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1

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3 Die Aktiengesellschaft und der Kapitalmarkt - Der Anlegerschutz - Generalbericht ü

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6 forward pricing historical pricing single pricing dual pricing self-dealing dealing as agent dilution levy swing price sale redemption issuing or creation cancellation

7 valuation and pricing Collective Investment Scheme CIS 2 CIS, CIS CIS pooling CIS CIS CIS IOSCO, Principles for the Regulation of Collective Investment Schemes in Report on Investment Management 1994 IOSCO Principles for the Supervision of Operators of Collective Investment Schemes 1997 p 1 1 Council Directive 85/611/EEC UCITS 1 Financial Services and Market Act

8 Net Asset Value NAV net asset value net asset value per share/unit 14 nav dilution/concentration IOSCO Principles for the Regulation of Collective Investment Scheme asset valuation & pricing IOSCO Objectives and Principles of Securities Regulation IOSCO Principles for the Supervision of Operators of CIS 19973

9 NAV Dilution

10 ask offer price bid price bid-ask spread nav concentration riskless trading

11 single pricing dual pricing 70 Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles Managing Collective Investment Funds Codogan Financial 2000 pp FSA Single Pricing of Collective Investment Schemes a Review 2001 Annex 1 Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles ibidpp

12 OEIC AUT ask or offer price basis bid price basis

13 offer price bid price Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles op citp 115

14 historic pricing forward pricing day trader IOSCO Regulatory Approaches to the Valuation and Pricing of Collective Investment Schemes 1999 p 24

15 market maker IOSCO ibidp 24

16 OEIC OEIC AUT Authorized Corporate Director ACD box holding FSA CIS Sourcebook M&A 77 ACD

17 1 single mid-market price FSA CIS Sourcebook FSA CIS Sourcebook FSA CIS Sourcebook 4 7 dual priced AUT FSA CIS Sourcebook 15 3

18 4 initial offer 21 2% fixed price FSA CIS Sourcebook FSA CIS Sourcebook 4 2 umbrella scheme

19 4 2% FSA CIS Sourcebook 4 3 3

20 2 in-specie creation 4 2 FSA CIS Sourcebook FSA CIS Sourcebook 4 3 8

21 4 initial charge exit charge FSA CIS Sourcebook issue or creation saleredemption cancellation FSA CIS Sourcebook FSA CIS Sourcebook

22 4 in specie redemption bid-ask spread large deal blind pricing 2% FSA CIS Sourcebook supra II 1

23 futures & option scheme geared futures & option scheme 2 AUT Units unit net asset value per unit valuation point 2 FSA CIS Sourcebook FSA CIS Sourcebook FSA CIS Sourcebook 4 3 4

24 single priced AUT box holding market maker intermediary independent financial adviser FSA CIS Sourcebook FSA CIS Sourcebook redemption repurchase SEC Protecting Investors A Half-century of Investment Company Regulation repurchase and redemption FSA CIS Sourcebook 4 1 4

25 next valuatin point last valuation point buying price offer price selling price bid price FSA Sourcebook forward pricing blind pricing historic pricing forward pricing backward pricing 2 FSA CIS Sourcebook 3 5

26 preliminary charge buying basis selling basis 1 initial offer fixed price 21 FSA CIS Sourcebook 4 3 4

27 V0 2h V 1 V 1 2h V 2 I I I P V1 P V 1 P V 2 V1 V 2 O O O P V1 P V 2 P V 3 1 N V 2h V 1 N V 1 2h V 2 O O O O P V0 P V 1 P V 1 P V 2 2 N V 2h V1 V 1 2h N V 2 O O O O O P VO P V1 P V2 P V2 P V2 F H I N O P V initial charge

28 2 2 notified point FSA CIS Sourcebook 4 1 4

29 4 50% MMS money market scheme selling price code of conduct dilution levy FSA CIS Sourcebook FSA CIS Sourcebook dilution effect

30 scheme particular key features document 6 unitization 0 5% FSA CIS Sourcebook FSA CIS Sourcebook 7

31 FSA Sourcebook 7 annex 1G FSA guidance

32 1 1 due diligence 0 5%

33 0 5% 0 5% 0 5% A B D F C E A 0 5% 0 5% B 0 5% 0 5% C 0 5% 0 5% D 0 5% 0 5% E 0 5% 0 5% F 0 5% 0 5%

34 0 5% 0 5% 0 5% 0 5% 0 5% 0 5% 0 5% 0 5% 0 5% box management errors 1 FSA Policy Statement Single Pricing of Collective Investment Schemes 2002 FSA Consulation Paper Single Pricing of Collective Investment Schemes Proposed Amendments

35 mid-market price swing adjustment to a mid-market price swing price dilution levy swinging price 97 ICVC OEIC AUT 2001 FSA Discussion Paper Single Pricing of Collective Investment Schemes a Review 2001

36 dual pricing offer price bid price bid offer spread OEIC 30% AUT OEIC ISA FSA Discussion Paper op citp 7 front end charge offer price FSA Discussion Paper ibid p 18 FSA CIS Sourcebook 4 single pricing and dealing FSA Discussion Paper ibidp 13

37 FSA Discussion Paper op citpp % 5% FSA Consultation Paper op citp 13

38 dilution levy FSA 1 FSA Discussion Paper op citpp FSA Consultatin Paper op citp 9 FSA Discussion Paper op citpp 21-29

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40 IOSCO CIS 5 mid-market price 2 FSA % FSA Consultation Paper ibidp 13 FSA Consultatin Paper ibidp 13

