Photo/Illutration The Tokyo Stock Exchange in Tokyo's Chuo Ward (Asahi Shimbun file photo)

Allegations of insider trading recently emerged against two officials working for stock market regulating bodies.

The allegations that they engaged in insider trading using confidential corporate information they gleaned through their duties 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 seen as disturbing signs of a lack of professional ethics that should be taken seriously. It is crucial to swiftly clarify the facts and the background.

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

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

Both are officials at regulatory bodies responsible for upholding market fairness. If they exploited insider information gleaned through their positions to gain ill-gotten profits, who would want to invest in such an unfair market?

The Financial Instruments and Exchange Law strictly prohibits such stock trading based on material information that is not available to the public. It is impossible that the two individuals working at these two regulatory organizations were unaware of this.

Particularly shocking is the situation in which the judge on assignment to gain professional experience is being investigated. Judges are the “guardians” of all laws and have substantial job security to protect their positions.

It is surprising that, even while on temporary assignment, the judge is suspected of repeatedly engaging in insider trading involving multiple stocks, gaining profits ranging from hundreds of thousands to millions of yen.

If we need to preach the spirit of compliance to legal professionals who support social justice, then trust in the judiciary will also be greatly shaken.

Since last year, the TSE has been strongly calling on listed companies to ensure stock price-conscious management for greater shareholder value.

The FSA has also been encouraging the public to invest in line with the government’s policy initiative to expand the NISA, or the Nippon Individual Savings Account, a government tax-exempted stock investment program for retail investors.

If individuals within these organizations were involved in illicit trading, one must doubt whether these organizations are qualified to champion the shift “from savings to investment.”

This month, allegations of insider trading also emerged against a former executive at Sumitomo Mitsui Trust Bank, who is suspected of conducting multiple transactions based on unpublished information acquired through his duties.

The bank bears heavy responsibility for the case as financial institutions are also tasked with upholding market fairness.

It is the SESC’s duty to investigate all these allegations thoroughly, clarify the facts and take strict actions under the 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 dismissed lightly as alleged violations by a few unscrupulous individuals, dispelling the doubts cast toward the market will be difficult.

--The Asahi Shimbun, Nov. 14

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