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Tokyo Exchange Readies Market For Startup IPOs

The stringent financial performance requirements of Japan's stock markets have made it nearly impossible for the nation's growing number of Internet-related startups to qualify for market listing.

That will change on Thursday, Nov. 11, when the Tokyo Stock Exchange (TSE) formally launches a new market designed specifically for public trading of high-potential startups and "new technology" firms.

The concept underlying this new market, known by the English acronym "MOTHERS" (market of the high-growth and emerging stocks), differs substantially from that of the TSE's traditional market sections, which require a minimum of two years of profitable operation and a thorough and lengthy financial scrutiny.

Even non-profitable startups can qualify to list on MOTHERS, and the one-month application approval process is based only on submission of an independent auditor's opinion and a clear operational plan.

"We will prepare a system offering quality funds from a capital market to new companies, on whom the future of the Japanese economy depends," declared TSE president Mitsuhide Yamaguchi at a meeting held late last week by the TSE to explain listing requirements and its "support program" for interested firms.

The event drew a capacity 1,000 attendees, and more such explanatory meetings are planned for this week.

The TSE said the goal of MOTHERS will be to "help companies whose core business is in an expanding sector and which have high growth potential, or companies whose core business is run based upon new technology and innovations... raise funds in a flexible manner, using the well-established market facilities of the TSE."

Both the examination fee -- 1 million yen (US$9,525) -- and the annual fee for the first three years of listing on MOTHERS will be half those of the traditional TSE markets.

The initial listing fee will be 1 million yen plus 9/100th of one percent of the initial public offering (IPO) amount, up to a maximum of 20 million yen (US$190,480).

Overall, MOTHERS will have less stringent listing requirements than rival markets.

The over-the-counter market operated by the Japan Securities Dealers Association allows companies recording a post-establishment deficit to register, but only after an audit covering at least one full fiscal term.

And future rival NASDAQ Japan, which the US-based National Association of Securities Dealers and Softbank Corp. plan to open late next year, is expected to have significantly tougher minimum net asset value and market capitalization requirements.

According to TSE president Yamaguchi, already "some 70 companies are seriously considering listing on MOTHERS," including 20 to 30 Internet-related firms.

Liquid Audio Japan, the Japanese affiliate of US online music distributor Liquid Audio Inc., is expected to become the first firm to be listed on MOTHERS sometime in December.

Several other Internet-related startups are said to be making preparations for listing within the next few months, including Cyber Agent, which could list on MOTHERS as early as February.

"Speed is of the essence in the Internet business," declared Cyber Agent president Susumu Fujita. "We would like to raise funds quickly."

Because startup firms have little or no "past achievement" on which potential investors can make a judgment, the TSE will attempt to ensure "transparency" of the companies listed on MOTHERS by requiring them to file quarterly financial reports and provide frequent and timely business information disclosures.

The TSE will also begin to distribute a free e-mail magazine, tentatively named "Mothers Information Service," for investors by end of November.

It is the emphasis on investor self-responsibility, said the TSE, that will enable it to dramatically reduce the time to IPO on its market by a startup and thereby give investors the opportunity to invest in high-growth companies from an earlier stage.

The TSE has declared that eventually MOTHERS will be "equally positioned with the existing markets of the TSE, and competitively or better positioned than other currently existing markets and other potential new markets."

"We plan to develop MOTHERS into one of the core markets in the Tokyo Stock Exchange," said TSE president Yamaguchi.



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