Plaintiff 1 and 25 others (Law Firm Hannuri, Attorneys Kim Young-young et al., Counsel for the plaintiff-appellant)

Do Governor Bank (Attorneys White Chang-hun et al., Counsel for the plaintiff-appellant)

October 19, 2012

Seoul Central District Court Decision 2010Gahap27835 Decided January 12, 2012

1. The judgment of the first instance is revoked, and all plaintiffs' claims are dismissed.

2. The costs of the lawsuit are assessed against the Plaintiffs.

The purport of the claim: The defendant shall pay to each of the plaintiffs listed in the separate sheet of claim amount in attached Table 4 "the amount of claims" as stated in the same Table, 5% per annum from September 1, 2009 to the service date of the application for modification of the purport of the claim and the cause of the claim in this case, and 20% per annum from the next day to the day of full payment.

The purport of appeal is as set forth in the Disposition.

1. Basic facts

A. On August 31, 2007, Korea Investment Securities Co., Ltd. (hereinafter “Korea Investment Securities”) issued “289 Korea Investment Securities Co., Ltd. 289 Korea Investment Securities Co., Ltd. (hereinafter “Korea Investment Securities Co., Ltd.”)” (hereinafter “instant stock-linked securities”), which is a kind of derivatives-combined securities, and the main contents indicated in the prospectus are as follows:

-The name of the good: 289 Korean Investment Securities Additionals. 289

- For underlying assets: Samsung Electronic Common Shares, National Bank Notes 2) Common Shares

- Total issue amount: 19.8 billion won

- Initial Base Price: Paper of each underlying asset on August 30, 2007 (Tsung Electronic Ordinary Shares 572,000, Common Shares of National Bank 74,600)

- Maturity: (Assigning the opportunity to repay automatically every two years and every six months) August 31, 2009

- The maturity valuation date: August 26, 2009 the closing price of underlying assets;

-Profit structure

(1) Automatic early redemption.

(i) Where the appraised value of two underlying assets on the date of the first automatic steering evaluation is not less than 90 per cent of the initial base price: 7.15 per investment rate;

(ii) where the appraised value of two underlying assets on the date of the second automatic steering evaluation is not less than 85 per cent of the initial base price: 14.3 per investment rate;

(iii) where the appraised value of two underlying assets on the date of the third automatic early redemption is not less than 80 per cent of the initial base price: 21.45 per investment rate;

(2) Repayment at maturity.

4) Where the automatic early redemption under the above-mentioned (1)-3 does not occur, and where the maturity assessment price for two underlying assets is at least 75% of the initial base price: 28.6% of the investment rate (hereinafter “term A for full repayment”).

5) Where the automatic early redemption and maturity redemption under the above-mentioned 1-4 have not occurred, and the maturity evaluation price for any of the two underlying assets is less than [the first base price x 75%], and no one of the two underlying assets (including the middle of the two underlying assets) falls below [the first base price x 60%]: 28.6% of the yield of investment (hereinafter “term of full redemption”) (hereinafter “term of full redemption”).

6) The automatic early repayment and maturity repayment under the above-mentioned 1-5 do not occur, and [including any issue up to maturity, which has fallen below 60% of the initial base price, even if it comes to maturity] + [if the maturity evaluation price is less than 75% of the initial base price even for any issue among two items]: Principal loss, loss rate = (principal) x (satisfing rate of a category with a large decline in the base asset (hereinafter “terms at maturity C”) (hereinafter “the decline rate of a category with a large decline in the base asset”).

B. Korea Investment Securities shall pay a certain amount of redemption to investors who purchased the instant stock-linked securities, including the Plaintiffs, when the early redemption condition or maturity redemption condition of the instant stock-linked securities is satisfied. On August 30, 2007, Korea Investment Securities concluded a stock-linked swap contract (USD SPP 200,000,000 won, which is the same structure as the instant stock-linked securities (hereinafter “the instant stock-linked swap contract”) with respect to the amount acquired by Korea Investment Securities through the issuance of the instant stock-linked securities between the Defendant and the Defendant on August 30, 2007, which is part of KRW 890,000,000,000,000, out of the total amount of KRW 19.89 billion.

C. After that, the instant stock-linked securities led to August 26, 2009, which was the date of determining the maturity price without fulfilling the redemption condition (hereinafter “the instant base date”), and the fulfillment of the redemption condition A or the redemption condition C at maturity was at issue. At the time, there was no problem that the instant stock-linked securities were formed at a 700,000 won higher than the base price (572,000 won), and there was no problem in meeting the redemption condition (429,000 won higher than the base price). However, since the KB common financialism’s share price fell from 54,000 won to 54,00 won, it was problematic whether the redemption condition (5% higher than the adjusted base price) was met.

D. However, on August 24, 2009, the Defendant sold 75,000 common shares of KB financing, and 77,409 common shares of KB financing on August 25, 2009, respectively. On August 26, 2009, the base date of the instant case sold 242,214 common shares of KB financing, and more specifically, the Defendant sold 114,214 shares in total as indicated below in the Doc Securities List through the access sale process through the Doc Securities List. Moreover, during the access sale process, the Defendant sold 14,214 shares in total as shown below. From 14:50:00 to 15:00 shares, a single temporary sale period, up to 14:00 shares through the KB financing Seoul Branch, an affiliate, through the ELS Seoul Branch, and sold 7:128,00 shares on a combined basis (hereinafter “the Defendant’s sale on shares”).

