Die Aktiengesellschaft und der Kapitalmarkt - Der Anlegerschutz - Generalbericht ü
forward pricing historical pricing single pricing dual pricing self-dealing dealing as agent dilution levy swing price sale redemption issuing or creation cancellation
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 235 237
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 1994 7 asset valuation & pricing IOSCO Objectives and Principles of Securities Regulation 1998 20 IOSCO Principles for the Supervision of Operators of CIS 19973
NAV Dilution 5 98 11
ask offer price bid price bid-ask spread nav concentration riskless trading
single pricing dual pricing 70 Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles Managing Collective Investment Funds Codogan Financial 2000 pp 110-113 FSA Single Pricing of Collective Investment Schemes a Review 2001 Annex 1 Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles ibidpp 113-120 98 102 100
OEIC AUT ask or offer price basis bid price basis
offer price bid price Ekaterina Alexeeva Sally Buxton Christopher Gilchrist and Mark St Giles op citp 115
historic pricing forward pricing day trader IOSCO Regulatory Approaches to the Valuation and Pricing of Collective Investment Schemes 1999 p 24
market maker IOSCO ibidp 24
OEIC OEIC AUT Authorized Corporate Director ACD box holding FSA CIS Sourcebook 4 3 3 4 4 3 4 4 4 79 M&A 77 ACD
1 single mid-market price FSA CIS Sourcebook 4 3 6 FSA CIS Sourcebook 4 3 11 FSA CIS Sourcebook 4 7 dual priced AUT FSA CIS Sourcebook 15 3
4 initial offer 21 2% fixed price FSA CIS Sourcebook 4 3 3 FSA CIS Sourcebook 4 2 umbrella scheme
4 2% 1 30 2 FSA CIS Sourcebook 4 3 3
2 in-specie creation 4 2 FSA CIS Sourcebook 4 3 12 FSA CIS Sourcebook 4 3 8
4 initial charge exit charge FSA CIS Sourcebook 4 3 10 issue or creation saleredemption cancellation FSA CIS Sourcebook 4 15 16 21 FSA CIS Sourcebook 4 7 4 4 7 5
4 in specie redemption bid-ask spread large deal blind pricing 2% FSA CIS Sourcebook 4 5 4 supra II 1
futures & option scheme geared futures & option scheme 2 AUT Units unit net asset value per unit valuation point 2 FSA CIS Sourcebook 5 5 6 5 7 5 9 FSA CIS Sourcebook 4 3 4 FSA CIS Sourcebook 4 3 4
single priced AUT box holding market maker intermediary independent financial adviser FSA CIS Sourcebook 4 4 4 FSA CIS Sourcebook 4 3 10 redemption repurchase SEC Protecting Investors A Half-century of Investment Company Regulation 1992 11 repurchase and redemption FSA CIS Sourcebook 4 1 4
next valuatin point last valuation point buying price offer price selling price bid price FSA Sourcebook 4 7 15 7 forward pricing blind pricing 12 9 30 3 30 historic pricing forward pricing backward pricing 2 FSA CIS Sourcebook 3 5
preliminary charge buying basis selling basis 1 initial offer fixed price 21 FSA CIS Sourcebook 4 3 4
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 1 2 2 2 initial charge
2 2 notified point 2 2 9 15 11 2 4 FSA CIS Sourcebook 4 1 4
4 50% MMS money market scheme selling price code of conduct dilution levy FSA CIS Sourcebook 4 3 4 15 3 7 FSA CIS Sourcebook 4 3 11 4 6 dilution effect
scheme particular key features document 6 unitization 0 5% FSA CIS Sourcebook 15 2 7 FSA CIS Sourcebook 7
3 1 1 3 1 4 FSA Sourcebook 7 annex 1G FSA guidance
1 1 due diligence 0 5%
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%
