This Report was prepared for:
Tokyo Stock Exchange
Crystalle Liceralde 11473062
Francine Zachary Kwan 11527403
Monisha Andruse 12105953
This report was carried out to evaluate the Japanese Stock Exchange. This
investigation was carried out by the students of Accounting and Finance at
Dublin City University on behalf of the managing director as he would like to
understand the requirements and procedures in the Japanese Stock Exchange.
The main findings include an outline of the Tokyo Stock Exchange, buying and
selling procedures on shares and its requirements for listed companies.
This report briefly outlines the market infrastructure of the Tokyo Stock
Exchange, Inc. (TSE). Although there are four other stock exchanges in Japan,
which are Osaka Securities Exchange, Nagoya Stock Exchange, Sapporo
Securities Exchange and Fukuoka Stock Exchange; this report was carried out
mainly focusing on TSE as it is the largest stock exchange in Japan.
It is concluded with some comparisons of the Tokyo Stock Exchange with the
Irish Stock Exchange.
Table of Contents
Table of Contents.......................................................................................................................3
2.Structure of Stock Exchange...................................................................................................4
3.History and Developments......................................................................................................5
4.Requirements for Listed Companies.......................................................................................6
6.Buying and Selling Share Procedures.....................................................................................8
7.Size of Stock Market...............................................................................................................9
9.Comparison with ISE............................................................................................................11
Japan, with a population of 127.5 million in 2011, is the world’s third largest economy with
electronic manufacturing and automobile as its principle industry (Richmond & Dodd 2011).
Its GDP is £5.87 trillion and its GNP is $4.54 trillion but has decreased by 0.9% and 0.4%
respectively in the third quarter of 2012 (Trading Economics 2013).
In 2004, the economy started to rise again. In 2002, the international reserves were worth
$470 billion, which increased to $845 billion in 2004 (Ohno 2005).
However, there has been a recent decline in the Japanese economy. In March 2011, a strong
earthquake and tsunami hit the country and damaged the nuclear power plants. It caused a
nation-wide power shortage. The economy bounced back with an increase of 1.5% in the
third quarter of the year, although demands for Japanese goods are affected by debt in the
Eurozone (BBC News 2011).
In early 2013, the Japanese stock fell by 1.2% due to an increase in the Japanese currency by
0.2%. An increase in the currency affects the Japanese products’ competitiveness in the
world. As a result, there is a decrease in Japan’s major companies i.e. Toyota Motor Corp fell
by 1.9% and Fuji Heavy Industries Ltd. declined by 1.7% (Turner & Kumar 2013).
2. Structure of Stock Exchange
Like many stock exchange, TSE have their own market structure for listing shares. The
stocks that are listed on TSE are divided into three divisions. These are First Section, Second
Section and Mothers Index. The First Section is allocated for large size companies. The
Tokyo Stock Price Index (TOPIX) which is published by TSE is “calculated based on all the
domestic common stocks listed on the TSE First Section” (Tokyo Stock Exchange 2012). This
is also where all the highest listing criteria are met. Currently, it has the most companies, with
1,707 listed. Similarly, TOPIX is calculated in the Second Section for all the mid-sized
companies that are listed in TSE Second Section. This is also where all the newly stocks are
listed with lesser strict requirements. The total number of companies that are currently listed
in the second section is 412 (Tokyo Stock Exchange 2013). In the same way, on the Mothers
market, stocks are listed with companies that have a high potential growth and those which
are newly emerging into industry. It was established in November 1999 (Tokyo Stock
3. History and Developments
The Tokyo Stock Exchange was established in May 1878 and trading began in the month of
June of that same year. In its early trade, its clerks worked in kimono. The stock exchange
was suspended in August 1945 because of the terrible war conditions and air raid in the
country. It was re-opened by an unofficial group in December 1945.
Three stock exchange were established in April 1, 1949 - Tokyo, Osaka and Nagoya. Five
more stock exchanges we launched in July. These are Kyoto, Kobe, Hiroshima, Fukuoka and
Niigata. The Kyoto exchange was merged into OSE in 2001 while Hiroshima and Niigata
were merged into TSE in 2000. Kobe was dismissed in 1967 (Tokyo Stock Exchange 2001).
