to check that the data in the reports sent to them by TASECH is correct and they must inform TASECH of anydiscrepancies with their records within five days. Also the TASECH By-Laws require each nominee company to examine the securitypositions which require modification within the register and to submit notification to the securities authority through MAGNA.

Book-entry positions are audited by the internal auditors according to the annual work plan determined by TASE's audit committee.The last audit was undertaken in June 2012 by BOD Ziv Haft Accountant and Audit office.

4.6 Lien

TASECH By-Laws give TASECH the right to retain any assets of a member including assets given to TASECH as collateral where amember has obligations to TASECH including conditional obligations and may sell those assets as compensation for the obligations

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due.

4.7 Account Control

There are controls and procedures related to the access of securities accounts such that the debit and credit of accounts are onlyprocessed in accordance with participants' instructions while instructions sent bt participants have to be matched except in the caseof withdrawal and deposit.

An audit of the controls and procedures is undertaken by the internal auditors and the TASE Membership and Supervisiondepartment conducts audits on the TASECH members.

4.8 Cash Deposit

TASECH does not handle cash deposits.

Asset Safety - Key Indicators

Segregation by Law / Regulation: Yes

Nominee concept recognised: Yes

Frequency of reconciliation with participants: Daily

Liens asserted by CSD: Yes

CSD holds cash deposits: No

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5.0 Asset Servicing Risk RATING: AA-

5.1 Summary

Issuers are legally obliged to supply both ISA and TASE with all corporate action information which is published on the TASEwebsite, MAYA. TASECH publishes corporate event information in the daily 400 Report. Corporate actions instructions are receivedvia the TASECH Extranet system. Entitlements are paid on due date. TASECH is subject to the general civil law and accepts liabilityfor losses due to inaccurate processing or missed deadlines although specific liability has not been tested in court. TASECH does notprovide corporate governance services since Israeli Law establishes that voting can only be exercised in person.

5.2 Corporate Actions Supported

Mandatory Events Voluntary Corporate Actions

Yes Yes

5.3 Information Collection

5.3.1 Mandatory and Voluntary Events

According to regulations, issuers must submit to the ISA all reports required by law including all corporate action informationthrough the ISA secure site called MAGNA. The reports sent to the ISA are simultaneously received by TASE computer system.It takes about 2 to 20 minutes to get published in MAYA, the TASE website for companies’ reports, and in MAGNA, This slightdelay gives TASE time to halt trading in case very sensitive information is being disclosed (e.g., financial report, full tender offer,dividend yield of greater than 10%).

The information is entered into TASE’s computer database automatically, although TASE will add a subject line to theinformation when it publishes on MAYA. This header is added at the time the information is received during the day, or if theinformation is received overnight, the header will be added to the information in the morning, but the information receivedovernight will still be published on MAYA automatically when it is received. The only information that is entered manually anddouble checked is information that originates from TASE. All information becomes available to TASE, TASECH and all participantsinstantaneously. Members and traders are also alerted via a pop-up window in cases of fundamental information.

Corporate action information from MAGNA is manually entered into the TASECH mainframe. Details of payments are alsoentered into the TASE mainframe computer on a manual basis with the information derived from the prospectus and fromcurrent reports. This information is double checked by TASECH. TASECH will contact the paying nominee company in caseswhere the information seems to be incorrect or incomplete.

5.4 Information Dissemination

5.4.1 Mandatory Events

TASECH sends reports of all necessary details of future corporate action events such as "record date", participant’s position andinventory to its participants on a daily basis. All corporate action events are summarised in the 400 Report compiled by TASECHand picked up by members from the TASECH office at the end of the day as well all of the payments information andmodification sent in batch files as follows: batch file number 151 (payments - dividends, interest and redemptions) and 152(securities and companies index) - these batch files are sent on a daily basis. A list of all corporate action event details is sent toTASECH members on a monthly basis. Members also receive reports on record date - TASECH sends a file to each membercontaining the payment value they are due to receive. A similar report is sent to the payment bank (Coordinating Bank).Nominee companies receive the exact amount to be transferred to TASECH 2 to 3 days prior to pay date.

TASECH does not support SWIFT for corporate action notifications.

TASECH will advise participants on the day prior to record date about mandatory and voluntary corporate action entitlementswhere the participant has a position. In addition, TASECH will publish a report on the 16th day (after the CPI publication) ofeach calendar month detailing all relevant corporate action events to all members.

Custodians can manually capture information from MAYA using Smart Agent, which can then be filtered according to events and

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disseminated to their clients.

TASECH's liability for timely or accurate distribution of information will be consistent with its standard liability under Civil Law - itonly accepts liability where errors have been made by TASECH.

5.4.2 Voluntary Events

-

Information Processing- Key Indicators

Central Source of Information: No

CSD takes liability for Information Collection: No

Issuers obliged to inform CSD of corporate action: No

Information sources used by CSD ISA - MAGNA

Information from issuers cross-checked with other sources: No

Mode of Information Collection by CSD Electronic

Information is provided in English: Yes

CSD Notification Period of Corporate Actions -

Mode of Information Dissemination/Notification by CSD Electronic

CSD takes liability for Information Dissemination: Yes for errors attributable to its processing.

Comments -

5.5 Receipt of Voluntary Event Instructions

Under TASECH by-laws, all corporate action instructions are required to be routed through the depository. Participants send theirinstructions via the proprietary electronic system, Extranet except for instructions on tender offers. TASECH does not receiveinstructions via SWIFT. Participants can also send instructions by fax.

TASECH will accept separate instructions from members where holdings are at the client account level. It will also accept andprocess standing instructions for some corporate events e.g. voluntary early redemptions, proxy for warrants and participatingunits.

