The Fair Trade Commission (FTC) has detected allegations of bid-rigging by major securities firms and banks during the treasury bond bidding process and will soon submit the case for deliberation.

As the scale of the alleged collusive bidding amounts to 76 trillion won, possibilities are raised that penalties could reach the 15 trillion won level, breaking all-time records.

The FTC's secretariat announced on the 6th that it submitted the examination report regarding the treasury bond bid-rigging case to the FTC on February 28 of last year, and sent it to 15 primary dealer (PD) institutions on March 10 of the same year.

An examination report is a document containing the illegality and sanction opinions identified by FTC investigators during the investigation process, and it does not bind the final judgment.

The final judgment on the case will be made through future deliberations by the full commission or a subcommittee.

The 10 securities firms that received the examination report are Kyobo, Daishin, Meritz, Mirae Asset, Samsung, Shinhan, NH Investment, KB, Korea Investment, and Kiwoom, while the 5 banks are Kookmin, NongHyup, IBK, Hana, and KDB.

Treasury bonds are issued by the Ministry of Economy and Finance to raise national fiscal funds, and are mostly issued through competitive bidding.

Instead of being granted preferential rights regarding underwriting in the treasury bond issuance market, treasury bond PDs have a market-making obligation to facilitate transactions by quoting bid and ask prices in the secondary market.

As of the end of last year, there were 18 PD companies and 5 preliminary primary dealer (PPD) companies.

The 15 treasury bond PD companies involved in the bid-rigging case are accused of engaging in bid-rigging and information-sharing collusion while participating in treasury bond bids for about three years and six months from January 2020 to June 2023.

The FTC is reportedly of the view that the PD companies shared information in advance, such as interest rates, prices, and quantities, during the treasury bond competitive bidding process.

The stance is that these acts formed interest rates at high levels, thereby increasing the government's burden of national debt procurement costs.

The investigator judged that their violations constitute "very serious illegal acts" violating "bid-rigging" and "information-sharing collusion" under the Fair Trade Act.

In this regard, opinions were presented for corrective orders, imposition of fines, and the filing of criminal complaints against corporations and current and former executives and employees.

The scale of the bids affected by the collusion was found to amount to approximately 76.2 trillion won.

Applying the maximum fine imposition rate of 20% means that a fine of 15 trillion won could be imposed.

As a collusion case, it could be subject to the largest fine in history, far surpassing previous records.

The previous record fine was 747.6 billion won imposed on four companies that colluded on starch and starch sugar.

An FTC official kept a low profile, stating, "The specific level of measures will be decided at the full commission meeting," and adding, "The situation of the treasury bond market, ripple effects, and the financial status of the accused will also be comprehensively considered."

The FTC stated that it has exchanged opinions and cooperated with the Ministry of Economy and Finance since the early stages of the investigation.

An FTC official explained, "The Ministry of Economy and Finance shares the same opinion with the FTC on the necessity of preventing bid-rigging," while noting, "It expressed the opinion that it is necessary to comprehensively consider the importance of the PD system in the national bond market and the market impact of FTC sanctions."

The key question is whether information-sharing activities can be regarded as collusion.

The PD companies counter that sharing information such as interest rates, prices, and volumes during the competitive bidding process was merely a conventional way of understanding market trends.

An FTC official conveyed, "The investigator's stance is that specific and frequent agreements on bidding interest rates, collusion, and information exchange took place, which cannot be viewed as customary communication among the accused [PD companies]."

The criteria for calculating fines are also cited as a contentious issue.

The related sales calculated by the FTC investigator are the successful bid amounts.

This is based on the statutory rule that bid-rigging should be based on contract amounts and purchase collusion on purchase amounts.

On the other hand, PD companies counter that since successful bid amounts are not directly related to sales, the criteria should be centered on operating revenue.

The volume of the examination report is reported to be massive, reaching 12,000 pages.

Usually, the deadline for the accused to submit opinions is 8 weeks after sending the examination report, but this time it took 6 months including extension requests.

Because of this, it took a considerable amount of time to schedule deliberations even after sending the examination report last year.

The FTC maintains its stance that the schedule for the full commission meeting cannot yet be disclosed.

However, industry projections suggest that the full commission meeting will be held within this month to decide the level of sanctions.

FTC Chairperson Joo Byung-ki also mentioned at a May briefing regarding collusion cases involving treasury bonds and others, "I will ensure that deliberations can take place preferably during the third quarter."