1. Sales orders in the main sentence: 09: 47 8,182,50 won 53,50 won 13: 220: 54,800 won 54,600 won 54,600 won 54,000 won 54,000 won 14: 03: 40,405,400 won 40,405,400 won 14: 40,405,400 won 40,405,400 won 14: 540,50,400 won 40: 40,50,50 won 40,40: 40,50,404 won , 50,50,500 won , 540,40: 50,50,515,500 won 65 weeks

E. On the instant base date, the final closing price of KB Financial General Shares was determined at KRW 54,740,00, which is the base price for redemption of the instant stock-linked securities, and the redemption conditions of the instant stock-linked securities were not satisfied.

F. Therefore, on August 31, 2009, the Plaintiffs received only the money indicated in the “actual receipt” column of the claim amount sheet in attached Form 4 corresponding to approximately 74.9% of the investment principal (term repayment C) from the Korea Investment Securities on August 31, 2009, which is the maturity date of the instant stock-linked securities.

[Ground of recognition] Facts without dispute, Gap evidence 1 through 5, 9, Eul evidence 1, Eul evidence 1 to 3, 5, 7, 8 (including partial number of evidence), and the purport of the whole pleadings

2. The parties' assertion

A. Summary of the plaintiffs' assertion

1) At a single time zone during which the Defendant determines the closing price of shares, the Defendant made it constituted under 54,740 won, which is the base price for redemption at maturity, by selling KB Finance common shares, which are the underlying assets of the instant stock-linked securities, at a large price at the market price. The instant stock sale act constitutes an illegal market price in violation of Article 176(4)3 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) or an fraudulent illegal transaction in violation of Article 178(1)1 of the said Act. Such Defendant’s market price manipulation or fraudulent illegal transaction constitutes a tort in Article 750 of the Civil Act or causes liability for damages under Article 179 of the Capital Markets Act. Accordingly, the Defendant is liable to compensate the Plaintiffs for damages arising from the instant stock sale act.

2) Regarding the scope of compensation for damages, if the Defendant did not sell the instant shares, the Plaintiffs would have received each of the money indicated in the corresponding column of “the principal of the investment principal” in the attached Table 4 claim amount in the maturity repayment as the redemption condition of the maturity repayment of the instant stock-linked securities was met (the money indicated in the corresponding column of the claim amount sheet in attached Table 4 and the amount calculated by the return rate of 28.6% on this basis), and the amount actually received the money indicated in the corresponding column of “actual receipt” in the above table. As such, the amount of damages suffered by the Defendant’s tort is as stated in the corresponding column of “the claim amount” in each of the above table, which is the difference.

3) While the Defendant asserts that the instant act of selling stocks was justifiable as a result of the so-called “deel hedging”’s sale of stocks, the Defendant determined the amount of stocks to be held by considering the deel value calculated by the closing price of a specific day as the number of stocks to be held in order to deel hedging immediately on that day. This is contrary to the concept and basic principles of the normal deel hedging, and thus, the instant act of selling stocks cannot be deemed a transaction based on the deel hedging (i.e., the instant act of selling stocks may not be deemed a transaction based on the deel hedging since it avoided risks by controlling the quantity of stocks in accordance with the deel hedging’s price fluctuation based on underlying asset price fluctuation in underlying assets (i.e.,, the instant act of avoiding the degree of stocks to be held only after the deel price was computed based on the deel value calculated by the closing price of underlying assets of a specific day. However, the Defendant adjusted the quantity of stocks to be held on that day (any specific day).

4) Even if the act of selling the instant shares constitutes a hedge transaction of underlying assets arising from the issuance and acquisition of the ESS products, the act of selling the instant shares cannot be justified on this ground, and whether the act of selling the instant shares was unfairly involved in the formation of the share price should be determined on the basis of whether it was unlawful. However, in light of the behavior of selling the instant shares, the Defendant’s act of selling the instant shares constitutes a 128,000 shares via the ELS Seoul branch prior to the expiration of 10 minutes prior to the expiration of the base date of the instant case, so that it constitutes an artificial act of selling the shares at a price lower than 54,740 won, which is below the base price redemption at maturity. Furthermore, the act of selling the instant shares constitutes an act of selling the shares at a price lower than 54,700 won, which constitutes an artificial act of selling the shares. Furthermore, the act of selling the shares constitutes not a hedge transaction but a hedge transaction, and thus, constitutes an act of selling the instant shares.