The TASECH system automatically checks that participants instructions are consistent with their holdings. Where there are incorrectinstructions, the system will send an alert with a code that identifies the reason for the incorrect instruction.

TASECH will follow up with participants where an instruction is not received by the market deadline but does not provide remindersto participants to provide instructions on time.

TASECH accepts no liability where the instructions are not received by the deadline and should the participant fail to instruct thentheir entitlement is deemed to lapse.

5.6 Execution of Corporate Actions

5.6.1 Mandatory and Voluntary Events

Payments from issuers are received at 11.00am on pay date. Pre-payment information is sent by TASECH at 12.00pm, andpayments are processed during the second RTGS batch, at 3.45pm. Any corrections in payments are made in the third RTGSbatch at 5.45pm.

TASECH will confirm back to participants that the instructions have been executed and the results on the day of the event. TheCSD provides value on due date by crediting and debiting cash and securities same day. Entitlements are credited on an actualbasis only (i.e. upon receipt by the depository). TASECH settles all payments on pay date using ZAHAV.

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For securities that settle on T+1 (equities, government bonds, MAKAMs and corporate bonds), payment transactions arepublished in the settled transaction file after the first settlement cycle. The securities transfer information is contained in the300 report and published in the settled transaction file after the first settlement cycle.

Corporate actions related to the exercise of early redemption, tender offers and mergers, are all conducted manually.

TASECH will accept liability for losses where it fails to execute by the market deadline.

Instruction Processing - Key Indicators

Role of CSD

Mode of Receipt of Instruction by CSD Electronic

CSD Allows Cancellation/Amendment of Instruction Yes

Calculates securities entitlements: Yes

Calculates cash entitlements Yes

Paying Agent Role

Equities No

Fixed Income No

Percentage of cash entitlements paid on pay date in the last full year -

CSD takes liability for Event Execution Yes

Mode of Confirmation of Execution by CSD Electronic

Comments -

Corporate Actions – Key Indicators

Mandatory Corporate Action Voluntary Corporate Action

2011 2012 2013

Dividend Payment 532 - -

Interest Payment 2094 - -

Redemption 1000 - -

2011 2012 2013

Rights Issues 32 - -

Merger/De-merger - - -

Etc... 133 - -

5.7 Proxy Voting and Other Services

Under the new Companies Law, the right to vote in shareholders’ meeting (not corporate bonds) is based on the beneficial owner’sholdings as of Record Date. Investors that attend general meetings are not restricted from selling their shares (partially or entirely)after Record Date.

An investor wishing to vote, or appoint a Proxy, must receive a certificate of ownership from the Custodian holding their account/s.The certificate of ownership will include the number of shares in the account as of the Record Date for the meeting (i.e. thenumber of shares that the customer can vote at the meeting). Under the provisions of the Companies’ Law 1999, the TASECHparticipant can issue an ownership certificate, as of the record date of the meeting and the owner can use this to exercise theirvoting rights. There is no need for the nominee company to validate these ownership certificates. The law stipulates that theinvestor is free to sell the securities after the Record Date as the entitlement date for the meeting is the Record Date.

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Holders of other type of securities (bonds and options) may vote by proxy and the TASECH provides the nominee company with awritten confirmation of the participants’ positions as of record date for convertible assets such as warrants and convertible bonds.As with equities, holders of these instruments that confirm attendance undertake not to sell the securities before the meeting.

In order to encourage shareholders to participate and to vote in General Meetings (GMs), the Government has amended theCompanies' Law, removing the requirement to be present at the general meeting. The changes took effect from 2 April 2006 andallow shareholders to receive information or send their voting instructions by proxies (mail/ e-mail). Companies willing to receivevoting instructions via proxies should have announced it at their general meeting. Afterwards, investors will be allowed to send theirvoting instructions to the company, but a certificate of ownership must be provided. However, the change will generally not impactforeign investors since most companies do not publish information in English.

Other Services.

TASECH offers additional services such as subscription and redemption services for funds when requested as well as exercisingwarrants, converting convertible debentures and exercising rights.

The TASECH also provides a tax reclaim service although it is restricted to crediting a members' account if the reclaim is paid viathe TASECH. The actual interface with the Israel Tax Authority (ITA) is through the local custodian who holds the final beneficialholdings.

Proxy Voting and Other Services – Key Indicators

Proxy Voting Provided by CSD No

Electronic Voting Supplied by CSD No

Proxy Voting Provided by CSD but Outsourced to Third Party No

CSD Announces Meeting Details No

Elections (Voting) No

5.8 Future PlansThe clearing house intends to automate the importation of data from MAGNA into the mainframe in 2013.

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6.0 Financial Risk RATING: A

6.1 Summary

TASECH is a wholly owned subsidiary of TASE. Although TASECH is a separate legal entity, its revenues and expenditures aredirectly attributed to the TASE, as they are affiliated operationally.

The main area of Financial Risk is TASECH’s exposure as a settlement guarantor/central counterparty whereby should otherresources such as the Risk Fund be insufficient to cover the obligations of a defaulting counterparty, at some point the capital ofTASECH may be called upon. However, TASECH also has access to around NIS 80 million (USD 22 million) of credit lines which canbe used to settle their obligations.

Neither TASE nor TASECH have suffered any operational claims against them in the last five years, and TASE carries substantialinsurance to protect itself.

Liabilities – Key Indicators

General

Gross Negligence, Omissions Yes

Wilful Misconduct Yes

Errors Yes

Fraud Yes

Force Majeure, political events No

Theft of securities Yes

Outsourced operations No

System Breakdown Yes

Consequential Losses -

Other businesses* -

Asset Servicing

Accuracy and timeliness of information Yes

Accuracy and timeliness of CAs execution Yes

Collection of information from third party No

CCP

CCP is the CSD Yes

CSD owns the CCP No

Lending

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Securities lending No

Cash lending No

6.2 Analysis of Liabilities

General Liability:

TASECH is subject to the general civil law although specific liability has not yet been tested in court.TASECH carries insurance policies covering Professional Indemnity and Directors & Officers liability however, there is no cap to thevalue of a claim against TASE/TASECH, hence it is not guaranteed that insurance would be sufficient to cover any claim. There havebeen no claims against TASECH in the last 5 years.

