A Study on Laws and Regulations of Structured Notes
Date Issued
2007
Date
2007
Author(s)
Hsiung, Chuan-Ti
DOI
zh-TW
Abstract
The regulation of a structured note, a kind of new financial instrument composed of a “bond” and “derivatives,” remains uncertain under the current dichotomous system: should a structure note be subject to securities regulations, or futures regulations? Whether the current financial regulations are well-developed to cope with transactions of this new kind of financial instrument is a topic worthy of investigation. This thesis first focuses on the “classification” of structured notes from a legal perspective, assessing the appropriateness of classifying structured notes as either securities or futures (derivatives). Furthermore, based on the analysis of such classification, conclusions are drawn about the basic issues concerning investor protection at the stage of recommendation and sale of structured notes and taxation of structured notes.
This thesis suggests that structured notes, from a legal perspective, be classified as securities. In this classification, the Securities and Exchange Act (“SEA”) and its related regulations should be applied to the issuance and all other transactions of structured notes. In the short run, the competent authority can classify structured notes as securities by way of “interpretation” or “approval”; in the long run, the legislature can set up a single uniform rule for classification of new financial instruments, including structured notes, as securities or futures (derivatives).
For better protection of investors at the stage of recommendation and sale of securities (including structured notes), this thesis suggests that the securities anti-fraud provision, Paragraph 1, Article 20 of the SEA, be amended to include any defrauding acts “related to” or “in connection with” issuance, private placement or trading of securities. In addition, if Taiwan decides to adopt a comprehensive single financial service law structure, it is advisable to set up a certain code of conduct concerning “suitability rule” and “risk disclosure requirement” in such a single financial service law. Provisions vesting investors the private rights to claim against the financial services companies in violation of such code of conduct are also suggested.
As for taxation, it is suggested that structured note, in the short run, be classified as “securities” subject to securities transaction tax. In the long run, this thesis recommends that Taiwan abolish the Securities Transaction Tax Act and establish tax rules for structured notes under the Income Tax Act, which uses a constant rate to calculate the interest income (expenses) generated (incurred) from structured notes. For hedge transactions, it is suggested that structured notes and its hedge position be taxed as an integral. Taxation on structured notes will be deemed fair only if relevant basic tax rules are reasonably adjusted.
Subjects
結構型債券
結構型商品
證券交易法
衍生性金融商品
新金融商品
金融服務法
稅
金融商品銷售與投資人保護
structured note
structured product
Securities and Exchange Act
derivatives
hybrid instrument
investor protection
tax
sale of financial product
Type
thesis
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