The Financial Services Agency on Wednesday called for cutting the number of markets at the Tokyo Stock Exchange to three from the current four to streamline its structure and attract more investment.
In a reform plan drafted by a study group, the FSA also proposed slimming down the composition of the Topix index of all first section issues on the TSE by excluding those whose trading volumes remain sluggish.
The agency will urge the bourse to start implementing the proposals around the first half of 2022, according to the report.
Citing complaints from market participants about overlapping functions at some of the markets, the FSA proposed integrating the second section and the Jasdaq to make clear the roles of each market.
At present, the TSE consists of four markets: the first section for big companies, the second section for midsize firms, the Jasdaq comprised of a variety of companies and the Mothers dedicated to startups.
Although the Jasdaq is characterized as an emerging market, it handles some big names, including McDonald’s Holdings Co. (Japan).
According to the plan, the TSE will create a “prime” market, which would be equivalent to the first section, a “standard” market for stocks listed in the second section and the Jasdaq, and a “growth” market for those in the Mothers.
The FSA proposed setting the minimum market capitalization requirement for the prime market at ¥10 billion ($91 million), while taking transitional measures to retain the currently listed small-cap issues.
The prime market should attach greater importance to the liquidity of stocks, the FSA said in its proposal.
A few hundred of the over 2,100 first-section companies will not meet the proposed listing standards for the prime section, according to the agency.
But unqualified firms will be allowed to choose the prime section for the time being on certain conditions including further efforts to strengthen corporate governance, according to the proposal.
The FSA is also considering transforming the Topix into an index that would bring together leading companies because the index currently involves all names in the first section, regardless of their performance.
But the proposal said adequate time needs to be given to carry out the reform to avoid market confusion.
Based on the report, the FSA will present a blueprint for reorganizing the TSE around February before working out details.
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