Last year the Japanese government established the Strategic Headquarters for Industrial Revival and Employment Measures, which Prime Minister Koizumi heads, and that headquarters adopted the Basic Guidelines for Corporate and Industrial Revival.
The three pillars of the Basic Guidelines are the establishment of the Industrial Revitalization Corporation, drastic reformation of the Law on Special Measures for Industrial Revitalization and creation of the Guidelines for Accelerating Corporate Revival. The Guideline for Accelerating Corporate Revival, established in February, recommended the abolition of systems and customs that were holding Japan back from corporate revival and called for national and private responses to establish practices that would expedite revival. Because of this corporate restructuring has taken root in Japanese listed companies, and this is expected to lend support to the vitality of the securities market.
Therefore, TSE has decided to conduct a review of its listing systems to remove impediments to accelerated corporate revival. There are four main points to this revision.
The first point is to maintain the listing of companies that utilize legal arrangements for corporate revitalization. Even in cases where companies decide to use legal and private arrangements for corporate restructuring, provided the companies conform to the established conditions for investor protection and maintain market capitalization of over 1 billion yen for one month, those companies will not be delisted. TSE will establish an interim period to help make the transition for this change so that all companies that undergo private restructuring within one year of this reform will maintain listing.
The second point concerns technical listings of successor companies after a corporate split. Companies that were newly formed from the split of a listed company and are, according to the company's division plan, requested to continue the listing of the former company, will be subjected to simpler listing examinations, and TSE will accept these so-called 'technical' listings.
The third point is a revision to the listing standards concerning the amount of time that must past before a new company that was created by a corporate split may list (this is limited only to cases where the main business of the listing applicant is the continuation of the former company that split). The listing applicant can now add the number of years that that main business took place in the original company to the number of years since incorporation that are mandated for new listings, thereby allowing these companies to list faster.
The fourth and final point is to make more flexible the examination criteria concerning corporate disclosure by parent company at the time of a subsidiary's listing. In cases where the parent company has not provided continuous disclosure before a subsidiary's listing, TSE will accept the listing of the subsidiary firm if the parent company agrees to start providing continuous disclosure similar to the securities reports required of listed companies.
TSE will set forth a period of public comment on the above revisions and hopes to place them in effect to coincide with the start to operations of the Industrial Revitalization Corporation.
Revision to Listing System Concerning Participation in Industrial Revitalization Corporation's Program
The start to the Industrial Revitalization Corporation (IRC), if it is able to advance corporate revitalization in Japan, is expected to support the vitality of the securities market. However, the possibility exists for companies that are following the program set forth by the IRC to fall under TSE delisting standards while undergoing bold financial restructuring, and those companies may find it difficult to quickly list again on TSE even if they successfully complete their restructuring.
With this in mind, TSE will make the following revisions to its listing systems. TSE will put an exception clause into its delisting standards concerning liabilities in excess of assets so that companies that are following the IRC's revitalization program are not immediately delisted for temporarily having excess liabilities. TSE will also establish an exception clause for its listing examination standards concerning corporate profit so that companies that have delisted and undergone restructuring may quickly list on TSE again.
In concrete terms, for companies undergoing reconstruction that fall under the excess liabilities delisting standards, TSE will lengthen the grace period in which companies may continue their listing on TSE from 2 years to 3 years. However, companies must submit a plan on how they will rid themselves of their excess debt in that extra one-year period. TSE will establish a similar exception clause for the standards on excess debt in the 2nd section relegation standards.
Also, for companies that apply for relisting within three years of delisting due to revitalization efforts, TSE will allow 400 million JPY to be sufficient for fulfilling the listing standards concerning the most recent year's profit. However, successive examinations on profitability will be carried out as normal. TSE will establish a similar exception clause for stocks that were relegated to the 2nd section while restructuring and wish to move back to the 1st section.
As with the above, TSE will allow for a period of public comment on these revisions and plans to place them in effect to coincide with the start to operations of the Industrial Revitalization Corporation.
Non-consolidated Financial Result for FY 2002
For FY 2002 (fiscal year ending March 31, 2003), TSE recorded operating income of 35,545 million JPY (a decrease of 590 million JPY from the previous period), operating profit of 2,018 million JPY (an increase of 790 million from the previous period), current profit of 3,797 million JPY and net earning of 4,006 million.