41 incomingexistingoutgoing 1 FSA FSA box holding box holding

42 box holding cushion box holding operational problem FSA box holding box holding historical pricing AUT OEIC riskless trading nav dilution

43 FSA IOSCO Regulatory Approaches to the Valuation and Pricing of CIS 1999 p 24 fixed price

44 forward pricing historical pricing forward & historical pricing 4 forward pricing historic pricing 3

45 MMF 0 5%

46 MMF historical pricing 2002

47 forward pricing MMF historical pricing 4 2 forward pricing MMF D D 1 D 2 D 2 MMF D D 1 D D D D 1 D 2 D

48 3 D 2 4 D 3 MMF D D D 1 MMF D D

49 in-kind redemption FSA CIS Sourcebook

50 16 3 ISOCO Suspending Redemptions A Case-Study from 11 September 2001and General Principles 2002 p 4 Appendix II

51 repurchase MMF MMF

52 MMF

53 MMF

54 MMF MMF

55 MMF zero-sum MMF MMF MMF OEIC MMF

56 IOSCO Suspending Redemptions A Case-Study from 11 September 2001and General Principles Report of the Technical Committee of the IOSCO 2002 p % 5 10%

57 MMF forward pricing MMF MMF MMF MMF MMF MMF MMF

58 MMF MMF MMF MMF 27 penalty

59 15 repurchase MMF

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61 Alexeeva S. Buxton C. Gilchrist M.S. Giles, Managing Collective Investment Funds, Codogan Financial, FSA, Single Pricing of Collective Investment Scheme : proposed amendments, Feedback on Discussion Paper 08, FSA, Single pricing of collective investment schemes: a review, Discussion paper 08, FSA, Single pricing of collective investment schemes, Feedback on CP131 and made text, IOSCO, Regulatory Approaches to the Valuation and Pricing of Collective Investment Scheme, IOSCO, Report on Investment Management, IOSCO, Objectives and Principles of Securities Regulation, IOSCO, Principles for the supervision of Operators of Collective Investment Scheme, IOSCO, CIS unit pricing, IOSCO, A comparision between the technical committee report and the emerging markets committee report on valuation and pricing of collective investment schemes, IOSCO, Suspending Redemptions: A Case-Study from 11 September 2001 and General Principles, Report of the Technical Committee of the IOSCO, SEC Report, Protecting Investors: A Half-Century of Investment Company Regulation, Securities Institute, Unit Trust Administration, Securities Institute, OEIC Administration, 2002.

62 The Korean Journal of Securities Law Vol. 4 No Fund Pricing in UK and its Implication Kim Eun Jip ABSTRACT Fund pricing should be determined in such a way that incoming, outgoing and continuing investors should be treated on a fair and equal basis because CIS regulatory regime is based on the principle that no one other than fund investors themselves can take its potential risk of loss. Unless fund pricing is fair, it may cause wealth shift among fund investors. In addition, it also may be misused as a means of risk free trading and as a result it may lose its ground due to investors distrust. Therefore it is vitally important to ensure that fund net asset value calculation be done unbiased in order to protect investors interests and recover their confidence. In view of equal treatment among fund investors, there is no doubt that forward pricing is much superior to historical pricing. As you can see in UK case, historical pricing is still possible, but it should be restricted only in case self-dealing is available and it is limited within the transaction between fund distributor and investors. Dual pricing also makes itself too complicated for investors to understand it and as a consequence it discourages them to join the CIS market. Accordingly it is necessary to make it more simple and understandable and make it more equitable among investors by adopting single pricing. Moreover, it is also essential to deal with NAV dilution resulting from fund transaction cost reasonably to establish forward pricing and single pricing indeed. Without solving this problem, it is still possible to shift one s wealth to another. In this regard, I strongly believe that it is high time to discuss the possiblity of introducing dilution levy or swing price currently available in UK. In addition, I believe it is necessary for fund manager or distributor to play a role as a market maker in CIS market with a view to enhancing the stability and continuity of

63 fund transaction. In fact, fund distributor has been doing that at intervals if he thinks it is inevitable to protect investors and keep his reputation although it is not allowed under the current law. We have to take into consideration what is really happening in the market and make an effort to make it possible within the law. Furthermore, it is also necessary to keep the CIS market going on without stopping despite something minor market impact. As you can see, current system is very vulnerable to market event and can stop any time all of a sudden whatever the event is. In order to do that, we have to look back on our current policy of separation selling part from the fund manager and take a close look at other alternatives such as partial redemption, fund split and merger and affiliated transaction.

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65 2000 i ii 2000 KRF-2000-C00045

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67 umbrella funds MMF Money Market Fund

68 switch 2000 i ii

69 i ii sub-funds MMF

70 i ii functional regulation III

71 IV IV 3 II 2 IV 2 i ii

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73 1 2 III contingent liability FORUM, Sin The Legal Nauture of Unit Trust 1997

74 2 1 1

75 IV 3 IV 3 dual pricing single pricing 138 IV R 2 i periodical credit capital income ii charges expenses scheme property iii currency

76 i ii

77 A B A B i ii option contingent liability

78 II 2 tracking stock III 112 A

79 B A B option

80 A B A B i ii option contingent liability

81 II 2 A B option contingent liability

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83 29 41 FSMA 2000 s athorisation order FSA CIS Sourcebook R IV 2 1 exchange redemption and sale capital gains taxation realisation

84 charge FSA CIS Sourcebook R 24 information required 9 ring-fenced CIS R 24 f CIS 8 3 4R Set-up costs amortised g unit

