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November 2005

Update : Apr. 18, 2006

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1. Development of Listing System Towards the Enhancement of Corporate Governance

TSE has decided to institutionalize the "Corporate Governance Report" present in the framework of the listing system.


Last year, a series of problems that shook the foundation of investor's confidence in corporate disclosure in the securities market occurred one after another, and created an atmosphere of distrust in accounting audits.


As the legal boundaries of companies' self-control of their articles of incorporation expand, increased regard for shareholders and investors and greater consideration of social responsibility in corporate actions is required of listed companies more and more.


In light of this situation, there are increasing expectations by investors and other market participants not only for the realization of proper disclosure by listed companies, but also for improvement in the quality of management.


Taking into account these demands from the market, as the market provider, TSE will make the definition of specific goals and the necessity of gradually establishing a firm foothold in working towards those goals the foundation of our stance on enhancing the corporate governance of listed companies. We hope to then apply them in the operation of the listing system in the future.


TSE will implement measures to promote the realization of those goals, which are twofold: 1) that business managers develop a sense of responsibility in dealing with proper disclosure, and 2) that businesses properly utilize independent external personnel to deter any reckless actions from management.


As a first step, TSE will review the methods used for disclosing the corporate governance situation of each company to investors so that the information will be easier to understand, and will implore listed companies to raise their standards with regards to corporate awareness and specific policies.


After this review, TSE will work to devise ways of making the disclosed material easy to read and compare.


The introduction of the report system mentioned in this report will be put up for public comment, after which decision on a regulation revision proposal will be made at the regular meeting of the board of directors in December. Implementation is anticipated for March of next year. Should this be achieved, disclosure of the actual report will be scheduled for May.

2. Listing System Revision and the Adoption of Takeover Defense Measures (Draft Outline)

TSE plans to institutionalize the "Points of Consideration Regarding Takeover Defense Measures" published in April of this year, taking into account the consequent discussions held on all relevant sides.


As several actual instances of these situations are realized, this issue has been drawing significant social interest as illustrated by the publication of several points discussed at the November 10 meeting of the Ministry of Economy, Trade and Industry's Committee on Brand Valuation on disclosure and treatment of information at securities exchanges, and also by focused discussion of takeover defense measures (TDM) by the Financial System Council's TOB Working Group. As such, we plan to first publish a "draft outline" and gather a wide range of opinions from all relevant sides, and after organizing these into a system outline within the fiscal year, revise the regulations after the beginning of next year.


Incorporating this outline into the regulations for timely disclosure consists of mainly two parts.


First, the necessary items to disclose when introducing TDM will be determined.

Specifically, the purpose of the TDM, an outline of the scheme, procedures and schedule for introduction, procedures for when a takeover bidder appears, and impact on shareholders and investors are all points required to be disclosed.


The second is disclosure relating to a change in the articles of incorporation. With factors such as the expansion of self-control boundaries of articles of incorporation through the new Company Law to be enacted next year, the importance of the contents of these articles will increase dramatically for shareholders and investors, even outside of the context of takeover defense. Therefore, we will require listed companies to disclose the content of changes to the articles of incorporation should they be decided upon after discussion at the general shareholders meeting.


With respect to the Points of Consideration Regarding Takeover Defense Measures, we will clearly state in the regulations that listed companies are obligated to respect the following 3 points: 1) conditions for motions and discontinuances of takeover defense measures must not be non-transparent, and not depend on arbitrary judgments by internal management, 2) takeover defense measures should not contain any factors that cause unexpected damage to shareholders and investors other than the takeover party, including factors which destabilize setting of the share price, 3) takeover defense measures should not excessively restrict the nature of the rights of shareholders and the exercise thereof.


As a way of ensuring the effectiveness of this obligation of respect, should the TSE deem that there is a possibility that certain TDM may violate these Points of Consideration, TSE will make this information public. Taking these steps can be expected to result in the promotion of careful scrutiny of the company attempting to introduce the potentially problematic TDM. Additionally, companies who decide to follow through with said TDM despite these publication measures will be responsible for providing adequate explanation to shareholders and investors.


Also, should it be determined that there is a possibility of violation of the Points of Consideration, we believe that from a transparency standpoint, it is appropriate for the type of violation to be clearly indicated in advance as early as possible. We would therefore like to indicate examples in which advance consultation with a panel of academic experts was conducted and consensus has been considered to be more or less attained. Since it is likely that there will be several different opinions on these examples brought forth from various different perspectives, we would like to take these opinions into account when considering making additions or revisions.


We will also make adherence to the above Points of Consideration a prerequisite during listing examination. Additionally, in situations in which the basic and material rights underlying listed shares are considerably impaired, if the situation is not resolved after an appropriate period of time has elapsed, the company will be delisted. Both dead-hand type rights plans (i.e., rights plans which cannot be abolished after introduction even if board members are dismissed by a resolution made at the general shareholders meeting) and issuance of shares with veto rights are examples that will be considered.


We are considering making the grace period until delisting approximately 6 months to one year in consideration of factors such as the time necessary to abolish or make adjustments to TDM.

3. Partial Revision of Trading Participant Regulations of Tokyo Stock Exchange, Inc. and Other Measures Accompanying the Development of Trading Participants' Trading Supervision Systems for the Prevention of Unfair Trades by Clients

A revision will be made to regulations based on the "Development of Trading Participants' Trading Supervision Systems for the Prevention of Unfair Trades by Clients" outline announced on October 25th. Implementation is scheduled for June 1, 2006.

4. Partial Revision to Business Regulations of Tokyo Stock Exchange, Inc. for the Development of the Listing and Trading System for Bonds Coinciding with the Introduction of the Book-Entry Transfer System for Corporate Bonds at Japan Securities Depository Center, Inc.

A revision will be made to regulations based on the "Development of the Listing and Trading System for Bonds Coinciding with the Introduction of the Book-Entry Transfer System for Corporate Bonds at Japan Securities Depository Center, Inc." outline announced on October 25th. Implementation is scheduled for January 10, 2006.

5. Partial Revision in Brokerage Agreement Standards of Tokyo Stock Exchange, Inc. and Other Rules Accompanying the Review of Rights Processing Methods for Standardized Margin Transactions.

A revision will be made to regulations based on the "Review of Rights Processing Methods for Standardized Margin Transactions" outline announced on October 25th. Implementation is scheduled for January 4, 2006.

6. Partial Revision of the Brokerage Agreement Standards of Tokyo Stock Exchange, Inc. Relating to Provision of Personal Data to a Third-Party in the Foreign Stock Transfer and Settlement System

A revision will be made to regulations based on the "Development of Rules Relating to Provision of Personal Data to a Third-Party in the Foreign Stock Transfer and Settlement System" outline announced on October 25th. Implementation is scheduled for January 10, 2006.

7. Partial Revision of Trading Participant Regulations of Tokyo Stock Exchange, Inc. Coinciding with the Partial Review of the Participant Bond and Trading Participant Security Money System, etc.

A revision will be made to regulations based on the "Partial Review of the Participant Bond and Trading Participant Security Money System, etc." outline announced on October 25th. Implementation is scheduled for December 12, 2005.

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