Japan Securities Watchdog to Boost Monitoring of Biotech Stocks

  • SESC has noticed information leaks in the health industry
  • Will scrutinize trading when drug trial results are released

Japan’s securities watchdog will boost monitoring of health-care stocks for possible insider trading after noticing an increase in leaks of potentially market-moving information, according to the top official of the Securities and Exchange Surveillance Commission.

The SESC will step up scrutiny of trading in pharmaceutical and biotechnology shares when those firms release news such as drug trial results, much like it does when companies announce takeover bids, share buybacks or earnings, Secretary-General Kiyotaka Sasaki said in an interview in Tokyo.

Kiyotaka Sasaki

Photographer: Akio Kon/Bloomberg

Sasaki is seeking to ensure fairness as more health-care startups become publicly traded in Japan, attracting investors who are keen to bet on their development of new treatments, with the shares often gyrating sharply depending on their success.

Based on recommendations by the commission, Japan’s Financial Services Agency in December fined an employee of a contractor of R-Tech Ueno Ltd. for selling shares of the Tokyo-based drug developer using insider information. In June, Tokyo Stock Exchange operator Japan Exchange Group Inc. said it’s examining a plunge in the shares of Acucela Inc. on the day before the biotechnology company released negative results of an eye-treatment trial.

Sasaki declined to comment on Acucela or confirm whether the watchdog is investigating the matter. The Seattle-based company, whose shares are listed in Tokyo, hasn’t been accused of any wrongdoing. Michael Hasegawa, general manager of Acucela’s Japan operation, said it will cooperate with any regulatory probe and declined to say whether it is under investigation. In June it said it will cooperate fully with the Japan Exchange inquiry.

“We are witnessing more information leaks in health care and new medicine, including clinical trials, drug discovery and stem-cell research,” said Sasaki, 55. “There tends to be compliance and governance issues in this area because many people are involved, including doctors and academics.”

The SESC, the securities watchdog arm of the FSA, has the power to recommend penalties or prosecutions for financial misdeeds. It has stepped up scrutiny of insider trading in recent years. Together with local regulatory bureaus, the commission examined 978 suspicious trades in the year ended March 2015, and recommended penalties in 32 cases, commission data show. It inspected 721 transactions in the nine months ended December, and suggested penalties 16 times.

In Japan, individuals who are found guilty of insider trading face as long as five years in prison and 5 million yen ($49,000) in fines.

After taking the top post at the SESC in July last year, Sasaki spoke of the need for Japan to consider tougher sanctions for financial misconduct. Under his oversight, the commission clamped down on corporate information leaks by research analysts at brokerages, prompting securities firms to tighten their practices for estimating companies’ earnings.

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