Photo/Illutration Top executives of Japan Exchange Group celebrate the start of three new markets of the Tokyo Stock Exchange in a ceremony on April 4. (Takuya Isayama)

Touting the largest makeover in about six decades, the Tokyo Stock Exchange opened for trading with three new markets on April 4 seeking to attract foreign investors back to the world’s third-largest economy.

The new markets in the bourse are “prime,” “standard” and “growth.” They were integrated into the three after the TSE previously operated five categories where the listing criteria for each was criticized as unclear.

But companies listed on the prime category did not differ much from those in the previous First Section as the exchange chose to avoid confusion during the transition period.

The morning session began at 9 a.m. and the day’s trading wrapped up with no systems problems or technical glitches at 3 p.m.

Prior to the session, a ceremony was held at around 8:30 a.m. at the TSE to mark the fresh start.

“We would like to closely watch whether the new categorization is contributing to the improvement in the values of listed companies and to more attractive markets for investors,” said Akira Kiyota, CEO of Japan Exchange Group Inc. (JEG), the holding company of TSE.

The prime section consists of 1,839 companies, mainly those with extensive international operations. Eighty-four percent of the companies listed in the First Section were moved to this new prime category.

The standard category is made up of 1,466 companies that have solid track records in Japan.

The growth section lists 466 companies, mostly start-ups.

A listing on the TSE’s First Section has been a status symbol for large companies since 1961, when the TSE added the Second Section for second-tier companies.

But the Japan Exchange Group decided to restructure the markets because the First Section ballooned to list more than 2,000 companies.

They ranged from Toyota Motor Corp. and other globally recognized companies to poor-performing businesses, making the listing criteria murky.

A factor behind the often criticized listing criteria is the longstanding rivalry between Tokyo and Osaka as thriving business centers.

The predecessor of the TSE was born in Tokyo in 1878.

The TSE evolved into a bourse representing Japan by merging exchanges in Hiroshima and Niigata after the volume of trading there thinned in the wake of the bursting of the asset-inflated economic bubble.

The predecessor of the Osaka Exchange was founded in 1878. It grew into the largest bourse in Japan after the TSE.

“The TSE and the Osaka Exchange were rivals and fiercely competing with each other to draw companies seeking new listings,” recalled Hiromi Yamaji, president of the TSE.

In 1999, the TSE opened Mothers, a market for fast-growing venture businesses to get listed. The Osaka Exchange hit back with the acquisition of the JASDAQ Securities Exchange Inc., which operated a market for start-ups.

In the course of competition, the TSE moved to effectively relax the listing criteria for the First Section.

To be listed in the First Section, a company is usually required to have a market capitalization value of 25 billion yen ($205 million).

But the TSE decided that companies listed in the Mothers market can move up to the First Section if they have just 4 billion yen in market value, a move that critics called a “double standard.”

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The screen of the Tokyo Stock Exchange shows the three new markets that were launched on April 4. (Takuya Isayama)

In desperate efforts to survive, bourses around the world pushed restructuring.

Japanese bourses followed suit. In 2013, the management of the TSE and the Osaka Exchange were integrated under the holding company, Japan Exchange Group.

Despite that, Japan Exchange Group had not overhauled the markets to avoid confusion among investors and listed companies until the latest shakeup. 

The revamp is intended to make clear the differences in the three markets to lure back international investors.

But the prime market looks not so different from the First Section because Japan Exchange Group allowed the companies listed on the First Section to remain listed there under a transitional measure to ease the impact of the restructuring.

(This article was written by Chihaya Inagaki and Kyosuke Yamamoto.)

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