The International Swaps and Derivatives Association, Inc (ISDA) today expressed its concern over a series of rulings in the Seoul Central District Court in relation to Knock-in Knock-out (KIKO) currency option contracts litigation cases. The Association is particularly concerned about undesirable precedents that may harm the development of the derivatives industry in Korea, and in turn its financial stability.
“ISDA is deeply concerned with the rulings in these lawsuits,” said Keith Noyes, ISDA regional director, Asia Pacific. “The Seoul Central District Court rulings could severely inhibit derivatives activity in Korea and in turn risk upsetting financial stability if these decisions are upheld and banks made wary of entering into financial contracts.”
So far, decisions have been made in 11 cases (ten by the Seoul Central District Court and one by the Incheon District Court). In four cases, the Seoul Central District Court, applying the doctrine of "changed circumstances", granted the companies a preliminary injunction allowing the companies to temporarily suspend the performance of the KIKO contracts pending the final verdict of the main cases.
ISDA sees the Court’s decisions as a possible result of a fundamental misconception that banks generate profits that are commensurate with the losses of their counterparties.
In ISDA’s view, the Court has set dangerous precedents disrupting the fundamental right to enforceability of contracts in the country. This could expose the country to dampening international investor confidence and in turn increase risk.
ISDA has summarized its concerns in detail in a webcast entitled “‘KIKO’ Cases: Misconceptions and Undesirable Legal Precedents” The webcast features Mr. Noyes and includes a brief slide presentation discussing the series of KIKO litigation cases being prosecuted in the Seoul Central District Court. It is available at http://secure.webex.com/g2.asp?id=H8MY4GH2.