85 FSA CIS Sourcebook R 65 FSA CIS Sourcebook R 9 FORUM 95977

86 A B A B II 3 A X B A A X X A B A B X X A B B obligation to redeem63 obligation to sell

87 95 64 Money Market Fund MMF MMF FSA CIS Sourcebook R MMF MMF MMF

88 FSA CIS Sourcebook R T 1 T 2 MMF FSA CIS Sourcebook G signicant influence concentration

89 signicant influence concentration FSA CIS Sourcebook G FSA CIS Sourcebook R IV 22

90 FSA CIS Sourcebook R FSA CIS Sourcebook R

91 1 i 98 ii iii

92 CIS CIS FSA CIS Sourcebook R R

93 i ii CIS

94 FSA CIS Sourcebook R R FSA CIS Sourcebook R R shareholder agreements

95 A a B C c a B c a B c B c a

96 functional definition A a B C c a B c a B c a B c a B c a B c

97 10 66 functional regulation

98 FSA CIS Sourcebook R tracking stock tracking stock 2 2

99 authorised funds FSA CIS Sourcebook R

100 switch FSA CIS Sourcebook R

101 FSA CIS Sourcebook 14 3 R

102 group of funds fund family a mutual fund group III Investment Company Act of 1940 ICA SEC rule i ii principal underwriter

103 relative NAVs net asset values ICA s 11 a SEC rule ICA s 11 a ICA rule 11a-3 SEC rule SEC rule 11a- 3 s 11 a ICA rule 11a-3 b related companies ICA Rule 11a-3 a 5 a For the purposes of this rule 5. Group of investment companies means any two or more registered open-end investment companies that hold themselves out to investors as related companies for purposes of investment and investor services, and i. That have a common investment adviser or principal underwriter, or

104 combination 40 SEC redeem s 11 a Rule 11a-3 s 11 a NAVs SEC s 11 a rule 11a-3 rule rule 11a-3 s 11 ii. The investment adviser or principal underwriter of one of the companies is an affiliated person as defined in section 2 (a) (3) of the Act (15 USC 80a-2 (a) 3) of the investment adviser or principal underwriter of each of the other companies. Storey & Clyde Mutual Fund Law Handbook

105 s 11 a NAVs reorganization plan s 11 b rule 11a-3 ICA s 25 b 25% SEC advisory report s 25 c SEC court injunction 40 s 18 i f common stock s 18 f 2Rule 18f-2 a

106 SEC $ board of trustees s 2 a 3 C 40 NAVs s 11 a

107 s 11 a Rule 11a-3 IV 3 40 SEC Rule 18f-2 Rule 18f-2 a SEC i NAVs 1 1 ii NAVs IV 2

108 CIS R Categories of authorised fund ICA Rule 18f-3 IV 25 i sales load ii 12b-1 fee NAV NAV 9

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110 2002 FORUM CLERP Financial Markets and Investment Products 1997 Financial Products Service Providers and Markets 1999 FSA Hand Book Collective Investment Scheme Sourcebook 2002 CP 62 Collevtive Investment Scheme Sourcebook 2000 CP135 New Collective Investment Scheme Products 2002 CP 163 UCITS Management Directive 2002 CP 164 Investment Companies 2003 DP 16 Hedge Funds and the FSA 2002 DP 10 Split Capital Closed End Funds 2001 Hayton The Law of Trusts 1993 Hudson Equity & Trusts 2001 Hudson The Law on Investment Entities 2000 Law Reform Commission Collective Investments Other People s Money 1993 Lomnicka Encyclopedia of Financial Services Law 2001 Palmer s Company Law 2000 Sin The Legal Nature of Unit Trust 1997 Storey & Clyde Mutual Fund Law Handbook 1998 Tunkel Managed Fund 2001

111 The Korean Journal of Securities Law Vol. 4 No A Comparative Study on the Legal Nature of Umbrella Funds and Their Regulation Lee Choong-Kee ABSTRACT Recently, many managing firms have competingly offered new financial products, the names of which all represent umbrella scheme. The efficient and successful operation of such schemes, however, is much more dependant upon the correct understanding of their legal nature and introduction of appropriate regulation over them, both of which seem overdue. This article examines (i) the various ways to establish an umbrella scheme and the different legal nature resulting from the different ways, and (ii) how and to what extent to regulate such umbrella schemes. In examining above issues, I tried to investigate the law in UK where the umbrella scheme is most developed. In addition, I explains American equivalents to the umbrella scheme, ie. the concept of fund group or family, and the series fund. Finally, I look at the multiple-class funds, which the Government Bill intends to introduce together with the umbrella schemes.

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113 1997 IMF

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115 1997 IMF IMF IMF ,

116 httpwww munwha co kr print html?gisaid Economy Vol

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119 SEC

120

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122 IMF IMF Young Shim Korean Bank Regulation and Supervision Crisis and Reform 2000pp 56-61

123 1999 IMF

124 IV

125 universal banking universal banking Issue Paper R K Abrams and M W TaylorIssues in the Unification of Financial Sector Supervision IMF Working Paper WP

126

127 The Securities Exchange Act of The Securities and Exchange Commission SEC IV 12 IV 22 The Securities and Exchange Commission SEC

128 SEC SEC SEC SEC SEC 1934 SEC 5 Commissioner 5 the Senate 3 SEC a chairman 1950 L Loss & J Seligman Fundamentals of Securities Regulation p a

