파생상품의 분쟁해결기준에 관한 법적 연구

김희석 연세대학교 대학원 2013 국내박사

Provisional disposition request of KIKO and issues

강준구 서울대학교 대학원 2009 국내석사

투자자 보호를 위한 파생상품거래의 효율적 공시방안 : KIKO 사례를 중심으로

신광복 韓國外國語大學校 經營大學院 2009 국내석사

파생금융상품이 점차 다양하고 복잡해짐에 따라 해당 파생상품의 성격과 위험을 정확히 인지하지 못한 채 계약을 체결함으로 인하여 피해가 발생하는가 하면, 위험헤지 목적인 아닌 차익을 얻기 위한 무모한 오버헤지나 레버리지 헤지로 인해 큰 손실을 보는 사례가 생겨나고 있다. 이와 관련하여 최근 기업과 은행 간에 체결된 통화옵션계약, 일명 KIKO(Knock-in Knock-out)라고 하는 파생금융상품이 원/달러 환율의 급격한 상승으로 인하여 대규모의 평가손실을 발생시킴에 따라 사회적으로도 큰 문제가 되고 있다. KIKO라는 파생상품으로 인해 많은 기업들이 막대한 피해를 입고 몇몇 기업들은 부도에 이르는 심각한 상황임에도 관련 거래 및 위험정보에 관한 정보 전달이 체계적으로 이루어지지 못했고 현 시점에서조차 정확한 평가손실 및 거래손실 규모도 파악하기가 힘들다. 이는 공시를 통한 정보전달의 시스템인 전자공시시스템(DART)이 만족스러울 만큼 제대로 작동하고 있지 않다는 반증이기도 하다. 대규모 손실의 주요 원인으로 지목되고 있는 통화옵션을 비롯한 각종 장외파생상품에 대해 오버헤지(over-hedge) 여부를 현행 공시체계하에서는 쉽게 파악하기가 힘들뿐만 아니라, 일반적으로 기업은 파생상품거래와 관련한 손실에 대해 즉시 공시하기를 꺼려하므로 투자자를 비롯한 다양한 이해관계자들이 해당 정보를 적시성 있게 알기 힘든 것이 현실이다. 또한 은행에 있어서도 유가증권보고서에 공시된 내용을 보면 파생상품자산이나 부채의 순증가나 순감소만이 재무제표에 계상되어 있을 뿐 그 구체적인 내용에 대해서는 주석에서조차 발견하기 힘들다. 따라서 이러한 사항들과 관련하여 파생상품거래와 관련된 정보가 실시간으로 투자자들에게 제공될 수 있는 것이 최선의 대안이라고 할 수 있겠으나 현실적인 어려움들을 고려한다면, 다음과 같은 차선의 방안들을 살펴볼 수 있겠다. 첫째 파생상품거래 계약이 거래목적의 성격과 상관없이 거래 계약이 이루어 질 때 마다 수시공시를 통하여 그 계약의 성격, 내용, 범위, 금액 등의 중요사항이 정확하고 명료하게 제공되어야 할 것이다. 둘째 파생상품별로 수시공시의 내용에 일정한 양식을 두어 최소한 일정수준 이상의 정보가 제공 될 수 있도록 정보의 양과 범위를 통제해야 할 것이다. 셋째로는 거래은행이 기업의 리스크관리 차원에서 파생상품거래 계약 시 그 규모와 계약내용을 조정할 수 있도록 하고, 오버 헤지나 중복 거래 등을 방지 할 수 있는 은행 간 정보공유를 위한 전자 정보시스템체계를 갖추어야 할 것이다. 넷째로는 기업의 수시공시와 더불어 금융기관인 은행도 파생상품거래 계약과 관련하여 같은 공시를 기업과 함께 대칭적으로 공시함으로써 그 신뢰성을 높이는 방안이 필요할 것이다. 마지막으로 파생상품계약 체결과 관련된 은행들 간의 정보를 관리당국인 정부도 함께 공유하여 경제전반에 걸친 총체적인 위험관리를 위한 자료로 활용함과 아울러 제제와 지원을 위한 합리적인 수단을 지속적으로 마련해야 할 것이다. Recently, derivatives market has experienced a significant growth. This indicates that derivatives is becoming more diverse and complicated. Due to this diversity and complexity, however, a lot of loss has been reported based on signing contracts with misunderstanding. Taking advantage of derivatives sale for investment instead of using it risk hedge is causing a problem as well. Several corporations have gone through great loss, and some of them are facing bankruptcy even. In spite of that the risk of derivatives is not fully communicated, and the accurate estimate of the loss and deals is still on the way. In light of the current situation of derivatives, this study will cover the disclosure System regarding the current domestic derivatives and also the method to protect investors from reckless dealing through an example named KIKO(Knock-In, Knock-Out). In conclusion even though the information on the corporate derivatives deals is not properly communicated to the investors, the disclosure information, which is the least safety support, has to be provided in a timely manner.