Clearing Liability:

TASECH's liability as settlement guarantor/central counterparty in the case of a settlement fail is limited to price risk, which isbacked by the Risk Fund. In the event of non-payment, control of securities is transferred to TASECH who arranges payment to theseller, using funds from the pooled risk fund. In this role, it is theoretically possible that there could be a call on TASECH’s capital tofulfil its obligations to the market as settlement guarantor/central counterparty. However, this would only be in the extreme casewhere the replacement cost of the defaulting party's open obligations could not be covered by the defaulter's Risk Fundcontribution, TASECH’s credit lines, and the remaining shared value of the Risk Fund.

6.3 Ownership & Access to Capital

Financial Risk - Key indicators

Ownership of the CSD

Number - Domestic Number - Foreign Percentage

Stock Exchange 1 - 100

- - - -

- - - -

- - - -

- - - -

- - - -

- - - -

- - - -

- - - -

6.4 Capital Structure and Liquid Assets

As at 30 September 2012, TASECH held net capital, reserves and retained earnings of NIS 40.78 million (USD 10.42 million).TASECH issued 30 million ordinary shares, with a nominal value of NIS 1.00 to increase its capital in 2006. The clearing house isauthorised to issue 100 million shares. TASECH's capital is held in government securities.

TASECH is a wholly owned subsidiary of TASE. TASE shareholder’s equity totaled NIS 504.80 million at the end of 2011, up 10.12%from 2010and comprised capital reserves of NIS 3.2 million and retained earnings of NIS 501.60 million.

Capital Structure and Liquid Assets – Key Indicators

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Capital Structure (Local Currency)

Issued capital 30,000

Surplus -

Reserves (2,841)

Retained earnings 13,623

Total 40,782

Capital Structure CommentsStatistics (in NIS thousands) as at 30 September 2012

6.5 Earnings Performance

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Operating Revenue Breakdown

2011

Settlement -

Custody -

Registration -

Others -

Comments/Footnotes -

6.5.1 Earnings Analysis/Overview

TASECH posted a net profit of NIS 266,000 (USD 74,000) for 2011 and NIS 1.88 million (USD 487,000) for the 9 months to 30September 2012. TASECH has made profits over the five-year period up to 2011, except for 2008 where a net loss of NIS424,000 was registered. TASECH income is limited to financing income (mainly income from cash deposits).TASE and TASECH share operational resources and all operational costs are shouldered by the exchange, including the clearinghouse costs, and as such, all operating revenues are attributed to TASE. TASE has consistently made profits over the samefive-year period up to 2011, and posted a net income of NIS 46 million in 2011, down from NIS 65 million in 2010.

For TASE, the trading and clearing commissions accounted for almost 60% of revenues from services in 2010, while clearinghouse services provided for 11% of the revenues from services.

At least 80% of the TASE retained earnings must be invested in solid assets such as Israeli bonds and bills, bank deposits, andbonds and T-bills of OECD countries. The remainder can be invested in TASE or other regulated markets or in foreign stockexchanges in shares, basket certificates, funds, corporate bonds and derivatives.

Under the law, the stock exchange is not allowed to distribute its profits amongst its members, so any profits made are retainedby TASE.

Any change in the fee structure requires the approval of the board of TASE and is subject to the approval of the Israel SecuritiesAuthority.

6.6 Access to Credit / Liquidity

6.6.1 Credit Lines

The clearing house has a standing line of credit of NIS 50 million with TASE. TASECH has arranged a secured credit line worthNIS 30 million from Ubank.

6.6.2 Others

-

CSD has committed lines ofcredit:

Yes:- TASE (NIS 50 million)- UBank (NIS 30 million)

6.7 Insurance

TASECH is insured under a joint Insurance Program, as described below, maintained by the Tel Aviv Stock Exchange with thePhoenix Insurance Company Ltd. of Israel for the 1 August 2012 until 31 July 2013 except for the Financial Services ProfessionalIndemnity and the Directors & Officers Indemnity insurances which are insured with the Clal Insurance Co. Ltd. of Israel in force forthe period 1 August 2012 until 31 July 2013 (both of the above days inclusive):

Financial Services Professional Indemnity insurance with a Limit of Indemnity of USD 50 million per claim and in the aggregatecovering legal liability as a result of any claim filed against the Assured during the Period of Insurance, arising out of any negligentact, error or omission in the conduct of the Assureds’ business (including any dishonest, or fraudulent act or omission) as well ascovering financial loss sustained by the Assured due to any dishonest or fraudulent act by employees of the Assured. The policy is

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subject to a deductible of USD 50,000 in respect of each and every claim.

Directors & Officers Liability Insurance with a Limit of Indemnity of USD 50 million per claim and in the aggregate covering the legalliability of directors and officers of the Company (i.e. TASE and its subsidiaries, including TASCH) as a result of any claim filedagainst them during the period of insurance due to any wrongful act committed by them in the conduct of their duties as directorsor officers. The policy is subject to a deductible of USD 25,000 per claim, in the event that the directors or officers be entitled toindemnity from the Company, otherwise nil.

There is also an Extended Fire Insurance including Earthquake and other Natural Perils that cover buildings and contents (otherthan IT systems), subject to a deductible of USD 5,000 for each and every insured event other than those due to earthquake andother perils of nature. The latter are subject to standard deductibles practices in Israel not exceeding USD 1.25 million per insuredevent.

