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July 2008

Update : Aug. 05, 2008


1. Derivatives System Malfunction

We express our most sincere and deepest apologies to investors and many other market-related parties for the inconvenience and disturbance caused by the malfunction in the derivatives trading system that occurred on July 22, 2008.

Recognizing the severity of this situation, the TSE has set up a "special mission project team" directly under the CIO (Chief Information Officer). By the middle of August this project team will conclude a plan which will clarify any problems related to the malfunction issue. It will also draw up countermeasures independent from existing frameworks to prevent such incidents from occurring in the future.

Our exchange will work to reaffirm all officers and employees' awareness and understanding of the importance of our systems. The TSE is deeply committed to resolving any such issues and we appreciate your continued understanding and cooperation about this matter.

(For your information)
Measures for Preventing a Reoccurrence of the Derivatives Trading System Malfunction

2. 1st Quarter Financial Results for FY ending March 2009

The following is a breakdown of the 1st quarter financial results for the fiscal year ending March 2009.

Due to an approximately 18% decrease in daily average trading value during auction trading on a year-on-year basis, trading participant fees were down 12.4% from the previous year. Listing-related revenue was down 20.4% from the previous year due to a decrease in IPOs. However, system development/operation revenue was up approximately JPY4.4 billion from system development-related sales derived from dematerialized stock certificates entrusted to TOSHO SYSTEM SERVICE CO., LTD. by Japan Securities Depository Center, Inc. As a result, operating revenue was up 13.7% to JPY21.6 billion from the previous year.

On the other hand, operating expenses were up 46.3% to JPY15.5 billion from the previous year. This occurred as a result of increases in system maintenance/operating expenses, depreciation, as well as the fact that the cost of sales related to system development from dematerialized stock certificates were recorded as "others".

As a result, operating profit during the quarter was down 27.6% to JPY6.0 billion from the previous year. However, current profit adjusted by receipts of dividend income from the Singapore Exchange Limited was down 26.2% to JPY6.5 billion from the corresponding period of the previous year. After deducting corporate taxes and others, net profit for the quarter was down 29.5% to JPY3.7 billion.

3. Tentative Plan for the System Outline of a New Market

The Tokyo Stock Exchange (TSE) and the London Stock Exchange (LSE) have jointly drawn up a tentative plan outlining a system for a joint measure to create a market designed for professional investors.

Since the TSE announced its intentions regarding this joint venture in October 2007, we have been actively discussing the details with potential players including domestic and foreign securities firms, accounting companies, law firms, issuers, and institutional investors.

The passing of the revised Financial Instruments and Exchange Act (FIEA) in June 2008, created an a legal framework that allows for the establishment of exchange-regulated markets Thus, the TSE and the LSE will use this opportunity to publicize the details of this collaboration as well as solicit a wide range of opinions about the new market.

The most important feature of the new market is the TSE's intention to adopt the Nomads (Nominated Advisors) system which is currently in use on the London AIM market. Essentially, the Nomads system accomplishes the role of a capital market specialist. Naturally, this includes providing appropriate advice to companies before listing, but the advisors also offers guidance to companies even after their listing, which helps maintain the quality of the market.

The exchange will conduct oversight, such as general examinations, etc. of the Nomads qualifications; it will carry out market operations while simultaneously allowing the Nomads to fully accomplish the role they were designed to fulfill. In other words, at the TSE, we will maintain the quality of the market, not through uniform regulations, but by making the new market a place where experts with certain knowledge or qualifications can provide helpful insight to professional investors.

Naturally, we cannot succeed merely by imitating the London system. We hope to listen and incorporate the opinions of all the market-related parties as we strive to create a market that is truly designed for professional investors.

Beyond merely Nomads system, we are also considering measures such as: allowing disclosure documents to be submitted in English only, adopting International Accounting Standards, etc. as well as removing the requirement for the submission of quarterly disclosure and internal control reports. In addition, the exchange will minimize mandatory regulations, etc. with an aim to create a market where professional market players can compete freely and rigorously at a high level.

As the revised FIEA will be completed by December 2008 at the latest, we anticipate that this joint venture will acquire the license for a new exchange and then launch operations in the early 2009. Through the assistance of all the market-related parties, we will refine the details of the plan and hope to create a market that has the strength to rival any potential competitors.

(For more information)
Tokyo Stock Exchange and London Stock Exchange outline framework for new growth market

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