(The original article in Japanese was posted on April 8, 2022)

 

On April 4, the Tokyo Stock Exchange (TSE) reorganized its market for the first time in 60 years and started operations of the market under the new listing segments. Based on the market value of stock exchanges, TSE ranks fifth in the world stock exchange operators after New York Stock Exchange (NYSE), Nasdaq, Euronext, and Shanghai Stock Exchange. However, when the absolute value is compared, NYSE is 4.5 times and NASDAQ is four times bigger than TSE, both holding a wide lead over TSE. In addition, TSE is also left far behind in terms of trading value. Thus, strengthening of international competitiveness is urgently needed.

The concepts of the newly started three market segments are as follows: "Prime Market" is oriented to global corporations that appeal to institutional investors, "Standard Market" is mainly composed of domestic demand-oriented blue-chip companies, and "Growth Market" is oriented to emerging companies with high growth potential. In order to enhance the attractiveness of the Tokyo market and also attract overseas funds, differentiation of the supreme "Prime Market" was anticipated.

Nevertheless, of the 2,177 companies listed on the former First Section of the TSE, 1,839 have moved to the Prime Market. Accordingly, the constituent stocks are rarely different from the previous categorization. In the first place, eligibility requirements to be listed in the Prime Market are not that strict, as the number of tradable shares is 20,000 or more units, a tradable share ratio is 35% or more, and market capitalization of tradable shares exceeds 10 billion. Besides, transitional measures were applied to the 295 companies that did not even meet the listing criteria. We might say the "reform" is only halfway through.

At least, there should be a "time frame" for implementing the transitional measures, but the TSE has not indicated when this exemption will end, only saying, " If a listed company does not meet the continued listing criteria for its selected market segment, relaxed continued listing criteria will be applied as a transitional measure for the time being, as long as the company makes efforts to improve with the submission of a plan to meet the continued listing criteria and reports on its progress towards said plan." (Based on the website of the Japan Exchange Group)

"In retrospect, innovation has not been realized,” said Mr. Hagiuda, Minister of Economy, Trade and Industry, on NHK TV program, "Sunday Discussion" on March 3. He expressed his recognition, saying, “That is why the Japanese economy has failed to grow.” In short, the higher stock prices brought about by the induced depreciation of the yen due to the radical quantitative and qualitative monetary easing did not lead to a successful “growth” of Japanese economy.

Market reforms are essential to draw attention of global investors to Tokyo. The latest market restructuring is considered to be the first step of the reform. We should keep in mind that investors’ concern is not focused on the number of listed companies categorized in each market segment. Rather, they are more interested in the number of companies committed to good governance to ensure continuous injection of the funds they have raised to investment in growth so that they can return the outcome to society. The question at stake is the ability of companies to create innovation, and I hope that qualitative market reforms will be promoted further to facilitate sustainable flow that can connect companies and investors.

 

This Week’s Focus, April 8

Takashi Mizukoshi, the President