PPT presentation,

1. Tokyo Stock Exchange
BY:MADDY.KALEEM

2. About
Founded in May 1878
Total no. of listings : 2292 ; Domestic : 2281 and Foreign: 11
It is the third largest stock market in the world.
Market capitalization: US$ 3.3 trillion as of 2011
Current chairman: Taizo Nishimuro
On 01 January 2013, it was merged with Osaka Securities
Exchange to form Japan Exchange Group.
BY:MADDY.KALEEM

3. Major Functions of the
Exchange
Provision of Market Place
Monitors Trading
Listing of securities
Monitoring listed securities
Supervision of trading participants
BY:MADDY.KALEEM

4. Structure
TSE
First Section
For Large
companies
Total of 1675 First
section companies
Second Section
For Mid-sized
companies
Total of 437
second section
companies
MOTHERS(
Market of the high-
growth and
emerging stocks)
For High-growth
startup companies
Total of 182
MOTHERS
section companies
Main indices tracking TSE is the NIKKEI 225 selected by Nihon Keizai Shimbun (Japan`s largest
business newspaper)
The TOPIX (Tokyo stock price index) index based on the First Section companies
J30 index for large industries companies maintained by Japan`s major broadsheet newspapers
BY:MADDY.KALEEM

5. Time Line
May 15, 1987
• Tokyo Stock Exchange Co, Ltd was established
June 30,1943
• "Japan Securities Exchange", a quasi-governmental organization, created by a merger of all existing
stock exchanges in Japan
June 1, 1951
• Margin transactions introduced.
April 2, 1956
• Bond trading started
Oct 1, 1966
• Government bonds listed for the first time after World War II.
April 1, 1968
• Licensing system for securities companies introduced in place of registration system.
July 1, 1969
• TOPIX (Tokyo Stock Price Index) inaugurated.
May 11, 1970
• Trading in convertible bonds started.
BY:MADDY.KALEEM

6. Time Line
Jan 23, 1982
• Computer-assisted Order Routing & Execution System (CORES) introduced.
Oct 19, 1985
• Trading in 10-year Japanese government bond futures started.
Feb 1, 1986
• 10 securities companies including first 6 foreign companies joined the TSE membership.
May 23, 1988
• 22 securities companies including 16 foreign companies joined the TSE membership.
Sep. 3, 1988
• Trading in TOPIX futures started.
Oct 15, 1970
• TSE joined the International Federation of Stock Exchanges(FIBV).
April 2, 1973
• Yen-based foreign bonds listed for the first time.
Dec. 18, 1973
• Foreign Stock Section opened.
BY:MADDY.KALEEM

7. Oct 20, 1989
•Trading in TOPIX options started.
Dec 1, 1989
•Trading in U.S. T-Bond futures started.
May 11, 1990
•Trading in options on Japanese government bond futures started.
Jul 18, 1997
•Trading in equity options
Jan 23, 1998
•Trading in sector-stock price index futures
Nov. 11, 1999
•The MOTHERS market for high-growth and emerging companies established
Aug 1, 2007
•Tokyo Stock Exchange Group Inc established
Oct 17 2007
•Establishment of Tokyo Stock Exchange Regulation
Jan 1, 2013
•Merging with OSS to form Japan Exchange Group
Time Line
BY:MADDY.KALEEM

8. Organizational Structure
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9. Products
 Domestic Stocks
 Futures and Options
 Other Products
o Foreign Stocks
o Bonds
o ETFs
o Real Estate Investment Trusts
BY:MADDY.KALEEM

10. Domestic Stocks
 LISTING
1. Significance of Listing
o Listed companies can directly raise funds by direct
financing, including raise capital through public
offering issued at market price and/or issuing
warrant bonds.
o Social trustworthiness with clients, financial
institutions, and others, is improved which leads to
increased public awareness.
o By going public, the organizational structure of a
company shifts from individual management to a
more organizational style of operation, enhancing
the internal management framework.
BY:MADDY.KALEEM

11. Domestic (cont...)
2. Initial Listing
o TSE conducts a rigorous exam using certain numerical
listing criteria, that companies have to meet.
o Need to check if the public interest and protection of
investors can be properly ensured or not.
3. Assignment of Listed Stocks to Sections
o Stocks of emerging companies are listed on another
market called Mothers (market of high growth and
emerging stocks).
o Newly listed stocks (except for stocks listed on Mothers)
are assigned to Second Section.
o TSE examines whether the stocks listed on Second section
and are applying for first section, meet assignment criteria
including trading volume.
o Conversely, if first section stocks fall under any
reassignment criteria, TSE transfers them to the Second
Section.
BY:MADDY.KALEEM

12. Domestic (cont...)
4. Supervision of Listed Companies
oCompanies are required to file various
documents with TSE on matters concerning
shareholder rights, like issuance of new
shares.
5. Delisting
o Listed securities if lose listing eligibility
criteria, they are delisted
o Designated as Security to Be Delisted, and
allows them to be traded for a certain
period of time before delisting (in principle,
1 month). BY:MADDY.KALEEM

