Recently, many dynamic changes could be seen in the corporate landscape as laws were revised to permit more corporate reorganization, global economic competition intensified, and businesses continued to restructure. As these changes grew in frequency and speed, a growing need for quicker information at regular intervals was felt by investors to allow them to make better investment decisions based on more timely corporate information. Furthermore, the corporate and accounting scandals encountered here and in America have brought renewed interest to corporate governance. Since March 1999 TSE has demanded from its listed companies semi-annual reports on their activities for corporate governance, but now market demand is greater for disclosure of this information in a more appropriate and timely form.
Based on its recognition of the above problems, TSE plans to raise investor trust in the securities market through more complete timely disclosure by its listed companies. In order to do so, TSE must first revise the necessary parts of its own timely disclosure regulations. There are three main parts to this revision.
First, TSE will make it mandatory for listed companies to submit a quarterly overview of their business results. Five months have passed since TSE issued its Action Program for the Disclosure of Quarterly Financial Information, and through consultations with parties involved in this issue it has researched an appropriate plan of action for handling quarterly reporting. First, TSE has decided to include quarterly business overviews, consisting of the progress of a business's operating results from the preceding quarter and any changes in its financial condition, in its timely disclosure system.
Quarterly business overviews will include: 1) Net sales or appropriate entry for that quarter, 2) Profit and losses of the quarter as well as any items that had a large effect on the financial condition of the company and a summary thereof, and 3) Any qualitative accounts concerning either of the above, expected future results, etc. Companies will be required to post this information after the last day of their 1st and 3rd fiscal quarters (such information is already required semi-annually and annually) at a time when that information has been calculated and determined by the company. It is important to note, however, that this requirement does not mandate that companies prepare and attach quarterly financial statements to their quarterly business overviews.
The proper regulation revisions will take place starting with companies that end their fiscal year at the end of next March 2003.
TSE will also establish an investigation committee to research the type of financial information appropriate for quarterly disclosure. Based on research completed this past September it was found that 15% of TSE listed companies release operating information every quarter, but of those only half also voluntarily provide financial information. Most of those companies, since there is presently no national standard form for reporting quarterly financial results, slightly adjust their accounting to use semi-annual financial table standards for their quarterly results.
As a result, the reporting of quarterly finances varies from company to company losing most usefulness derived from the reporting. To, at the very least, establish comparability of this information across companies and secure its accuracy, TSE decided to establish an investigation committee for quarterly financial disclosure, which will be comprised of academics, financial table users, public accountants and the like. This committee will meet twice a month and aims to provide listed companies with more standardized forms by July 2003.
In the above mention Action Program, TSE stated its desire to enact quarterly financial reporting by 2004. However, improving the present environment to allow for consensus on the issue among those involved must precede enactment. Establishment of the investigation committee is one part of that improvement, and after they have finished their duties TSE will work towards building consensus, steadily following the Action Program as it advances with this issue.
The second main point is the establishment of timely reporting of information related to listed company corporate governance. Until now, listed companies have been requested to submit a report on the condition of corporate governance within their organization. This report will now be required, and within it companies must report the following: 1) Information on their corporate governance systems, 2) Information on any interest (financial, etc.) that the directors and auditors from outside the company have in the company, and 3) Information on what the company has been doing to fulfill corporate governance standards over the past year.
As with the first point, the appropriate regulation revisions will take place starting with companies that end their fiscal year at the end of next March 2003.
The third main point concerns how companies should report any changes or revisions to their disclosure. TSE will change the appropriate sections of its rules and regulations to make clear how companies should handle such situations.
Revisions to TSE's Rules and Regulations Concerning the Start of Japan Securities Clearing Corporation, Inc.
TSE will revise the necessary regulations and revisions on January 14, 2003 to allow for the start of the Japan Securities Clearing Corporation, Inc. on the same day.
Revisions to the Calculating Method of Settlement Prices for Futures Trading
Presently, when no contract price for a particular future is established for one day the settlement price of the preceding day is used for the future on the following day. However, to reasonably and accurately reflect the market price for that security as much as possible, TSE will initiate the use of theoretical prices for such futures. This change takes place in response to the rapidly increasing open interest positions of products that have not traded well in TSE's auction market, such as TOPIX futures and Bank sub-index futures.
TSE aims to put these revisions into place by the middle of 2003.
Revision to the Delisting standards for Equity Options
Trading in Equity options began on the TSE in 1997, and presently equity options are traded for 165 first section companies. However, some of these options have gone untraded for a long time. So that turnover can occur smoothly in the underlying stocks of such options, TSE will delist illiquid equity options by adding a liquidity provision to the delisting standards for these products. Every year on the last day of march TSE will delist those equity options in which no trades have been made for the past year. TSE presently hopes to enforce these new standards from the last day of March 2003.
