The dedicated professionals of Financial Institutions Group related practice (FIG) at Yulchon LLC will be bringing you periodic briefings on developments in Korea and globally concerning derivatives and structured products. We welcome any queries and feedback on the contents of this Briefing and related topics.
Hanmi Pharmaceutical Short-selling Investigation
The Financial Services Commission has started investigations into allegations of insider trading and related short selling of shares in Hanmi Pharmaceutical Co. following the collapse of its share price from a peak of KRW654,000 to KRW508,000 on the announcement that the multi-billion Won out-licensing deal with Boehringer Ingelheim had been terminated. There is strong suspicion that this sensitive information was leaked prior to the public announcement which is backed up by the sudden spiking of short-selling offers by over 50,000 shares during the half-hour period between market opening and announcement on the morning of 30 September.
It is understood that the Capital Markets Investigation Team at the FSC have obtained preliminary information from the Korea Exchange and intends to investigate both the brokers and the investors who significantly profited from the short-selling. A number of foreign brokerage houses have been identified as having held short-selling positions exceeding 0.5% of Hanmi’s outstanding shares as of 30 September. The investigation is likely to cover possible breaches of the following: 1) prohibition on use of undisclosed information, 2) market abuse, and/or 3) violation of short-selling restrictions.
ISDA 2016 China Collateral Memorandum published
ISDA published the ISDA 2016 China Collateral Memorandum on September 7. This provides information on the legal issues involved in exchanging collateral with a counterparty in China, and analyzes the enforceability of collateral rights contained in ISDA credit support documentation under Chinese law. The publication of the memorandum follows the rollout of new margin requirements for non-cleared derivatives in some jurisdictions on September 1. The memorandum deals with how collateral agreements are treated under PRC law and discusses key issues related to taking and granting security interest in the PRC with PRC counterparties. This is a useful addition to ISDA’s library of memorandums and timely in light of the increasing interest of international financial institutions in expanding their derivatives business in the PRC.
Margin Requirement for Non-cleared OTC Derivatives go live
As expected, around 20 largest derivatives market participants started exchanging initial margin on non-cleared OTC derivatives trades as of September 1 as the rules came into effect in the US, Japan and Canada. The general view is that the initial implementation has gone relatively smoothly but how the much broader and expansive implementation in other countries and scheduled universal implementation of variation margin posting in March 2017 globally will turn out remains to be seen. Preparations in some jurisdictions are still lagging behind and there is real concern amongst industry participants whether institutions in certain jurisdictions will be ready for the global implementation.