Tokyo Stock Exchange is using technology to make its market more transparent and accessible to foreign investors.
The latest move is to fully digitize issuer communications, bringing automation and transparency to the documentation that links listed companies and institutional investors, both foreign and domestic.
The driver is Japan Exchange Group (JPX), the holding company set up in 2013 to run the combination of TSE with Osaka Securities Exchange, which later expanded to take over the operations of Tokyo Commodity Exchange. JPX now operates the listing and trading of these markets, as well as providing clearing and settlement.
Two years ago, JPX set up its affiliate, Market Innovation and Research, to operate data and index services, and other systems related to disseminating data about financial instruments traded across its venues.
“We are the entity responsible for promoting the digitalization of the exchange markets,” said Akira Tagaya, senior executive officer. “It’s important to think about how to make data easier to use, and how to process it efficiently.”
The centerpiece of that effort is to fully digitalize an existing platform for managing investor relations and communication between listed companies and institutional investors.
That platform is Investor Communications Japan, a twenty-year old joint venture between TSE and Broadridge, a technology vendor with a large investor-services business in the US.
This follows on JPX’s first initiative taken last year to make listed company information more widely available in English. It set up a disclosure portal for English-language disclosures, and acquired a local startup, SCRIPTS Asia, that transcribes investor events.
Now comes the challenge of increasing the amount of information that can be disseminated, both to foreign as well as domestic institutional investors – as well as to provide data-driven insights to issuers, as a means of incentivizing them to use ICJ to automate their communications.
The next phase for JPX will be to turn its data price feeds into a subscription service, to better monetize its data.
Automating proxy voting
The work with ICJ involves launching a new digital vote-execution service that automates proxy voting to Japanese issuers.
This is intended to help institutional investors improve their corporate governance, says Shigeo Imakiire, president at ICJ. Participating listed companies can get insight into the voting intentions of investors, while local sub-custodians and trust banks will be able to streamline their operations and reduce risks.
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Already most listcos participate on ICJ’s platform, with 1,654 companies listed on TSE using it during the 2022 season for annual general meetings. That represents 90 percent of TSE companies (and 98 percent by market capitalization).
The main gap is among foreign institutional investors, with only 81 percent using ICJ’s existing services. Broadridge’s upgrades are now meant to capture that remaining market through the efficiencies of end-to-end automation, which includes an audit trail.
ICJ is relying on sub-custodians and trust banks to encourage their investor clients to sign up for the service, because it will enable them to automate all of their processes.
“Most listed companies want to engage with international shareholders,” Imakiire said. “During AGMs they are concerned about how asset managers will vote. If we expand our coverage, listed companies can access more voting information, and use our platform to communicate with investors.”
Demi Derem, Broadridge’s managing director for international solutions for banks, brokers and dealers, says digitizing voting provides listed companies with a direct look at which institutions own their stock, how they vote, and analytics on their behavior.
“The large issuers have big investor-relations teams and they know who their shareholders are,” Derem said. “But they rely on the services of issuer agents that research data published on global exchanges and depositories, find out which custodians hold assets of shareholders, and break down who are the beneficial owners. ICJ delivers this transparency, so issuers on our platform know who to talk to.”
How much of a change would automation bring? If investors are interested in a particular company – say there’s a hostile takeover or activist opposition to an AGM vote in the works – they can pick up the phone.
“Yes, they have hotlines to key issuers,” Derem said, “but there’s a lot of noise in the process and managing it is a challenge.”
Tagaya added, “By allowing institutional shareholders to get information about shareholder meetings, and to exercise their votes electronically,a lso improves the dialogue between companies and investors.”