Update : Mar. 30, 2009
Tokyo Stock Exchange Group, Inc. (TSE Group) has decided to write down its shares of Singapore Exchange Ltd. (SGX)
In June of 2007, in order to create a closer cooperative relationship with SGX, Tokyo Stock Exchange, Inc. (TSE) acquired a little less than 5% of the total outstanding shares of SGX. However, paper losses have occurred with sluggish share prices from the beginning of the year. Given further declines since the start of this month, conditions have worsened so that the days which fall below the basic accounting standards requiring processing of impairment losses (50% of acquisition prices) are not uncommon. The TSE Group will record an amount totaling around JPY 20.7 billion as extraordinary loss.
Incorporating this figure into the outcome of FY2008, a deficit of around JPY 7 billion is estimated for net profits before taxes for the year.
From the time of purchase until the present, the shares have been retained by the TSE. However, because they were retained as a strategic investment, it has been decided that the shares will be transferred for continued retention to the holding company, the TSE Group.
In order to clarify the responsibilities of the management in this matter, executive staff salary will be decreased. Chairman Taizo Nishimuro will be subject to a 30% decrease, President and CEO Atsushi Saito will be subject to a 20% decrease, and Executive Vice President and COO Yasuo Tobiyama and Senior Executive Officer and CFO Hiroyuki Iwakuma will lose 10%. These salary decreases will be enforced for one month's time.
Recently, the TSE Group formulated a business plan for FY2009 (Action Plan 2009).
In March last year, the company drew up and released the Medium-Term Management Plan which covers 3 years starting from April of 2008. The Action Plan 2009 is not simply a revision of strategic sections of the present plan that was developed in the last fiscal year to prepare for its second year. It was formulated based on the results of activities over the past year plus the recent changes in the business environment, in order to accomplish the goals of the Medium-Term Management Plan.
Under the action plan, the TSE Group will be making all-out efforts to "strengthen derivatives markets", "increase the depth of the cash market", and "increase the quality of markets" in order to "expand the market's size." In particular, the systems that will become the base of the first two goals, the option system "Tdex+" and the next-generation trading system "arrowhead", are planned to launch next year. Based on the lessons learned from our system malfunctions up until now, the TSE Group is focused on achieving a smooth start of operations.
The Action Plan also highlights three points as "Business Challenges for FY2009".
The first point is "accommodate off-exchange liquidity by making an appeal about 'transparency', 'safety', and 'fairness' of the TSE market". In concrete terms, this means accommodating the OTC derivatives market while focusing on changes in the international environment, such as the state of ECNs and MTFs and their regulation in overseas markets.
The second point is "diversify business bases to prepare for continuation of the market's stagnation". Through this the TSE Group will plan for the diversification of the company's business foundations to prepare for trading volumes conditions unlike those seen before. In concrete terms, the TSE Group will strengthen and expand the "information services area" and "clearing and settlement area".
The third and final point is "increase support for enhanced corporate governance of listed companies" in order to "improve the environment so that investors can make investments with confidence in the market". Additionally, "materialize measures against corporate actions likely to infringe rights and interests of shareholders" will be achieved by enforcing specific measures based on the prior deliberations. We will apply continuous effort into enhancing corporate efficiency through reforms of business processes, that is, the standardization and streamlining of operations in order to achieve the organizational reform needed to advance and implement these matters.
Based on this awareness of the challenges ahead, the specific measures laid out in Action Plan 2009 are as discussed below.
First, for quantitative expansion in the derivatives market, the TSE Group will continue working toward strengthening listed products, as well as making an effort to improve their marketing. For the cash market, we are endeavoring to contribute to the turnaround of Japanese industry by enhancing our function to supply risk capital to companies with high growth potential through the "TOKYO AIM" market for professional investors, which is already preparing to open. Also, the TSE Group is striving to promote the listing of diverse products, such as ETFs.
Moreover, from the perspective of the goal to "diversify business bases", the TSE Group is promoting the newly added theme of "new business". For "expansion of the clearing and settlement business field", the TSE Group will finalize details regarding the provision of "OTC derivatives clearing and settlement services", of which discussion is already proceeding. Additionally, we are working toward developing new indices and expanding market information services in order to "strengthen the information business"
In regards to qualitative enhancement, the TSE Group is striving to improve the market environment so that investors can make investments with confidence in the market so that we may "protect the rights and interests of shareholders and investors".
Finally, the Action Plan numerically lays out the management and financial goals for FY2010 on a consolidated basis. In an announcement last March, the TSE Group estimated that the average daily trading value would be at JPY 3.8 trillion, and with 2,500 listed companies, operating revenue would be JPY 88 billion or more while operating profit would be JPY 37 billion or more. However, after the sudden business recession following the Lehman Brothers shock in September of last year, this year's average daily trading value on the TSE market significantly dropped to approximately JPY 1.4 trillion. With regards to these circumstances, estimating the average daily trading value at JPY 1.7 trillion,with 2,300 listed companies, the goal for operating revenue has been adjusted to be JPY 59 billion or more and operating profit JPY 10 billion or more.
Furthermore, an approximate JPY 12 billion operating profit surplus is currently estimated for our business performance in the current FY2008. A significant drop of 3 to 4 billion is expected for the next FY2009's operating profit.
Up until recently, the TSE Group was planning to list its own shares within 2009, but after taking the present market situation, and our future profit plan into account, that time frame has been revised. However, the plan to list our shares in the near future remains unchanged. The TSE Group is proceeding with goal of listing as soon as possible in and after FY2010, while carefully assessing market conditions, business performance, etc.
The TSE has conducted a revision of the listing system in order to list a new type of ETF.
Company-type Foreign ETFs, which are linked to commodity indices and prices, are being actively traded on foreign exchanges. Within those, there are also "investment security"-like products, for which an adjustment was made in the listing system last November, and a type called " bonds issued by investment companies". These new types of products are bonds issued by foreign investment companies established to conduct the investment of specific assets with daily redemption prices determined by the movements of indices such as commodity indices.
The TSE has now decided to revise the listing system, etc. so that these new products may be listed on the market. JDRs, in which the above ETFs fit as trust assets, will also be listed.
The implementation of these revisions is expected to occur in May of this year, assuming handling of these new ETFs is established under tax law.