B. Summary of the defendant's assertion

A financial institution that issued an ES product, such as the instant stock-linked securities, shall avoid risks arising from the issuance of the ES and manage risks arising from the stock price fluctuation by trading the underlying assets of the ES using the so-called “deel hedging” financial method in order to secure the financial resources for redemption of the ES. The Defendant also traded the KB financial common shares, which are underlying assets, during the period prior to handling the instant stock-linked securities in accordance with the deel hedging principle. In particular, on the instant base date, the KB financial company sells KB financial shares, which are being held in minimizing the impact on the stock price according to the deel hedging principle. Accordingly, the Defendant’s above sale of stocks constitutes market price manipulation or unfair trading under the Financial Investment Services and Capital Markets Act, or constitutes an illegal act falling under Article 750 of the Civil Act.

3. Determination

A. Whether the sales of the instant shares constitutes market price manipulation or unfair trading (in relation to deel hedging)

(1) Relevant legal principles

1) Article 176(4)3 of the Financial Investment Services and Capital Markets Act provides that market price manipulation is subject to punishment. Generally, a transaction which artificially changes the market price of securities refers to a transaction that may artificially change the market price and trading volume that will be formed in the free competition market due to normal demand and supply due to other factors not attributable to the market cause (see Supreme Court Decision 2003Do4320, May 11, 2006). In order to the purport of the above judgment, the meaning of market price manipulation under the Financial Investment Services and Capital Markets Act is construed as either artificially fixing the market price and trading volume that will be formed in the free competition market according to normal demand and supply through other factors not attributable to the market cause. Furthermore, the purpose of fixing or stabilizing the market price of securities is not only to fix or stabilize the current market price of securities, but also to ensure that an actor forms a certain price and stabilizs the market price, and if the offender has made the transaction with such purpose, it shall be deemed that the transaction continues to be conducted for a certain period of time, not only once.

2) In addition, Article 178(1)1 Note 9 of the Financial Investment Services and Capital Markets Act “act of using an unfair means, scheme, or trick” refers to any means, scheme, or trick deemed unfair in light of social norms (see Supreme Court Decision 2011Do8109, Oct. 27, 201).

(2) Application of this case

In light of the aforementioned legal principles, if the Defendant’s act of selling shares constitutes a market price manipulation under the Capital Markets Act, the instant act of selling shares ought to be an artificial manipulation, not a normal demand and supply due to market factors (affirmative requirements), and the purpose of obtaining, or allowing a third party to obtain, unjust profits from trading securities (affirmative requirements). In addition, even if the instant act of selling shares did not reach a market price manipulation that satisfies the above requirements, if it can be deemed that the instant act of selling shares was used as an unfair means, scheme, or trick under the generally accepted social norms, it constitutes an unlawful act due to an unfair trading under the Capital Markets Act.

(3) deel hedging and stock-linked securities;

In full view of Gap evidence 25, 29, Eul evidence 10, 13, Eul evidence 14-1 through 5, Eul evidence 16 through 18, Eul evidence 31, Eul evidence 34 and 36, Eul evidence 34 and 36, and the purport of the Non-Party's testimony and argument of the non-party witness at the trial, the following can be acknowledged in relation to the issue of stock-linked securities:

1) The appearance, diameter, and utility of stock-linked securities (ES)

A) The stock-linked securities (hereinafter “ES”) is a type of structural securities with index, bonds, stocks, etc. based on underlying assets, and is developed in order to seek more high profits from the appropriate risk level in order to provide investors with a relatively high profit within a certain risk range, which is determined in connection with changes in the price of specific stock certificates or the stock price index.

B) In the case of ESS issued in Korea, the rate of principal loss from among 61.9 trillion won (0.65 trillion won) due to the total amount repaid from 2003 to 2008 shall be 1% (in 0.65 trillion won). 99% due to the fulfillment of the early or maturity repayment condition, the contractual profit was accrued or at least principal was repaid. Meanwhile, the issuance of ESS was constantly recovered after the 2008 global financial crisis, but it continued to be recovered after the 2010s global financial crisis, and the issue amount in 2010 shall reach 24.3 trillion won.

2) “Reel hedging” as the basis for the existence of the ESS

As seen earlier, the structure that pays agreed profits where the underlying asset does not fall below the base price. As such, the financial institution that issued the Els needs to avoid risks arising from the issuance of the Els and secure funds for redemption of the Els. To this end, the financial institution manages the risks arising from the stock price fluctuation of the underlying asset by trading the underlying asset of the Els using the financial method called the so-called “deel hedging.” At the same time, the financial institution uses the profits gained in the course of the transaction as the repayment fund of the Els.

(iii) the principles and methods of deel hedging;

A) As a unit expressing the sensitive value of options for the price change of underlying assets, deel is the basic principle of deel hedging to hold an adequate quantity of underlying assets in order to avoid the risk of price fluctuation on the basis of deel value. Since ES is an option with the nature of derivatives, the ES is an option with the nature of derivatives, the method to which dete hedging applies in the course of options trading.

B) Examples of deel hedging (where deel value is specified)

For example, in a situation where A’s share price is 100(100), A sold call options (10 note to A Company 2,000 which is 10(100) and at this time, A sells call options according to deton value and purchased 1,200 shares of A at the same time.

