Amid Fallout from 1.6 Trillion Won Fine for "Treasury Bond Bid-Rigging," Finance Ministry Moves to Set Information-Sharing Guidelines

Guidelines to Draw a Line Between Essential Information Sharing and Collusion
Treasury Bureau Chief: "There Was an Element of Institutional Neglect"

The Ministry of Finance and Economy is moving to establish “information-sharing guidelines” for the Treasury bond market. After an unprecedented antitrust penalty of around 1.6 trillion won for bid-rigging put primary dealers (PDs) at risk of scaling back their participation in the Treasury bond market, the ministry responsible for the PD system aims to reduce uncertainty by clearly defining the boundary between necessary market communication and illegal collusion.

Kim Geunseong, a standing commissioner of the Fair Trade Commission, briefs reporters on Nov. 11 at the Government Complex Sejong in Sejong City on sanctions against 15 companies for colluding in government bond bids. Yonhap News Agency.

According to the Ministry of Finance and Economy on November 12, it plans to draw up detailed guidelines next year for information sharing during Treasury bond auctions. Because the government bond issuance market is characterized by frequent trading among a small number of government-designated primary dealers, tacit communication has continued as dealers sought to avoid uncertainty in bidding. A government official said, “The results of recent meetings with industry representatives showed that many financial institutions have already established their own internal control systems,” adding, “The guidelines could be implemented next year after their contents are made more specific.”

The previous day, the Fair Trade Commission imposed a record 1.6265 trillion won in fines on 15 securities firms and banks for colluding on bid rates and amounts over three and a half years. They are key players, accounting for 75% of the 20 primary dealers in total. There are growing concerns in the market that, if even legitimate communication is discouraged, this could lead to failed auctions due to cautious bidding or higher issuance rates, resulting in losses to public finances. The new guidelines are therefore expected to set clear standards distinguishing information that may be exchanged from sensitive information that must not be shared. The head of the Ministry of Finance and Economy’s Treasury Bureau, who previously appeared as a witness at a full session of the Fair Trade Commission, also acknowledged some government responsibility and suggested that guidelines would be established, saying, “Given the structure of frequent trading, communication is inevitable, but the government did not establish guidance in advance and, in effect, left the matter unregulated.”

The likelihood of additional penalties by the Ministry of Finance and Economy in the immediate future is low. Although regulations give the ministry discretion to temporarily suspend or revoke PD designations, it plans to consider measures only after the final legal outcomes, including financial institutions’ lawsuits challenging the decision, are known. Underlying this approach is the authorities’ “practical dilemma” of having to absorb nearly 100 trillion won in new Treasury bond issuance next year. Disciplining a large number of these firms could leave no buyers for the enormous volume of bonds, potentially paralyzing the national financing system itself. There is even speculation that some financial institutions, concerned about the burden of hefty fines and internal control costs, may relinquish their PD status first. The government is therefore expected to focus on institutional reforms, including establishing guidelines, to minimize the impact on the market. 

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