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Japan: Clarifying insider trading rules

Japan introduced insider trading regulations for listed securities in 1988

Eri Arai

Japan introduced insider trading regulations for listed securities in 1988. The regulations were introduced with a background of foreign investors' participation in the Japanese financial market and the international tendency to adopt stricter sanctions for insider trading, as well as rising interest inside of Japan. The relevant regulations are mainly provided for in the Financial Instruments Exchange Act and the Cabinet Office Ordinance on Restrictions on Securities Transactions, etc. They have been amended multiple times since their introduction, further enhancing or clarifying the restrictions.

Exceptions to the restrictions are provided for as a specified list, to make the scope of the exceptions clear for market participants. However, because the provisions could sometimes be rigid, in September 2015, a new amendment to the insider trading regulations was implemented. This amendment introduced a new, more comprehensive exception to the restrictions.

Under the amended insider trading regulations, the following type of transaction is additionally exempted from the restrictions:

  • securities transactions that are implemented as the execution of contracts or plans that were entered into or determined in writing before gaining knowledge of the insider information (so called contract/plan before knowledge).

To be exempted, these transactions must satisfy one of the following requirements:

(i) where a copy of the contract/plan before knowledge has been submitted to a securities company, and the date of the submission is confirmed (excluding securities companies that are a party or co-planner thereof);

(ii) where the contract/plan before knowledge bears a certified date; or

(iii) where the contract/plan before knowledge has been disclosed and made available for public inspection.

In each case, the type of transaction, brand of securities, date and total amount or number must be either specified or determined in a method which leaves no room for discretion.

The new insider trading regulations are anticipated to provide effective exceptions to the restrictions and contribute to a clearer environment for participants in the financial market.

Eri Arai

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