ARS 연계 ELS⋅ELB의 법률문제 - 파생결합증권의 자산운용상품화와 기초자산 등의 정의 -

The purpose of this study is to review the case on the securities, collectively called “ARS” or “Long-short ELB” (“ARS”). ARS is a security with Underlying as an index based on the return of issuer’s investment portfolio from ARS investor’s money management. Notable features of new type of financial product are; (i) the investment portfolio above is determined as per the advice of investment advisory business entity, generally pursuing a long-short strategy in the stock market. (ii) Substantially, the investor, not the issuer, takes the investment portfolio’s return, except for some commissions paid to the issuer. (iii) All of the ARS issued in the market have a payoff which the return at maturity shall be on or above the invested principal. In other words, investors do not take any risk of loss, due to the payoff. Underlying (the index) and predetermined payoff of the ARS is causative of being regulated as a Derivatives-combined security of the Financial Investment Services and Capital Market Act (“the Capital Market Act”). However, the ARS is differentiated from general Derivatives-combined security in the financial market as followings: First, considering its economic substance, its risk and function is thought to be of the asset management businesses service, not security issuance of the Investment trading business. Any Derivatives-combined security investors’ return depends on the level of underlying and pre-determined pay-off, irrespective of the issuer’s investment performance. ARS also has Underlying and payoff, but their combination means the issuer’s performance shall be contributed to the investor in substantial. The issuer of the ARS collects commission or fee without market risk, except any extraordinary market events. Second, consequently, compared to the general Derivatives-combined security, the ARS shall contains agency problem as its specific risk, which arises from the conflict of interest between issuer as a manager of the investor’s money and investor as a beneficiary of the management. Financial products or services should be legally positioned to be regulated by appropriate rules considering its function and risk in the view of the purpose of the Capital Market Act (protection of investors and integrity of the market). Therefore, to clarify the ARS’s legal position in the Capital Market Act, it is required to look into the function and risk of the ARS at first. Subsequently, we can find a correct position of the ARS, in the light of regulatory purpose, comparing to the regulations on the issuing of the Derivatives-combined security and on the Asset Management Business. Considering its function and risk above, it may be thought that issuing of the ARS should be regulated as a service of the Collective investment business or Discretionary investment business (“Asset Management Business”). As mentioned at the above, the ARS are issued as a Derivatives-combined security and regulated as a product of Investment trading business entity. However, the regulations for the Asset Management Business are thought to be more appropriate and corresponded to its function and risk. The definition of Derivatives-combined security in the Capital Market Act can be accused to cause such confusion: it is significantly inclusive so that all type of financial products and services can find a way to avoid any regulations set for its original legal form using this security. To resolve such issue, first, the definition of Underlying in the Capital Market Act should be closely reviewed, since it is critical to determine the scope of Derivatives-combined security. Second, it should be reconsidered whether additional conditions are required for the Derivatives-combined security. Though it is not explicitly stipulated in the Capital Market Act, additional condition can be drown from the relationship with other kind of securities, and also required to make clear and reasonable boundary of the Derivatives-combined security from other financial products and services. It may be arguable weather the ARS is a vehicle to avoid the regulations for the Asset Management Business or a good case of financial innovation by convergence between different kinds of products and service. Regardless of conclusion, what should be noted is that the first step for regulating new financial products should not be the precise understanding of only its present form but also substantial function and risk.