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Foreign Exchange

Court says so over Kiko

The suit is the latest of more than 100 pending law suits related to structured option contracts that have been filed since December.

South Korean banks do not have to compensate companies that were sold knock-in-knock-out (Kiko) contracts the Seoul Central District Court ruled on Monday.

The court threw out an attempt by Soosan Heavy Industries to have currency option contracts with Citibank Korea and Woori annulled and to be compensated for the millions of Korean won lost over the last two years.

Soosan and as many as 500 other Korean companies claimed that they did not fully understand the mechanics of the contracts. Such claims have had varied success, but with this ruling, it appears that the court believes most were savvy enough to understand the risks.

Soosan had argued: “Kiko products were intentionally designed to benefit banks and cause their customers to suffer massive losses because they were structured unfairly.”

The suit is the latest of more than 100 pending law suits related to structured option contracts that have been filed since December. While some previous cases have been held for the plaintiffs, most have been left undecided until now. This latest ruling is expected to set a legal precedent.

The Kiko is not a hedge, but Korean exporters, if they were certain of KRW strength, saw them as a way to sell dollar receipts above the market.

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