Tokyo Stock Exchange (TSE)

The Tokyo Stock Exchange (TSE) is a standardised equities market and subsidiary of the Japan Exchange Group (JPX). Located in the financial district of Tokyo known as the "Kabuto-cho," the TSE is the largest stock market in Japan and offers more than 3,500 individual corporate listings.^[1]

Featuring a market capitalisation of more than 650,000 billion JPY (4.4 trillion GBP), the TSE consistently ranks in the top five global stock exchanges annually.^[2]

The TSE serves alongside the Osaka Exchange (OSE), the Japan Exchange Regulation and the Japan Securities Clearing Corporation as a primary branch of the JPX. Licensed under the Financial Instruments and Exchange Act of Japan, the TSE is headed by President and CEO Koichiro Miyahara.^[3]

Under Miyahara's leadership, the TSE is a self-proclaimed one-stop-shop for the trade of the following financial assets:^[4]

• Corporate Stocks
• Equity Indices
• Exchange Traded Funds (ETFs)
• Exchange Traded Notes (ETNs)
• Real Estate Investment Trust (REIT) Indices

Day-to-day trade on the TSE cash markets is conducted almost exclusively via digital platform. Utilising a trading system known as "arrowhead," which launched in 2010, the infrastructure is based upon low latency and reliable information systems technologies.

After being completely overhauled in 2015, arrowhead has become one of the most advanced trading frameworks in the world. Transaction speeds are extremely swift with an order response time of 0.3 milliseconds and data transfer time of 1 millisecond.^[5] When it comes to technological competency, the TSE is on par with industry leaders such as the New York Stock Exchange (NYSE) and NASDAQ.

History

The TSE was established in May 1878 as an open outcry auction mode of exchange. The trading floors of the TSE lasted for more than 120 years, throughout the Meiji, Showa and modern eras.^[6]

Upon the opening of the Japan Securities Exchange in 1943, 11 of the top domestic equities markets were merged to manage the financial strain of World War II (WWII). These markets were to operate as part of a government-controlled economic format. As tensions intensified between Japan and Allied Forces during WWII, the TSE trading floor was closed. The TSE remained under the authority of, and occupied by, the General Headquarters of the Allied Forces (GHQ) until January 1948. In May 1949, trading as usual resumed at the TSE.^[6]

The post-WWII era included explosive economic growth for the Japanese economy and equities markets. A strong sense of nationalism and desire to compete with the developed nations of the West contributed to a bold recovery. In addition, low tariffs, strong trade with the U.S., and limited military spending under WWII disarmament led to a period of sustained economic growth.

For the years 1950 to 1999, the TSE benefited from the robust economic performance, experiencing an exponential growth in market capitalisation upwards of 400 thousand-fold.^[8]

Citing the need for more efficient trading systems as well as to reduce operational expenses, the trading floor of the TSE was officially closed on 30 April 1999. At the original headquarters, TSE Arrows was introduced as the new brand of the Tokyo stock market in May 2000.^[6]

Upon the formation of the Japan Exchange Group (JPX) in 2013, the cash equities portion of the Osaka Securities Exchange (OSE) was merged with the TSE. This affiliation is a key element of the JPX organisational structure and continues to the present day.

Corporate Listings On The TSE

Public offerings on the TSE are divided into four primary categories: 1st Section, 2nd Section, Mothers and JASDAQ. In order to be listed for public trade in one of these classifications, specific formal requirements must be satisfied:

In addition to meeting the formal requirements, applicants are scrutinised in terms of several eligibility prerequisites. Distinct corporate characteristics including the soundness of management, stability of revenues, business continuity and growth potential are evaluated when deeming a company's worthiness to be listed on the TSE.

After completing a two-year audit period and gaining approval for an initial public offering (IPO), the process of becoming listed at the exchange takes one year. Although intense, the evaluation and IPO process being successfully concluded is not uncommon. For the year 2017, 93 new corporate IPOs were launched as one of the four primary equities classifications.

Leading Companies And Indices On The TSE

For the year-end 2017, the TSE ranked as the world's fourth-largest stock exchange with a market capitalisation of US$5.5 trillion.^[12]

Stable valuations of Japan's leading companies in finance, manufacturing and technology are a fundamental driver of the TSE's strength as a global financial entity. Below are the top 10 publicly traded companies through the end of 2017:

In addition to individual corporate listings, the TSE also offers several of the world's most popular equities indices for trade:^[14]

• Nikkei 225
• Nikkei 400
• Nikkei Mid and Small Cap Index
• TOPIX
• JASDAQ Index

Summary

As one of the world's largest and historically relevant stock exchanges, the TSE is a prominent figure in the Asia-Pacific region as well as in global finance. Featuring prestigious listings such as Toyota, Honda and Mitsubishi, it attracts high levels of both foreign and domestic investiture.

In addition, popular indices such as the Nikkei 225 and growth-oriented JASDAQ offer individuals interested in investing in the Pacific Rim economy an array of viable alternatives.