Internal training materials

Presented by: Japan Exchange Regulation
COMLECThis document provides a brief summary of insider trading regulations in Japan and is intended for educational purposes
only. Contents have been recapitulated and omitted for perspicuity. Please consult a legal advisor as needed.
• While every effort has been made to ensure the accuracy 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 thisinformation, including errors in posted information and malfunctions during download.
Copyright © 2016 Japan Exchange Regulation. All rights reserved1

Q1. Let’s think about the case below.
A company officer of a Listed Company comes up with the following idea:
Once this financial information indicating a large increase in profit goes public,
the stock price will go up. So, if I buy this stock before this information reaches
general investors and sell it after the information goes public, then I can makemoney! What do you think of this behavior?
Officer buys the stock withknowledge of nonpublic
information indicating alarge increase in profit.

StockpricePricesoars !

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

Officer sells thestock
Company discloses thefinancial information

Insider trading refers to dishonest trading in which the trader
uses information that general investors have yet to obtain.

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Q2. What if you become involved in insider trading?

Criminal penalties could be imposed.
Fines of up to 5 million yen and/or imprisonment of up to 5 years
Confiscation of property (charge for value if confiscation isimpossible)
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!

Or, can be forced to make Administrative Monetary Penalty Payments(Administrative sanctions by Financial Services Agency)Administrative monetary penalty payment (pay an amountequivalent to the profit)
Amount = the difference between the highest (lowest) price within two
weeks after the disclosure and the actual buying (selling) priceMoreover, the person can be subject to internal disciplinary action,
the employer is exposed to the risk of losing credibility, and otheradverse effects may ensue!

3Q3. What should you pay attention to when you trade stocks?
Do you have knowledge of insider information pertaining to
the company whose stock you want to trade?

Have you confirmed the internal rules of our company withrespect to stock trading?

If you have any questions about whether your trading
constitutes insider trading or about the internal rules, please
consult the department in charge.

4Q4. What is insider information?

Information that might have significant impact on stock priceFor example, information on:
Offering of SharesStock splitsMergersBusiness alliances
Damage by disasters
Development of newproducts
Corporate bankruptcy

Takeover bids (TOB) Substantial revision toearnings or dividend
forecasts
 Huge fictitious sales
 Manipulation of producttest figuresand others …

These types of information are only a small part of the whole.
It is forbidden to trade with knowledge of such insider information
prior to its disclosure.

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Q5. Is leaking information also considered insider trading?

Although it is not a crime to leak information, what if you were to: Casually let it slip to your family over dinner that the company ismerging?
 Happen to accidently mention to a business partner during a meetingthat the company’s performance has drastically deteriorated?
→A member of your family or someone at a partner company might becompelled to engage in insider trading based on the information you
gave the person!
It is highly likely that you might indirectly prompt those around you
to become involved in insider trading.
If it comes to light that you leaked information, your employer’s
information management will also be put to question.

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Is it also wrong to intentionally furnish such information?
(Continued from previous slide)

It is illegal to intentionally prompt someone to engage in insider trading!
Examples: You find out about a substantial upward revision to an earnings forecast thatis scheduled to be disclosed soon, and then…
Share that information with the intention of making others gain profits
from the price increase after the disclosure.
 You find out about a large customer’s bankruptcy and a large profit
decrease that will ensue, and then…
Share that information with the intention of preventing a friend fromincurring losses by selling the stocks before the disclosure and before
the stock price drops.

It is also illegal to recommend buying/selling of stocks under the same
intentions as above even if you do not share any insider information.
Never furnish any information unless it is necessary in the course of your duties!

7Q6. Do these cases also constitute insider trading?
Common misconceptions

 Bought the stock, but did not sell it after the disclosure Traded, but hardly made a profit (or even incurred a loss) Bought just one share (or the minimum trading unit)
All these cases constitute insider trading if conducted withthe knowledge of nonpublic insider information.
Please avoid acting on your own judgment and consult withthe department in charge if you have any questions.
Every transaction in the market is under surveillance byauthorities and stock exchanges. Data involved in alltransactions is also preserved. Nothing is beyond reach!
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Please write about the internal rules at your organization.

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