TSE overhaul debate in final stages in Japan
TOKYO (The Japan News/ANN) - The FSA council’s report, to be compiled within this year, is expected to recommend reorganising the exchange’s current four markets into three and creating a new index to replace the Tokyo Stock Price Index (TOPIX).
Discussions on restructuring the market segments of the Tokyo Stock Exchange are in the final stages in a Financial Services Agency council, an advisory panel to the prime minister.
The FSA council’s report, to be compiled within this year, is expected to recommend reorganizing the exchange’s current four markets into three and creating a new index to replace the Tokyo Stock Price Index (TOPIX).
However, the council is showing consideration to already listed companies, and there are many lingering questions as to whether the new markets will be attractive to investors.
A draft reorganization plan proposed by the FSA at the council meeting on Nov. 20 has three tentatively named markets:
■ A “Prime” market that would mainly consist of big companies currently listed on the TSE’s First Section.
■ A “Standard” market comprising the TSE’s Second Section of primarily midsize firms and part of the JASDAQ exchange.
■ A “Growth” market comprising mainly start-ups from the Mothers and JASDAQ exchanges.
To replace the TOPIX, which includes all of the about 2,150 companies on the TSE’s First Section, a new index would be created that includes highly liquid brands and other firms from all market segments.
The council is discussing creating stricter standards for listing on the new Prime market than are currently required for the First Section.
The division reorganization is aimed at improving a distorted market structure in which 60% of companies are in the First Section and there is considerable overlap of roles among the Second Section, the Mothers and the JASDAQ exchanges. Through the reorganization, the aim is to encourage companies to grow and to create a market that will win the support of both domestic and foreign investors.
However, some of the discussions have been complicated. When discussions began inside the TSE around autumn last year, a variety of proposals were raised, such as merging the Mothers and the JASDAQ, merging the Second Section and the JASDAQ, and raising the market capitalization standard for the First Section.
Agreement was reached on a general direction in March, but it was discovered that one of the participants in TSE meetings had been telling Nomura Securities Co. about the behind-the-scenes discussions, and Nomura had leaked this information outside the company. The council then took over the talks.
The TSE plans to base its internal discussions on the final report from the FSA council. However, they may create a mechanism that would benefit companies with the vested rights of currently being on the First Section, which has raised questions about whether the new market will be a vigorous one.
A number of First Section firms have pushed back against the possibility of being “demoted.” The reorganization plan pays consideration to these concerns by calling the Prime and Standard markets “parallel.”
In addition, First Section companies would not automatically be demoted from the Prime market even if they fail to meet the new standards. Therefore, there will be little “rejuvenation” of the market.
Japan Exchange Group Inc. Chief Executive Officer Akira Kiyota touched on the point of the reorganization at a press conference in Osaka Prefecture on Nov. 29, saying, “The concept of the TSE’s First Section is no longer clear.”
However, when asked about the details, he said only, “They haven’t been narrowed down in the discussions.”
“Sliding from the First Section to Prime could take the teeth out of the reorganization,” said Shingo Ide, chief market strategist on stocks at NLI Research Institute.