派生商品의 法的 規制에 關한 硏究 : KIKO 訴訟을 계기로 하여

박선종 高麗大學校 大學院 2011 국내박사

The U.S. sparked financial turmoil was essentially caused by derivative products as were the recent litigations surrounding the KIKO contracts. Although the latest financial crisis has shed light on the risks of sophisticated derivatives, no adequate preventive measures have been taken place. Sub-prime mortgage crisis, KIKO litigations, ‘Diamond Fund’ happenings all have one thing in common that it involved derivatives. This may not be a coincidence but rather the result of the same underlying problem. KIKO contracts were meant to protect the small to mid-sized companies by providing them with a suitable tool to those with foreign exchange hedging needs. Why then has it caused so much loss to the companies? Whether it was caused by misuse of the hedging tool, unfairness in structure or lack of proper regulations, the exact cause needs to be identified. Convinced by the large losses the media is portraying, there seems to be a negative consensus forming around derivatives. However, derivatives were essentially made in order to hedge risks followed by physical trading. In order to figure out and prevent any further controversies caused by derivatives, we first need to understand the structure of KIKO contracts. This article is not solely written to aid in resolving the KIKO disputes but rather in efforts to prevent any further negative impact related derivatives on our economy. KIKO is not the first derivative product to cause such problems. Unless enough study and measures are taken on OTC derivatives, further conflicts and litigations will persist. This article will try to go over the several aforementioned problems and suggest legal regulatory measures to aid in the just decisions of the court surrounding derivative products. In conclusion, this article is in effort to propose tightening the monitoring and imposing stronger regulations on OTC derivatives as much as we do with exchange traded derivatives. In order to protect the buyer and lower the credit risk, sellers of OTC options should undergo a much higher level of financial scrutiny as with insurance companies. KIKO controversy was essentially a problem caused by mistakingly trying to hedge through an investment tool rather than a hedging instrument. The first trial level decision in the KIKO litigation decided KIKO contracts were suitable hedging products and mainly focused on suitability and the banks duty to explain. This needs to be reconsidered. Suitability and duty to explain needs only to be applied when there are no flaws in expressing their will to commit to the contract. The companies’ decisions to enter KIKO contracts on the other hand were flawed and mistaken therefore only cases where this does not apply need to be assessed by suitability and the banks duty to explain.

