Hundreds of firms may be demoted in Tokyo Stock Exchange shake-up

As part of an effort to streamline markets and attract more investors, the Tokyo Stock Exchange may demote about a third of its largest listed companies and cut down the bourses it operates to three from four, according to media reports.

A TSE advisory panel is expected to compile a report by the end of March after examining public comments on structural reforms for the $5.7 trillion equity market. The reported changes would demote hundreds of companies from the TSE’s first section, investors say.

The exchange included 2,137 companies as of Friday, double the number in 1990, according to the exchange’s parent, Japan Exchange Group Inc.

“It’s good to reduce the number of companies in the TSE’s first section,” said Kazuyuki Terao, the chief investment officer of Allianz Global Investors’ Japanese unit. “A lot of investors are using the Topix as a benchmark for their investments and the number of the constituents in the Topix is too many.”

The TSE may raise the minimum market-cap requirement to remain listed on the first section to ¥25 billion from ¥2 billion, and require that companies disclose filings in English, the Nikkei financial newspaper said Friday. Kyodo News reported the panel plans to recommend reducing the number of exchanges.

Satoshi Mimura, a spokesman for Japan Exchange Group, said no decision has been made.

Roughly half of the Topix’s current members have market values below ¥50 billion. If the ¥25 billion market-cap threshold were to be implemented, it would cut the first board to a little more than 1,400 companies, according to data compiled by Bloomberg.

The panel is proposing categorizing TSE stocks into three sections — premium, standard and emerging, according to the Mainichi Shimbun. Currently the TSE has the first and second sections, the Mothers and Jasdaq startup exchanges.

Companies currently in the first section that are near the market-cap threshold may seek mergers and acquisitions or management buyouts, Masahiro Suzuki, an analyst at Daiwa Securities Group Inc., wrote in a note dated Friday.

Some investors see the reported changes as unwelcome. Masakazu Hosomizu, a Chicago-based portfolio manager at RMB Capital, said splitting the first section by market cap would “fundamentally alter the constituents of the Topix” and “force a massive sell-off by passive investors due to their portfolio rebalancing requirement.”

Yoshinori Shigemi, a Tokyo-based global market strategist at JPMorgan Asset Management, said screening companies just by their market cap isn’t desirable.

“The value of market cap will change depending on the conditions of the nominal economy, so screening by the market-cap value means they may need to change the criteria again in the future depending on the state of the economy,” Shigemi said.

The TSE is scheduled to propose the ideas at a Financial Services Agency advisory committee meeting at the end of this month, the Nikkei said.

[“source=japantimes”]