Retrospection and Review of Government’s Handling the Structure Note Incident in 2005─ From the Viewpoint of the Legal Aspect
Date Issued
2011
Date
2011
Author(s)
Fan, Ching-Ming
Abstract
Duly after its establishment on July 1, 2004, FSC became aware of a trend that the U.S.D interest rate would be promoted continuously(‘USD IRPC’), and since the domestic bond funds(‘DBF’) held a great quantity of Structure Notes, FSC judged that if it did nothing to response, USD IRPC may result in a large number of investor redemptions, which would cause domestic investment trust companies(‘DITC’) a liquidity risk, and even lead to their systemic risk. So FSC required that DITC should follow FSC’s administrative guidance to move all the Structure notes out of the DBF before the end of 2005(‘Move out’). And FSC would not approve the DITC’s apllication to raise a new fund or enlarge the scale of existed funds, if they did not follow FSC’s requirement. FSC also asked the DITC to follow the three so-called iron laws─"beneficiaries of the Funds shall not be subject to a loss.", " The shareholders of DITC should bear the loss, if any.", "DITC must follow the current law."─ when moved the Structure Notes out of the DBF.
The precondition of FSC’s requirement above was “The USD IRPC incident would trigger off a liquidity risk and ,more, a systemic risk to DBF even the domestic investment fund ”. But it is questionable about the existence of that precondition. This paper will collate and analyse the relavant data to challenge the possibility of the existence of said precondition.
In addition, even it were possible for said precondition’s exsistence, whether FSC''s administrative guidance is appropriate? Whether it follows the Principle of Proportionality in Administrative ACt when required DITC to move Structure Note? And whether they are legal and appropriate of FSC’s three iron laws? This paper will also collate and analyze the relevant facts, data, to indicate FSC’s mismanagement of the aforementioned administrative guidance, the Move Out and the three iron laws.
"Past experience, if not forgotten, is a guide for the future", this paper presents the challenge and review, the purpose is not accused of the competent authority, but to remind the authorities should be more thoughtful consideration when making any future financial-related decisions.
Subjects
Structure Note
the three iron laws
Move Out
Administrative guidance
the principle against irrational basis
the principle of proportionality
Type
thesis
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