통화옵션 가격결정모형을 둘러싼 KIKO 소송에서의 주요 쟁점 연구

박철우 연세대학교 경제대학원 2010 국내석사

본 논문에서는 KIKO 통화옵션계약의 불공정성 여부와 그에 관한 쟁점으로서 통화옵션 가격결정모형의 적절성, 사기?착오에 기한 계약 취소 가능성에 대해 중점적으로 검토하였다. 통화옵션 가격결정모형의 적절성 검토에서, 통화옵션 가격결정모형 중 Garman-Kohlhagen 모형이 기반하고 있는 Black-Scholes 모형과 Heston 모형의 성과에 관하여 국내외 실증연구 결과를 살펴보았다. 그 결과 참고문헌 중에는 양 모형이 성과면에서 우열이 없다는 결론도 있었으나 Black-Scholes 모형의 한계를 지적한 결론이 다수였다. KIKO 통화옵션계약의 불공정성 여부와 관련하여, Black-Scholes 모형이 일정한 한계를 가지고 있고 옵션가격결정모형과 그에 따른 모수(parameter) 산출방식은 옵션가격결정에서 가장 중요한 사항이므로 은행의 일방적인 결정에 따르도록 하는 법원의 판결은 부당하다는 점을 지적하였다. 관련 쟁점으로서 KIKO 통화옵션 가격결정모형에서 환율변동성 모수 추정을 위한 적절한 표본기간은 적어도 계약기간인 1년에서 3년 이상의 환율 데이터를 기초로 모수를 추정하는 것이 타당하다고 보았으며, 무위험이자율 산정에는 통화옵션시장에서 내재변동성 산출에 반영하는 금리인 원화 내재금리와 USD LIBOR 금리를 사용하는 것이 바람직하다고 생각되었다. 이와 같은 결론을 토대로 Double Barrier Option 가격산식을 적용한 KIKO 옵션가격산출방법을 제시하였으며, 실제로 원고기업의 풋옵션과 피고은행의 콜옵션의 가치를 비교해 본 결과 해당 계약의 경우 콜옵션의 가치가 풋옵션의 7.6배로 산정되었다. 사기?착오에 기한 계약 취소 가능성에 대한 검토에서는 옵션의 이론가격이나 대고객 가격의 불공정 여부에 관계 없이 ‘중요부분의 계산착오’ 또는 ‘중요부분의 동기의 착오’로 보아 원고기업의 계약 취소를 인정하고 계약관계에서 벗어날 수 있게 하는 것이 신의칙이나 공평의 원칙에 비추어 바람직하다고 생각되었다.

Analysis of knock-in knock-out (KIKO) option and Its disturbance to Korea's foreign exchange market

박승훈 Graduate School of International Studies, Korea Un 2010 국내석사

After the Korea Currency Crisis in 1997, Korea’s capital market has recorded outstanding growth in terms of quality and quantity due to the Government’s efforts on restructuring corporate and banking sector and liberalizing capital market. Followed by Korea’s averaged 4.8 per cent steady economic growth and improved national credit rate from 2002 to 2007, total net capital inflow risen up to USD 24.7 billion, of which capital inflow and outflow was divided into USD 95.6 and USD 71.0 billion respectively. Followed by the capital inflows and development in capital market, it is presumable that the major changes put pressures on Korean currency downward against USD dollar. As a matter of fact, Korean currency significantly appreciated by six per cent year on average during the period of 2002-06, notably by 11.8 per cent and 7.2 per cent in 2005 and 2006, respectively. Given that Korea’s 57.0 per cent of GDP growth is mainly driven by exports, appreciation of won certainly mattered to export firms and especially to shipbuilding industry of which amount of exports is billions of dollars. As a result, several hedging tools such as insurance and forward hedging have been widely used to diversify foreign exchange risks, which, however, cost companies. In order to meet the demands of cheap hedging method, a Knock-In Knock-Out (KIKO) option with zero initial cost has been introduced to Korea in 2007. Basically, the structure of KIKO option is designed to benefit a firm when exchange rate moves up and down at certain point while extreme movement in exchange rate will incur loss to the firm. As a result, five hundred and nineteen Korean firms entered into KIKO contracts with local banks at amount of USD 10.1 billion as of June 30, 2008. Upon the US subprime mortgage crisis incurring a global liquidity crisis, the year of 2008 became disastrous to Korea stock and exchange market. Total stock market capitalization has evaporated by USD three hundred twenty two billion while won lost its value by not less than thirty four per cent year on year. Following the year, the Economist raised the concern about Korea’s solvency capability as its short-term debt-to-reserves ratio deteriorated beyond hundred and two per cent. Regarding the deterioration of short-term debt management, it is found in this thesis due to the recent rising debt in banking and rising short-term bond investment. Along with Korea’s deteriorating capital market structure and the global liquidity crisis, companies’ loss from KIKO contracts had to exponentially grow as won heavily depreciated in 2008. Following the won depreciation, KIKO-related loss has been found as about USD 2.48 billion in this thesis. In sequence, the KIKO-related loss also affected stock market because it was found in this thesis that KIKO event gave negative signals to foreign investors. In detail, the net impact of KIKO losses on stock market is also found as USD 2.76 billion in this thesis, ruling out the US subprime impacts on Korea’s stock market. Moreover, as companies made default on their liabilities to pay dollars to banks, the liabilites in KIKO contracts had to be covered by local banks which sold their initial KIKO contracts to global banks to avoid their own counterparty risks. In this aspect, it has been found that the third contract with global banks contributed to the outflow of KIKO-related loss from Korean companies to unidentified global banks, which reduced liquidity of dollars in Korea. Then again, this incurred fictitious demand for dollars upon margin calls from the global banks on local banks, and other companies would suffer from further depreciation of won. All in all, it is a key finding that loss from KIKO contracts could lock in vicious circle of depreciating Korean currency under the poor debt-to-reserves structure of Korea in 2008. In conclusion, given the net capital inflows from 2001 to 2007 in Korea was USD 24.7 billion, the total KIKO loss (USD 5.24 billion) is found significant enough to disturb Korea’s foreign exchange market unless Korea had entered into USD 30 billion currency swap agreement with the U.S. on October 30, 2008.

