This article was published on March 10, 2025, at 1:12 p.m. on the ChosunBiz RM Report site.
The Fair Trade Commission has initiated sanction procedures against major securities firms and banks designated as primary dealers (PDs) for government bonds due to collusion in the government bond bidding process.
According to the industry on the 10th, the Fair Trade Commission sent a review report to major securities firms and banks that included allegations of collusion in the government bond bidding process. The review report serves a role similar to that of an indictment from the prosecution, as it specifies the allegations against the corporations and warns of potential sanctions.
Since last year, the Fair Trade Commission has been investigating 11 securities firms and 7 banks that are PDs for government bonds. The sanctions reportedly involve major firms such as MERITZ Securities, Kiwoom Securities, KB Securities, Samsung Securities, NH Investment & Securities, Mirae Asset Securities, DAISHIN SECURITIES, Kyobo Securities, and Korean Investment & Securities, as well as some banks like IBK Corporation Bank, NH Nonghyup Bank, and Hana Bank.
The Fair Trade Commission reports that the PDs shared bidding information in advance to minimize losses and maximize profits during the government bond bidding process. PDs participate in competitive bidding conducted by the Bank of Korea, purchasing government bonds initially and then selling them to institutions or individual investors. The government allocates bonds based on the order of submitted interest rates, but the Fair Trade Commission believes that some dealers colluded to coordinate bidding strategies using messaging tools to set higher interest rates.
According to the Fair Trade Commission's investigation, the PDs agreed to bid at a specific interest rate level and reflected this in the actual bids. When bidding competition is restricted and government bond winning rates increase, the government's costs for procuring bonds rise. The Fair Trade Commission believes that such actions may have continued for several years.
The financial investment industry is closely monitoring the intensity of sanctions from the Fair Trade Commission. There are discussions in the industry that fines may reach trillion-won levels, prompting securities firms and banks to initiate emergency responses. With the possibility of PD license suspension or cancellation being raised, the impact on the future government bond market is expected to be significant.
The Fair Trade Commission typically sends a review report, receives opinions from the corporations, and reviews these to finalize the legality and the level of sanctions at a plenary session.