There Were Responses from 19,974 out of All 52,560 Shareholders

Notes on Media Briefing by Akira Kiyota, Director and Representative Executive Officer, Group CEO, Japan Exchange Group, Inc., on June 16, 2017

There were responses from 19,974 out of all 52,560 shareholders, including those who were not present but submitted voting forms, for a total of 4,745,580 out of 5,410,072 voting rights exercised. 2,038 shareholders attended the AGM, 992 more than the previous year. Many questions came up, and the meeting closed at 12:42 p.m. I would also like to report that at the AGM, proposals such as on the election of directors were approved in their original form.

[Q&A]

Q: The AGM season for listed companies will be in full swing next week. TSE has worked on spreading out dates for AGMs. The concentration rate on the most concentrated date this year was less than 30%, which one could see as a change in the right direction. Could you share your comments on this? And, as FSA provided guidance, trust banks have started to make details public about how voting rights were exercised for each proposal. I would also like to hear your views on that matter.

A: Dates for annual general shareholders meetings were spread further. The concentration rate of the most concentrated date was down in the 29% level. The number of companies that held AGMs on the most concentrated date was 696. The rate declined considerably, although there is still concentration to some extent. This change was realized as the introduction of Japan's Stewardship Code (2014) and Corporate Governance Code (2015) has affected institutional investors and corporate managers. I understand that more corporate managers now seriously consider how their AGMs should be to realize shareholder-centric management or management to enhance corporate value. The concentration rate may go down a little further, but we should

still appreciate the achievement as significant. As you pointed out in the latter part, more institutional investors individually disclosed proxy voting results as their behavior is changing based on the revised Stewardship Code or discussion on fiduciary duty. Some media outlets reported that an institutional investor of Mitsubishi UFJ Financial Group voted against management appointments of Mitsubishi Motors. This is read as a sign that institutional investors increasingly express their judgment as true investors by exercising their votes, regardless of whether they will fall into the same group or have a shared sense of fraternity. Still, there may be some investors who feel a little hesitant. But, I hope this will improve dialogue about how to increase corporate value of Japanese companies between investors and corporate managers.

Q: I would like to ask about the investigation of Toshiba on the cancellation of the designation as a Security on Alert. In a previous media briefing, you mentioned that the decision could not be made until the company submitted its securities report. Now, the submission deadline of the end of June is approaching, and the company may delay its submission. As of now, what is your presumed schedule for the investigation of Toshiba?

A: As you said, Toshiba announced that the company would not be able to report formal financial figures at its general shareholders meeting on June 28. Some media outlets also reported lately that Toshiba might not meet the statutory deadline of the end of June to submit its securities report. We still hope that Toshiba will continue devoting its utmost efforts to meet the statutory deadline for submitting the securities report with an audit opinion while improving its internal management system. However, Westinghouse filed for Chapter 11, and various issues remain uncertain. A number of reports have indicated that proposals have emerged and been shut down in reference to whether Toshiba would sell its memory division to eliminate its excess liabilities. The investigation to determine whether the designation as a Security on Alert is to be cancelled or whether the stock will be delisted

continues based on the second written confirmation of internal management system submitted by Toshiba on March 15. Many events have unfolded after the submission of the written confirmation. To determine whether or not Toshiba’s stock as of now should remain listed, facts that arose after the submission should be included in the investigation. As such, it will be quite difficult to make a unilateral decision without the securities report. Still, this case is being examined by JPX-R. I am not in a position to give directions, but surmising from an objective standpoint, the aforementioned situations seem to make it hard to just draw a conclusion. In addition, we can see whether the company has learned to have good communication with its audit firm by looking at how the company submits its securities report. In this respect, we have to keep our eyes on the developments.

Q: The government announced Investments for the Future Strategy 2017, which includes a system to disclose information on soudanyaku/komon (advisors/consultants). The strategy says that this system will be established by TSE. I would like to know what TSE will do, including the timeline, if any. There are also some views that the positions of advisors/consultants should be abolished. Could you also tell us when or how you think advisors/consultants exert their roles from your own knowledge and experience?

