Korea hits 15 bond dealers with record 1.6t-won fines

South Korea’s Fair Trade Commission has imposed record fines totaling about 1.6265 trillion won on 15 primary dealers for colluding in government bond auctions. The sanctions cover conduct from January 2020 to June 2023 across 150 competitive auctions, where the firms coordinated bidding rates and volumes. Authorities concluded that the collusion weakened competition and artificially raised winning yields, increasing the government’s interest burden when issuing bonds. The total relevant sales used to calculate the surcharges were put at around 54 trillion won, with a base rate of 4.5% applied.

The sanctioned group includes 10 securities firms and five banks designated as primary dealers in the treasury market. Among securities firms, Kyobo Securities, Daishin Securities, Meritz Securities, Mirae Asset Securities, Samsung Securities, Shinhan Securities, NH Investment & Securities, KB Securities, Kiwoom Securities and Korea Investment & Securities were fined. The banks fined were Kookmin Bank, Nonghyup Bank, Industrial Bank of Korea, Hana Bank and The Korea Development Bank.

Investigators found that bidding staff at the 15 dealers routinely exchanged information on intended bidding rates and volumes by phone and via Telegram one to two minutes before auction deadlines. In all 150 auctions, bidding rate information was shared, and in 145 cases there were explicit agreements on both rates and volumes. Messages showed staff quickly aligning specific numerical levels, with some agreements reportedly reached in a matter of seconds.

During the collusion period, the frequency of two primary dealers submitting identical bid rates rose to 46.7%, compared with 8.5% in a non‑collusion period. In some firms, contact information and detailed instructions on how and when to exchange rate and volume data with rivals were passed to successors during personnel changes. Manuals included guidance on sharing information between specified times in the morning and just before bidding cut‑offs, and on designating substitutes to maintain the practice during absences.

The Fair Trade Commission judged that these patterns effectively neutralized competitive bidding and pushed up successful yields on treasury bonds. Successful bid amounts were adopted as the standard for relevant sales, and while officials noted that sales did not fully translate into undue profit, company‑level fines were discounted by 30% from the theoretical maximums. The 1.6265 trillion won penalty is the largest monetary sanction ever imposed by the authority in a single case.

KB Securities received the largest individual surcharge at about 332.2 billion won. NH Investment & Securities was fined 242.8 billion won, and Mirae Asset Securities 214.8 billion won. Shinhan Securities was fined 147.3 billion won, Daishin Securities 120.1 billion won and Samsung Securities 118.9 billion won. Across the 10 brokerages, fines total about 1.3761 trillion won.

Seven firms with longer collusion periods and high participation counts—Mirae Asset Securities, NH Investment & Securities, Industrial Bank of Korea, KB Securities, Kiwoom Securities, The Korea Development Bank and Korea Investment & Securities—have been referred to a serious crimes investigation body. Executives and staff were not included in the referrals. The Ministry of Economy and Finance has indicated that decisions on revoking or suspending primary dealer status will be considered after court proceedings, including any appeals, are concluded.

The penalties are already affecting reported results for some brokerages. KB Securities booked a 332.2 billion won surcharge, swinging its third‑quarter consolidated performance from a 273 billion won net profit to a 59.1 billion won net loss. Kiwoom Securities recognized an 83.8 billion won surcharge, lowering its third‑quarter net profit from 238.6 billion won to 177.8 billion won. Other firms, including Mirae Asset Securities and NH Investment & Securities, are reviewing how and when to recognize the surcharges in their accounts.

Industry participants warn that reflecting the penalties at a time of weaker trading activity could deepen profit declines, with the burden seen as heavier for brokerages than for financial holding companies and more acute for small and mid‑sized players. Because surcharges must be paid before any potential recovery through administrative lawsuits, the fines could weigh on near‑term earnings. Several large brokerages facing hundreds of billions of won in penalties are expected to seek stays of execution and challenge the decisions in court.

Brokerages have adopted different strategies in response to the sanctions. Samsung Securities and Shinhan Investment & Securities applied for leniency during the investigation, positioning themselves for reductions in surcharges. Samsung Securities was the first leniency applicant and Shinhan Investment & Securities the second.

Other firms dispute the collusion findings and are considering administrative lawsuits, arguing in part over the basis used to calculate fines. Some firms contend that bond trading yields thin margins and that penalties should not be based on successful bid principal amounts. Market participants note that if whistleblower statements become core evidence, they could weaken the defense of firms that deny collusion. The Korea Financial Investment Association has pledged to support brokerages as they contest the sanctions through lawful procedures.

Regulators and policymakers are monitoring potential spillovers into the government bond market. There is concern that heavy fines and criminal referrals may prompt primary dealers to reduce underwriting volumes or scale back participation in auctions, which could complicate the state’s fundraising. The Ministry of Economy and Finance has been watching auction behavior since early November and has prepared contingency plans in case bidding demand diminishes.

Within the industry, some officials argue that primary dealers have been underwriting significant portions of issuance at limited profitability and that coordinated behavior was a defensive response to losses. Others caution that if the role of primary dealers shrinks under the burden of sanctions, liquidity provision in the bond market could weaken. Debate also continues over how to distinguish legitimate information sharing that supports market functioning from pre‑arranged bidding agreements that distort competition.