In the government-issued treasury bond bidding market, 15 professional dealers (PDs) who had been playing around by agreeing on bidding interest rates and volumes and exchanging bidding interest rate information for over three years were slapped with a fine of 1.6 trillion won, the largest fine ever in a single case in the history of the Fair Trade Commission.
Among these, seven companies were reported to the Serious Crimes Investigation Office.
The Fair Trade Commission announced on the 11th that it had imposed a total fine of 1.626575 trillion won on 15 KTB PD companies that colluded by agreeing to exchange bidding interest rate, volume, and bidding interest rate information in advance while participating in competitive bidding for KTBs.
◇ The bidding interest rate was agreed upon in 5 seconds… Fair Trade Commission “routine and customary collusion”
The sanctioned securities companies include Kyobo Securities Co., Ltd., Daishin Securities Co., Ltd., Meritz Securities Co., Ltd., Mirae Asset Securities Co., Ltd., Samsung Securities Co., Ltd., Shinhan Investment & Securities Co., Ltd., NH Investment & Securities Co., Ltd., KB Securities Co., Ltd., Kiwoom Securities Co., Ltd., and Korea Investment & Securities Co., Ltd.
Among banks, five banks were sanctioned, including Kookmin Bank Co., Ltd., Nonghyup Bank Co., Ltd., Small and Medium Business Bank, Hana Bank Co., Ltd., and Korea Development Bank.
The Fair Trade Commission also decided to report seven companies, including Mirae Asset Securities Co., Ltd., NH Investment & Securities Co., Ltd., Industrial Bank of Korea, KB Securities Co., Ltd., Kiwoom Securities Co., Ltd., Korea Development Bank, and Korea Investment & Securities Co., Ltd., to the Corruption Investigation Office, which had a long collusion period and a large number of bids involved in collusion.
According to the Fair Trade Commission, 15 PD companies were found to have colluded (collusion in information exchange) by exchanging information on the bidding interest rate through phone calls and messengers until 1 to 2 minutes before the closing time for treasury bond bidding in a total of 150 bids over a period of about 3 years and 6 months from January 2020 to June 2023.
Among them, 145 cases were found to have involved direct agreement on the bidding interest rate and quantity (bidding collusion) beyond information exchange.
It was confirmed that the bidding staff of 15 PD companies exchanged information on the bidding quantity or bidding interest rate on the day of the bidding without any special greetings.
There were cases where an agreement on the bidding rate was reached in just 5 seconds. The Fair Trade Commission interpreted this as a point where collusion could be seen as being carried out on a routine and customary basis.
In the case of information exchange collusion, the bid interest rate information of competitors obtained before bidding was used to determine the bid interest rate to be similar to that of competitors, and ultimately the bid interest rates became similar among the PD companies participating in the collusion.
In fact, in the case of two PD companies that actively exchanged interest rate information, the frequency of bidding at the same interest rate was found to be about 40 percentage points (p) higher in the collusion period (46.7%) than in the non-collusion period (8.5%).
It was also revealed that the bidding staff handed over the competitor's bidding staff and contact information to their successors when there was a personnel change so that agreements and information exchange could be carried out without interruption.
It was found that some places wrote manuals in the handover of successor employees, including the following: "Between 9 and 10 a.m., commission level and volume information by organization, and between 10:40 and 10:55 a.m., information on final bid level is shared with other companies, mainly via Telegram."
Even in cases such as business trips, collusion was carried out without a hitch by informing the person in charge of the position.
◇ At the time, all but 3 of the 18 PD companies were in trouble.
The Fair Trade Commission determined that these actions limited competition in the Treasury bond bidding market and led to an artificial increase in the winning bid interest rate. The Fair Trade Commission's view is that the competitive bidding system was virtually neutralized, leading to losses to the national treasury.
Treasury bonds are bonds issued by the government to raise funds needed for national finances. The Treasury bond interest rate corresponds to the issue price and serves as a standard for calculating the prices (interest rates) of other financial products in the market.
Only PD companies or reserve Treasury bond PD companies designated by the Ministry of Finance and Economy can participate in the Treasury bond bidding. At the time of the collusion, 18 banks and securities companies were designated as PD companies, and all but three of them were found to have participated in the collusion.
PD companies responded by exchanging information and reducing the bidding volume out of concern that the winning bid interest rate would be lowered due to acquisition competition.
Also, as a result of information exchange, if there were concerns that the winning bid interest rate would be lowered, most responded by raising the bidding interest rate itself.
This fine is the largest amount imposed by the Fair Trade Commission on a single incident. The previous record was 1.0311 trillion won imposed on Qualcomm in 2016 for allegedly abusing companies by linking the supply of modem chip sets with patent rights.
The related sales affected by the collusion were calculated to be approximately 54 trillion won, and the standard imposition rate was 4.5%.
It was reduced from the related sales (approximately KRW 76.2 trillion) and the maximum imposition standard rate (20%) recorded by the Fair Trade Commission examiner in the examination report (indictment equivalent). By the standards of the time, the mathematical fine could have reached up to 15 trillion won.
However, PD companies argued that operating profit should be used as related sales, and the Fair Trade Commission examiner argued that the successful bid amount should be used as the standard, but in the end, the successful bid amount became the standard.
Kim Geun-seong, a standing member of the Fair Trade Commission, explained, “Considering legislative precedent and expert opinions, we decided that it was appropriate to view the winning bid amount as related sales.”
Instead, considering that not all of the sales resulted in financial gain, the fine for each company was collectively reduced by 30%.
PD companies also claimed that it was a chat rather than an exchange of information, but this was also not accepted because specific figures were exchanged.
Major PD companies said it was still difficult to admit collusion and indicated legal action.
Participation in the treasury bond bidding was a cooperative project with the intention of helping the national finances, and there was also an atmosphere of opposition, saying that the economic benefit to the PD company was not significant.
Regarding these sanctions, the Ministry of Finance and Economy said, "(Whether to disqualify or suspend PD companies) will be decided after observing the final results of the court, including appeal lawsuits."
“We are monitoring the impact (of these sanctions) on the issuance and distribution market,” he said. “We plan to collect opinions on how far PD companies can exchange opinions and consider preparing guidelines by reflecting overseas cases.”