First of all, when the A company’s stock price has increased from 100 to 110 won, since the possibility of exercising the A company option is high, the deel value has increased to 6 won (i.e., 10 won x 0.6). A, due to the sale of the call option, is considered to have incurred a total of 12,00 won (i.e., 6 won x 2,000 won) through the options transaction. At the same time, however, at the same time, profits and losses are maintained to 00 won per share since the A company’s stock price purchased at a rate of 1,200 to 10 won per 1,200 won for the hedging purpose, thereby gaining a total of 12,00 won.

On the other hand, in the case where the A-company shares drop from 100 to 90 won, the value of the A-company shares drops by 6 won per share as the possibility of exercising the call option is low, and the A-company shares take advantage of 12,000 won per share due to the sale of the call option. However, at the same time, since the A-company shares purchased for the purpose of hedging to 1,200 to 10 won per share, the profit and loss still remains 0.

C) Examples of deel hedging (if the deel value changes)

However, since deel value continues to change according to changes in various variables such as stock price and maturity, financial institutions should frequently adjust the quantity of underlying assets held. For this adjustment, financial institutions can not continue the transactions of underlying assets.

In other words, when the A company’s stock price increases from KRW 100 to KRW 110,00, the deton value of call options increases from KRW 0.6 to KRW 0.7,00. Accordingly, the number of stocks to be held by A in order to delta increases from KRW 1,200 to KRW 1,400. A needs to additionally purchase 200 shares corresponding to the detona value increased as above for detona (=0.1 x 2,00 shares), and adjust the shares to KRW 1,200 to KRW 1,40.

On the other hand, when the shares price of a company A has decreased from 100 to 90 won, the deel value of call options has been reduced from 0.6 to 0.5. Accordingly, Gap sells 200 shares corresponding to the deel value reduced as above for the deel hedging (0.1 x 2,00 shares), and there is a need to adjust the shares to 1,200 shares from 1,200 shares.

D) Examples of revenue structure of the deel hedging

In order to explain this, a financial institution, which carries out the dele hedging with respect to the ESS, aims to create financial resources for redemption by hedging risks through low-price purchase and high-priced sale under the dele hedging principle. In order to explain this, it is assumed that the current share price of 10,000 won, 10,000 won with put options, 0,000 won with put options, 0,000 won with put options, 0.5, 7,000 on the first day, and 12, a financial institution, which purchased one put options with respect to 100 shares of A, takes advantage of the profits of 50,90 won at maturity and 12,00 won at the end of each day.

50,000 50,000 590,000 590,500 590,500 38,500 62,500 62,500 62,500 42,500 632,500 49,700 49,70 - 5312 -16,400 -16,400 -16,500 -100 -16,400 -16,100 -100 -130,511,000 -40 -130,00 -40 -632,50 -632,50 49,700 -12 -16,400 -16,500 - 130,6307 -6305 -63016 -6306 -6300

Note 14) The number of stocks to be held;

15) the number of shares purchased

Note 16) Stock purchase costs

17)Cumulative profits and losses

E) the deel hedging method in actual transactions

The dedele value used for real transactions is calculated using computer programs created by inputting various market variables in a derivatives pricing model and accordingly, the volume of underlying assets that a financial institution needs to hold. In addition, in practice, in order to save hedging costs, a pooling method is being used to manage risks arising from the underlying assets of the same kind as a pool to calculate the dedele value as a single pool. According to the pooling method, the dedele value is calculated at a certain period according to the financial institution’s own standards, and the actual transaction is allowed within the scope of risk without completely complying with the stock holdings and the dedele value. However, as seen below, it does not include the discretion that the dedele’s discretion does not lead to dedele hedging.

F) Characteristics of deel value in the wife near the date of redemption;

Simple Notes 18) In the case of options, the delta value has been set between 0 and 1, so there is no significant change in the trading volume to be delta hedging. However, in the case of ES, which is an option, the 19th option, the redemption base date, and the stock price has changed rapidly and rapidly. The reason is that the ES structure has the structure of so-called “all (all)” or “all (all)” rather than the structure in which the value of options or the profit and loss structure are proportionally changed due to the change in the price of ES structure.

In applying the instant stock-linked securities, when the fulfillment of the terms of redemption A and the terms of redemption C at maturity are problematic, the Plaintiffs may obtain profits equivalent to 28.6% of the principal amount of each investment if KB Finance’s share price falls below the base date of redemption 54,740 won as of the instant base date. However, even if the share price falls below 1 won, a considerable difference in the amount of principal loss due to the occurrence of principal loss according to the terms of redemption C at maturity (the difference in the amount of each Plaintiff’s receipt by each Plaintiff is the same as the claim amount corresponding to the claim amount table of Attached Table 4), thereby making a significant change in the value of options beyond 1, and thereby making the delta value more than 1. Accordingly, the Defendant’s purchase of stocks near the instant base date of redemption at high level, while the Defendant’s sale of stocks is not able to fully lower the value of the underlying asset prior to the expiration of the redemption date, regardless of whether the termination date is meeting with the terms of redemption at maturity.