Details of TSE's operating income are as follows. Income from trading participants' fees fell 1,801 million JPY to 17,340 million JPY due to a change in the number of trading participants as well as a decrease in the fees received from trading, which were affected by a decrease in the trading value in equities and JGB Futures from the previous period. Income from listings, however, increased 437 million JPY to 8,766 million JPY. Although capital raising by listed firms was down from FY 2001, new listings were greater and the conversion of preferred securities and convertible bonds were higher as well. Information services related income topped figures from the previous year and other operating income was up 657 million JPY, but due to the drop in trading participants' fees operating income as a whole fell 590 million JPY from FY 2001.
Due to a company-wide effort to limit costs, operating costs also fell to 33,527 million JPY, down 1,299 million from the previous period. Personnel costs fell 337 million JPY to 9,798 million JPY because of a decrease in staff numbers and a general revision of personnel systems, such as personnel compensation. For real estate related costs, rent on TSE's main building fell 436 million JPY, facility costs were down 343 million JPY, and entrustment costs (building maintenance, security, etc) fell 434 million JPY. Depreciation costs, however, increased 208 million JPY to 5,936 million JPY due to a change from 6 year declining balance depreciation accounting to 5 year declining balance depreciation accounting. Costs from all areas decreased roughly between 300 million to 400 million JPY from the previous fiscal year.
Dividends from Japan Securities Settlement & Custody, Inc. are included in the non-consolidated non-operating income. Furthermore, TSE was able to realize 1,179 million JPY more in income due to corporate tax adjustments.
Consolidated Financial Results for FY 2002
The scope of consolidation includes three subsidiaries for TSE - Japan Securities Settlement & Custody, Inc. (JSSC), Tosho System Service Co., Ltd. (TSS), and Japan Securities Clearing Corporation (JSCC) - and three companies to which TSE applies the equity method of accounting - Tosho Computer Systems Co., Ltd. (TCS) , NSB News Service Co., Ltd., and Japan Securities Depository Center.
Consolidated operating income include the participant fees, listing income and income from information services in TSE's non-consolidated income as well as system development income from TSS and income from clearing operations in JSSC and JSCC. The result was an operating income of 41,064 million JPY, down 3,670 million JPY from the previous period. The fact that TCS ceased to be a subsidiary of TSE's had a large influence on this drop. Operating costs for the year were 38,604 million JPY, down 4,377 million JPY. As a result, the consolidated group recorded an operating profit of 2,460 million JPY (up 706 million JPY from FY 2001) and a current profit of 3,246 million JPY (up 949 million JPY). Like with the non-consolidated results, the consolidated group was able to increase profits over the previous period.
Concerning forecasts for the consolidated group for next fiscal year, TSE expects to record operating income of 41,900 million JPY, current profit of 2,950 million JPY and net earnings of 1,700 million JPY.
Revisions to TSE's Listing and Business Regulations
As mentioned in the board report released earlier in April, TSE had planned on making revisions to its listing and business regulations to accelerate corporate revival and to accommodate businesses that participate in the government's Industrial Revitalization Corporation's program. After a period of public comment for these revisions in which no comments were received, TSE plans to enact the revisions, with prior consent from the Financial Services Agency, on May 8, 2003.
Revision to Part of the Regulations regarding Trading Participants
TSE will revise part of its regulations regarding trading participants that forbids one trading participant from accepting orders from another trading participant's officers or staff without the other trading participant's consent. The purpose of this regulations is to prevent illegal activity by a trading participant's staff, such as embezzlement of company held securities. However, due to the progress of making Japanese Government Bonds paperless, TSE will exclude orders for JGB from falling under these regulations.
With prior approval from the Financial Services Agency, TSE will effect this revision on May 1.
Petition for Members for the Financial Accounting Standards Foundation
The Financial Accounting Standards Foundation (FASF), the main body responsible for establishing private accounting standards in Japan, plays an important role in the securities markets in Japan. TSE, along with the Nippon Keidanren (Japan Federation of Economic Organizations), The Japanese Institute of Certified Public Accountants and others, has supported this organization since its inception in 2001. However only 50 percent of TSE listed companies, and only 30 percent of all public companies, have joined the foundation as members. In light of this, TSE received a formal request from FASF recently asking for cooperation in attracting members.
FASF is expected to operate stably as an organization with a high degree of independence and expertise. In order to realize this ideal, TSE believes it is important for listed companies to understand the importance of FASF and to therefore choose to join of their own volition.
TSE will again send letters to non-member listed firms asking them to consider membership. Without forgetting that membership is best comprised by firms that voluntarily join, TSE will discuss with the related organizations ways to encourage membership in FASF.