A: There are various opinions about advisors/consultants. While some media outlets critically report that advisors/consultants are unfairly remunerated too highly considering their roles, companies that employ them may say that advisers/consultants are substantially contributing to their organizations. I personally agree that it is not necessarily desirable for those who were executives, or have experience in top management, in particular, to cast an influence on corporate management after handing over their responsibilities to successors. Meanwhile, some large companies have a broad range of external contacts. For instance, they contact trade associations such as

Keidanren (Japan Business Federation) or Keizai Doyukai (Japan Association of Corporate Executives), or associations according to the type of business such as bankers associations, or Japan Securities Dealers Association (JSDA). Advisors/consultants can play their part in such associations. I, myself, have been involved with Keidanren and Keizai Doyukai. From my experience, I understand that some people say they need advisors/consultants, because those who have no influential connection with no such title may have little influence on associations even though they are members of those associations. As such, I do not think we should create a rule to abolish the system of advisors/consultants without exception. Each company has different circumstances. Thus, some of them may say they need such a system. This is not a "comply-or-explain" approach, but I think it is important to leave the advisor/consultant system for companies that have already employed the system and to have them explain why they need it. I think rules in this area should be designed. Job descriptions and working conditions of advisors/consultants should be disclosed to a certain extent. Thus, if such disclosure allows advisors/consultants to work with confidence, then, the system will not have any problems. It is important that companies take this opportunity to thoroughly review the system.

Q: Trading in shares of Takata Corp was suspended. Did the company inform you of what the media reported?

A: We knew what had been going on to date but had no information about the fact that the company was trying to restore its finances by filing for bankruptcy protection as the media reported. TSE has suspended trading of the stock since said media reports. The company has yet to disclose the matter, but we requested Takata to provide information based on today's media reports. I believe the company is trying hard to handle the matter, but it has yet to provide facts to us. We will improve communication with Takata while closely looking at the matter.

Q: At today's AGM, a question was raised on whether TSE gives special consideration, in terms of criteria for determining whether or not a stock remains listed, to large companies like Toshiba or whether the criteria is being tweaked, since we have not seen delisting of large companies lately. What are your views on this?

A: First, with respect to whether TSE gives special consideration to large companies, it does not do such a thing at all. There is no doubt about that. As you know, JPX-R, as prescribed in the Financial Instruments and Exchange Act, is independent from JPX. In terms of listing examination and listed company compliance, it is a completely separate organization from profit-oriented JPX. JPX-R does not directly consider any opinions from anyone at JPX, including myself, or from outside, political, or business/economic factions. Thus, I have to clarify that there is no special consideration whatsoever. The second point is that there are not many cases of delisting large companies, which is unusual. When scandals occurred in the past, there were only two options, maintaining listing or delisting. TSE reviewed the system to solve the problem. Since Securities on Alert, a system to provide listed companies with opportunities for improvement by giving a grace period for delisting, has been used, you may have the impression that the number of delisted companies decreased. Naturally, some companies were delisted since there were no sufficient improvements in their internal management systems. In this respect, we have not given special consideration to large companies just because of their size. We also do not treat small businesses coldly. JPX-R makes level-headed decisions about whether or not to delist a specific stock.

Q: The media reported that Takata was preparing to file for bankruptcy protection, and its trading was suspended all day. After one day since the massive media coverage, the company still did not disclose information. The company does not know its responsibility as a listed

company. Could you share your comments on this?

A: To respond to the media report before today's morning session opened, TSE decided to suspend trading of Takata stock until the company discloses the facts. We believe Takata was preparing for disclosure today, but information was not released. As a result, its trading was suspended the whole day. We are continuing to request that the company disclose the facts.

Q: As overseas sales subsidiaries of Fuji Xerox, a subsidiary of FUJIFILM Holdings, conducted inappropriate accounting, FUJIFILM Holdings will correct its past securities reports. Looking at a report from the third party committee, I got the impression that its inappropriate accounting mechanism is very similar to that of Toshiba and that the governance of FUJIFILM Holdings did not work to control its subsidiary, Fuji Xerox. Is there any chance the stock of FUJIFILM Holdings will be designated as a Security on Alert due to its inappropriate accounting?

A: The third party committee has just expressed its view on FUJIFILM Holdings. I feel that the committee has worked well considering that some of the views it expressed were harsh views. For instance, they said the company was sales-centric and tended to conceal unfavorable facts. You pointed out that its inappropriate accounting mechanism looked similar to that of Toshiba. If I have to point out the main differences, inappropriate accounting was conducted by Toshiba, the head of the group; whereas, it was done by sub-subsidiaries of FUJIFILM Holdings, which affected the financial statements of FUJIFILM Holdings. Thus, there are a few differences in their mechanisms, but there is no difference in the fact that financial statements of those listed companies were affected by inappropriate accounting practices. JPX-R will interview FUJIFILM Holdings and take action while considering the impact on results of each term.

Q: It seems that it will be difficult for Toshiba to submit its securities report by the end of June. Under the current rules, if TSE confirms that

a company settling accounts for the business year in March has liabilities in excess of assets in its securities report submitted by the end of June, the stock is reassigned to the 2nd Section on August 1. If Toshiba is unable to submit the report by the end of June, how will you respond?

