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July 2002 Tokyo Stock Exchange Board Report

Date 29/07/2002

In order to apply for the creation of an ETF, an applicant must first purchase all shares of stock in which he or she runs a deficiency as compared with the stipulated shares of stock for that ETF. However, if the deficient stocks are within a period of tender offer or a period in which stabilizing transactions are allowed, the purchase of those shares on propriety account by the tender offer agents or underwriters is prohibited, which effectively prohibits the creation of an ETF.

In order to eradicate this barrier to creating ETFs, TSE will allow those proprietary purchases of securities that are either going through a tender offer or are in a stabilizing transactions period for the direct purpose of securing the shares necessary for the creation of an ETF.

After receiving the approval of the Financial Services Agency, TSE plans to put this change into effect on August 1st.

Revisions to standards regarding margin trading

Revisions to standards regarding margin trading, as mentioned in last month's board report, will be put into effect on July 29th, the same day as the Cabinet Ordinance on Security Deposits will go into effect.

TSE Systems Check

TSE has enacted and, for the most part, completed checks on its four systems: equities and CB trading system, futures and options trading system, market information system, and ToSTNeT.

This system check was prompted by two system failures that occurred last year, in the ToSTNeT system and futures and option system, and was carried out on all four systems to restore the trust in TSE's market and systems. This examination was all-encompassing and covered hardware and software not usually covered in normal examinations.

Through this examination TSE found a slight problem with part of its software but nothing serious enough to cause any problems for operations. The backup systems of all systems except for ToSTNeT were found to be in working order, and TSE has now created a backup ToSTNeT system as well.

TSE will continue with periodic checks of its systems to ensure the reliability and safety of its systems.

Reviews to the awards for listed companies

TSE has undertaken reviews and revisions to its awards for listed companies. The main revisions were to combine the award for dividends and the award for lowering stock trading units. Also, TSE has created a new award for companies that expand their base of individual investors.

The new award concerning a company's individual investors will be awarded to those companies which take various measures to expand, and succeed in expanding, their individual investor base. The listed company disclosure award selection committee will now be named the listed company award selection committee and will be in charge of deciding the recipient company of this award as well. The first award for individual investor increase is tentatively scheduled to be given out this fall.

This new award is a proper reflection of the amount of companies that have subscribed to TSE's effort to encourage greater participation in the securities market among individual investors, as outlined in its Action Program released last year. The number of companies that have lowered their trading unit for stocks or undertaken "large scale" stock splits has risen by 66 since the same period last year to 122 companies. On the one hand, though, as of the end of June the number of companies with large trading units for their stocks was still quite considerable. However, one of the larger results since the release of the Action Program has been the change in number of companies that have prohibitive costs for their trading unit - presently there are 23 companies whose trading unit costs in excess of \2 million while 431 companies' trading units cost only in excess of \50,000.

TSE will increase its effort to lower the trading unit size of companies that still maintain high trading units, thereby further increasing participation in its market among individual investors.

Community Meeting in Sapporo

As part of its ongoing community meeting series, TSE recently held a community meeting in Sapporo on July 18th. This was TSE's 3rd community meeting. In addition to its regular opinion exchange sessions, TSE also held a meeting to explain planned regulations and request on disclosure of quarterly financial results as well as a listing seminar for companies interested in listing.