Internal training materials

Outline of insider trading
Trainers: These materials provide a simple explanation of insider trading.
Slides 1 through 10 provide a basic overview of insider trading regulations, and slides 11
to 17 present some concrete examples that cover important points to pay attention to.
Feel free to use all or part of these materials at your convenience.

Provided by：Japan Exchange Regulation
ＣＯＭLECThis document provides a brief summary of insider trading regulations in Japan and is intended for educational purposes only. Contents havebeen recapitulated and omitted for perspicuity. Please consult a legal advisor as needed. While every effort has been made to ensure theaccuracy of the information presented wherein, Japan Exchange Regulation (JPX-R) shall bear no responsibility or liability for any damage,loss, or action arising from the use of this information, including errors in posted information and malfunctions during download.
Copyright © 2016 Japan Exchange Regulation. All rights reserved1Typical Case of Insider Trading"It looks like our company will be announcing some significant upwardrevisions to earnings forecasts. There’s no doubt the stock price will go up
once the information is disclosed. I’ll go ahead and buy this stock before thenews reaches general investors, and then sell it after the information goespublic. I’ll be banking for sure!"
An officer at a listed company trades with the above in mind.
Officer buys the stockwith knowledge ofnonpublic information
indicating a large
increase in profit

I did it! Big gains
for me, since I
bought it cheap!

Officer sells the stock

Pricesoars!

Stock priceCompany discloses thefinancial information

2Components of Insider Trading RegulationsFour Key Terms
Corporate Insiders
and Recipients ofInformation
Buy/sell, etc.
Securities, etc

Material Facts
Public Disclosure3Are you a corporate insider?

Who are corporate insiders?

Stocks of where you workand other companies(1) Officers and employees of a listed company(2) Business partners, contracted consultancy firms, etc.
(3) Officers and employees at the same legal entity (when(2) is a legal entity)
The above are primary examples of corporate insiders.

Who are recipients of information?
Persons who received material facts directly from corporateinsiders are subject to insider trading regulations.
*It doesn’t matter whether or not the recipient of information works for the listed company.

4What are material facts?

You are subject to insider
trading regulations upon gaining
knowledge of such facts.

Any piece of information that can be expected to significantly
influence the stock price.
This also includes information on a subsidiary of the listedcompany, which can largely affect the business of the group.
Specific Examples of Material Facts
Offering of shares

Takeover bids (TOB)

Mergers

Huge fictitious sales

Business alliances

Manipulation of product’s test figures

Damages arising out of disasters

Enormous syndicated financing

Administrative sanctions

Substantial revisions to earnings ordividend forecasts* Some material facts have numerical minimal standard criteria.

5What is public disclosure?
The publication of material facts on the Exchange’sofficial website. (the most typical method)*The publication of material facts on the official website of the listed company is
not deemed as disclosure, and insider trading regulations still apply.

JPX Website

6

Are there other illegal acts besides trading?
It is illegal for a corporate insider to share information or
recommend trading if the following applies:(1) It was done for the purpose of making the other person
realize a profit or avoid loss by trading ahead of disclosure,(2) As a result, said person in fact engaged in trading aheadof disclosure.
*Sharing information that is necessary in the course of duties is
not illegal, because it is clear that the purpose in (1) above does
not apply.
7

How is insider trading punished?
Criminal Penalties / Administrative Monetary Penalty Payment and others(CRIMINAL PENALTIES)Fines of up to 5 million yen and/or imprisonment of up to 5 yearsConfiscation of assets (charge for value if confiscation is impossible)
Say you used 2 million yen for buying. Then, when the stock price soared,
you made 3 million yen from selling off said stock. That means:
Profits amounted to 1 million yen, but 3 million yen will get confiscated!

(ADMINISTRATIVE MONETARY PENALTY PAYMENTS)
Surcharge: pay an amount equivalent to the profit
Meaning, the difference between the highest/lowest price within twoweeks after the disclosure and the actual buying/selling price(OTHERS)Company internal procedures (disciplinary action)
Damage to company’s reputation

8

What must you do to avoid insider trading?

Fully understand insider trading regulations

Please ask
yourself thesequestions.

Do you have knowledge of material facts?
Have those material facts been disclosed?

Companyinternal rules
exist to protect
youAlways adhere to internal rules.
Contact the relevant department if you’re unsureof something.

Trainers: Feel free to add contact information for therelevant department, as well as any other rules or notes inthis slide at your own discretion.

9How can you prevent others from engaging in insider trading?
Proper information-handling is crucial

Do not thoughtlessly leak material factsIt is not written in law that these “shall not be leaked”, but
Avoid it so as not to conduce family or friends to insider trading

Know you’re at risk for disciplinary action and loss of trust
Always follow the internal rules when handling information

Trainers: Feel free to add contact information for therelevant department, as well as any other rules or notes inthis slide at your own discretion.
10

Learn about Insider Trading Regulations via Case Studies
The following cases include points that people
tend to misunderstand.
Keep in mind that this is likely to happen around
you and that it can be deemed as insider tradingeven under such circumstances.

