The Supreme Court on Wednesday upheld a lower court ruling that a provision in the Securities Exchange Law under which firms can order major shareholders to return profits earned during short-term stock transactions is constitutional.
"The provision was established to ensure impartiality and fairness of stock markets as well as individual investors' trust," Chief Justice Shigeru Yamaguchi said.
The ruling by the court's Grand Bench was made in response to an appeal filed by a shareholder, who claimed that this regulation violates Article 29 of the Constitution, which is aimed at guaranteeing property rights.
The provision imposes restrictions on stock transactions within six months by company executives or large shareholders, as they may have access to inside information.
It is the first time the top court has ruled on the constitutionality of the provision. All 15 justices agreed on the decision.
According to previous rulings by the Tokyo District Court and the Tokyo High Court, the shareholder, who held a stake of more than 10 percent in building material maker Giken Kogyo Co., earned profits of some 20 million yen via stock transactions conducted between February and July 1999.
The company filed a suit against the shareholder, with the district court ruling that the provision is constitutional and that the shareholder should return the profits.
The high court also concluded the provision is constitutional. The shareholder then appealed to the top court, arguing the provision is inappropriate in this case as the transactions did not involve any insider trading.