Regulator tells Leumi to stop marketing S&P 500-linked deposit

A month and a half after it caused a stir on the local market, “Globes” has learned that the Israel Securities Authority has begun examining the S&P 500 deposit recently launched by Bank Leumi (TASE: LUMI). The regulator has asked the bank to stop marketing it until a decision is made on the matter, which will be announced in the coming weeks. The new product offers customers a liquid deposit based on the performance of the S&P 500 Index.

According to information obtained by “Globes”, the Israel Securities Authority was surprised by the product that Leumi began marketing before the holidays and contacted the bank to obtain clarification on the subject. At the end of the discussion between the parties, the Israel Securities Authority began formulating a position paper on the subject, which is expected to be published in the coming weeks, and will include major restrictions on the marketing of the product, and the launching of similar products.

“The Israel Securities Authority was surprised by the new product”

A person in discussions with the Israel Securities Authority on the subject over the past month told “Globes,” “The Israel Securities Authority was also surprised to hear about Leumi’s new product and really didn’t like it, especially since it seems they didn’t talk to them beforehand.”

Expectations are that the Israel Securities Authority will present a tough stance regarding the new deposit and claim that it is a product that contradicts the decisions of the Bachar Committee, which forced the banks to sell the activities of the provident funds and mutual funds they own. Due to requests made to the bank by the Israel Securities Authority, asking that it stop marketing the product until the publication of the position paper on the subject, Leumi chose to take the extensive media campaign that accompanied the move off the air, but a page on the bank’s website continues to offer customers to join the deposit through investment advisors.

Why Leumi’s product?

There are currently a number of structured deposits on the market that are influenced by the performance of the US flagship stock market index. A structured deposit is a banking product that offers savers exposure to changes in the capital market (in indices, stocks, foreign exchange, etc.) in exchange for locking up the money for a specified period.

Unlike other investment options, structured deposits offer savers a relatively low risk since the principal is usually guaranteed. Last year, the International Bank launched a structured deposit for a period of two years on the index, within which savers may benefit from up to 85% of the performance of the S&P 500, while in the event of a decline in the index, they will receive the principal. A similar deposit was also launched last year by Mizrahi Tefahot and Leumi (before embarking on the current move).

Leumi’s S&P 500-linked deposit challenges mutual funds

Leumi’s new deposit differs from these deposits in two key ways – it offers daily liquidity and fully reflects the performance of the index, so investors may lose part of the fund’s money (unlike existing deposits in which the principal is guaranteed). This makes it a product with potential to compete with the mutual funds currently operating and has caused the Israel Security Authority’s investigation into the matter. The deposit is identical to the funds in terms of taxation, as it will be taxed at a capital gains tax (25% real) upon redemption – and not at a nominal 15% as in a regular bank deposit.

The deposit differs from the mutual funds in several ways, primarily the identity of the purchasers of the products. Thus, while the funds are accessible to the general public, those who can invest through the new product are the bank’s customers who are entitled to investment advice (such as those who manage a securities account of over NIS 100,000), and the minimum amount for deposit is $5,000. In addition, as part of the terms of the deposit, it was set that it will be automatically repaid if a positive or negative return of 40% is given over 12 months.

Anger in the investment fund sector: Harm to competition

The launch of Leumi’s product came in the wake of the popularity that the various savings channels based on the S&P 500 index have gained in recent years. According to data from the Israel Securities Authority, funds based on the S&P 500 index worth NIS 78 billion are traded in Israel, which is about 25% of the passive industry in Israel (ETFs and the like). Until three years ago, these funds only managed amounts worth NIS 11.5 billion.

Leumi’s move aroused the anger of various market parties, primarily fund managers, who claimed that the deposit structure makes it a “mutual fund in disguise,” and feared that additional banks would join the trend and offer similar products. The fact that the banks are not subject to the restrictions imposed on fund managers will allow them to invest only a small portion of the amount in contracts on the index, while most of the deposit amounts will be directed deposits in foreign banks or in solid instruments (bonds, mutual funds, etc.), as fund managers currently do. However, unlike fund managers, who are obliged to transfer the profits from investment in other channels to savers, the banks will benefit from these funds, which are expected to increase their deposits. There is also additional income related to foreign exchange conversions, which the bank will invest for savers, since this is a dollar deposit.

In a letter sent last month to the Israel Securities Authority by Eli Bavli, chairman of the Mutual Fund Managers Association, claimed that the move “fundamentally harms competition between the various money market products in Israel,” and that it could cause harm to investors in it, because they “do not benefit from the protections enjoyed by investors in mutual funds, through the various rules applied to funds.”

While the banking community argues that offering structured deposits on such popular indices could open up the market and benefit consumers, the Mutual Fund Managers Association maintains that the move would harm competition, which the legislature has tried to promote in recent decades. The fact that banks also serve as investment advisors for their clients leads them to express “a real concern that they will tend to market those deposits to the public, instead of advising them to invest in the corresponding mutual funds.”

No response has been forthcoming from Leumi. The Israel Securities Authority said: “Since the issue is under consideration, we prefer not to comment on it at this time.”

Published by Globes, Israel business news – en.globes.co.il – on October 27, 2025.

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