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.


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.

  • Militants want US Marines pulled out of Negros
    Militants want US Marines pulled out of Negros

    The militant group Bagong Alyansang Makabayan (Bayan) is calling for the pullout of US Marines who arrived in Sagay City, Negros Occidental last Wednesday to train Special Action Force (SAF) commandos and members of the allied forces. The SAF commandos and the allied forces will secure the Asia-Pacific Economic Cooperation (APEC) ministerial meeting in this city. Bayan-Negros secretary general Christian Tuayon said the US troops might violate the human rights of activists, especially those …

  • China subs outnumber US fleet – admiral
    China subs outnumber US fleet – admiral

    China is building some “fairly amazing submarines” and now has more diesel- and nuclear-powered vessels than the United States, a top US Navy admiral told US lawmakers on Wednesday, although he said their quality was inferior. Vice Admiral Joseph Mulloy, deputy chief of naval operations for capabilities and resources, told the House Armed Services Committee’s seapower subcommittee that China was also expanding the geographic areas of operation for its submarines, and their length of …

  • Pacman mega fight tax exemption up to Congress, BIR
    Pacman mega fight tax exemption up to Congress, BIR

    Malacañang is leaving it up to Congress and the Bureau of Internal Revenue (BIR) to consider a proposed special tax exemption for boxing icon Manny Pacquiao in his much-awaited fight with Floyd Mayweather. Deputy presidential spokesperson Abigail Valte said yesterday it will have to be discussed by Congress because lawmakers are the ones who enact tax exemptions, special or general. Pacquiao has been dogged by unsettled tax obligations with the BIR. …

  • Couple married 67 years holds hands in final hours together
    Couple married 67 years holds hands in final hours together

    FRESNO, Calif. (AP) — After spending 67 years together as devoted husband and wife, there was no question how Floyd and Violet Hartwig would end their lives — together. …

  • Binay backs house arrest for JPE, GMA
    Binay backs house arrest for JPE, GMA

    Vice President Jejomar Binay yesterday supported proposals to put Sen. Juan Ponce Enrile and former President now Pampanga Rep. Gloria Macapagal- Arroyo under house arrest. “Government prosecutors are opposing house arrest for… Enrile. Binay issued the statement after the 91-year-old Enrile was rushed to the Makati Medical Center on Thursday due to pneumonia. House arrest for him would be the compassionate thing to do,” he added. …

  • 3 Pinays on Forbes power women list
    3 Pinays on Forbes power women list

    Three Filipina executives, who are all daughters of known business tycoons in the country, made it to Forbes’ list of the 50 most powerful businesswomen in Asia. Teresita Sy-Coson, vice chairman of SM Investments and chairman of BDO Universal Bank, was included in the list for the fourth year in a row since its inception. “Under her (Sy-Coson) lead SMIC became the largest listed company on the Philippine Stock Exchange by market cap. Also in the 2015 list is 70-year-old Helen Yuchengco-Dee, …

  • Hijacked Indonesian vessel found in Davao
    Hijacked Indonesian vessel found in Davao

    An Indonesian cargo vessel that was hijacked a month ago in North Sulawesi, Indonesia has been found stuck in the waters off Mati, Davao Oriental, the Philippine Coast Guard (PCG) reported yesterday. PCG spokesperson Armand Balilo said the PCG- Southeastern Mindanao district was informed on Feb. 23 that the M/T Rehoboth was found aground off Barangay Cabuaya. Four personnel from the local PCG district office were sent to verify the report. The vessel was reportedly hijacked by …

  • Phl now biggest grower of GM crops
    Phl now biggest grower of GM crops

    The Philippines is now the twelfth biggest grower of genetically modified (GM) crops. …


Should Aquino be held accountable over the Mamasapano operations?

Poll Choice Options