Report on Insider Trading (FY2017 to FY2019)

007

Report on insider trading (FY2017 to FY2019)
September 28, 2020
International Disclosure Services Corporation
Note: This report has been created based on objective research, and does not constitute a recommendation of any
particular method of disclosure or presentation. This report has been created and compiled based on careful research,but its accuracy is not guaranteed. Copyright pertaining to this report belongs to International Disclosure Services
Corporation, and it may not be redistributed or reproduced without the permission of International Disclosure
Services Corporation.

Contents
1.
Scope of research .................................................................................................................................................. 22.
Number of violations by year................................................................................................................................ 2
3.
Corporations versus individuals ............................................................................................................................ 3
4.
Relationship with issuer ........................................................................................................................................ 3
5.
Types of violation ................................................................................................................................................. 4
6.
Sources of information for insider trading ............................................................................................................ 5
Unauthorized use of insider information obtained at work ................................................................................... 5
7.
Measures to combat insider trading: education, insider information lists, and information security .................... 6
Research results (full list) (April 1, 2017 to March 31, 2020) ........................................................................................ 7

The officers and employees of listed companies, together with all participants in capital markets, must work
to combat insider trading as a matter of the utmost importance. Information management, education on thedangers of unlawful trading, and other measures all have significant costs. Accordingly, when choosing
what measures to enact, companies usually perform some sort of cost-benefit analysis and implement a
combination of the measures deemed most effective.
In this report, we look at the circumstances that lead to insider trading, based on quantitative data, with theaim of assessing which countermeasures are effective and why such measures are necessary, as well as
gaining insights on how to enact and maintain more effective countermeasures.

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Report on insider trading (FY2017 to FY2019)

1. Scope of research
We looked at cases related to insider trading that resulted in collection of a surcharge or referral to a district
public prosecutor by the Securities and Exchange Surveillance Commission (the “SESC”), during the three
years from fiscal 2017 to fiscal 2019 (April 1, 2017 to March 31, 2020). For the purposes of this report, weconsidered all violations committed by the same entity as a single case, and we classified cases by the typeof material information acquired, the entity committing the act (corporation or individual), whether theentity was Japanese or foreign, the type of violation, the source of the material information, and therelationship of the entity to the issuer of the shares, etc. An overview of the results of our research isprovided at the end of this report, and our main policies adopted when compiling data were as follows.
Main research policies
1. Our aim was to look at the circumstances that led to cases related to insider trading, so we collected data on allcases when the SESC made a recommendation that a case was related to insider trading, including cases for which
legal proceedings are still ongoing, cases where the accused was found not guilty, and cases when the SESC
dropped its recommendation.
2. When multiple entities were involved in insider trading related to a single issuer, we counted each entity that was
the subject of a recommendation as a separate case.
3. When a single entity was accused of insider trading related to multiple issuers, we counted it as a single case.
4. When a single party was involved in different types of violation, we counted it as a single case, in the order: 1)
insider trading, 2) provision of information, and 3) recommendation to trade.

2. Number of violations by year
In fiscal 2017, 26 violations were subject to recommendation by the SESC, 30 in 2018, and 25 in 2019. The
number of violations has not changed significantly each year, and does not appear to be following any
particular trend (table 1, chart 1). The same is true looking back as far as fiscal 2011, although years prior
to fiscal 2017 are outside the scope of this report.
Table 1

Number of violations by year

Number of cases
Fiscal 2017(from April 1, 2017)
Fiscal 2018(from April 1, 2018)
Fiscal 2019(from April 1, 2019)
Total

26
30
25
81

30
20
10
0
FY2017
Chart 1FY2018FY2019Number of violations by year

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Report on insider trading (FY2017 to FY2019)

3. Corporations versus individuals
We classified cases based on whether they were committed by corporations or individuals. We also lookedat the number of recommendations made against parties domiciled in Japan versus those domiciled overseas,
for both corporations and individuals (table 2, chart 2). Cases by individuals domiciled in Japan made up
the overwhelming majority of the total number of cases, at 96.3% of the total, or 78 cases. Only a handfulof cases were reported for domestic corporations (1 case, or 1.2% of the total) and individuals domiciled
overseas (2 cases, or 2.5% of the total).
Table 2
Japan
Overseas

