Japan’s financial regulator, the Securities and Exchange Surveillance Commission, is concerned that the growing influence of hedge funds is encouraging insider trading and undermining the integrity of the country’s stock markets.

“We believe there is [a] risk . . .that hedge fund managers are involved in market misconduct . . . such as insider trading based on information obtained from prime brokers, or market manipulation,” says Kiyotaka Sasaki, director of strategy and policy co-ordination at the SESC. “Investment banks can’t survive unless they do business with hedge funds. The relationship between investment banks and hedge funds is too close.”