© 2012 Tokyo Stock Exchange, Inc. All Rights Reserved. Corporate Governance Forum May 9 th, 2012 New Listings Dept. Tokyo Stock Exchange, Inc

© 2012 Tokyo Stock Exchange, Inc. All Rights Reserved.

Corporate Governance Forum

May 9th, 2012

New Listings Dept.

Tokyo Stock Exchange, Inc.


2

Contents

Section 1 What is Corporate Governance? 2

Section 2 Legal Structure in Japan 8

Section 3 Listing Examination 13

Section 4 Introduction of Tokyo Stock Exchange 17


Section 1

What is Corporate Governance?


4

What is Corporate Governance?


5

Basic Idea Managerial goal of stock companies is “maximization

of profit (enterprise value) for stakeholders”

Who are “Stakeholders”? Shareholders, Creditors, Employees, Government,

Customers, Suppliers, Local communities and others who have an interest (stake) in the company.


6

Before 1990s

Era characterized by military demand, postwar reconstruction and high economic growth

Economic growth

Main-bank system

EconomicGrowth

Enterprises

Banks

Capital Market

Fu

nd

s

Company unions

Lifetime employment & Seniority wage system

Human resources

Controlled capital markets


7

After 1990s

Enterprise Value Improvement

Company unions

Mobility of human resources& Meritocratic wage system

Human resources

Enterprises

Monitoring system

Banks

Capital Market

Fu

nd

s

Deregulation of capital markets

For

eig

n

cap

ital

Pro

mot

e sh

ift

from

sa

vin

gs t

o in

vest

men

t

Declining Birth Rate and Aging Population Mature economy


8

What is required of management?

Relationship between corporate management and capital markets

Enterprise

Strategy structuring

Infrastructure development

Business performance

Funding

CapitalMarkets

Information disclosure

Corporate governance

Accountability toward the market

Utilization of capital market and profit return

Discipline in capital markets

<Fund manager>

<Fund raising venue>


Section 2

Legal Structure in Japan


10


No. of stock companies:

about 920,000

No. of listed companies:3,592 companies

Companies Act

Financial Instruments and Exchange Act

Tokyo Stock Exchange’s Rules

Companies conductingpublic offering

Definition of company structure (companies with committees, companies with board of company’s auditors, companies with company’s auditors etc.)

Designation of Independent Directors/Auditors

Disclosure of annual report, audit by certified public accountants etc.


11

Authorities

Companies Act

Financial Instruments and Exchange Act

Listing Regulations Enforcement Rules for Listing

Regulations Guidelines Concerning Listing

Examination, etc. Guidelines Concerning Listed

Company Compliance, etc.

Ministry of Justice

Financial Services Agency Tokyo Stock Exchange


12


Companies Act Fundamental framework of stock companies Structure of stock companies (general shareholders meetings, board of directors,

board of auditors, etc. ）

Financial Instruments and Exchange Act Rules for public companies in terms of investor protection

Disclosure of corporate information Registration Continuous Disclosure

Rules of Tokyo Stock Exchange as a self-regulatory body Listing examination, Listed company compliance Timely disclosure Code of Corporate Conduct


13

Efforts by TSE to improve Corporate Governance

2004 Principles of Corporate Governance

2006Introduction of Report on Corporate Governance To make it easier for investors to compare the corporate governance systems

of listed companies.

2007 Introduction of Code of Corporate Conduct

2007, 2009, and 2011

TSE Listed Companies White Paper on Corporate Governance Analysis of corporate governance systems implemented by listed companies.

Aug 2009Review of Listing Rules to address issues including third-party allotments with large dilution

Dec 2009 Review of Listing Rules for securing Independent Director(s)/Auditor(s)


Section 3

Listing Examination


15

Main Listing Criteria (Single Listing)1st section 2nd section Mothers

Number of shareholders 2,200 or more 800 or more 300 or more

Number of tradable shares 20,000 units or more 4,000 units or more 2,000 units or more

Market capitalization of tradable shares

JPY 1 billion or more JPY 500 million or more

Ratio of tradable shares to listed shares

35% or more 30% or more 25% or more

Market capitalization of listed shares JPY 25 billion or more JPY 2 billion or more JPY 1 billion

* Public offering: 500 trading units or more

Number of years of business operation No less than 3 years under a board of directors At least 1 year under a board of directors

