Public Comment by Nicholas Benes to JPX re: “Review of the TSE Cash Equity Market Structure”

(As submitted to the JPX on January 12, 2019)

There should be only two sections of the JPX: (1) a TSE Premium Section and (2) an Emerging Companies Section.

Listing on the Premium Section should have the following requirements in addition to the existing TSE1 listing criteria:

(a) a five-year average market capitalization exceeding 50 Billion yen;

(b) the ratio of total “policy holding stocks” (seisakuhoyukabu, 政策保有株) to [net assets less cash equivalents(純資産ー現金等)] as of the most recent FYE “yuho” financial report (or the one submitted just after any AGM) must not be more than 15%(10% in 2022, and 5% in 2024);

(c) use of the electronic voting platform;

(d) convocation notices must be sent out by both post and electronic methods at least four weeks before each AGM;

(e) production of financial reports, kessan tanshin, corporate governance reports, convocation notices, and jigyou hokokusho in both Japanese and English, in all cases using XBRL formats using the same XBRL tags as those used for the respective Japanese materials (note: Japan will need to create standardized, detailed XBRL formats for jigyou houkokusho and convocation notices; this should be phased in over the next three years, and the practice and rules for combining jigyou houkokuho with yuho should be vigorously pursued);

(f) corporate governance reports in both languages must stratify and separate out the “disclosure items” using separate XBRL tags, which (very oddly) is not the case at present;

(g) the Articles of Incorporation must explicitly permit an AGM to held within four (not three) months of the FYE or cutoff date (基準日), whichever is later;

(h) the Articles of Incorporation must require the company to obtain the prior approval of shareholders by a “majority of the minority” (e.g. , excluding related parties) vote at an EGM or AGM, prior to agreeing to any transaction or series of related transactions that results in greater than 20% dilution of total equity as calculated on a pre-transaction basis;

(i) the Articles of Incorporation must require prior approval by a board committee constituted solely by independent directors and advised by independent advisors that conduct a “market test”, with respect to any public statements of consent by the board or its executives regarding any change-of-control transaction (or series or related transactions), such as a takeover bid; and

(j) at least one-third of the board consists of independent directors, and more than one-half of the board consists of non-executive directors, and there is a nominations and compensation committee (or two separate committees) with a majority of independent directors and having no CEO (代表取締役) as a member.

Companies not meeting these requirements within the first two years of a transition period should be automatically moved to the Emerging Companies Section.

Listing on the Emerging Companies Section would require: (a) annual submission and timely revision of full comply/explain corporate governance reports to the JPX, as is presently required for TSE1 and TSE2 companies, separating each “disclosure” items using separate XBRL tags for each item as described above in (f); and (b) production of convocation notices, and jigyou hokokusho using the same XBRL format as used by Premium listing companies for their Japanese reports per the above.

NOTE: This “market structure” public comment process should not be used as means to create a listing section where standards that are lower than those currently applied to TSE1/2 companies are tolerated for firms that wish to “flee” to it. If that is what it results in, the process will have been a complete failure and a step backwards.

Submitted to JPX on January 12, 2019 by Nicholas Benes (as an individual and not representing any organization.)

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