A separate insurance policy covers all IT systems (including the DR site systems), which has a deductible of USD 2,500 for each andevery insured event other than an event due to earthquake and other perils of nature for which the above deductible shall apply.

The Terrorism Property Damage Insurance covers property upon a first loss basis up to USD 10 million, subject to a deductible ofUSD 25,000 for each and every insured event.

The Mechanical Breakdown Insurance covers major electro-mechanical systems such as lifts, central air-conditioning, and stand-bygenerators, with a USD 2,500 deductible for each and every insured event.

There is also General Third Party Liability Insurance subject to a limit of USD 10 million in any one occurrence and in the aggregate,with a deductible of USD 1,500 for each and every insured event.

The Employer’s Liability Insurance has an indemnity limit of USD 10 million on any one occurrence or in aggregate, subject to adeductible of USD 1,000 for each and every insured event. The All Risks Property in Transit Insurance is subject to a USD 1,000deductible for each and every insured event.

TASECH has not claimed against any insurance over the past five years.

CSD has insurance cover:

Yes - jointly with TASE:Professional Indemnity USD 50 millionDirectors & Officers Liability USD 50 millionFire and earthquake USD 1.25 millionTerrorism Property damage USD 10 millionThird party liability USD 10 millionEmployers liability USD 10 million

6.8 Other Business Risks and Future Investments

Advances:

TASECH does not provide credit facilities or advance loans to its participants. ‘Technical shorts’ on securities could be considered asa securities overdraft and are covered by the purchase price plus a margin. Any discrepancy between the original transaction valueand the buy-in price is covered by the Risk Fund.

Investment in Infrastructure.

TASECH does not have any investment plan for the next two years. TASE investment has been the new building which is expectedto be completed in 2013.

6.9 Future Plans1. A new capital/liquidity model is to be adopted in 2013.

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7.0 Operational Risk RATING: A+

7.1 Summary

TASECH has reasonably good controls in place and a methodology to identify risks through its risk officer. Its processes are fullydocumented. The major shortcoming is the limited audit arrangements as there is no external operational audit although anoutsourced internal audit exists in line with the conventional Israeli model. However, the audit does not cover all core activities onan annual basis but only every five years.

Although some manual intervention is still required in some operations, processes are now largely automated. The implementationof SWIFT messaging is expected to further enhance straight through processing with participants.

Robust disaster recovery and business continuity procedures are in place and tested regularly with participants. However, testing ina live environment has not yet been conducted.

7.2 Identification of Risk and Key Controls

7.2.1 Risk Management

A risk officer was appointed by TASE in February 2010. A risk methodology, based on the impact and the likelihood ofoccurrence of each risk, has been completed and errors are reported and documented to the risk officer. These are thenaddressed or escalated to senior management.

7.2.2 Key Controls

TASECH has identified key controls within its operations supported by full representations on the controls and an annual auditby external auditors. Check lists are used in operational areas.

Depository Controls:

TASECH does not directly hold any securities. The depository works according to an immobilised model whereby securities areregistered in the name of a nominee company belonging to one of four local commercial banks (known as 'the CoordinatingBanks') plus the Bank of Israel and Ministry of Finance for MAKAMS and government bonds. Physical jumbo certificates areissued by the company, registered in their appointed nominee company name and are held in the vaults of the CoordinatingBank concerned, for the account of TASECH. However, TASECH assumes no responsibility for the actions of these banks. Anamendment to the law has been proposed to make the nominee companies (or their parent companies) liable for the securitiesthey safekeep.

The Bank of Israel (Israel Central Bank) acts as a nominee company for MAKAMs (T-Bills) while the Ministry of Finance acts as anominee company for all Israeli Government Instruments. There are no certificates for government bonds and MAKAMs

Each nominee company is responsible for ensuring that the certificates are retained according to acceptable standards and areliable for any damages resulting from their failure to achieve this. The nominee companies are also responsible for handlingcorporate actions. It must be noted that the nominee companies concerned are the leading Israeli banks, who have neversustained major losses. The nominee companies are appointed by the issuer, who is likely to have to take on any resultantlosses, although this has never been tested. Safekeeping standards at the nominee companies are of variable standards.

All TASECH members are required to segregate proprietary and client assets in their accounts. Foreign and domestic clients arecommingled in the omnibus client accounts maintained at TASECH.

Clearing Controls:

In order to settle cash, TASECH has a direct linkage with the RTGS payment system operated by the BOI. Their systemscommunicate through SWIFT messages to enable movement of cash, with no manual intervention.

It is mandated by the TASE Rules that brokers check the securities positions before trading and there is a process of occasional

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checking by the Surveillance and Membership department of TASE to ensure this happens.

Pre-matching of OTC trades can occur via telephone. Since December 2009, the matching of OTC trades using Extranet utilisesdual-sided confirmation, whereby both parties input their trade details which are then matched by the system. Participantsreceive settlement confirmation reports which include reason codes for failed settlements after each batch.

Every month, TASECH also electronically transmits data to members and nominee banks which are then used to reconcile withdata they hold on a per-security basis.

Data Processing Controls:

TASECH data processing and recovery facilities are provided by the TASE. There is a separate back-up site with all records beingbacked-up and stored at a separate location.

7.2.3 Physical/Building/Access Security

Access to the TASECH building is controlled by armed guards and electronic keys with personal ID cards.

7.3 Established Documented Procedures

7.3.1 Scope

Comprehensive documentation of all operational procedures is available in hard copy and electronic form. Flowcharts are onlyavailable for a limited number of processes. A full review of the procedures and the documentation is undertaken on an annualbasis.

7.3.2 Form

Procedures are available in hard copy manuals and are also accessible via electronic documenation.

