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
(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

Overall, MOTHERS will have less stringent listing requirements than rival

The over-the-counter market operated by the Japan Securities Dealers
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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