By Hiroko Hamada and Makiko Yamazaki
TOKYO (Reuters) – The Tokyo Stock Exchange said on Wednesday it had proposed ending a grace period in March 2025 for companies listed on the top “prime” section that fall short of listing rules, addressing criticism that its reform has been too lax.
The TSE adopted tougher listing criteria for its top category in April last year, but companies that fall short of the new rules can currently stay on by submitting improvement plans, a provision some investors say waters down the reform.
According to the TSE, which is owned by Japan Exchange Group Inc, 269 firms on the prime section failed to meet the criteria as of the end of last year.
The TSE proposed at a panel that those who have not met the rules by March 2025 would be given a one-year “improvement period,” and then designated as shares under supervision for six months before delisting.
The TSE’s “standard” and “growth” sections should also end their grace period for respective listing rules in March 2025, the TSE recommended.
The prime section, rebranded from the TSE’s first section to lure more foreign investors, is supposed to have companies with strong profitability whose governance meets global standards.
But about half of some 1,800 companies on the prime section are trading below their book value, according to the TSE.
The TSE said it planned to urge companies with underperforming stocks to discuss and disclose measures to improve capital efficiency.
For better governance, the bourse also plans to assess the board effectiveness at companies, specifically on the functions and activities of their nomination and compensation committees, it said.
(Reporting by Hiroko Hamada and Makiko Yamazaki; editing by Jason Neely, Alexander Smith and Jonathan Oatis)