.jpg)
1. Introduction of Margin Transactions for Stocks
Issued by Foreign Corporations
With respect to foreign stocks, margin transactions have not been
introduced in the past due to the following reasons: Firstly it
has been assumed that so-called 'blue chips' are dually listed on
the home country exchange as well as on our Exchange. Secondly,
there has been little need to introduce speculative supply and demand
as stock price formation has been liked to the market in the home
country.
However, from now on the Tokyo Stock Exchange (TSE) is making concerted
efforts to list companies based especially in Asia. Thus the TSE
is now developing the listing system for foreign stocks with the
premise of their single listing on the TSE.
As a single listing will lead to independent stock price formation
particular to the TSE, there is reason to introduce speculative
supply and demand. In addition, the supervision of margin transactions
has been further strengthened since 2002 with, for example, the
introduction of a requirement to distinguish whether a margin transaction
is for a new or offsetting purpose. Therefore it is believed that
investors also have increased their understanding of margin transactions.
Furthermore, circumstances surrounding margin transactions have
been improving as, for instance, procedures to open a margin transaction
account have been simplified, and settlement is now conducted by
book-entry transfer at the Japan Securities Depository Center (JASDEC).
In light of the above situation, the TSE has decided to introduce
margin transactions for foreign stocks.
As is well-known, margin transactions are classified into 'standardized'
ones, the terms and conditions of which are established in advance
by the TSE with, for example, a 6-month offsetting limit and 'negotiable'
ones, the terms and conditions of which are determined by securities
companies. The TSE has decided to introduce both types of margin
transactions for foreign stocks.
In the standardized margin transactions the stock bought by an investor
is reserved by the securities company or the securities finance
company as collateral, thus even if rights pertaining to a stock
split for example are granted the investor is unable to exercise
the rights. The Exchange has stipulated rules with respect to the
treatment of this kind of rights; the same kind of procedures will
apply to foreign stocks.
As for the handling of dividend rights, the investor who has bought
a stock on margin will receive the amount of dividend obtained minus
taxes, referred to as the ex-dividend adjustment amount, from the
trading participant, and the investor who has sold on margin will
pay this amount of money to the trading participant.
With respect to the handling of rights regarding matters such as
dividend payment and the distribution of other company's stock,
the securities finance company will conduct a rights bidding to
adjust by converting money in the same way as applies to domestic
stocks.
The negotiable margin transactions will be conducted on the basis
of the terms and conditions agreed upon between a trading participant
and its customer.
However, margin transactions will not be introduced to all the existing
listed foreign stocks. The TSE will establish criteria to select
certain issues to which margin transactions can be applied, and
to revise such selection. This will be based on the same kind of
criteria for domestic stocks while also taking into consideration
the characteristics of foreign stocks.
The characteristics of the selection criteria are as follows:
With respect to the "number of shareholders," the TSE
adopts criteria of a minimum number stipulated in the selection
criteria for domestic stocks, instead of a step-up method corresponding
to the number of listed shares.
Regarding "trading volume and pricing ratio," the TSE
sets the same level of criteria as those required for domestic stocks
which have high liquidity in other domestic markets.
In addition, "business performance" is now used as an
element to ensure its adequacy as asset value, by taking into account
that shares bought through margin transactions are kept by the securities
company as collateral. However there are cases when the definition
of "accumulated earnings" differs from country to country
due to difference of accounting standards. Therefore the TSE has
added the "amount of net assets (shareholders' equity)"as
a new judgment element.
The characteristics of the "criteria for canceling the selection"
are as follows:
With respect to the "number of listed shares," in order
to align the listing standards, no consideration will be taken regarding
treasury stocks as opposed to domestic stocks.
The criteria for the "number of shareholders" do not adopt
a step-up method but specify a minimum range or less.
Regarding "trading volume", the delisting criteria for
domestic stocks will be applied mutatis mutandis to ensure the repayment
of margin transactions.
In addition, with respect to the "Daily disclosure of the balance
of margin transactions," and the "Raising of the margin
requirement" etc. the TSE will basically conduct operations
on the basis of the guidelines on margin transactions in the same
way as those for domestic stocks.
The TSE intends to implement these measures next April after subjecting
them to public comment. Standardized margin transactions in particular
are expected to be introduced at or after the beginning of next
April if taking into account the period required for preparation
at Japan Securities Clearing Corporation and the selection examination.
2. Introduction of Off-Auction Trading for Options
Currently, the TSE conducts off-auction trading for futures and
a considerable volume of transactions are executed through this
method. For options trading, the TSE has received requests from
some trading participants who hope to avert the risk that their
options are left to be unexecuted when for example combined transactions
are executed. It is under these circumstances that the TSE has decided
to introduce off-auction trading for options.