129 SEC independent administrative agency 1958 SEC Canons of Ethics SEC SEC SEC SEC 1953 SEC 1958 Canons of Ethics 1965 executive order SEC SEC 1966 SEC 1965 Johnson SEC Id 17 C F R L. Loss & J. Seligman, supra note 38, p.58. Johnson L Loss & J Seligman supra note 38 pp 60-61

130 SEC Investigations SEC Investigations SEC a SEC 1934 SEC possible violation SEC staff SEC subpoenas oath a 1 The Commission may in its discretion make such investigations as is deems necessary to determine whether any person has violated is violating or is about to violate ay provision of this title the rules or regulations thereunder 15 U S C 78u a SEC Broker-dealer SEC complaint center SEC 15 U S C78u b

131 SEC SEC order SEC SEC SEC administrative Proceedings Injunctive Actions SEC Investigations SEC SEC SEC Administrative Proceedings SEC SEC Administrative Law Judge SEC Id SEC v O Brien 467 U S SEC SEC v Wheeling- Pittsburgh Steel Corp648 F 2d 118 3d Cir 1981 SEC Wells submission Wells submission

132 cease-and-desist order injunctive relief The Department of Justice SEC SEC SEC SEC U.S.C. 77h-1, 15 U.S.C regulated person broker-dealer, investment adviser disgorgement 15 U.S.C78u-2 e injunction SEC 15 U S C78u d

133 SEC A5

134

135 1 1 SEC Commissioner 5 the Senate 3 SEC IMF E2 4 a of the Securities Exchange Act Id

136 IV

137 safety and soundness 24 Basle operational independence Basle Committee on Banking SupervisionCore Principles for Effective Banking Supervision 1997p Id

138 Australian Prudential Regulation Authority APRA Australian Securities and Investments Commission ASIC

139 accountability 123 accountability accountability 26

140 accountability 2 Office of Comptroller of the Currency OCC Accountability

141 OCC Office of Management and Budget OMB Financial Services Authority FSA Freedom of Information Act Id

142 Id27 1

143 accountability Id26

144 rule of law Id28 Id27 Id27

145 Economy Issue Paper httpwww munwha co kr print html?gisaid L Loss & J Seligman Fundamentals of Securities Regulation p R K Abrams and M W TaylorIssues in the Unification of Financial Sector Supervision IMF Working Paper WP Basle Committee on Banking SupervisionCore Principles for Effective Banking Supervision 1997 Young Shim Korean Bank Regulation and Supervision Crisis and Reform 2000

146 The Korean Journal of Securities Law Vol. 4 No A Study on the Independence and Accountability of the Financial Regulatory Agency in Korea Kim Byoung Youn ABSTRACT Financial regulation framework of Korea has been greatly changed after experiencing IMF financial crisis in Due to the Act on the Establishment of Financial Supervisory Organizations (the FSO Act), the Financial Supervisory Commission (FSC) and the Financial Supervisory Service (FSS) could perform the integrated supervisory functions over banking, securities, and insurance industries. The two organizations have also played a pivotal role in restructuring financial and corporate sector since the wake of the 1997 financial crisis that had weakened the stability of Korea s financial industry. However, after the end of 2000 a series of financial affairs spawned a new phase of discussion on financial supervisory framework. It focuses on the shrink of the FSS and the enlargement of the FSC, and will be a long journey. This article lays out historical development of and practical needs of improvement in the current financial regulatory framework. Moreover, it analyzes the structural problem of current financial regulatory framework, and will offer suggestions for the reform of the current framework. The proposed reform is based on the establishment of independence in the enforcement activities of the FSC and the FSS. It refers to as improving accountability of the FSC and the FSS. There exist differences between the Securities Exchange Commission (SEC) of the United States and the FSC of Korea: in the relative independence of the organizations and in their powers. The President of the United States has the power to appoint all five commissioners of the SEC with the advice and consent of the Senate. All SEC

147 commissioners perform their work independently and have power to direct actual SEC work. Thus, even though the SEC is an administrative agency, its business is independent of influence or intervention by other government bodies. By contrast, in Korea, many government bodies and economic institutions are involved in the organization of the FSC. This situation leads the work of the FSC in undesirable directions. Even though the FSC seems to have independence in its enforcement activities, it does not have complete independence. The Chairman of the FSC has a plenary power over the work of the FSC and the FSS, because the Chairman of the FSC is also Governor of the FSS. For efficient FSC supervision over the securities market, individual members of the FSC should have the power practically to direct the FSC s business performance. In addition, the current involvement by government bodies and other institutions in the organization of the FSC should be eliminated in order to establish independence of the FSC. It is also recommended that the members of the FSC be appointed by the President with the advice and consent of the National Assembly of Korea independently of the other government bodies that are currently involved. Further staggered terms for members could also increase the agency s independence.

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149 credit exposure close-out netting collateralization

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151 repurchase agreements repos securities lending

152 credit exposure close-out netting collateralization 5 II III IV III ISDA 2001 collateralization David SuetensCollateralization and the ISDA Credit Support Annex International Financial Law Review 14 8 August 1995 Peter LeeA Question of Collateral Euromoney, November 1995 Rodney R PeckCollateralization of swap transactions in SWAP Financing II1987 Euromoney ISDA Chris LeberneCredit Netting Solvency Netting and Collateralisation Journal of Banking and Finance Law and Practice Once netting is possible the next step is to collateralise the resulting exposure

153 V IV credit risk counterparty risk collateral giver collateral taker collateral arrangements mark-to-market 7 1 ISDA Collateral Arrangements in the European Financial Markets The Need for National Law Reform March 20003

