The Financial Services Agency proposed on Wednesday realigning the Tokyo Stock Exchange into three trading markets from the current four.
The proposal also sought to revamp the Topix index of all issues listed on the TSE’s first section into a new index covering fewer actively traded stocks.
Topix is utilized by pension fund and investment trust fund managers as a yardstick for asset management.
The proposals were presented at a meeting of a working group of the Financial System Council, an advisory panel to the prime minister.
The council is expected to compile a report on the matters by the end of this year, sources familiar with the discussions said.
The TSE’s four stock markets are the first and second sections, as well as the Jasdaq and Mothers markets.
The FSA proposed creating a “prime” market to include actively traded stocks of companies with excellent governance, a “standard” market for stocks with relatively high liquidity and a certain market capitalization, and a “growth” market for stocks of companies with growth potential.
Under the proposal, companies already listed on the TSE are expected to be allowed to decide the market where their shares would be traded.
Once the council produces its report, the TSE is expected to discuss details of the reforms, including the listing criteria for the new markets, the sources said.