On August 8, 2012, Nomura Holdings Inc. (“Nomura”) submitted a business improvement report to the Financial Services Agency (“FSA”) after being sanctioned for insider trading involving public financing for INPEX Corp, Mizuho Financial Group Inc. and Tokyo Electric Power Company Inc. (“Tepco”). Information leaks involving public offerings have been a long-standing issue in Japan due to a relative lack of regulatory framework regarding insiders’ ability to short-sell securities. This issue was especially pronounced at Tepco and INPEX Corp when both companies experienced a steep decline in their share prices prior to the announcement of the fund raising activity (Michiyo Nakamoto and Lindsay Whipp. “Inside Trading Casts a Pall Over Tokyo.” Financial Times. October 28, 2010).
Following the news of the insider trading scandal, Nomura announced in late June that, among other measures, it would terminate responsible employees, suspend the operations of certain departments and cut the CEO’s and COO’s salary by 50%. However, these measures did not appear to assuage public concerns regarding this scandal and after Nomura’s initial announcement, the CEO relinquished his position on June 26, 2012. Furthermore, Nomura lost the underwriting contracts of at least nine Japanese issuers and some asset management firms have also stopped doing business with the firm (Noriyuki Hirata and Nathan Layne. “Nomura Turns One Corner with Light Sanction in Insider Case.” Reuters. August 3, 2012).
The FSA’s seemingly light-handed sanction against Nomura has been criticized by many in the public and financial spheres. However, this criticism spurred the FSA to form a working group, designed to review current laws and regulations and to potentially institute tougher regulations for those institutions and individuals found guilty of insider trading. In order to protect domestic and foreign investors and to promote investor confidence in the Japanese market, it is crucial that the FSA and Japanese government ensure that this review will produce meaningful laws and regulations and create appropriate mechanisms in order to ensure that individuals and companies are effectively dissuaded from insider trading activities.