South Korea Fines 15 Banks and Brokers a Record $1.2 Billion Over Bond Rigging

The Korea Fair Trade Commission (KFTC) announced Wednesday that it had fined 15 banks and securities firms a combined 1.63 trillion won (approximately $1.22 billion) for rigging government bond auctions. The cartel operated from January 2020 to June 2023, with dealers agreeing on yields and volumes in 145 of 150 auctions during that period.

All 15 firms were primary dealers, which buy government debt at auction and make a market in it. They held 15 of the 18 licenses then in operation. The KFTC stated that their coordination prevented auction yields from falling, thereby increasing the state's borrowing costs.

Staff at these firms traded figures by phone and messaging apps until one or two minutes before bidding closed. Some companies even wrote the practice into handover documents and operating manuals, ensuring it continued through staff changes and absences.

Record Breaking Fine

The penalty marks the largest single-case fine ever imposed by the KFTC, surpassing the previous record of 1.03 trillion won against Qualcomm for patent licensing. The total fine is more than 2,000 times larger than a 2019 case against four global banks for foreign exchange derivatives bid rigging.

KB Securities received the largest individual fine of 332.2 billion won, followed by NH Investment & Securities at 242.8 billion won and Mirae Asset Securities at 214.8 billion won. Shinhan Securities was fined 147.3 billion won, while Industrial Bank of Korea received 135.8 billion won, the highest among the five banks penalized.

Criminal Referral

The KFTC will refer seven firms to the Serious Crime Investigation Agency due to their longer involvement in the cartel. These include Mirae Asset, which recently moved to acquire Japan's Sanko Securities, as well as KB Securities, NH Investment & Securities, Kiwoom Securities, Korea Investment & Securities, Korea Development Bank, and Industrial Bank of Korea.

Dealer Disputes

During proceedings, the dealers argued that their contacts were routine market monitoring tied to their market-making duties. They also contended that any fine should be based on their revenue from the auctions rather than the value of bonds they won.

The KFTC rejected these arguments, calculating the fine based on 54 trillion won of winning bids at a 4.5% rate, then reducing the result by 30%. The firms can still challenge the ruling in court. South Korea's finance ministry, which sells debt through these primary dealers, said it would take no separate action until the decision is final but is considering guidelines on information sharing among dealers.