Corporations versus individuals (Japan/overseas)
Number of cases
1(1.2%)
78(96.3%)
0(0%)
2(2.5%)
81

Corporation
Individual
Corporation
Individual

Total

Domestic corporations (1)Domestic individuals (78)Overseas corporations (0)Overseas individuals (2)Chart 2

Corporations versus individuals (Japan/overseas)

4. Relationship with issuer
We classified cases based on the relationship between the entities violating laws and regulations and theissuers whose shares, etc. were subject to insider trading. We specified three types of relationship: officer
or employee of the issuer, customer or supplier of the issuer, and other (table 3, chart 3). Officers andemployees of the issuer made up the largest number of cases at 42, or 51.9% of the total, but customers andsuppliers of the issuer also accounted for nearly 20% of the total, with 15 cases (18.5%).
Table 3

Relationship with issuer

Officer or employee
Customer or supplier
Other
Total

Number of cases
42(51.9%)
15(18.5%)
24(29.6%)
81

Officer or employee (42)
Customer or supplier (15)Other (24)Chart 3

Relationship with issuer

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Report on insider trading (FY2017 to FY2019)

Customers and suppliers of issuers leaked information in a variety of ways, including cases where theyclearly leaked insider information, but also cases where they provided information that was not clearly
identified as insider information but that could affect share prices. Yet unlike cases involving their own
officers and employees, issuers may find it difficult to educate customers and suppliers on the dangers of
insider trading or take other direct measures.
Still, issuers can take certain measures to combat insider trading by customers and suppliers. For example,
when choosing customers and suppliers, issuers can ask counterparties about their measures to combat
insider trading and how serious they are about these countermeasures, and they can also place greater
importance on counterparties’ measures to tackle insider information as a selection criteria. Issuers can also
request that customers and suppliers create lists of persons with insider information, and ask them to attend
seminars on insider trading conducted by exchanges, etc.

5. Types of violations
The SESC classifies violations related to insider trading into three types: insider trading, provision of
information, and recommendation to trade. Based on the SESC’s classifications, in the past three years,
there were 62 cases of insider trading (76.6% of the total), 13 (16.0%) cases of provision of information,and 6 (7.4%) cases of recommendation to trade, meaning that in terms of the number of violations reported,
insider trading accounted for more than any other category (figure 4, chart 4).
Note, however, that when a single party was involved in multiple violations, we counted it as a single case,in the order: 1) insider trading, 2) provision of information, and 3) recommendation to trade. This meansthat the number of cases of insider trading accounts for a greater proportion of the total than the actual
number.
Table 4

Types of violation

Insider trading
Provision of information
Recommendation to trade
Total

Number of cases
62(76.6%)
13(16.0%)
6(7.4%)
81

Insider trading (62)Provision of information (13)Recommendation to trade (6)Chart 4

Types of violation

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Report on insider trading (FY2017 to FY2019)

6. Sources of information for insider trading
We compiled data on the sources of insider information for 62 cases that the SESC recommended thatinvolved insider trading, based on four categories: obtained through work, from a person known to theinsider trader (acquaintance), from a colleague, and from a relative. The results are shown in table 5 (alsosee chart 5). Information obtained through work and used for unauthorized purposes made up a little overhalf of the cases, at 34 (54.8% of the total). Information acquired from acquaintances made up the greatest
number of cases when information was acquired from other people, at 23 (37.1% of the total). Althoughcases of information acquired from colleagues and relatives did occur, the number was limited at 3 (5%)
and 2 (3.2%) respectively.
Table 5

Sources of information for insider tradingWork
AcquaintanceColleague
Relative

Number of cases(% of 62 cases of insider trading)34(54.8%)
23(37.1%)
3(4.9%)
2(3.2%)

