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1.Adjustments to Listing System, Including Those Made to Eliminate Criminal Elements and Radical Groups
Tokyo Stock Exchange, Inc. (TSE) has worked to stamp out criminal elements and radical groups mainly through listing examinations. However, as they slowly edge closer to the securities market, the TSE is fully aware that eliminating these elements is extremely important in firmly maintaining order and confidence in the securities market.
This is a problem that should be addressed through a nationwide effort by the securities industry as a whole. For its part, the TSE will continue to closely cooperate with related bodies and organizations, and as the entity that supervises listed companies, has in the meantime drawn up the following two measures to eradicate criminal elements and radical groups.
First, the TSE will outline in its “Corporate Code of Conduct” a requirement for listed companies to “develop an internal system to prevent damage caused by criminal elements and radical groups” and “make efforts to prevent intervention by criminal elements and radical groups”. In tandem with this addition, the TSE will clarify these requirements as one of the criteria in conducting listing examinations.
Listed companies will also be requested to disclose the type of internal control system they have developed to eliminate criminal elements and radical groups in their corporate governance reports. These changes are scheduled to be made by the end of April 2008.
When examining a company applying for initial listing, the TSE already requires written confirmation from a listed company stating that the company has no relation with any criminal element, and the TSE will also request listed companies to submit this confirmation during examinations of mergers and acquisitions as well.
These measures are scheduled to be implemented by February 2008. The TSE will make the utmost effort to prevent criminal elements and radical groups from intervening in the securities market, while continuing to cooperate with police organizations, the Japan Securities Dealers Association, and other organizations.
2.Action Plan for Consolidating Trading Units
As described in the “Comprehensive Improvement Program for Listing System 2007” publicized in April 2007, the TSE will work to unify trading units to a basic lot of 100 shares in the future, and consolidate trading units to basic lots of 100 shares and 1,000 shares prior to eventual unification.
All domestic stock exchanges will unify trading units in a cooperative way. The schedule for the action plan is largely divided into four phases.
In the first phase, the consolidated trading unit will be applied to newly listed companies and companies planning to revise their basic lots or set new basic lots by the end of November 2008.
Consolidation of trading units will be put on hold for four months starting from December 2008 to March 2009 to prevent confusion in the market, as stock certificates will be converted to a completely paperless system in January, 2009. In the second phase, a transitional period for consolidating trading units to 100 shares and 1,000 shares will begin in April 2009.
The TSE will make the final decision regarding how long the transitional period will be after observing the related costs, logistical operations, etc. after conversion to the paperless system.
After this transitional period is complete, the TSE will set another transitional period for consolidating the trading unit into a basic lot of 100 shares. The TSE will take the situation of the second phase into account when setting this period.
3.Introduction of New Financial Instruments for Futures and Options Trading
The TSE will introduce new derivatives into the market in order to expand its range of financial instruments and provide a variety of investment methods to investors.
For futures trading, the TSE will introduce the following three financial instruments: (1) mini-TOPIX futures, (2) futures tracking the movement of TSE’s REIT indices, and (3) futures tracking the TOPIX Core 30 index, which is comprised of 30 issues whose market capitalization and liquidity are particularly large in the market.
The TSE has until now limited options trading to domestic stocks listed on the First Section of the TSE market; however, taking liquidity into consideration, ETFs and REITs will also be included in options trading in the future.
These instruments will be introduced in the market by May 2008. The TSE believes that a wide range of investors will actively utilize such financial products as they can be traded after depositing a margin of only tens of thousands of yen. Also, options products are an extremely effective product for expanding an investor’s range of assets managed.
4.Introduction of Evening Session for Stock Index Futures and Options Trading
The TSE will introduce an evening session for stock index futures and options trading.
The evening session has already been held for JGB futures trading since September 2000, but the TSE will also introduce a similar session for stock index futures trading to meet the increasing demand from foreign and other investors for off-auction trading. The TSE will proceed with preparations to introduce the session in May 2008.
5.Development of Market for Off-Auction Trading for Cash Equities/Futures and Options
The TSE currently recognizes off-auction trading as a complement to auction trading, and has established restrictions such as prohibiting cash equities from being traded during auction trading hours. On the other hand, investors’ needs for trading execution methods have clearly changed – for example, batch orders traded off-exchange during trading hours have increased.
To respond to these changes, the TSE will revise the rules to enable investors to use off-auction trading during auction trading hours.
However, this means that the same issue may be executed at a different price during the same trading hours. Therefore, auction trading and off-auction trading need to be distinguished as two separate markets. Under these circumstances, the TSE will open a completely different financial instruments market separate from the existing auction market called the ToSTNeT market.
The concept of opening the ToSTNeT market is simply to separate the auction and off-auction markets. Therefore, market participants are not required to make special changes to use both the auction and off-auction markets.
Off-auction trading for cash equities is currently conducted through the system while off-auction trading for futures is conducted manually. However, the new derivatives trading system under development is scheduled to accommodate off-auction trading for both cash equities and futures. In tandem with the activation of the new derivatives trading system, the TSE will revise the trading system on January 15, 2008.
6.Launch of e-Learning Compliance Training Service by Tokyo Stock Exchange Regulation
Tokyo Stock Exchange Regulation (TSE Regulation) will launch an “e-Learning Compliance Training Service”.
This service will be provided as e-learning content that utilizes the Internet for in-house training and self-development programs at listed companies and securities companies. The service will start from the “Introductory Guide to Insider Trading Regulations”. With its reasonable usage fees, TSE Regulation hopes that general investors will also use this service.