All options listed at the TSE can now be traded during off-auction
trading. For some time into the future, the TSE will accept orders
by facsimile and match the orders manually. However, this options
trading, with the exception of some trades, is expected to be computerised
when the existing derivatives trading system is replaced with a
new system in October 2007.
The trading hours, trading units and such details will be decided
based upon the current system for off-auction futures trading. The
TSE will gather public comment about this matter and will then implement
this plan by the end of March next year, taking into consideration
the period of time to make it known to the public.
3. Partial Amendments to Rules regarding the
Handling of Margins, etc. accompanied by the Launch of a Book-Entry
Transfer System on Non-Listed Investment Trust Beneficiary Certificates
For non-listed investment trust beneficiary certificates, the book-entry
transfer system based on "the Law Concerning Book-Entry Transfer
of Corporate Bonds and Related Instruments" is scheduled to
start operating at the Japan Securities Depository Center, Inc.
(JASDEC) on January 4, 2007.
As the products to be transferred by JASDEC based upon this system
are non-listed investment trust beneficiary certificates, there
is no direct effect on the TSE's trading system, etc. However, the
non-listed investment trust beneficiary certificates are accepted
as substitute securities for clearing margin, participant bond and
trading participant security deposit for futures and options trading.
Therefore, it is believed that the system needs to be improved to
continue accepting these deposits and margins as substitute securities
even after the new transfer system is implemented next year. In
the system, in the event that investors deposit non-listed investment
trust beneficiary certificates as substitute securities for trading
margin with a trading participant who receives consignment transactions,
they should receive prior approval from the trading participant
before the trust beneficiary certificates are transferred to the
trading participant's account at JASDEC.In the same way, if a trading
participant deposits substitute securities at the TSE, they will
be handled through accounts held at JASDEC.
The system is expected to start operating on January 4, 2007 in
keeping with the schedule for implementation of the new transfer
system at JASDEC.
4. Setting-up of Working Group to Debate Rules
to Cancel Executed Contracts of Exchange Trades
Following an erroneous order pertaining to J-com stocks last December,
the "Working Group to Improve Stock Order Management and Risk
Management Systems" was set up at the Japan Securities Dealers
Association to discuss how to respond to an erroneous order in the
future.
After meeting on 11 occasions, their final report was published
on November 14, 2006.
Based on this final report, a formal request to establish rules
regarding the cancellation of an executed contract has just been
submitted by the Japan Securities Dealers Association to stock exchanges
across the nation and also to the Japan Securities Clearing Corporation.
The TSE also received this request on November 15, the day after
the final report was announced. It is believed that unified rules
can be developed more efficiently if all stock exchanges work together
from the beginning to establish rules to cancel executed contracts,
rather than separately discussing the issue at each exchange. It
is under these circumstances that the "Working group to debate
rules to cancel executed contracts of exchange trades" has
been established. The TSE plans to undertake any administrative
work necessary for running the working group.
As for its future schedule, the first working group meeting will
be held next month. The TSE will then finalize results of the discussions
by the end of March next year after gathering public comment.
5.Partial Amendments to Securities Listing Regulations,etc.
accompanied by Improvements, etc. of Listing System, based on the
Comprehensive Improvement Program for the Listing System
The structural outline of the Development of the Comprehensive
Improvement Program for the Listing System was published last month,
and the program was incorporated into regulation after a period
of public comment.
6.Establishment of Liaison Council on Measures
to Eliminate Antisocial Forces in Cooperation with the National
Police Agency and Tokyo Metropolitan Police
The TSE set up a liaison council with the National Police Agency
and the Metropolitan Police Department to stamp out antisocial forces
on December 8, 2006 and at the same time held its first general
meeting. The purposes of setting up this council are to strengthen
joint relationships with police organizations, prevent illegal acts
by antisocial forces including organized crime syndicates which
interrupt the TSE market, and contribute to establishing a sound
and fair securities market.
At this liaison council, as part of its "Activities for eliminating
antisocial forces in the TSE market", the TSE will look into
engaging in educational activities to eliminate organized crime
by holding seminars for listed companies and trading participants
as well as providing listed companies with a consultation service.
As part of activities for "Strengthening collaboration and
exchanging information between police organizations and the TSE",
we will discuss the exchange of information necessary for activities
to remove organized crime syndicates and reciprocate the dispatching
of lecturers to in-house workshops at local police organizations
and the TSE.
In addition, as part of activities for "Proactively participating
in and cooperating with activities to eliminate organized crime
syndicates conducted by police organizations", the TSE will
look into dispatching lecturers to workshops and seminars sponsored
by the National Police Agency and the Metropolitan Police Department
and police stations across the nation as well as devising methods
of cooperation that the securities industry as a whole will engage
in to eliminate anti-social groups. With this aim, the TSE also
plans to discuss strengthening relations between stock exchanges
through activities to remove organized crime syndicates.
The TSE will make the utmost effort to further strengthen activities
to eliminate antisocial groups and thus enhance confidence in its
market.
