The Fair Trade Commission has completed a two-year investigation related to the bid collusion for treasury bonds and sent out a review report. It is understood to include opinions for 'personal accusations' against about 10 treasury bond primary dealers.
It has been common for the Fair Trade Commission to hold institutional heads or corporate representatives accountable by making personal accusations, but the accusation of individual dealers is considered unusual. The bid collusion for treasury bonds is linked to the 'suspension or cancellation of qualifications' for the primary dealers, and a subsequent impact on the treasury bond market is expected.
According to industry sources on the 10th, the review report sent by the Fair Trade Commission to major securities firms and banks includes opinions on criminal accusations against 15 financial institutions that are PD firms and 13 individuals such as dealers. Since both corporate and individual 'criminal accusations' are noted, it indicates that 'serious violations have been committed' as revealed by the Fair Trade Commission's investigation.
It is reported that the financial institutions subject to penalties, including penalty surcharges, are 15 out of the original 18 institutions investigated, excluding 3. Some institutions provided information under the 'leniency' (self-reporting reduction system), and are expected to receive reduced penalties.
Concerns are being raised in the industry that the penalty surcharge for this case could reach trillion won levels. An industry insider noted, 'The penalty surcharge is expected to be calculated at 10-15% (at the highest level) of the contested transaction amount,' adding that 'considering the annual treasury bond trading volume and the period in question, the amount per institution could reach trillion won levels.' However, the Fair Trade Commission stated, 'The level of sanctions will be determined in principle at the plenary session.'
The Fair Trade Commission's investigation into the collusion of treasury bond interest rates began in June 2023 and involved 11 securities companies and 7 banks designated as treasury bond primary dealers. The Fair Trade Commission has reportedly found that these entities have engaged in prior 'collusion' for years to minimize losses and maximize profits in the treasury bond bidding process by discussing bidding strategies and interest rates before participating in competitive bidding. Evidence of discussions among dealers via personal computers and mobile phone messengers has also been captured.
The investigation, which was initially expected to conclude in the third quarter of last year, has prolonged. This was due to the time required to question individual dealers to determine whether the conditions for the establishment of collusion, such as 'agreement,' were met. The number of dealership representatives facing individual inquiries was reported to be around 3 to 4 per financial institution, totaling approximately 50 to 70 individuals. The Fair Trade Commission is said to have analyzed their conversations related to bidding one by one, calculating them down to the minute and second, to determine the presence of any agreements, resulting in a review report that spans over 10,000 pages.
This collusion case is expected to have the highest level of sanctions among the so-called 'three major collusion' cases recently investigated by the Fair Trade Commission. The Fair Trade Commission is conducting not only the treasury bond bidding collusion but also investigating collusions regarding the loan-to-value ratio (LTV) of the four major banks and collusions among the three telecommunications companies.
A legal source who requested anonymity stated, 'Bid collusion is considered a hardcore cartel, the most serious form of wrongdoing,' adding, 'However, if it is recognized that the primary dealers engaged in collusion not for exorbitant profits but for 'survival in the industry,' the level of sanctions may be mitigated.'
The Fair Trade Commission plans to receive the opinions of the financial institutions subject to penalties and hold a plenary session to ultimately finalize the level of sanctions. If sanctions such as criminal accusations against the primary dealers are confirmed through the plenary session, it is expected to have a cascading effect on the treasury bond market. According to current regulations (regarding the issuance of treasury bonds and the operation of primary dealers), it is stated that 'if collusion or other actions that significantly disrupt the treasury bond market order occur during treasury bond bidding, the qualifications of the primary dealer can be suspended or canceled.'
A treasury bond market insider noted, 'Most of the dealers subject to these sanctions are still actively working in the field, many with a long history,' and added, 'If veterans are included among those subject to sanctions, it is expected to have repercussions in the treasury acquisition personnel pool.'
According to the Ministry of Economy and Finance, there are 18 financial institutions selected as treasury bond primary dealers (PD) this year. If they fail to meet the score required to maintain PD qualifications due to sanctions from the Fair Trade Commission, they will be downgraded to preliminary primary dealers (PPD), and the top PPD institutions can be promoted to PD. This year, the PPDs include Woori Bank and Shinhan Bank, among a total of 6.