Document Type

Blog Post

Publication Date

11-10-2024

Abstract

Since January 8, 2024, South Korea’s financial regulator, Financial Supervisory Service (FSS), has investigated major Korean banks for selling high-risk equity-linked securities (ELS) products linked to Hong Kong’s Hang Seng China Enterprises Index (HSCEI), which resulted in substantial financial losses among South Korean investors. An ELS is a derivative product that promises returns if the underlying asset—in this case, the HSCEI—stays above a specified “knock-in” level until it matures. Due to the severe decline in the HSCEI, many ELS products have seen drastic devaluations, leading to significant losses for investors, including those who are risk averse. Investors aged 65 and older invested in over 5.4 trillion won in these products, and 8.6 percent were first-time ELS investors. Many of these products were marketed without adequate risk disclosure, resulting in potential losses of up to $14.2 billion. The potential losses from these ELS sales could have reached up to $14.2 billion, or 5.8 trillion won, if redeemed at end-February values.[6] With 80% of these products maturing this year amid a sharp HSCEI decline, investors are now seeking compensation.

The print edition of the issue has also been released. This post was originally published on the Cardozo Journal of Conflict Resolution website on November 10, 2024.

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