Overview of Green Sheet Market

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July 1, 2004     
D.Brain Securities     

What is the Green Sheet Market?

  Green Sheet Market was established in July 1997 and operated by the Japan Securities Dealers Association (JSDA) as a securities market in which the shares of unlisted companies can be traded. In August 2002, the Financial Service Agency's program to energize the securities market called for market expansion. In response, in April 2003 the JSDA revised its regulations and set up a market system intended to function alongside the over-the-counter (OTC) market.
  The issues are classified as emerging (venture companies and companies aiming for growth), phoenix (companies whose shares have been delisted for trading), regional (other companies) and investment trusts and SPC. As of June 30, 2004, 83 issues were listed in the Green Sheet Market, and of these 59 were emerging issues. About 50 issues in the emerging issues category were registered as new issues over two years, and currently 2-3 new issues are registered every month.
  In July 2003 JSDA's system was approved as a personal trading system (PTS) by the FSA and the Green Sheet trading system began operating. JSDA implemented a number of improvements to the market system to enhance its functionality as an essentially OTC market.


Characteristics of Green Sheet

  The characteristics of the Green Sheet securities market are as follows:

100,000 small and midsize companies nationwide able to undergo share offering

  Companies with only 10% of the total market value of typical listed companies (total market value of 200 million - 1 billion yen) are able to list their shares so that 100,000 small and midsize companies nationwide are able to list in Green Sheet market.

Provides a new way for small and midsize companies to raise capital

  After share registration, with the cooperation of related  securities companies the market provides a newly listed company with an opportunity to raise an average of about 70 million yen by means of a public offering. This method is used by small and midsize companies  interested in growth to raise capital.

Wider array of stock investment options for investors

  In conventional offerings by securities companies, investors interested in stock investment participate in stock trades. Green Sheet Market is different in that people interested in particular companies and businesses become shareholders and invest in order to support a business. Often called "fund-raising through enlarged connections," this method dramatically expands the connections involved in typical fund-raising to include companies' customers, clients and managers. Over 90% of these new connections are investors with no investment experience. This has expanded the ranks of investors not interested in investments as a financial instrument
but interested in becoming a shareholder in the issuing company. The corporations' shareholder subscriptions are carried out by the securities company, and Green Sheet market is a very accessible securities market for small and midsize companies.

Secondary market complements primary market

  In general, the secondary market in which shares are bought and sold is central to the securities market. However, the primary market, which supplies companies' businesses with direct financing is central to the Green Sheet Market. The secondary market complements the primary market and facilitates investing in the primary market by providing a space in which investors can cash out their investments. Since there is no need for financial instruments intended for the secondary market, more and more small companies are undergoing share offerings.



D.Brain Securities' role in Green Sheet Market

  D.Brain Securities is a securities company established in 1997. The company specializes in supporting venture companies and small and midsize companies raise money through share issuances, relying on its network of certified public accountants and other experts.
  D.Brain Securities is the lead securities company for conducting registration in the Green Sheet Market (lead manager), and has served as the lead manager in registering all 59 emerging issues. It also serves as lead underwriter for companies that progress from registration in the Green Sheet Market to listing. D.Brain Securities is Japan's only investment bank for small and midsize companies that specializes in share offerings through Green Sheet and securities markets for new and up and coming companies.

 

  As lead securities company for Green Sheet, D.Brain Securities is responsible for screening companies and ensuring disclosure. D.Brain Securities has accumulated impressive knowledge on assessing small companies, while its network of certified public accountants has built a low-cost, high-quality disclosure system. This ensures that companies registered with Green Sheet provide quarterly statements and timely disclosure equivalent to the disclosure provided by listed companies.
  In July 2003 Matsui Securities participated in trading using PTS. Matsui Securities sold issues for which D-Brain securities serves as lead manager to existing investors through the Internet. Since Matsui Securities is responsible for subsequent distribution, this helps to improve Green Sheet's low liquidity. In addition to Matsui Securities, Toyo Securities, JET Securities, KOBE Securities, Okinawa Securities and Kimura Securities also participate in the Green Sheet Market by selling issues.


Companies listing from Green Sheet

  Several emerging issues registered in the Green Sheet Market have gone on to public share listings. In February 2003 Business One was listed on Fukuoka Stock Exchange's Q-Board, and in May 2003 ED-Contrive was listed on Tokyo Stock Exchange's Mothers, and in March 2004 Alpha Trend was listed on Sapporo Stock Exchange's market for startups called "Ambitious." Both of these companies employed D.Brain Securities as their lead underwriter.


Green Sheet transactions in secondary market

  Green Sheet's secondary market is extremely important for its role in complementing the primary market as a place in which issues can be converted to cash. The operation of PTS has improved the market system, and the number of securities companies buying and selling in the Green Sheet Market has increased. Fluctuations in PTS turnover is shown in the graph below. Total turnover in the one-year period from July 2003-June 2004 was 260 million yen. The highest monthly turnover was 66 million yen in April 2004.