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Will Tokyo bourse be the lone holdout on nonvoting shares?

In an age of easy money, rivals relax rules to attract IPOs

TOKYO -- As big investors fume over Snap's decision to list nonvoting shares on the New York bourse, the Tokyo Stock Exchange may also be forced to revisit the question of allowing classified shares as competition intensifies among global rivals. 

Crisscrossing interests

When the U.S. Securities and Exchange Commission held a meeting with investors in March, an official from the California Public Employees' Retirement System (CalPERS) excoriated Snap, the parent of the Snapchat app, for offering nonvoting shares in its recent initial public offering on the New York Stock Exchange. While denying investors a say over company management, its two co-founders have held onto 90% of voting rights. 

Major pension funds like CalPERS have stepped up index-linked investments, leaving them with no choice but to buy shares of their components, including companies like Snap that do not seem to hold ordinary shareholders in high regard.

The Council of Institutional Investors has been pushing MSCI and others that calculate stock indexes to remove Snap. But shares with no voting rights are increasingly common in the U.S. And companies that do not treat all shareholders equally are expected to proliferate around the world.

The Singapore Exchange plans to soon allow listing of different classes of shares. This will enable entrepreneurs to expand quickly, stresses CEO Loh Boon Chye. With many startups leaving the market, the bourse looks eager to buoy trading by easing up on classified shares and attracting more companies.

Hong Kong Exchanges and Clearing has said it will reconsider its ban on classified shares. The bourse declined to list such shares when Alibaba Group Holding was planning its IPO, and the Chinese e-commerce giant instead debuted on the New York market in 2014.

Sellers' market

Stock exchanges are eager to attract promising technology companies by easing listing rules. At the same time, historically low interest rates have left investors searching for places to park their money, creating an easy fund-raising environment for companies. 

Even without going public, startups can get funding from banks and investment funds, with no obligations of quarterly disclosures. So stock exchanges must heed the wishes of startups to get them to list.

The Tokyo Stock Exchange has kept its distance from the frenzy. It does allow classified shares but applies strict rules, with robotics company Cyberdyne, which went public in 2014, being the only one to receive approval in recent years. The researcher who developed the company's walk-assist robots doubles as the Cyberdyne CEO.

Mobile chat app provider Line, which debuted on the market in 2016, considered classified shares, but gave up in the face of resistance from the TSE.

Seal of trust?

The Tokyo bourse has jealously guarded standards, citing the so-called Mitsukoshi rules, named after the venerable department stores. As long as listed shares are offered to investors with its stamp of approval, the exchange cannot allow anything that falls short of its standards. This stands in contrast to the American SEC's hands-off approach to let investors use their own judgement as long as disclosure requirements are met. But the Japanese exchange could soon be at a crossroad between maintaining its rules and relaxing them.

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