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January 2010

Update : Feb. 04, 2010


1. 3rd Quarter Financial Results for FY ending March 2010

The following is a breakdown of the 3rd quarter financial results of Tokyo Stock Exchange Group, Inc. (TSE Group) for the fiscal year ending March 2010.

As stock trading value was down approximately 30% from the same period of the previous year, trading participation fees were down 21% on a year-on-year basis, and securities settlement-related revenue was also down 35% from the previous year. On the other hand, due to an increase in listing-related fees, which was caused by a series of large-scale capital increases through public offerings by listed companies, listing-related revenue was significantly up by 64% from the previous year. As a result, operating revenue was down 14% versus the same period of the previous year, to JPY 46 billion.

Meanwhile, operating expenses were down 16% to JPY 34 billion from the previous year. While there was an increase in system-related depreciation costs, the decrease occurred as a result of a decrease in labor costs and rent expenses as well as the fact that initial system development costs, which had been recorded in relation to 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 9% to JPY 11.9 billion while ordinary profit was down 4% to JPY 14.2 billion versus the same period of the previous year. Additionally, JPY 13.2 billion was recorded as an extraordinary loss after the Tokyo District Court ordered the TSE Group to pay damages (including delinquency charges) in relation to the erroneous order placement incident in December 2005. Therefore, the net loss for the quarter was JPY 5.2 billion.

For more information:
Consolidated Financial Results for nine months ended Dec. 31,2009
Financial Material

2. Partial Revisions to Listing System for Domestic Spot Commodity ETFs

Tokyo Stock Exchange, Inc. (TSE) has decided to make partial revisions to the listing system for domestic spot commodity ETFs.

The TSE developed the listing system for spot commodity ETFs in accordance with the Trust Act (Act No. 108 of 2006) in March 2008. The current listing system requires management companies to serve as financial instruments firms for spot commodity ETFs created in Japan, but it is considered that trust banks, etc. with considerable expertise in managing spot commodities are also able to become "management companies".

In general, ETFs are mainly created by trust asset consigners such as asset management companies and trustees including trust banks. Additionally, the consigners play an important role as management companies that are indispensable for creating ETFs, such as managing/disposing trust assets and disclosing necessary information.

With the partial revisions to the listing system, trust banks (trustees) will be charged with management companies' roles that are currently played by trust asset consigners. This enables companies that have no practical know-how as management companies – companies specializing in commodity business such as metal mining companies and trading companies that handle precious and rare metal – to serve as trust asset consigners.

Therefore, as companies with such professional expertise will become able to contribute commodities, it is anticipated that creation of domestic spot commodity ETFs will be promoted. Also, as prices on the markets of commodity exchanges in Japan may be used as indicators for the ETFs, it is expected that barriers between securities and commodity markets will be eliminated to some degree, which will facilitate closer collaboration between the two markets.

The TSE hopes to provide more investment opportunities to investors through these partial revisions to the listing system.

The revisions are scheduled to be implemented by March, 2010 after the TSE solicits comments and opinions from the public from January 28, 2010 to February 11, 2010.

3. Launch of arrowhead

"arrowhead", the new equity and CB trading system, began operations on January 4, 2010. The following are situations after the launch of arrowhead.

The system has been operating excellently since its launch one month ago. Speed for processing orders was recorded at 5 ms. during testing. After the launch, however, actual processing has been conducted at an impressively high level, with orders processed within approximately 2 ms. on a stable basis during the "Zaraba", continuous auction. Furthermore, distribution of order information, etc. is being successfully conducted within approximately 3 ms.

The number of executions (or no. of ticks) varies according to the issue, but numbers have almost doubled on average since the launch of arrowhead. This is considered to be attributed to the fact that the system is able to confirm trading execution more quickly due to a change in the execution frequency from once every three seconds to a real time basis, thus improving market convenience.

Additionally, in comparisons before and after the launch of arrowhead, trading value shows upward trends. However, trading value levels vary according to time and market conditions, and while there has been an increase in order numbers, the execution ratio has decreased. It cannot be stated conclusively that arrowhead has increased trading values this soon after its launch. While the TSE holds high expectations for arrowhead’s role in increasing liquidity and the expansion of market size, time will be required to accurately evaluate the scale of its contribution.

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