The biggest overhaul of Japan's equity market in decades may be set to spur a wave of mergers and acquisitions.
The Tokyo Stock Exchange is considering cutting its number of markets from five to three, creating a "prime" segment for the biggest and best-governed stocks. It could also slash the number of companies in the country's bloated benchmark index, which currently has more than 2,100 firms many of which are small and hard to trade.
If Topix index membership is shrunk to a level on par with the S&P 500 index in the U.S., that could force passive funds to sell companies that don't make the grade. Size would become more important than ever for attracting stock investment. And that, in turn, could lead to a spate of mergers and acquisitions by firms looking to get into the gauge.