This article was published on March 27, 2025, at 8:54 a.m. on the ChosunBiz RM Report site.
As sanctions against 15 financial companies regarding the Fair Trade Commission's 'government bond bidding collusion' officially begin, the government is struggling to establish criteria for downgrading Primary Dealer (PD) firms. PDs are financial institutions specializing in government bond trading that are granted the right to participate first in the government bond issuance market. The Ministry of Economy and Finance selects these annually from among banks and securities companies.
According to relevant authorities on the 27th, the Ministry of Economy and Finance, which operates the PD system, is engaged in internal discussions to establish principles for disqualification due to bidding collusion.
Previously, on the 10th, the Fair Trade Commission sent a bidding collusion examination report to five banks, including KB Kookmin Bank, IBK Industrial Bank, NH Nonghyup, KDB Bank, KEB Hana Bank, and ten securities companies including Kyobo Securities, Daishin Securities, Mirae Asset Securities, Samsung Securities, Shinhan Investment Corp., Korea Investment & Securities, KB Securities, NH Investment & Securities, Meritz Securities, and Kiwoom Securities.
Among the 18 PDs designated by the Ministry of Economy and Finance, 15 are subject to sanctions by the Fair Trade Commission, excluding three, such as SC First Bank, Crédit Agricole Bank, and DB Financial Investment. It has been confirmed that opinions regarding 'prosecutorial charges' against corporations and individual dealers have also been specified. (Related article:☞ Government bond bidding collusion examination report, prosecution opinion against over 10 PDs... disqualification if sanctions are finalized)
This issue is not one that can be resolved solely through sanctions from the Fair Trade Commission. According to current regulations concerning the issuance of Treasury Bonds and the operation of specialist PDs, it is explicitly stated that 'if collusion or acts that severely disrupt the order of the Treasury bond market during the bidding occur, the PD's qualification can be suspended or revoked.' Based on the content of the Fair Trade Commission's examination report alone, all 15 companies can face suspension or cancellation of their qualification.
Since the PD system was implemented in 1999, there have been no precedents of disqualification due to collusion in government bond bidding. However, there have been cases where PDs were downgraded for failing to fulfill their obligations, such as 'acquiring over a certain amount.' Examples include KB Kookmin Bank in 2012, BNP Paribas in 2015, Yuanta Securities in 2016, and the expulsion of JP Morgan and ING in 2017.
Since the 'collusion' clause has never been realized, the Ministry of Economy and Finance needs to establish new standards this time. For instance, whether to file charges will be decided at the Fair Trade Commission's plenary meeting held in a few months, necessitating the establishment of criteria for discussing qualification suspension immediately after the sanctions are confirmed. Whether or not charges are filed, it remains to be seen if qualification will be questioned solely based on corrective orders and penalty surcharges.
A Ministry of Economy and Finance official noted that, "Even if the Fair Trade Commission imposes sanctions, it is common for companies to respond by appealing. In such cases, there may be controversy over whether it is appropriate to discuss qualification suspension or cancellation until the court's decision is finalized," adding that, "The regulations state 'can be suspended or canceled,' but do not mandate it, so further interpretation on these matters may also be necessary."
Meanwhile, the government conducts regular evaluations every year in March and September through the 'PD-PPD (Preliminary Primary Dealer) upgrade and downgrade system' established in 2011. When a PD is expelled, PPDs fill that vacancy. Currently, there are only six financial companies waiting to become PPDs, including Yuanta Securities, Eugene Securities, IBK Securities, BNP Paribas Bank, Shinhan Bank, and Woori Bank. In the worst-case scenario, all 15 of the current 18 PDs could be expelled, reducing the number of entities acquiring government bonds from the current 18 to just nine.