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
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
dual pricing offer price bid price bid offer spread 2001 9 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
FSA Discussion Paper op citpp 17-18 10 25 1% 5% FSA Consultation Paper op citp 13
dilution levy FSA 1 FSA Discussion Paper op citpp 17-18 23-24 FSA Consultatin Paper op citp 9 FSA Discussion Paper op citpp 21-29
2 3 2 4 1 2 3 4 5 5 1 1 3 1 1
IOSCO CIS 5 mid-market price 2 FSA 5 1 5 1 5 1 1 5 1 0 01% FSA Consultation Paper ibidp 13 FSA Consultatin Paper ibidp 13
incomingexistingoutgoing 1 FSA FSA box holding box holding
box holding cushion box holding operational problem FSA box holding box holding historical pricing AUT OEIC riskless trading nav dilution
FSA 98 25 1 3 IOSCO Regulatory Approaches to the Valuation and Pricing of CIS 1999 p 24 fixed price
forward pricing historical pricing forward & historical pricing 4 forward pricing historic pricing 3
5 90180 MMF 0 5% 90 180 2003 94-96 99-101
MMF 6 15 3 4 historical pricing 2002
forward pricing MMF historical pricing 4 2 forward pricing 27 1 16 2 3 MMF D D 1 D 2 D 2 MMF D D 1 D D D D 1 D 2 D 3 7 15 4 3 22
3 D 2 4 D 3 MMF D 15 15 50 7 8 D D 1 MMF D D 1 3 4 98 9 16
7 1 50 23 3 in-kind redemption 28 5 23 7 FSA CIS Sourcebook 4 4 15 5
16 3 ISOCO Suspending Redemptions A Case-Study from 11 September 2001and General Principles 2002 p 4 Appendix II 98 9 16
50 8 2 2 3 16 3 repurchase 12 3 4 MMF MMF 2000 11 4
16 2 98 9 16 MMF 2001 190 2002 237-240
3 3 4 2 15 MMF 95-6 100 3
204-205 MMF MMF
MMF zero-sum 98 9 18 MMF MMF MMF OEIC MMF
IOSCO Suspending Redemptions A Case-Study from 11 September 2001and General Principles Report of the Technical Committee of the IOSCO 2002 p 3 16 5% 5 10%
MMF forward pricing MMF MMF MMF MMF MMF MMF MMF
MMF MMF MMF MMF 27 penalty
15 repurchase MMF 204-205
2000 2003 2001 2002 2002 Alexeeva S. Buxton C. Gilchrist M.S. Giles, Managing Collective Investment Funds, Codogan Financial, 2000. FSA, Single Pricing of Collective Investment Scheme : proposed amendments, Feedback on Discussion Paper 08, 2002. FSA, Single pricing of collective investment schemes: a review, Discussion paper 08, 2001. FSA, Single pricing of collective investment schemes, Feedback on CP131 and made text, 2002. IOSCO, Regulatory Approaches to the Valuation and Pricing of Collective Investment Scheme, 1999. IOSCO, Report on Investment Management, 1994. IOSCO, Objectives and Principles of Securities Regulation, 1998. IOSCO, Principles for the supervision of Operators of Collective Investment Scheme, 1997. IOSCO, CIS unit pricing, 1999. IOSCO, A comparision between the technical committee report and the emerging markets committee report on valuation and pricing of collective investment schemes, 1999. IOSCO, Suspending Redemptions: A Case-Study from 11 September 2001 and General Principles, Report of the Technical Committee of the IOSCO, 2002. SEC Report, Protecting Investors: A Half-Century of Investment Company Regulation, 1992. Securities Institute, Unit Trust Administration, 2002. Securities Institute, OEIC Administration, 2002.
The Korean Journal of Securities Law Vol. 4 No. 1 2003 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
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.