13. Reassignment to the 2nd Section
(as of Dec 04,2012)
BY:MADDY.KALEEM

14. Domestic (conti..)
 Timely Disclosure
oFor a market to fulfill the role of efficient
asset management, it is important to
maintain investors’ confidence in the
fairness and soundness of the market.
oThese are quick, accurate, and fair means
of providing the latest corporate
information.
BY:MADDY.KALEEM

15. Futures and Options
 Derivatives
o Financial instruments whose values are derived from
other financial products, such as stock price indices
or fixed income.
o Cash settlement is the transfer of a cash position
rather than the delivery of actual principal.
o The derivative products listed on Tdex (TSE’s
Derivatives Market) offer investors a variety of
effective hedging instruments and new opportunities
for investment. It includes domestic as well as foreign
investors.
o Tdex products: TOPIX Futures, mini-TOPIX Futures,
TOPIX Crore30 Futures, TSE REITIndex Futures,
TOPIX Electric appliances index, TOPIX Banks index,
TOPIX Dividend Index Futures.
BY:MADDY.KALEEM

16. Futures and Options
 Margin
The deposit that is submitted as collateral to deal with
adverse price fluctuations which may occur in future.
Margin required= SPAN Margin-Total net option value
Total net option value=Total long option value-Total short option
value
 Clearing House
Futures and options traded on TSE are cleared by
Japan Securities Clearing Corporation (JSCC).
JSCC sets and announces various related
parameters to SPAN
BY:MADDY.KALEEM

17. Futures and Options
 Futures
oTOPIX is a composite index of all common
stocks listed on First Section of TSE.
oIt is the measure of the changes in aggregate
market value of TSE common stocks.
oMini-TOPIX is one tenth size of TOPIX
futures and offers users more convenience
and meets, especially individual investors
and smaller needs.
oTOPIX Core30 Futures is the TOPIX new
index series to have sorted inside the country
common stock listed on the first section of
TSE.
BY:MADDY.KALEEM

18. Futures and Options
o TOPIX, is calculated based on the market value of a large no. of
stocks.
o Investors can trade by forecasting overall trends of the Japanese
economy.
o No dividends are paid, unlike cash transactions.
o Investors enter the market with a short position.
o Investors in cash transactions are unable to earn profits when
market is steady or contracting.
o By trading futures contracts investors can earn profits- by
purchasing stocks at lower and selling at higher price, if they
anticipate that market will rise; selling at higher and purchasing
them at lower prices, if the market failure is anticipated.
o Since, futures contracts are settled by netting, investors incur no
interest or premium charges.
o When it is necessary to avoid risks of a fall in the value of cash
equities, holders of the stocks can hedge risks by selling TOPIX
Futures and buying them back at lower prices, even when market
prices fall.
BY:MADDY.KALEEM

19. Futures and Options
 Options
 TOPIX Options
o Providing a hedging tool: Price variability due to certain global
events is called Systematic Risk. TOPIX options provide a means
of managing this risk with a view to reducing it.
o Easier Portfolio: Portfolio managers can adjust their portfolios
without having a large impact on the underlying stock market.
o New investment tools: TOPIX futures provide new investment tools
like arbitrage and position trading.
 Individual Options
o TSE introduces Individual Options in order to satisfy the
diversifying needs of the market users and provide hedging tool for
individual securities.
BY:MADDY.KALEEM

20. Futures and Options
 Market maker scheme: It is the system that creates a
trading environment where market makers continually quote
bids and offers for designated contracts so that investors can
trade the contracts at any time.
BY:MADDY.KALEEM

21. Futures and Options
 Foreign Stocks
oTrading Hours: morning= 9:00-11:00 a.m. and
afternoon= 12:30-3:00 p.m.
oTrading Unit: Trading units of
1,10,50,100,500, and 1,000 shares are
determined based on the stock price as per
TSE rules.
oBase price: It is the final price. Same as
domestic stocks.
oTypes of Trading: Regular Transactions,
When-issued transactions, and Margin
trading of foreign stocks.
oCommissions: same as domestic stocks, it
also depends on the rates set by securities
company. 5% consumption tax also appliesBY:MADDY.KALEEM

22. Exchange Traded Fund (ETF)
3 features:
1. Simple:
◦ They are managed by an investment company to track an indicator, such
as stock price index, like TOPIX.
◦ Information regarding price movements and changes in profit/loss are
easily grasped, since, information is reported daily by the news media and
other organizations.
2. Facilitate diversified investment:
◦ ETFs lowers the investment risk, because, the underlying assets are widely
diversified.
◦ There are rich ETFs in addition to Japanese stocks, including those
tracking the foreign stocks, REITs, and commodities indices.
3. Low initial investments
◦ When investing in individual stocks, tens of thousands or even millions of
yen are generally required, however with ETFs, initial investment is
possible with several thousands or tens of thousands of yen.
◦ Management costs of 0.1-1% are generally lower than those of investment
trusts.
◦ Trading costs are similar to the listed stocks.
BY:MADDY.KALEEM