The stock-trading floor was closed on 1999 in order to speed up and increase efficiency in the
Tokyo stock market. Manual works have been replaced to computerised ones, which reduced
the number of clerks on the trading floor and decreased the cost of transactions (Tokyo Stock
The newly installed transaction system, developed by Fujitsu ltd., had bugs and in 1st
November 2005 the exchange could only operate for 90 minutes. The new system was
installed in order to cope with high trading volume in the exchange. The major malfunction in
its system caused the exchange to suspend its trading (Leyden 2005). Furthermore, the glitch
in the system caused a loss of $330 million. In December 2005, an employee at Mizuho sold
610,000 shares at one yen in error instead of selling 1 share for ¥610,000 (Fackler 2005).
4. Requirements for Listed Companies
In order to be listed in Tokyo Stock Exchange (TSE) the following requirements must be met.
The number of shareholders must be and 800 more. Stocks that can be traded profitably must
be (i.e. tradable shares), 4,000 units or more. The market capitalization should be ¥1 billion
or more and 30% or more should be of listed stocks.
Regarding the board of directors, it must have been set up and continuously running a day
before which is 3 years prior to the end of a business year immediately prior to the business
year of the initial listing application day. The amount of net assets must be ¥1 billion or more.
The total amount of assets in the past two year must be at least ¥500 million. Market
capitalization as of the listing day is expected to reach at least ¥50 billion.
In relation to financial reports, there must be no false statement made in securities reports,
etc. which contain reference to financial statements for each business year which ended in the
last two years or quarterly financial statements. The audit reports of the accounting periods
mentioned must contain an “unqualified conclusion/opinion” of certified public accountants.
In relation to internal control reports, they must not contain “appraisal results cannot be
provided” or “no opinion is provided” by the certified public accountants. The applicant
must have undergone audit by a listed company audit firm under the provisions of Article
193-2 of the Act of the listed company.
TSE has set up some regulations when dealing with stocks. When issuing one class of stock,
this is assumed to have voting rights. When issuing multiple classes of stock, stock with
voting rights can receive economic benefits including claim for surplus dividend relating to
the number of shares that enables exercise of one voting right during general shareholders’
meetings regarding important matters. Stock can also be issued with no voting rights.
Transfer of shares by the initial listing applicants are permitted, provided that they are in
accordance with special laws and at the same time do not hinder trading in the Exchange
market. Any relevant issues are subjected to book-entry transfer operation of the designated
book-entry transfer institution.
If mergers/demergers are involved, they shall not fall under categories where making the
other company a subsidiary or making a subsidiary a non-subsidiary company, which has
carried out on or after the day of the application and within two years from the end of the
most recent business year. In addition, the Exchange believes that the applicant will end to be
a substantial surviving company by such an act. Where a merger in which an applicant
becomes a disbanding company (Tokyo Stock Exchange 2012).
5. Reporting Requirements
The on-going reporting requirements are very important for companies whose outstanding
securities are publicly traded, not only to comply with the Companies Act but also with the
regulations of TSE. This financial report includes Statement of Financial Position of the
company, Statement of comprehensive income, Statement of changes in equity, Statement of
Cash flows and Supporting Schedules (The Japanese Institute of Certified Public Accountants
Furthermore, the Financial Services Agency (FSA) in Japan also requires information on
their annual securities report such as the individual details of officer’s remuneration. This
allows investors and shareholders to check whether incentive structures for the management
and the sum of remuneration are appropriate. In relation to this, the total amount of
remuneration is also required which involves four types of officers in which they all have to
disclose the total amount of each type.
The structure of corporate governance in the company must also be disclosed in the annual
securities report. It is important to disclose any issues due to scandals that may come up and
will cause damage to the Exchange. They must also state the reasons why they have chosen
such corporate governance system. The annual internal control audit by certified public
accountants must be included as well as quarterly reports of the financial statements by the
CPAs. In relation to the auditor, they must confirm that they have substantial knowledge in
performing the audit by outlining their level of skills (e.g. stating work experience in relation
In regarding shares that are held for strategic purposes, disclosure notes must be included in
the annual securities report. These must be if an issue sums up to 1% or more of the equity
capital, then it must be listed; the number of shares that are held for each use and the amount
of shares of each issue and the purpose of the shareholding. Shares used for investment
purposes must also be disclosed by stating the total value of shares and total amount of
Lastly, voting results in shareholders’ meetings must be included in the annual securities
report. It must state the matters discussed and the resolved number of votes for or against the
issue and reason for excluding voting rights if they aren’t counted (Yamaguchi 2011).
