In 1998, JP Morgan filed a law suit in New York against two South Korean financial institutions, SK Securities and the Housing & Commercial Bank. The dispute involves payments on cross-currency swaps that JP Morgan transacted with SK Securities. Industry observers said the case highlighted the legal risks involved in trading OTC (over-the-counter) derivatives in emerging markets.

Housing and Commercial guaranteed the SK Securities Company, a Korean investment firm and the other defendant in the suit, against losses in two derivatives contracts between SK and Morgan. In interviews over the last two days, lawyers for Housing and Commercial said the contracts originally specified that the losses would not exceed $100 million.

What were JP Morgan, SK Securities, and Housing and Commercial Bank doing? Was it speculation or sound risk management? Who gained or lost, and in what ways? Who bears responsibility? What actions have been taken by JP Morgan, SK Securities, Housing and Commercial, and the authorities?