New stock exchange to launch in Tokyo

The Japan Exchange Group, owner of the Tokyo Stock Exchange (TSE), has revealed plans to launch a new exchange to rival TSE’s own Topix and the Nikkei 225.

In a rare joining of competing forces, Japan Exchange Group is in talks with Nikkei to build the as-yet unnamed index, reports the Financial Times. The new exchange – reportedly due to be launched by the end of this year – is set to focus on Japanese firms with a ‘relatively high return on equity (ROE) and high standards of corporate governance,’ according to the FT.

Moriyuki Iwanaga, Japan Exchange Group’s CFO, told the paper the 1,759-strong, market capitalization-weighted Topix is too broad, while price-weighted Nikkei is too narrow – and both contain too many subpar performers. ‘This time we’d like to find a way to lift the overall market,’ he said. ‘It is not just about passive price calculation, but also encouraging an active attitude toward good corporate governance.’

Iwanaga explained that a ‘scorecard’ system would be used to assess which firms are suitable for the new index, weighted most strongly toward ROE, though other measures would also be included.

The FT says a net $97 bn has been poured into the Japanese market by foreign investors – ‘more than five times [the investment in] the rest of Asia combined’ – and Japan is keen to ensure the investment continues.

‘To make the Tokyo market more attractive, we need to show where the capital provided by shareholders is being used efficiently,’ Shigeki Hoshino, head of the index business office at Nikkei, told the paper.