The antitrust watchdog has moved to sanction 15 primary dealers in the government bond market over alleged bid-rigging and illegal information-sharing in Treasury auctions, a case that could result in fines of over 15 trillion won ($10.5 billion) if the charges are upheld.

The Fair Trade Commission (FTC) on Thursday said that its investigation bureau had submitted an examiner's report to the commission and served it on the 15 firms, alleging that they colluded in Treasury bond auctions between January 2020 and June 2023. The report does not represent the commission's final decision, which will be determined after deliberations by the full commission.

The 15 companies are Kyobo Securities, Daishin Securities, Meritz Securities, Mirae Asset Securities, Samsung Securities, Shinhan Securities, NH Investment & Securities, KB Securities, Korea Investment & Securities and Kiwoom Securities, as well as KB Kookmin Bank, NH Bank, Industrial Bank of Korea, KEB Hana Bank and Korea Development Bank.

The alleged collusion involved agreements on bidding yields and the exchange of auction-related information.

According to the FTC, the conduct affected government bond auctions worth about 76.2 trillion won. The regulator said it deemed the violations bid rigging and illegal information exchange under the Fair Trade Act and recommended corrective orders, fines and criminal referrals for the companies and current or former executives involved.

"We found that the firms engaged in specific and repeated agreements and exchanges of information on bidding yields and other auction-related details that could not be considered routine communication among market participants," an FTC official said.

"Unlike a simple information-sharing case, this case is primarily a bid-rigging case.”

The commission calculated the affected auction value as the relevant sales amount for determining penalties, rather than the firms' trading profits. Under the law, cartel fines can reach up to 20 percent of relevant sales, which would put the maximum possible fine at about 15.24 trillion won.

"As this case involves collusion during the bidding process for the purchase of government bonds, we determined that it is appropriate to use the awarded bond value, or purchase amount, as the relevant sales amount," the official said.

"The specific level of sanctions will be determined by the full commission … It will take into account market conditions in the government bond sector, the broader impact of the case and the financial conditions of the firms involved."

The case centers on Korea's primary dealer system, under which selected financial institutions receive exclusive access to government bond auctions in exchange for market-making obligations, including providing continuous price quotations in the secondary market.

The regulator is expected to begin hearings before its full commission later this month, with a final ruling expected as early as next month. The commission will determine whether to impose sanctions and their level after reviewing the case.