2000 i ii 2000 KRF-2000-C00045
umbrella funds MMF Money Market Fund
switch 2000 i ii
i ii sub-funds MMF
i ii functional regulation III 112 139 2 2 200163 65 2002 109 66
IV 2 47 53 IV 3 II 2 IV 2 i ii 77 128
75 6393
1 2 III 3 2 1 contingent liability FORUM, 9 2000 59Sin The Legal Nauture of Unit Trust 1997
2 1 1
IV 3 IV 3 dual pricing single pricing 138 IV 3 2 4 6 R 2 i periodical credit capital income ii charges expenses scheme property iii currency
i ii
A B A B i ii option contingent liability
II 2 tracking stock III 112 A
B A B option
A B A B i ii option contingent liability
II 2 A B option contingent liability
29 41 FSMA 2000 s.235 4 athorisation order FSA CIS Sourcebook 12 5 1 R IV 2 1 exchange redemption and sale capital gains taxation realisation
charge 82 12 FSA CIS Sourcebook 3 5 2 R 24 information required 9 ring-fenced CIS 3 5 2 R 24 f CIS 8 3 4R Set-up costs amortised g unit
FSA CIS Sourcebook 4 4 3 1 R 65 FSA CIS Sourcebook 13 1 3 R 9 FORUM 95977
A B A B II 3 A X B A A X X A B A B X X A B B 20 3 2001387 392 obligation to redeem63 obligation to sell
95 64 Money Market Fund 95 1 64 1 MMF MMF FSA CIS Sourcebook 4 4 3 R MMF MMF MMF
FSA CIS Sourcebook 4 7 4 2 R T 1 T 2 MMF FSA CIS Sourcebook 5 1 6 G signicant influence concentration
88 1 2 88 1 2 signicant influence concentration FSA CIS Sourcebook 5 2 16 G FSA CIS Sourcebook 5 12 4 R IV 22
FSA CIS Sourcebook 8 2 8 R FSA CIS Sourcebook 12 5 3 R
1 i 98 ii 2 123 iii 100 99 124 2
CIS 10 4 2 14 CIS 10 4 2 15 FSA CIS Sourcebook 10 3 3 R 10 5 2 R
i 124 1 ii 121 3 CIS 10 4 2 15
FSA CIS Sourcebook 10 3 4 R 10 5 2 R FSA CIS Sourcebook 11 2 9 R 11 2 10 R shareholder agreements
106 119 66 2 106 1 2 A a B C c a B c a B c B c a 106 2 2 3
functional definition 75 1 119 1 2 A a B C c a B c a B c a B c 111 1 a B c a B c
10 66 functional regulation
FSA CIS Sourcebook 11 5 2 R tracking stock tracking stock 2 2
33 41 4 2 2 3 1 3 2 2 3 1 175 authorised funds FSA CIS Sourcebook 11 5 2 R 31 1 42 31 1
switch FSA CIS Sourcebook 12 5 5 R 105 1 110
105 3 112 114 117 114 FSA CIS Sourcebook 14 3 R
group of funds fund family a mutual fund group III 72 40 Investment Company Act of 1940 ICA SEC rule i ii principal underwriter
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
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 1998 17 1
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
SEC $100 000 board of trustees s 2 a 3 C 40 NAVs s 11 a
s 11 a Rule 11a-3 IV 3 40 SEC Rule 18f-2 Rule 18f-2 a SEC i NAVs 1 1 ii NAVs 47 53 IV 2
138 138 2 CIS 2 1 4 R Categories of authorised fund ICA Rule 18f-3 IV 25 i sales load ii 12b-1 fee NAV NAV 9
2000 2002 2001 2001 2 1 2001. 2001
2002 FORUM 9 2000 2 2 2001 20 3 2001. 2002 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
The Korean Journal of Securities Law Vol. 4 No. 1 2003 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.
1997 IMF 1998 2002 1
1997 IMF 1997 1998 4 1999 1 IMF IMF 2000 57 2002 5 66-76 2001. 5, 4-11 2000. 12. 29 2 2001 2107
2000 12 2001 4 4 1 2002 1 2000 11 9 23 2000 10 25 httpwww munwha co kr print html?gisaid 200010255000101 2000 11 9 1627 22-24 2000 11 23 1847 28-29 Economy 1101 2001 4 2530 2001 Vol 17-5 195 89-96 33 4 2000 1260 188 188 2 188 4
1997 1997 1997 12 29 1998 4 1 1999 1 1 2002 1 26 6623 1997 6 65
24 2 3 24 37 1999 1999 6 2002 2 11 11 1998 6 233 8-9 9
1997 12 31 1 3 126 SEC
1 17 18 2 1 5 1 33 4 2000 12 8
9 1 4 1 5 29 2 4 2 3 3 1 1 1 9 4 3 1 3 6 3 3 3 1 6 1
