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June 2006

Update : Jul. 12, 2006


1. Development of Comprehensive Improvement Program for Listing System

Last March, Tokyo Stock Exchange, Inc. (TSE) publicized the "Discussion Paper on Improvements to the Listing System," and received thereafter a wide range of valuable opinions on the paper. Taking these opinions into account, TSE formulated the "Development of a Comprehensive Improvement Program for the Listing System" plan at the board meeting held on June 22 of this year.

The program is summarized as follows.

As a basic policy, TSE believes that soundness of the market can be ensured by establishing and maintaining an environment in which shareholders and investors can accurately assess corporate activities of listed companies, thereby making it possible for the market evaluation mechanism to properly fulfill its intended function.

As for specific policies, TSE is determined to proactively involve itself in cases in which any corporate activity hinders the timely and appropriate disclosure of information, impairs markedly the certainty of stock price formation, or induces unfair transactions.

Specific policies include implementing improvements to listing examination criteria, more in-depth descriptions in disclosure items, confirmation of maintenance of the disclosure system, etc. after listing, grouping of stocks according to issue attributes, and issuance of warnings for protection of investors, etc. In addition, TSE may apply the rules for exit from the market, in principle, for failure to fulfill the fundamental duties of a listed company, and would like to consider increasing the kinds of enforcement actions.

Based on the above policies, TSE has categorized the implementation plan into three steps.

The first step is the "items to be immediately implemented." TSE intends to finalize the outline of this system or make relevant requests to listed companies by the end of 2006 at the latest.
The second step is the "items to be considered for formulating specific proposals." TSE intends to begin the development of specific measures by this fall, and finalize the outline of the system and the like by the end of 2007.
The third step is the "items to be considered for deliberation." TSE intends to clarify basic problems and the like towards implementation. Depending on the content of the problems, TSE hopes to finalize more specific goals by the end of 2007.

As for enhancement of timely disclosure, TSE will give priority to addressing enhancement of disclosure with regards to share exchanges, MSCBs and the like.

With respect to harmonization between corporate activities and market discipline, TSE will consider obligating listed companies to respect impact on the secondary market and shareholders' rights as an issue to be dealt with immediately. Specific examples of problems that TSE has in mind include implementation of a large stock split that may lead to disorder in the secondary market and implementation of a stock split with the purpose of intentionally making the investment unit JPY 10,000 or less. Because of this, TSE intends to withdraw the current request for self-discipline regarding a large stock split.

With respect to the desirable investment unit level, TSE's existing rules have already stipulated that companies should try to set the level under JPY 500,000, but TSE would like to consider setting JPY 50,000 as a minimum for the desirable level. On this point, some media have reported that TSE was considering this in order to alleviate some of the burden on the trading system. However, TSE would like to make clear that it has no intentions of eliminating trading valued at less than JPY 50,000. In addition, with a view to prevent speculative trading, TSE intends to consider measures to curb excessive stock splits that create an investment unit with a value of JPY 10,000 or less.

With respect to the criteria for delisting, TSE will organize issues to consider, putting an emphasis on liquidity-related criteria such as the criteria for the number of shareholders and the number of shares held by the special few.

TSE will also engage in ongoing confirmation of listed companies' executive management. Firstly, TSE will improve the system for examining the statements contained in improvement reports. Next, it will move on to the system for examining organizational restructuring and the like.

As for addressing problems which arise in the company's internal control system, TSE will design and implement measures promoting further efforts by related parties to prevent corporate scandals.

With regard to the operation of the Mothers market, TSE will carry out instructive activities to enhance managers' sense of ethics, and then organize issues to deal with such as the system for encouraging Mothers-listed companies to enhance their management systems in line with their growth.

As to the approach for listed subsidiaries, TSE will make improvements to the subsidiary's method for providing information to investors, and for the next step, tackle issues such as scrutinizing how well the subsidiary has secured its independence from the parent company, listing administration, and weighing the pros and cons of listing a company having a parent.

With respect to granting liquidity to a company's shares after delisting, TSE would like to encourage the establishment of opportunities for all members of the securities industry to discuss the advantages, disadvantages, and methods of granting liquidity after delisting. At the same time, TSE will make efforts to organize the issues regarding enforcements other than delisting.

Lastly, TSE will continue to work on efforts such as stronger collaboration with the Securities and Exchange Surveillance Commission and Japanese Institute of Certified Public Accountants.

For more detailed information, please refer to the following:

Development of Comprehensive Improvement Program for Listing System PDF

2. Amendments to Rules regarding Futures and Options Transactions

At the board meeting held on June 22, 2006, the following main issue and other minor amendments to Rules regarding Futures and Options Transactions were approved.

According to the amendments, whenever a customer entrusts a futures or options transaction to a trading participant, if there is previous agreement between the customer and the trading participant, the customer will no longer need to specifically instruct the trading participant each time to make either a new or offsetting transaction within certain limits.


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