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Japan seeks more unicorns by easing rules on unlisted shares

New startup market proposed as country trails US and China

A busy street crossing in Tokyo. Japan's securities industry wants to build a more dynamic market for unlisted stocks.   © Reuters

TOKYO -- Japan's securities industry will ease rules on investing in unlisted stocks to increase the flow of risk money into young companies, hoping to lift the country higher in global rankings of multibillion-dollar startups.

The Japan Securities Dealers Association confirmed the initiative at a working meeting Thursday, with Vice Chairman Manabu Morimoto saying the body is "responding to societal needs."

Under the proposed changes, brokerages would have an easier time soliciting investment for additional fundraising rounds by startups, including from the companies' own leadership. This would help boost the liquidity of the stocks.

Artificial intelligence developer Preferred Networks is Japan's only unicorn -- an unlisted startup valued at over $1 billion -- compared with more than 150 in the U.S. and around 90 in China, according to U.S. research company CB Insights.

The securities industry group will consider options for a new venue for trading unlisted shares to replace the Green Sheet over-the-counter market that closed last year.

Modeled after Pink Sheets OTC trading in the U.S., the Green Sheet market was started in 1997 but attracted few registered companies with growth potential. Disclosure and other requirements comparable to those governing listed companies kept many startups away.

The rise of financial technology and crowdfunding is behind the initiative. As of the end of 2018, 60 companies in Japan had used crowdfunding to raise about 2 billion yen ($18 million). This grew out of Japan's lack of an OTC market for unlisted shares.

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