154 special purpose derivatives vehicles 1980 ISDA ISDA 2003 MARGIN SURVEY REPORTS $719 BILLION OF COLLATERAL IN USE 70% INCREASE OVER 2002 LEVELS News Release 9April ISDA 2002 Margin Survey 70% Ibid ISDA 2003 MARGIN SURVEY 5 ISDA International Swaps and Derivatives Association Inc ISDA ISDA ISDA Collateral Survey ISDA Margin Survey ISDA Margin Survey ISDA httpwww isda org BIS Collateral in Wholesale Financial Markets Recent Trends RiskManagement and Market Dynamics Basle March 2001 structured derivative product companies DPCs Reza Bahar and Mark GoldStructuring Derivative Product Companies Risks and Safeguards in Derivative Credit Risk Advances in Measurement and Management 1996p 173 Eli M Remolona William Bassett and In Sun GeoumRisk Management by Structured Derivative Product Companies FRBNY Economic Policy Review 17 April 1996

155 Chicago Board of Trade CBOT London Clearing House 3 Nicholas Dunbar Deutsche and Liffe Offer Swap Futures March 2001 Risk 8 LIFFE Swapnote Graham M DuncanCentralised Foreign Exchange and OTC Derivatives Clearing Issues to Be Considered in H J Blommestein The New Financial Landscape Forces Shaping the Revolution in Banking RiskManagement and Capital Markets 1995pp John Board et alderivatives Regulation in Barry Schachter ed Derivatives Regulation and Banking 1996p CapMAC

156 90 credit derivatives events of default BIS credit rating credit line BIS Acceleration of OTC Derivatives Market Activity in the First Half of 2002 Press Release E 8 November 2002

157 BIS OECD oneway collateral arrangements Risk Management Guidelines for Derivatives July

158 two-way collateral arrangements lenders market borrowers market 6

159 obligations plus 12 Obligations means with respect to a party all present or future obligations of that party under this Agreement and any additional obligations specified in Paragraph 13 this Agreement ISDA 13 b ii Eligible Collateral A Cash B Negotiable debt obligations of any maturity issued by the U S Treasury Department Treasury SecuritiesCFederal Home Loan Bank Notes Federal National Mortgage Association Notes Government National Mortgage Association Notes Federal Home Loan Mortgage Corporation Notes or Federal Farm Credit Bank Notes collectively the Agency Notes

160 threshhold amount credit support amount minimum transfer amount delivery amount credit line 3 Credit Support Obligations 4 d Substitutions

161 3 6 d Distributions and Interest Amounts 8 a Secured Party s Rights and Remedies 8 b Pledgor s Rights and Remedies 8 c Deficiencies and Excess Proceedsd Final Returns Paragraph 6 c New York Uniform Commercial Code

162 rehypothecation failure at least the same degree of care as it would exercise with respect to its own property ISDA NY-UCC e sell pledge rehypothecate assign NY-UCC e right to redeem NY-UCC NY-UCC NY-UCC c Use of Posted Collateral 13 g ii Use of Posted Collateral 6 a) Care of Posted Collateral 14269

163 ISDA multi-tier holding place of the relevant intermediary approach PRIMA 1994 Article PRIMA Directive EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems Official Journal L P Directive EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements Official Journal L P ISDA Directive on Financial Collateral Arrangements 29April 2003 CONVENTION ON THE LAW APPLICABLE TO CERTAIN RIGHTS IN RESPECT OF SECURITIES HELD WITH AN INTERMEDIARY httpwww hcch net e conventions menu36e html PRIMA

164 ISDA 2001 ISDA 2001 ISDA Margin Provisions ISDA Credit Support Annex ISDA Todd E PetzelManaging Collateral on Exchanges and Off A New Perspective Journal of Derivatives 64 CSA Credit Support Annex

165 Credit Support Deed Security InterestCredit Support Annex Transfer Credit Support Deed Security Interest a charge or other security interest Companies Act 1985 Credit Support Annex Transfer Credit Support Annex Companies Act 1985 charge Section 395 floating charge administration Insolvency Act 1986 Section 11 negative pledge Alastair Hudson, The Law on Financial Derivatives

166 ISDA Schedule credit support document ISDA Loss Market Quotation 2002 Close-out Amount

167 13 secured party pledgor preamble 1 Paragraph 1. Interpretation 1 13 Elections and Variables 2 Paragraph 2. Security Interest 1 a first priority continuing security interest lien a right of set-off Paragraph 3 Credit Support Obligations valuation date 4 Paragraph 4 Conditions Precedent Transfer Timing Calculations and Substitutions a Conditions Precedent b Transfer Timing ISDA User s Guide to the 1994 ISDA Credit Support Annex 1994 Anthony C Gooch and Linda B Klein Documentation for Derivatives Credit Support Supplement 1995

168 transfer timing notification time c Calculations valuation date valuation time valuation agent d Substitutions 5 Paragraph 5 Dispute Resolution delivery amount return amount 6 Paragraph 6 Holding and Using Posted Collateral a b custodian c d 7 Paragraph 7 Events of Defaults 5 a iii 1 5 a iii Paragraph 8 Certain Rights and Remedies a Secured Partie s Rights and Remedies b Pledgor s Rights and Remedies

169 c d Deficiencies and Excess Proceeds Final Returns 9 Paragraph 9 Representations 10 Paragraph 10 Expenses Paragraph 11 Miscellaneous financing statements 12 Paragraph 12 Definitions 13 Paragraph 13 Elections and Variables 12 13

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171 BIS OECD

172

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174 negative pledge homogenity Hudson op citp 190

