Defendant

Red bonds, tampings, trials

Attorney Lee Dong-gu et al.

The defendant shall be innocent.

1. Summary of the facts charged

The Defendant is a person who was engaged in the development and operation of derivatives in Nonindicted Company 1 from July 4, 2005 to July 3, 2009 and retired from office.

On April 18, 2008, Non-Indicted Company 1 issued and sold stock-linked securities (ESS; hereinafter “instant ES”). The instant ES was an underlying asset of Non-Indicted Company 2’s stocks (hereinafter “Non-Indicted Company 2’s stocks”) and Non-Indicted Company 2’s stocks (hereinafter “Non-Indicted Company 2’s stocks”) on April 19, 2010 after the maturity of 452,00 won; the initial price of Non-Indicted Company 2’s stocks was 120,000 won; the initial base price of the stocks of Non-Indicted 2’s stocks was 5% higher than the initial base price of the underlying assets at 20% lower than the end of 7% higher than the end of 15% higher than the initial base price of the underlying assets (i: 2008, Apr. 15, 2009; 301: 4% higher than the interim price of the underlying assets at 15% higher than the end of 10%.4%.1.

The Defendant performed the management of the deel hedging of the instant ES by using Nonindicted Company 1’s account (Account Number omitted) opened in the Korea Exchange via Nonindicted Company 1’s account (Account Number omitted).

On the other hand, on December 16, 2008, the Korea Exchange sent to each member securities company a public notice containing the contents of “the prohibition of excessive termination order at the time of the hedge trading” under the title of “the notice on matters related to the hedge trading and the short sale on consignment,” and the Defendant was sufficiently aware of the above public notice via the in-house bulletin board.

On April 13, 2009, prior to the second interim evaluation date, the Defendant discovered the increase in the dedele fluctuation of Nonindicted Company 2’s shares, and came to know of the fact that early redemption of the instant ES was imminent. In that process, the Defendant came to know the fact that early redemption of the instant ES is likely to increase the loss in the part of the operation of the ES itself if the instant ES is early redemption due to the occurrence of the loss in the instant ES itself (ju 1 in the part part of the hedge), and, in recognition of the fact that the loss in the part of the instant ES can be expanded if the market price of Nonindicted Company 2’s shares was formed above the fulfillment price of the terms and conditions during the connection trading on the date of the second interim evaluation date and sold at the price is more than the sale price of Nonindicted Company 2’s shares at that price, which could have sufficiently prepared the early redemption fund, but did not actively implement the terms and conditions so that it could avoid the early redemption.

On April 15, 209, at the office of the head office of ○○○ Building Operation Headquarters with the above 14:52:0-14:59:555 hours, the simultaneous house price of which is 14:2:50-59: 55 hours, for the above account, have been continuously submitted to the Korea Exchange at a lower price than the anticipated conclusion price formed in the market for the stocks of Nonindicted Companies 2.5 days. On the same day, at around 15:52:00, the immediately preceding 96,500 won was lower than 95,500 won, and the estimated conclusion was 90,500 won after the 195,50,000 won was 50 won, and 9,500 won was ever lower than 95,500 won, and 9,509,509,000 won was able to buy and sell orders on the same date.

2. Determination

However, according to the evidence submitted by the prosecutor, the defendant, who is engaged in the management of deel hedging in the non-indicted 1 company, sold the shares of the non-indicted 2 company, and was ordered to sell 87,000 shares over five times in total, as stated in the facts charged, during the period between April 15, 2009 and April 14:52:0-14:555, which is the second interim evaluation date of the instant ES, at a price lower than the expected conclusion price or the price of the condition fulfillment of the instant ES, and as a result, the termination of the said shares at KRW 95,900 on the day, and thus, the second interim redemption condition of the instant ES was not fulfilled.

Furthermore, in light of all the following circumstances, the evidence submitted by the prosecutor alone is insufficient to acknowledge whether the Defendant issued the above selling order with the artificial manipulation for the purpose of market price fixing, and there is no other evidence to prove otherwise.

① First, ES is a financial product that determines investment profits based on an underlying asset of an index, bonds, or stocks in connection with changes in the price of specific stock certificates or stock price index. As such, ES issuer is bound to trade the underlying asset of ES through the financial method called “deel hedging” in order to avoid risks arising from the issuance of ES and secure financial resources for redemption. As long as deel hedging is a transaction of underlying assets, the price fluctuation arising therefrom shall be deemed to be due to normal demand and supply due to market factors. However, in the event that the fulfillment of redemption conditions is determined based on an interim assessment date, it appears that there is a big change in the redemption price at a single trading period in which the redemption price is determined, and thus, it is difficult to concentrate on a single trading period near the date of the formation of deel hedging in accordance with the closing price, and thus, it cannot be said that there is no possibility that the redemption price will be lower than the redemption price at a lower level than the redemption price at a single trading period.

In light of the records, the Defendant had engaged in hedging transactions through 10 swap programs including the instant ES, and even if he/she had been unable to buy or sell 150,00 shares of Non-Indicted Party 2 during the period of 10 to 14:5 hours before the end of 0,000 won, taking into account the fact that it was difficult to conclude that 150,00 shares of Non-Indicted Party 2 were sold during the period of 10 to 14:5 hours before the end of 20,000 won, and that it was difficult to conclude that 1:50 shares were sold during the period of 0 to 105 hours after the date of 10,000 won prior to the end of 20,000 won prior to the end of 4:5 hours prior to the end of 10,000 shares, and that it was difficult to conclude that 1:50 hours prior to the end of 20 hours prior to the end of 30,000.

② In addition, in order to determine whether Nonindicted Company 1 suffered loss due to the operation of the instant LS, as a whole, in the spot part of derivatives, which is underlying assets, the entire amount of profit and loss remains zero. In addition, in order to determine whether Nonindicted Company 1 sustained loss due to the operation of the instant LS, not only Nonindicted Company 2’s stocks and Nonindicted Company 2’s stocks, but also profits and losses arising from the ES itself, should be considered together. Considering the fact that Nonindicted Company 1’s trading and evaluation loss of Nonindicted Company 2’s stocks and Nonindicted Company 2’s stocks, which are underlying assets due to the instant ES self-hedging transaction, from April 2008 to June 2009, it is difficult to consider that Nonindicted Company 2’s interim redemption of the instant eS’s interim redemption on the 6.12 billion won, and that Nonindicted Company 3’s interim redemption of the instant eS’s interim redemption on the eS’s trading basis (i.e., interim redemption of the instant 27 billion won).

3. Conclusion

Thus, since the facts charged in this case constitute a case where there is no proof of crime, the defendant is acquitted under the latter part of Article 325 of the Criminal Procedure Act.

It is so decided as per Disposition for the above reasons.

Judges Lee Dong-sik

1) During the period from April 2008 to June 2009, when the future 357 ESS was established, there was a large amount of trading and appraised loss in the hedge trading of Non-Indicted 3’s stocks and Non-Indicted 2’s stocks (the loss of Non-Indicted 3’s stocks: 6.127 billion won, and the loss of Non-Indicted 2’s stocks: 2.49 billion won).

2) The basic principle is to hold an adequate quantity of underlying assets in order to cope with the risk of price fluctuation based on the delta value, which is a unit expressing the sensitive level of the option value for the price fluctuation of underlying assets. In real transactions, the volume of underlying assets to be held by a financial institution according to the detea value calculated using a computer program that inputs various market variables in the determination of the price model of derivatives, and the risk of underlying assets generated as a single pool to save the hedging cost is used to calculate the detea value by managing the risks of underlying assets of the same kind as a single pool to save the hedging cost.