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Japan Is Rethinking Almost Everything About Its Stock Benchmarks

Japan Is Rethinking Almost Everything About Its Stock Benchmarks

(Bloomberg) -- Japan is reviewing options to overhaul its stock benchmarks and exchanges and will consider ways to simplify them. This means one of its two startup gauges, or both, may go away.

Japan Exchange Group Inc. on Wednesday released a report on feedback from investors, corporations and brokerages on ways to revamp its four sections -- the first section, the second section, the Mothers and Jasdaq. The release confirmed media reports that the bourse is considering cutting the number of markets to three from four. It cited criticism from market participants who said there were too many sections on the Tokyo Stock Exchange.

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Much of the attention has been around how likely JPX is to adopt stricter rules to reduce the number of stocks trading on the first section, which currently has over 2,000 members, and how many of them should be included on the Topix. Another question is what the bourse is going to do with its two startup gauges, The Tokyo Stock Exchange Mothers Index and Jasdaq.

“There’s really no clear divide between the Mothers gauge and the Jasdaq,” said Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “It won’t be strange at all for them to be reorganized.”

JPX also acknowledged that it’s “difficult” to tell the difference between the second section, Mothers and Jasdaq markets.

One option may be to have three exchanges instead of four, leading to the shuttering of one gauge, a TSE official said at a media briefing Wednesday. Any changes to the indexes will have a big impact on the market, the official said.

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Mitsubishi UFJ Morgan Stanley’s Fujito says that even after a decision has been made, it will likely take two to three years to fully implement any changes considering the potential “shock” to markets.

The Topix index tumbled 1.7 percent Thursday, while the Tokyo Stock Exchange Mothers Index slipped 0.6 percent. The Jasdaq Index fell 0.7 percent.

“I agree with the point that keeping the market structure as is, isn’t good enough in serving its purpose as an exchange,” JPX chief executive Akira Kiyota said in a regular briefing Thursday. He said there is no fixed schedule as to how long the entire process will take. “I can’t say for sure that it will be completed in three years.”

--With assistance from Ayaka Maki and Shingo Kawamoto.

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net;Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda

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