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Tuesday, June 12, 2012

Probe spotlights Japan's culture of insider trading

AFP-Jiji

A probe into insider trading has thrust the spotlight on the cosy world of Japanese share dealing, with U.S. 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 multimillion-dollar financial penalties or even prison 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 U.S. 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 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 coverup of about $1.7 billion in investment losses at camera and medical equipment maker Olympus.

The Securities and Exchange Surveillance Commission recently 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 U.S. bank — which is already reeling from a shock $2 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 it was not involved in the inquiry.

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

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

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



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