Update : Apr. 18, 2006
The new Chief Information Officer, who is the executive officer responsible for overseeing the comprehensive IT strategy of Tokyo Stock Exchange, was appointed on January 24, 2006.
TSE announced in December of 2005 that the new position of CIO will be created, and that the post will be unusually vacant for the time being. The Board of Directors selected Yoshinori Suzuki to fill the post at their meeting on January 24.
Tokyo Stock Exchange is now diligently formulating the New Midterm Management Plan for Fiscal Year 2006-2008.
The New Midterm Management Plan is scheduled to be compiled in March of this year. The "basic strategy," which is likely to form the framework for the plan, is outlined below.
The foundation of the Plan is to "ensure high reliability and plentiful liquidity," and to provide an outlook for subsequently strengthening the international competitiveness of the Tokyo market.
This fundamental thought process consists of three pillars: 1) the establishment of a new system of market operation, 2) strengthening of the self-regulation function and developing the system for such, and 3) strengthen the infrastructure for the securities market - which is a public asset - through these efforts, and enhance competitiveness in the face of international competition that is intensifying with new developments in globalization and the elimination of borders.
TSE is still aiming to realize the goal of listing its own shares, but only after giving priority to steps taken to further establish the internal control system for ensuring the accuracy and stability of business operations, and for regaining trust in and strengthening the self-regulation function of the market.
In keeping with this paradigm, TSE has specified its basic vision for "operational strategy," "financial strategy," and "personnel strategy."
Ideas from young employees are also incorporated into these "basic strategies." While sharing this basic vision throughout the company, each division will hammer out the details towards the compilation of a solid "New Midterm Management Plan" in March.
As TSE begins the New Midterm Management Plan in FY 2006, we realize that first, a determined response to the business improvement order issued by the Financial Services Agency on December 14, 2005 is necessary.
TSE is currently focusing its efforts into the following 6 main areas towards the January 31 deadline for submission of the business improvement report to the Financial Services Agency:
TSE is acutely aware that as those who establish the market, it is our responsibility to provide investors with stable opportunities for transactions, and are committed to devoting our maximum efforts into regaining investors' trust.
Consolidated 3rd quarter operating revenue for the March, 2006 period was 49.047 billion yen. As a result, operating profit was 18.889 billion and current profit was 20.342 billion yen. After deducting corporate and other taxes, net profit was 12.816 billion yen. These numbers exceed last year's level and reflect the expansion of the volume of transactions in the market.
On November 22, 2005, TSE published the Listing System Revision and the Adoption of Takeover Defense Measures (Draft Outline). After widely seeking out the opinions of many people, the system outline was compiled at the Board of Directors meeting held on January 24 of this year.
The opinions gathered included those that came in through the TSE website, etc., those from the Financial System Council First Subcommittee Working Group on Takeover Bid Procedures etc., the Report of the Committee on Brand Valuation of the Ministry of Economy, Trade and Industry, and TSE's Market Structure and Self-Regulation Advisory Committees. The opinions of many experts were consolidated and incorporated into the plan. We are also seeing extensive interest from overseas, such as inquiries about and opinions on newspaper articles and English information on the website, that are continuing to come in from foreign institutional and private investors.
When we put together all these opinions, we came to the conclusion that people involved in the market showed a reasonable amount of support for the draft from the perspective of protecting investors. We thus affirmed that we should continue on this same general course. However, from a practical standpoint, we are aware that it is necessary to avoid any needless inconveniences, and as such composed the official system outline.
First, with regard to the "obligation of respect," during the draft phase, "transparency, influence on the secondary market, and shareholders' rights" were presented as the three ideas to be respected, but in the outline, a fourth, "adequacy of disclosure," was added. More specifically, "necessary and adequate timely disclosure regarding the details of takeover defense measures must be performed to ensure the expedience of shareholder and investor judgment with regards to investment and consideration of the pros and cons of takeover defense measures." This content was mentioned in the Points of Consideration Regarding Takeover Defense Measures published in April of last year, but was added to the ideas to be respected as it was pointed out amongst the opinions that were offered that the adequacy of disclosed information on takeover defense measures acts as assurance both for transparency and for the other points to respect.
Similar to the draft outline, adherence to this obligation of respect was also made an eligibility requirement in the listing examination criteria.
Additionally, in order to ensure effectiveness, TSE will publish cases in which it determines that a listed company has violated this obligation of respect.
However, it was pointed out that in the 7 specific case examples in which this publication measure may possibly be used, implementation of the measure was prohibited in each case, and there was often confusion as to what can possibly be considered an infraction. The description was therefore revised to make the meaning clearer.
In other words, we made it clear that TSE will determine whether or not there has been a violation of the obligation of respect depending on the disclosure circumstances and takeover defense measures (below TDM) of each individual case. We also reorganized the contents of the first seven case studies in light of the various opinions received.
