"To Revitalize Korean Stock Market, Japan's Example Must Be Referenced... Key Issues Include Improving Listing Requirements"

Hankyung Association Announces 'Japan Stock Market Restructuring Strategy and Implications'

A claim has been made that Japan's stock market restructuring strategy should be referenced to improve the structure of the Korean stock market.

The Korea Economic Association (HanKyungHyup) stated this on the 4th through a report titled "Japan Stock Market Restructuring Strategy and Implications," commissioned to Dr. Kim Su-yeon of the law firm Gwangjang.

Japan's exchange restructuring began in January 2013 as part of the Abenomics reforms, merging the Tokyo Stock Exchange and the Osaka Securities Exchange to launch the "Japan Exchange Group (JPX)." Five markets, including the "First Section, Second Section, Mothers Market" affiliated with the Tokyo Stock Exchange and the "JASDAQ Standard and Growth Markets" belonging to the Osaka Securities Exchange, were integrated into the Tokyo Stock Exchange.

The first restructuring physically integrated the markets regardless of the characteristics or actual conditions of the companies, causing confusion. In particular, the First Section market was criticized for mixing companies with a market capitalization of over 1 trillion yen (approximately 93 trillion won) with those around 1 billion yen (93.2 billion won), rendering the market distinctions meaningless.

As of the end of April 2019, among the 3,634 companies listed on the Tokyo Stock Exchange, 2,141 companies, accounting for 58.9%, were listed on the First Section market. The report pointed out that this indicates the First Section market had low listing barriers and lax delisting criteria, allowing many companies unsuitable for the "top-tier market" to enter.

Subsequently, in April 2022, the Tokyo Stock Exchange conducted a second restructuring, considering the characteristics of listed companies, reducing the existing five markets to three: "Prime," "Standard," and "Growth." According to the report, the Prime market strengthened listing and maintenance criteria compared to before, aligning with its feature as the "top-tier market that values dialogue with global investors."

The Prime market requires a free-float market capitalization of at least 10 billion yen (932 million won) and a free-float ratio of 35% or more as conditions for maintaining listing. For new listings, from the perspective of solid earnings base, it added criteria requiring a total profit of 2.5 billion yen (233 million won) over the past two years, sales of 10 billion yen (932 million won), and a market capitalization of at least 100 billion yen (9.3196 trillion won).

The Standard market is defined as a domestic market for companies with sufficient liquidity and governance levels to be investment targets, while the Growth market targets startup companies with high growth potential. These markets also set appropriate listing and maintenance criteria to achieve their respective goals.

In January last year, the Tokyo Stock Exchange announced it would end the exceptional allowance for companies failing to meet listing maintenance requirements. If companies do not meet the strengthened listing standards by March 2026, their stocks will be designated as surveillance items and delisted within six months.

As of March, companies under the grace period were 71 in the Prime market and 154 in the Standard market. The report analyzed that these companies would strive to improve management performance to avoid delisting, which would ultimately contribute to the qualitative growth of the market.

The report noted that the number of new listings significantly decreased due to the strengthened listing criteria. For example, as of last October, there were 60 new listings, whereas 82 companies were delisted, marking the first time since 2015 that the number of delisted companies exceeded new listings.

The report stated, "Comparing the market capitalization of the Prime and Standard markets in July 2022, when the second restructuring began, and April 2024, the market capitalization of both markets significantly increased over approximately 21 months." The median market capitalization of the Prime market rose from 57.3 billion yen (534 billion won) in July 2022 to 96 billion yen (894.68 billion won) last April, while the Standard market increased from 6.2 billion yen (57.78 billion won) to 8.2 billion yen (76.42 billion won) over the same period.

During the same period, the number of companies listed on the Prime market decreased by 186. Looking at market capitalization segments, the number of companies with market capitalization over 100 billion yen (9.3196 trillion won) increased by 125, while 311 companies with market capitalization below 100 billion yen that were previously listed on the Prime market were either delisted or moved to the Standard or Growth markets.

This suggests that companies excessively inflowing into the Prime market moved to the Standard and Growth markets, achieving the qualitative growth of each market as intended by JPX. In conclusion, the Prime market, leading Japan's stock market, has been successfully restructured around "high-quality companies," resulting in an increase in total market capitalization despite a decrease in the number of companies.

Japan prioritized improving new listing and listing maintenance requirements during the stock market restructuring to establish a foundation for market trust, and subsequently introduced a voluntary management disclosure system conscious of capital costs and stock prices (similar to Korea's Value-Up Disclosure system).

Dr. Kim Su-yeon explained, "Our approach differs in that we push policies like Value-Up Disclosure and index development without fundamental market improvements. It is time to review structural issues in the domestic market, such as delisting criteria, and the core of revitalizing the domestic stock market lies in 'qualitative growth of the market.'"