| Summary: | 碩士 === 東吳大學 === 法律學系 === 101 === Derivatives are improved with every new Financial Innovation, the functions of derivative are also changing constantly. Unlike other derivatives that only have one value, the security-based derivatives have two different values, including the voting value and the economic value (stock price and Stock dividend). The investors of security-based derivatives not only want to hedge or speculate, but also have other purposes, such as hostile takeover, insider trading, manipulate stock price, etc.
The “one-share-one-vote” pattern is a concept which means voting rights cannot be decoupled from an economic interest. In the past few years, the financial innovation, the hedge fund growth, the capital market developments and the law can’t catch up to markets have come to threaten this familiar pattern. Both outside investors and corporate insiders can now readily decouple economic ownership of shares from voting rights to those shares. Due to the hedge method of dealer in a real deal of security-based derivatives, the investor can capture the shares to which the security-based derivatives contract relates (without setting any express or implied agreement to do so), thereby acquiring a de facto control position in the target company; or a shareholder can free from the volatility risk of economic value, in other words, the votes have been emptied of an accompanying economic stake. In former situation, we call it “hidden (morphable) ownership”. In later situation, we call it “empty voting”. We refer to empty voting and hidden (morphable) ownership together as “the new vote buying” or simply as “decoupling.”
Due to decoupling, investors can abuse security-based derivatives in many different purposes, such as hostile takeover, insider trading, manipulate stock price. There were many cases that involve security-based derivatives abusing. In the United States, the CSX case is about two hedge funds want to takeover CSX, the largest railway company in east America. The hedge fund used SWAP as a tool to acquire a de facto control position in CSX without disclosure. In Germany, Porsche set cash-settled option position and swap position that linked to Volkswagen shares, Porsche intend to control Volkswagen by holding security-based derivatives of Volkswagen. Compare to Taiwan law, the director and managers of China Trust also enter a security-based derivatives contract to acquire stock of Mega Bank and manipulate Mega Bank’s stock price in Red Fire company case.
To resolve these regulation loopholes, there are many different ways that was provided by different scholars. And these methods were adapted in different countries. The regulation of security-based derivative is regulated in disclosure rules. In United Kingdom, investors must disclose their security-based derivative position, if the positions have reached the threshold of disclosure rule. In the United States, investors must disclose their security-based derivative positions, if the positions have reached the threshold of disclosure rule and they are deemed the beneficial owner of the acquired stock. In New Zealand, there is no need to disclose any security-based derivative positions.
This thesis will introduce every solution, analyze three cases, including CSX case, Porsche and Volkswagen case and Red fire company case. Hope to find the best solution for Taiwan.
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