Listing Eligibility

Operations of the Listing Examination Department

Being listed on a securities exchange means that a company's stock is quoted publicly and traded by the general public on the exchange market. Due to the nature of a listing, listed companies are required to be of a certain quality that allows investors to trade their stocks with confidence. Japan Exchange Regulation (JPX-R) examines the eligibility of listing applicants based on the listing examination criteria, a set of requirements formulated from the viewpoint of ensuring market quality for all investors.

The listing examination criteria consist of two types of criteria: quantitative (formal) and qualitative (substantive) criteria.

Outline of listing examination

In addition to new listings on the main markets (1st Section, 2nd Section), Mothers, and JASDAQ, JPX-R conducts examinations on section transfers (reassignment from 1st Section to 2nd Section) and companies looking to alter their listing markets (from Mothers or JASDAQ to the main markets). JPX-R also conducts examinations for other financial instruments, including REITs and ETFs.

For more information on the listing criteria, please refer to the following pages of the TSE website.

1st Section, 2nd Section
Mothers
JASDAQ
Transfers to the 1st Section
Alteration of listed market

Listing Examination and the Listing Process

A stock listing means a company becomes a potential investment for the general public. This is why a listed company will be subject to strict eligibility criteria aimed at protecting investors. These criteria include following:

  • Whether the company has the capacity to effectively use funds raised in the market to generate stable profits
  • Whether the company has established a system to conduct appropriate business operations in compliance with laws and regulations
  • Whether the company has a system of timely disclosure and accounting to allow investors to make timely and appropriate investment decisions.

As such, a company planning for a listing has to prepare by consolidating and enhancing its revenue base and establishing an internal management system so that it may properly fulfill its obligations as a listed company. Companies make these preparations under the guidance and supervision of external entities, for example, a lead underwriter to prepare the recommendation letter in a formal listing application and a certified public accountant or audit firm to audit the company's financial statements.

Process up until listing application
 

In the course of preparing for a listing, among the many external entities engaged to provide guidance and professional services, lead underwriters and auditors play a very important role.

Lead underwriters provide various services during the listing process. First, their consulting arm, usually the department responsible for IPO and underwriting work, provides advice on capital policy and internal management systems in the preliminary stage of the listing application. Next, when the preparations have been made, another separate division comes in to conduct examinations from an objective perspective. They conduct examinations for the preparation of the recommendation letter in a listing application, as well as examine the company's eligibility for listing (underwriting examination) regarding the public or secondary offering.

Meanwhile, audit firms express audit opinions on financial statements and other materials to be submitted under the Financial Instruments and Exchange Act and the Securities Listing Regulations specified by the exchange. At the same time, they provide advice on aspects that should be improved in the company's accounting procedures and internal management system. The company must respond appropriately to the advice and obtain unqualified opinions (the auditor's judgment that the company's financial records and statements are fairly and appropriately presented and in accordance with generally accepted accounting principles) from the audit firm for two consecutive fiscal terms. Otherwise, the company will not be able to apply for a listing.

 
Organizations involved in the application for new listing
 

JPX-R will then check whether the applicant company meets the quantitative (formal) and qualitative (substantive) listing criteria by reviewing the documents submitted by the applicant company and conducting hearings or interviews with the applicant company. The JPX-R's examiners will also visit the listing applicant's head office or its operational base to conduct on-site examinations.

In the final stage of the examination, the examiners will interview the President (or CEO) of the applicant company to understand his/her view on the business environment, future plans for the company, and its corporate governance, as well as the certified public accountant that conducted the audit and the company's statutory auditors.

Process after listing application
 

For details or information on listing on other markets, please refer to the new listing guidebooks available on the Tokyo Stock Exchange website.

New Listing Guidebooks