(iv) the need for deel hedging

A) Financial institutions are obligated to manage risks through hedges to ensure the soundness of asset management. This is a statutory obligation under the former Securities and Exchange Act as well as the Capital Markets Act. In particular, in the case of over-the-counter derivatives, it is necessary to maintain the total risk amount arising from trading over-the-counter derivatives and establish a system for risk management. Therefore, in the case of financial institutions dealing in derivatives, it is the duty to maintain and secure the risks arising from the risk of trading over-the-counter derivatives to maintain the financial soundness and protect the customer’s entrusted property, rather than the matter of choice, in light of the public nature of financial institutions that have the duty to protect the customer’s entrusted property. In other words, even in the case of ES-related transactions, risk management must be conducted so that the underlying asset is not exposed to the market risk, and the method

B) If so, it is not only the hedge method that is deemed necessary to be a premise for the issuance of the hedgeS, but also the method of the hedge transaction that is legally enforced for the soundness of the financial institution’s asset management. In addition to the fact that all the shares are significantly and significantly different, but also the factors affecting the stock price of the stock market, the market price formed by the hedge transaction shall be deemed as a normal supply and demand based on market factors. Moreover, it is difficult to readily conclude that the market price formed by the hedge transaction constitutes an artificial market manipulation, solely on the ground that there are a large quantity of the transaction or a concentrated time for the sale.

(4) Deel hedging and investor protection.

The hedge transaction in the ES is bound to have a certain impact on the formation of the underlying asset price as seen earlier, and it may affect the redemption condition of the stock-linked securities due to the decline in the stock price by the delta hedging, and financial institutions need to have investors recognize in advance the risks that may arise due to the characteristics of the delta hedging 21). [In the case of this case, the Plaintiffs are likely to fully know or have known of such circumstances in the product description (Evidence A) of the instant stock-linked securities, and the Korea Investment Securities are also aware of the risks of the issuance of the instant stock-linked securities by their own dela hedging 8,90,000 won in excess of the amount of the instant stock-linked securities (in the case of this case, it is reasonable to deem that there is no dispute between the parties to avoid the risk of the issuance of the instant stock-linked securities by the method of the dela hedging hedging).

Meanwhile, as seen earlier, the hedge trading cannot be deemed unlawful merely on the ground that it affected the formation of the underlying asset price and the fulfillment of the conditions for derivative financial products, on the grounds that the hedge trading has a characteristic of affecting the formation of underlying asset price by itself, as seen earlier. However, as seen earlier, the hedge trading is a structure in which the discretion of the radar is bound to intervene, and thus, the act should not be properly assessed solely on the ground that it is the hedge trading.

Ultimately, in order to evaluate any hedge transaction as legitimate, by examining how faithfully consistent with the detonism doctrine that is commonly used in theoretical and practical practice, in the event that the transaction in question can be accepted within the scope of the discretion given to the Malaysia, the legitimacy can be recognized as a hedge transaction conducted in good faith. However, even if the transaction in question is based on the detonism principle, there is no reason to sell even if the transaction in question is based on the detonism principle, or it seems obvious that the volume of underlying assets held by the sale in question goes beyond the scope of discretion given to the Malaysia, such as where the sale in question goes beyond the detonism level, it cannot be recognized as justifiable.

(5) Whether the Defendant faithfully performed the purchase and sale of shares in accordance with the deel hedging

In light of the above evidence, Eul, Eul's evidence Nos. 8, 10, Eul's evidence Nos. 14 through 19, Eul's evidence Nos. 14 through 31, Eul's testimony of the non-party witness at the trial, the overall purport of the pleadings, and the following facts presented in the above basic facts, and the defendant's trade behavior, it is reasonable to view that the act of selling stocks of this case was conducted in the course of trading stocks in accordance with the principle of de de facto hedging.

1) From July 28, 2009 to the reference date of the instant case, the Defendant’s 22 note of the KB Finance Common Shares (Evidence B(No. 8) appears to have been on the following grounds: (a) as seen in [Attachment B]’s list of the actual trading volume and the actual trading volume; and (b) as seen in Appendix 3’s list, it appears that the Defendant moved in the direction similar to the change in the dedele value; and (c) as such, there is a relatively small difference in the number of shares calculated according to the relatively dedela value. The Defendant appears to have tried to hold the shares calculated according to

As to this, the Plaintiff argued to the effect that the Defendant’s determination of the volume of shares to be held on a specific day according to the de facto value that is calculated by a specific day constitutes a kind of speculative transaction, not logically inconsistent with the deel hedging, and that the instant act of selling shares constitutes a kind of speculative transaction, and is merely a prior liquidation of the hedging volume, not a normal deel hedging. However, the Plaintiff’s assertion that the instant act of selling shares constitutes a method of offsetting the amount of shares held in kind due to the change in the deel value of options (e.g., adjustment of the amount of shares held at any time to offset profits and losses of options and losses of the dele hedging by offsetting profits and losses of the dele hedging and losses of the shares held in kind. As such, the Plaintiff’s assertion that the dele hedging transaction based on the dele hedging is not necessarily inconsistent with the concept of deel hedging share ownership that the Defendant is obliged to hold on a specific day according to the specific value of shares held by a specific financial institution.

