Modes of information acquisition subject to insider trading regulations in Japan and the United States

Japan’s insider trading regulations prohibit insiders, such as company officials from engaging in transactions based on undisclosed material facts acquired during their duties. In other words, trading based on undisclosed material information is subject to regulations only when the information is obtained by virtue of being an insider or through primary transmission from an insider. However, transactions based on information illegally acquired by outsiders, such as hackers or transactions exploiting price fluctuations caused by physical or personal intrusions, cannot be regulated under current insider trading laws. This raises questions regarding the extent to which the current scope of regulation remains reasonable. Drawing on recent legal precedents in both Japan and the United States, this chapter argues that the fundamental framework of insider trading regulations should be reconsidered, particularly concerning the mode by which insider information is obtained. It is proposed that the regulatory focus, traditionally centred on whether ‘a transaction was made by an insider’, should instead shift towards whether ‘a transaction was made on the basis of inside information’.