Work (34)Acquaintance (23)Colleague (3)Relative (2)Chart 5

Sources of information for insider trading

Unauthorized use of insider information obtained at work

Furthermore, we also classified the 34 cases occurring from information obtained through work into two
categories: those caused by officers and employees at the issuer, and those caused by the customers andsuppliers of the issuer. The results are shown in table 6 (also see chart 6). The number of cases caused by
officers and employees was 25 (73.5%) of the total, versus 9 cases (26.5%) caused by customers andsuppliers. Measures to combat insider trading among officers and employees at one’s own company are ofvital importance, but we must also take measures to combat insider trading by any customers and suppliers
receiving insider information.
Table 6

Persons committing insider trading using information obtained at work

Officer or employee
Customer or supplier

Number of cases(% of 34 cases of insider trading)25(73.5%)
9(26.5%)

Officer or employee (25)
Customer or supplier (9)Chart 6

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Report on insider trading (FY2017 to FY2019)

7. Measures to combat insider trading: education, insider information lists, andinformation security
Education intended to combat insider trading can be broadly split into two categories: education about
information leaks, and education about the dangers of insider trading. We can assume the former is effective
against insider trading based on information leaked by acquaintances, colleagues, and relatives of theinsider trader (chart 5; a combined 45.2% of the total), whereas the latter targets insider trading based on
information obtained at work (chart 5; 54.8% of the total). The data show that both types of education are
equally important.
Besides education, lists of people with insider information are one of the most common measures used toprevent insider trading. Such lists can be effective in preventing the spread of information by people on thelist, helping to minimize the number of people receiving insider information, and preventing the leakage
and unauthorized use of insider information, provided they are functioning effectively and broadly acrossan organization. Still, the creation and maintenance of such lists places a considerable burden on large
companies with many customers and suppliers. Accordingly, measures should be taken to create digital lists
and designing them in a way that reduces the burden both on people registering information and people on
the list.
In this report, we considered the relationship between information security and insider trading, andresearched recommendations made by the SESC. There is a question mark, however, over whether persons
involved in cases when information is leaked by being sent to the wrong recipient and other information
security issues or hacking, etc. would be classified as “Information Recipients, etc.” under the Financial
Instruments and Exchange Act (i.e. someone violating this law by using material information for
unauthorized purposes). As such, the SESC might not issue a recommendation in such cases, and so we did
not include them in our research. As a result, we have chosen not to look at information security as a meansof preventing insider trading in this report.

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Report on Insider Trading (FY2017 to FY2019)

Research results (full list) (April 1, 2017 to March 31, 2020)
No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded1

May 2017

Manufacturing

Delisting

Individual

Insider trading

Work

Customer or supplier2

June 2017

Services

TOB

Individual

Provision of
information

Work

Officer or employee

3

June 2017

Services

TOB

Individual

Insider trading

Acquaintance

Other

4

June 2017

Manufacturing

Worsening business performance

Individual(overseas)

Insider trading

Work

Customer or supplier

5

September 2017

Manufacturing

TOB

Individual

Provision of
information

Work

Officer or employee

6

September 2017

Manufacturing

TOB

Individual

Insider trading

Acquaintance

Other

7

November 2017

Services

Downward revision to earnings forecasts

Individual

Insider trading

Work

Officer or employee

8

December 2017

Manufacturing

Business partnership

Individual

Insider trading

Acquaintance

Other

9

December 2017

Finance

Share buyback, business partnership

Individual

Insider trading

Work

Officer or employee

10

December 2017

Services

TOB

Individual

Insider trading

Work

Customer or supplier

11

December 2017

Services

TOB

Individual

Insider trading

Acquaintance

Other

12

January 2018

Manufacturing

Extraordinary losses

Individual

Insider trading

Work

Officer or employee

13

January 2018

Manufacturing

Extraordinary losses

Individual

Insider trading

Acquaintance

Other

14

January 2018

FinanceBusiness partnership

Individual

Provision of
information

Work

Officer or employee

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Recommendation ofsurcharge payment
order
Referral to Osaka
District Public
Prosecutors
Referral to district
public prosecutors
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Referral to district
public prosecutors
Referral to district
public prosecutors
Recommendation ofsurcharge payment
order

