Tokyo Stock Exchange Annual Report 1998 Year Ended March 31, 1998 Profile or almost 120 years, the Tokyo Stock Exchange (TSE) has Fbeen recognized and functioned as Japan’s central stock market. Since its reestablishment in 1949, the TSE has responded positively to trading demands from both overseas and domestic investors, operating both cash and derivatives markets. Now, at the drawn of a new era in which the legal and system- atic framework created by the recent market reforms is taking shape, the TSE is endeavoring to construct and operate a highly efficient and competitive market that will allow it to play a major role in the economic life of Japan, Asia and the world. 3000 2500 2000 1500 CONTENTS Statistical Highlights.....................................3 1000 Message from the President..........................5 TSE Market System.......................................6 Special Feature............................................12 500 Financial Statements...................................14 Board of Governors and Auditors ..............17 List of Members and Special Participants ...20 1970 7172 73 74 75 Statistical Highlights At December 31 1997 1996 1995 (STOCK MARKET) Listed Companies : Domestic .................................................. 1,805 1,766 1,714 : Foreign ..................................................... 60 67 77 Newly Listed Companies : Domestic .................................................. 50 59 32 : Foreign ..................................................... 1 20 Market Value (¥ billions) : Domestic .................................................. 280,930 347,578 365,716 Trading Value (¥ billions) : Domestic .................................................. 108,500 101,892 83,563 : Foreign ..................................................... 168 167 97 Trading Volume (millions shs.) : Domestic .................................................. 107,566 100,170 92,033 : Foreign ..................................................... 62 63 39 (BOND MARKET) Listed Issues ..................................................... 1,134 1,326 1,327 Market Value (¥ billions) .................................. 235,993 222,929 206,445 Trading Value (¥ billions) ................................. 16,815 19,638 20,507 Trading Volume (¥ billions) .............................. 16,148 18,881 20,227 *Market Value, Trading Value and Trading Volume exclude foreign currency – denominated bonds and foreign convertible bonds. (DERIVATIVES MARKET) Trading Volume (Contracts) : 5-Year JGB Futures ................................... 118,447 261,172 – : 10-Year JGB Futures ................................. 11,873,549 12,450,925 14,010,374 : 20-Year JGB Futures ................................. 2,167 2,242 2,734 : U.S. T-Bond Futures ................................ 30,650 31,030 102,340 : TOPIX Futures ......................................... 3,035,724 2,857,272 2,745,614 : TOPIX Options ........................................ 9,356 13,444 16,742 : Equity Options ......................................... 70,896 –– : Options on JGB Futures ........................... 2,002,357 1,975,274 2,017,031 TOPIX (Tokyo Stock Price Index) Jan. 4, 1968=100 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 Message from the President he securities markets are cur- rently experiencing radical Trestructuring under the ongoing Big Bang, a sweeping financial reform package designed to liberalize Japan’s markets. As a part of policy measures to pro- mote competition through deregulation, legislation that lifts foreign exchange con- trols was put into effect in April, 1998, and the phasing out of fixed commission rates in the securities industry is currently underway. In addition, laws aimed at fun- damental reform of the existing Japanese financial system, which include amend- ments to the Securities and Exchange Law, are scheduled for implementation begin- ning in December 1998. Market partici- pants, regulators and all other concerned parties are now striving to cooperate fully with the new legal framework to create reinvigorated money and capital markets that combine high efficiency with a stronger edge in international competition. For its part, the Tokyo Stock Exchange is proceeding with versatile reform policies, while at the same time striving to implement each measure as quickly as possible where feasible within the existing framework. Raising Efficiency and Strengthening the Functions of the Cash Market During the fiscal year of 1997, the TSE further improved the efficiency and con- venience of its cash market by introducing the off-hour trading system as a part of its measures to improve the existing trading system. Raising Efficiency and and more timely disclosure of corporate Strengthening the