The Fair Trade Commission imposed a record fine of 1.6266 trillion won on five banks and ten securities firms on November 11 for colluding in treasury bond bidding. This is the largest fine ever for a single incident, surpassing the previous record of 1.0311 trillion won in the Qualcomm case, and seven firms have been referred to prosecutors. If the Commission's assertion that the firms exchanged interest rates and volumes right before the bidding deadline is accurate, accountability is warranted. However, questions arise regarding the scale of the penalties, the calculation methods, and the level of proof, suggesting that the enforcement may exceed the principle of proportionality.
First, it is essential to examine whether the harm from the collusion has been adequately demonstrated. The Commission has not released a detailed analysis of how much the issuance interest rates for treasury bonds increased due to the collusion or how much the financial burden grew. Their claim of having proven this through economic analysis, while withholding specific figures, is difficult to accept. The Commission itself acknowledged that "the method of calculating the fine will be fiercely contested in court." This raises the question of whether it is appropriate to establish such a massive fine and then determine its legitimacy in court.
The criteria for calculating the fine are also contentious. The Commission based the fine on the total bid amount of 54 trillion won and applied a standard rate of 4.5%. However, the average commission earned by primary dealers (PDs) when selling the bonds to institutional investors is only about 0.01% to 0.02%. This is why the industry argues that it operates in a low-margin market. If the total transaction amount is used as the basis for the fine, it results in penalties that far exceed actual profits, threatening the very existence of the firms involved rather than serving as a punitive measure.
The structural issues within the treasury bond PD system also need to be addressed. PDs are designated by the government and are burdened with underwriting and market-making obligations. In a system where a small number of designated firms repeatedly participate in the same bids, information exchange is almost inevitable. It is unfair to impose astronomical burdens on participants without holding the financial authorities accountable for designing and supervising this structure.
The strong backlash from securities firms stems from these concerns. The Korea Financial Investment Association warned that if the sanctions lead to the suspension or cancellation of PD qualifications, it could disrupt the issuance of treasury bonds. There are concerns in the bond market that reduced participation in bidding could lead to higher issuance interest rates. The sanctions intended to protect the government's procurement costs could backfire and increase those costs instead.
Collusion disrupts the market and should be dealt with strictly. However, such strictness must be justified within the bounds of proportionality and due process. There have been instances where collusion cases that resulted in astronomical fines imposed by the Commission were later ruled as not guilty in court. It is not possible to rule out the possibility that this collusion sanction may also be deemed not guilty by the courts in the future.
The issue lies in the time lag between the Commission's announcement and the court's ruling. Companies accused of collusion are treated as "criminals" until the final court decision is made, which can take several years, bearing the stigma of being labeled as "anti-market actors." However, there has been no indication that the Commission has taken responsibility for inadequate investigations following a not guilty verdict. It is crucial to scrutinize whether the Commission's extensive administrative powers are being exercised appropriately.
* This article has been translated by AI.
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