Photo/Illutration Hiromi Yamamichi, president of the Tokyo Stock Exchange, speaks about the restructuring plan in Tokyo’s Chuo Ward on Jan. 11. (Taku Hosokawa)

The Tokyo Stock Exchange announced company moves for its prestige-building restructuring plan that has so far failed to generate much interest from foreign investors.

The TSE intends to restructure its five markets, in which a total of 3,777 companies are listed, into three markets on April 4.

The three new markets are the Prime Market designed for global companies, the Standard Market for large or medium-sized companies with adequate business records, and the Growth Market for new companies.

One goal of the restructuring is to bring more money to the TSE from around the world by allowing only high-standard growing companies to list on the Prime Market.

However, many of the companies moving to Prime Market will take advantage of a transitional measure that allows them to be temporarily listed on it, even if they don’t meet the listing criteria.

That suggests that the restructured TSE will start with not much of a change from the status quo.

The TSE offered the transitional measure to ease companies’ concerns that switching markets could have a negative impact on their relationships with suppliers and clients or on recruitment plans.

Eighty-four percent of all companies listed on the First Section, or 1,841, will move to the top-tier Prime Market, the TSE said on Jan. 11.

Sixteen percent of those companies, or 296, will use the transitional measure.

Even among companies moving to the Standard Market, 212 will use the transitional measure, as will 46 companies moving to the Growth Market.

The Prime Market especially has stringent criteria. As of June last year, almost 30 percent of companies listed on the First Section, or 664 companies, didn’t meet the criteria for listing on the Prime Market.

The companies currently listed on the five markets informed the TSE by the end of last year about which new markets they intended to join.

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The Asahi Shimbun

CONCERN ABOUT TSE’S DWINDLING CLOUT

The TSE is facing a difficult situation.

According to the World Federation of Exchanges, the total market value of companies listed with the Japan Exchange Group, which operates the TSE, was $6.4 trillion (about 740 trillion yen) as of November last year.

That was fifth in world ranking of stock exchanges.
The total market value of all companies listed on the TSE dropped below that of the fast-growing Shanghai Stock Exchange in July 2020.

In May last year, the total market value of companies listed on all stock exchanges operated by Euronext surpassed that of the TSE.

Companies listed on the New York Stock Exchange were worth $28.4 trillion while those on NASDAQ were valued at $24.3 trillion, far more than the figure for the TSE.

The TSE aims to enhance its competitive edge by clarifying the features of each market through the restructuring.

To do so, it needs listed companies to grow while attracting money from both domestic and foreign investors.

The First Section has been known as a market where companies, once listed, are rarely asked to leave.

Therefore, critics say the First Section doesn’t really motivate its listed companies to enhance their value, and that the criteria for listing on the Prime Market should be even more stringent.

They also said the TSE should clarify when the transitional measure will end.

“Foreign investors don’t talk much about the TSE’s restructuring,” said Takeshi Fukushima, who works for the U.S. asset manager BlackRock. “The direction the restructuring is heading for is right. But the restructuring is not speedy enough, with no end date for the transitional measure announced. I expect the TSE to draw up and implement clearer rules (for the new markets).”

(This article was written by Chihaya Inagaki and Toru Nakagawa.)

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