Adnan Shah
Amidst a landscape where regulations are tightened to boost transparency and reduce systemic risks, trading activity has shifted from shadowy over-the- counter markets managed by banks to clearinghouses, predominantly owned by stock-exchange entities. Following a prolonged period of subdued stock prices, Japan embarked on a market reorganization, urging leading companies to enhance value for investors. The successful launch of the JPX Prime 150 Index has resulted in a notable decline in the number of Japanese firms trading below book value, accompanied by a significant rally in stock prices.
At the pinnacle of the financial world hierarchy, not only banks and asset managers but also stock-exchange entities hold sway. These companies, although unassuming compared to the traditional titans, wield significant power, especially in Japan.
Stock-exchange firms play a vital role by overseeing numerous key indexes that exert a growing influence on the movement of global capital. For example, the London Stock Exchange Group Plc is responsible for the management of the UK's FTSE indices and a diverse array of other benchmarks under the Russell brand. In Japan, the most renowned index is owned by the local newspaper group Nikkei Inc, but the more practical market-cap-weighted Topix is also under its purview. The Topix index, valued at over ¥83 trillion (equivalent to $560 billion), is utilized by a substantial amount of assets for tracking purposes.
Furthermore, in the realm of clearing, regulations aimed at enhancing transparency and mitigating systemic risks have redirected trading activities from opaque over-the-counter markets managed by banks towards clearinghouses, many of which are owned by stock-exchange entities. Japan's primary clearinghouse, the Japan Securities Clearing Corporation (JSCC), operates as a subsidiary of Japan Exchange Group Inc, the entity behind the Tokyo Stock Exchange. Currently, the JSCC clears approximately 70% of global yen interest-rate swaps, and as yen-related transactions surge amid impending changes in monetary policy, the JSCC's significance in the global markets is set to expand.
Beyond clearing operations, the influence of stock-exchange companies is extending further into corporate boardrooms. While exchanges have historically shaped corporate governance standards through the companies listed on their platforms, they are now exerting more authority, particularly in countries like Japan and Korea.
Back in 1869, the New York Stock Exchange took a proactive step by establishing a dedicated committee to assess applications for listing
securities. This committee had a keen interest in evaluating the integrity and trustworthiness of potential issuers. As time progressed, the exchange introduced specific criteria, such as mandating the distribution of annual reports, reporting quarterly earnings, and conducting independent audits. These requirements were later incorporated into the Securities Exchange Act of 1934 by Congress. However, the NYSE continued to raise the bar by implementing additional standards. Companies listing on the exchange were now obliged to seek shareholder approval for significant acquisitions, maintain a minimum number of outside directors on their boards, and form an audit committee comprising independent directors.
Regulations aimed at enhancing transparency and mitigating systemic frisks have shifted trading away from opaque over-the-counter markets overseen by banks and towards clearinghouses, many of which are owned by stock- exchange firms. Japan, following years of stagnant stock prices, undertook a restructuring of its market segments, urging top-tier companies to deliver greater value to investors. The introduction of the JPX Prime 150 Index has proven to be a triumph, with a notable decrease in the number of Japanese companies trading below book value and a subsequent uptick in stock prices.
Adnan Shah is a investment analyst & Securities broker based in Jammu & Kashmir.