7.3.3 Oversight

The documentation is reviewed by the external auditors and reported through to the audit committee.

Any process errors are documented and managed via a standard error resolution process that includes a report to the Chief RiskOfficer and to the audit committee.

7.4 Operational Audit

7.4.1 Internal Audit

The internal audit of TASE, where TASECH operations are included, is conducted at a specific point of time by an externalcompany (BOD Ziv Haft Accountant and Audit). A full operational audit of all the processes is not conducted on an annual basisas the audit programme is structured on a rolling five year basis. There is no other operational audit conducted.However, the IT activity is audited by specialist IT companies and their results are reviewed by BOD Ziv Haft. The audit timedevoted to TASECH activities by BOD Ziv Haft is limited to 200 hours per year while around 3,000 hours are allocated to ITaudits.

A new operational audit/control position was established by the TASE Board of Directors in December 2012 and an internalcontroller was appointed in early 2013.

7.4.2 External Audit

TASE follows the conventional Israeli practice of having an outsourced IA function for operational audits, effectively combiningthe internal audit and external audit functions. Instead the financial audit would be referred to as the external audit in Israel.

7.4.3 Other Audits / Reviews

The IT area is audited by specialist IT companies and their results are reviewed by the Internal auditors, BOD Ziv Haft.

Operational Audit – Key Indicators

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Risk Committee/Manager/Department exists:

Yes

Internal Operational Audit: Yes

Internal Operational AuditCoverage:

All operations

External Operational AuditFrequency:

5 year rolling basis. IT operations are audited annually.

External Operational AuditorFirm:

BOD Ziv Haft

External Operational AuditCoverage:

All operations

Comments Internal audit is outsourced to BOD Ziv Haft who structure the audit of operations ona rolling 5 year basis. IT is audited annually by specialist IT companies.

7.5 IT Operations

7.5.1 Systems Software / Database

-

7.5.2 Systems Hardware

The mainframe IT systems had an up-time of 99.99% in 2011. Systems capacity is constantly monitored and reviewed, andhardware updated or replaced as appropriate but generally it is upgraded every 3 to 4 year. Most servers are now operated asvirtual servers.

There is a dedicated recovery server in the exchange, although this was recently moved in preparation for installment in thenew premises.

There is full redundancy for all of the hardware.

7.5.3 Network with Participants

Communication between TASECH and its participants is largely automated via three ways: file transfer (private IP-VPNnetwork), Extranet system and SWIFT. Each channel has redundant lines both at the main site and at the DRP site. Connectivitybetween the DRP and main production sites is via fibre optic cable with full redundancy.

7.5.4 Security and Resilience

Security for internal systems for TASECH staff is augmented by a random pin generator complementing designated user accessprofiles which segregate available system functionality by role. This segregation also applies to external system users. A systemlog and monitoring application called SIMSOC reads users’ applications usage to assess whether any irregular activities takeplace in the systems. The application also monitors system job schedules and timings to validate that they are triggered ontime.

The IT department contracts outside auditors to conduct IT security tests, code review, and ethical hacking (penetration tests).The latter is done at least on an annual basis. Systems, procedures and operations are regularly audited. Furthermore, HP alsooffers ongoing HP critical support hired to check HP systems for stability and redundancy.

IT Operations – Key Indicators

Name of System: -

Annual System uptime (%): 99.99

CSD has back-up power generator at main site: Yes

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CSD has uninterruptible power supply (UPS): Yes

Use multiple network providers: No

Penetration Testing undertaken < 24 months: Yes

7.6 Processing

7.6.1 System Automation

There is a high level of automation in processing although manual processes are in place especially in the area of assetservicing and checking of information. Exchange trades are automatically and electronically downloaded into the TASECHsystem and communication between TASECH's system and the RTGS payment system ZAHAV is via SWIFT.

While transactions are entered into the TASECH system electronically, there is a process in place whereby TASECH can acceptand manually enter transactions on behalf of a participant.

7.6.2 Straight-Through-Processing

Most instructions are through electronic FTP files and there is practically no manual work at TASECH in processing instructions.However, use of SWIFT is very low.

ISO-standard messaging is currently being implemented in phases. The first phase has recently been completed which allowsthe transfers of instructions for DVP/RVP transactions via SWIFT. Three other phases are expected to be implemented by 2013and include corporate action notification/confirmation and end of day statements.

Processing – Key Indicators

Number of Employees -

Types of Messages Used -

Proprietary Settlement instructions are mainly via proprietary FTP files.

SWIFT-format -

SWIFT SWIFT settlement instructions are now being accepted and have begun to be used.

SWIFT messages used for

Settlement Yes

Reporting Not yet - planned.

7.7 Reporting

7.7.1 Current Information

TASECH provides a mixture of reports via file transfer though Extranet and physical reporting. The ‘300’ and ‘400’ reports relateto movements of securities and corporate actions respectively. The ‘300’ reports are provided in file transfer form for T+1settlements through the Extranet system. They cover all of the various aspects of settlement such as settlement report, balancereport, unsettled transaction report as well as reports on corporate actions. The ‘400’ reports are provided in physical form andposted to participants’ mailboxes. The operational risk surrounding the paper-based reporting mechanism is due to beaddressed when legislation is passed to remove TASECH’s tax agency status, allowing the automation of the remaining reportcontent. An enhancement to the Extranet system is to be implemented in 2014 and would give online access to viewtransactions, balances, corporate actions etc.

The Extranet system does not have dynamic reporting tools so that only set reports can be extracted.

7.7.2 Historical Information

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There is no time limit on the data held within the system. TASECH's policy is to retain all data and eventually archive it to disk.

