“Told to Buy Government Bonds, Then Punished for Collusion”... National Office and Financial Services Workers' Union Calls for Withdrawal of 1.6 Trillion Won Fine

[Financial News] The Securities Industry Division of the National Office and Financial Services Workers' Union condemned the Fair Trade Commission’s fines and referral to prosecutors of financial institutions serving as primary dealers (PDs) in Korean Treasury Bonds, and called for the measures to be withdrawn. The union said the sanctions could discourage financial institutions from participating in auctions because they failed to take into account the unique nature of the Korean Treasury bond market and the policy obligations involved.
In a statement on the 13th, the union said, “We cannot contain our dismay and anger over the 1.6265 trillion won in fines imposed by the Fair Trade Commission on 15 financial institutions serving as primary dealers in Korean Treasury Bonds, and the referral of the case to prosecutors.” It claimed the commission had “branded financial institutions and workers who have supported the government bond market as a shameless criminal cartel in an instant.”
The union said it was contradictory for the government to encourage institutions to take up government bonds while penalizing information exchanges during the bidding process. It explained that the primary dealer system for Korean Treasury Bonds was introduced to enable the government to sell its bonds reliably, and that gauging market demand and the flow of quotes just before an auction is also part of the market-making process.
The union said, “Gauging market demand and the flow of quotes just before an auction is an essential market-making activity for price discovery and the provision of liquidity in the bond market.” It asked, “On one hand, the government pressures financial institutions to buy government bonds, while on the other it punishes that very process as collusion. Is that really normal government administration?”
The union also challenged the basis used to calculate the fines. According to the union, the Fair Trade Commission treated the entire 54 trillion won in principal that financial institutions spent on purchases of Korean Treasury Bonds through successful bids as relevant sales revenue, and used that figure to calculate the fines. The union argued that it was unfair to treat the principal spent on purchases as sales revenue, given that bidding for Korean Treasury Bonds is a transaction in which financial institutions lend money to the government and acquire bonds.
The union also said there was insufficient evidence of losses to the national treasury. It said, “They failed to calculate even a single won in specific losses to the national treasury or show how much interest rates were distorted in individual auctions.” It criticized the commission, saying, “Concluding that interest rates were manipulated based on staff members’ conversations about sounding out quotes shows a lack of understanding of financial markets.”
The union also expressed concern that the sanctions could increase the cost of issuing government bonds. If primary dealers reduce their participation in auctions or submit more conservative bids to avoid risk, government bond auctions could be undersubscribed and issuance rates could rise, it said.
The union urged the government to act, saying, “Responsibility for structural flaws in the system and policy misalignment between ministries is being shifted onto bond dealers and financial workers on the ground.” It added, “The government, too, must acknowledge the lack of coordination between ministries and take steps to fundamentally address the contradictions in the primary dealer system for Korean Treasury Bonds.” 

[email protected] Joo Won-gyu Reporter