The focus of the reorganization was first, shareholder's rights plans that either include the issue of warrants or shares that significantly impair the voting rights of listed shares, or those that 1) did not have measures in place for abandoning or stopping TDM according to the collective will of shareholders, 2) did not specify that decision for implementation, etc. of TDM would be made after review by a committee, etc. who is able to make a fair, impartial judgment, and whose implementation conditions and decision criteria for TDM were not clearly defined, or 3) when a decision has been made to implement TDM, there is a possibility that implementation may be cancelled even after shareholders who are to receive a share allocation have been determined, and there is no mention of this possibility or the conditions, etc. in timely disclosure materials.
Additionally, in situations in which the basic and material rights underlying listed shares are considerably impaired, if the situation is not resolved within 6 months, the company will be delisted.
In the draft outline, the time period until delisting was not clearly stated (given as "an appropriate time"), but in this version it is clearly stated as "6 months." The first case in which this applies is the recently added so-called Nireco-type rights plan. In the draft outline this was given as an example of a violation of the Points Requiring Attention, but in methods like this in which a judicial order forbidding issue was given, prohibition of implementation is thought of as suitable, and thus this type was classified as subject to delisting.
We revised the wording slightly for the second case, implementation of the dead-hand type rights plan, and the third case, classified shares with veto rights, which was presented in the draft outline. In the draft outline phase, the relevant expression used was simply "issuance of shares with veto rights," but we added the description, "instances in which a stipulation is made stating that a vote at the general meeting of classified shareholders is required for appointment or discharge of the majority of board directors and other important matters," which limits the scope. This is related to how the concept of the golden share is understood. Based on the understanding stated in the draft outline that classified shares with veto rights themselves are golden shares, taking into account the various opinions offered, it became clear that as long as the scope of veto rights do not extend to issues as important as the appointment or discharge of the majority of board directors, the shares cannot have the effect of fending off a hostile takeover, and thus cannot be called golden shares. We revised the definition in keeping with this idea, based on the fact that in practical terms, the need for the issuance of these classified shares with veto rights - which have no possibility of being golden shares - cannot be ignored.
Also, we revised the exceptional case to delisting criteria stated in the draft outline as "cases such as when the national government possesses shares for policy reasons," to read, "cases in which TSE deems that there is little concern for infringement on shareholder and investor profit in light of conditions such as company business purposes, purpose for issuance of classified shares with voting rights, attributes of the party that will be allocated stock, and nature of rights." This revision was made because it is necessary to take certain steps to protect investors even in cases where "the national government possesses shares for policy reasons." Also, since TSE may determine that concern for infringement on shareholder and investor profit is small and that it is reasonable to continue listing the stock based on an overall assessment of the above conditions (company business purposes, etc.), this definition allows judgment based on the essential content of each case, rather than formally specifying in advance the conditions for exceptional situations.
After bringing this issue up for public comment, we plan on implementation at the beginning of March this year.
TSE announced in October of last year that it would begin to scrutinize the handling of foreign stocks by the Japan Securities Depository Center, Inc. (below JASDEC). In November, a subcommittee for foreign shares, etc. was formed at JASDEC, and after several specific deliberations with market participants, the direction of execution and the outline of the transfer system was generally determined. As revision of TSE systems is necessary with the commencement of handling by JASDEC, the guidelines for such were compiled at the Board of Directors meeting held on January 24 of this year.
These system revisions are contingent on commencement of handling of foreign stocks, etc. by JASDEC, and consist of the abolishment of the foreign stock transfer and settlement system currently operated by Japan Securities Settlement & Custody, Inc. on consignment from TSE, and making the necessary system revisions with regard to issues such as the listing system and client settlement method for foreign stocks, etc.
Next, with regards to the listing system, settlement and transfer handling by JASDEC of foreign stocks will be a new listing / continuing listing condition for the relevant foreign stocks, etc. This is in accordance with the fact that domestic stocks are also required to make the same agreement with respect to JASDec.
Also, as is the case currently, foreign listed companies will be required to ensure that services for beneficial shareholders such as Japanese language notifications, etc. and dividend payments are properly provided to beneficial shareholders.
Next, settlement of foreign stocks, etc. between trading participants and clients will be performed by account transfer according to the rules set forth by JASDec.
Currently, when clients place a sell order for foreign stocks, etc., they are required to deposit the foreign stocks, etc. to be sold with the trading participant in advance by the time of the sale. This prevents, for example, a client selling tomorrow stock that he/she purchased today. This regulation inhibits the improvement of liquidity in the foreign share market. Also, because of developments in eliminating paper and advancements in verification services, settlement administration has become smoother, and thus we do not anticipate any problem with regards to the security of settlement fulfillment to arise if this regulation in abolished. As such, we will abolish the systematic advance deposit obligation and will treat foreign stocks similar to domestic stocks.
Finally, technical revisions will be made to the rules for transaction accounts for foreign securities with the changes in settlement institutions.
These systematic revisions are planned to be implemented in April of this year, but the specific time will be decided later after considering the circumstances of accommodation by JASDEC and other parties involved.
The stock of livedoor Co., Ltd. has continuously fallen to the lower daily limit everyday since January 17 of this year. When an execution completed and trading continued afterwards, since the unit price is low and the number of listed trading units is high, we had no other choice than to assume that sustainability of system processing for market trading as a whole would have become difficult, and thus took steps with regard to trading of this issue in order to avoid this type of situation.