IMF 27 2 1997 IMF 64 2 65 Young Shim Korean Bank Regulation and Supervision Crisis and Reform 2000pp 56-61
1999 IMF 1 4 1 2001 19 1 5 11-13 102
20 2 1 20 1 1 20 4 3 1 20 5 1998 24 1 24 2 102 IV 11 57 1997
universal banking 1 4 9 1 29 1 30 1 30 3 30 4 29 2 29 3 29 4 3 1 29 5 universal banking 46-48 2000 10 23 6274 8 Issue Paper 02-3780-80482000 12 55-59 R K Abrams and M W TaylorIssues in the Unification of Financial Sector Supervision IMF Working Paper WP 00 213 2000
24 1 37 39 1 2 3 58 59 1 37 1 59 2 41 42 51
60 61 1 61 2 29 2 19 2 1934 The Securities Exchange Act of 1934 1934 The Securities and Exchange Commission SEC IV 12 IV 22 The Securities and Exchange Commission SEC
SEC SEC SEC SEC SEC 1934 SEC 5 Commissioner 5 the Senate 3 SEC 5 1 1934 4 a chairman 1950 L Loss & J Seligman Fundamentals of Securities Regulation p 57 2001 1934 4 a
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 1953 1980 1988 1995 SEC Id 17 C F R200 58 L. Loss & J. Seligman, supra note 38, p.58. Johnson L Loss & J Seligman supra note 38 pp 60-61
SEC Investigations SEC Investigations SEC 1934 21 a SEC 1934 SEC possible violation SEC staff SEC subpoenas oath 1934 21 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 1 398 2001 SEC Broker-dealer SEC complaint center SEC 15 U S C78u b
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 735 1984 SEC SEC v Wheeling- Pittsburgh Steel Corp648 F 2d 118 3d Cir 1981 SEC Wells submission Wells submission 813-14 2002 816-20
cease-and-desist order injunctive relief The Department of Justice SEC SEC SEC SEC 1997 3 24 1 15 U.S.C. 77h-1, 15 U.S.C. 78-3 regulated person broker-dealer, investment adviser disgorgement 15 U.S.C78u-2 e injunction SEC 15 U S C78u d
3 8 1 6 1 8 10 1 3 1998 4 1 5 3 SEC 1 4 2 98 3 2000 12 7 2000 1 83 2 7 2000 8 2003 3 4 2003 3 3 1998 4 2001 5 4 101-102 2003 3 8A5
1 1 1 1 2 2 2 1
1 1 SEC Commissioner 5 the Senate 3 SEC 24 2 24 1 IMF 2003 5 27E2 4 a of the Securities Exchange Act Id 20 2 23
1 2000 12 2003 1 6 2001 3 IV 2 123 2000 12 1 2002
safety and soundness 24 Basle operational independence Basle Committee on Banking SupervisionCore Principles for Effective Banking Supervision 1997p 1324 24 101 24 Id 3 110-
17 11 2002 Australian Prudential Regulation Authority APRA Australian Securities and Investments Commission ASIC 22-23 22 24
accountability 123 accountability accountability 26
accountability 2 Office of Comptroller of the Currency OCC Accountability 25 3 2 81
OCC Office of Management and Budget OMB Financial Services Authority FSA Freedom of Information Act 26 124 Id103 12 27
24 1 29 1 30 4 58 59 60 61 29 2 58 Id27 1
accountability Id26
rule of law Id28 Id27 Id27
2000 12 2002 Economy 1101 2001 4 25 2002 2002 1998 6 233 33 4 2000 12 6 2002 2 2001 5 3 1 2002 33 4 2000 12 1997 6 1996 8 Issue Paper 02-3780-8048 2000 12 29 2 2001 2 2000 10 25 httpwww munwha co kr print html?gisaid 2000 11 9 1627 2000 11 23 1847 L Loss & J Seligman Fundamentals of Securities Regulation p 57 2001 R K Abrams and M W TaylorIssues in the Unification of Financial Sector Supervision IMF Working Paper WP 00 213 2000 Basle Committee on Banking SupervisionCore Principles for Effective Banking Supervision 1997 Young Shim Korean Bank Regulation and Supervision Crisis and Reform 2000
The Korean Journal of Securities Law Vol. 4 No. 1 2003 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 1997. 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
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.
