| In the past decade, the global economy has been challenged by negative interestrates. As such, investors turned to “principal guaranteed productsâ€, which areproducts that provide a more competitive rate, secure all or a significant percentage ofthe initial principal, and guarantees a certain percentage of profit. This thesis paperdiscusses the legal and economic issues regarding one of such products,“StructuredNotesâ€, with the purpose of understanding and avoiding similar problems that hascaused the financial crisis from arising again in the future.Prior to the financial crisis of2008, Wall Street investment banks have adaptedover-leveraging policies to secure higher returns in their investments. Thisphenomenon has led to over-extension of credit to many companies, causing a“Domino Effect†when companies started to default on their debt. An example ofsuch is the fall of Lehman Brothers, which created a downward spiral in the globaleconomy and gravely impacted the structured notes market worldwide.Though the financial crisis has passed, investors’ trust in the financialinstitutions has yet to recover, and researchers are actively trying to understand thecrisis to prevent a similar mishap in the future. The paper begins with an introductionof structured notes, the theories behind its design, as well as the different categoriescurrently available in the market. Next, to better understand the actual performance ofstructured notes in the market, as well as the related legal and economic issues, thepaper evaluates the current structured notes market in Taiwan. The paper analyzes thecurrent risk management policies of structured notes both in Taiwan and othercountries worldwide, and uses the Taiwanese market to examine the controversialissues revolving around structured notes, such as questionable sales practices andrating mechanisms.The paper also evaluates the current legal procedures available as well aspossible legal adjustments that may potentially solve the previously mentioned issues.The paper references the adjustments made to financial laws in China and Taiwanafter the joining of WTO and after the negotiation of the “New Basel Accords (BaselII)†as an example for such. Finally, the paper concludes with a reflection upon the problems caused by the rise of structured notes worldwide, discusses the developmentof structured notes post-2008’s financial crisis, and provides suggestions to avoidmishaps from arising due to the same issues. |
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