Japan Exchange Group Inc. will consider merging three smaller equity markets to simplify its exchange structure, a bourse official said.
JPX, created last year from the merger of the Tokyo Stock Exchange and Osaka Securities Exchange, will weigh combining its Mothers, TSE second section and Jasdaq markets, Yasuyuki Konuma, executive officer for the new listings department, said in an interview Tuesday.
Serious discussions have yet to begin and there is no schedule for the merger, he said.
“There are some who say it’s a problem that we have so many markets,” Konuma said. “We need to begin discussing whether we need to merge them, the merit being simplicity.”
The creation of the national bourse last year was part of a government plan to streamline the securities industry and revive Japan’s standing as a financial hub. Potential consolidation contrasts with the U.S., where trading is spread across more than 50 public and private markets as well as dozens of internal platforms at broker-dealers.
That fragmentation is blamed by some for making American capital markets too complex. Two U.S. exchange operators, Bats Global Markets Inc. and Direct Edge Holdings LLC, have retained their four individual markets even after the parent companies completed their merger this month.
Companies listed in Japan have the second-biggest aggregate value in the world, with a market capitalization of $4.4 trillion as of Feb. 17, according to data compiled by Bloomberg. The nation has two alternative trading platforms that display prices, SBI Japannext and Chi-X Japan Ltd.
A merger of the three Japanese markets would create a trading venue with more than 1,600 stocks. The Topix index tracking shares listed on the TSE first section has 1,775 members. Differing rules make it harder for companies to move to the first section from Jasdaq than from the other two markets for smaller shares.
“The first section is like a university,” Konuma said. “The second section and Mothers are like schools that have a gateway into the university. If companies on the Jasdaq want to join the first section but don’t meet the higher market cap requirements, they have to first move into one of the ‘gateway schools’ and then try and move up. They have to have reviews twice, and it takes time. So sometimes people question when we’re going to fix this disparity.”
Mothers, an acronym for “market of high-growth and emerging stocks,” was formed in 1999 by the Tokyo Stock Exchange and features 193 companies, including blog website operator CyberAgent Inc., bio-pharmaceutical company Takara Bio Inc. and smartphone game developer Colopl Inc. as its biggest-weighted members.
Companies must have a market capitalization of ¥1 billion to be included in the market and grow to ¥4 billion to move up to the TSE first section.
The Mothers Index surged 137 percent last year, with CyberAgent soaring 142 percent, Takara Bio leaping 202 percent and Colopl surging 769 percent in its first year of trading.
The TSE second section of “established mid-sized companies” contains 560 companies that had a market value of more than ¥2 billion on the day they listed. Its biggest members include medical tool maker Asahi Intecc Co., automobile parts maker Nippon Seiki Co. and transmission parts maker Hi-Lex Corp. Like Mothers, companies must have a value of more than ¥4 billion to move into the TSE first section. The TSE second section index jumped 44 percent last year, its biggest gain since 2005.
The Jasdaq market, split between the standard section and the growth section for companies with unique technologies or business models, lists 872 shares in total. Companies must have a market value of at least ¥5 billion or a recent annual profit of ¥100 million to list, and must be worth ¥25 billion to move into the TSE first section.
While new listings in Japan have been increasing every year since falling by more than half in 2009 amid the global credit freeze, the number of initial public offerings is still about a third below a peak in 2000.