Important changes to Japan's Insider Trading Regulations
On 12 June 2013 the Japanese legislature passed a bill amending the Financial Instruments and Exchange Act (the "FIEA"). As mentioned in our previous updates, Japan's insider trading regulations have been under consideration for some time, and the amendments to the FIEA introduce important changes to the potential sanctions for those who disclose inside information ("tippers"). These changes are due to come into force by June 2014.
The key amendments to the FIEA in respect of insider trading can be summarised as follows:
- Prohibition on disclosure of inside information by tippers to recipients acting on such disclosure
In Japan, to date, tippers have not been subject to direct sanctions for insider trading. Tippers could be prosecuted only if they were found to have aided and abetted a recipient of inside information who had gone on to trade using this inside information. The burden of proof in this respect was difficult to satisfy.
Following the recent amendments, the FIEA now provides for penalties where tippers either (i) disclose inside information or (ii) engage in the "act of encouraging trading/dealing" with inside information by recipients. The maximum penalty under the amended FIEA for an individual tipper is five years' imprisonment, a JPY 5 million fine, or both. However, criminal sanctions will only be applicable against the tipper where the recipient of the inside information actually trades using this information.
Amending the FIEA to include tippers brings Japan into line with the general approach taken internationally to insider trading sanctions.
- Publishing names of individuals in breach of the FIEA
The amended FIEA also includes a provision allowing for the names of individuals in breach of the FIEA to be published by Japan's Financial Services Authority, including tippers. Names will be published where deemed necessary, in the public interest and for the protection of investors. This new method of enforcement is intended to act as a deterrent against breaches of the FIEA.
- Fines for fund managers making illegal trades with fund assets
The level of fines which may be made against managers trading on the basis of or manipulating markets using inside information has significantly increased under the amendments to the FIEA. Previously, such fines had been calculated on one month's worth of management fees and pro-rated by the ratio of the value of the shares subject to insider dealing against the entire fund's worth. Now, fines will be calculated on the basis of three months' management fees, with no pro-rating.
A comprehensive summary of the key changes to the FIEA is available from the Japanese Financial Services Agency website, to access this please click here.