Bourse’s decision not to delist Olympus criticized

TOKYO — The Tokyo Stock Exchange’s decision not to delist scandal-ridden Olympus was lambasted by critics who said the company’s concealing of huge losses for many years constituted breach of trust.

The TSE’S rules stipulate that companies should be delisted when the effects of false reporting are judged to be serious from a “comprehensive” viewpoint.

Makoto Minoguchi, standing governor of Tokyo Stock Exchange Regulation, the TSE’S self-regulatory body, said at a press conference, “The effects of the false reporting were not serious enough to delist the company’s shares.”

However,

Minoguchi harshly criticized Olympus by saying the company damaged investors’ trust in the market, and he demanded fundamental improvements in corporate governance.

Despite this, he concluded Olympus’ conduct could not be compared to the maliciousness of past cases in which companies were delisted for making false reports.

Naohiko Matsuo, a lawyer with the Nishimura & Asahi law firm, disagreed. “This case involved the entire company [in making the false reports], and the amount of money was huge. It had a tremendous impact on its financial standing,” he said.

Some market experts are comparing the Olympus case with Livedoor, which was delisted in 2006 for reporting false profits.

The TSE ruled Livedoor should be delisted to protect investors following investigations by the police and the stock exchange.

In other cases, Kanebo was delisted for dressing up its earnings reports, while Seibu Railway lost its listing for falsifying its shareholder records.

The New York Stock Exchange has a clear standard: A company is delisted in principle if its stock price remains $1 or lower over a certain period of time. The NYSE does not delist a company only for making false reports.

The TSE’S decision in the Olympus case “was made in consideration of investors overseas,” according to an official at a major securities firm.

Some people question how a stock exchange should act in such cases.

“The role of a stock exchange is to provide sound trading opportunities, not to judge if a company is right or wrong,” said Toru Fukuda of the Japan Securities Research Institute.

Because it is unclear what yardstick the TSE applies in delisting companies, investors have to accept the risk of buying shares in a company that could be delisted.

At his press conference, Minoguchi did not rule out future delisting of Olympus.

“If [criminal] investigation establishes Olympus falsely reported [profit] in its main business, we’ll reopen procedures,” Minoguchi said.

The TSE did not disclose what was discussed at its extraordinary meeting on Friday, including whether any of its directors called for the company’s delisting.