23. Real Estate Investment Trust
(REIT)
These are the products which gather capital from a large number of
investors, purchase real-estate and return rent and proceeds from
sales produced by such purchases as dividends to investors. They
have the following characteristics:
 Listed on Exchanges: REIT can be traded on TSE market through
securities companies all over Japan, same as stocks.
 Risk Distribution, Real estate management by professionals:
Manage assets by investing in different properties, diversifying
risk.
 Stable dividends, comparatively high yields: dividends are
produced from rent etc. of multiple properties, expecting high
yields.
 Investment possible with Relatively Low Amounts of Capital
starting from approx. JPY 100,000 making REIT more accessible
than real estate.
BY:MADDY.KALEEM

24. Comparison of Stocks, REITs
and other Securitized Real
Estate Products
BY:MADDY.KALEEM

25. Clearing and settlement
BY:MADDY.KALEEM

26. Clearing Organization
 Assumption of obligations: When transactions are
effected, sellers have obligation of delivering securities
and the right of receiving cash, and vice versa for
buyers. Organization assumes these obligations and
acquires these rights as a central counterparty between
buyer and seller.
 Netting: Securities are netted by issue while cash on the
basis of total amount of payment and receipt.
 Settlement instructions: The clearing organization
determines the settlement amount, notifies each
clearing participant of that amount, and then notifies the
settlement organizations.
 Settlement guarantee: Firstly, the loss is compensated
using the defaulting participant’s assets, Secondly, if
such amount is insufficient, other participants must
compensate for it.
BY:MADDY.KALEEM

27. Japan Securities Depository
Center, Inc.
 JASDEC is the book-entry transfer institution in
accordance with the Act on Transfer of Bonds,
Shares, etc.
 It facilitated the dematerialization of a wide
range of securities. JASDEC offers following
services:
Book-entry transfer for stocks, etc.
Book-entry transfer for commercial papers
Book-entry transfer for corporate bonds.
Book-entry transfer for investment trusts.
DVP settlement services for off-exchange
transaction deliveries.
Pre-settlement matching system
Custody services for foreign stocks
BY:MADDY.KALEEM

28. BY:MADDY.KALEEM

29. Key trends
BY:MADDY.KALEEM

30. TOPIX index futures
BY:MADDY.KALEEM

31. 2008 2009 2010 2011 2012
7,396
6,080
9,371
5,069
16,548
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1 2 3 4 5
TOPIX mini futuresIN 100 MILLION YEN
BY:MADDY.KALEEM

32. 0
50000
100000
150000
200000
250000
300000
350000
400000
TOPIX CORE 30 Index Futures
Year
TOPIX Core30
TOPIX Core30 Index futures
Trading Volume
TOPIX Core30
TOPIX Core30 Index futures
Trading Value
In 100 million Yen
2008
2012
BY:MADDY.KALEEM

33. JGB futures
BY:MADDY.KALEEM

34. TOPIX options
BY:MADDY.KALEEM

35. 0
100000
200000
300000
400000
500000
600000
700000
800000
In100millionyen TOPIX Options
Year
TOPIX
TOPIX Options
Trading Value
1985 1989 2012
BY:MADDY.KALEEM

36. Individual securities options
BY:MADDY.KALEEM

37. Options on JGB futures
BY:MADDY.KALEEM

38. 0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
In100millionyen
Options on JGB futures
Options on JGB Futures
Trading Value
Year
1985 1990
2012
BY:MADDY.KALEEM

39. TSE 1st Section Trading
volume
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40. Domestic Stocks
BY:MADDY.KALEEM

41. BY:MADDY.KALEEM

42. BY:MADDY.KALEEM

43. MOTHERS index
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44. Real Estate Investment Trusts
(REIT) Index
BY:MADDY.KALEEM

45. BY:MADDY.KALEEM

46. The Way forward
Three objectives of TSE:
1. Strengthen its position as the central market place for
Japanese stocks.
2. Expand its derivatives markets based on yen
products.
3. Function as a “hub market” in the Asian region.
BY:MADDY.KALEEM

47. The Way forward
 Tokyo stock exchange is looking forward for tie-
ups' with U.S. exchanges in New York and Chicago
 The TSE would like to see itself as the dominant
and most influential exchange in the region and, in
particular, as they want to attract IPOs from China.
 They have strong vision to become a first class
competitive exchange and also to learn from other
exchanges.
 TSE is working to have excellent track record on
executing grand plans.
BY:MADDY.KALEEM

48. Recommendations
• Market products and quality control
• Trading and settlement infrastructure
• Supervision of the market and market
participants
• Organization and management of the TSE
and accessibility to the market
• Promotional and public relations activities
BY:MADDY.KALEEM

49. Thank You
BY:MADDY.KALEEM