South Korea Fines 15 Bond Dealers $1.2 Billion Over Auction Collusion

Record penalty targets 150 government bond auctions

South Korea's Fair Trade Commission has imposed 1.626575 trillion won, approximately $1.2 billion, in fines on 15 banks and securities firms over coordination in government bond auctions between January 2020 and June 2023. The regulator found misconduct in 150 of 345 auctions, with explicit agreements on bidding rates or quantities in 145.

The decision, announced on November 11, 2026, targets financial companies entrusted with helping the government raise money. The commission said their conduct artificially increased auction yields, raising the cost of public borrowing. It also ordered corrective action and decided to refer seven companies for criminal investigation.

KB Securities received the largest fine, 332.178 billion won, followed by NH Investment & Securities at 242.785 billion won and Mirae Asset Securities at 214.83 billion won. Together, those three penalties total 789.793 billion won, nearly 49% of the entire assessment.

The commission described the total as its largest penalty in a single case. It exceeds both the 1.0311 trillion won Qualcomm penalty cited as the previous single case record and the 747.6 billion won penalty against starch producers cited as the previous cartel case record.

The financial firms dispute the findings and the calculation of the fines, setting up an expected court battle over how dealers should compete, what information they may share and how penalties should be measured in a market where purchases run into trillions of won but trading margins can be small.

How the bidding worked

The 15 companies comprised 10 securities firms and five banks, designated as primary dealers or preliminary primary dealers. Primary dealers are financial institutions selected by the finance ministry to participate directly in government bond auctions and help keep the bonds trading afterward.

A government bond is a way for the state to borrow money from investors. At an auction, dealers submit the quantities they want and the yields they are prepared to accept. A yield is the return an investor receives relative to a bond's price. For a given bond, a higher yield means a lower purchase price, making it more expensive for the government to raise the same amount of money.

The commission said dealers exchanged sensitive bidding information by telephone and Telegram, sometimes continuing until one or two minutes before an auction closed. Some agreements were reached within five seconds.

The Fair Trade Commission described the conduct of the employees responsible for bidding:

"Dealers in charge of bidding at the 15 companies exchanged information on bidding volumes or yields on auction days, routinely engaging in collusion, with agreements sometimes reached within seconds," the FTC said.

The regulator also found arrangements that helped the exchanges continue when employees changed jobs or responsibilities. Departing staff passed rival dealers' names and contact details to their successors. Some companies documented methods of contacting competitors at different stages of an auction in manuals.

The figures behind the finding

The 150 auctions identified by the commission represent about 43.5% of the 345 auctions examined during the period. In 145 of those 150, about 96.7%, participants went beyond sharing information and agreed on specific bidding rates or quantities.

Identical rate bids accounted for 46.7% of bids during the collusion period, compared with 8.5% when the conduct had stopped. That is a difference of 38.2 percentage points, or roughly 5.5 times the comparison rate.

Telephone contact showed another marked difference. Among the colluding bids examined, the share submitted at identical rates reached 55.6% when firms had spoken by phone, against 18.2% without a call. The commission used bidding patterns and communications to support its finding that dealers were coordinating rather than independently deciding what to offer.

The case spans several stages:

• January 2020: The period of auction coordination identified by the commission began.
• June 2023: The identified period ended, covering approximately three and a half years.
• November 11, 2026: The commission announced corrective orders, fines against 15 firms and plans for seven criminal referrals.
• After a final Supreme Court ruling: The finance ministry plans to consider reforms to the primary dealer system.

Why taxpayers and borrowers are affected

The commission concluded that dealers coordinated to prevent competition from pushing auction yields lower. When bidders independently compete to buy bonds, some may accept a lower return to secure an allocation. Sharing intended rates and quantities gives rivals a way to avoid undercutting one another.

The Fair Trade Commission said the conduct damaged the auction process and public finances:

"The conduct effectively undermined the competitive auction system and caused losses to the government," the commission said.

The regulator said its economic analysis identified an increase in yields and substantial losses to the national treasury. It did not disclose the exact increase or the monetary loss, citing matters including the dealers' confidential business information.

Government bonds also provide reference rates for corporate bonds, loans and other financial products. Lenders and investors use the government's borrowing rate as a starting point when deciding what return to require from other borrowers. The commission therefore treated accurate auction pricing as an issue affecting both state finances and the wider financial market.

South Korea's Korean Treasury Bond market was estimated at approximately 1,261 trillion won, or $942 billion. The auctions at the center of the case sit within that much larger market, where banks and securities firms help determine the prices at which public debt is issued and traded.

Which companies face the penalties?

The securities firms sanctioned were Kyobo Securities, Daishin Securities, Meritz Securities, Mirae Asset Securities, Samsung Securities, Shinhan Securities, NH Investment & Securities, KB Securities, Kiwoom Securities and Korea Investment & Securities.