11

Case 1: Possessing stocks via a shareholding association
I joined the company 30 years ago and has steadily been
buying company stock via the shareholding association,
reaching a current value of 10 million yen.

Ｘ

Just between you and me, I heard our business
partner is going bankrupt, and we’ll be losing
money, too. The announcement goes out tomorrow.
Ｘ!!

ＹAre you kidding me?!
Once the news spreads, the stock price will tumble. I’ve
worked too hard to accumulate the 10 million yen I havenow. I can’t let that go to waste. I’ll just go ahead and sell
everything as soon as possible!

12

Ｘ

I’m so glad I was able to sell off thosestocks before the price dropped! If Ms. Y
hadn’t said anything, I’d have lost so much.

Or so he thought …
Morning news report:
FSA slams Company A
Employee with surcharge
payment order for insider
trading. Offender avoidedlosses by obtaining
information from colleague.

Press release from Company A Employee issued surcharge payment orderdue to insider trading Our deepest apologies to related parties
 Recommit ourselves to insider trading
prevention and proper information
handling
Disciplinary actions
 X (conducted insider trading): demotion
 Y (shared information): salary cut
Outcome for business Apologize and show accountability tobusiness partner Business performance deteriorates

13

Many possible excuses

X’s Argument
It’s not like I sold those stocks tomake a profit, I just wanted to avoidlosses. Is that still insider trading?






It is still insider trading even if there was
no intention to make a profit.
You sold the stocks while having
knowledge of negative information aheadof disclosure and before the pricedropped, enabling you to avoid loss.
Other shareholders, however, incurred
loss, because they were unaware of thenegative information.
That is to say that unfair trading tookplace, which is deemed as insider trading
and subject to regulations.

The stocks I sold were bought via theshareholding association. I thought
trading of stocks from the association
wouldn’t count as insider trading.
Indeed, there are plans where you can
BUY a set amount of stocks via theshareholding association on a certain
date every month on a regular basis,even while having knowledge ofnonpublic material facts. This falls
outside the scope of regulations.
SELLING those stocks, however, is anaction that is subject to regulations
just like any other typical case of
insider trading.

14Case 2: Conversing with family
Miss W

I work at Company B and live away from my family. I lead asatisfying life, because my job is rewarding.
A business partner, Company P, just informed me that they’ll besending more work to Company B in relation to a planned tie-up
Company P has with Company Q. This really motivates me.

And then, the telephone rings …
How’s it going, dear? Everything okaywith work?
Miss W

Miss W’s Parents
They live on theirpensions and tradestocks in hopes ofliving more
comfortably.

Everything’s great! And, guess what? There’s this company called
P that’s thinking of doing a tie-up with a company called Q. If thedeal takes off, we’ll be getting lots more work, and I’ll be extra
busy. But, I’ll keep plugging away!

15

We’re happy to hear you’re doing well.
Take care of yourself.

Miss W’sParents

Now, the call has ended…
Well, it looks like Companies P and Q will form a business alliance. Business atCompany P looks pretty stable, and that should fare well for dividends. Let’s buy someP stock and hold on to it for a while.

Or so they thought …
Morning news report:
FSA slams relatives of aCompany B employee withsurcharge payment orderfor insider trading after
they were tipped by theemployee and made a profit.

Press release from Company B
 Relatives of an employee were issued a surcharge
payment order due to insider trading linked to
information obtained from said employee regarding
our business partner.
 Apologies for inflicting massive damage toCompanies P and Q
 Promise to reexamine information management
systemDisciplinary actions and ramifications
 W (shared information): demotion and salary cut
followed by voluntary resignation
 Company executives: surrender a portion of theirown compensation

16

W’sArgument
It’s too oppressive to not be able totalk to your own family about your job.
Miss W’s parents would have never
become involved in insider trading if itweren’t for the fact the Miss W sharedclassified information with them.
Strict handling should be applied to
information on business partners,
especially material facts like businessalliances.
You must not divulge material facts tofriends or family no matter whether theinformation pertains to your employeror others. The disseminator of material
facts will be held liable if the recipient
engages in insider trading.

Miss W’s Parents’Argument
We only bought P stock and haven’t
sold any of it. This means we’ve yet
to profit from the account. We
doubt this constitutes insider trading.
Insider trading regulations apply
whether the stocks bought havealready been sold or not.
If the purchase was carried out withthe knowledge of nonpublic material
facts, that is insider trading.
Even if you haven’t put the moneyinto your pocket, it is still insider
trading.

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