A: Reassignment to the 2nd Section is a mechanism for transferring stock of a company from the 1st to the 2nd Section on the first day of August after TSE has determined that the company in question has liabilities in excess of assets upon inspection of the company’s consolidated balance sheet in the securities report submitted by the statutory deadline, which is the end of June. Whereas Toshiba announced its total liabilities in excess of assets, approximately JPY 540 billion, a large loss, at the end of March, it is not known whether Toshiba will be able to submit its securities report by the statutory deadline. The company is trying to sell its memory business to eliminate the loss. Toshiba is executing business operations based on the released figures. One possibility is for JPX-R to reflect these situations and determine Toshiba's liabilities in excess of assets to reassign the stock to the 2nd Section on August 1. With such possibility in mind, we will explore the likelihood of transferring the stock to the 2nd Section in the future. Leaving the stock on the 1st Section may have a negative impact on the capital market. We will consider which should take priority.

Q: It was my impression that roughly four shareholders raised the issue of Toshiba at your AGM today. Among them, there were three in particular who seemed to be asserting that TSE's response to Toshiba has been far too lenient. For the past two years, we have been covering the system of Securities on Alert that you have just outlined. As such, all of those who attend the AGM probably certainly have knowledge of the system. Why do you think there are many who still think TSE is taking a lenient attitude toward Toshiba?

A: There were such opinions at the AGM. Whereas JPX-R is under the umbrella of JPX, which is indeed a listed company, JPX-R itself is actually an independent organization. We feel that, due to a lack of proper understanding of how JPX-R works, some shareholders believe that it is up to JPX or TSE to make all decisions; and, according to said logic, they wonder why JPX or TSE is not responding more harshly. The only way to clear up the misunderstanding is to provide to our shareholders and interested parties a clear explanation on how JPX-R works. Also, I think they understood at today's AGM that for large companies that have been running their businesses as TSE 1st Section listed companies, full investigation and examination are required to make a conclusion about whether to maintain listing or delisting and that it is not that easy to draw a conclusion. We will continue making every effort to have our shareholders and interested parties gain a better understanding of our organizational structure and related duties.

Q: I would like you to corroborate something about the question of advisers/consultants you were just asked. Do you think companies have to bear some burden to carry out activities in business circles or industrial associations? And, in that sense, do you think companies need people with titles, such as advisers/consultants to be allocated or employed to send them for business activities?

A: Let me give you the example of Keidanren. It is an economic organization where companies participate and people who represent their companies are sent. Those who work as officers or committee members for Keidanren are company representatives, and the companies they belong to pay substantial fees. These people carry out activities through Keidanren for industries or economic communities. As such, it is obviously difficult for those who are not within such companies to become involved with Keidanren and conduct their activities. In this respect, there is some necessity for advisers/consultants. Thus, it does not necessarily mean that that the system of

advisers/consultants is unnecessary or bad. Rather, companies should openly explain why they need them.

Q: The Toshiba case undermined confidence in governance of Japanese companies. Since the Fujifilm case was revealed, people are more inclined to think that there are more Japanese companies like Toshiba or Fujifilm. TSE has designated the Toshiba stock as a Security on Alert for almost two years, which is regarded as lenient. As the problem of Fujifilm has arisen, could you give us your views on the credibility of the entire market being lost? Under such circumstances, how are you going to regain your credibility?

A: The issue of misconduct of such an enormous company, Toshiba, has continued for almost two years. Moreover, the problem of Fujifilm arose. Both of their overseas subsidiaries have presented large problems. With its shrinking and aging population, Japanese companies have to expand outside the country to maintain growing momentum and compete in the global marketplace. The cases of Toshiba and Fujifilm are examples of companies that suffered heavy losses attributable to their overseas subsidiaries under such circumstances. I am sure that other corporate managers will apply to their management what they have learned from these cases. As such, when they consider mergers and acquisitions in the future, they will draw a conclusion after weighing such aspects, including due diligence. In this respect, cases where M&A itself has fatal flaws will gradually decrease in number or disappear, although there will also be some cases where M&A did not work as expected, which may lead to losses. For the next point about views that confidence for the capital market in Japan or Japanese listed companies may be damaged, we are also concerned about it. However, since the launch of Japan’s Corporate Governance Code and the Stewardship Code, the stance of Japanese companies toward corporate governance has been changing significantly. There are some cases where past failures came up to the surface. I do expect, however, for companies that do not have such problems to avoid failure and improve their management further

through dialogue with investors. Quality of listed companies will be enhanced to a greater extent and confidence in Japanese listed companies should be restored through a combination of Japan’s Corporate Governance Code and the Stewardship Code. There is no easy solution without these.

