I. Introduction
In the past, the Tokyo Stock Exchange (the “TSE”) has taken a flexible and practical approach when considering whether the organizational restructuring of an asset manager of a listed investment corporation (J-REIT and Infrastructure Fund) or a change in the parent company of an asset manager falls under the criteria for delisting of an investment corporation under the TSE listing rules. In those cases, the TSE would consult with the relevant asset manager to determine the extent of any change to the management structure. Nevertheless, such examination procedures were not clear or transparent. For this reason, the TSE has clarified its practical approach and improved its listing system by revising the TSE listing rules. This article will outline the key amendments to the TSE listing rules in this regard which became effective on March 15, 2021.
II. Purpose and Remarks
The purpose of the revision of the TSE listing rules is to prevent an asset manager that has not undergone listing examinations by the TSE from managing a listed investment corporation. Companies who aim to be listed on the TSE's REIT market or infrastructure fund market either through the organizational restructuring of an asset manager of a listed investment corporation or the acquisition of shares in such asset manager will be prevented from becoming an asset manager for a listed investment corporation without going through the TSE’s listing examinations. This means that backdoor listing in this way will be no longer possible.
In addition to acquisitions where the direct sponsor shareholder of an asset manager is replaced, acquisitions where the direct or indirect parent company of such direct sponsor shareholder is replaced are also subject to examination. For this reason, it should be noted that this revision of the TSE listing rules will have a practical impact on acquisitions of companies with a group subsidiary that is an asset manager of a listed investment corporation on the TSE.
III. Overview of Revisions to the TSE Listing Rules
(a) Delisting Criteria for Asset Managers
If an asset manager of a listed investment corporation (J-REIT and Infrastructure Fund) loses the substantial viability of its management structure and systems over the management of the assets of the investment corporation as a result of organizational restructuring or a change in its parent company, the investment units will be delisted unless the asset manager complies with certain criteria, which are equivalent to the new listing examination criteria stipulated in the TSE listing rules (the “Asset Manager Listing Criteria”), within a certain period of time. This new rule is applicable to organizational restructuring and changes in parent company that are disclosed after March 15, 2021.
In accordance with the new rule, the substantial viability of the management structure and systems is examined as the first step. If any issues arise in the first step examination, the TSE will then examine whether the asset manager is in compliance with the Asset Manager Listing Criteria.
In principle, the examination of the substantial viability of the management structure and systems ought to be conducted when an asset manager consults with the TSE before undertaking the applicable organizational restructuring or change in parent company. Whether or not the management structure and systems is substantially viable is determined by taking into account, among other things:
personnel, including officers and key employees;
organizational structure;
rules related to management, such as the asset management agreement, the internal rules and regulations and similar;
the status of the sponsorship;
the status of the establishment of a conflict of interest system; and
other matters that are deemed to have a major impact on the management of the listed investment corporation after the organizational restructuring or change in the parent company.
It should be noted that if an organizational restructuring is conducted between two asset managers, both of whom are managing listed investment corporations on the TSE, neither will be subject to delisting.
(b) Examination of Compliance with the Asset Manager Listing Criteria
Examination of an asset manager’s compliance with the Asset Manager Listing Criteria will only be required if, after the first step examination, it has been determined that there is no substantial viability of the asset manager’s management structure and systems.
The TSE’s examination of the asset manager’s compliance with the Asset Manager Listing Criteria will commence upon receiving an application from the asset manager. The asset manager must demonstrate compliance with the Asset Manager Listing Criteria within a grace period of one year after the organizational restructuring or change in the parent company takes effect.
A fee of four million yen must be paid by the asset manager to the TSE prior to the examination of compliance with the Asset Manager Listing Criteria.
(c) Submission of Report on the Management Structure and Systems of Listed Investment Corporations
As a result of the revisions to the TSE listing rules, a listed investment corporation is now obligated to submit a revised report on its management structure and systems to the TSE without delay after the occurrence of any organizational restructuring or change in parent company. Previously investment corporations normally only submitted such a report to the TSE once every six months in conjunction with the fiscal period.
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