The Japan News by The Yomiuri Shimbun
TSE looks to raise top listing criteria
The Tokyo Stock Exchange (TSE) is considering raising the market capitalization requirement for companies to be listed on its First Section, The Yomiuri Shimbun has learned.
Approximately 60 percent of about 3,700 listed companies are currently on the First Section, blurring the line between the TSE’s top tier and its markets for emerging companies, such as Mothers.
The TSE plans to incorporate new standards in a reform proposal that it will compile soon, in an effort to boost the market’s appeal, according to sources.
Two main criteria apply to companies going public on the First Section. Unlisted companies must have an estimated market capitalization of at least ¥25 billion (about $226 million) to be listed directly on the section. However, companies transferred to the First Section from the Second Section or Mothers are given preferential treatment — they are only required to have an estimated capitalization of at least ¥4 billion.
The TSE plans to integrate the current criteria. As one option, it is mulling abolishing the preferential treatment for companies listed on the emerging markets and requiring companies to have an estimated market capitalization of at least ¥50 billion to be newly listed on the First Section, sources said.
In the past, companies were required to have an estimated market capitalization of at least ¥50 billion to be directly listed on the First Section. However, the TSE halved the capitalization requirement to at least ¥25 billion in 2012 in response to the collapse of U.S. investment bank Lehman Brothers in 2008, which caused a sharp drop in the number of new listings.
However, the negative effects of relaxing the criteria have recently become conspicuous.
If, for instance, a company first goes public on Mothers — which requires a market capitalization of only ¥1 billion — and then grows into a company with a capitalization of at least ¥4 billion, it is entitled to a spot on the First Section.
Although only four such transfers occurred in 2009, recently more than 70 companies a year have been making the transition, contributing to an increase in the number of listed companies on the First Section.
Over the 30 years of the Heisei era, the number of firms on the First Section nearly doubled to about 2,100. As a result, the section is now home to both major companies whose market capitalization exceeds ¥20 trillion, such as Toyota Motor Corp., and smaller firms with market capitalization of around ¥4 billion.
“Many investors only invest in high-profile companies. They take no notice of companies ranked 1,000 or below in market capitalization,” said Shingo Ide, chief equity strategist at the NLI Research Institute.
Although the First Section has added about 400 companies since 2007 (when about 1,700 were listed), the daily trading value remains unchanged at around ¥3 trillion — making it hard to claim that trading has been invigorated.
“The brand strength of the First Section as ‘a market of super blue-chip companies’ has completely diminished,” said Sadakazu Osaki, a researcher at Nomura Research Institute, Ltd.
In response, the TSE is reevaluating the First and Second sections, as well as Jasdaq and Mothers. It is considering creating “a premium market” dedicated to companies with particularly large market capitalization that are already listed on the First Section, sources said.