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What Is Insider Trading?

Insider trading is conduct in which a person connected to a company trades that company's shares before an important, undisclosed fact is made public, while knowing about that fact — conduct that is prohibited under Japan's Financial Instruments and Exchange Act.

Purpose of the regulation

If a person in a position to know important, undisclosed information were allowed to use that information for their own trading before it is made public, it would create a significantly unfair trading advantage over other investors who lack that information. The Financial Instruments and Exchange Act prohibits insider trading to prevent this kind of unfair trading and to help ensure the fairness and transparency of the market.

What to keep in mind

The regulation applies not only to officers and employees but also to third parties who receive the information from them (tippees). Beyond simply not trading before an important fact is disclosed, passing undisclosed information to family members or acquaintances can also fall within the scope of the regulation, so caution is warranted.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

What kind of conduct counts as insider trading?
It applies when a person connected to a listed company — such as an officer, employee, or business counterparty — trades that company's shares before an important, undisclosed fact (such as a major earnings revision or a merger or acquisition) that would significantly affect an investment decision is made public, while knowing about that fact.
What happens if insider trading is discovered?
It can result in an administrative surcharge order or criminal penalties (imprisonment or fines) as a violation of the Financial Instruments and Exchange Act. Japan's Securities and Exchange Surveillance Commission monitors trading activity for this purpose.

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