When Softbank Corp. and the operator of the U.S. Nasdaq stock market announced in June the creation of a new market to sell shares of emerging Japanese companies, the news dealt a serious blow to the Tokyo Stock Exchange, the nation’s largest bourse.
The TSE, with a total market value of 383 trillion yen, has never really had to compete with another entity, but it suddenly awakened to the grim possibility of losing business with startups to the Nasdaq-Softbank venture.
The TSE lucked out on one thing, however: Nasdaq’s Japan version will not begin operations until late next year.
In fact, the TSE had itself been considering creating a new market for startups. In September, it announced the establishment on Nov. 1 of Mothers, short for Market of high-growth and emerging stocks.
“Frankly speaking, I don’t know what would happen if we were to set up our new market around the same time as Nasdaq,” said Takushi Shimoda, director of the TSE’s listing department. “But God gave us a year to get ahead, so we hope to solidify Mothers’ status as a market where firms have easy access to funds before Nasdaq Japan debuts.”
The TSE and other conventional stock exchanges around Japan have been criticized for being closed to new businesses and allowing only firms with a proven track record to be listed. As a result, it is often said that it takes a firm 20 years to debut as a public company.
Mothers, however, features a lower threshold than the TSE’s other markets to attract entrepreneurs, startups within corporations and emerging businesses in such areas as communications technology, which requires a large amount of capital upfront.
Shimoda said the new market will speed up the screening procedure for applicant firms by examining their future prospects instead of their past performance.
“Unlike before, we will be open to year-old companies and firms in debt at the moment,” he said.
Mothers will also reduce the cost of listing new ventures, halving the current screening and listing fees.
In exchange for accessibility, Mothers will demand enhanced transparency from firms, requiring them to disclose their earnings reports quarterly and hold meetings for investors at least twice a year.
Even with all this, it is uncertain how the TSE will compete with the Nasdaq-Softbank venture.
The Nasdaq market, which grew rapidly in the U.S. with its technology-laced stocks, such as Microsoft and Intel, appears appealing to many entrepreneurs in Japan. Many people also seem drawn to Softbank Chairman and Chief Executive Masayoshi Son, who epitomizes a Bill Gates-style success story, having built a small computer software distributor into a multibusiness empire.
Shimoda said he wants to counter the brand image of Nasdaq Japan with the TSE’s links to many of the nation’s prestigious companies.
“I think we can hold a seminar for owners of new ventures, in which startups that rose to the ranks of the first section of the TSE will tell the owners their success stories,” he said. “I also think it’s important for us to keep asking new ventures what they want from us.”
For startups that want to raise capital, however, their biggest hurdle in going public might lie outside Mothers or Nasdaq Japan.
An official at a major brokerage who declined to be named said such firms will not be able to debut on either market unless they can convince securities companies to underwrite their stocks.
Brokerages will examine firms carefully before underwriting their shares, because if investors buy venture stocks from them and incur losses, such as through a venture going bankrupt, the securities houses will be blamed, he said.
“I understand the importance of startups offering shares to the public,” he said. “But we cannot afford losses, since our reputation is at stake.”
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.