Update : Jan. 26, 2006
After 6 lively discussions were held from July 20th to October 13th, the final report on the above issue was presented to the Board of Directors of the Tokyo Stock Exchange on October 25th.
Building on this report, the TSE Board of Directors held discussions on their strategy and confirmed the following 3 points:
Mid-term results for the period ending March, 2006 are as follows: operating revenue, 29.266 billion yen.; operating profit,9.353 billion yen.; current profit, 10.297 billion yen.; mid-term net profit 6.237 billion yen. All statistics exceed last year's level, and are mainly attributable to an increase in the amount of transactions in the market.
Average daily trading value for equities hovered around 1.3205 trillion yen. at this period last year, and has increased 16.5% to 1.5387 trillion yen. for this mid-term period. As a result, "trading participant fees," as appears in the breakdown of operating revenue, rose 1.146 billion yen. from the previous period to 11.618 trillion yen. Also, "listing-related income" rose 671 million yen from the previous period to 6.067 billion yen. due to factors such as an increase in conversion of convertible bonds caused by a rise in stock price levels.
Expense items, on the other hand, contracted since the same period last year, ensuring the increase in profit and revenue seen above.
As those who manage securities transactions, securities companies play a vital role in preventing unfair transactions before they happen. From this perspective, securities companies have been obligated by government ordinance to "establish an appropriate trading oversight system." With the aim of promoting the enhancement of trading participants' trading oversight systems, TSE has enacted new rules obligating trading participants to perform specific tasks such as formulating internal regulations concerning their trading oversight system and examining trades.
First, we will require trading participants to enact internal regulations that outline a variety of different rules regarding trading oversight. Also, trading participants are to perform timely monitoring in an effort to understand their clients' trading trends and motives, delineate a specific method for trade examination, and designate the timeframe for which internal records are preserved. Lastly, in conjunction with this system development, we have created rules for "responsibility for trading oversight supervision sections."
As system development corresponding with these changes is necessary, we will consider a preparation period of 6 months, and anticipate implementation towards the end of May or beginning of June, 2006.
TSE and related parties have begun considering the specifics of changing the settlement institution for foreign stocks from the Japan Securities Settlement and Custody, Inc., a subsidiary of TSE, to the Japan Securities Depository Center, Inc. (below JASDEC), in an effort to improve the settlement of foreign stocks.
If JASDEC's handling of foreign shares is realized, the settlement infrastructure for both foreign and domestic shares will become unified. We can also expect participation by overseas institutional investors in the foreign shares market to be promoted further, leading to a strengthening of TSE's position as a preeminent stock exchange in Asia.
In response to the Personal Information Protection Law that comes into full effect this fiscal year, TSE will require foreign share transaction account clauses to include a section where clients agree to allow provision of personal data necessary for purposes such as tax refund procedures to a third party, such as a foreign tax bureau. Implementation is planned for January of 2006.
TSE is scheduled to newly list the Korean company POSCO in November of this year as the first foreign depository receipt (DR).
Upon reexamining the DR trading system, it became apparent that technical accommodations were necessary, which is the purpose of this revision.
The contents of the revision are as follows: If the number of share rights appearing on a depository receipt changes, normal transaction settlements made on the settlement date for transactions using the newly displayed number of shares will be treated similarly to ex-rights shares, i.e. settled on the 5th day after the transaction and not the 4th. Implementation is planned for November 7th of this year.
TSE will review the rights-processing methods relevant to margin transaction clients, in response to the significant shortening of the effective date of stock splits to the day after the base date beginning in January, 2006.
The basic concept is as follows: currently, delivering new shares in the event of a stock split requires a certain amount of time, and as such, clients who have purchased in the spot market are delivered shares approximately 50 days after the base date. On the other hand, the margin transaction system assumes repayment through offsetting transactions, and thus repayment through offsetting transactions is not possible during this approximately 50 day period. In order to circumvent this restriction, the rights to the new shares are converted into a monetary amount, and the relevant amount equivalent to the new shares that long margin transaction clients were not granted is then paid out to them by securities companies.
Similarly, the relevant monetary amount is collected from short margin clients, and thus balance of the rights of sellers and buyers is maintained.
In this situation, the monetary amount is determined by rights auctions performed at securities and finance companies. By utilizing the depository transfer system, however, when the effective date for stock splits becomes the day following the base date of said stock split, new shares can be applied to settlement items starting from the day following the split base date. As such, the current system of processing rights through monetary adjustment becomes unnecessary, and adjustment according to split ratios becomes possible.
In the case where an integral multiple of the trading unit of new shares is allotted through a stock split, the rights relationship between standardized margin transaction buyers and sellers will be as follows: a system of adjusting the number of shares sold and the number of shares bought according to the stock split ratio will be introduced, replacing the current method of transferring monetary amounts.
Implementation is planned for May of 2006, due to the necessity of trading participant system response.
Taking into consideration new corporate laws scheduled to come into effect next fiscal year, there is an expectation for an increase in activity in organizational restructuring and domestic incorporation of foreign companies. When a trading participant formally loses or acquires trading qualifications following a reorganization, we will adjust the handling of the Participant Bond, etc. in order to avoid the inefficiency of returning this money and then having the trading participant deposit it once again.
Implementation is planned for December, 2005.
*Both the "Participant Bond (3 million yen flat rate)" and the "Trading Participant Security Money (calculated individually based on the record of payment of trading participant fees throughout the fiscal year)" are sums required to be deposited with the TSE by trading participants. The "Participant Bond" is for the protection of investors who entrust trading transactions to the relevant trading participant, and the "Trading Participant Security Money" is to ensure payment of trading participant fee debt to the TSE.
The Osaka Securities Exchange Co., Ltd (below OSE) will begin usage of TDnet, and TSE will add a search function.
OSE is scheduled to begin usage of TDnet on December 5th of this year and TSE is scheduled to add the timely disclosure information browsing service in February of next year.