2) Meanwhile, from August 19, 2009 as of the base date of this case, the Defendant did not trade according to the quantities required for hedge calculated on the basis of the difference between the dedele value and the actual possession quantity (sale on August 19, 2009; Sale on August 21, 2009; Sale on August 102, 200; Sale on August 21, 2009; Sale on August 75, 2009; Sale on August 75, 2000; Sale on August 77, 2009; Sale on August 26, 2009; and Sale on the share in this case).

However, in contrast to this, it can be interpreted that the Defendant’s common shares of KB Finance should be sold at all when the deton value is zero on the base date of this case, i.e., the due date for maturity, and in contrast to this, the method of selling the shares held by the Defendant in the order of priority.

3) Examining the Defendant’s trade details on August 24, 2009 and August 25, 2009, the sales price was divided into five times on August 24, 2009 (the trading price was immediately executed and 【 100 won), and 75,000 shares out of 407,146 share on August 25, 2009 (the trading price was also 【 100 won) for eight times (the immediately preceding conclusion price and 【 100 won), and most of the immediately preceding conclusion was sold at a relatively small amount.

4) As seen in the table cited in the above basic facts, the Defendant’s trade details of KB Finance Ordinary Shares on August 26, 2009, which was the reference date of the instant case, attempted to sell distributed shares over 15 times (the immediately preceding contract price is higher than four times compared to the immediately preceding contract price, the price lower than five times, and the same price in six times) at the immediately preceding contract price and 【100 won.

5) At around 14:54, the single provisional sale period of KB Finance Co., Ltd. on the instant base date, the Defendant: (a) entrusted the sale of KRW 128,000 to the branch of KB Finance Seoul; (b) the Defendant’s sales consignment method was so-called CDs sales consignment, with the discretion to determine the price of the said shares; (c) but CEL securities may be sold at the market price and sold at the low price; (d) however, CB Finance Co., Ltd. was determined as KRW 54,700 at the entry price at the single provisional sale period.

(6) Whether there was an intention to change and fix the market price to the Defendant

1) As seen above, prior to the Defendant’s base date of the instant case, the Defendant’s trading behavior of KB Financial Common Shares (i.e., (i) ceased to sell and purchase KB Financial Shares from five business days prior to the instant base date, and (ii) began to sell KB Financial Shares, its holding assets, and accordingly, until the instant base date, the Defendant sold a total of 264,409 shares (10 + 102,000 shares + 75,000 shares + 77,409 shares + 77,409 shares) and sold a more quantity than the total sales volume on the instant base date. ② If the Defendant used to manipulate KB Financial Common Shares, it appears that the Defendant did not choose the method of selling KB Financial Shares by distributing it over the same way, and (iii) it is difficult to view the Defendant’s stable price fluctuation from the base date to the lower rate of KRW 54,704 and 709 shares below that of the instant base date.

2) Defendant’s inducement of profit trend and manipulation

As to this, the plaintiffs' legal representative asserts that the de facto hedge transaction of a financial institution aims to avoid risks arising from the issuance of derivatives on the pretext of the purpose of avoiding risks. As such, in the event that the fluctuation in underlying assets is different from the predicted at the time of the planning of derivatives, the financial institution cannot avoid all losses. Therefore, it is highly probable that the financial institution, in fact, has operated its stocks under the name of the de facto hedging with the purpose of creating profits through the operation of underlying assets rather than the purpose of avoiding deel hedging. In relation to the instant ES, it is sufficient that the defendant, a financial institution, has operated the KB Finance Class of the base date of the instant investment by manipulating the closing price of the KB Finance Class (128.6% of the investment principal (74.9% of the investment principal) of the amount to be paid at the time of the fulfillment of the redemption condition A due to the fulfillment of the redemption condition with the maturity of at least 53% (128.6% of the investment principal) of the instant investment principal.

However, solely on the circumstance that a financial institution can obtain operating profits in the course of deel hedging, it cannot be deemed that the purpose pursued through deel hedging is always not avoiding risk, but to stimulate profits. In addition, even in the case of this case, the KB common financial principle’s redemption standard was set at the vicinity of maturity without meeting the early redemption condition, and the redemption standard was set below the base date of this case. However, it is difficult to view that the Defendant committed an act of selling stocks in order to maximize profits by lowering the closing price of the base date of this case below, and there is no other evidence to acknowledge this differently. The Plaintiffs’ assertion of this part of the Plaintiffs cannot be accepted.

(7) Sub-determination

Therefore, it is difficult to view that the act of selling stocks of this case constitutes a stock transaction based on the Deel hedging, and that it constitutes a normal demand and supply due to the market factors, as well as that it is difficult to view that there was an intention to operate the KB financial common share price to the Defendant. Thus, it is difficult to view that the Defendant engaged in market price manipulation by manipulating, such as changing or fixing the KB financial common share price through the act of selling stocks of this case.

Furthermore, as seen earlier, it is an inevitable method for the soundness of a financial institution’s asset management by means of hedge method as deemed necessary under the premise for the issuance of stock-linked securities. As long as the act of selling the instant shares was determined as a transaction by the delta hedging, it cannot be deemed that the Defendant used unlawful means in light of social norms solely on the ground that the act of selling the instant shares had influenced the closing price of the KB Common Financial Principle on the base date, and there is no other evidence to acknowledge it otherwise.

