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Category: Finance

New Policy At Tokyo Stock Exchange

As anticipated, TSE (Tokyo Stock Exchange, Inc.) announced its new policy about the companies listed in the 1st section as well as restructuring plan for other 3 sections.

First off, I really like the ideas behind these changes. TSE 1st section has been criticized by foreign investors for so long by the fact that there are simply too many companies listed and very few companies are doing disclosure in English.

To them, the TSE 1st section is a hard-to-choose market and hence wasn’t appealing until now. Plus, there wasn’t a clear set of rules for the companies to be disqualified from the 1st section. Now that a company whose valuation is below $250M and not doing disclosure in English will be disqualified and forced to be out of the 1st section.

It’s not just a matter of IR. It’s a matter of CEO running a public company as well. There has been a clear message made by TSE, saying a CEO needs to communicate with foreign investors with his/her own words.

Apart from the new policy introduced in the 1st section, the other 3 sections will be merged into 2 sections, namely Emerging and Standard. I assume current Mothers and JASDAQ will be merged into one and the 2nd section will remain as it is under a different name.

What I would like to point out here is the existence of TOKYO PRO Market, which is TSE’s 5th section that no one ever knows about. The original inspiration of the TOKYO PRO Market was AIM (Alternative Investment Market) at the London Stock Exchange.

For those who don’t know history of TSE, TOKYO PRO Market was named after AIM and it was called TOKYO AIM back in 2009. Unfortunately, there wasn’t a single company that went public in TOKYO AIM for years. Eventually, TSE decided to change the name to TOKYO PRO Market upon dissolution with the London Stock Exchange in 2012.

To me, a concept of the TOKYO PRO Market is still valid and sounds promising. Japanese startups definitely need this kind of alternative market where only professional investors are allowed to participate. By professional I mean, institutional investors who make a decision based on a company’s long term vision and future value created by the company. Not ones who buy and sell a stock based on short term observation.

We still don’t know the exact criteria about the new Emerging and Standard sections. However, there is a rumor saying the hurdles for these two sections will be raised too. I’m hoping TSE will do something about TOKYO PRO Market so that startups can choose a proper market according to the nature of their business when going public.

If a startup is B2C, then what used to be Mothers where a lot of individual buyers/sellers participate might be appropriate. If a startup is B2B, biotech or R&D oriented, then TOKYO PRO Market might be the right one.

The biggest problem about TOKYO PRO Market is there is no unicorn listed there and the amount of transactions is nearly zero. It’s a chicken and egg problem, but it can be solved. We need to create demand first so having a unicorn going public in that market is crucial.

Should A Company Pay Dividends?

February and March are the busiest months for IR, CFO, and CEO since a fiscal year ends at the end of December for many Japanese companies and they publish their annual report during the following February and March.

I try to read a relevant company’s report as much as I can. In fact, I enjoy reading it a lot. It shows where the company was and where the company is heading in the future. While I was reading it, I stumbled upon a quite interesting comment from the CEO who runs a big Japanese public company.

He said that people who buy a stock just because a company pays dividends are not looking at the core value of the company. According to his theory, these people are willing to make extra money by holding a stock that yields dividends and not willing to re-invest into a company that paid the dividends. That was the reason why his company never paid dividends.

I’m not sure if he really means it, but that’s how it was said during the briefing. Assuming it’s true, I thought this is a very self-oriented way of looking at the stock market.

Every CEO who runs a public company needs to ask himself/herself this question: “Where is this money coming from?” People are buying your company’s stock because they have extra money to spend, and that extra money might come from the dividends paid by other companies.

If your company doesn’t pay dividends, then there is less money going back to stockholders. Hence, there is less money going to other public companies because these stockholders do not have extra money to spend. Simple.

If all CEOs start to think like that, it means the beginning of the market shrink. The amount of money floating within the market becomes less and less over time. You need to give first before you get.

It’s almost irony to see CEOs whose company doesn’t pay dividends are the ones criticizing difficulty of raising money from the stock market. These CEOs say like buying the power of people is weakening or there is an economic winter making stockholder not to buy anything.

Well, think again. That’s because your company is not paying dividends.