- YOMIURI EDITORIAL
- New TSE markets start
Speed of implementing reforms far from sufficient
11:49 JST, April 12, 2022
The Tokyo Stock Exchange has undergone the first full-scale restructuring of its markets in about 60 years, but many observers have argued that the reforms are inadequate. The TSE is urged to make further efforts, such as toughening the criteria for companies to be listed.
The three new markets are Prime for large companies with international operations, Standard for midsize companies, and Growth for emerging companies. The previous First Section, Second Section, JASDAQ and Mothers were reorganized into these new markets.
The top-tier Prime market contains 1,839 companies, or about 85% of those listed on the former First Section. However, overall stock prices have continued to decline.
The Ukraine crisis and other factors are causes for concern, but the reason the Prime market did not see “celebratory price increases” is likely because many people see it as having gone through nothing more than a name change.
The criteria to be listed on the Prime market include the requirement that the percentage of “tradable shares,” excluding companies’ cross-held shares and others, must be at least 35% and that tradable shares’ market capitalization must be at least ¥10 billion. But there are transitional measures allowing a company to be listed on Prime even if those levels are not reached, if it submits a plan to achieve them.
Moreover, no end date has been set for the transitional measures, and some companies have given themselves 10 years to fulfill the criteria. The TSE should make the transitional period as short as possible and force companies that have difficulty achieving the requirements to leave the market at an early stage.
To help companies grow, it is also important to review the Tokyo Stock Price Index, or TOPIX.
In recent years, exchange-traded funds (ETFs) linked to the TOPIX have become popular and even shares of companies doing poorly have been purchased if they were listed on the First Section. ETFs are also purchased by the Bank of Japan, which is seen by some as distorting the market.
TOPIX is currently calculated based on all stocks in the former First Section. The weight given in the TOPIX calculation to companies with a less than ¥10 billion market capitalization of tradable shares will be gradually reduced starting in October, and such companies will be completely excluded at the end of January 2025.
Even though companies remain in Prime under the transitional measures, if they are removed from the TOPIX calculation, it will lower stock prices and the hope is that this can give a sense of urgency to corporate management.
Still, there are less than three years before the complete transition to the new markets. Speedier reform is desirable.
A change in corporate mindset is also indispensable to revitalize the Tokyo Stock Exchange. Japanese companies have been holding back on wage increases and capital investment, while building up their internal reserves of surplus profits. This attitude may be the reason for the sluggish growth of Japanese stock prices compared to the rest of the world.
There are many issues for companies to deal with, such as decarbonization and digitization. It will be important to indicate a path for long-term growth through aggressive investment.
(From The Yomiuri Shimbun, April 12, 2022)
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