Structured Notes Fiasco in the Courts: A Study of Relevant Judgments between 2009 and 2010
Academic Sinica Law Journal, Issue 10, pp 161-223 (March 2012)
63 Pages Posted: 5 Oct 2012
Date Written: March 1, 2012
The purpose of this article is to analyse relevant judicial decisions in Taiwan regarding structured notes sold to retail investors. Regarding pre-sale disputes, one issue was that investors failed to read contractual documents properly before signing contracts, so there was a question whether they could later claim a bank’s violation of its duty to explain. This article favours the view that an investor’s signature may exempt a bank’s duty, provided that investors are made aware of relevant warnings. In addition, for suitability assessment, relevant judgments show that customers were too easily classified as active investors based on a simple questionnaire. This may violate the spirit of the suitability rule. Moreover, courts or regulators must clarify the nature of post-sale duty to report and whether a bank has a duty to advise a client under a trust relationship. Furthermore, to look at the big picture, regulators should review the nature of investment in overseas structured notes via non-discretionary trust with a domestic bank in order to construct an efficient way to regulate such forms of investment and to justify the effectiveness of alternative dispute resolution mechanisms so as to offer complete protection to retail investors.
Note: Downloadable document is in Chinese.
Keywords: structured note, structured financial product, derivative, duty to explain, suitability, duty to report, sale restriction, dispute resolution, investor protection, trust
JEL Classification: K10, K22
Suggested Citation: Suggested Citation