Tokyo Stock Exchange (TSE)
The Tokyo Stock Exchange (TSE), also known as Tosho, is a Tokyo, Japan-based stock exchange. TSE is the world’s third largest stock exchange in terms of the total market capitalization of its listed companies. At the end of December 31, 2011, a total of 2,292 companies with a total market capitalization of US$3.3 trillion were listed on the TSE.
Structure
The TSE has been incorporated as kabushiki gaisha, a type of business corporation defined under Japanese law. The exchange has nine directors, four auditors and eight executive officers. The exchange is headquartered at 2-1 Nihonbashi-kabutocho, Chuo, Tokyo. It operates from 9 AM to 11.30 AM and from 12.30 PM to 3 PM.
Companies listed on the TSE are divided into three sections called the First Section, the Second Section and the Mothers. The First Section includes large companies, the Second Section includes mid-sized companies, and the Mothers include high-growth startups.
Nikkei 225 Index, the TOPIX and the J30 index of large industrial companies are the three main indices tracking the Tokyo Stock Exchange. Of the three, the Nikkei 225 Index is the most widely quoted index. Companies in the Nikkei 225 Index have been selected by the Nihon Keizai Shimbum, which is the largest newspaper in Japan. The TOPIX Index is based on the share price of companies in the First Section of the TSE.
A total of 104 securities companies, including 10 foreign securities companies, participate in trading on the Tokyo Stock Exchange.
The Tokyo Stock Exchange’s press club, known as the Kabuto Club, meets on the third floor of the exchange building. Members of the club are associated with the Nihon Keizai Shimbun, Kyodo News, Jiji Press, and business television broadcasters like Bloomberg LP and CNBC.
Back in June 2007, the TSE bought a 3.99% stake in Singapore Exchange Ltd. for a total of $303 million.
History
Prewar History
The Tokyo Stock Exchange was set up on May 15, 1878. The exchange was established as the Tokyo Kabushiki Torihikijo under the guidance of Okuma Shigenobu, who was the Finance Minister at the time, and Shibusawa Eiichi, an advocate of the capitalist system. Trading commenced on the exchange on June 1, 1878.
The exchange was merged with 10 other stock exchanges in major Japanese cities to create a single exchange in 1943. The single exchange was called the Japanese Stock Exchange (Nippon Shoken Torihikisho). The exchange was closed and reorganized soon after the bombing of Nagasaki.
Postwar History
The Tokyo Stock Exchange was reopened on May 16, 1949 under its existing Japanese name.
The Japanese economy grew at a brisk pace in the 70s and this growth was reflected in the exchange. Between 1983 and 1990, the TSE’s run was unprecedented. The TSE alone accounted for more than 60% of the global stock market capitalization. However, the bubble burst soon after that. Still, the TSE remains one of the world’s largest exchanges in terms of market capitalization.
On April 30, 1999, the trading floor of the TSE was shut down as the exchange made a switch to electronic trading for all transactions. On May 9, 2000, the TSE Arrows was launched. The TSE introduced the Arrowhead trading facility in 2010.
The TSE is now a stock company. The exchange restructured itself in 2001. Prior to the restructuring, the exchange was an incorporated association, with members as shareholders.
Technology Issues
On November 1, 2005, the TSE’s newly installed transaction system was affected by bugs, causing disruption in trading activity. The exchange was able to operate only for 90 minutes on that day. The new transactions system was developed by Fujitsu to cope with higher trading volumes. The trading disruption was the worst in the history of TSE, with trading activity being suspended for four-and-a-half hours.
In December 2001, during Dentsu’s IPO, a UBS Warburg trader wanted to sell 1 share of the company at ¥610,000. However, the trader erroneously sent an order to sell 610,000 shares at ¥1 each, resulting in the Swiss investment bank losing £7.1 million.
A similar incident happened during the IPO of J-Com on December 8, 2005. A Mizuho Securities Co. Ltd. employee incorrectly typed an order to sell 600,000 shares at ¥1 each, instead of an order to sell 1 share at ¥600,000. Mizuho did not spot the mistake. The TSE, however, initially blocked attempts to cancel the erroneous order. The transaction resulted in a loss of $347 million, which was shared by TSE and Mizuho. The TSE did admit that its system was at fault in the Mizuho transaction. The fiasco led to the resignation of TSE CEO Takuo Tsurushima and two other senior executives on December 21, 2005.
On January 17, 2006, the widely followed Nikkei 225 Index tumbled 2.8%, its biggest drop in nine months. The sell-off was sparked by a raid on internet company livedoor. The following day, the TSE was forced to close early as the trade volume was threatening to exceed TSE’s computer system’s capacity. The incident is known as the “livedoor shock.” Following this incident, the exchange decided to raise its daily order capacity to five million trades from 4.5 million trades.
Hours
The regular trading hours on the TSE are from 9 AM to 11.30 AM and from 12.30 PM to 3 PM on weekdays. The exchange is closed on Saturdays, Sundays and on holidays declared by it in advance, which include the New Year’s Day, Coming of Age Day, National Foundation Day, Vernal Equinox Day, Showa Day, Constitution Memorial Day, Greenery Day, Children’s Day, Marine Day, Respect for the Aged Day, Autumnal Equinox, Health and Sports Day, Culture Day, Labor Thanksgiving Day and The Emperor’s Birthday.
Increasing Competition
With increasing competition among exchanges, the Tokyo Stock Exchange has been seeking an alliance with other exchanges. The TSE and the London Stock Exchange are currently developing jointly traded products and share technology. The alliance is the latest in the number of cross-border deals among exchanges.
The TSE has been also looking for partners in Asia. In particular, the exchange is looking to form an alliance with the Singapore Exchange (SGX). Singapore is one of the biggest financial centers in the Asia-Pacific region.
Recently, there were also rumors that the TSE is preparing to acquire SGX or take a significant stake in the exchange. The TSE has already acquired a 5% stake in SGX. TSE bought the stake in June 2007. The purchase was seen as only the beginning of a greater participation in the future.
Back in July 2008, the TSE and the London Stock Exchange announced a new joint venture.