175 top-up collateral preferences

176 1996 PRIMA CSA Credit Support Annex Reza Bahar and Mark GoldStructuring Derivative Product Companies Risks and Safeguards in Derivative Credit Risk Advances in Measurement and Management 1996 Graham M DuncanCentralised Foreign Exchange and OTC Derivatives Clearing Issues to Be Considered in H J Blommestein The New Financial Landscape Forces Shaping the Revolution in Banking RiskManagement and Capital Markets 1995 Alastair Hudson The Law on Financial Derivatives 1996 Peter LeeA Question of Collateral Euromoney November 1995 Chris LeberneCredit Netting Solvency Netting and Collateralisation 10 Journal of Banking and Finance Law and Practice Rodney R PeckCollateralization of swap transactions in SWAP Financing II 1987 Euromoney Todd E PetzelManaging Collateral on Exchanges and Off A New Perspective Journal of Derivatives 64 Eli M Remolona William Bassett and In Sun GeoumRisk Management by Structured Derivative Product Companies FRBNY Economic Policy Review 17 April 1996 David SuetensCollateralization and the ISDA Credit Support Annex International Financial Law Review 14-8 August 1995

177 BIS Collateral in Wholesale Financial Markets Recent Trends RiskManagement and Market Dynamics Basle March 2001 ISDA Collateral Arrangements in the European Financial Markets The Need for National Law Reform March 2000 ISDA Collateral Survey ISDA Margin Survey ISDA Margin Survey ISDA

178 The Korean Journal of Securities Law Vol. 4 No A Study on the Collateralization of New Financial Transactions Sunseop Jung ABSTRACT The use of collateral in the trading of newly developed financial instruments including OTC derivatives is increasingly growing in the global financial markets. This is to manage counter-party risk. While close-out netting is one of the effective methods to reduce credit risk in OTC derivatives, it cannot completely eliminate credit risk. This is so because the recovery of the remaining net sum after close-out netting would be subject to the normal insolvency rules. Market participants often use collateral to effectively secure the remaining net sum. Traditionally, the use of collateral in the financial sector refers to a one-way structure in which the weaker party provides collateral to the stronger. However, the arrangement currently used in OTC derivatives markets is different from those traditional arrangements in that it is a bilateral or two-way structure based on the mark-to-market concept irrespective of the different credit standing of the parties. Collateralisation refers to the market trend to use a collateral arrangement as a credit risk control method. In Korea, the use of collateral for OTC derivatives is not usual like other Asian countries. Collateralisation is still regarded as a method to compensate a weaker credit. Collateral management requires sophisticated systemic supports, which are absent in most Korean market participants. In addition, international banks and other dealers may not regard Korean government bonds or cash as eligible collateral. Thus, it is of little use to discuss collateral arrangements based on such Korean assets. However, it is possible for a Korean participant to use modern collateral arrangements as a counter-party to foreign banks. Collateralisation draws more and more attention, in particular, after the market turbulence in the late 1990s.

179 There have been various international, regional and national efforts to clarify the relevant issues. Collateralisation presupposes the enforceability of netting arrangements, and collateralisation can supplement the limits of netting as a credit risk management method. Among other issues affecting the use of collateral in a jurisdiction, the insolvency treatment of collateral can be resolved by including collateral obligations within the netting statute.

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181 IMF 25

182 4

183 IMF

184 Securitization Structured Financing Floating Charge Securitization Securitization 2 Jess Lederman The Handbook of Asset-Backed Securities New York Institute of Finance 1990 p 4 ABS Government National Mortgage Association MBS

185 2 Financial Asset Securitization Investment Trust FASIT Real Estate Mortgage Investment Conduits REMIC Jason H P Kravitt edsecuritization of Financial Assets Second Edition Aspen Law & Business FASIT ABS REMIC

186 IMF ABS

187 % Collateralized Bond Obligation CBO % % Primary CBO Secondary CBO Primary CBO 2000 ABS ABS ABS

188 % 67.7% 51.2% 44.8% % 2000 Secondary CBO 67 7% 2002 IMF 3 www fss or kr

189 % 69 9% 45 4% 37 4% % % % 8 2% 7 9% % 9 8% 2 1% % 39 6% 2 4% % 3 6% 1 1% %

190 ( %) % 97 7% 1 5% 0 8% % 4 9% 1 5% 98 2% 1 3% 0 5% 4 IM 1

191 IMF

192

193 Conduit Paper Company SPC SPC httpwww assembly go kr

194 SPC

195 II XX YYY

196 VII

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198 Off-balance T ue Sale The Employee Abuse Prevention Act of

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200 1 1 1% 75% 99%

201 555 3 SPC

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203 A B 2 A B A A A A B B A 1 C C C C C D D D D C D D 361 4

204 Master Trust 1 Master Trust Settlor Master Agreement Corpus Pool Pool Pool Master Trust Master Trust Issuer Dynamic Master Trust Discrete Master Trust Anand K Bhattacharya and Fank J Fabozzi edsasset Backed Securities Frank J Fabozzi Associates 1996p 80 Master Trust Credit Card Trust Fixed Income Securities Owner Trust Master Trust Master Trust Master Trust Master Trust SPC Master Trust

