Japan probe highlights culture of insider trading

A probe into insider trading has thrust the spotlight on the cosy world of Japanese share dealing, with US investment banking giant JPMorgan now ensnared in the snowballing investigation.

Criminal convictions for trading on inside information are few and far between in Japan. For those who are caught, the token punishments are hardly a deterrent -- recent fines have come in at around $1,500.

That's a far cry from the West, where multi-million-dollar financial penalties or even jail time are the norm. Wall Street hedge fund manager Raj Rajaratnam is now serving an 11-year prison term, the longest ever imposed for insider trading by a US court.

But in a market where personal relationships are cultivated and nurtured over years, a tip that allows a friend or client to pounce on an upcoming share issue is seen as par for the course in Japan, dealers say.

"Japan should punish those who leak confidential information," said Etsuro Kuronuma, a law professor at Tokyo's prestigious Waseda University.

"Even if a brokerage sets internal rules, you cannot supervise your employees all the time... (Leaks) violate the trust of share issuers."

The investigation by securities regulators has sparked renewed pressure to crack down on lax regulations, amid concerns about Japan's flagging reputation for corporate governance.

Its image has been dented by a string of financial scandals such as a cover-up of about $1.7 billion in investment losses at camera and medical equipment maker Olympus.

On Tuesday, Japan's Securities and Exchange Surveillance Commission recommended that Asuka Asset Management be fined for short-selling Nippon Sheet Glass shares after illegally obtaining information ahead of a stock sale that JPMorgan was underwriting.

A sales executive for the US bank -- which is already reeling from a shock $2.0 billion loss on derivatives trading -- was the source of the leak, Dow Jones Newswires reported, citing an unidentified source.

The SESC did not name the alleged source, but JPMorgan was reportedly one of only two underwriters taking part. The other, Daiwa Securities, has said that it was not involved in the inquiry.

In a statement, JPMorgan said it "takes this matter extremely seriously and will continue to take measures to enhance our internal control".

"We are cooperating fully with the authorities on this matter," it added.

To the anger of some observers, the SESC recommended a fine of just 130,000 yen ($1,650) for Asuka, even though it was alleged to have made more than 60 million yen.

Two other cases involving Sumitomo Mitsui Trust Bank and Japan's biggest brokerage Nomura sought fines of just 80,000 yen and 50,000 yen.

"(That is) pocket change in the life of markets," Nicholas Smith, a strategist at brokerage CLSA, wrote in a recent report on the issue.

The total fines sought in more than 100 insider-trading cases in Japan during the past five years totalled about $2.3 million. In the United States, Rajaratnam alone must pay more than $150 million in criminal and civil fines.

Japanese brokers routinely disclose material information about share sales that their employer's investment bankers have been consulting on, analysts say.

A so-called "Chinese Wall" is meant to keep sensitive information from spreading beyond the investment banking side, but the problem persists.

"A broker who got a tip from (the investment banking division of the same brokerage) feels incentivised to tell his clients because he thinks he has impactful information for those clients," Smith wrote.

Both brokers and investment bankers "stand to potentially profit through higher bonuses if their company makes money as a result of their actions, but neither has traded on the news", he said.

That legal loophole means Japanese tipsters are "essentially immune from prosecution as long as they do not themselves trade on the news", Smith said.

The issue has prompted a call to action from some legislators, with Financial Services Minister Shozaburo Jimi on Friday vowing tighter rules and stiffer penalties.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Catholics organize to promote pope's climate change message

    NEW YORK (AP) — There will be prayer vigils and pilgrimages, policy briefings and seminars, and sermons in parishes from the U.S. to the Philippines. …

  • Forgotten for decades, fallen NY soldier finally honored
    Forgotten for decades, fallen NY soldier finally honored

    ALBANY, N.Y. (AP) — Carroll Heath didn't have it easy growing up in the Great Depression. His father wasn't around, his mother was a patient in a mental hospital and he kept largely to himself. Soon after graduating high school, he enlisted in the Army and wound up in the Philippines, where he's believed to have died sometime in 1942. …

  • APEC ministers to endorse Boracay Action Agenda
    APEC ministers to endorse Boracay Action Agenda

    Trade ministers at the Asia-Pacific Economic Cooperation (APEC) meeting in Boracay, Aklan agreed yesterday to endorse the proposed Boracay Action Agenda to the member countries’ leaders, presenting opportunities for global trade for micro, small and medium enterprises (MSMEs). In a press conference following the conclusion of the APEC Ministers Responsible for Trade Meeting, Trade Secretary Gregory Domingo, who also served as chairman, said ministers agreed to recommend the adoption of the …

  • Talks with China over sea row urged
    Talks with China over sea row urged

    The Philippines should engage China in bilateral talks in its efforts to maintain peace and order at the disputed West Philippine Sea, Sen. Francis Escudero said yesterday. Escudero supports the government’s move to bring the issue before international arbitration but also stressed the need for the Philippines to pursue talks with China. Escudero made the statement after UN Secretary General Ban Ki-moon on Friday called for a peaceful solution to territorial disputes in the South China Sea. …

  • House panel tackles bill on regular disaster drills
    House panel tackles bill on regular disaster drills

    The House committee on national defense is deliberating on a measure mandating the regular conduct of disaster risk reduction drills in educational institutions nationwide. Authored by Camarines Sur Rep. Rolando Andaya Jr., the bill mandates that risk reduction drills be held annually in all educational institutions throughout the country in coordination with the schools’ respective local government units. “The Philippines’ location along the Pacific Ring of Fire and close to the equator …

  • PCSO running out of funds
    PCSO running out of funds

    Philippine Charity Sweepstakes Office (PCSO) chairman Ireneo Maliksi has admitted that the revenue-generating agency is running out of funds as it continues with its mandate to provide financial assistance to indigent Filipinos. Aside from providing financial help to individual recipients, Maliksi cited at least 13 laws that mandates the PCSO to provide mandatory contribution to different government agencies. Just last week, PCSO released P100 million to the Commission on Higher Education as …

  • Cops receive mid-year bonus
    Cops receive mid-year bonus

    Active duty uniformed and non-uniformed personnel of the Philippine National Police (PNP)have received their mid-year bonuses. The PNP has released P1.9 billion for the mid-year bonus of the 155,000 active duty uniformed and non-uniformed personnel. The Directorate for Comptrollership released P1,933,664,893.50 through the Finance Service and subsequently credited to the individual ATM payroll accounts of active duty uniformed and non-uniformed personnel. …

  • APEC trade chiefs vow to speed up work in WTO

    MANILA, Philippines (AP) — Trade ministers from 21 Asia-Pacific countries on Sunday issued strong support to the World Trade Organization's efforts to boost global trade amid a flurry of regional free trade agreements. …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options