credit exposure close-out netting collateralization
repurchase agreements repos securities lending
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 14 21995 7 14401996 1 25 19-24 14261995 8 5 13-19 ISDA 1995 12 1 60-65 14261995 8 5 20-34 14711997 1 15 53-71 1996 50-57 Chris LeberneCredit Netting Solvency Netting and Collateralisation1999 10 Journal of Banking and Finance Law and Practice 174 176 Once netting is possible the next step is to collateralise the resulting exposure
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
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 2003 4 3 ISDA 2002 Margin Survey 70% Ibid ISDA 2003 MARGIN SURVEY 5 ISDA International Swaps and Derivatives Association Inc ISDA ISDA ISDA Collateral Survey 2000 2000 ISDA Margin Survey 2001 2001 ISDA Margin Survey 2002 2002 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
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 281-6 John Board et alderivatives Regulation in Barry Schachter ed Derivatives Regulation and Banking 1996p 240 1994 4 2 1994 1 12 CapMAC 1996 14491996 4 25 26-34
90 credit derivatives events of default BIS credit rating credit line 2002 6 128 BIS Acceleration of OTC Derivatives Market Activity in the First Half of 2002 Press Release 25 2002E 8 November 2002
BIS OECD oneway collateral arrangements Risk Management Guidelines for Derivatives July 1994 3
two-way collateral arrangements lenders market borrowers market 6
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
threshhold amount credit support amount minimum transfer amount delivery amount credit line 3 Credit Support Obligations 4 d Substitutions
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
rehypothecation failure at least the same degree of care as it would exercise with respect to its own property ISDA NY-UCC9-207 2 e sell pledge rehypothecate assign NY-UCC 9-207 2 e right to redeem NY-UCC 9-506 3 NY-UCC NY-UCC 9-207 3 138 6 c Use of Posted Collateral 13 g ii Use of Posted Collateral 6 a) Care of Posted Collateral 14269
ISDA multi-tier holding place of the relevant intermediary approach PRIMA 1994 Article 8 1998 9 2 2002 9 1 PRIMA Directive 98 26 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 166 11 06 1998 P 0045-0050 Directive 2002 47 EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements Official Journal L 168 27 06 2002 P 0043-0050 2003 12 27 ISDA Directive on Financial Collateral Arrangements 29April 2003 CONVENTION ON THE LAW APPLICABLE TO CERTAIN RIGHTS IN RESPECT OF SECURITIES HELD WITH AN INTERMEDIARY 2002 12 13 httpwww hcch net e conventions menu36e html PRIMA 3 1 2002
ISDA 2001 ISDA 2001 ISDA Margin Provisions ISDA Credit Support Annex ISDA 1994 1995 Todd E PetzelManaging Collateral on Exchanges and Off A New Perspective1995 2 3 Journal of Derivatives 64 CSA Credit Support Annex 2003 4
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 1996188-189 199622
ISDA Schedule credit support document 1 12 199560-65 ISDA 2002 1 8 1992 Loss Market Quotation 2002 Close-out Amount
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
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 1 1 8 Paragraph 8 Certain Rights and Remedies a Secured Partie s Rights and Remedies b Pledgor s Rights and Remedies
c d Deficiencies and Excess Proceeds Final Returns 9 Paragraph 9 Representations 10 Paragraph 10 Expenses 9 10 11 Paragraph 11 Miscellaneous financing statements 12 Paragraph 12 Definitions 13 Paragraph 13 Elections and Variables 12 13
BIS OECD 5 1 5 1994 1 3 3 3 3
343 324 339
59 80 63 199653
negative pledge homogenity 498 3 3 Hudson op citp 190
top-up collateral preferences 199657 2003 2 28 2000 50275
1996 PRIMA 3 1 2002 2002 CSA Credit Support Annex 2003 4 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 174 1999 Rodney R PeckCollateralization of swap transactions in SWAP Financing II 1987 Euromoney Todd E PetzelManaging Collateral on Exchanges and Off A New Perspective 1995 2 3 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
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 2000 2000 ISDA Margin Survey 2001 2001 ISDA Margin Survey 2002 2002 1996 14491996 4 25 14 2 1995 7 1440 1996 1 25 14261995 8 5 ISDA 1995 12 1 1426 14261995 8 5 14711997 1 15
The Korean Journal of Securities Law Vol. 4 No. 1 2003 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.
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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The Korean Journal of Securities Law Vol. 4 No. 1 2003 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 146.9 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
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.
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The Korean Journal of Securities Law Vol. 4 No. 1 2003 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.
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The Korean Journal of Securities Law Vol. 4 No. 1 2003 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 2002. 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.
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