Reporting – Key Indicators

Activity report available to participants online: Yes

CSD sends settlement/entitlement confirmation: Yes

Types of Report Available

CSD sends settlement/entitlement confirmation: Yes

Settlement Report Yes

Securities Borrowing and Lending Report No

Custody Report No

7.8 Disaster Recovery Procedures

7.8.1 Disaster Recovery Arrangements

A Disaster Recovery and Business Continuity plan is in place which includes the back-up of all computer files, the storage ofdata off-site, the use of an off-site facility (disaster recovery site) and requirement that all back-up files are safely stored. Theplan is fully documented with responsibility for the documentation allocated to a senior manager in IT. The plan is kept in bothphysical and electronic form.

TASE maintains real-time, on-line back-up of all relevant data to the storage machine in the DR site. At the end of the day TASEbacks-up a copy of all operational data with one copy at the main site and another copy at the DR site. In addition a copy isstored on tapes in a third location. As the data is stored at the DRP site in synchronised mode, no data would be lost in theevent of a disruption of the main processing systems. However there is a need to reboot the system (warm site), which meansthat following a disruption, it would take 4-8 hours to recommence processing (worst case scenario).

7.8.2 Disaster Recovery Site Details

TASE has a DR site that is located in Netanya (IBM facility), about 35 Km from Tel-Aviv. The site is a shared location althoughthe TASE computers are maintained in a separate room that is fully protected from fire and unauthorised entry. There is fullredundancy in the equipment including phone, power, UPS, generator and fibre optic network cables. There is full securitycamera coverage in addition to 24 hour on-site security protection.

The site can be activated remotely.

7.8.3 Disaster Recovery Test and Audit

The DR site is tested twice a year. In the event of a failure, the main services including clearing and settlement and Extranetsystem could be re-activated within 4 hours and full systems within 24 hours. All members have a live connection to the DRPsite. The last DRP test was conducted in October 2012. Testing involves the market entities and participants and is done afterthe working hours. It has not yet been conducted in a live environment. The test results are not communicated to participants.

The test procedure has been audited although the actual test and results have not.

7.9 Business Continuity Procedures

7.9.1 Business Continuity Arrangements

Business Continuity arrangements have been arranged on 3 'levels' - there is dedicated space available in the new premisesbeing built (not yet accessible), there is the dedicated off-site facility in Netanya for 90 employees and there is the possibility forstaff to work from home. Business Continuity working procedures and other relevant documentation is kept in a safe at theBusiness Continuity site and each department is responsible to maintain its procedures in the central document. If the BCP site

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needs to be activated, the employees and customers are notified according to the TASE BCP plan. It would take staff 1 to 2hours to reach the site.

7.9.2 Business Continuity Site Details

The Netanya site that houses the DR facility also has working space and all the necessary hardware and office equipment to letTASE staff work from the site. The site contains pre-defined dedicated work space and hardware for about 90 employees. It is afully secure and monitored site with 'active' workstations and manuals containing work procedures.

7.9.3 Business Continuity Procedures Test and Audit

The business recovery plan is tested once a year and was last tested in October 2012. The arrangements have not yet beensubject to an audit.

Disaster Recovery / Business Continuity – Key Indicators

Disaster Recovery

Disaster Recovery Site Yes

Distance from main site 35 km

DRP Testing October 2012

Frequency of Tests bi-annual

DRP Audit Only the test procedure has been audited.

Business Continuity

Disaster Recovery Site Yes

Distance from main site 35 km

BCP Testing October 2012

Frequency of Tests Policy is to conduct annual tests

BCP Audit No

7.10 Human Resources

7.10.1 Training

The staff of TASECH are all employees of TASE. Staff members are required to have appropriate qualifications (a BA inEconomics, with preference for an MA in Finance) and TASECH will help its employees achieve an academic qualification.

There is a budget for guidance and management development including the ability to take advanced study courses althoughonly 85% of the staff training budget was utilised in 2012. Although no risk-specific training is carried out, the changes to riskmanagement that have been undertaken including the appointment of the Chief Risk Officer and the changes and mapping ofprocesses has increased the awareness of risk management.

7.10.2 Policies

HR have a strict recruitment policy including the need to pass a polygraph examination. There is an induction process for newrecruits that includes quarterly evaluations for the first 2 years to review task/skills improvement.

A staff appraisal is undertaken on an annual basis and remuneration is based around the appraisal system.

Succession planning has not been adopted due to the size of the organisation.

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Human Resources - Key Indicators

Staff Turnover: -

Budget / Actual Spending Ratio: 85%

7.11 Future Plans1. TASE / TASECH are to move to new high-tech premises in 2013 which will significantly improve IT facilities and securityarrangements.2. TASE / TASECH are promoting the adoption of SWIFT to improve the automation of manual processes and help to achievestraight through processing.3. Additional resource in risk management (a second risk officer) will improve the management of risk within TASE / TASECH andthis together with an Audit / Internal Control officer will strengthen the control environment.

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8.0 Governance and Transparency Risk RATING: A

8.1 Summary

Although TASECH is a separate wholly-owned subsidiary company of TASE, it does have its own Board of Directors withparticipation from the banks and non-banks. However, there is only one Board committee with important risk and audit issues andIT matters being covered in TASE Board committees. The auditors report to the CEO and Audit committee. At a management levelTASECH has adopted management appraisal systems and there is regular communication with the CEO. A formal User group hasnot been established although there are some other avenues for communicating with participants. Disclosure of information on theclearing and settlement system is via the TASE website although this is not a comprehensive information source with little statisticalinformation.

8.2 Board arrangements

8.2.1 Board Structure

The board of TASE appoints seven directors to the board of TASECH and the members appoint a further seven directors. Alsothe general manager of TASE is appointed as a director ex officio, thus there is a maximum of 15 directors in total.

The term of directors is two years and they may be reappointed for a further two years.

