South Korea’s competition regulator has imposed fines totalling about 1.6266 trillion won on 15 financial firms after finding that they coordinated bids or exchanged sensitive information in government bond auctions.
The Korea Fair Trade Commission said the decision covered activity between January 2020 and June 2023. It also ordered corrective measures and decided to refer seven of the firms to the Serious Crime Investigation Agency. The sanctions are the largest the commission has imposed in a single case.
The firms involved comprise ten securities companies and five banks. Financial firms have disputed the penalties, arguing that their conduct was connected to their role in stabilising the government bond market.
What the regulator found
The commission said its decision related to 150 competitive auctions over roughly three and a half years. It found that dealers agreed to exchange information about bidding rates or agreed on rates and quantities before bids closed.
In 145 of those auctions, the authority said, firms went beyond exchanging information and reached agreements on specific rates or quantities. The distinction matters because the regulator identified both the sharing of sensitive information and agreements on the bids themselves as conduct restricting competition.
According to the Commission, employees used telephone calls and messages to communicate in the run-up to auction deadlines, in some cases as late as one or two minutes beforehand. The regulator said contact details for staff at competing firms were passed on when employees changed roles, and that some firms used manuals setting out how to communicate with competitors during bidding.
The decision is an administrative competition ruling, not a criminal conviction. The planned referral concerns seven companies; any criminal proceedings would be separate from the Commission’s decision.
Why the auctions matter
Government bonds are a way for the state to borrow money. Designated primary dealers are among the financial institutions eligible to participate in the auctions, where bids specify a proposed interest rate and the amount of bonds a firm wants to buy.
The commission said the dealers should have made those decisions independently. It concluded that coordination reduced competitive pressure and artificially raised the yields at which bonds were awarded, making government borrowing more expensive.
That is the regulator’s assessment of the effect, rather than an agreed measure of the loss. The announcement did not put a figure on the loss it identified. Government bond yields also serve as a benchmark for pricing other financial products, the commission said, making the integrity of the auction process important beyond the immediate transaction.
Dispute over the penalty
The size of the fine reflects a disagreement over how to calculate the value affected by the conduct. The commission used the value of winning bids as the basis, assessing the relevant auction amount at approximately 54 trillion won. Financial firms argued instead that the calculation should be based on their operating revenue rather than the amount paid to buy bonds.
The regulator applied a 4.5 per cent base rate to the relevant amount and then made a uniform 30 per cent reduction. It said the entire value of the auctions was not itself an improper gain. The commission also considered the finance ministry’s concerns about the potential impact of sanctions on the government bond market.
The firms’ position does not alter the commission’s finding, but it explains the grounds on which the penalties are contested. The announcement does not establish the outcome of any challenge or any separate criminal investigation.