6. Buying and Selling Share Procedures
In order to buy and sell shares at TSE, you have to fulfil some formats and procedures. There
are usually two sessions for trading stocks per day; one in the morning and another in the
afternoon. Each day, two opening and two closing auctions are conducted for trading stocks.
At the start of each session, there is the ‘opening auction’, where the first transactions are
carried out. Likewise, at the end of each session, there is the ‘closing session’, where the last
transaction of the day is executed. The Trading Participants have to place orders in order to
be trade stocks. They have to be accepted and registered prior to each session. They can place
orders whenever time the securities companies offer. The acceptance could occur within 24
hours due to internet and other technology developments. “Orders accepted and registered
on TSE are valid for only one day” (Tokyo Stock Exchange 2012). Therefore, the Trading
Participants have to re-place the order if in case the first order was not carried out.
Due to the highly computerised trading system, all the transactions are conducted
automatically on the TSE market. There are mainly four stages involved in the trading
system. The first stage involves investors placing orders to the Trading Participants. This
goes through the trading network of each participant to trading system of TSE. The second
stage is called Processing stage. Here, all the orders that has been placed become registered
by the trading system and sorts them out according to their “Trading Participant, the
name/code of the issue, the order size (volume), the price, the type of order (buy/sell) and the
time the order was received” (Tokyo Stock Exchange 2003). The third stage is known as
Execution stage. This is where all registered orders are executed in accordance with TSE’s
trading rules. The Trading Participants then receives execution reports which are sent
electronically. The fourth and final stage involves dissemination of market information. This
informs investors about stock prices and the number of available shares to trade, which could
help them make investment decisions.
7. Size of Stock Market
TSE is currently the third largest stock exchange in the world with just below NYSE and
NASDAQ of the USA and Europe. It had a total issues share capital of 2,300,000 shares costs
at ¥11.5 billion. The total number of companies that are listed in TSE is 2,305 (Tokyo Stock
Exchange 2013). Some of the examples of large companies that are listed in TSE are Toyota
Motor Corp. and Citizen Holdings Co. Ltd.
The total number of shares for Toyota Motor Corp. is 3,447,997 (thousands) shares.
Likewise, the total number of shares for Citizen Holdings Co. Ltd is 350,353 (thousands)
The Tokyo Stock Exchange and the Daiwa Securities Group signed an agreement with the
Central Bank of Myanmar on April 10th
2012 to help establish a stock exchange and support
the Myanmar market. TSE will provide IT support and share its knowledge in relation to
operation in equity exchange by working with the world’s top companies. TSE educate
investors in the process (Tokyo Stock Exchange 2012).
8. Current Changes
In a fast-paced economy, every millisecond counts. At the start of the year, the TSE launched
a new system called “Arrowhead”, a more fast and efficient way of processing trades. It can
process them within 5 milliseconds unlike the old system, which took about 5 to 6 seconds. It
showed a 70% increase on trades. Due to this recent change, new regulations have been
made. Companies now have to disclose the names of those shareholders earning more than
¥100 million and give a breakdown of how they earned it (World Finance).
The TSE have what they call a “Medium-Term Management Plan” in which they wish to
implement changes in the derivative market and the Exchange-Traded Fund (ETF) market.
This plan was introduced in the year 2011 and is on-going until the end of the financial year
in 2014. The goal is to “have a sufficient number of listing applications to realize the new
listings of over 60 companies continuously from 2013” (Tokyo Stock Exchange 2012). As for
the ETF market, they plan to make it a “one-stop shop” for the public. In order to reach their
goals, the TSE have decided to revise rules, laws and market prices in order to increase
liquidity. They also plan on expanding provision with the ETF market reports, implement
educational campaigns or seminars to develop investor base and lastly, conduct promotion to
boost the involvement of domestic or overseas institutional investors. As of the moment, TSE
have not yet released any specific revision of laws or rules as it is only the beginning of the
On a national level, the TSE is going to experience a big change as Osaka Stock Exchange
(OSE) will incorporate its cash equity to TSE on July 2013. Both markets are subsidiaries of
the Japan Exchange Group (JPX). The different regulations of both markets mean that a new
system has been implemented for listing and de-listing of new companies in the stock
exchange, most of which follows the criteria of the TSE. Due to this integration, stocks listed
as OSE JASDAQ will now be listed as TSE JASDAQ.
