Government bond auction collusion ... 1.6 trillion won in fines

Fifteen securities firms and banks that colluded during government bond auctions will have to pay more than 1.6 trillion won in fines. This is the largest fine the Korea Fair Trade Commission (KFTC) has ever imposed in a single case. The financial firms were found to have restricted competition over a period of three years and six months by sharing bid rates and volumes before auctions and agreeing on them in advance.
On the 11th, the KFTC said it had fined 15 primary dealers (PDs) in government bonds about 1.6266 trillion won for engaging in unfair concerted conduct in competitive government bond auctions. The firms facing sanctions are 10 securities firms (Kyobo, Daishin, Meritz Financial Group Inc., Mirae Asset, Samsung, Shinhan, NH Investment & Securities, KB, Korea Investment & Securities, and Kiwoom Securities) and five banks (KB Kookmin Bank, NH NongHyup, IBK, Hana, and Korea Development Bank). The KFTC said it would file complaints against seven of the firms with the Serious Crimes Investigation Agency.
The fines are at least double the 747.6 billion won imposed on four starch and starch-sugar producers in what had previously been the largest collusion case. They also exceed the 1.0311 trillion won fine imposed in Qualcomm’s 2016 case for abusing its market-dominant position, making this the largest fine the KFTC has imposed in a single case.
The KFTC’s investigation found that the collusion took place across 150 competitive government bond auctions from January 2020 through June 2023. The financial firms exchanged bid rates by phone or messenger until just before bidding closed, and in 145 of the auctions they agreed in advance on specific rates and bid volumes, which they then used in their actual bids. In some cases, auction staff exchanged information without even greeting one another and agreed on bid rates in a five-second phone call. The firms also established systems to keep the collusion going, including handing over competitors’ contact details and work information when staff changed, and creating and sharing manuals on how to contact one another at different times during the bidding process.
The KFTC concluded that these practices artificially pushed up the yields on government bonds awarded at auction. Government bond yields are an indicator that determines the government’s borrowing costs and are also used to set rates on private financial products such as corporate bonds and loans. The KFTC said that restricting competition at the bidding stage could affect not only the government’s interest burden but also interest-rate formation across the financial market.
A key issue in calculating the fines was how to determine the relevant sales revenue. The financial firms argued that operating revenue should be used, but the KFTC applied a special rule for bid rigging and calculated relevant sales as the 54 trillion won in winning bids. That was lower than the 76 trillion won calculated in the KFTC’s earlier examination report. The KFTC applied a 4.5% rate and reduced the fines by 30%, taking into account, among other factors, the difference between the fines and the actual unjust gains.
[email protected] Kim Chan-mi Reporter