(b) Whether the price fluctuation in the underlying assets is permitted due to legitimate delta hedge transactions;

(1) The plaintiffs' assertion

Even if the act of selling stocks of this case is in line with the principle of deel hedging and is an act of economic rationality, in light of the external nature of derivative financial products, which are necessary conditions for the establishment of derivative financial products, including ES, the effect of margin arising from the price fluctuation in the assets related to derivative financial products (in the case of the instant ES, KB financial common shares, etc.), shall be limited. Therefore, even if the ES is a hedge transaction, the obligation not to cause a change in the price of underlying assets should be borne. Ultimately, even if the act is conducted in accordance with the principle of deel hedging, it is not permissible if it affects the formation of the price of underlying assets as a result of the transaction.

(2) Determination

It is difficult to give normative meaning to the external nature, which is a premise at the time of the establishment of derivative financial products, is determined and given in the market at all times, and the price of underlying assets is determined and given in the option value calculation. As seen earlier, it is difficult to give normative meaning to the option trader’s purchase and sale strategies for de facto hedging. As such, in reality, it is conducted in a manner that trades underlying assets of the derivatives with the financial institution that sells derivatives in a manner that trades underlying assets of the derivatives, and it is conducted in a manner that adjusts the quantity of underlying assets in accordance with the delta value change as seen earlier. As such, it is inevitable to have an impact on underlying assets price due to the hedging transaction. According to the evidence evidence No. 7, according to the fact that the type of the instant act of selling stocks in question was 46.9%, the immediately preceding time zone was calculated at 46%, and that the Plaintiffs’ act of selling stocks can not be seen as legitimate or justifiable, in light of the fact that the Plaintiff’s act of selling the stocks in question was found to have no legitimate effect.

4. Conclusion

Therefore, the plaintiffs' claim of this case, which is premised on the illegality of the act of selling shares, cannot be accepted even without further examining it. Thus, all of the plaintiffs' claim of this case is dismissed. Since the judgment of the court of first instance with different conclusions is unfair, it is so revoked and all of the plaintiffs' claims are dismissed. It is so decided as per Disposition.

[Attachment of Related Acts and Subordinate Statutes]

Judges Kang Jong-ju (Presiding Judge) Kim Jong-ho

Note 1) The stock-linked securities are called Equid Securities, normally “ES”);

2) Since the issuance of the instant stock-linked securities, the common stockholders of the national bank were changed to the common stocks of the KB financing company in accordance with the stock exchange and transfer.

Note 3) The term “Hing” means an attempt to eliminate risks arising from changes in the prices of assets held or to be held by investors in the future. The purpose of the Hague is not to maximize the interests of investors, but to prevent losses arising from price changes.

Note 4) Through such a swap agreement, the Korea Investment Securities purchased the same product from the Defendant without directly hedging the risk (risk) and subject the Defendant to the substantial obligation to repay the same product. This is called White Tobak hedge. On the contrary, internal hedge itself made directly by the issuer against the goods identical with the goods sold by using stocks, bonds, and derivatives and made a hedge through the sales and counter-transaction. The Korea Investment Securities carried out its own hedge as to KRW 11 billion, which is part of the amount acquired by the issuance of the instant stock-linked securities.

Note 5) The 75% of the base price due to the adjustment of the maturity price following the capital increase with KB financing’s capital increase was 54,740 won. The 75% of the base price due to the KB financing’s capital increase was 53,800 won on August 20, 2009, which was immediately before the base date of the instant case, and the KB financing’s capital increase amounted to KRW 54,500 on August 21, 2009, and KRW 56,000 on August 24, 2009, and KRW 54,400 on August 25, 2009.

6) According to the Korea Stock Exchange Business Regulations (Article 23) and the Enforcement Rule of the said Regulations (Article 35), the ten minutes from the end of the stock market to the end of the contract shall be determined at the end of the contract by comprehensively taking into account the quotation received, and the closing price shall be determined at the end of the contract and the closing price shall be concluded at the end of the contract by a single unit price. As to the closing price determination of a single unit price, the principle of price preference shall be applied first among other orders, and the principle of time preference shall be applied between the same price and the same order.

Note 7) Items and quantities shall be designated in the form of an order that does not designate the price, and it refers to an order that intends to immediately trade at the price conditions that are most favorable at the present point or at the price formed in the market. Therefore, in general cases, the market price orders may have the effect of price decline since the order of the other party, which takes precedence over the designated price orders, is concluded in order from the most favorable time until the entire order quantity is resolved.

