#1JPX Investor Day 2023 Cash Equity Market JPX Exchange & beyond Tokyo Stock Exchange, Inc. President & CEO Iwanaga Moriyuki July 6, 2023 © 2023 Japan Exchange Group, Inc. AMER וד JPX#2| Agenda 1. Listing Services 2. Trading Services © 2023 Japan Exchange Group, Inc. 大阪取E JPX JPX 2#31. Listing Services © 2023 Japan Exchange Group, Inc. JP#4TSE Market Restructuring • On April 4, 2022, TSE restructured the cash equity market to incentivize sustainable growth and medium - to long-term corporate value creation at listed companies, thereby providing an attractive market that gains support from various types of investors both domestic and overseas. Old Market Divisions 1st Section For companies with high liquidity Mothers For startups 2nd Section For companies with a track record JASDAQ For various companies (Proven and emerging companies) Standard Growth Indicated Issues > ☐ Ambiguity in the market division concepts Poor incentives for sustainable growth ☐ No indices that are functional as investment targets Transition to new market segments on April 4, 2022 JPX New Market Segments PRIME TOKYO STANDARD GROWTH TOKYO TOKYO Prime The market for companies with high liquidity and governance standards and a focus on constructive dialogue with global investors 1,833 companies <Basic Concepts > Standard The market for companies with sufficient liquidity and governance standards to invest in a publicly traded market 1,442 companies ☐ Criteria are set according to the concept of each market segment Growth The Market for companies with high growth potential 538 companies Initial listing criteria and continued listing criteria for each market segment have been standardized in principle. (Note) The number of listed companies in each market is as of the end of June 2023. The number of companies applying the grace period (as of the end of December 2022) is 269 for the Prime Market, 200 for the Standard Market, and 41 for the Growth Market, for a total of 510 companies © 2023 Japan Exchange Group, Inc. 4#5Comparison with Global Exchanges - Market Cap. and Number of Companies (Prime Market) Market Cap. (Median) JPY 300 billion Market Cap. (Median) and Number of Listed Companies 750 companies Size of Circle: Total Market Cap. JPY 200 billion LSE (Premium) 1,000 companies NASDAQ (Global Select) Deutsche Boerse (Prime) JPY 100 billion Assuming that the number of companies is simply narrowed down 0 © 2023 Japan Exchange Group, Inc. Prime (Excluding companies disclosing plans to meet criteria) Prime 1,000 NYSE The goal for the Prime Market: enhance the corporate value of each listed company 1st Section Hong Kong (Main Board) 2,000 3,000 JPX Number of Listed Companies Note: TSE (old divisions) as of Apr. 1, 2022, others as of Jul. 1, 2022 (source: each exchange's website) 5#6Follow-up of Market Restructuring JPX . To improve the effectiveness of the market restructuring, TSE has established the "Council of Experts Concerning the Follow-up of Market Restructuring". In January 2023, TSE published the "Summary of Discussions on Measures to Improve the Effectiveness of the Market Restructuring" which summarizes the discussions to date and "TSE's Future Actions in Response to the Summary of Discussions of the Follow-up Council." which involve: Clarification of the end date of transitional measures with respect to the continued listing criteria (March 2025) Even for listed companies that are not at risk of violating the continued listing criteria TSE will establish a framework to motivate autonomous actions to enhance their medium- to long-term corporate value, such as by 1) raising awareness and literacy regarding cost of capital and stock price, 2) improving the effectiveness of dialogue with investors, 3) improving the quality of corporate governance, and 4) further expansion of English disclosure practices. In March 2023, TSE sent a notice and requests to listed companies regarding the following agenda from the Council: "Action to Implement Management that is Conscious of Cost of Capital and Stock Price", "Better Dialogue with Shareholders and Related Disclosure" and "Key Points and Examples of "Explanation" That Contribute to Constructive Dialogue". ⇒ The council will continue to follow-up on listed companies' responses to these requests. (Report and discussion scheduled for this fall) In addition, it will also discuss making English disclosure of necessary information mandatory for companies listed on the Prime Market. © 2023 Japan Exchange Group, Inc. 6#7(Reference) Examples of opinions and questions received so far (Excerpt of the meeting material of the 10th council on April 25, 2023) Necessity of follow-up on listed companies' response ➤ While we see this request as a favorable initiative, it is important to encourage companies to take action in the future so that this does not end with just a formal disclosure. (Foreign investor and others) ➤ Do you expect that the details of this request will be stipulated in the listing rules, etc. in the future? (Foreign investor and others) ➤ Investor engagement is key in preventing this request from becoming a formality. It is also important that the number of companies willing to engage in dialogue with investors increases. (Securities Company) Stance on share buybacks and dividend increases in response to this request JPX ➤ Many listed companies have asked for advice on how to respond to this request. However, since there is a tendency to take "one-time measures" such as share buybacks, it is necessary to fully inform the public of the purpose of the request. (Securities Company) ➤ For companies with investment opportunities that exceed their cost of capital, investments should be prioritized, but for companies without such opportunities, the best course of action may be to prioritize shareholder returns over investment in growth. It is important that this perspective be clarified. (Domestic Investor) Stance on PBR (1x) Why did you focus on companies having a PBR of 1x, understanding that it is not just a matter of exceeding 1x? (Foreign investor) There are concerns that companies will be short-sighted and think that it is enough to meet a PBR of 1x as a mere formality. A PBR of 1x is only an indicator, and investors are expecting companies to reconsider their sustainable business plans. (Foreign investor) Stance on trends by industry (regarding PBR, ROE, etc.) ➤ How should we consider and respond to industry trends with respect to PBR and ROE? (Listed company) Issues and future initiatives regarding the Growth Market ➤ This request is for companies listed in the Prime and Standard Markets, but what initiatives will be taken for those in the Growth Market in the future? (Domestic Investor) © 2023 Japan Exchange Group, Inc. 7#8JPX Continued Level of IPOs on TSE The number of IPOS on TSE in FY2022 remains high at 110 companies. • From FY2022, we launched programs for the management of companies aiming for IPO with IPO supporters in each region focusing on the establishment of an IPO ecosystem that contributes to revitalizing regional economies. 