派生商品去來의 規制에 관한 硏究

박철우 高麗大學校 大學院 2010 국내석사

During the recent financial crisis, all countries of the world are making every possible effort to find the solutions to settle the root causes of the financial crisis such as the excessive expansion of the derivatives transactions, the policy of de-regulation which has neglected the circumstance, the insufficiency of information system in financial supervisory authorities and the lack of professionalism in supervision. Each country is raising the degrees of regulations on the derivatives market and is pushing ahead an extensive reform of financial supervisory system. To cope with the financial crisis effectively, they are giving great effort to hold the meetings of G20 on regular basis and to reestablish the role of international financial organizations under international cooperation. Especially, the global financial crisis is giving a chance to all of the countries in the world to be noticed the importance of the systemic risk management, and to the financial supervisory authorities to pay greater attention on the regulations on the OTC(over-the-counter) derivatives trades. Under the global trend of tightening the financial regulations, this study focused on arranging the system to prevent the failures of financial institutions and systemic risks, and providing an improved measure to secure investors' right, after looking into the details of the regulations on the derivatives market such as the Financial Investment Services and Capital Markets Act which is not well known to the public for the reason that it has been initiated in the recent, the Foreign Exchange Transactions Act, the Banking Act and the Insurance Business Act. Therefore, this study went over the concepts and basic structures of derivative instruments, then, analyzed the current status of the regulations and the problems related to the derivatives market to get hints in the regulations. Also, through the review on the foreign policies related to the derivative market, the study suggested a solution to improve current regulations related the derivatives market focusing on the Financial Investment Services and Capital Markets Act. This paper consists of 7 chapters in overall, and the main issues in each chapter are as follow: In chapter 1, Introduction, the objective of the study, overall study methods and the direction, and the range of the study are mentioned. Chapter 2 outlines the fundamental theories of derivative instruments, the basic structures of them and the current status of the derivatives transactions. The details include the concept and kinds of derivatives, the legal characteristics, and the right and obligation of the contractors in derivatives trades, management strategies of derivatives, and the current status of domestic and foreign derivatives markets. In chapter 3, the study discusses pros and cons of the derivatives, risks and cases of legal conflicts related to the derivatives market, and suggests a conclusive opinion. In chapter 4, the study looks into the regulation system in the domestic derivatives market, and through a review on the legislative history and provisions of the related laws and regulations focused on the provisions actually regulating derivatives transactions for the purpose of recognizing the current status of derivatives market regulations, the study examines the legal items that need to be reflected on the laws. The provisions of laws related to the current regulations on the derivatives market will be reviewed as carefully as possible and, especially, the regulations in the Financial Investment Services and Capital Markets Act, discussed in separated chapter 4, will be examined whether they have the problems pointed out in domestic and foreign academic literature on derivatives market regulations and the legal items to be reflected on laws in the light of the foreign legislation precedent. The research activities will contribute to building up the basis to suggest an idea to ameliorate the respective provisions on derivatives transaction. Chapter 5 deals with the history of derivative regulations and details of regulations in foreign countries and international organizations, and then derives implications. In particular, to provide helpful references in derivative market regulations in Korea, the study summarizes the regulations structures, major laws and regulations including directives and guidelines on derivatives market in each country. Together with this, focusing on the major issues, the study goes over the background and features of the recent trends in derivatives market regulations in each country after the global financial crisis, and finds the idea to ameliorate the domestic regulations on derivatives based on the implications derived. In chapter 6, the study reviews on the necessity of the regulations on the derivatives. Then, based on the basic theories on derivatives, related laws, and the recent trends in the regulations that have been reviewed so far, the study suggests a desirable direction of the regulations together with the respective clauses of related laws and the Financial Investment Services and Capital Markets Act. Lastly, in chapter 7, the main issues in this paper and the rough regulation plan are summarized. Then, as a self assessment, the research tasks not treated in the study and the items that need to be complimented in the future will be briefly mentioned.

