TSE — Status after Market Restructuring and Future Follow-up

The Tokyo Stock Exchange (TSE) Listing Department on May 21, 2024, published a comprehensive review of the market restructuring implemented in April 2022 and its impact on listed companies. The report delves into the status of various initiatives undertaken by the TSE to enhance the effectiveness of the restructuring, along four key initiatives:

• Transitional measures regarding continued listing criteria
• Initiatives to enchance corporate value
• English disclosure
• Enhancing the functionality of the Growth Market

The document highlights the significance of the market restructuring in establishing three distinct market segments — Prime, Standard, and Growth — with the aim of supporting the sustainable growth of listed companies and enhancing corporate value. This restructuring was designed to create an high performing stock market that attracts a diverse range of domestic and foreign investors.

Transitional Measures Regarding Continued Listing Criteria

• Past/Present Situation: The report details the end date of transitional measures for continued listing criteria, set for March 2025. Companies failing to meet the criteria after a one-year improvement period face delisting.
• Re-selection: A re-selection period was offered in 2023, allowing Prime Market listed companies to opt for the Standard Market, resulting in 177 companies making the switch.
• Current Status: Approximately 60% of companies subject to transitional measures have either met the criteria, transferred segments, or been delisted. However, around 40% still haven’t met the criteria, with 136 newly failing to meet the requirements.
• Future Follow-up: TSE will engage with companies that haven’t met the criteria, emphasizing the impending deadline and encouraging proactive efforts towards meeting the requirements or exploring alternative options like segment transfer, listing on other exchanges, or mergers and acquisitions.

Initiatives to Enhance Corporate Value

• Past/Present Situation: In March 2023, TSE requested Prime and Standard Market listed companies to implement “Action to Implement Management that is Conscious of Cost of Capital and Stock Price,” aimed at encouraging efforts to enhance corporate value and engaging in constructive dialogue with investors.
• Current Status: As of April 30, 2024, 69% of Prime Market companies and 28% of Standard Market companies have disclosed their initiatives, reflecting a positive response to the request.
• Future Follow-up: TSE will analyze the status of company actions and investor feedback, with a focus on evaluating the substantive aspects of initiatives. Further measures to encourage effective initiatives and investor dialogue will be considered, particularly for the Prime Market. The effectiveness of “Explain” and other corporate governance aspects will also be assessed.

English Disclosure

Prime Market

• Past/Present Situation: TSE revised listing rules to promote English disclosure in the Prime Market, effective from April 2025, requiring efforts to disclose material corporate information in English and Japanese simultaneously. Financial information and timely disclosure information are mandated for simultaneous disclosure in both languages.
• Current Status: As of March 31, 2024, the English disclosure rate in the Prime Market reached 98.2%, with a notable increase in disclosure by small- and medium-sized companies. However, simultaneous disclosure in English and Japanese remains limited.

Standard/Growth Market:

• Past/Present Situation: TSE promotes voluntary English disclosure in the Standard and Growth Markets through initiatives like providing examples of English disclosure efforts and organizing seminars.
• Current Status: As of March 31, 2024, the English disclosure rate in the Standard Market was 31.9%, and in the Growth Market, it was 30.2%, demonstrating a gradual increase.
• Future Follow-up: TSE will continue to provide support and guidance to listed companies on English disclosure, expanding content to assist all market segments in their efforts.

Enhancing the Functionality of the Growth Market

• Past/Present Situation: Despite the restructuring, the number of IPOs remained stable, with approximately 70% listed on the Growth Market. However, the market capitalization and funds raised at the time of initial listing remain relatively small.
• Challenges: The median market capitalization of Growth Market companies is around JPY 6 billion, and about half have not seen an increase in market capitalization since their initial listing.
• TSE’s Initiatives: TSE developed a policy to support the growth of startups, focusing on: (I) encouraging companies to disclose their reasons for listing, (II) promoting a proper understanding of listing preparation, (III) encouraging proactive sharing of information with investors, (IV) assisting in information sharing with institutional investors, (V) considering stricter listing criteria, and (VI) promoting the use of professional markets.
• Future Follow-up: TSE will promote these initiatives to further enhance the functionality of the Growth Market, providing additional resources and support measures.

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