The Korea Fair Trade Commission said it will begin sanction procedures, saying 15 banks and securities firms colluded in the government bond auction market.
The Korea Fair Trade Commission (FTC) said on the 6th that it sent a review report to 15 financial institutions designated as primary dealers (PDs) on suspicion of colluding on interest rates in the government bond issuance market, through a "government bond auction collusion background briefing." The review report is similar to a prosecutors' indictment and lists alleged violations of the law and the level of sanctions. The implicated financial institutions are Kyobo, Daishin, Meritz, Mirae Asset, Samsung, Shinhan, NH Investment, KB, Korea Investment, Kiwoom Securities, KB Kookmin, NH Nonghyup, IBK Industrial, Hana, and KDB Industrial Bank. The Korea Fair Trade Commission (FTC) believes they colluded from Jan. 2020 to Jun. 2023.
Government bonds are bonds issued by the Ministry of Finance and Economy. They are the most actively traded among all bonds and serve as a key indicator of overall liquidity conditions. When the ministry issues government bonds, PDs buy them from the ministry through auctions and sell them to investors. The Korea Fair Trade Commission (FTC) believes PDs aligned interest rate levels without competition among the financial institutions during the bidding process.
The Korea Fair Trade Commission (FTC) reached a tentative conclusion that the size of the bids affected by the collusion was 76.2 trillion won. The review report is said to propose imposing a penalty surcharge equal to 10.5% to 15% of the bid size. That would put the penalty surcharge at a minimum of 8 trillion won and up to 11.4 trillion won.
The 15 financial institutions argued that, given industry specifics, using the entire bid size as the base amount for the penalty surcharge is unfair. They said fees and commissions earned from government bond operations should be the base amount. But the Korea Fair Trade Commission (FTC) rejected the argument in its tentative conclusion.
An official at the Korea Fair Trade Commission (FTC) said, "Bid rigging requires imposing a penalty surcharge based on the (statutory) contract amount," adding, "In this case, collusion occurred during the bidding for government bonds, so it is reasonable to calculate the penalty surcharge based on the winning bid amount (contract amount)." The final penalty surcharge is expected to be decided at a full commission meeting as early as this month.