파생상품거래와 투자자보호의 법리에 관한 연구

박철우 고려대학교 대학원 2017 국내박사

Abstract A Study in the Legal Theories of Derivatives Transactions and Investor Protection Park, Cheol Woo Department of Law Graduate School Korea University (Under the academic supervision of Prof. Emeritus Chan-Hyung Chung) 1. This paper focused on and examined the legal theories of investor protection in derivatives transactions, which were classified into two categories: domestic derivatives transactions and international derivatives transactions. Firstly, with respect to the domestic derivatives transactions, this paper made an attempt to define the conceptional factors to distinguish derivative instruments from other ordinary financial investment instruments with a view to strengthening the protection of investors in the derivatives transactions. And then, this paper analyzed the legal theories of investor protection in the derivatives transactions scattered over the laws, the Civil Act, the Financial Investment Services and Capital Markets Act, the Securities-related Class Action Act, the Act on the Regulation of Terms and Conditions consulting the legislations of foreign countries and the judgments of domestic and foreign countries’ courts, carried out the study on court rulings and made a legislative proposals, when it is necessary. Secondly, regarding the other issue, international derivatives transactions, this paper reviewed the main contents of the ISDA Master Agreement, and the recent revision of the Standard Credit Support Annex (SCSA) of 2013. Especially this paper focused on the Islamic derivatives transactions. As a part of the study, this paper considered the basic legal theories of Islamic law, the permissibility of individual derivatives transactions, and the main legal theories of investor protection. The contents of this article summarized based on sub-conclusions of each Chapter are as follows: 2. In the Chapter 2, by finding out the conceptional factors and the boundary line of the meaning of ‘derivatives’, this paper attempted to determine the scope of area where the legal theories of investor protection related to derivatives can be applied with a view to reducing legal risks in regulating and carrying out the financial investment business. As a result, this paper pointed out that, according to its economic characteristic, the intrinsic characteristics of derivatives are not the conceptional factors, such as ‘obligation of additional payments’ which can be identified only after an ex post evaluation, but the fact that ‘the fulfillment of derivatives contracts is connected with and determined by the underlying assets which are distinguished from the derivatives themselves.’ Additionally, it was thought that the fact ‘the maturity date or performance date of a derivative contract comes subsequent to the date of conclusion of the contract’ should be considered as the second factor. Given these conceptional factors, ‘derivatives’ and ‘derivatives-combined securities’ are classified as the same type of financial investment instrument. Accordingly, this paper suggested that they should be under the identical regulatory framework. In addition, this paper suggested strengthening the precautionary notice to and education of investors regarding financial investment instruments that have the characteristics and conceptional factors of derivatives such as variable insurance and FX margin transactions. With respect to the variable insurance, in order to utilize the special provisions of damages for violation of the Duty to Explain stipulated in the Financial Investment Services and Capital Markets Act, in lieu of the Principle of Suitability provision of the Insurance Business Act, this paper made a legislation proposal to apply the Article 46 and the related provisions of the Financial Investment Services and Capital Markets Act, mutatis mutandis, to the variable insurance. 3. Chapter 3 summarized domestic and foreign laws & regulations and the latest judgments of courts in order to consider the legal theories of investor protection related to domestic derivatives transactions. To discuss legal theories for the investor protection under the Civil Act, this paper examined the theory of the Declaration of Intention by Fraud, and under Mistake, the Unfair Juristic Act, and the Principle of Altered Circumstances as related to derivatives transactions, and analyzed the domestic and foreign judgments of courts. The analysis revealed that, unlike the US SEC and Japanese courts which have affirmatively acknowledged the claims based on the theories of fraud, or mistake, the Supreme Court of Korea was found to be passive in acknowledging such claims. Such passive stance of the Supreme Court of Korea needs to be changed to be affirmative. Regarding the legal theories of investor protection under the Financial Investment Services and Capital Markets Act, this paper