Capital Market

Kavan Choksi Regulatory Overview of Japan’s Equity Capital Market

Markets

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There are multiple equity markets and exchanges in Japan, whereas the primary equity market is Tokyo Stock Exchange (TSE). You can see that TSE is also one of the oldest exchanges in the world, which was established back in 1878. TSE serves the below markets.

  • Blue-chip companies featuring high liquidity in the first section.
  • Medium-sized well-established companies in the second section.
  • And Mothers for emerging companies.

In addition to these, TSE is also managing JASDAQ for the emerging companies, which was managed previously by the Osaka Securities Exchange. JASDAQ now offers two markets, the JASDAQ Standard and JASDAQ Growth.

Kavan ChoksiTSE Markets

TSE offers the TOKYO PRO Market, also established in 2009, which is exclusively serving professional investors. In PRO Market, the listing and disclosure requirements are much easier than other markets, but they’re only limited companies listed here, and the market is not very active, says カヴァン・チョクシ.

Market activity

Comparing 2020 with the previous year, we can see that there was an increase in the initial public offering (IPOs) in 2020. Overall, about 92 issues happened in 2020, whereas it was only 81 issues in the previous year. PLAID Inc did the biggest IPO of 2020 with a fair market capitalization after an IPO of about 118 billion yen.

The applicants may not publicly disclose listing applications to TSE before the listing gets approved. The IPO activity can also be postponed due to many reasons during the listing examination. It can be due to bad business results of the applicant or adverse economic conditions etc. In this case, TSE may suspend its examination based on the request from the applicant. TSE also does not disclose the number of postpones that happened publicly, and it will also not disclose the names of the applicants if the IPO has been postponed.

Japan Equity trading regulatory bodies

As we saw above, the Financial Services Agency of Japan or FSA is the primary body regulating the equity markets in Japan. The local finance bureau of FSA takes the key role. Along with it, TSE also regulates equity markets and adopts rules applicable to the listed companies.

To list on TSE, there are a few criteria to be satisfied by the applicants.

  • Meet the quantitative criteria with regard to the number of stakeholders number of shares tradable.
  • Shared help by the biggest shareholders.
  • Amount of profit.
  • Market capitalization.
  • Meet the qualitative criteria like corporate continuity.
  • Profitability and strong corporate management.
  • Corporate governance.
  • Internal control systems.
  • Disclosure of corporate info.

カヴァン・チョクシ also points out the fact that there is no big difference between the listing criteria for domestic and the foreign applicants. However, foreign applicants need to keep a close watch on the latest regulations of FSA related to the equity markets in order to ensure that they are compliant with all those to enjoy the benefits of their investment in equities in Japan.

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