205 Guideline

206 Bankruptcy Remote

207 True Sale Opinion Off-Balance Opinion Safe Harbor 13 Off-balance Opinion

208 Off-Balance Off-balance 92

209

210 Paper Company 22 7 SPC Know-how Out-sourcing Negative Covenant cash flow

211 SPC 50% 50% 50% True Sale Doctrine I

212 i ii iii iv

213

214 SPC 1 SPC SPC SPC Asset Backed Loan ABL ABL ABL ABL

215 ABL ABL ABL 3 ABL ABL SPC SPC SPC ABL ABL

216 ABL ABL SPC Paper Company SPC ABL SPC SPC SPC ABL ABL Credit Enhancement Jason H P Kravitt op citchapter 8 2 2

217 ABL ABL True Sale Test SPC ABL SPC SPC SPC CP 2 CP

218 SPC CP CP SPC SPC CP SPC Paper Company SPC

219 SPC CP SPC 17 SPC CP SPC CP SPC 4 CP SPC SPC

220 CP httpwww ksd or kr Pds PdsBiz PdsBiz jsp

221 SPC CP CP B 1 1 CP CP SPC CP SPC CP CP Revolving CP

222 idle money CP SPC CP CP SPC CP CP SPC CP CP CP CP entity CP CP Security Trustee Security Agent 3 Revolving CP CP Revolving Plan 3 4

223 18 CP CP II

224

225 CP CP SPC Profit Kicking call option 6% 5 1 Won-l nked US Dollar

226 Structu e Financing SPC CP SPC SPC % Rule

227 38 SPC

228 20% SPC

229 SPC 100% SPC SPC 60 SPC 40 SPC SPC

230 SPC SPC SPC SPC SPC SPC SPC 50% SPC Synthetic Synthetic SPC Protection Buyer

231 SPC SPC Credit Default Swap Credit Risk Credit Default Risk Total Return Swap Market Risk Synthetic Collateralized Debt Obligation Synthetic CDO Credit Default Swap Credit Default Swap SPC SPC XXIII Credi Default Swap Credit E ent Basket Swap Portfolio Default Swap Synthetic Mayer Brown Rowe & Maw Homepage Synthetic CDO homepage httpwww mayerbrown com cdo news index asp quantitative

232 Premium SPC Protection SPC Protection Seller Protection Buyer Credit Default Swap Credit Event SPC SPC SPC Repo Transaction Credit Peter Cossey et alcredit Derivatives Applications for Risk Management Euromoney Publicationsplc 2001p 15 Credit Default Swap Credit Event Credit Event

233 Event SPC SPC First-Loss Clause First-Loss Clause Tranche junior note holder First-Loss First-Loss Financial Advisor Rating Agency Credit Default Swap Credit Event Fixed Recovery Digital Swap Total Return Swap Total Return Swap SPC SPC Total Return Swap Credit Event all 1 or nothing 0 digital 1 or 0

234 Netting Total Return Swap Credit Default Swap Credit Default Swap Credit Event SPC Total Return Swap SPC SPC SPC SPC Netting SPC Swap 3

235 SPC SPC Negative Covenants Swap Swap

236 SPC Credit Linked Note SPC SPC

237 ISDA Netting XXIII Netting 665

238 Credit Linked Note Warrant Structured Financing

239 VII ABS ABS ABS XXIII2001 I II ABS XXIII ABS Jason H P Kravitt edsecuritization of Financial Assets Second Edition Aspen Law & Business

240 1999 Anand K Bhattacharya and Fank J Fabozzi edsasset Backed Securities Frank J Fabozzi Associates 1996 Jess Lederman The Handbook of Asset-Backed Securities New York Institute of Finance 1990 Peter Cossey et alcredit Derivatives Applications for Risk Management Euromoney Publications plc II 1989

241 The Korean Journal of Securities Law Vol. 4 No A Study on Non-Statutory Securitization as a Method for Overcoming the Limitation of Securitization under the Law concerning Asset Backed Securitization Kang, Hee Chul, Chang, W. Eugene, & Yoon, Hee Woong ABSTRACT Since the Law concerning the Asset-Backed Securitization ( ABS Act ) was enacted on September 16, 1998, for a period of over 4 years until year 2002, Asset- Backed Securities market grew explosively to the point where the aggregate amount of the issued asset-backed securities reached the surprising amount of trillion won. Such growth made a great contribution to Korea s overcoming of IMF financial crisis. However, there are still inadequate factors in Korean legal system with respect to implementation of the asset backed securitization systems as it has been developed under Anglo-American jurisdiction. Therefore, domestic asset-backed securitization could have been enacted only by using the special benefit granted under the ABS Act. However, both the contents of the existing ABS Act and the attitude of the regulatory authorities, which are responsible for the application of ABS Act, places certain restrictions that prevents domestic financial industry from handling all of the various asset-backed securitization practices that are carried out in developed countries. Therefore, Korea s financial industry developed and utilized various finance techniques which did not rely on the ABS Act, but did yield similar effects to asset-backed securitization under ABS ACt called non-statutory securitization. Among non-statutory securitization that does not utilize trust, the follwings are being utilized in practical business or have the potential to be utilized: loan structure, commercial paper structure, in-kind contribution structure, and syntheticstructure. The loan structure may be used mainly as a future claim securitization, and has the advantage of being a simple structure and inexpensive cost. The commercial paper issuancestructure

242 has the advantage of being free from restrictions of so-called principle of no multiple securitization plan, set by the ABS Act, but it is restricted in other ways by the nature of commercial papers being promissory notes. The in-kind contribution structure may replace techniques of real estate securitization. Finally, the syntheticstructure can have effects similar to asset-backed securitization without transfer of assets. However, in Korea, due to various financial regulations and restrictions, which render the synthetic structure almost impossible to realize, it is not yet utilized. Non-statutory securitization is an alternative of overcoming the restrictions of assetbacked securitization under ABS Act. But in the long-run, it would beefficient to be consolidated into the existing asset-backed securitization systems, as a form of assetbacked securitization under ABS Act. Nevertheless, in order for the existing asset-backed securitization systems to be able to embrace the non-statutory securitization, it is necessary to reform not only the ABS Act, but also relevant systems, such as securities law, tax law, security interest law, security registration systems, and derivative regulations.