considered the Principle of Suitability, the Principle of Adequacy (or Appropriateness), the Duty to Explain, Prohibition on Undue Recommendation and Advertisement, Prohibition on Insider Trading, Prohibition on Market Price Manipulation, Prohibition on Unfair Trading. On the Principle of Suitability, this paper argued that the burden of proof should be on the financial investment business entity shifted from on the ordinary investor. It was also argued that, determining the scope of information which financial investment businesses entities should obtain, these factors should be considered to include: the investor’s age, capability of understanding the financial investment instrument, the usage and payback period of an investment, the degree of tolerance to the investment loss, etc., besides the investment purpose, status of property, experience in investment provided on the Act. Additionally, it was thought that, determining the existence of investment recommending which is the prerequisite for applying the Principle of Suitability to the specific business activities, we should maintain the affirmative stance in order to strengthen the protection of investors. As a revision proposal of law, this paper suggested that a provision of providing a criterion for determining whether or not there is investment recommendation should be stipulated on the Financial Investment Services and Capital Markets Act, as the Conduct of Business Sourcebook of UK does. In relation to the Principle of Appropriateness, this paper attempted to find out the exact meaning of ‘Appropriateness’ by referring to the Conduct of Business Sourcebook of UK, and defined its meaning as ‘whether the implied risks of the derivatives for investment that a financial investment business entity has recognized, and the level of the total risks of the derivatives for investment that can be understood by its customer on the basis of his/her all the experiences and knowledge matches or not.’ Based on the meaning of Appropriateness above, this paper tried to distinguish the Principle of Appropriateness from the Principle of Suitability, and argued that, under the Principle of Appropriateness, the focus of examination is on the customer’s capability of understanding the risks of the financial investment instrument, but, under the Principle of Suitability, it is on the degree of tolerance to the risks of the financial investment instrument, and on the eligibility of the financial investment instrument for the investment recommendation. Besides that, this paper pointed out that it is necessary to study and explore for measures to extensively apply the Principle of Appropriateness to the provider (developer), not the sellers (distributors) of derivatives as a legal theory for implicating them into responsibility. On the relation between the Duty to Explain and the Principle of Suitability, in the case of a violation of the Principle of Suitability, it was proposed to have a review process to determine whether it was also a violation of the Duty to Explain before finally acknowledging liability for damage, rather than to recognize liability for damage on an independent basis. It was thought that this would also serve as a means to utilize special provision of Article 48 of the Financial Investment Services and Capital Markets Act. Furthermore, this paper pointed out the necessity to impose the Duty to Explain to the financial investment businesses entity in more detailed and stringent manner, and criticized the Supreme Court of Korea’s current attitude toward managing the Duty to Explain. In relation to the Prohibition on Undue Recommendations and Undue Advertisements Soliciting Investment, it was proposed to reinforce the protection of investors by interpreting the provision of Undue Advertisements as a mandatory provision. As for Prohibition on Insider Trading, this paper made a legislative suggestion that the Financial Investment Services and Capital Markets Act be amended so that not only Article 174 but also Article 173-2(2) may be included in the insider trading activities subject to the special provision for damage compensation under Article 175 of the Act. In connection with the Prohibition on Market Price Manipulation, review and analyses were made on a recent court case relating to obstructing the ELS repayment condition and a case dealing with manipulation of the Deutsche Bank on the option maturity day. As a result, this paper suggested its view as follows: It is presumed that there is an implicit agreement between the parties on the fulfillment of the ELS repayment condition which will be determined by the market outside the control of the both parties to the transaction. That said, if any party to the transaction breaches this implicit agreement and manipulates about fulfillment of the conditions, that conduct can be evaluated as an act in violation of the ‘prohibition of the conduct contradictory to the preceding act’, a sub-rule of the principles of trust and good faith. Furthermore, the conditions to determine early repayment or repayment upon maturity must be contingent upon external circumstances, occurrence of which is uncertain to both parties. Then, if the issuer or the hedging transaction party who undertook the risk of repayment obligations from the issuer can at his own will fulfill the conditions or interfere with the fulfillment of the conditions, it is rather a ‘condition-at-will’ which make such condition null and void and frustrates constitution of repayment condition for ELS. Therefore, it was suggested that the market price manipulation act should not exempted from liability simply because it is a delta hedging transaction. Finally, in relation to the Prohibition on Unfair Trading, the Supreme Court of Korea in its ruling elaborated “unfair means, scheme or trick" prescribed in Article 178(1) of the Financial Investment Services and Capital Markets Act as “any means, plan, scheme or trick that is deemed unfair in the society’s common sense". However, this paper pointed out that, adding such vague term as ‘the society’s common sense’ renders the already ambiguous provision more abstract and overbroad to the degree that it is difficult to serve as a criterion for interpretation. In addition, this paper presented its view that the litigation requirements under the Securities-related Class Action Act such as the scope of application, commonality requirement need to be expansively interpreted so that derivative transactions can be included in securities-related class action. In particular, legislative revision is necessary to include exchange-traded derivatives in the subject matters of securities-related class action. In addition, a suggestion was made to lift restrictions placed on the qualification of plaintiffs' litigation counsel so that lawyers having expertise in class actions can be utilized. In reflection of the fact that class actions against securities companies or swap transaction counter-parties are permitted by court by virtue of affirmative interpretations of law, this paper also suggested a legislation proposal to reorganize the litigation requirements for approval by, for example, deleting the related statutory provisions. For the legal theories of investor protection under the Act on the Regulation of Terms and Conditions, this paper stressed that it is important to first find whether a given agreement is pre-set terms and conditions. For this purpose, this paper established a critical test that whether or not a ‘specific business person’ is going to conclude ‘multiple contracts repeatedly’ (even if there is a one-time contract). Meanwhile, there was a possibility that KIKO contracts were considered as pre-set terms and conditions, and the counter-parties to KIKO contracts could have been protected more effectively by the legal theory of controlling terms and conditions accordingly. However, the Supreme Court of Korea denied the characteristics of pre-set terms and conditions of KIKO contracts, and for that reason, its ruling was criticized. 4. Chapter 4 reviewed the legal theories for protection of investors involved in international derivatives transactions. Presented in this Chapter is a general overview of the main points of the ISDA Master Agreement and the main contents of the Standard Credit Support Annex (SCSA) of 2013, which are commonly used as standard terms and conditions in Western conventional finance derivatives transactions. Furthermore, it was emphasized that when using ISDA Master Agreements, protecting investors through the domestic law, the Act on the Regulation of Terms and Conditions, would be difficult if the Korean law is not designated as the applicable law. The discussion is then moved to the legal theories for protection of investors in the Islamic derivatives transactions. The source of law and unique characteristics of Islamic finance, and the permissibility of trading derivatives were mentioned as a general overview and the discussion continued on the concept and structure of both traditional and newly developed Islamic derivatives. In addition, as the legal theory for the protection of investors in the Islamic derivatives transactions, this paper briefly explained the meaning and legal base of the prohibition of riba, gharar, and maisir, as well as the requirement of approval of the Shariah Committee, and the applicability of said principles to individual derivatives and related issues. Finally, the purpose and utilization of this study to examine the legal theory for protection of investors related to Islamic derivatives transactions; the necessity of understanding the derivatives transactions based on the Islamic law; and the importance of reviewing the legal risks are presented as sub-conclusions of the Chapter.