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November 2004

Update : Aug. 31, 2006


Changes to listing regulations to heighten trust of corporate information

Timely and appropriate disclosure of important company information is essential to ensure fair listed share price formation as well as smooth liquidity, and also forms the base of investor trust of the securities market.However, the trust of many investors has been lost by recent discoveries of multiple incidents in which disclosure of company information was not handled in an appropriate manner.Listed companies and the securities market are now in danger of losing social credibility.

The current situation, as well as requests from the Financial Services Agency, has prompted TSE to make changes to its overall listing management system with the goals of maintaining and raising investor trust.

Concrete details of the changes are as below.

First, it is necessary to be aware of the fact that listed companies are socially expected to perform their operations with integrity.Toward this purpose, TSE will reconfirm the fundamental principles that listed companies should follow in TSE listing regulations as:"Listed companies must acknowledge fully that timely and appropriate disclosure of corporate information to investors constitutes a basis for a sound securities market, and agree to work to enhance company structure and procedures in order to enable prompt, accurate, and fair disclosure of corporate information at all times from the standpoint of investors."

Secondly, in order to facilitate greater awareness within listed companies of the importance of timely disclosure, companies will be required to make a written oath agreeing to make sincere efforts toward timely and appropriate information disclosure to investors.Due to the recent incidents involving the loss of investor trust, having heads of all listed companies promise to be honest in their operations is one way to regain investor trust in the securities market.Concretely speaking, when the head of a company changes or when five years have passed since the last written oath was submitted by the company, a new written oath will be required.Companies that commit serious violations of the contents of the oath will be eligible for delisting.

Thirdly, listed companies will be required to submit a written confirmation of the accuracy of annual financial statements. Specifically speaking, the head of the company submitting financial reports must confirm in writing that the reports include no false information.

Fourth, when the person at who issues the audit certification for a listed company's financial reports is not affiliated with an auditing firm, it will be necessary for at least two Certified Public Accountants to inspect the reports.

Next, under the current system, timely disclosure of company information is optional for parent companies that listed 1995 or earlier.However, in order to enhance the company information that is offered to investors, disclosure of parent company information will be required for all listed companies with parent companies.

Additionally, for listed companies with parent companies, disclosure of the shareholding ratio of the parent company and trading with the relevant parent company that TSE requested be included in abbreviated financial reports will now become mandatory by regulation.

Procedures regarding the "Special Few" will also change.When standards regarding the "Special Few" were introduced in 1982, TSE relaxed the regulations for the "ad interim," but this situation continues to today.However, with the reduction of crossholding of shares, it is not rational to continue these relaxed regulations.We have now decided to abolish these relaxed regulations.

Next, under current delisting criteria, a company is delisted if it is found to have made "false statements" in its financial reports.TSE has now decided to expand those criteria to include delisting in the case of "false statements" in parts of the annual financial statements besides the financial reports as well.Additionally, TSE will change one section of the definition of "false statements."

TSE has also made changes related to Shareholder Service Agents.Companies that listed in July 1971 or later are already required to have a Shareholder Service Agent, but TSE has now decided to require all listed companies besides trust banks to designate one.New regulations will also make any company that fails to designate a Shareholder Service Agent eligible for delisting.

Lastly, it is probable that the corporate governance function of the listed company that caused this recent incident was not functioning appropriately.Because of this, in addition to the system reforms mentioned above, TSE will actively make efforts to promote the corporate governance principles developed in March of this year through seminars and lectures.

These changes will be implemented in early January of next year after public comment procedures are taken and required interim measures are presented.

Delisting of SEIBU RAILWAY CO., LTD.

TSE decided on November 16 to delist SEIBU RAILWAY CO., LTD. (Seibu).

After it was discovered that shares actually owned by KOKUDO Corp. had been transferred to individual shareholders, Seibu revised its financial statements.TSE requested an explanation from Seibu, at which point it became clear that this had been occurring since at least 1957.Additionally, the amounts of those shares were at levels that violated listing requirements (the "special few" may hold no more than 80% of shares of a company), and the information that forms the base of investment decisions had significant errors.These incidents were deemed to have originated from problems in the company's internal control mechanisms and structure, and Seibu will be delisted.

Seibu shares will be assigned to the delisting post on November 17, and unless facts appear that show the company should not be delisted, Seibu will be delisted on Friday, December 17, with Thursday, December 16 as the last trading day for the shares.


Establishment of JASDAQ Securities Exchange, Inc. and resulting revisions to margin/loan trading regulations

As a result of JASDAQ Securities Exchange, Inc.'s change from an over-the-counter market to a securities exchange, TSE will make the necessary regulation changes to allow treatment of outstanding margin accounts to remain the same as now.


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