JPX's Projects for the Future and Lessons From the Pandemic

By: Akira Kiyota, Group CEO, Japan Exchange Group Aug 2022

What are the important projects that JPX is working on for 2022? 

Under our Medium-Term Management Plan 2024, we are aiming to improve the attractiveness of the Japanese financial and capital markets as a whole and enhance their global competitiveness over the next three years by working in three specific "focus” areas. The first is “facilitating a cycle of corporate innovation/growth and asset formation,” the second is “achieving market transformation” and the third is “promoting sustainability that connects society and the economy.” I would like to give some examples of projects that we are working on in these three areas.

Restructuring of the TSE market into three segments

One key part of our strategy is to support sustainable growth and mid- to long-term corporate value creation at listed companies and provide an attractive cash equity market supported by a wide range of investors. To achieve this, in April 2022, we restructured the cash equity market at the Tokyo Stock Exchange into three new market segments with clear concepts - Prime Market, Standard Market and Growth Market.

Of these, the Prime Market is aimed at companies that center their business on constructive dialogue with global investors, so for these companies, we are expecting higher levels of governance and more English disclosure. One aspect of this is climate-related disclosure: Prime Market-listed companies are required, on a comply-or-explain basis, to make disclosures in accordance with the TCFD recommendations to meet the level of disclosure demanded by global investors.

Promotion of sustainability

The promotion of sustainability is a key part of JPX's long-term strategy for encouraging mid- to long-term value growth among listed companies. One focus for the next three years is on improving the transparency of sustainability related information: for example, bringing together information on publicly issued green bonds and other ESG bonds onto a single platform. This ESG Bond Information Platform will go towards addressing known issues of disparate information availability and incomplete coverage on existing platforms and will also serve as a hub for ESG bond issuers and financial institutions. The platform was launched on July 19, and we will now move on to thinking about expanding its functionalities and coverage.

Another focus is on contributing to Japan's overall goal of carbon neutrality by 2050. As part of a carbon pricing system planned by the Japanese government, TSE has been commissioned to carry out a "Technical Demonstration Project" for the creation of Japan's first carbon credit market.

Trading is planned to start in September 2022. It will begin with exchange trading of J-Credits, which are carbon credits based on domestic projects already implemented by the government. The next step will be simulated trading by companies participating in the GX League [1], which has a basic concept announced by the government in February, of surplus emissions reduction value granted to companies that reduced more greenhouse gas emissions than the allocated target.

On the topic of ESG-related products and services, we launched two new ESG indices earlier this year: the "S&P/JPX 500 ESG Score Tilted Index," which uses ESG scores that comprehensively take ESG into account, and the "FTSE JPX Net Zero Japan 500 Index," which specialises in the environment. Meanwhile, the amount of assets linked to the S&P/JPX Carbon Efficient Index, launched in 2018, has grown to JPY 1.9 trillion. We will focus on the promotion of those ESG-related indices while continuing to develop new ones in line with demand and current trends, and we are also encouraging financial institutions to create more financial products based on ESG factors.

Establishment of JPXI to evolve into a global, comprehensive finance and information platform

Finally, a big priority for us in the future is in the "digital" area. Our long-term vision, to be achieved by 2030, is to “contribute to sustainable societal and economic development by evolving into a global, comprehensive finance and information platform that provides solutions for a wide range of societal issues, centred on the ability to raise and circulate capital.” We established JPX Market Innovation and Research, Inc. (JPXI), as a new subsidiary in April this year to enable flexible and mobile business development without being constrained by the traditional "exchange" framework. JPXI will focus on enhancing JPX Group's data and index services, which it has consolidated, as well as digital and network-related businesses. The current plans include the creation of a digital securities market, the development of new services utilising digital technologies, strengthening the index business, enhancing investment-related information and sustainability information platforms, and the calculation of ESG-related indices.

For instance, as part of preparations for the digital securities market, JPX issued a digitally tracked green bond in June 2022. This scheme improves transparency for investors by using a digital system to visualise and record, on a blockchain platform, the amount of electricity generated and CO2 reduced by the power generation facilities that the bond invests in. At the same time, for issuers, it will make it easier to obtain data and reduce the burden of compiling. JPXI is challenging itself to utilise the technological skills and experience it has amassed so far to develop the visualisation functions in-house.

The pandemic was an unprecedented time. As a leader, what are the most valuable lessons the pandemic taught you and how are you carrying them forward?

These two and a half years have posed a unique challenge that has required us to flexibly adapt our approach as we sought to operate markets normally. Before the pandemic began, remote work was not available to all employees and our systems were not sufficiently ready.

When the pandemic reached Japan, we succeeded in changing this situation in a very short space of time. We identified the types of operations that do not require attendance in the office and set a 70% remote work target for employees engaged in these operations. Meanwhile, for operations that needed to be conducted on-site, we set up a system of multiple teams that basically rotated between on-site and remote work. On top of this, we also offered backup offices, flexible working hours, and other such arrangements aimed at protecting the safety and well-being of employees and their families. All of these aspects have been working together to allow JPX to continue operating markets in a stable and reliable manner over the course of the pandemic, which continues to develop.

We have been able to work closely with our employees and also our counterparts across the financial sector to keep the market open and running in unprecedented circumstances. This has left me quietly confident that with the cooperation of the industry, we can overcome any problem and quickly adapt to new challenges.

Do you believe the pandemic has brought about a fundamental change in the way organisations view the office? What are the implications for corporate life and the exchange?

The pandemic has changed the way we work, and also our view of the office. The global pandemic caused by Covid-19 has definitely accelerated the uptake of remote work and other new ways of working. With the recognition that things may suddenly change to make traditional ways of working no longer possible, our view of the office also continues to change.

Employers have embraced different ways of working, letting staff flexibly decide when they want to come to the office and installing systems for remote work and online meetings.

For employees, the greatest change is probably the end of the daily commute. Removing the need to commute frees up time for other pursuits. Some may acquire knowledge and skills for the next step in their careers, while others may choose to spend more time with their families. The more adventurous may pursue new challenges in our business.

This allows people to live more enriching lives from which they can draw inspiration, and I feel that it will eventually feed back into their work and, in turn, positively impact the company.

[1] The GX (Green Transformation) League is a framework for companies aiming for rapid decarbonization, whereby each company sets an ambitious greenhouse gas emissions reduction target, forms a reduction plan, and acts to execute the said plan.


The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.