Japan’s financial regulator and the Tokyo Stock Exchange are investigating recent trading activity following allegations of widespread insider trading ahead of new share issues by Japanese companies.
The TSE and the Securities and Exchange Surveillance Commission are examining possible insider trading involving recent share issues where short selling activity increased substantially in the run-up to the announcement the company would be issuing new shares.
This kind of trading pattern “is obviously something that would come within our research and overview activities”, said Tatsushi Terada, director of strategy and policy co-ordination at the SESC.
Atsushi Saito, TSE chief executive, told the Financial Times that the exchange, in co-operation with the SESC, was conducting preliminary research into claims by investors that information on new share issues appears to have been leaked before it was made public.
“I have been contacted by several investors concerned about the situation,” Mr Saito said. “It is something we cannot allow to continue. We have no intention of leaving the problem unaddressed.”
These investors say that concerns about widespread insider trading are undermining confidence in the Japanese market.
They claim that the pattern of trading suggests hedge funds, many of which are based offshore, have been tipped off before new share issues by brokers keen to ensure the shares get taken up in the allocations.
“It sure seems to me there’s something suspicious about the stock price performance [of certain companies] in the weeks ahead of an equity issuance announcement,” said Sheldon Kasowitz, managing partner and co-founder of Indus Capital Partners, based in New York.
Indus is among a number of large investment funds that have voiced concerns to the regulator and the TSE.
Shares in Nippon Sheet Glass, for example, fell 15 percent in the two weeks before the announcement of its new share issue on August 24, according to research by Nicholas Smith, director of equity research at MF Global in Tokyo.
Tokyo Electric Power suffered a 6 percent share price drop in the two weeks before its announcement on September 29. Tepco said it was aware of the allegations, but stated: “We believe such information did not leak from our company.”
One hedge fund manager said: “I am concerned about it, because it . . . means that the playing ground is not level and it also attests somewhat to the desperation of brokers who are trying to do anything to get business . . . [Equity issuance] will cause stock prices to fall, so if you get in ahead of the game then you can rip a bit out.”