Shareholders‘ equityJPY 1 billion or more as of the end of the fiscal year immediately preceding the current fiscal year

None

Pre-tax profit or total market capitalization

[Profit during the last 2 fiscal years]

Total amount of JPY500 mil. or more in the last 2 fiscal years

[Exemption for companies whose profit is less than JPY 500 million during the last 2 fiscal years]

Market cap.: Minimum JPY 50 billionSales: Minimum JPY 10 billion

None

False statements or unfair representations

Unqualified opinion and no false statements for the last 2 fiscal years

Unqualified opinion for the latest fiscal year

2 fiscal years (Unqualified opinion and no false statements. Audit opinions must be “unqualified” for the latest fiscal year.)


16

Main Listing Criteria (Multiple Listing)

1st section 2nd section Mothers

Number of shareholders 2,200 or more 800 or more 300 or more

Number of tradable shares 20,000 units or more 4,000 units or more 2,000 units or more

Market capitalization of listed shares JPY 25 billion or more JPY 2 billion or more JPY 1 billion

* Public offering: 500 trading units or more

Number of years of business operation No less than 3 years under a board of directors At least 1 year under a board of directors

Shareholders‘ equityJPY 1 billion or more as of the end of the fiscal year immediately preceding the current fiscal year

None

Pre-tax profit or total market capitalization

[Profit during the last 2 fiscal years]

Total amount of JPY 500 mil. or more in the last 2 fiscal years

[Exemption for companies whose profit is less than JPY 500 million during the last 2 fiscal years]

Market cap.: Minimum JPY 50 billion Sales: Minimum JPY 10 billion

None

False statements or unfair representations

Unqualified opinion and no false statements for the last 2 fiscal years

Unqualified opinion for the latest fiscal year

2 fiscal years (Unqualified opinions and no false statements. Audit opinions must be “unqualified” for the latest fiscal year.)


17

Overview of Listing Examination for Main Board

Corporate Continuity and Profitability

The applicant company must conduct its business continuously and have a stable profit base.

Soundness of Corporate Management

The applicant company must conduct its business in a fair and faithful manner.

Effectiveness of Corporate Governance of Enterprises and Internal Management System

The applicant company has developed appropriate systems for corporate governance and internal control.

Appropriateness of Disclosure of Corporate Information, etc.

The applicant company is capable of appropriately disclosing corporate information, etc.

Other Matters deemed necessary in light of Public Interest and Investor Protection

a) Shareholders’ rights and exercise of such rights are not unduly restricted.

b) Relationship with its parent company is deemed appropriate.

c) Other matters are deemed appropriate in light of public interest and investor protection.

TSE examines the following items regarding an initial listing applicant and its corporate group.

1

2

3

4

5


Section 4

Introduction of Tokyo Stock Exchange


19

Global Comparison of GDP and per capita GDP

0

10,000

20,000

30,000

40,000

50,000

60,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

GDP/

USD

人（

）

0

10,000

20,000

30,000

40,000

50,000

60,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

//

//0

10,000

20,000

30,000

40,000

50,000

60,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000GDP bn USD（）

Japan is a top global economy with world-class GDP and per capita GDP.

Source: World Bank, 2010Note: Circle size indicates relative GDP.

per

cap

ita

GD

P (

US

D)

GDP (USD bn.)

GDP: 5,459 billion USDper capita GDP: 42,831 USD


20

3,845 3,325 3,2662,447

11,796

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

NYSEEuronext (US)

NASDAQ OMX Tokyo SEGroup

London SEGroup

NYSEEuronext(Europe)

Source: WFE

Note: Domestic companies only

Ranked among world’s top 5 by market cap Ranked among Asia’s top 5 by market cap

Ranked among world’s top 5 by trading value Ranked among Asia’s top 5 by trading value

The world’s largest exchange outside the U.S.

Global Position of TSE

3,658

2,838

2,029

1,445

3,972

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Tokyo SEGroup

Shanghai SE Shenzhen SE KoreaExchange

Hong KongExchanges

12,724

3,972 3,658 2,838

18,027

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

NYSEEuronext (US)

NASDAQ OMX Tokyo SEGroup

Shanghai SE Shenzhen SE

(US$ bn, during Jan-Dec. 2011) (US$ bn, during Jan-Dec. 2011)

No.1in AsiaNo.3

in the world

2,357 2,258

1,198 1,055

3,325

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Tokyo SEGroup

Shanghai SE Hong KongExchanges

Australian SE Shenzhen SE

(US$ bn, as of Dec. 2011) (US$ bn, as of Dec. 2011)

No.1in AsiaNo.3

in the world


21

TSE Market Structure

TSE offers markets with different concepts to allow companies to make an optimal choice.

