JIN-478 -- TSE continues to fall behind the rest of the world

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The 'JIN' J@pan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 478 Wednesday August 20, 2008, Tokyo
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Following the departure of UK bank Barclays from the Tokyo
Stock Exchange in June and the exit of BP earlier this month,
the TSE continues to flounder in its attempt to become more
globally orientated. When Boeing delisted from the bourse on
August 15, it left just 22 foreign companies, the lowest number
in 22 years.

In 1991, at its peak, the exchange had 127 foreign companies
listed. Only three foreign companies listed last year.
This was in sharp contrast to the Singapore Stock Exchange where
32 foreign companies listed, the London Stock Exchange, where 33
listed and the New York Stock Exchange, where 29 listed.
As Tokyo moves to create an international financial center in
the Marunouchi district, the TSE needs to show that it is a
viable market for foreign companies. Yet it continues to

In an interview published in the Japanese edition of Euromoney,
Tokyo Stock Exchange Group President and CEO Atsushi Saito
identified a number of reasons why the bourse remains
unattractive as a global exchange. Among these was the fact that
the listing criteria require Japanese language and accounting.

'Naturally, it is costly to comply with such requirements. Many
Asian countries now use the IFRS (International Financial
Reporting Standards), adopted by more than 100 countries. In
Japan, the GAAP (Generally Accepted Accounting Principles) of
the US can be partly accepted but the basic rule is to apply
Japanese accounting standards,' Saito told Euromoney.

'Therefore, listing costs double since you have to pay the
fees twice. I think that this invisible barrier should be
removed and we should have a single accounting norm that is
compatible with what is prevailing internationally.'
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Perhaps the biggest cause of the country's economic ennui,
however, is the unwelcoming attitude among Japanese courts and
shareholders to foreign investment, arguably at a time when the
country can least afford it. Last year's High Court ruling in
favor of Bull-Dog Sauce Co.'s poison pill defense measures
against a takeover bid by US hedge fund Steel Partners remains
fresh in the memories of many foreign investors. Also the defeat
in June of London-based Children's Investment Fund Management
in its battle to enforce management change at electricity
company J-Power may have deterred some foreign investors.

Saito was non-committal on the topic.

'Corporate measures against takeover bids may be allowed on a
case-by-case basis. There are cases in the world in which
public-sector entities are allowed to prepare defensive measures
against takeover bids. As for the case of Electric Power
Development Co., also known as J-Power, I think the heart of the
problem is not its defensive measures themselves but the absence
of rules vis-à-vis overseas funds.' he told Euromoney.

A Financial Times report indicated that foreign companies have
also been discouraged by Japan's Nikkei 225 benchmark index,
which is trading at two thirds below its 1989 peak.
TSE management says it is sending a strong message to its
employees on the importance of the globalization of the market.
The latest move towards an international market came last week
when the TSE launched a tie-up with the London Stock Exchange,
allowing submissions of English-language financial data and
financial statements compliant with international accounting

It's a move in the right direction but why it didn't happen
earlier is a mystery.
The bourse remains slow to change. Meanwhile, foreign companies
continue to leave, sailing to the shores of Japan's Asian
neighbors. In the past, when Japan was supposedly going to take
over the world, it could afford to sit back and let foreign
investors come on its own terms. As the economy starts a steady
decline matching the fall in the nation's population, it can ill
afford to be so complacent.

If the TSE is going to make itself relevant as a global exchange
it is going to need to do more to convince foreign companies of
its value to them, and fast.


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Written by: Michael Condon, Editor-in-Chief, Japan Inc Magazine
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