The Fair Trade Commission has decided to impose fines totaling 1.6265775 trillion won on 15 banks and securities firms that coordinated yields and volumes in Treasury bond auctions. It is the largest fine the commission has ever imposed in a single case.
The commission announced on the 11th that it had decided to issue corrective orders and impose fines on 15 primary dealers (PDs) in Treasury bonds for violating the Fair Trade Act. The previous record was the 1.0311 trillion won fine imposed on US chipmaker Qualcomm in 2016. In cartel cases alone, the fine is more than double the previous largest, the 747.6 billion won imposed on four starch and starch sugar manufacturers and sellers.
10 securities firms and five banks were penalized. The securities firms are Kyobo Securities, Daishin Securities, Meritz Securities, Mirae Asset Securities, Samsung Securities, Shinhan Investment Corp., NH Investment & Securities, KB Securities, Kiwoom Securities and Korea Investment & Securities. The banks are KB Kookmin Bank, NH Nonghyup Bank, IBK Industrial Bank of Korea, Hana Bank and Korea Development Bank.
The commission will refer seven firms with longer periods of involvement and more bids to the Serious Crimes Investigation Agency. They are Mirae Asset Securities, NH Investment & Securities, KB Securities, Kiwoom Securities, Korea Investment & Securities, IBK Industrial Bank of Korea and Korea Development Bank.
The commission's investigation found that from January 2020 to June 2023, they exchanged bidding information or agreed on yields and volumes in 150 of 345 Treasury bond auctions. In 145 of those cases, they went beyond exchanging information and fixed specific yields or volumes in advance.
Contacts took place by phone and messenger on auction days. Some negotiated yields until one or two minutes before the deadline. In one case, agreement on a yield was reached in just five seconds. When staff changed, they passed on competitors' contact details to their successors. Some even drew up manuals on how to make contact at each time slot of the auction.
The commission concluded that the purpose was to prevent the winning yield from falling due to underwriting competition. For some financial firms, the share of bids at the same yield jumped from 8.5% in the period without collusion to 46.7% during the collusion period. The commission determined that competition was restricted as a result, increasing the government's cost of financing through Treasury bonds.
The related bid amount used to calculate the fines is about 54 trillion won. That is more than 20 trillion won less than the roughly 76.2 trillion won in related sales calculated by the case examiners. The number of bids recognized as collusion was about 20 fewer than the examiners' claim (more than 170), and the actual number of participating firms in each bid was also taken into account.
A basic rate of 4.5% was applied. The examiners argued it was a “very serious violation,” in which case 10.5% to 20% of related sales can be imposed. The commission reflected the Ministry of Finance and Economy's request to reduce the impact on the Treasury bond issuance market.
The financial firms argued that operating revenue, rather than the winning bid amount, should be used as the base. The commission rejected this, citing bid-rigging rules and expert opinion. However, it partly accepted the firms' argument that not all related sales constitute unjust gains and applied a flat 30% reduction.
Kim Geun-seong, a standing commissioner at the commission, said, “The final sanction was decided after comprehensively considering the Ministry of Finance and Economy's request to take into account the impact on the government bond market and the respondents' views on unjust gains.”
By company, KB Securities faces the largest at 332.178 billion won. It is followed by NH Investment & Securities at 242.785 billion won, Mirae Asset Securities at 214.83 billion won, Shinhan Investment Corp. at 147.306 billion won and IBK Industrial Bank of Korea at 135.845 billion won.