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Korea: Court rules Kiko contracts binding

Currency contracts not structured unfairly; Judgement might set precedent

South Korean banks will not have to compensate companies that were sold knock-in-knock-out (Kiko) currency option contracts, the Seoul Central District Court ruled last month.

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

Soosan and as many as 500 other Korean companies claimed that they did not fully understand the mechanics of the Kiko contracts. Such claims have had varied success. With this ruling, though, 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 case is the latest of more than 100 pending lawsuits related to structured option contracts that have been filed since December. Although 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.

"Kiko contracts fundamentally include the dangers resulting from currency fluctuations.

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