76 Trillion Won Government Bond Bid-Rigging Allegations...15 Financial Firms Face Fines of Up to 15 Trillion Won

15 Financial Institutions Engaged in 76 Trillion Won Bid Collusion Over Three and a Half Years

"Market Communication" vs "Unfair Collusion"...Fine Criteria Also Disputed

The Fair Trade Commission (FTC) has officially initiated disciplinary procedures in a general meeting, a full year and five months after sending its review report regarding allegations that major securities firms and banks colluded in a government bond auction process. This process, vital for national fiscal funding and serving as a benchmark for market interest rates, is at the center of suspicions of massive collusion amounting to as much as 76 trillion won. All 15 financial institutions implicated continue to hold their status as Primary Dealers (PDs) for government bonds, and, given the statutory upper limits, penalties could theoretically exceed 15 trillion won—potentially the largest fine ever imposed—raising concerns about significant repercussions across the bond market.

76.2 Trillion Won Handled Over Three and a Half Years...All 15 Active Primary Dealers Implicated

At the end of last year, the high-rise buildings in the Yeouido financial district shone brightly, looking forward to the coming year. Photo by Hyunmin Kim kimhyun81@

According to the FTC's Secretariat on August 6, the agency submitted its review report (equivalent to an indictment) to the Commission and dispatched it to the 15 entities operating as government bond PDs, outlining findings of collusion and information exchange in bidding. The FTC had previously submitted the report to the committee in February last year and informed the firms in March, thereby starting the comprehensive review procedure.

The accused include 10 securities firms—Kyobo Securities, Daishin Securities, Meritz Securities, Mirae Asset Securities, Samsung Securities, Shinhan Investment, NH Investment & Securities, KB Securities, Korea Investment & Securities, and Kiwoom Securities—as well as five banks: KB Kookmin Bank, NH NongHyup Bank, IBK Industrial Bank, Hana Bank, and Korea Development Bank. The FTC investigator also recommended corrective orders and fines, in addition to criminal referrals for both the corporations and their former and current officers and employees.

According to the FTC, these financial institutions are suspected of having engaged in collusion and information exchange during the government bond competitive bidding process from January 2020 through June 2023—a period of approximately three and a half years. The volume of government bond bids potentially affected by these collusive practices amounts to a staggering 76.2 trillion won.

The PD system is a regime in which the government grants certain qualified financial institutions the right to participate in government bond auctions while imposing obligations to support market liquidity, such as providing bid-offer prices in the secondary market. All 15 financial institutions implicated currently retain their PD qualifications, meaning the core players in government bond issuance and distribution have now become targets for sanction.

As to why it took the FTC a year and five months after sending the review report to schedule deliberation, an FTC official explained, "The case records alone reach approximately 12,000 pages due to the vast amount of evidence, and in order to guarantee the accused their right of defense, we accepted 15 written submissions—including extensions totaling about six months—reviewing them thoroughly, which required considerable time."

"Fundamentally Auction and Purchase Collusion" vs "Ordinary Trend Monitoring"...Dispute Over Fines Up to 15 Trillion Won

In the upcoming general meeting, intense legal arguments are expected regarding whether the information exchange constitutes an illegal act and how fines should be calculated. The financial industry argues that, given the real-time nature of bond market pricing, communication among dealers is simply part of standard market monitoring, and that artificial price manipulation is impossible. However, an FTC official countered, "This case is not just a matter of information exchange, but rather a hardcore collusion centered on bid rigging, which has been evaluated as such under the relevant law. We believe the collusion had a tangible impact on the government bond market."

The criterion for calculating fines is also a critical issue. Under current law, bid rigging allows for a fine of up to 20% of the relevant sales. The FTC investigator suggested calculating the fine based on the successful bid amount of 76.2 trillion won. Arithmetically, this results in a potential fine of approximately 15.24 trillion won. Financial firms contend that, because bond trading involves margins at the level of basis points (1bp = 0.01 percentage points), the fines should be assessed based on actual commission and operational profits, not the total bid amount. The FTC stated, "Unlike cases of loan-to-value (LTV) ratio collusion, this is a case of 'auction and purchase collusion' involving the purchase of government bonds, so it is legally appropriate to use the successful bid amount (i.e., purchase value) as the relevant sales figure. The specific criteria and amount of the fine will be determined through the upcoming general meeting deliberations."

Broad Consensus with the Ministry of Economy and Finance...Comprehensive Consideration of Market Impact and Financial Conditions

Within the market, there are concerns that if multi-trillion won penalties or PD qualification suspension or revocation are implemented, the functions of underwriting government bonds and maintaining market liquidity would be undermined, negatively impacting foreign capital flows such as those indexed to the World Government Bond Index (WGBI). In response, an FTC representative stated, "We have been communicating with the Ministry of Economy and Finance from the outset of the investigation, and the ministry has also expressed agreement on the need to prevent collusion, while emphasizing the importance of the PD regime and the need to consider market impact." The official added, "Suspension or cancellation of PD qualifications falls under the discretionary authority of the Ministry of Economy and Finance, and any side effects from sanctions related to collusion are expected to be minimal."

Given the protracted interval between the dispatch of the review report and the start of deliberations, this case may see several general meetings and could last for an extended period. The FTC indicated that, in upcoming meetings, it will comprehensively consider market conditions, ramifications, and the financial status of the accused institutions when determining the final level of sanctions.

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