Tokyo Report: TSE Eyeing Bold Reform of Mothers Market

Tokyo, Feb. 9 (Jiji Press)--The Tokyo Stock Exchange is set to
drastically reform the Mothers market for startups on the occasion of its
10th anniversary, hoping to stem the continued flight of investors.
The Mothers market, aimed at high-growth emerging stocks, was
created in November 1999 amid competition among stock exchanges in Japan to
open new markets for startups from the second half of the 1990s.
While more than 1,300 emerging companies are now listed on the six
markets opened in the past decade, Mothers has played a unique role as a
stepping stone for young companies that wish to be listed on the TSE's first
and second sections.
One in every eight of its listed companies has been promoted to the
first or second sections of the TSE.
But as the six markets for startups competed to attract companies
by relaxing listing requirements, the qualifications of many listed firms
have been questioned, scaring away investors. In addition, reckless
third-party allocations of new shares have damaged the rights of existing
shareholders.
The TSE began to consider reforming the Mothers market after some
members of its expert panel reviewing listing requirements said during a
meeting last December that the market has completed its role.
The comment came amid growing moves in the securities industry to
reassess stock markets for startups, particularly since the Jasdaq
Securities Exchange came under the wing of the Osaka Securities Exchange
late last year ahead of a merger with the OSE's Hercules market for emerging
firms in the next few years.
In addition, the TSE will open another market for emerging
companies in April, called Tokyo AIM, limited to institutional and other
professional investors. This will feature easy listing requirements to
reduce the financial and other burdens on companies that offer shares for
trading. For example, listed firms will be allowed to release information in
English or based on overseas accounting standards.
As part of the reform of the Mothers market, the TSE will study the
possibility of requiring companies listed there for four to five year to
clear listing requirements for the first or second sections within two to
three years, officials said.
If companies fail to be promoted, the TSE will move them to the
Tokyo AIM market, where they will be under close scrutiny by professional
investors, the officials said. Eventually, the exchange may delist them.
The number of Mothers-listed companies is likely to decrease
sharply if the market is reformed as expected.
One executive of a major brokerage house warns that reform could
eventually destroy the Mothers market. But with increasing calls to upgrade
the quality of markets for startups, such as by weeding out firms with
suspected mob links, industry officials and investors are waiting with bated
breath to see the scale of the planned changes