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Japan's Reit insider trading reform

An Act coming into force by June introduces insider trading regulations applicable to listed investment corporations, typically Japanese real estate investment trusts

Toru Takayama
The Act for the Amendment of the Financial Instruments and Exchange Act (the Amendment) was promulgated on June 19 2013, and will come into force within one year, the specific date to be determined by way of a cabinet order. The Amendment introduces insider trading regulations applicable to listed investment corporations, typically Japanese real estate investment trusts (J-Reit).

Prior to the Amendment, the sale and purchase of investment securities issued by investment corporations were, in principle, exempt from insider trading regulations. This ambiguity was problematic, as it was in principle possible for investors to trade in investment securities based on material facts that had not been made public. The Amendment addresses such issues and ensures investor confidence in the Japanese securities market.

The Amendment seeks to address the above issue by confirming that the sale and purchase of investment securities of listed investment corporations are covered by insider trading regulations. Specifically, the Amendment clearly prohibits the sale and purchase of investment securities of listed investment corporations by any person with material non-public facts concerning the subject listed investment corporation.

In addition, the existing legislation is silent with respect to the disclosure of non-public material information to a third person, or any other conduct by such a person taken to influence a third person to trade in the subject securities, with or without any express disclosure of the material non-public information. The Amendment addresses this issue and explicitly prohibits any such disclosure or conduct, described as any act taken for the purpose of allowing a third person to earn a profit or avoid a loss by way of trading in the subject securities. For more information on this topic, the Financial Services Agency of Japan published a Q&A on this issue on September 12 2013.

It is believed that the Amendment will encourage confidence in the Japanese markets. In addition, listed investment corporations and asset management companies would be wise to review and confirm their internal policies and by-laws to ensure compliance with these new expanded insider trading regulations.

Toru Takayama

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