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What is the relationship between investors, securities companies and Tokyo Stock Exchange?

Update : Aug. 29, 2003

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Answer:

Tokyo Stock Exchange (TSE) fulfils a number of duties related to the operation of a securities market. It examines companies to assess their suitability as listed companies, it requires these companies to comply with disclosure requirements so that investors are able to make informed decisions, and it provides a market place for those companies' shares to be traded. As a self-regulatory organisation (SRO), TSE is responsible for maintaining a transparent, equitable and reliable market. The provision of such a market helps support a healthy economy.

Only securities companies that have a TSE Trading Participant license of may trade securities directly in our market. Therefore individual investors and other non-trading participant securities companies must route their orders via one of these trading participants.


Thus for example, the orders of customers of Trading Participant A will be routed to the TSE market as brokerage orders of Trading Participant A, while the orders of customers of securities company B which is not a trading participant, will be routed from securities company B to Trading Participant C, from where they'll be routed to the TSE market as brokerage orders of Trading Participant C.


Trading Participants are required to screen orders before sending them to the TSE market, so as to avoid insider trading or other manipulative transactions. Once Trading Participants are sure that the orders are legitimate, they will be placed and declared as brokerage orders.


Trading Participants are also able to make trades on their own "proprietary" accounts, using their own cash and securities, which they must declare as such when they send these orders to the market. This is often referred to as "dealing".


The sections responsible for brokerage and proprietary trading are strictly segregated within securities companies so that there is no possibility of information being shared between the two. This is important to prevent illegal transactions and to keep the market fair for all investors.


After the orders placed by Trading Participants have been executed, clearing and settlement takes place between Trading Participants and TSE. "Clearing" and "settlement" refer to the exchange of money and securities respectively between the transaction counter-parties.



Routing of orders


Unlike in the past when orders were transmitted between investors, securities companies and floor-traders by telephone, nowadays the Internet and other communication technologies mean that investors have a much more direct link to the market.

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