Business / Financial Markets

Securities watchdog to step up scrutiny of insider trading in biotech sector

Bloomberg

The securities watchdog will boost monitoring of health-care stocks for possible insider trading after increasing leaks of information that has the power to move markets, 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 data such as drug trial results, much as it does when companies announce takeover bids, share buybacks or earnings, Secretary-General Kiyotaka Sasaki said in an interview in Tokyo.

Sasaki is seeking to ensure fairness as more health care startups are going public, attracting investors keen to bet on their development of new treatments. The shares often move sharply upon reported success.

In December, the Financial Services Agency 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 was examining a plunge in the shares of Acucela Inc. one 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, has not been accused of any wrongdoing.

Michael Hasegawa, general manager of Acucela’s Japan operation, said it will cooperate with any regulatory probe but declined to say whether it is under investigation. In June it said it would 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 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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