9. Comparison with ISE
There is only one single stock exchange in Ireland, the Irish Stock Exchange unlike in Japan,
where there is more than one stock exchange. There is no dress code in the Irish Stock
Exchange as oppose to the Tokyo Stock Exchange where employees were required to where
kimono, although, it is not a requirement anymore.
TSE’s market structure has three divisions in order to categorise companies for stock trading.
In the same way, ISE has three markets. The first one is the Main Securities Market (MSM).
This is the main market for most Irish companies as well as for overseas companies. It
includes “a wide range of security types such as equities, debt securities, and investment
funds” (Irish Stock Exchange 2007). The second one is the Enterprise Securities Market
(ESM). This market is for small and medium sized growth companies. The third market is the
Global Exchange Market (GEM). This is a specialist debt market for investors and is an
exchange-regulated market (Irish Stock Exchange 2009).
History and Development
Irish stock exchange was established in 1793. The parliament of Ireland passed the Stock
Exchange Act in 1799 and the exchange was fully recognised as legislation. In 1973, the
Irish stock exchange merged with the British to form the London Stock Exchange which was
then called the International Stock Exchange of Great Britain and Ireland. The ISE became
independent again in 1995 and has been internationally recognised. The trading floor has
been replaced with electronic ones and shut down their office in Anglesea Street, Dublin
The ISE requires more information in comparison with the TSE. Most of the headings that
fall under the TSE in regarding the listing requirement are the same with the ISE, for
example, the number of shareholders, market capitalization, categories of stock, etc. What is
different is that the ISE requires further documents once the applicant has been considered.
They will need a written confirmation of the number of securities that were allotted if the
number of securities is lower than what is required (Irish Stock Exchange 2012).
As for on-going reporting requirements, the ISE supports the promotion of their listed
companies and must therefore also disclose certain documents. They are also similar with the
TSE such as the final financial documents (balance sheet, income statement, etc.) and the
reasons why they have chosen a certain corporate governance system (Irish Stock Exchange
Buying and Selling Procedures
Like TSE, there are different sessions each day for trading stocks at ISE. These are Pre-
trading followed by Opening Auction. Then Continuous Trading takes place followed by
Closing Auction and then Post Trading. The auction price for a stock traded in the closing
auction will be its Official Closing Price. Likewise, the Official Price of the trades that was in
the Opening Auction or in the Continuous Auction and that does not trade in the Closing
Auction will be its last traded price. If however no trades takes place on a particular day, “the
Official Closing Price default to the previous day’s Official Closing Price” (Irish Stock
Size of Stock Market
In 2011, the GDP in Ireland was €156, 487 million worth of GDP. There is an increase of
1.6% from 2010 (Central Statistics Office 2011). Similarly, there was an increase in GDP of
9.2% between 2010 and 2011 in Japan.
Examples of major companies listed in the Irish Stock Exchange are CRH PLC, Glanbia PLC
and Ryanair Holdings PLC. The total number of issued shares in CRH is 726, 455
(thousands) shares, while Glanbia PLC issued 294, 732 (thousands) shares and Ryanair has 1,
454, 262 issued shares to date. (Irish Stock Exchange 2012).
Following the changes that were made in April 2010 by the Financial Service Authority, ISE
had issued a consultation paper which indicates some possible changes that are to occur to the
structure of ISE Listing Regime. ISE Primary and Secondary markets were proposed to
change to “Premium” and “Standard” respectively. Companies listed in Premium must meet
ISE Listing Rules while Standard listed companies must meet EU Directive minimum
standards only (McMenamin 2011)
In a nutshell, this report outlines a summary of the on-going developments and operation
within the Tokyo Stock Exchange, Inc. The findings show that TSE is a very competitive
market, not only compared to ISE but also globally.
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