The five banks were KB Kookmin Bank, NH NongHyup Bank, Industrial Bank of Korea, Hana Bank and Korea Development Bank. The 10 securities firms together received approximately 1.376 trillion won in fines, accounting for about 85% of the total.

The individual assessments disclosed for 10 of the firms were:

• KB Securities: 332.178 billion won.
• NH Investment & Securities: 242.785 billion won.
• Mirae Asset Securities: 214.83 billion won.
• Shinhan Securities: 147.306 billion won.
• Industrial Bank of Korea: 135.845 billion won.
• Daishin Securities: 120.051 billion won.
• Samsung Securities: 118.86 billion won.
• Kiwoom Securities: 83.813 billion won.
• Meritz Securities: 64.562 billion won.
• Korea Development Bank: 62.311 billion won.

How the commission calculated the fines

The commission used approximately 54 trillion won in winning bids affected by the misconduct as the relevant revenue for calculating penalties. It applied a base rate of 4.5%, then made a uniform reduction of 30% for features of the government bond market and considered circumstances specific to individual firms.

The 54 trillion won calculation base was smaller than the approximately 76.2 trillion won initially considered by investigators. Some auctions were excluded from the final violation finding. The final base rate was also below the maximum rate of 20% discussed during the investigation.

Multiplying 54 trillion won by 4.5% gives approximately 2.43 trillion won. A reduction of 30% brings that to about 1.701 trillion won, before company specific adjustments. The announced final total was 1.626575 trillion won.

The commission accepted some arguments about the market's special features when reducing the assessment, while retaining winning bid amounts as the basis for the calculation. It considered that approach appropriate under the rules governing auction collusion and after considering expert views.

Why the financial firms object

The banks and securities firms argue that money spent purchasing government bonds is neither revenue nor profit. They say the penalty should instead reflect the income earned from the transactions.

Financial industry estimates put typical trading margins at 0.05% to 0.1% of transaction value. Applying those percentages to 54 trillion won produces 27 billion to 54 billion won over the period, or roughly 8 billion to 15 billion won a year across the affected business. Those are industry estimates based on assumed margins.

The difference explains the intensity of the dispute: the commission measured the affected auction purchases, while the firms want the calculation tied to what they earned from trading those bonds.

The firms also argue that their responsibilities require them to support the government bond market even when trading conditions are difficult and participation may generate losses. Dealers must provide buying and selling quotes to help investors trade, and they receive benefits including rights to buy some bonds without competitive bidding and access to funding support.

Financial companies say yields move with domestic and international market conditions, while orders from customers such as insurers and pension funds differ between firms. They contend that sharing market views would not allow all 15 dealers to bid on identical terms or control government bond prices. Expected legal challenges are likely to focus on both the effect of the exchanges on competition and the use of auction purchase amounts to calculate fines.

Seven referrals and a separate dealer review

The commission selected seven firms for criminal referrals because of factors including how long they participated and how many auctions they were involved in: Mirae Asset Securities, NH Investment & Securities, KB Securities, Kiwoom Securities, Korea Investment & Securities, Industrial Bank of Korea and Korea Development Bank.

The referral descriptions identify the receiving body as the Serious Crime Investigation Agency. The criminal process would examine responsibility separately from the commission's financial penalties and corrective orders.

The Ministry of Economy and Finance will separately decide whether to suspend or revoke primary dealer status. Such a decision would affect a firm's role in government bond issuance, alongside the financial burden of its fine.

The ministry is also preparing guidelines on sharing information during auctions and plans to consider changes to the primary dealer system after a final Supreme Court ruling. No hearing dates, appeal deadlines, timetable for the guidelines or date for a final ruling were given.

Shares showed a mixed immediate response

Trading on the afternoon of November 11 showed different reactions among the listed securities firms. Mirae Asset Securities rose 2.30% to 22,250 won, while Kiwoom Securities gained 2.17% to 188,700 won. Kyobo Securities rose 1.80%, and Daishin Securities was unchanged.

NH Investment & Securities fell 3.28% to 22,100 won, and Samsung Securities declined 0.96% to 72,000 won. At the same time, the broader Kospi index was up 2.31%, compared with a rise of 0.44% in the securities industry index, a gap of 1.87 percentage points.

The immediate market response was therefore mixed, with the securities sector trailing a rising market. The firms still face substantial penalties, expected litigation and possible changes to their status as dealers, while the government must decide how to tighten auction rules without disrupting the institutions that help sell and trade its debt.

Key Points

• The Fair Trade Commission imposed 1.626575 trillion won in fines on 10 securities firms and five banks.
• The findings cover 150 of 345 auctions between January 2020 and June 2023, including explicit agreements in 145.
• The regulator said coordination raised government borrowing costs but did not publish the exact treasury loss.
• The fines were based on approximately 54 trillion won in affected winning bids, a method disputed by the financial firms.
• Seven firms face criminal referrals, while the finance ministry will separately review dealer status and prepare information sharing guidelines.
• Legal challenges are expected, with broader dealer reforms to be considered after a final Supreme Court ruling.