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March 2010

Update : Mar. 29, 2010

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March 2010

1´╝ÄBusiness Plan for FY2010

In March 2008, the Tokyo Stock Exchange group of companies (TSE group) formulated the "Medium-Term Management Plan" for the three fiscal years from April 2008. Under the plan, the TSE group aimed to secure the position of the premier exchange in Asia, and has since been making efforts to maximize the synergies of "quantitative expansion" and "qualitative enhancement" for market expansion. Heading into FY2010, the TSE group established the "Business Plan for FY2010" to achieve the goals described in the medium-term management plan in its final year. The business plan was drawn up in light of efforts and achievements in the last two years and the current business environment.

The management environment surrounding the TSE group has changed significantly since the medium-term management plan was first established. For example, funds for stock investment have dropped drastically all over the world due to the global economic downturn and growing fiscal deficits or economic collapse seen in some countries in the wake of the Lehman Shock. In particular, there has been a pronounced trend of investors moving away from Japanese stocks. In terms of a market structure, the rise of proprietary trading systems (PTS) and other alternative trading systems in Europe and the United States is causing issues such as market fragmentation and regulatory free-riding. The TSE group is concerned that Japan will face similar issues in the near future.

 

The TSE group recognizes that the worsening management environment in both the macro and micro economy will pose a major threat to the group. Therefore, it will position FY2010 as a year for sharing this sense of danger throughout the company and constructing a robust profit structure while implementing the current medium-term management plan. In particular, the TSE group will seek to fully utilize "arrowhead", a new stock trading system resulting from a JPY30 billion investment in infrastructure, as it works towards recovering the investment and boosting revenue enabled by various aspects of the system.

 

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Launch of Dividend Index Futures Trading

Tokyo Stock Exchange, Inc. (TSE) has decided to launch the first dividend index futures trading in Asia.

 

A dividend index is an index which indicates dividend amounts an investor would receive if they had a portfolio composed of the underlying stocks of the index for a given period.

Specifically, in the case of dividend index futures contracts for TOPIX, the underlying issues are those listed on the TSE First Section. The index is renewed whenever each of these issues pays a dividend, or technically, a right to receive the dividend is fixed. As the holding period is from January to December, the dividend index starts from zero on January 1, and values are added to the index every time dividend amounts are fixed toward the end of the year. Therefore, the dividend index will basically be an ever-increasing index.

While Dividend Swaps have been actively traded in the OTC markets, their history is still a short one of about 5 or 6 years. However, the market has expanded all over the world and it is said that the daily trading value in Japanese OTC market has reached several billion yen. Considering the dividend amount paid from Japanese stocks has reached the scale of several trillion yen, the market is likely to develop further. Also, in Europe and the United States, dividend futures contracts are getting a lot of attention from investors not only as hedging tools for dividend exposure, but also as a new asset class which differs from current listed derivatives.

 

By listing these dividend futures contracts, TSE will be able to develop market conditions that encourage the participation of all investors, including those who have not traded dividend futures contracts until now, as well as provide them with services such as increased transparency and elimination of counterparty risks.

 

In addition to dividend index futures contracts for TOPIX and TOPIX Core30, TSE will launch Nikkei Stock Average (Nikkei 225) Dividend Point Index futures contracts under license from Nikkei Inc.

 

The futures trading mentioned above is scheduled to be launched by the end of July 2010 after TSE solicits public comments during the period from March 23, 2010 to April 22, 2010.

 

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