Tokyo Exchange Sees No Value in Taking Over Rivals For Growth, CEO Says

Tokyo Stock Exchange Group Inc. President Atsushi Saito said he doesn’t plan any takeovers even as Singapore Exchange Ltd.’s $8.3 billion bid for Australia’s bourse fuels speculation of more mergers.

“We’re not thinking of any mergers or alliances with other exchanges at present,” Saito, 71, said in an interview in Tokyo on Nov. 18. The Tokyo bourse will instead focus on overseas listings and improving trading speed, Saito said, adding that he has “yet to see any successful deals.” He also said the exchange is “not rushing” to publicly list its own shares.

Singapore Exchange plans to take over ASX Ltd. as global rivals form alliances or buy stakes in each other to counter rising competition from electronic bourses and meet investors’ demands to cut trading costs. The Tokyo bourse, currently vying with China to be the world’s second-biggest by market value, may be eclipsed as other exchanges lure more overseas companies.

“There might be something of a case for one-stop shopping,” said Nicholas Smith, director of equity research at MF Global FXA Securities Ltd. in Tokyo. “If a company wants a second listing, it would list where it wants to raise money and, unlike in the old days, that really isn’t Japan anymore.”

Overseas Tie-Ups

The Tokyo Stock Exchange’s current ties with overseas bourses include an alliance with the NYSE Euronext, the Tokyo AIM joint venture with the London Stock Exchange Group Plc, and a 4.9 percent stake in Singapore Exchange. The Tokyo bourse has said it won’t oppose the city-state exchange’s deal with ASX.

Total market value in the Japanese exchange’s main section has dropped 16 percent in the past five years to $3.73 trillion, according to data compiled by Bloomberg. That compares with China’s almost 10-fold increase to $3.68 trillion in market capitalization, the data show.

Growth of a stock exchange hinges on the nation’s economic state, rather than strategies to pursue acquisitions, Saito said.

Japan’s economy is forecast to slow to 1.4 percent in 2011 from 3.1 percent this year, according to the median estimate of 11 economists surveyed by Bloomberg. The government last week said a recovery is “pausing” and expansion will remain weak “for a while.”

‘Japan’s Heyday’

“In Japan’s heyday, the Tokyo Stock Exchange attracted quality companies and a lot of investors because of the magnificent economic outlook,” Saito said. “It’s more important to determine how Japan can revive growth and how companies will become more competitive in the global playing field” to attract investors, he said.

The Tokyo bourse also won’t be able to go public in the current fiscal year because it will probably report declines in profit and revenue for the year ending March 31, Saito said. The exchange posted a 24 percent drop in income before taxes to 7.3 billion yen ($87 million) for the six months ended Sept. 30.

“We’re not rushing to list because it’s not like we’re desperately seeking capital,” Saito said, declining to elaborate on the timing of the possible sale. “We shouldn’t be going public in the current state of business: that would be more harmful to investors. When it’s most appropriate, we will go public.”

On Oct. 25, Singapore Exchange offered to buy ASX, Australia’s main bourse, for A$8.4 billion ($8.3 billion) in a cash and share transaction to compete with Hong Kong and Tokyo. The combination would create the world’s fifth-largest listed exchange company.

National Interests

The bid faces scrutiny from the Foreign Investment Review Board, the Reserve Bank of Australia and the Australian Securities and Investments Commission, Treasurer Wayne Swan said on Oct. 27. Lawmakers including Australian Greens party leader Bob Brown have said they will block the proposed merger on concern that it may hurt national interests.

To boost profit, the Tokyo exchange will continue to improve the Arrowhead stock trading system, which cuts to five milliseconds the time needed to process orders by speeding up trades of index futures, Saito said. Increasing the listing of exchange-traded-funds and luring more overseas companies to go public on the exchange are also ways to improve earnings, he said.

“We hope to have more listings next year than in 2010,” Saito said, declining to give specific targets.

There were 96 ETFs traded on the exchange at the end of October, up from 86 as of March 31, according to the bourse’s website. No foreign companies have gone public on the Tokyo exchange since November 2007, according to the firm.

About 263 overseas companies, including Chinese firms from the mainland, have raised HK$891.7 billion ($115 billion) on the Hong Kong stock exchange since then, according to data compiled by Bloomberg.

Insider-Trading Problem

Saito also commented on recent criticism from investors alleging insider trading involving shares of companies that plan to raise capital with new issuances. He said the bourse will urge regulators to shorten the time between companies announcing and pricing share sales.

In Japan, there is a time-lag of weeks from the sale announcement to when the shares are priced, compared with several hours in the U.K., Saito said. Japanese regulators are studying whether to revise rules to implement stricter oversight on trading before and during share sales. Tokyo Electric Power Co. and Inpex Corp. are among companies whose shares plunged before stock-sale announcements or pricing this year.

“There is only so much that the Tokyo Stock Exchange alone can do when it comes to implementing new rules, but the recent insider-trading criticism is something we must resolve as soon as possible,” Saito said. “Japan has its own unique financing rules where the entire process takes too long, creating risks, so I see that as one of the problems.”

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net

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