Reforming the market so it will be easier for investors to understand may bring in investor funds, hopefully reinvigorating the Tokyo Stock Exchange.
The TSE is considering reforming its stock markets, which are now divided into four segments. It is expected to compile draft reforms within this fiscal year, taking into account the opinions of experts.
The TSE's stock markets consist of the First and Second sections, Jasdaq and Mothers, and some have said its structure is too complex. It is quite significant to reorganize and integrate the TSE to make it more convenient for investors and companies to utilize.
The First Section is seen as a "representative market," but the division of roles is unclear among the other three: the Second Section, Jasdaq and Mothers.
One possible solution that has emerged is the idea of reorganizing these three markets, including the Second Section, into two segments: a market for second-tier firms and one for startups.
If realized, the characteristics of each market will be clarified, making it easier to devise strategies for investment and new listings.
The fact that the First Section has as many as about 2,100 listed companies is also an issue to be dealt with. In foreign markets, the Nasdaq Global Select Market of the United States has 1,400-plus stocks listed, while 500 companies are listed on the London Stock Exchange's premium board, leaving the TSE's First Section standing out in terms of the number of stocks listed.
The range of market capitalization is also broad, from huge corporations whose market capitalization exceeds 20 trillion yen to smaller firms with market capitalization of about 4 billion yen. This makes the nature of Japan's "representative market" unclear in some respects.
Exit system needed
The TSE is considering ways to make the "doorway" to the market less wide than it currently is, for instance by raising the market capitalization requirement for companies to be listed on its First Section.
Some companies have been unable to raise their corporate value after they were listed on the First Section. This is one of the factors that heightens the stagnant mood of the market.
Due to such factors, an idea has emerged of having particularly strong companies among those in the First Section be designated as "premium issues."
The creation of investment trusts for such premium issues and the establishment of a stock index for them are also expected, so the price of these select issues is expected to rise. By developing an environment for competition, the number of companies that strive in earnest to enhance their corporate value should increase.
Wouldn't such ideas as this be worthy to be considered -- having not only the scale of a company's market capitalization but also the level of its earning power and its corporate governance be made part of the selection criteria, and regularly transferring listed companies to and from other segments?
Arranging a system for listed companies' exit from the market is also a task that needs to be considered, by, for instance, making the criteria for maintaining their listings more stringent and implementing their demotion to a lower-ranked segment or even delisting them from the market.
If companies are delisted from the market, however, market transactions would no longer be possible, which could deal a heavy blow to investors. It may become necessary to contrive ways, including the amendment of relevant laws, to establish a new framework so that certain purchases, sales and liquidation can be conducted even when their stocks are delisted from the market.
(From The Yomiuri Shimbun, Feb. 13, 2019)
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