Japan's securities watchdog will recommend a fine against Chuo Mitsui Asset Trust and Banking over suspected insider trading involving the 2010 public share offering by energy firm Inpex Corp <1605.T>, the Nikkei newspaper reported on Wednesday.
The penalty against Chuo Mitsui Asset will mark the first concrete step by the Securities Exchange and Surveillance Commission to crack down on insider trading following dubious activity around a string of public offerings in recent years.
Inpex was one of the offerings under investigation because of heavy short-selling before it announced its $6.2 billion (3.9 billion pounds) share sale. This led to accusations that information about the issue was leaked to institutional investors.
The Nikkei newspaper said that Chuo Mitsui Asset Trust acquired information on the Inpex offering from one of the securities firms that underwrote the deal. It then took out a short position and bought back the stock at a cheaper price before it was announced, the paper said.
The transaction generated a profit of about 10 million yen ($119,600) for a Japanese fund managed on behalf of foreign investors, the Nikkei said.
A spokesman for Chuo Mitsui, which is part of the Sumitomo Mitsui Trust Holdings <8309.T> group, acknowledged that it was under investigation by the Securities and Exchange Surveillance Commission, but did not comment on the reason behind the probe.
The SESC as a policy does not comment on individual cases.
Shares of Sumitomo Mitsui Trust tumbled 5.1 percent on the news.
Nomura Securities and Goldman Sachs International were joint global coordinators on the Inpex share offering.
Shares of Nomura Holdings <8604.T>, the parent of Nomura Securities, fell 4.1 percent.
The SESC said it would hold a briefing at 0630 GMT. It did not say what it was about.
We have to wait for the official announcement to know what really happened, but people in the industry have been concerned that such activity was going on, said Katsuyuki Tokushima, chief pension advisor at NLI Research Institute.
What we now fear is that whether this will spread beyond Chuo Mitsui Asset Trust. ($1 = 83.6250 Japanese yen)
(Reporting by Chikafumi Hodo, Nathan Layne and Miki Kayaoka; Editing by Joseph Radford and Michael Perry)