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October 2009

Update : Nov. 04, 2009

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1. Tokyo Stock Exchange Group and Tokyo Commodity Exchange Agree to Establish a Joint Venture for Setting up an Emissions Trading Exchange

On October 29, 2009, Tokyo Stock Exchange Group, Inc. (TSE Group) and Tokyo Commodity Exchange, Inc. (TOCOM) reached an agreement to establish a joint venture company in the future. The objective of the new company will be to set up an emissions trading exchange in order to contribute to the reduction of greenhouse gases and facilitate emissions trading.

Last year, in preparation for the launch of emissions trading in Japan, the Tokyo Stock Exchange (TSE) set up the "TSE Carbon Market Study Group" to examine practical issues related to emissions trading with experts. In addition, the recent financial crisis has led to the re-acknowledgement of the importance of the features of an exchange such as high levels of liquidity and transparency as well as stable and reliable settlement.

Under such circumstances, the TSE Group and TOCOM concur that it is necessary to take concrete steps toward the establishment of an emissions trading exchange. Also, the two parties hope to make the best use of their vast experience and expertise on forming effective markets and large participant bases in the course of operating their respective securities and commodities exchanges over the years. This allows them to jointly prepare for the establishment of a joint venture company as well as the creation of an emissions trading exchange.

[For more information]
Tokyo Stock Exchange Group and Tokyo Commodity Exchange Agree to Establish a Joint Venture for Setting up an Emissions Trading Exchange (TSE News:Oct. 29, 2009)

2. 2nd Quarter Financial Results for FY ending March 2010

The following is a breakdown of the 2nd quarter financial results of the TSE Group for the fiscal year ending March 2010.

Listing-related revenue was up 46% from the same period of the previous year due to an increase in listing fees, which was caused by a series of large-scale capital increases through public offerings by listed companies in the first half of this year. However, trading participation fees were down approximately 25% and settlement-related revenue and system development/operating-related revenue were also down, due to factors such as an approximately 30% decrease in stock trading value from the previous year. As a result, operating revenue was down 21% to JPY 30.1 billion from the previous year.

On the other hand, operating expenses were down 21% to JPY 22.2 billion from the previous year. While there was an increase in system-related depreciation costs, this occurred as a result of a decrease in costs such as system maintenance/operating expenses and labor costs, as well as the fact that expenses such as initial system development costs, which had been recorded with system-related revenue during the same period of the previous year, were not posted in the operating expenses.

As a result, operating profit during the quarter was down 23% to JPY 7.8 billion while current profit was down 20% to JPY 8.6 billion from the previous year. After extraordinary profit due to the cancellation of a contract for a computer building and others were recorded, net profit for the 2nd quarter was slightly higher than that of the previous year at JPY 5.7 billion.

3. Listing System Improvements based on the “Listing System Improvement Action Plan 2009"

The TSE will review the "Matters for prompt implementation" in the "Listing System Improvement Action Plan 2009" publicized last month as listing system improvements in order to formulate specific rules and make necessary revisions to the rules.

As the first theme, the TSE highlights the following three points for improving circumstances to enhance corporate governance.

Specifically, the TSE will encourage listed companies to respect the Corporate Governance Principles for Listed Companies and address the improvement of corporate governance. In addition to this, the TSE will request listed companies to further enhance disclosure regarding the system of corporate governance, and for the purpose of protecting general shareholders, secure at least one (1) independent director/auditor.

With regard to securing an independent director(s)/auditor(s), for the purpose of protecting general shareholders, the TSE will request listed companies to secure at least one (1) independent director/auditor who will not have conflicting interests with general shareholders from amongst the outside directors or outside auditors, and it will be prescribed as "Items to be Observed" in the provisions of the Code of Corporate Conduct. At the same time, listed companies shall describe the name(s) and reasons for designating the independent director(s)/auditor(s) in their corporate governance reports. Before designating the independent director(s)/auditor(s), listed companies will be requested to give prior notification to the TSE to secure the eligibility of the independent director(s)/auditor(s). The TSE is scheduled to clarify the judgment criteria as much as possible in the future and widely publicize the criteria with information on the attributes of independent director(s)/auditor(s).

As the second theme, the TSE focuses on the following three points for reviewing the timely disclosure rules in light of recent changes in circumstances.

Specifically, the TSE will clarify minimum disclosure matters required for timely disclosure, integrate disclosure about unlisted parent companies, etc. into disclosure regarding controlling shareholders, etc., and require listed companies to perform timely disclosure when they have made a decision to submit internal control reports containing the fact that management executives find a material weakness in the internal control systems.

This listing system improvement is scheduled to be implemented by the end of December 2009 after the TSE is soliciting suggestions and comments during the period from October 29, 2009 to November 28, 2009.

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