Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Japanese Banks:  Beyond the Ides of March

🇯🇵 Japan • Relative Price Scores - Market, Sectors & Peer Groups > Extreme Negative Divergence

Nikkei Pressing on Intermediate Rejection Resistance

Big Trouble in Little Stocks? Maybe TSE Mulls Changing TOPIX

Takeda: Move Over Newton! Now It's Spooky Action At a Distance

Softbank Corp, Takeda, and Newton's Three Laws of Motion

Quiddity Advisors

Thematic (Sector/Industry)

Japan Consumer discretionary / Thematic (Sector/Industry)

Late last December after a Nikkei article on 21 December titled  <a href="https://asia.nikkei.com/Business/Markets/Tokyo-Stock-Exchange-s-big-board-about-to-get-a-lot-smaller" target="_blank">Tokyo Stock Exchange's big board about to get a lot smaller</a> suggested the TSE would boot up to 1500 stocks from TOPIX, which now boasts 2130+ members - far more than major indices in other developed markets.The same day, the TSE released a  <a href="https://www.jpx.co.jp/english/rules-participants/public-comment/detail/d01/e20181221-01.html" target="_blank">Consultation Paper "Review of the TSE Cash Equity Market Structure" </a>(<a href="https://www.jpx.co.jp/english/rules-participants/public-comment/detail/d01/b5b4pj000002m0rr-att/b5b4pj000002m0tx.pdf" target="_blank">Paper,</a> and <a href="https://www.jpx.co.jp/english/rules-participants/public-comment/detail/d01/b5b4pj000002m0rr-att/b5b4pj000002m0u0.pdf" target="_blank">Data</a> presentation).My conclusion (in <a href="https://www.smartkarma.com/insights/big-trouble-in-little-stocks-maybe-tse-mulls-changing-topix" target="_blank" data-smartkarma-citation="insights:27039">Big Trouble in Little Stocks? TSE Mulls Changing TOPIX</a> almost three months ago) was that there was no good news to be had in bulk on small cap stocks relative to large cap stocks unless they made it clear they'd use the opportunity to buy back stock, etc.In the interim, there has been considerable speculation about the eventual disposition of smallcap stocks. There was an extensive Toyo Keizai article in early March which pointed to stocks below a market cap of ¥100 billion being possibly excluded from the "step-up" market. There was a Nikkei article on March 15 which suggested that the "limit" might be considerably lower - perhaps ¥25 billion - and that the limit might have other softer elements such as a requirement to deliver or release company reports in English. There have been other 'non-financial elements' suggested as well, such as independent director count, cross-holding policies, etc. It is not clear whether the substantially different reports are the rival speculations of different media enterprises, or the rival agendas of different factions within the power structures who may care (the TSE, FSA, Keidanren, JPFA, JSDA, brokers themselves, a whole raft of small companies, the Securities documentation printing houses, etc).There are theoretically a lot of vested interests in keeping a very large number of companies listed, and a very large number of companies in widely-followed/tracked indices. Brokers get money from being underwriters on deals. The more companies there are the more deals there are. Brokers also make money by providing the stock loan access for investors who want to go short stocks. If 1500 small stocks are removed from a broad index, it will become incrementally more difficult to borrow them - to make markets or go short. The documentation printing houses charge each company for adapting their financial statements and reports into the regulator-mandated formats and uploading them, running the IR sections of their websites, etc. On the other hand, if half the listed companies in Japan were simply to decide that they'd be better off if they merged into other large companies, then those providers would lose big. Some of the more aggressive local stewards and governance hounds are all for much more rigorous standards. <h2>The New News</h2>Last week the TSE released a document outlining the <a href="https://www.jpx.co.jp/english/corporate/news/news-releases/0060/b5b4pj000002rnmp-att/b5b4pj000002rnpd.pdf" target="_blank">Comments Received from Market Participants in Response to the Review of the TSE Cash Equity Market Structure</a> along with their version of a <a href="https://www.jpx.co.jp/english/corporate/news/news-releases/0060/b5b4pj000002rnmp-att/Summary.pdf" target="_blank">Summary</a>.The two-page <a href="https://www.jpx.co.jp/english/corporate/news/news-releases/0060/b5b4pj000002rnmp-att/Summary.pdf" target="_blank">Summary</a> is actually not a bad recap of the issues, BUT... there's more.There is a fair bit of pent-up expectation that there will be selling of small caps. There is a need to see improvement in governance, independence, board structure, and capital stewardship by a very large number of companies in Japan, and small companies outside MOTHERS are often viewed as lacking in effort to improve governance so the reason why there could be selling.However, it is not clear there needs to be any selling, which is somewhat counterintuitive.

Late last December after a Nikkei article on 21 December titled  Tokyo Stock Exchange's big board about to get a lot smaller suggested the TSE would boot up to 1500 stocks from TOPIX, which now boasts 2130+ members - far more than major indices in other developed markets.The same day, the TSE released a  Consultation Paper "Review of the TSE Cash Equity Market Structure" (Paper, and Data presentation).My conclusion (in Big Trouble in Little Stocks? TSE Mulls Changing TOPIX almost three months ago) was that there was no good news to be had in bulk on small cap stocks relative to large cap stocks unless they made it clear they'd use the opportunity to buy back stock, etc.In the interim, there has been considerable speculation about the eventual disposition of smallcap stocks. There was an extensive Toyo Keizai article in early March which pointed to stocks below a market cap of ¥100 billion being possibly excluded from the "step-up" market. There was a Nikkei article on March 15 which suggested that the "limit" might be considerably lower - perhaps ¥25 billion - and that the limit might have other softer elements such as a requirement to deliver or release company reports in English. There have been other 'non-financial elements' suggested as well, such as independent director count, cross-holding policies, etc. It is not clear whether the substantially different reports are the rival speculations of different media enterprises, or the rival agendas of different factions within the power structures who may care (the TSE, FSA, Keidanren, JPFA, JSDA, brokers themselves, a whole raft of small companies, the Securities documentation printing houses, etc).There are theoretically a lot of vested interests in keeping a very large number of companies listed, and a very large number of companies in widely-followed/tracked indices. Brokers get money from being underwriters on deals. The more companies there are the more deals there are. Brokers also make money by providing the stock loan access for investors who want to go short stocks. If 1500 small stocks are removed from a broad index, it will become incrementally more difficult to borrow them - to make markets or go short. The documentation printing houses charge each company for adapting their financial statements and reports into the regulator-mandated formats and uploading them, running the IR sections of their websites, etc. On the other hand, if half the listed companies in Japan were simply to decide that they'd be better off if they merged into other large companies, then those providers would lose big. Some of the more aggressive local stewards and governance hounds are all for much more rigorous standards. The New NewsLast week the TSE released a document outlining the Comments Received from Market Participants in Response to the Review of the TSE Cash Equity Market Structure along with their version of a Summary.The two-page Summary is actually not a bad recap of the issues, BUT... there's more.There is a fair bit of pent-up expectation that there will be selling of small caps. There is a need to see improvement in governance, independence, board structure, and capital stewardship by a very large number of companies in Japan, and small companies outside MOTHERS are often viewed as lacking in effort to improve governance so the reason why there could be selling.However, it is not clear there needs to be any selling, which is somewhat counterintuitive.

東証の市場構造見直し：パブリックコメントは予想通りだったが、的外れ