The appointed directors must meet a minimum ranking within their organisation e.g. non-bank directors must be at the level ofGeneral manager or Chairman of the Board of Directors of the non-bank member or the Deputy General Manager responsiblefor clearing.

8.2.2 Board Responsibilties and Performance

The board of TASECH sets its by-laws which are subject to the approval of the board of TASE, which also approves all TASECHprincipal and policy decisions. Primary responsibilities of the Board are the general running of the company (which is delegatedto the General Manager), effect by-law changes, approve membership and approve changes in the capital.

No training is given to Board members and there is no formal evaluation of the Board's performance.

The board of directors officially meets at least 6-10 times a year. During the 4 years to 2012, the Board convened on average 8times a year.

8.2.3 Board Relationships

There is only one Board committee - the Committee for Handling Member Default. Other matters pertaining to TASECH arehandled by TASE committees.

8.3 Establishment of risk management

8.3.1 Audit and Risk Management Commitees

There is no Risk Committee of the TASECH Board - instead TASECH risk issues are overseen by the TASE Audit Committee. TheTASE Audit committee consists of five non-executive directors of the TASE Board, of which four are external directors. Thecommittee meets at least four times a year.

A Chief Risk Officer has been appointed but this is a sole position that reports to the CEO.

8.3.2 Commitee Performance

The Board receives a full annual review of the risks within the Audit annual report. It also receives a risk analysis of any newinnovations.

A risk methodology has been developed consistent with COSO Enterprise Risk Management standards in which 25 key riskshave been identified, quantified and mapped. At this stage there are no established policies and systems that have beendocumented that deal with the risks and establish a policy of on-going monitoring.

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8.4 Management Performance

8.4.1 Management Structures

TASECH adopts a performance appraisal system for all staff with management assessments signed off by the CEO and theBoard. Specific performance targets are set and remuneration adjustments are made in line with the achievement of thetargets. Salary adjustments or differential bonuses are not given where performance is unsatisfactory.

A code of behaviour has been developed.

8.4.2 Management Communication

There are fortnightly management meetings with the CEO and individual meetings on a weekly basis.

8.5 User Group Arrangements

8.5.1 User Group Structures

A TASECH user group has not been established. However, there are some other channels for receiving participant feedback.These include the Securities Market Practice Group which is chiefly focused on the development of SWIFT messaging. AlsoTASECH members are represented at Board level (five banks and two non-banks are represented) and there have been workinggroups established with participant representation for significant IT developments such as new functionality or theredevelopment of systems.

TASECH also runs seminars for participants in specific professional topics.

8.5.2 User Group Particiapation

-

8.6 Disclosure of Corporate Information

8.6.1 Public Information Management

TASECH does not have its own dedicated website but provides some information via the TASE website under the section'Clearing and Settlement'. Generally though there is little detailed information on the activities of TASECH and there are nopublished annual accounts for TASECH on the website. A TASE price list (with reference to clearing and settlement) is published.

TASECH provides little information on the relevant capital market laws although the TASECH By-Laws are published on the TASEwebsite.

8.6.2 Response to Regulatory Information Requirements

Meetings with the regulator are undertaken on an ad-hoc basis and there are no substantial reports that are filed on a regularbasis.

8.7 Disclosure of Statistical Information

8.7.1 Statistical Information Management

Although information is available in English on the TASE website, it does not include detailed statistical data on assets undercustody, settlement information, failed trades, Risk fund, stress testing and the like.

8.7.2 Data Mining Capability

TASECH is able to retrieve statistical information but this is only available on request and takes time to extract.

General Key Indicators The Tel Aviv Stock ExchangeClearing House Limited

About the Depository Matching

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Name and AddressThe Tel-Aviv Stock Exchange Clearing House Limited54 Ahad Ha’am StreetTel Aviv 65202Israel

Websitewww.tase.co.il

Is use of the CSD required?

Settlement Safekeeping

By Law No No

By Market Practice Yes Yes

Domestic eligible participants10 banks and 9 brokers

Foreign eligible participants2 banks

OwnershipFully owned subsidiary of TASE.

Segregation of Assets at the Depository

Depository assets from participantsN/A

Participant assets from clientsYes

Participant Eligibility Criteria

Minimum Capital StandardsYes

Financial Aspects

Ability to raise capital/borrowYes

Committed lines of credit in placeYes

Publish audit financialsYes

Pre-matching servicesNo

Matching servicesYes

Clearing

Clearing servicesYes

Securities Settlement

Book-entry settlementYes

Fails managementYes

Cash Settlement

Internal cash settlementNo

Stock Lending

Securities lending for fails coverageNo

Asset Servicing

NotificationsYes

Securities processingYes

Paying agentNo

Central registrarNo

Proxy voting servicesYes

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CommentsProxy Voting services limited to as described in AssetServicing.

Communications

Electronic communicationsYes

Reporting Services

Electronic reportingYes

Reporting of every movementYes

Regular statement of securities depositedYes

DefinitionsPublic Rating. This assessment has been compiled from information provided by third parties and the CSD and has been verified byThomas Murray analysts during an on-site visit to the CSD. The report has been reviewed by the CSD. The ratings that have beenassigned to the risks that are reviewed in the report have been determined by Thomas Murray analysts and approved by theThomas Murray Rating Board. The ratings have been assigned in accordance with the process outlined in the publishedmethodology as developed by Thomas Murray and on the basis of information confirmed by Thomas Murray analysts during a sitevisit to the CSD.

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RISK EXPOSURE DEFINITIONS

Asset Commitment Risk - The period of time from when control of securities or cash is given up

until receipt of countervalue. This risk concerns the time period during which a participant’s assets,

either cash or stock, are frozen within the CSD and payment system pending final settlement of the

underlying transaction(s). Following settlement, the risk period is extended until the transfer of

funds and stock becomes irrevocable. It excludes any periods when assets, cash or stock, are

committed to a market participant including brokers, banks and custodians, not caused by CSD

processing.