Available to both individual and professional investors Professional-oriented market Only available to

professional investors

TSE 1st Section

- Large-sized companies -

TSE 2nd Section

- Medium-sized companies - - Growth companies -

TOKYO PRO

Market

TOKYO PRO-

BOND Market


22

1922

37

0

10

20

30

40

50

60

70

2009 2010 2011 2012 2013

IPO社

数

実績予想

IPOs in JapanIPOs figures showed a significant increase to 37 in 2011 from 22 in 2010, confirming a full-fledged recovery in the Japanese IPO market. The number of IPOs is expected to increase from 2012 onward. TSE aims to attract more than 60 companies to market in FY2013.

Actual Estimated

No.

of

IPO

s


23

Recent IPO of 2 Korean Companies on TSENexon was listed in 14th Dec 2011, W Scope was listed in 16th Dec 2011 on TSE. Nexon was the largest IPO in 2011.

Name of Corporation

Nexon （ 3659 ）

Description of Business

Creation, development, and distribution of online gamesDungeon & Fighter, Maple Story, etc.

CEO Mr. Seung-woo Choi

Date of Incorporation 18th Dec 2002

Listing on TSE 14th Dec 2011

Market Section Tokyo Stock Exchange 1st Section

Name of Corporation

W Scope （ 6619 ）

Description of Business

Manufacture and sales operations for plastic film and sheets. *Image of separator is shown below.

CEO Won-Kun Choi

Date of Incorporation 14th October 2005

Listing on TSE 16th December 2011

Market Section Tokyo Stock Exchange Mothers

Transition of Financial Data Transition of Financial Data

40,219

51,572

69,781

87,613

12,019

22,35128,479

36,905

8,29017,659

21,63825,755

0

20,000

40,000

60,000

80,000

100,000

2008 2009 2010 2011

Rev

enue

s (in

Mill

ion

JPY)

0

10,000

20,000

30,000

40,000

50,000

Ord

inar

y in

com

e, N

et inc

ome

(in

Mill

ion

JPY)

Revenues Ordinary income Net income

1,244

1,686

3,382

61 124

1,232

3 255

1,205

0

1,000

2,000

3,000

4,000

2009 2010 2011

Am

ount

of

Sale

s(in

Mill

ion

JPY)

0

500

1,000

1,500

2,000

Am

ount

of

Sale

s, C

urre

ntPr

ofits

(in M

illio

n JP

Y)

Amount of Sales Current Profits Current Net Earnings


24

Reference

Disclosure (Timely Disclosure):

http://www.tse.or.jp/english/rules/td/index.html

Code of Corporate Conduct:

http://www.tse.or.jp/english/listing/code/index.html

Corporate Governance (Principles of Corporate Governance and TSE-Listed Companies White Paper of Corporate Governance):

http://www.tse.or.jp/english/listing/cg/index.html

Search for Corporate Governance Information (Report on Corporate Governance):

http://www.tse.or.jp/tseHpFront/HPCGDS0701E.do?method=init&callJorEFlg=1


This material was prepared solely for the purpose of providing information, and is not intended to solicit investment or recommend specific securities companies. Tokyo Stock Exchange, Inc. (TSE) shall bear no responsibility or liability for any damage or loss incurred due to the use of this material. While every effort is taken to ensure the accuracy of the information contained herein, TSE does not guarantee that it is free from errors or omissions. This material contains a brief explanation or description and does not cover all aspects of the subject matter. The content of this material is subject to change without prior notice. Information on past periods is based on actual performance, and does not forecast future results. All rights to this material belong to TSE. Reproduction or redistribution, etc. for any purpose, by any means whatsoever, whether electronic or mechanical, is strictly prohibited.

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© 2012 Tokyo Stock Exchange, Inc. All Rights Reserved. Corporate Governance Forum May 9 th, 2012 New Listings Dept. Tokyo Stock Exchange, Inc