Key points

  • Regulations regarding cross-shareholdings consist of three layers: the Corporate Governance Code, the annual Securities Report, and the TSE's tradable shares rules.
  • Principles 1-4 of the 2026 revised code require holding policies including reductions, verification of each stock, standards for exercising voting rights, as well as not preventing sales by cross-shareholding shareholders and not continuing transactions that are not economically rational.
  • In annual securities reports from the fiscal year ending March 2025 onward, stocks that have been changed from strategic holding purposes to pure investment purposes will be tracked and disclosed, including the year of change, reason, and post-change holding/sale policy.

The current system has three tiers.

When reading cross-shareholding disclosures, don't just look at one document. Verification of company policies and the board of directors is shown in the Corporate Governance Code, holding status by stock is shown in the annual securities report, and the impact on maintaining listing is shown in the TSE's rules for tradable shares.

system Main documents what to ask
Principle-based governance discipline Corporate governance report Why hold it? Is there a reduction policy? How does the board of directors verify and exercise voting rights?
statutory disclosure annual Securities report Which stocks, how many shares, and at what price do you own them? What is the purpose of ownership, quantitative effects, and reasons for increase/decrease?
Listing maintenance standards tradable-share ratio/traditional stock market capitalization Will necessary liquidity be secured as a result of excluding holdings by banks, insurance companies, business corporations, etc. from tradable shares?

The three systems are pointing in the same direction. Rather than immediately prohibiting cross-shareholdings, the mechanism is to require annual explanations on the rationale for cross-holdings, reduce relationships that have no economic rationality, and impose costs on remaining holdings in terms of market liquidity.

2026 Revised Code Principles 1-4

The Corporate Governance Code, which was finalized in July 2026, has organized four practical points to check regarding cross-shareholdings.

  1. Holding policy including reduction and verification of each stock. Every year, the board of directors examines whether the holding purpose, benefits, and risks of individual stocks are commensurate with the cost of capital, and discloses the results.
  2. Standards for exercising voting rights. Rather than automatically agreeing to a company's proposal because there is a business relationship, have specific criteria based on corporate value and the common interests of shareholders.
  3. Does not prevent sale. When a business partner that holds cross-shareholdings in its own company requests a sale, do not prevent the sale by suggesting a reduction in transactions or otherwise.
  4. Do not continue unreasonable transactions. Transactions with cross-shareholding shareholders that harm the common interests of the company and its shareholders must not be continued without sufficient verification of their economic rationality.

With this structure, the issue regarding cross-shareholdings is no longer just “should it be held?” Governance issues include whether the company holding the stock is preventing the sale of the stock and whether there is an inappropriate link between stock ownership and commercial transactions.

Each stock is explained in the annual securities report.

Under the statutory disclosure, companies with a certain number of cross-shareholdings or more are required to state the number of shares by issue, the amount recorded on the balance sheet, the purpose of holding, the quantitative effect of holding, and the reason for the increase or decrease in the current period. Due to system reforms, the number of stocks subject to individual disclosure has expanded.

In practice, the weakest statement is one that ends with a single sentence, “To maintain and strengthen business relationships.” The existence of a business relationship is an explanation of the fact, not an explanation of why capital is tied up. At a minimum, the following items need to be presented in one flow.

Check items What is disclosed?
Purpose of holding What specific businesses, transactions, joint developments, and supply relationships will it lead to?
economic benefit How did you measure the benefit? How did you compare not only sales and procurement but also cost of capital?
risk Impact on stock price fluctuations, concentration, dependence on business partners, reputation, and liquidity
Judgment of the Board of Directors Choose whether to continue, downsize, or sell, and when to reconsider?
Exercise of voting rights What criteria should you use to make decisions without automatically agreeing to company proposals?

Even if you write that it is difficult to quantify the benefits, do not end your explanation there. It is necessary to record what materials were presented to the board of directors, what alternative indicators were used to verify the stock, and what was used to determine whether to continue holding the stock.

Do not end with “change to pure investment purpose”

A new problem has arisen as more and more companies change the classification of cross-shareholdings to pure investment purposes and continue to hold them for long periods of time. Even if only the name is changed to “net investment,” it cannot be said to be removed from cross-shareholdings as long as the transaction relationship is maintained.

For this reason, in accordance with the amendment to the Cabinet Office Ordinance in January 2025, the following matters will be disclosed regarding shares that have changed from strategic holding purposes to pure investment purposes within the last five fiscal years, including the current fiscal year, and are still held as of the end of the fiscal year.

  • Brand name
  • Number of shares
  • Balance sheet amount
  • Year in which the purpose of holding was changed
  • Reason for change
  • Changed holding or sale policy

The revised provisions will be applied from annual securities reports, etc. for fiscal years ending on or after March 31, 2025. Even after converting it to pure investment purposes, there are questions about how long you will hold it, at what price and terms you will consider selling it, and why you are still holding it.

Weaknesses revealed by the 2026 review

The Financial Services Agency's annual securities report review focused on the following statements regarding cross-shareholdings.

  • The purpose of holding each stock is abstract, and company-specific relationships are unclear.
  • No substantive purpose such as "securing stable shareholders" is stated.
  • The relationship between the details of the verification by the board of directors and the actual continuation/increase in holdings is not explained.
  • The reason for the change to pure investment purpose and the sale policy after the change are not clear.

What we can see from this is that the system has moved from filling out forms to looking at consistency between written content and actual behavior. If the amount held increases despite a reduction policy, it is necessary to separately explain whether this is due to a rise in stock prices or additional acquisitions. If you intend to sell the stock and continue to hold it for many years, you will need to show the terms and conditions of the sale and your progress.

Verification table by stock that can be used at board of directors meetings

In practice, rather than discussing cross-shareholdings all at once, it is recommended to submit the following table to the board of directors, at least for important stocks.

Item Content
Issue/Holding amount Number of shares, market value, book value, percentage of equity
History of ownership Acquisition timing, initial purpose, and relationship with the other party
current benefits Specific business benefits and how to measure them
Comparison with capital cost Evaluation and assumptions including dividends received, unrealized gains and losses, and trading benefits
risk Stock price decline, concentration, possibility of sale, impact on business relationships
Exercise of voting rights Important proposals from the previous year and reasons for decisions
conclusion Continuation, reduction in stages, or sale
Execution time Date of next review, estimated date of sale, status of discussions with the other party

The purpose of this table is not to create a precise single point number. The board should be able to move away from the judgment of “holding a stock because it has a long relationship” and be able to compare each stock based on the same criteria.

Implications that IR personnel should be aware of

  1. Create corporate governance report and annual securities report from the same data. If the policy and results are created in different departments, the reduction policy and the description by brand will be inconsistent.
  2. Review your conduct as the issuer whose shares are held, as well as your own holdings. When a business partner wants to sell shares in your company, do not exert pressure through trading terms or orders.
  3. Track after change to pure investment objective. Classification change is not an exit. Make it possible to disclose sales policy, holding period, and actual sales results.
  4. Managed together with the tradable-share ratio. Reducing cross-shareholdings not only affects the capital efficiency of the holding company, but also the liquidity and listing maintenance of the issuing company.
  5. Explain not only the sales record but also the reasons for remaining stocks. The further the reduction, the greater the accountability of the last remaining stocks.

Source/reference materials

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