1. 3rd Quarter Financial Results for March,
2007 (Consolidated)
During the 3rd quarter, operating revenue for March, 2007 was JPY 55.428 billion, up 13.0% from the corresponding period of the previous year. The breakdown is as follows.
Due to more buoyant market conditions, trading participant fees were up 15.8% from the 3rd quarter of 2005. Listing-related revenue was up 5.7% from the previous year, partly due to an increase in annual listing fees linked to an increase in market capitalization. Information services-related revenue was also up 17.8% from the same period of the previous year, due in large part to a steady increase in the number of Market Information System real-time terminals. In addition, securities settlement-related revenue was up 12.4% from the previous year which is attributed to an increase in clearing fees resulting from increased trading volume.
As for operating expenses during the quarter, system maintenance/ operating fees were down dramatically due to a decrease in commission expenses associated with clearing operations. On the other hand, consulting fees, litigation costs and other expenses pertaining to the construction of the next-generation trading system and the establishment of internal control were posted, resulting in operating expenses increasing slightly by 2.8% from the same quarter of the previous year.
As a result, operating profit was up 29.2% to JPY 24.410 billion and current profit was up 24.2% to JPY 25.266 billion from the previous year. After deducting corporate and other taxes, net profit for the quarter was up 14.2% to JPY 14.638 billion.
2. Basic Policy on Change in Organizational
Structure of the TSE
Since last July, the Tokyo Stock Exchange (TSE) has been looking into the basic policy for changing its organizational structure from a variety of different perspectives. On January 23, 2006, the basic policy was approved at the meeting of the board of directors. Specifically, the TSE will change the organizational structure "by establishing a holding company under which a self-regulatory company and a market operating company will be set up". This policy is based on the idea of "responding appropriately to the trend of M&A among exchanges across the world while further strengthening self-regulatory functions and enhancing the independence of such."
The holding company will manage the TSE group as a whole. The holding company will act as the founder of the self-regulatory company by contributing 100% of capital. The market operating company will be in charge of managing the entirety of market operations (including making/abolishing market rules, developing/operating the systems, and conducting operations linked to information services) except for self-regulatory operations, which it will consign to the self-regulatory company.
On the premise that the "Financial Instruments and Exchange
Law" will be enacted by the end of this summer, the TSE will
shift to the new organizational structure and launch operations
by the end of this fall after receiving approval at the board meeting
to be held in June, 2007.
The TSE will discuss and decide particulars regarding the area of
operations, personnel structure, company names and logos in the
future.
3. Basic Policies on Drawing Up New Medium-Term
Management Plan (Fiscal 2007 to 2009)
Every March, the TSE releases its medium-term management plan on a-year-on-year rolling basis which covers the three year period beginning in April of that year. Working from the foundation the TSE has laid since last year, the TSE aims to leap forward to a new stage - establishing its position as a central market in Asia - in the new medium-term management report we plan to release in March.
The following three fundamentals will be outlined in the plan as the basic ideas:
The first fundamental is developing the TSE market infrastructure and diversifying its listed financial products in order to enhance the convenience of the TSE market. The second fundamental is enhancing trustworthiness in the TSE market by strengthening self-regulatory operations. Finally, for the third fundamental, the TSE will beef up its competitiveness in light of intensifying global M&A.
The TSE will solidify these fundamentals into a stepping stone for making the Tokyo market a core market in Asia during the "Decade of New Challenges" declared in "Basic Policies for Economic and Fiscal Management and Structural Reform 2006" issued by the Cabinet Office.
To realize this goal, it is important to secure a variety of ways to raise capital. Therefore, the TSE aims to list its shares by 2009 at the latest.
The basic policy has been created from bottom up, namely gathering opinions from our younger employees since last year. We began the process in August of last year, incorporating ideas from employees at every level into a new medium-term management policy, and from here on out plan on creating a new medium-term management plan by breaking down the plan and discussing it at every division.
4. Review of ToSTNeT and Other Transactions
When New Derivatives Trading System Begins Operation
ToSTNeT trading is currently executed by an independent system separate from the existing derivatives trading system. In tandem with the implementation of the new system, ToSTNeT trading will also be carried out by the new system. At the same time, foreign stocks will be newly added to the securities tradable through the ToSTNeT system.
As part of the system for repurchasing shares after prior public announcement, in addition to "closing price trading" currently used, the TSE will newly introduce "off-auction purchase of a company's own shares" in the new system. This trading method is stipulated in Paragraph 7 of the cabinet order concerning transactions of listed shares, etc. by the issuer as "a trading method deemed appropriate by stock exchanges".
The TSE will also make other required reviews to its trading system, such as abolishing the function of negotiating conditions on single-stock trading and enabling different trading participants to execute basket trading. These reviews will be made in tandem with the implementation of the new derivatives trading system in October 2007.
5. Introduction of Margin Transactions to Foreign
Stocks and Introduction of Off-auction Options Trading System
The TSE publicized the structural outlines for "Introduction of Margin Transactions to Foreign Stocks" and "Introduction of off-auction options trading" last November. After gathering public comments, the structural outlines will be incorporated into the TSE's regulations.
6. System Capacity Augmentation
Currently, the Stock/CB trading system has the capacity to execute up to 14 million orders per day. However, the TSE will augment system capacity to 17 million per day by the end of this fall. The amount of investment will be approximately JPY 1.7 billion.
In addition, the TSE will hold discussions with the Japan Securities Clearing Corporation to implement necessary clearing system capacity augmentation to approximately 10 million per day, coinciding with the capacity augmentation of the Stock/CB trading system.
