1. Improvement of Approval Procedures for Mergers,
etc. of Trading Participants
Mergers, reorganizations, and alliances will gain more momentum in the future in the securities industry whose environment has been changing dramatically. Taking this situation into account, the Tokyo Stock Exchange (TSE) will thoroughly review its procedures for approval before trading participants conduct such activities.
The TSE requests trading participants undergo an approval examination before they carry out mergers, etc, and the actual application procedures and the content of the examination have already been developed in conducting business operations. However, as they have not yet been incorporated explicitly into regulations, the TSE has decided to stipulate the rules to facilitate the examination process.
In addition, the TSE will also improve the reporting system in an effort to appropriately understand the actual business conditions of a trading participant in the event that there is a major change in its managing status, for example, if it becomes a subsidiary of another company.
The TSE will set forth a period for suggestions by the public on improvements to the approval procedures and reporting system, and hopes to implement them in May 2007.
2. Revisions to Off-auction Distribution
Off-auction distribution is a trading method that enables market participants to sell a batch of shares whose volume is too large to be executed smoothly in auction trading. Listed companies use this trading method mainly to improve distribution of shares, as one off-auction distribution may significantly increase the number of individual investors. Due to popularity among individual investors, in recent years, the number of off-auction distributions has increased, far exceeding 50 cases per annum.
The TSE currently requests trading participants administering sell orders to submit the necessary documents in advance. In a few cases, however, some market participants have taken advantage of the off-auction distribution system partly due to simplicity of the procedures, which deviates from the system's original purpose.
In order to prevent the system from being misused and inappropriate transactions from occurring, the TSE will not approve certain off-auction distributions in certain cases. Specifically, the TSE will not approve off-auction distribution in the event that (1) a market participant tries to apply for off-auction distribution a number of times in a short period of time, and/or (2) a listed company has just disclosed material facts associated with insider trading regulations. With regard to these matters, the TSE only issues a cautionary notice to securities companies at the moment, but will make this an explicit systematic measure with this review. The TSE will specify details of the rule in April after putting it up for public comment, then implement the review in May 2007.
3. Reviews on Business Continuity Plan
The TSE will make necessary revision to the Business Continuity Plan (BCP), and will specifically discuss how the BCP of the whole securities market should work in case of a natural disaster, etc.. The TSE and other market-related parties have held discussions previously at the "Convention on BCP for the securities market" established by the Japan Securities Dealers Association (JSDA). Under this Convention, the "stock exchange transactions special committee" was established to discuss the BCP for stock exchange transactions, and a report summarizing future challenges, etc. was already released to the public last September. Three challenges that the TSE must tackle in the future are outlined in the report: first, "clarify the goal of resuming and recovering the trading functions", second, "reinforce the back-up system", and finally, "review the current BCP, taking actual transactions into consideration".
The TSE will set a specific target for the second goal, namely, resuming functions within approximately 24 hours after the emergency occurs. Also, with regards to reinforcing the back-up system, the TSE will follow the strategy of "establishing a back-up site at a place that will not be simultaneously affected with the primary site."
These goals and policies will be incorporated next month into
the "Business Contingency Basic Plan" that the TSE is
now drawing up. Although for security-related reasons some aspects
of the plan cannot be released to the public, the general outline
is made available on the TSE website.
Under the current BCP, trading will be halted if the share of total
trading volume of trading participants who are unable to participate
in the market amounts to approximately 20% or more. However, some
pointed out that "trading value" is a more appropriate
indicator than "trading volume" in measuring market liquidity.
Therefore, the TSE will revise the current BCP to "trading
will be halted if the share of total trading value of trading participants
who are unable to participate in the market amounts to approximately
20% or more". The revision is scheduled to be implemented in
April 2007.
4. Conducting "Survey about the Tokyo Stock
Exchange"
The TSE conducted a "Survey about the Tokyo Stock Exchange"
at the end of last year on the opinions that the general public,
listed companies, trading participants, and other market related
parties have towards the TSE. In the survey, the TSE asked the general
public about how much they understand our business operations, what
they expect for the TSE, what image they have of the TSE and stock
trading, how much trust they have in the TSE, etc. The survey showed
that the general public does not understand the TSE's business operations
very well, and quite a few of them say that they do not have a clear
idea about the image, what they expect, and their level of trust
in the TSE. Among the public respondents, however, those who actually
invest in stocks understand the business operations better and have
a high level of trust in the TSE. However, in making the shift from
a saving focus to an investment focus, it is essential that the
TSE promotes its raison d'etre to a wider range of people in order
for them to better understand the TSE.
To realize this, the TSE needs to communicate with the general public
more actively. However, communication with the general public is
only one part of the TSE's fundamental work, and as such, the TSE
is not currently planning to needlessly spend money on trying to
raise the visibility of itself among the general public.
In addition to the same questions the TSE asked the general public,
the TSE also asked listed companies and trading participants about
the usability of the TSE market. When they were asked what they
expected of the TSE, "ability to execute trades in an orderly
manner" and "improvement of regulations" were high
on the list.
The TSE received positive responses from more than half of the
respondents regarding the usability of the TSE market. However,
many of the respondents answered "generally favorable,"
which means that while they think the current status of the TSE
is passable, they expect the TSE market to further improve in the
future. As the TSE is fully aware that there are many points to
be improved, it will make every effort to fix what needs to be fixed.
As for how much trust they have in the TSE, the TSE received favorable
responses from quite a few respondents. However, many of them say
that the TSE is "generally trustworthy". To put it another
way, they do not trust the TSE entirely.
In addition, quite a lot of respondents say that their image of
the TSE is "bureaucratic" and "paper-pushing".
Taking this into consideration, the TSE will need to enhance the
usability of the market and become a customer-oriented company,
being fully aware of the perspectives of trading participants and
listed companies.
When asked whether the TSE should focus on public needs or profitability,
most of the respondents answered the former. Obviously, the TSE's
identity lies in meeting public needs and fulfilling its responsibility
to the public. Therefore, the TSE again recognize that it should
maintain this fundamental calling even after it lists its own shares.
The TSE plans to continue deliberations on the specifics of the
action plan in the future. This kind of survey has been conducted
for the first time since the establishment of the TSE, and the TSE
will continue to carry out the survey on a regular basis.
