[Invest&Law] Yulchon Proves 'Intraday Forced Liquidation Practice' at Supreme Court... "A Ruling That Sets Standards for Financial Market Operations and Legal Principles"

Overseas Derivatives Forced Liquidation Damages Suit
KB Securities Secures Victory
Validity of Industry Standard Terms Affirmed
First Supreme Court Ruling on the Issue

"This was not just a lawsuit involving a securities firm, but a case that has established itself as an important standard connecting practical operations and legal principles in the financial market."

Woon-Young Choi (from left), Ilbong Moon, and Heejung Lee are being interviewed by The Asia Business Daily. Photo by Dongju Yoon

Attorney Moon Ilbong of Yulchon LLC made this statement regarding Yulchon’s final victory in the damages lawsuit filed by Winners Asset Management against KB Securities over forced liquidation of overseas derivatives. In March 2025, Yulchon's financial litigation team overturned the appellate court’s decision, which had invalidated the intraday forced liquidation clause, and secured a Supreme Court ruling in favor of KB Securities, sending the case back to the appellate court. This ruling marks the first time the Supreme Court has directly determined the validity of the standard terms and conditions that the financial investment industry has used for many years. Attorney Moon, who led the lawsuit, said, "I am pleased that we were able to successfully conclude a lawsuit that lasted over five years."

◆Appellate Court Overturned Standard Terms in Financial Investment Sector

This case dates back to the end of February 2020, when the Nikkei 225 index plunged. Winners Asset Management invested in Nikkei 225 options using fund assets through an account at KB Securities. When the account’s asset valuation fell below 20% of the required margin due to the market crash, KB Securities executed an intraday forced liquidation in accordance with the terms and conditions. Winners Asset Management filed a damages lawsuit, claiming that this forced liquidation was illegal because it was carried out without a margin call (demand for additional margin).

The court of first instance ruled that the forced liquidation in accordance with the terms and conditions was lawful and sided with KB Securities. However, the appellate court declared the terms invalid and overturned the first instance decision.

When the clause, which had been based on Article 14, Paragraph 2 of the Korea Financial Investment Association’s standard terms and conditions (allowing forced liquidation in the event of a sharp intraday price fluctuation) and used for decades, was declared invalid, it caused major turmoil in the financial sector. Attorney Lee Heejung, who led the practical aspects of the case, said, "This clause had been a standard term for over 20 years," and added, "At the time, there were significant concerns in the securities industry that if domestic securities firms brokering overseas transactions were unable to carry out forced liquidations, the risk burden would fall squarely on them."

◆Proving Intraday Forced Liquidation as an International Practice

At the Supreme Court level, Yulchon systematically reframed the key issues in the case, emphasizing the legal nature of the terms and the specific characteristics of financial practices. The case was considered one of the most complex civil lawsuits, as it involved overseas derivatives trading, the structure of collective investment property management, and the interpretation of terms and conditions.

Attorney Choi Woongyoung, a former judge at the Seoul High Court’s corporate division, said, "Because financial derivatives cases are structurally complex and unfamiliar, we focused less on the letter of the law and more on persuasively demonstrating how the terms and conditions operate in practice." By presenting the terms and conditions of overseas financial institutions and the standards of FINRA (the U.S. Financial Industry Regulatory Authority), they argued that intraday forced liquidation is a widely accepted international practice. Attorney Moon said, "We emphasized that if this were to be considered illegal only in Korea, domestic financial transactions could risk becoming isolated like the Galapagos."

Lawyers Seonkyung Kim (from left), Woongyoung Choi, Jeongryul Pyo, Ilbong Moon, Heejung Lee, Yeongeun Song, and Jeongyun Lee from the Financial Dispute Team at Yulchon LLC are posing for a photo. Photo by Dongju Yoon

◆Supreme Court Overturns Decision and Resolves Similar Lawsuits

Ultimately, in March 2025, the Supreme Court accepted Yulchon’s argument, recognized the validity of the terms and conditions, and remanded the case to the Seoul High Court. In the retrial, KB Securities again won, in line with the Supreme Court’s decision.

Attorney Choi said, "Since then, this ruling has served as a standard in similar lawsuits within the financial investment industry, and practical uncertainty has been virtually resolved." Attorney Lee emphasized, "Forced liquidation is an essential mechanism for maintaining market order in the highly volatile derivatives market. The explicit confirmation of the validity of the terms and conditions through this ruling is also highly significant for the stability and credibility of Korea’s financial markets." Attorney Moon added, "By clearly confirming that the transaction order, which has been established for decades based on these terms and conditions, is lawful, the Supreme Court has created a precedent that has made a substantial contribution to establishing and stabilizing order in the financial markets."

This content was produced with the assistance of AI translation services.