243 %

244

245 IMF

246

247 1982 NTT prepaid card telephone card Schenkgutschein

248

249 LG %

250 incentive i

251 ii iii A B C

252

253 S 200 Schenkgutschein S Schuldschein Kleinesinhaberpapier AG Nordheim Urteil v C NJW RP

254 39318 ID

255 i1 ii

256 % %

257

258

259

260 i 60% 100% ii 40% i ii II 7 i 2 ii iii

261 3 3 Deutsche Telecom BGH Darlehn BGHZ Urteil vom XI ZR Gutschein Geschenkgutschein

262

263 60% %

264 III 21

265

266 % % i ii 10% 60% 10% ii i i 60% 90% 10%

267

268 60% 20 25%

269 20 25% i 60% 90% ii 10% 10%

270 i 10% 40% ii iii

271

272 10%

273

274 The Korean Journal of Securities Law Vol. 4 No Some Legal Problems Concerning Commodity Purchase Securities and Proposal for Improvement Kwon Jong-Ho ABSTRACT In recent years, Korean Commodity Purchase Securities (hereinafter KCPS ) have gained immense popularity because of their convenience as presents and substitutes for cash in the korea. KCPS is prepaid securities dominated in Korean won, which is able to purchase commodities and services subscribed in the securities. The KCPS is regulated by the general conditions which are reviewed by the Korea Fair Transaction Committee. By the general conditions, if purchaser purchase more than 60% of commodity or service subscribed in the securities, the purchaser have the right to claim from the issuer to redeem in cash. This article attempts to explain legal issues concerning the issuance of KCPS in a concrete way and sets out ways for improvements, especially regarding the redemption provision. In order to clarify this goals, I fist survey characteristics and types of KCPS. Then I analyze the problems of the redemption provisions, and finally make some legal proposals for improving the redemption provision. In conclusion, the current redemption provision should be abolished. Although this article s focus is in redemption provision of KCPS general conditions, There are more significant issues related to KCPS, such as the concept of KCPS, its legal mechanism, purchaser protection, etc. Thus it would be necessary to conduct more comprehensive and in-depth studies on such issues.

275 21 CP Section 2 I

276 II III IV

277 the Sarbanes-Oxley Act IT

278 21 CP 2003 matching clearance II III IV

279 T 1 DVP CP Delivery versus Payment paperless

280 3 160 JBNet JBNet 160 JBNet

281 JBNet CP CP CP CP CP CP CP CP 2 CP paperless

282 working group CP CP DVP JBNet DVP JBNet DVP T+1

283 DTC Central Securities Depository JASDEC 2000 DTC CP

284 CP CP CP CP

285 DVP CP JASDEC DVP JASDEC JASDEC DVP

286 CP CP CP 2 1 CP CP

287 1 CP 1 CP CP CP

288 JASDEC JASDEC 47

289 JASDEC JASDEC

290

291

292

293 A A B C B C A

294 A C 2 D D E D E

295

296

297 3 2003

298 MBS CP ELS

299 5

300 The Korean Journal of Securities Law Vol. 4 No Reform of the Debt Securities Settlement System in Japan Kon Sik Kim & Isoo Kim ABSTRACT The purpose of this paper is to examine the recent reform of the debt securities settlement system in Japan and to draw lessons for Korea. Over the last several years, Japan has been aggressively engaged in reforming her out-dated securities settlement system. The policy objective is to achieve DVP and T+1 by introducing paperless settlement. The reform efforts first focused on the settlement of commercial papers, and moved to debt securities in general. A most important product of these efforts is the Act concerning Book Entry Settlement of Debentures (Debentures Settlement Act) promulgated in The Act allows an issuer to dispense with certificate in issuing and transferring debt securities including CPs. The legislative history of the Act is discussed in detail in Part II. Part III surveys major elements of the Act. Part IV draws some lessons for Korea from the Japanese reform.

301 APEC Trading Securities over the Internet Recent Developments in Japanese Securities Regulations

302 % PTS Proprietary Trading System impact PTS 10 ToSTNeT ToSTNeT-1 VWAP ToSTNeT-2 announce internet finance 1995 Spring Street Brewing CoInc SPREAD M Alternative Trading System ATS Electronic Communications Network ECN <httpwww tse or jp cash tost index html

303 TV EDINET EDINET MTCI

304 up-load i 2000 Targeted at PTS

305 PTS PTS PTS IV

306 targeted at PTS PTS

307 PTS PTS PTS PTS

308 4 PTS needs 5%

309 1989 G ISSA 1990 G-10 Lamfalussy Gakushuin

310 2000 BIS CPSS Core Principles for Systemically Important Payment System 2001 IOSCO Recommendations for Securities Settlement Systems 2 Euronext Clearstream DVP Delivery versus Payment DVP STP Straight Through Processing DVP finality

311 DVP Repo EFT 2000

312 CSD BOJ-Net RTGS DVP

313 466 JB JB BOJ-Net DVP JB DVP % 1984 CSD 14 1

314 24 Depotgesetz DVP CCP DVP %

315 CSD 1 CSD

316 Trading Day 4 T 3 T 1 STP STP DVP CP CP httpwww fsa go jp p-mof shingikai cp top htm CP CP CP 2002