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Monday, Nov. 19, 2001

Tokyo Stock Exchange breaks new ground as a stock company


On Nov. 1 the Tokyo Stock Exchange made a fresh start as a stock company, trailing the Osaka Stock Exchange by seven months but beating its rival in New York.

It is hoped that these moves -- part of a growing trend among European bourses -- will boost the likelihood of international alliances forming among securities exchanges worldwide.

The TSE's transformation is meaningful, especially when one considers its history.

The bourse was launched as a membership-based organization after Japan's defeat in World War II. It later came under the control?? of the government after the securities industry slumped in the mid-1960s.

The TSE's conversion to a stock company will allow the TSE to raise operational funds more quickly and pursue management efficiency. But it will also allow it to review its relations with government authorities.

Some argue that the transformation is inconsistent with the TSE's role as a self-regulatory body.

In light of such concerns, the TSE has set up three advisory panels that will deal with market management, market regulation and discipline, so that it can heed the opinions of outsiders from brokerages and from nonfinancial firms on how the bourse should be run.

At this point, I would like to make a set of requests to those involved in operating the Tokyo market.

First of all, the TSE needs to maintain its independence from the government and to mind suggestions from investors and nonfinancial sectors. It has to create new listing rules attuned to the realities of the Japanese economy today.

Second, the TSE must not give the impression of being the same as, or an extension of, the government. It must establish an equal and tense relationship with regulatory authorities.

The government, meanwhile, should upgrade the Securities and Exchange Surveillance Commission into an organization with greater independence, like the Securities Exchange Commission in the United States, so that it can serve as a fair market watchdog together with the TSE and as a self-regulatory body.

Third, they must build an infrastructure that helps the TSE win when competing against rival overseas bourses, including those in Asia.

For example, the Delivery-versus-Payment system, the Trade-plus-One system for quick settlement of securities transactions, paperless operations and the Straight-through Processing mechanism should all be quickly introduced.

The TSE must also maintain a balance between its functions as a stock company and as a self-regulatory body.

It is often difficult to supervise the operations of such nonprofit organizations as hospitals and universities that pursue the public interest.

Scholars at universities are frequently critical of corporate governance at Japanese firms but are the least exposed to competition and receive only low international recognition. The TSE's conversion into a stock firm, regardless of its nature as a body that pursues the public interest, may give us insight into the fate of nonprofit organizations in the future.

I would finally like to extend my strong wish that the TSE, with its new structure, will truly become the hub of stock exchanges in Asia.

Yoshio Nakamura is a senior managing director of the Japan Federation of Economic Organizations (Keidanren).


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The Japan Times

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