Japan's government will begin market consultations on Friday
to determine how best to strengthen insider trading rules, a
ruling party lawmaker has said.
Insider trading ahead of public share offerings has emerged
as a widespread problem in Japan in recent months. Since March,
Japan's Securities and Exchange Surveillance Commission (SESC)
has fined three investment firms in a total of four insider
trading cases as part of a wider probe into the practice.
In the latest case, revealed last week, the SESC issued its
harshest penalty yet against US broker-dealer First New York
Securities with a $185,000 fine.
But the Democratic Party's Shinsuke Amiya told IFLR the
punishments were still too gentle.
"Recent events have shown that this not a problem limited to
Japanese companies but US ones also," he said.
"It has highlighted that our sanctions have been too light,"
he said. "That's why this kind of scandal is happening
repeatedly. Insider trading laws have been amended in the past
but clearly not enough."
Understanding the scale of the problem had to be the first
priority, he said.
To that end, weekly meetings would be held from Friday with
securities companies, fund managers and investment banks in
Japan, said Amiya, who is also a member of a working group
formed to look at strengthening insider trading regulations and
a former vice chairman of Merrill Lynch Japan.
It is hoped such consultations will help determine what exactly
is going on and what sanctions need to be instigated in order
to stamp out the practice.
Market participants including investors, underwriters and
international institutions would be consulted with first, he
"We'd like to hear their opinion on how we should react to
this," he said.
He wanted rules that would strip offenders of their
operating licenses to be considered and the establishment of a
new fining system to complement to the modest one already in
"If a person is making money by using insider information they
face a fine and other penalties," he said. "However those not
making money face no real penalities. That's not right."
The fines have also been too small because they have been
based on the estimated commission from investors in those funds
and not on the profit made.
Baker & McKenzie's Tokyo-based litigation and dispute
resolution group co-chair, Haig Oghigian, agreed the regulator
had to sharpen his pencil.
"This is part of the SESC joining the mainstream of other
regulators' vigilance," he said. "I'm hopeful that the tighter
regulations and robust fines are focused on financial
institutions across the board (including Japanese ones)."
Market consultations are expected to be completed, and opinions
finalised, in two months.