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Standardization of Trading Units

Q1: What procedures are required under the Companies Act to convert to a 100-share trading unit?

A1. In order for a company with a trading unit of 1,000 shares to convert to a trading unit of 100 shares, it is necessary to complete the procedure for reducing the number of shares per Share Unit (from 1,000 to 100) (see Note).

(note)
  • ･Tokyo Stock Exchange ("TSE") has set the number of shares constituting one voting right as the trading unit in order to protect investors and prevent confusion in the secondary market for shares.
Procedures for transferring to 100-share units Resolutions required under the Companies Act Basis Article
Reduction in the number of shares per Share Unit (1000 → 100) only 【Pattern1】. Resolution by the Board of Directors regarding change in the number of shares per Share Unit (Note) Article 195, Paragraph 1 of the Companies Act
Reduction in the number of shares per Share Unit (1,000 → 100) and simultaneously conduct a reverse stock split 【Pattern2】. Board of Directors' resolution regarding change in the number of shares per Share Unit (Note)
Special resolution of the General Shareholders Meeting regarding reverse stock split		 Article 195, Paragraph 1 of the Companies Act,
Article 180, Paragraph 2 of the Companies Act, and Article 309, Paragraph 2, Item 4 of the Companies Act.
 
(note)
  • ･Please note that if class shares are issued, the number of shares per Share Unit cannot be changed only by a resolution of the Board of Directors (Article 322, Paragraph 1, Item 2 of the Companies Act).

Please note that a special resolution of the general shareholders meeting is required when submitting a proposal of regarding the reverse stock split to the general shareholders meeting, and therefore, please be aware of the schedule so that the transition to the 100-share unit will be completed by October 1, 2018, the deadline for the transition.

Please consult your stock transfer agent, etc. for specific practical measures to implement these resolutions and other necessary procedures.

Q2: Apart from the standardization of trading units, the listing rules require that efforts be made to move to and maintain a desirable minimum investment unit level (less than 500,000 yen). Which of these should be prioritized?

A2. We request that you give priority to the change in the number of shares per Share Unit (to a unit of 100 shares).

However, in order to create an environment in which individual investors can easily invest, the desirable minimum investment unit is clearly stated to be less than 500,000 yen (Securities Listing Regulations, Rule 445), and among the listed companies that changed the number of shares per Share Unit from 1,000 to 100 shares between April 2014 and December 2017, approximately 90% of those with investment unit of 500,000 yen or more took the opportunity of the change in the number of shares per Share Unit to shift to a desirable investment unit level.

If you wish to mitigate the decline in the minimum investment unit level, please consider conducting a reverse stock split based on a ratio considering the level of the minimum investment unit you are aiming for (see Q3).

Q3：What are some possible ways to mitigate or avoid a reduction in minimum investment unit level?

A3. If you wish to mitigate or avoid a decline in the minimum investment unit, you may conduct a reverse stock split based on a ratio considering the level of the minimum investment unit you are aiming for, simultaneously with the change the number of shares in one Share Unit from 1,000 to 100 shares.

<If you wish to mitigate the reduction in the minimum investment unit>

For example, if the current minimum investment unit is 1,000,000 yen (share price 1,000 yen x 1,000 share trading unit), simply changing the number of shares per Share Unit from 1,000 to 100 shares will reduce the minimum investment unit to 1/10th i.e. 100,000 yen (share price 1,000 yen x 100 share trading unit). However, if a reverse stock split of two shares into one share is conducted at the same time, the theoretical minimum investment unit will be 200,000 yen (share price 2,000 yen x 100 share trading unit).

<If you wish to avoid a reduction in the minimum investment unit >

For example, if the current minimum investment unit is 300,000 yen (share price 300 yen x 1,000 share trading unit), a reverse stock split of 10 shares into 1 share at the same time as changing the number of shares per Share Unit from 1,000 shares to 100 shares would theoretically maintain the current minimum investment unit (300,000 yen).

Many companies have simultaneously reduced the number of shares in a share trading unit and conducted a reverse stock split even before the second stage (the transition period for the consolidation of 100 and 1,000 shares), and the companies that have conducted such a reverse stock split can be found in the "List of Companies Changed the Number of Shares per Share Unit (Trading Unit)".

List of companies that have changed the number of shares per Share Unit (Trading Unit)
 

Q4: We would like to understand how much the number of shareholders will change as a result of the transition to the 100-share unit.

A4. In order to help you estimate the costs associated with the increase or decrease in the number of shareholders due to the change to the 100-share trading unit and to consider whether or not to implement a reverse stock split, we have compiled trend in the number of individual shareholders of listed companies that had changed from the 1,000-share trading unit to the 100-share trading unit since the start of the 2007 Action Plan.

For listed companies that did not conduct a reverse stock split upon shifting to the 100-share unit, the number of individual shareholders as of the end of the fiscal year that includes the date of the trading unit change (the date of the change in the number of shares per Share Unit), compared to the number of individual shareholders as of the end of the previous fiscal year, increased by 67% on average, with a median increase of 36%. The number of individual shareholders of listed companies that simultaneously conducted a reverse stock split of two shares into one share increased 24% on average, with a median increase of 16%, and the number of individual shareholders of listed companies that simultaneously conducted a reverse stock split of five shares into one share increased 25% on average, with a median increase of 4%.

Trend in the number of individual shareholders of listed companies that have moved from 1,000 share units to 100 share units (announced on Dec. 17, 2015) (in Japanese only) icon-xls
 

In addition, the number of individual shareholders of companies that have reduced the minimum investment amount can be confirmed in the "Shareownership Survey”, which is published annually.

【Reference Materials】

Number of individual shareholders and shareholding ratios in companies that reduced the minimum investment unit in "Shareownership Survey".

Q5: My company already has a 100-share trading unit, but the minimum investment unit level is more than JPY 500,000. Is it possible to change the number of shares per Share Unit when reducing the minimum investment unit?

A5: Under the listing rules, it is not possible to change the number of shares in a trading unit to anything other than 100 shares (Rule 427-2 of the Securities Listing Regulations). Please understand that the number of shares cannot be changed to other than 100 shares in accordance with the "Action Plan for Standardization of Trading Units".
A possible measure for a company that already has a 100-share unit to reduce the investment unit would be to conduct a stock split.

 

Q6: If we fail to respond, will any action be taken?

A6: Although there are currently no provisions for enforcement measures, we request that the transition to 100-share units to be completed by October 1, 2018.