Functions of information in order to help ensure fair- the Derivatives Market ness and efficiency in the market. Improvement was also made in the deriv- atives market. The TSE introduced new Financial Situation products such as options on individual The 1997 fiscal year ended with a marked stocks and futures on TOPIX sector improvement in the TSE’s financial condi- indices for electric appliances, transporta- tion. Thanks to a larger than expected tion equipment and banks. In addition, equity trade value and continued atten- the TSE developed and started to make tion to controlling costs, the TSE recorded public new size-based stock price indices, its fifth consecutive budget surplus, which on which futures trading is expected to be enabled it to completely write off its launched in the future. retained deficit. As a stock exchange operating both The Tokyo Stock Exchange cash and derivatives markets under the same roof, the TSE has responded ade- is proceeding with quately to the needs of the world’s investors. Furthermore, backed by a reser- versatile reform policies voir of individual household financial assets amounting to 1,200 trillion Improving Investment Japanese yen, the TSE has been acting as a Attractiveness major conduit for the supply of capital In its drive to increase the attractiveness both to domestic and overseas companies. of stock investment, the TSE continued to Now, in a changing environment in promote the listing of small- and which both the legal and systematic medium- sized companies which exhibit frameworks are being restructured by the high growth potential, and encouraged Big Bang, the TSE is making its utmost the listing of overseas companies, espe- effort to provide a fair, transparent, and cially those based in Asia, by further vigorous market with higher efficiency relaxing its listing eligibility criteria for and a stronger competitive edge, which non-Japanese companies. can function as a central marketplace not only in Japan and Asia, but also in the rest Securing Market Reliability of the world. In the interest of achieving more effective enforcement of discipline among its mem- bers and maintaining investors’ confi- dence in the market, the TSE raised the maximum amount of its fine. It also kept urging listed companies to provide fuller Mitsuhide Yamaguchi President and Chief Executive Officer TSE Market System Efficient and ith a specially drawn up action pro- members is possible. ToSTNeT-2 provides Competitive gram, the Tokyo Stock Exchange is investors, including individuals, with the Cash Market proceeding with versatile reforms to means of executing their orders at the TSE’s Wconstruct an efficient and internationally closing prices. ToSTNeT-1 and 2 started in competitive market. June and August 1998 respectively. Orders of listed domestic stocks and • Off-Hour Trading convertible bonds in amounts above certain In particular, the introduction of the Off-Hour minimum quantities are eligible for block Trading System in November 1997 is an trading. Basket trading is applicable to the epoch-making step to facilitate growing trans- trading of domestic stocks in batches of at action activities by institutional investors. Off- least 15 issues and with a minimum total hour trading enables immediate and trading value of ¥100 million. one-lump execution of block trading and basket trading which the conventional auc- • Expansion of Computer-Assisted tion system is not always able to ensure. Trading Transformation of the trading method • ToSTNeT makes the TSE a more cost-competitive Furthermore, the launching of the Tokyo market place. With the introduction of a Stock Exchange Trading Network System fully-computerized trading system for con- (ToSTNeT) which computerizes the entire vertible bonds, the bond trading floor was process of off-hour trading from order input closed in February 1998. In March 1998, to execution will bring about significant the removal of the maximum size limit on improvements to the Off-Hour Trading orders for stock trading to be input through System. the members’ on-line terminals for the Floor Through ToSTNeT-1, which is a Order Routing and Execution System system for block and basket trading, screen- (FORES) eliminated the members’ obliga- based negotiation for block trading between tion to use the stock trading floor facility. Strengthening he TSE operates futures and • Launching the TOPIX Sector Index the Function of options markets as well as cash mar- Futures Trading Derivatives Market kets under one roof. Since the incep- For the purpose of facilitating more precise Ttion of 10-year Japanese Government Bond investment and risk hedge strategies, futures (JGB) Futures Trading in 1985, we have trading on three TOPIX sub-indices based been devoting our