Update : Dec. 29, 2009
The Tokyo Stock Exchange (TSE) will implement a special measure in relation to the method for determination of the initial price, etc. of an initial listing issue in cases where the shareholder composition of a company is different from that of a normal initial listing company and its number of shareholders is significantly large.
It is assumed that an initial listing of stocks on the TSE may be carried out under extraordinary situations accompanied by conversion to stock corporations, etc. due to organizational changes. Among features of such cases, there is the possibility that the shareholder attributes of a company at the time of listing may widely vary; for example, these shareholders include a large number of investors with no prior experience in stock investment, due to corporate actions such as allotment of shares to policyholders of such initial listing company (in the case of a mutual insurance company converting into a stock company).
In addition, there would be a sharp increase in the number of orders on the initial listing day because of a significantly large number of shareholders in comparison to a normal initial listing issue, and this could affect business and system processing of parties such as trading participants. Under these circumstances, a delay in the dissemination of quote information or notification of execution results to some investors may occur and lead to a large information gap between investors, thereby causing confusion amongst investors.
In light of the circumstances mentioned above, a special measure will be taken to determine the initial execution price after listing (hereinafter referred to as "initial price") in cases where the shareholder composition of a company is different from that of a normal initial listing issue and its number of shareholders is significantly large, such as stocks listed under extraordinary situations accompanied by conversion to a stock corporation, etc. due to organizational change. This special measure will consolidate a large amount of bids and offers and seek the equilibrium point to determine the initial price at a certain point in time as specified by the TSE and end the trading session at that point.
The special measure consists of the following 3 main points.
The first point is related to trading hours and the method for the determination of the initial price. The TSE will determine the initial price (if there is no execution, the displayed special quote price, etc.) using the Itayose method at a predetermined time specified by the TSE, and immediately end the trading session. The specific time for trade execution is scheduled to be a time which is able to reflect the supply and demand for the issue on the day as far as possible, and where there is a relatively low burden on the systems of trading participants and other related parties, for example, 2pm or 2:30pm.
The next point is with regard to price limits on bids and offers which are not normally set until the initial price is determined. When the special measure is implemented, these price limits will be applied based on the public offering price on the initial listing day.
The third point concerns cases where there is no execution on the initial listing day. In such cases, trading will be conducted using the same method on the following day. Once the initial price is determined, the normal trading method will applied on the following day.
The TSE is seeking public comment on the implementation of this special measure during the period from December 22, 2009 to January 21, 2010, and will implement this measure in March 2010.
The TSE will relax the listing criteria for subscription warrant securities in order to avoid dilution to existing shareholders as far as possible and facilitate fundraising efforts by listed companies.
Amidst recent activity of public offerings, the problem on dilution to existing shareholders has been raised. There have been debates that, as a possible countermeasure, Japan should also promote the use of rights issues, whereby capital increase is achieved through a gratis allotment of subscription warrants to shareholders.
Currently, in the basic process of a rights issue, a listed company conducts a gratis allotment of subscription warrants to shareholders based on a certain record date, and at the same time, lists the subscription warrants on the TSE market. This enables a shareholder to choose between exercising the warrant and paying the cash amount to obtain the new shares or making up for share dilution by selling the subscription warrant. In this way, a rights issue allows listed companies to seek financing while avoiding dilution to existing shareholders as far as possible.
In light of the current situation, the TSE will revise the listing rules by removing the criteria for one share allotted per subscription warrant. This will result in improved conditions for conducting rights issues, for example, 0.5 new shares per subscription warrant. In this way, an issuing company will be able to increase flexibility in setting issuing conditions based on its own needs.
This revision is scheduled to be implemented within 2009.