56 Number of IPOs on TSE 95 89 88 83 2014 2015 2016 2017 2013 (Fiscal Year) Prime Standard Growth 103 99 94 133 110 2018 2019 2020 2021 TSE First/Second Section Mothers JASDAQ Note 1: Includes initial listings on TOKYO PRO Market and does not include listings via TOKYO PRO Market. Note 2: Number of companies by the end of June for FY2023 © 2023 Japan Exchange Group, Inc. 2022 TOKYO PRO Market 30 2023 8#92,000 1,500 1,000 500 0 2009 No. of ETFs (left axis) for Actively Managed ETF JPX The market size for actively managed ETFs, which do not track underlying indicators, is expanding globally. Active ETFs respond to the needs of investors who expect flexibility in product creation and management by investment management firms and they enable management companies to flexibly structure and manage products. TSE has developed listing rules for actively managed ETFs, effective June 30, in order to maintain and improve its international competitiveness by establishing a system to provide products that accurately meet diversified investment needs. Global Expansion of Active ETFs Steady growth in total assets and the number of active ETFs globally The development of listing rules has become a pressing priority to maintain and improve international competitiveness. AUM and No. of Active ETFs (globally) Characteristics and Comparison of ETFs Existing Product New Product Index-linked ETF TSE Active ETF (Reference) Active ETF Listed 2010 2011 2012 2013 © 2023 Japan Exchange Group, Inc. 2014 2015 2016 2017 2018 2019 AuM(bil. USD)(right axis) (Source: ETFGI website) Listing Unlisted 600 Trading Price Market price (real-time basis) Base Price 400 Investment Objective Following index Growth of trust assets 200 Flexibility Low High 0 2020 2021 2022 Management Fee Low Medium High No. of ETFs (left axis) Disclosure of Portfolio Daily Every fiscal Daily year 9#102. Trading Services © 2023 Japan Exchange Group, Inc. JP#11Strengthening the Functions of the Cash Equity Market (1) !!!! Upgrading the cash equity trading system and revision to trading rule JPX To enhance resilience and market participants' convenience, TSE plans to revise trading rules for the extension of cash equity trading hours and introduction of the closing auction, etc. at the time of the arrowhead system upgrade on November 5, 2024. To ensure that the new system runs smoothly, we promote information provision to market users and system testing. Extension of trading hours Revisions to trading rules, etc. Strengthen ing resilience • Trading hours are to be extended by 30 minutes (closing time changed from 15:00 to 15:30 (JST)) to strengthen resilience and given that the current trading hours are relatively short compared to European, U.S. and other Asian countries. Closing auctions are to be introduced to improve transparency of closing price formation and other processes, as the afternoon close has become increasingly important amid the trend toward passive investment. A globally-used way of disseminating market information, Market By Order, is to be introduced to enhance convenience of trading by providing more detailed order information. The time it takes to reboot the system is to be shortened (from 3 to 1.5 hours). © 2023 Japan Exchange Group, Inc. 11#12Strengthening the Functions of the Cash Equity Market (2)!!!! Optimization of tick sizes for medium-liquidity issues In order to enable investors to execute trades at better prices, TSE optimized tick sizes for medium-liquidity issues (TOPIX Mid400) whose costs related to bids and offers had remained high from a global perspective. (adopted the same table as the TOPIX 100) By introducing smaller tick sizes, the spread (difference between bid and offer prices) was lowered. Average spread decreased by 48% in the period following this measure Average spread before and after change¹ JPX spread (yen) 5.0 4.37 4.0 3.0 2.0 1.0 48% decrease 2.28 0.0 Ave. before change (May 8-Jun 2) Ave. after change (Jun 5 - Jun 22) © 2023 Japan Exchange Group, Inc. (Source: Tokyo Stock Exchange) 1 Calculated on time-weighted average of the difference between the best offer price and the best bid price. Average value of TOPIX Mid400 constituent stock is used. 12#13Disclaimer - This English version is not an official translation of the original Japanese materials. In cases where any differences occur between the English version and the original Japanese version, the Japanese version shall prevail. Japan Exchange Group, Inc. ("JPX") and its subsidiaries, including Tokyo Stock Exchange, Inc., accept no responsibility or liability for damage or loss caused by any error, inaccuracy or misunderstanding with regard to this translation. This translation may be used for reference purposes only. JPX and its subsidiaries maintain the right to claim compensation for any damage or loss it may suffer from the violation of these conditions. - This document is prepared solely for the purpose of providing information regarding JPX and its subsidiaries, and as such, it is not intended as an offer or sale of securities or other similar action whether inside or outside Japan. Our securities have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. - This document contains forward-looking statements. These statements are based on our assumptions and beliefs in light of the information currently available to us and are subject to risks and uncertainties. These statements, including those on our business strategies, also reflect our current views or expectations, and thus they consider certain risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those we currently anticipate. As such, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of these materials. We disclaim any obligation to update the forward-looking statements contained in this material to reflect future events or developments. © 2023 Japan Exchange Group, Inc. JPX 13