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Report on insider trading (FY2017 to FY2019)No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded15

January 2018

FinanceBusiness partnership

Individual

Insider trading

Relative

Other

16

January 2018

FinanceBusiness partnership

Individual

Insider trading

Work

Customer or supplier17

February 2018

Services

TOB

Individual

Insider trading

Relative

Other

18

February 2018

Services

Asset transfer

Individual

Insider trading

Work

Customer or supplier

19

February 2018

Services

Asset transfer

Individual

Insider trading

Work

Customer or supplier

20

February 2018

Services

Business partnership

Individual

Insider trading

Work

Officer or employee

21

March 2018

Services

Stock split, upward revision toearnings/dividend forecasts

Individual

Provision of
information

Work

Officer or employee

22

March 2018

Services

Stock split, upward revision toearnings/dividend forecasts

Individual

Insider trading

Acquaintance

Other

23

March 2018

Services

TOB

Individual

Insider trading

Work

Customer or supplier

24

March 2018

Manufacturing

Business partnership

Individual

Insider trading

Work

Officer or employee

25

March 2018

Manufacturing

Business partnership

Individual

Insider trading

Work

Officer or employee

26

April 2018

Services

Upward revision to earnings forecasts, stock
Individual
split

Insider trading

Acquaintance

Other

27

May 2018

Services

Dividend increase

Individual

Insider trading

Acquaintance

Other

28

June 2018

Manufacturing

Dividend increase

Individual

Insider trading

Work

Officer or employee

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Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Referral to district
public prosecutors

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Report on insider trading (FY2017 to FY2019)No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded29

June 2018

Services

TOB

Individual

Insider trading

Acquaintance

Officer or employee

30

August 2018

Finance

TOB

Individual

Recommendation
to trade

Work

Officer or employee

31

August 2018

Manufacturing

Upward revision to earnings forecasts

Individual

Insider trading

Acquaintance

Other

32

October 2018

Services

TOB

Individual

Insider trading

Work

Officer or employee

33

November 2018

Services

Business partnership

Individual

Insider trading

Work

Officer or employee

34

November 2018

Services

Business partnership

Individual

Provision of
information

Work

Officer or employee

35

November 2018

Services

Business partnership

Individual

Insider trading

Acquaintance

Other

36

November 2018

Manufacturing

Share buyback, upward revision to dividend
Individual
forecasts

Recommendation
to trade

Work

Officer or employee

37

November 2018

Services

Business integration

Individual

Insider trading

Colleague

Customer or supplier38

December 2018

Services

TOB

Individual

Provision of
information

Work

Customer or supplier39

December 2018

Services

TOB

Individual

Insider trading

Acquaintance

Other

40

December 2018

Services

Capital increase by third-party allotment,
becoming subsidiary

Individual

Recommendation
to trade

Work

Officer or employee

41

December 2018

Services

Business partnership

Corporation

Insider trading

Acquaintance

Other

42

January 2019

Services

Agreement on entrustment of operations

Individual

Insider trading

Acquaintance

Other

43

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

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Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Referral to district
public prosecutors
Referral to district
public prosecutors
Referral to Tokyo
district publicprosecutors
Referral to district
public prosecutors
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Referral to Osaka
District Public
Prosecutors
Referral to district
public prosecutors
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order

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Report on insider trading (FY2017 to FY2019)No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded44