Liquidity Risk - The risk that insufficient securities and or funds are available to meet

commitments; the obligation will be covered some time later. This is where for certain technical

reasons (e.g., stock out on loan, stock in course of registration, turn round of recently deposited

stock is not possible) one or both parties to the trade has a shortfall in the amount of funds (credit

line) or unencumbered stock available to meet settlement obligations when due. These shortfalls

may lead to settlement ‘fails’ but do not normally lead to a default.

Counterparty Risk - The risk that a counterparty (i.e., a participant) will not settle its obligations

for full value at any time. This is simply the total default of a direct participant of the CSD. This is

the event when a participant is unable to meet its financial liability to other participants. This risk

only goes as far as direct participants of the CSD and excludes clients of direct participants that

default on liabilities to such participants, even if such a default should systemically cause the direct

participant to subsequently default.

Asset Safety Risk. The risk that assets held in custody at the CSD may be lost or

misappropriated, either due to a default or an omission, misuse, or breakdown of controls (legal,

operational or other). The CSD should protect against the risk of loss of assets of the participant or

their clients due to an insolvency, the CSD’s negligence, misuse of assets, fraud, poor

administration, inadequate recordkeeping or other failure to protect a participant’s assets. Asset

segregation at the CSD and/or the domestic custodian by account structure and naming

convention, assertion of liens, form and nature of securities (e.g. dematerialised, physical, bearer,

registered), certain key concepts in local law (e.g. recognition of nominees), reconciliation of

holdings, vault controls and the nature and placing of client cash deposits, are all factors taken into

consideration in the assessment.

Asset Servicing Risk - The risk that a participant may incur a loss arising from missed or

inaccurate information provided by the depository, or from incorrectly executed instructions, in

respect of corporate actions and proxy voting. This risk arises when a participant places reliance on

the information a depository provides or when the participant instructs the depository to carry out

an economic transaction on its behalf. If the depository fails either to provide the information or to

carry out the instruction correctly then the participant may suffer a loss for which the depository

may not accept liability. The depository may provide these services on a commercial basis, without

statutory immunity, or it may provide the service as part of its statutory role, possibly with some

level of protection from liability. This risk is likely to become much higher when international

securities are included in the service.

Financial Risk - The ability of the CSD to operate as a financially viable company. This risk

concerns the financial strength of the depository and if its financial resources are sufficient to meet

the on-going operation of the organisation. This risk also includes where the CSD may act as

central counterparty, or otherwise acts in a Principal capacity.

Operational Risk - The risk that deficiencies in information systems or internal controls, human

errors or management failures will result in losses. The risk of loss due to breakdowns or

weaknesses in internal controls and procedures. Internal factors to be considered in the

assessment include ensuring the CSD has formalised procedures established for its main services.

The CSD should have identified control objectives and related key controls to ensure operation and

proper control of established procedures. Systems and procedures should be tested periodically.

There should be external audit processes in place to provide third-party audit evidence of the

adequacy of the controls.

Governance and Transparency - The risk that a participant may incur a loss arising from the

depository not acting according to its rules and regulations or not providing full and accurate

information on its activities and the activities of the market. This risk arises when a participant

places reliance on the depository to act in a fit and proper manner according to its rules and

regulations and to provide full and accurate disclosure of information about itself and the

depository and settlement activities of the market. There is an obligation on the management and

the directors to ensure that the depository is operated according to high international management

standards which includes ensuring that information and data relating to its activities and the

activities of the market it represents are freely available to participants and the public in a timely

manner. If the depository fails either to provide full and accurate information or to strictly abide by

its own rules and regulations, then the participant and public may be misled and may suffer a loss

for which the depository may not accept liability.

RATING SCALE

AAA Extremely low risk

AA+ Very low risk

AA

AA-

A+ Low risk

A

A-

BBB Acceptable risk

BB Less than acceptable risk

B Quite high risk

CCC High risk

N/R No rating has been given due toinsufficient information

Contact:

Thomas Murray Depository Service

Horatio House,

77 – 85 Fulham Palace Road

LONDON,

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Tel: +44 (0) 20 8600 2300

Fax: +44 (0) 20 8741 7468

E-mail: depositoryservice@thomasmurray.com

Web-site: www.thomasmurray.com

Names of analysts available on request.

Copyright © 2013 Thomas Murray Ltd.

Reproduction in whole or in part prohibited except by permission. All rights reserved. The services and analysis provided by Thomas Murray are provided on an "as is"

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basis and Thomas Murray make no representations or warranties, express or implied, as to the accuracy, adequacy or completeness of its analysis or results to be

obtained from accessing and using this report (or any information included therein), including without limitation, any warranties of merchantability or fitness for any

particular purpose or use. Neither Thomas Murray nor their affiliates shall be liable to any user or anyone else for any inaccuracy, error or omission, regardless of cause,

in this report or for any damages resulting therefrom. In no event shall Thomas Murray have any liability for lost profits or for indirect, special, punitive or consequential

damages, even if advised of the possibility of such damages. Thomas Murray shall have no liability to any third party arising from or related to this report. Neither this

report nor any component of the service provided by Thomas Murray is a rating, endorsement or guarantee of any Depository or its financial strength or a

recommendation to enter into any agreement with any Depository. Thomas Murray relied on information provided by third parties believed to be accurate and reliable but

due to the possibility of human or mechanical error, Thomas Murray can not guarantee the accuracy of any such information.

This report is updated as and when new and additional information becomes available. A full annual review exercise is alsoconducted with the assistance of support banks and the depository itself. The latest full review was performed on (Month/Year ).

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