A Study on Structured Notes Inducing Sales Disputes of Financial Instruments and its Legal Issues

• Main Authors: Nai-Jung Chen, 陳乃榕
• Other Authors: Ying-Chin Chen
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/86112716914901254686

碩士 === 中原大學 === 財經法律研究所 === 99 === Abstract In September, 2008, Lehman Brothers filed for bankruptcy protection. When the news broke, it shocked the world. In the event of emergency, AIG was also taken over by US government and followed with a series of financial institutions facing bankruptcy, chances of being merged or taken over by the government. It created a tremendous financial turmoil. And these were paced by the progress stemmed from financial engineering as well as global developments which further precipitated the world into financial meltdowns and triggered a series of financial crises globally. Impact to this country had been different from those occurred abroad. In UK and the US, what they faced were bank failures and crises resulted from economic recession. In this country, this reflected on financial institutions commissioned to sell the derivatives issued by investment banks overseas; i.e. the “structured notes” --the offshore issued structured products triggered inappropriate sales issues between the banks and the investors. Moreover, it also facilitated the reviews for changes like inadequate supervision from financial oversight system as well as insufficient oversight rules. Due to extensive developments witnessed in financial engineering, coupled with incomprehensible complexity in the structured and compound financial products which most investors would feel lost, therefore when investor applies to purchase “structured notes” financial product, the rationale would base upon the trust to the professionalism exhibited by the commission agencies. While making a comprehensive survey for investor claims in this country, we found that most of the claims stemmed from those who sought the least of investment risks. Worst of all, after these investors lost the investments, they realized the supposedly breakeven structured notes turned out to cause them lose all their investments. At the same time, they found the path to reclaim their losses would be even harder than they had imagined. Since the occurrence of dispute, the deficiency in the financial oversight system of this country was quite evident, including hierarchy level of the oversight rules, the implementation for oversight system as well as investor protection system, they were all found lacking. This research has been divided into seven chapters and sections with the intent to explore the derivatives sales disputes triggered by structured notes and associated legal issues. Chapter one, the introduction, primarily describes research motivation and the purpose for this research. Chapter two concerns the root of financial tsunami and explores asset securitization from the perspective of US subprime mortgage and risk transfer which triggered the crisis in addition to impacts to financial institutions and corresponding countermeasures. Chapter three illustrates subjects like structure notes which most our investors did not have a clear understanding, and its structure and associated risks. In addition, this chapter will explore the oversight system and corresponding duties and responsibilities for commission institutions. Chapter four is to explore the disputed items derived from selling structure notes and the accepted handling for dispute cases, the processing principles and assessment effectiveness. Moreover, it will explore the changes of review mechanism within financial oversight institutions and illustrations for arbitrated cases. Chapter five stated the legal premises for our structure notes and sales standards observed by current financial institutions of various industries and sectors. Other than these, it will explore the revisions and updates for related standards after the occurrence of dispute, plus civil liability and litigation cases of the commission institution. Chapter six focuses on the reforms dedicated to financial oversight system by all countries and global impacts caused by financial tsunami. Although problems occurred in this country are different from those from the others, the reforms for financial oversight system could still serve as directional references at a minimum. Thus, a brief description is presented in this chapter for current international and financial reform trending in addition to the exploration for direction that our reforms should assume. Furthermore, this research explores the strengthened financial consumer protection mechanisms between nations; in turn, it should also explore our legislative efforts toward financial consumer protection as well. Chapter seven serves as the conclusion for this thesis.