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

45

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

46

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

47

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

48

March 2019

Manufacturing

Business transfer

Individual

Insider trading

Work

Officer or employee

49

March 2019

Manufacturing

Application for Civil Rehabilitation Act

Individual

Insider trading

Work

Officer or employee

50

March 2019

Manufacturing

Application for Civil Rehabilitation Act

Individual

Insider trading

Work

Officer or employee

51

March 2019

Manufacturing

Application for Civil Rehabilitation Act

Individual

Insider trading

Work

Officer or employee

52

March 2019

Services

TOB

Individual

Insider trading

Acquaintance

Other

53

March 2019

Services

TOB

Individual

Provision of
information

Work

Officer or employee

54

March 2019

Services

TOB

Individual

Insider trading

Acquaintance

Other

55

March 2019

Services

TOB

Individual

Insider trading

Acquaintance

Customer or supplier56

May 2019

Services

Capital increase

Individual

Recommendation
to trade

Work

Officer or employee

57

May 2019

Manufacturing

Business partnership

Individual

Provision of
information

Work

Customer or supplierhttps://www.ids-corp.co.jp/© 2020 | IDS | International Disclosure Services Corporation

Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
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order
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Recommendation ofsurcharge payment
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Recommendation ofsurcharge payment
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Recommendation ofsurcharge payment
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Report on insider trading (FY2017 to FY2019)No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded58

May 2019

Manufacturing

Business partnership

Individual

Insider trading

Acquaintance

Other

59

June 2019

Manufacturing

Falsification of product inspection data

Individual

Insider trading

Work

Officer or employee

60

June 2019

Manufacturing

Falsification of product inspection data

Individual

Insider trading

Work

Officer or employee

61

June 2019

Services

Upward revision to earnings forecasts

Individual

Provision of
information

Work

Officer or employee

62

June 2019

Services

Upward revision to earnings forecasts

Individual

Insider trading

Acquaintance

Other

63

July 2019

Manufacturing

Capital partnership

Individual

Insider trading

Acquaintance

Other

64

September 2019

Manufacturing

Capital increase by third-party allotment,
business partnership

Individual

Insider trading

Work

Officer or employee

65

September 2019

Manufacturing

Upward revision to earnings forecasts

Individual

Provision of
information

Work

Officer or employee

66

September 2019

Manufacturing

Upward revision to earnings forecasts

Individual

Insider trading

Acquaintance

Other

67

September 2019

Services

Share buyback

Individual

Recommendation
to trade

Work

Officer or employee

68

October 2019

Services

Downward revision to earnings forecasts

Individual

Insider trading

Work

Officer or employee

69

November 2019

Services

Capital increase by third-party allotment

Individual

Provision of
information

Work

Officer or employee

70

November 2019

Services

Capital increase by third-party allotment

Individual

Insider trading

Acquaintance

Other

71

November 2019

Services

Capital increase by third-party allotment

Individual

Provision of
information

Work

Customer or supplierhttps://www.ids-corp.co.jp/© 2020 | IDS | International Disclosure Services Corporation

Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
Referral to Tokyo
district publicprosecutors
Referral to district
public prosecutors
Recommendation ofsurcharge payment
order

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Report on insider trading (FY2017 to FY2019)No.

Date ofIndustry of stock
recommendation
traded/ referral

Type of material information

Individual /corporation

Violation

Source forobtaining
information

Relationship with stock
Action taken
traded72

November 2019

Services

Capital increase by third-party allotment

Individual

Provision of
information

Work

Customer or supplier73

November 2019

Services

Capital increase by third-party allotment

Individual

Insider trading

Relative

Other

74

November 2019

Services

Capital increase by third-party allotment

Individual

Insider trading

Acquaintance

Other

75

December 2019

Services

Improper accounting

Individual

Insider trading

Work

Officer or employee

76

December 2019

Services

Improper accounting

Individual

Insider trading

Work

Officer or employee

77

December 2019

Services

Capital partnership

Individual(overseas)

Insider trading

Work

Customer or supplier78

December 2019

Manufacturing

TOB

Individual

Insider trading

Work

Customer or supplier

79

January 2020

Services

Corporate reorganization

Individual

Insider trading

Work

Officer or employee

80

January 2020

Services

Corporate reorganization

Individual

Insider trading

Colleague

Officer or employee

81

January 2020

Services

Corporate reorganization

Individual

Recommendation
to trade

Work

Officer or employee

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Recommendation ofsurcharge payment
order
Recommendation ofsurcharge payment
order
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Report on Insider Trading (FY2017 to FY2019)

International Disclosure Services Corporation
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