Tokyo Stock Exchange (TSE): Definition, History, How It Works

What Is the Tokyo Stock Exchange (TSE)?

The Tokyo Stock Exchange (TSE) is the largest stock exchange in Japan, headquartered in its capital city of Tokyo. The Tokyo Stock Exchange was established on May 15, 1878. As of Sept. 14, 2021, the exchange had 3,784 listed companies. The TSE is run by the Japan Exchange Group and is home to the largest and best-known Japanese giants with a global presence—including Toyota, Honda, and Mitsubishi.

In addition, the TSE offers specific trading information, real-time and historical index quotes, market statistics, and information about and from specialists. Notably, the acronym TSE for the Tokyo Stock Exchange should not be confused with Canada's Toronto Stock Exchange, which is known by the acronym TSX.

Understanding the Tokyo Stock Exchange (TSE)

At the peak of the Japanese asset price bubble in Dec. 1989, the Nikkei 225 index reached a record high of 38,916. Following this, the TSE's combined market capitalization shrank dramatically over the next two decades, as the Japanese economy struggled with a recessionary environment and the Nikkei plunged in value.

As of Sept. 2021, the board members of the Tokyo Stock Exchange are Director
(Chairperson of the Board) Tsuda Hiroki; Director & Representative Executive Officer, Group CEO Kiyota Akira; Director & Representative Executive Officer, Group COO Yamaji Hiromi; and Directors Iwanaga Moriyuki and Shizuka Masaki.

The five largest stocks by market capitalization listed on the Tokyo Stock Exchange as of the end of July 2021 were (in 100 millions of Japanese yen):

1. Toyota Motor Corporation (¥319,936).
2. Keyence Corporation (¥147,724).
3. Sony Group Corporation (¥143,445).
4. SoftBank Group Corp. (¥117,798).
5. Recruit Holdings Co. (¥95,465).

Other Major International Exchanges

In addition to the Tokyo Stock Exchange, other major trading exchanges worldwide include the New York Stock Exchange (NYSE), the Nasdaq, and the London Stock Exchange (LSE). Each exchange has specific listing requirements that owners must meet prior to offering their securities for trading.

In general, these requirements include regular financial reports, such as audited earning reports, and minimum capital requirements. For example, the NYSE has a key listing requirement that stipulates a company must have at least 1.1 million publicly traded shares of stock with a stock price of at least $4 per share. The company must have an aggregate pre-tax income of $10 million for the previous three fiscal years, with at least $2 million in each of the most recent two fiscal years. Nasdaq requires listers to meet aggregate pre-tax income in the prior three fiscal years of at least $11 million and a minimum bid price of $4.

Criticism of the Tokyo Stock Exchange (TSE)

Some market participants have complained that over the years the TSE has become too large and complicated compared to other global exchanges. The TSE consists of five sections. The first section lists Japan's biggest companies and the second section lists medium-sized companies. Combined, these two sections are called the "main markets."

Then there are two sections dedicated to startups. These sections are called the "Mothers" (Market of the High-Growth and Emerging Stocks) and the Jasdaq (which is separated further into standard and growth sub-sections). The final section is the Tokyo Pro Market, which is for professional investors only.

To complicate matters, each of these TSE sections has its own listing requirements. As of Sept. 14, 2021, the first section alone included about 2,190 companies, almost double the level from 1990. A plan to reform the TSE includes simplifying the criteria separating the sections and reducing the number of sections to three—Prime, Standard, and Growth. Another possible change includes increasing the market cap requirement to reduce the number of companies listed in the top tier.