Government Debt Management Unit

1. Government Debt Management Unit Primary Market – Auctions of Tradable Government Bonds (Draft for comments)

2. BONDS TYPE This presentation refers to: New bonds (to be issued after 01.04.2006) • Fixed rate bonds. • FRN bonds. • CPI-Linked bonds. Existing bonds (will be issued until the existing series will be completed) • Shahar (Nominal fixed coupon). • Gilon - Unlinked Bond Bearing Floating Rate of Interest. • Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest.

3. General Information • Auction platform : The Bloomberg Bond Auction System. • Schedule of the auctions will be announced at the beginning of each month or quarter. • Primary Dealer are entitled to bid exclusively for 80% of the nominal fixed coupon bonds. • Discriminative/Multi-price auction. • Pro-rata allotment, at the cut-off price.

4. Publication Of Auction Details • Publication will be over the internet on an on going basis and in the newspapers (each month). • Will be published at least 3 Israeli business days prior to the auction. • The publication will include • IGBs to be issued. • Amounts. • Closing time for bids. • Announcement time of the results of the auction.

5. Primary Dealer Auctions • Minimum bid 10 million ILS, and increments of 1 million ILS. • Primary Dealer are required to purchase each year tradable domestic bonds for a total amount which is the smaller of ILS 2 billion or 5% of fixed-coupon nominal bonds issued during a calendar year.

6. Public Auctions • Retail: Minimum bid 10,000 ILS, and increments of 10,000 ILS. • Institutional: • Primary Dealers (proprietary) • Providen funds • Pension funds • Insurance companies • Banks Minimum bid 10 million ILS, and increments of 1 million ILS.

7. Multi-Price Auction • Each bid shall include: quantity (nominal) and price in percentages. • Bids in the order of the highest to the lowest. • The increments between bids will be 0.01%. • All successful bids will be allotted at the price offered by the buyer. • Partial allotment shall be made in respect of bids that fall within the cut-off price.

8. Auction Results • Results will be announced within 30 minutes of theclose of the auction. • Announcement will include: • total principal amount of bids received • total number of bids received • total number of bids allotted • highest price allotted • lowest price allotted • weighted average price • ratio of allotment at cut-off price. • The M.O.F will notify each Primary Dealer of the quantity and price of each successful bid.

9. Payment and Transfer of Securities • The M.O.F will designate an account at the bank of Israel for each auction participant. • Primary Dealer which are not TASE members will carry out the payment through the designated account on the day following the auction. • The M.O.F will transfer the bonds on the day following payment. • Members of the TASE will receive the bonds to their TACH account. • Primary Dealers which are not TASE members shall inform the M.O.F which TASE-member account should be credited with the bonds.

10. Payment and Transfer of Securities – cont’d • Members of the TASE can choose between two modes of payment: • Through TACH - Payment on the day of the auction, receiving the bonds the day following the auction.* • Independent payment - Payment on the day following the auction, receiving the bonds two days after the auction.* • Each participant will inform the M.O.F of the prefered mode of payment. * Comment: When the Bank Of Israel will complete theRTGS system, bonds can be received on the day of the payment.

11. Errors in Auctions • The M.O.F will handle applications regarding errors in auctions subject to a few conditions: • The application should be within the first two hours after the auction results are published. • Only bidding mistakes. • The request will be submitted by a senior person in the company. • The bid price is 2% or more above the auction price. • “Damage” above 100,000 ILS. • In case of correction the buyer shall sell back the bonds to M.O.F at the auction price and will pay a fine of 100,000 ILS.

12. Errors in Payments • A buyer who pays more then necessary - will get the money back less 5,000 ILS fine. • A buyer who pays less then 95% of required payment - will not receive any bonds and will pay a fine of 50,000 ILS. • A buyer who pays less then required but not less than 95% of the required payment – bonds will be deducted as follows (see next slide):

13. Errors in Payments – cont’d • A participant who purchases and pays for more than one series of bonds at the same time - the deduction will be according to the following order: • Fixed rate bonds. • Shahar (Nominal fixed coupon). • CPI-Linked bonds. • Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest. • FRN bonds. • Gilon - Unlinked Bond Bearing Floating Rate of Interest. • A participant who wins a few bonds of the same type - the deduction will be from the bond which has the longest maturity to the bond with the shortest maturity. • A participant who wins several offers to purchase the same bond with various prices – the deduction will be from the bond with the lowest price to the bond with the highest price.

14. Non Competitive Bidding • An additional 15% of the principal amount of IGBs auctioned shall be available on a non-competitive basis for a period of 24 hours from the closing time of the original auction. • Non-competitive bids shall be allocated at the average price of the competitive auction. • Conducted on the Bloomberg Bond Auction system.

15. Remarks Remarks regarding the auction procedures can be sent to: • Fax number: 03-9778778 • E-mail: gdmu@inbal.co.il