Firms May Look For New Home Away From Nasdaq Japan

Back to Contents of Issue: October 2002

THE OPENING OF NASDAQ Japan as a section of Osaka Securities Exchange (OSE) in June 2000 was supposed to boost the number of IPOs by startup companies, as the regulations made it easier for them to go public. But, after having accumulated a \5.3 billion loss, Nasdaq US decided that it would be pulling out of Japan in October.

Tokyo-based Softbank and Nasdaq US each own 43 percent of the venture. The market will continue under a new name; the Japan New Market, regulated by the OSE, which has assured that the rules for listing and trading will be unchanged.

Yet, the future of the market remains uncertain. About 100 companies listed on Nasdaq Japan, including Starbucks, are left to decide whether to remain on what's left of Nasdaq or to find a new home elsewhere. Video rental chain GEO, for example, has already announced that it will consider the option of leaving the market to be listed elsewhere, while carefully watching how the new market will go, according to the company's press release. For GEO, which already has annual sales of over \60 billion, it may not be so hard to find a new home, but what about others?

"Those who can go to either Mothers or JASDAQ will do so. The market is doomed to shrink, only to be left with small companies that are not qualified for other [exchanges]," predicts Yasuaki Fujine, CEO of independent research firm Analyst Net Japan. Nasdaq Japan, JASDAQ and the Mothers section of the Tokyo Stock Exchange (TSE) are heavily weighted with startup businesses, as their qualifications for listing are lower than other sections of stock exchanges. Of the three, Nasdaq Japan sets the lowest hurdles for listing.

"I have always told (pre-IPO companies) to go for Mothers, instead of Nasdaq Japan, as I didn't expect Nasdaq Japan to succeed," continues Fujine. The costs to build and manage the system were too much for both Softbank and Nasdaq US to bear, especially when they were only dealing with small cap companies, he explains.

Of the three markets, JASDAQ is in a different league, as it is by far the largest. It has over 900 companies listed, while the total market capitalization of these companies has risen above \10 trillion as of May. Nasdaq Japan currently has about 100 companies with a total market capitalization of \1.5 trillion, Mothers has less than \1 trillion. There have been some talks on merger plans either with JASDAQ or with Mothers, but neither has shown any interest in the debt-ridden market.

Even if the market withers away, the short history of Nasdaq Japan has made an important contribution to Japan, or at least that's what Softbank President Masayoshi Son claims. It used to take an average of 23 years before a Japanese company went public and Nasdaq Japan, although failed, has contributed in shortening that time period, Son reportedly told the Nikkei Shimbun newspaper.

-- Sumie Kawakami
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