Article 166 of Japan's Financial Instruments and Exchange Act prohibits company insiders, such as officers and contracting parties, and persons who received the information from them, from trading before material facts are made public1. The covered trades include derivative transactions. Article 167 sets a parallel prohibition for tender offer facts, and Article 167-2 for passing on information or recommending trades in order to enable others to profit or avoid a loss.

For example, suppose an officer of Company E (fictional) learns of a merger decision through the officer's duties and uses it to buy Company E's shares before the announcement. The prohibition applies whether the share price rises or falls after the announcement, because Article 166 does not make profit an element of the offense1.

The structure of the rules differs by country. The Japanese statute lists the persons it prohibits, while the US Rule 10b5-1 treats trading in breach of a duty of trust or confidence as a deceptive device2. The EU Market Abuse Regulation calls the use of inside information to acquire or dispose of financial instruments "insider dealing" and prohibits it3. It is a separate regime from market manipulation, which prohibits conduct that moves prices.

Notes

  1. Financial Instruments and Exchange Act, Article 166, paragraphs 1 and 3, Article 167 and Article 167-2 (in Japanese). Article 166, paragraph 1 contains no wording that makes profit an element. ↩ ↩2

  2. 17 CFR 240.10b5-1(a). ↩

  3. Regulation (EU) No 596/2014, Article 8, paragraph 1 (Insider dealing). Checked against the text as adopted in 2014. ↩