Junko Fujita and Makiko Yamazaki

TOKYO, Reuters – Nearly 85% companies that are listed in the Tokyo Stock Exchange’s top section will be allowed on its “prime” market. The bourse announced Tuesday that this could dilute its aim to create a more prestigious mainboard.

Japan’s most significant overhaul of its equity markets for a decade, the TSE will introduce tougher listing criteria to its top category. The goal is to identify companies that are strong in profitability and whose governance meets international standards with the intention of luring foreign investors.

There are 2,185 listed firms on the main market. 1,841 of these have selected the prime market. However, 296 haven’t met the requirements, according to the TSE.

Investors believe that the new rules allow companies to remain on the prime markets for a period of time if they submit improvement plans.

For small caps firms, or businesses that are largely owned or controlled by business partners or parent companies, stricter liquidity rules – minimum 10 billion yen (90 million dollars) market capitalization in tradable securities – can be very difficult.

Keiichi Toko, chief quants analyst for SMBC Nikko Securities stated that there were more firms than anticipated who have not met the requirements.

Ito claimed that cross-shareholdings will be reformed by companies. Cross-shareholdings are a Japanese common practice, where companies hold stakes with partners to strengthen relationships.

He stated, “This positive in corporate governance perspectives is very encouraging.”

Shinzo Abe was the former Prime Minister. He began a policy to bring foreign investors back into Tokyo’s markets. Japan worries that institutional asset managers worldwide are failing to recognize Japan.

The exchange will be reorganizing its existing four markets in April 4. It will do so by dividing them into three new market segments, “prime”,’standard” or “growth.”