Japan's parliament passed a bill yesterday to tighten oversight on investment funds amid calls for enacting stricter and clearer rules governing the securities market.
The passage of the bill followed the arrest this week of a star fund manager, Yoshiaki Murakami, on charges of insider trading.
The bill, which still needs Cabinet approval to become law, requires investment funds to register with the government watchdog Financial Services Agency, something that was not mandatory before. The bill also boosted the penalties for those convicted of insider trading to five years in prison or a fine of up to ¥5 million (US$44,250), up from three years or ¥3 million.
If convicted of accounting fraud and market manipulation, the person faces up to 10 years in prison or a fine of up to ¥10 million, up from five years or ¥5 million.
Many of the measures under the new legislation will take effect in a year and a half, but the stricter penalties on insider trading, accounting fraud and market manipulation will take effect after 20 days of the promulgation of the bill, which requires Cabint approval.
Worries about checks on securities trading have been growing since the arrest in January of a high-profile investor, Takafumi Horie, founder of Internet services company Livedoor Co, who is accused of inflating earnings.
Leading politicians vowed quick passage of the bill after similar concerns resurfaced with the arrest earlier this week of Murakami, head of investment fund MAC Asset Management.
Murakami had made his fame as a proponent of US-style shareholder rights, but admitted on Monday that he had engaged in insider trading, although he said he didn't realize at the time he was breaking the law.
Analysts say that a big part of the problem is that regulations governing securities trading are not clearly spelled out, leaving many grey areas.