The SESC, the Japanese version of the SEC, has stepped up its investigations of insider trading allegations related to public stock offerings of Japanese companies. Recently, there have been instances where stock prices have fallen immediately before offerings were publicly announced. Critics have argued that this pattern suggests that some traders are getting information about offerings from securities companies before the public announcement of the offerings. Using this information, the traders sell the issuing company’s stock at a higher price in anticipation of a stock price drop due to the increase in capital, which leads to the stock price drop prior to the public announcement of the offering. Seeking to address potential insider trading, the SESC has opened a number of investigations.
On March 21 and May 29, 2012, the SESC recommended the Japanese Financial Services Agency issue an administrative monetary penalty order against Sumitomo Mitsui Trust Bank, Ltd. for insider trading in relation to the 2010 public share offerings held by Mizuho Financial Group Co., Ltd. and Inpex Co., Ltd., respectively. In addition, on June 8, the SESC recommended an administrative monetary penalty order against First New York Securities L.L.C., a New York based broker-dealer, for insider trading in relation to the 2010 public offering by Tokyo Electric Power Co., Ltd. The charges alleged the use of confidential information of the public offering to sell the issuing companies’ stock immediately before the public announcement of the offering. In each case, the employees providing the alleged information tips were from Nomura Securities Co., Ltd., a leading Japanese securities company and the underwriter in each instance. After the press release of the First New York case, Nomura officially admitted that they had tipped off traders to the confidential information.
In furtherance of its efforts to combat insider trading, the SESC also established in August 2011 an international trading investigation section that mainly handles overseas transactions, sometimes cooperating with the SEC.