8) The detailed contents of this Article are as stated in the relevant laws and regulations. As alleged by the Plaintiff, there is a conflict of opinion as to whether this provision can be applied even in cases where the share price of listed stocks, which are underlying assets of stock-linked securities, can be applied. Article 176(4) of the Capital Markets Act provides that “No person shall commit any of the following acts with respect to the sale and purchase of listed securities (A) or exchange-traded derivatives (B).” subparagraph 3 of the same paragraph provides that “The act of changing or fixing the market price of securities (E), which are linked to securities (D), as prescribed by Presidential Decree, with the intention to earn unfair profit or cause a third party to earn unfair profit” (C) and (D), and (E) and (F) refer to the securities identical to the securities listed in subparagraphs 4 and 7 of Article 207 of the Enforcement Decree of the Capital Markets Act, and thus, it is not applicable to the instant securities sale of securities (C) as stated in the foregoing provision, even if there is no objective interpretation that the instant securities sale of securities constitutes the instant securities sale of securities.

9) The details of this article are as shown in the relevant laws and regulations.

10) Call option means the right to live at an exercise price set in advance prior to the expiration or maturity of a particular underlying asset;

Note 11) The detonel value was 0.7 is the value selected at will for explanation, as the stock price was presented to 0.6 under the status of 100.

Note 12) put options refer to the right to sell specific underlying assets at the exercise price set in advance prior to the maturity or maturity date.

Note 13) The prices, figures, etc. listed in the Schedule are all values produced voluntarily for the convenience of understanding.

Note 14) Number of stocks to be held = deel value ¡¿ 100 shares

Note 15) The number of shares purchased = the number of shares held on the day before - the number of shares held on the day.

Note 16) Stock purchase cost = Stock price 】 number of stocks purchased

17) Cumulative profits and losses = Stock purchase cost (1) + Stock purchase cost (2).. + Stock purchase cost (7) and cumulative profits and losses are negative (-). The meaning of cumulative profits and losses is that profits and losses have been created to the hedge party.

Note 18) Call options or put options.

Note 19) If the value of underlying assets is determined by the parties to an option agreement, it means a pre-determined profit and, if the value of underlying assets is below the determined level, it means an option of structure with which no profit is available.

주20) 자본시장법 제166조의2(장외파생상품의 매매 등) ① 투자매매업자 또는 투자중개업자는 장외파생상품을 대상으로 하여 투자매매업 또는 투자중개업을 하는 경우에는 다음 각 호의 기준을 준수하여야 한다. 2. 장외파생상품의 매매에 따른 위험액이 금융위원회가 정하여 고시하는 한도를 초과하지 아니할 것 3. 영업용순자본이 총위험액의 2배에 미달하는 경우에는 그 미달상태가 해소될 때까지 새로운 장외파생상품의 매매를 중지하고, 미종결거래의 정리나 위험회피에 관련된 업무만을 수행할 것 5. 월별 장외파생상품의 매매, 그 중개·주선 또는 대리의 거래내역을 다음 달 10일까지 금융위원회에 보고할 것 자본시장법 제31조(경영건전성기준) ① 금융투자업자는 경영의 건전성을 유지하기 위하여 다음 각 호의 사항에 관하여 금융위원회가 정하여 고시하는 경영건전성기준을 준수하여야 하며, 이를 위한 적절한 체계를 구축·시행하여야 한다. 4. 그 밖에 경영의 건전성 확보를 위하여 필요한 사항으로서 대통령령으로 정하는 사항 자본시장법시행령 제35조(경영건전성기준) ① 법 제31조 제1항 제4호에서 ‘대통령령으로 정하는 사항’이란 다음 각 호의 사항을 말한다. 1. 위험관리에 관한 사항 금융투자업 규정 제3-42조(위험관리체제) ① 금융투자업자는 각종 거래에서 발생하는 제반 위험을 적시에 인식·평가·감시·통제하는 등 위험관리를 위한 체제를 갖추어야 한다. ② 금융투자업자는 위험을 효율적으로 관리하기 위하여 부서별, 거래별 또는 상품별 위험부담한도·거래한도 등을 적절히 설정·운영하여야 한다. ③ 금융투자업자는 각종 거래에서 발생할 수 있는 시장위험, 운영위험, 신용위험 및 유동성위험 등 각종 위험을 종류별로 평가하고 관리하여야 한다.

21) For this reason, the Financial Supervisory Service announced the “Guidelines for Preparation of Reports on Derivatives-combined Securities” on March 8, 2012, under the premise that the prices of underlying assets may vary due to hedge transactions as normal business activities of the issuer of derivative-combined securities in relation to the risk of price fluctuation as one of the investment risk factors, and as a result, may affect the redemption amount of this securities. In particular, on the date of automatic early redemption or maturity assessment by the issuer’s hedge transactions, mass trading of underlying assets may be conducted, and among them, on the maturity assessment date, the issuer may sell all or part of underlying assets in order to manage risks resulting from changes in the value of underlying assets and secure the redemption amount of this securities.”

22) As seen earlier, financial institutions are often able to separately calculate the delta value and the details of the sale and purchase of KB Finance commonism, which are traded under the instant swap contract, by managing the risks arising out of the underlying assets of the same kind as one pool as one pool and calculating the delta value en bloc.

Note 23) In the event of a sudden change (e.g., 9.1 situation, North Korea nuclear incident, and NANT situation, etc.) that may affect share prices between the end of the Chapter and the beginning of the following day before the beginning of the day following the end of the Chapter, it means the risk that a stock holder bears for a period for which the stock market is not opened.