Q: The sale of Toshiba Memory is closely linked to avoiding insolvency. If Toshiba is unable to avoid insolvency by the end of March 2018 but able to do so by, say, 10 to 15 days later, then is there any chance TSE will overlook the delay?

A: It is very hard to answer to such a hypothetical question on whether TSE would overlook a delay if Toshiba were to not meet the deadline at the end of March 2018. The short answer is that TSE would not permit such delay. You can assume that if Toshiba is unable to eliminate its liabilities in excess of assets by the end of its business year, delisting the stock will be unavoidable.

Q: If Toshiba delays submission of its securities report at the end of March 2018, and the deal is completed in May, then will Toshiba’s stock still be delisted?

A: As I answered to the question about reassignment, in order to reassign the stock to the 2nd Section, if there is any way to reasonably determine Toshiba's liabilities in excess of assets without its securities report, then, JPX-R might also be able to determine its liabilities in excess of assets. Thus, even if the company delays submission of its securities report next year, if there is a way to reasonably determine that the company will continue to be insolvent, then our assumption that we should determine so will be reasonable. That being said, it is not appropriate for me to guess or give suggestions for facts that may arise nine months from now. My comments are all based on my own suppositions.

Q: It has been a while since it was disclosed that Takata had nearly JPY 1 trillion of undetermined debt. Naturally, the company was unable to

easily consider filing for bankruptcy protection, but its shares had continued to significantly fluctuate. To take a harsh view, I think this was very bad for investors. Could you give us your comments on this?

A: Filing for bankruptcy protection is reportedly one of the options Takata is considering, but I have no information about it. If you are suggesting that having its stock remain listed in and of itself is a mistake, then I would like to suggest you reconsider the facts. Numerous related parties, including the car companies that sold vehicles with Takata airbags worldwide, have undertaken great efforts to show their support of the company. Thus, there are no grounds for TSE to consider delisting the stock without having all the facts at hand.

Q: There is a lot of confusion surrounding the situation with Toshiba. Toshiba may not be able to sell its memory business by the end of March next year. More than that, the company may also delay the submission of its securities report. Thus, the company might be delisted due to its liabilities in excess of assets without completing an examination based on its securities report by the end of March 2018. If that happens, some may argue whether letting the stock be delisted without determining anything is a right course of action for TSE as a guardian of the market. March 2018 is an important date. Do you think TSE must determine whether Toshiba stock should remain listed or be delisted based on the results of the examination by then?

A: It would be hard to assume if we continue to talk hypothetically. As such, I can only answer to your question to the extent I know now. It took more than three months to examine the first written confirmation of internal management system submitted on September 15 last year and to conclude that the stock of the company should remain designated as a Security on Alert on December 19, even though no bad news came up during the period. The next written confirmation was submitted on March 15, 2017. It has been under examination just over three months. As I said earlier, many other factors occurred during the period including the third quarterly report, Westinghouse's

massive loss, filing for Chapter 11, its liabilities in excess of assets, and sale of Toshiba Memory, as well as Western Digital's lawsuit. It took more than three months to examine improvements of such a large company even though nothing unusual occurred during the period. This year, however, various events have unfolded. JPX-R has to check all of them. As such, please understand that it will take quite a long time to examine even after the securities report is submitted.

Q: In response to a question about Toshiba, you mentioned that you needed to consider the impact if the stock remains on the 1st Section. What negative impact do you feel that would have?

A: There would be all kinds of consequences. For instance, funds linked to TOPIX, including investment trusts or those incorporating passive investment strategies, are composed of stocks on the 1st Section, including Toshiba stock. Normally, if the stock of a certain company is not listed on the 1st Section and the company has liabilities in excess of assets coupled with corporate disarray, institutional investors would be compelled to remove the stock from its constituents as per their own investment rationale. Those same institutional investors, however, would still end up keeping the stock as a constituent as long as the stock remains on the 1st Section. Now, if the stock is actually unfit for the 1st Section, one viable option would be to remove said stock from the 1st Section; and, what determines a stock as unfit for the 1st Section and due to reassignment to the 2nd section under TSE rules is the liabilities in excess of assets clause. When Toshiba admitted its liabilities in excess of assets, the company essentially acknowledged that its stock was unfit for the 1st Section. As such, transferring the stock to the appropriate section is in the best interest of investors and market participants. As I said before, however, the decision has yet to be made. JPX-R is carefully considering the situation, including what I have just said, to determine whether the stock is to be reassigned to the 2nd Section.