Korea Financial Investment Association strongly opposes 1.6 trillion won fine over government bond collusion: “Government bond issuance could be disrupted, international credibility hit”

[Financial News] The Korea Financial Investment Association strongly opposed the imposition of fines in the 1.6-trillion-won range for bid-rigging in government bond auctions. It said the hefty fines and criminal complaints could undermine the market-making role of primary dealers (PDs) in Korean Treasury bonds, adversely affecting government financing and the country’s international credibility. The association said it would actively support financial firms in administrative lawsuits and other legal responses, citing the irrationality of the fine calculations.
On the 11th, the Korea Financial Investment Association expressed deep regret over the Korea Fair Trade Commission’s announcement of sanctions against 15 primary dealers in Korean Treasury bonds for collusion, saying, “The level of sanctions is excessive, and serious adverse effects are a concern.”
The Korea Fair Trade Commission said that day it would impose total fines of 1,626,575,000,000 won on 10 securities firms and five banks involved in bid-rigging in government bond auctions. Securities firms will bear 1,376,029,000,000 won, and banks 250,546,000,000 won. KB Securities faces the largest fine, at 332,178,000,000 won, followed by NH Investment & Securities (242,785,000,000 won) and Mirae Asset Securities (214,830,000,000 won).
The Korea Financial Investment Association warned that the sanctions could disrupt government bond issuance by weakening the role of PDs. It said that if PDs are not only fined but also suspended or stripped of their designation, the stable financing of the national budget could be seriously disrupted. PDs are key financial institutions that participate in the primary market for government bonds and provide liquidity in the secondary market.
The association also raised concerns that the benefits of inclusion in the World Government Bond Index (WGBI) could be undermined. With foreign investment flowing in since Korean Treasury bonds were included in the WGBI last April, it said, sweeping sanctions against major PDs could damage the international standing of Korea’s bond market.
The association also warned that securities firms’ business activities could take a hit. It said that fines ranging from tens to hundreds of billions of won per financial firm, along with criminal complaints filed with the Serious Crimes Investigation Agency, could strain securities firms’ liquidity and curtail their business activities. It also cited the possibility of disruptions to new licensing approvals and a weakening of the global competitiveness of Korea’s capital market.
The Korea Financial Investment Association plans to support legal responses, questioning the method used to calculate the fines and the appropriateness of the sanctions. The association said, “We believe the level of sanctions and the fines in this case have been set excessively high,” adding, “We will actively support the industry in using lawful procedures, including administrative lawsuits, to explain the problems with the sanctions and the irrationality of the fine calculations.”
Hwang Seong-yeop, chairman of the Korea Financial Investment Association, said, “I agree that a fair market order needs to be established, but I am deeply concerned that these sanctions could weaken the role of primary dealers in Korean Treasury bonds and, as a result, place a burden on government financing and financial market stability.”
He added, “We will use this case as an opportunity to make greater efforts to establish a fair market order and strengthen internal controls,” and, “We will do our utmost to ensure the stable development of the Korean Treasury bond market and restore trust in the financial investment industry while maintaining close communication with the government and relevant institutions.”
[email protected] Kim Hyun-jung Reporter