EDITORIAL: Alleged insider trading by TSE, FSA officials blow up the markets

Recently, allegations of insider trading have emerged against two officials working for stock market regulators.

The allegations that they engaged in insider trading using confidential corporate information collected in the course of their work could destroy investor confidence in the fairness and integrity of the securities markets.

Alarmingly, one of the suspects under investigation is a judge temporarily assigned to the Financial Services Agency.

If the allegations are true, they should be viewed as troubling signs of a lack of professional ethics that should be taken seriously. It is crucial that the facts and background are quickly clarified.

An employee of the Tokyo Stock Exchange Inc. and the judge on loan to the FSA are under mandatory investigation by the Securities and Exchange Surveillance Commission, the government’s securities industry watchdog, each over separate suspicions of insider trading.

The TSE employee belongs to a department that supports the disclosure of information by listed companies. At his post at the agency, the judge was responsible for reviewing documents for public takeover bids.

Both are officials at regulatory agencies responsible for maintaining the fairness of the market. If they were to abuse insider information from their positions to make ill-gotten gains, who would want to invest in such an unfair market?

The Financial Instruments and Exchanges Act strictly prohibits such stock trading based on material information that is not available to the public. There is no way that the two people working at these two regulatory organizations were not aware of this.

Particularly shocking is the situation in which an investigation is being conducted into the judge who has been ordered to gain professional experience. Judges are the “guardians” of all laws and have significant job security to protect their positions.

Surprisingly, even during his temporary assignment, the judge is suspected of repeatedly engaging in insider trading involving multiple stocks, generating profits ranging from hundreds of thousands to millions of yen.

If we have to preach the spirit of compliance to legal professionals who support social justice, confidence in the judiciary will also be seriously shaken.

Since last year, the TSE has been strongly calling on listed companies to ensure price-conscious share management with a view to greater shareholder value.

The FSA has also encouraged the public to invest in line with the government’s policy initiative to expand the NISA, or Nippon Individual Savings Account, a tax-exempt equity investment scheme for retail investors.

If individuals within these organizations were involved in illegal trading, one must question whether these organizations are qualified to defend the shift ‘from saving to investing’.

This month, insider trading allegations also emerged against a former director of Sumitomo Mitsui Trust Bank, who is suspected of carrying out multiple trades based on unpublished information obtained in the course of his duties.

The bank bears a heavy responsibility for this matter as financial institutions are also tasked with maintaining the fairness of the market.

It is the duty of the SESC to thoroughly investigate all these allegations, clarify the facts and take strict action as per law.

The TSE, the FSA and Sumitomo Mitsui Trust Bank, as well as the court that seconded the judge, must all take this situation seriously.

If these cases are lightly dismissed as alleged violations by a few unscrupulous individuals, it will be difficult to dispel doubts about the market.

–The Asahi Shimbun, November 14