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1
Non-Competitive Subscription Practices in Primary Dealer Systems
Gemloc Peer Group Survey Analysis
December 2009
2
The Gemloc Peer Group Survey Analysis – “Non-Competitive Subscription Practices in
Primary Dealer Systems” – was produced under the Gemloc Peer Group Dialogue program
(www.gemloc.org). The views published should not be attributed to the World Bank or any
affiliated organizations. Nor do any of the conclusions represent official policy of the World
Bank or of its Executive Directors or the countries they represent.
Survey responses were consolidated and analyzed by Tamar Loladze ([email protected]), with
technical supervision provided by Anderson Silva ([email protected]) and Baudouin
Richard ([email protected]). Please refer to Annex 2 for the list of contributors to the
survey and their contact information.
3
I. Introduction
In light of the financial crisis and increased government borrowing needs, Debt Management
Offices (DMOs) are increasingly reliant on primary dealers (PDs) to meet their obligations and
support DMOs’ objectives. One of the key incentives DMOs can use to motivate PDs to improve
their performance is the practice of non-competitive subscriptions (NCS).
Though NCS practices vary widely across countries, the central premise of NCS is to grant PDs
a right to purchase additional amount of securities through a non-competitive process as a reward
for their active participation in competitive auctions. A NCS has a cash value for PDs, as it is
technically a call option at a fixed price. It serves as a tool DMOs can use to increase
competition among PDs, thereby decreasing the risk of collusion. Importantly, NCS do not raise
DMOs’ cost of funding, provided their amount is not too large and their exercise period is not
too long.
NCS was chosen as a topic for discussion at the July 20th, 2009 Gemloc Peer Group Dialogue1
meeting. The NCS survey was conducted as a follow up to that meeting with the purpose of
mapping NCS practices of Pilot Peer Group member countries2 along several key aspects. The
ultimate objective of the survey is to serve as a reference guide and learning tool for the
countries as they strive to modify or improve their practices.
The survey results are organized in tables 1-3 below along the following three broad categories:
General Information on Primary Dealers Systems; NCS Timing and Eligibility; and NCS
Allocation and Pricing. Annex 1 provides detailed country-by-country information.
II. Survey Findings and Analysis
1. General Information on Primary Dealer Systems (Table 1)
The purpose of the questions in this section was to establish a general understanding of some of
the basic features of the countries’ primary dealer systems. We found that most countries (7 out
of 9) have a single, homogenous group of PDs with more or less the same rights and obligations.
The exceptions were Brazil and Malaysia, where PDs are divided into two groups based on
market (primary vs. secondary) and product (conventional vs. Sukuk) specialization,
1 Gemloc Peer Group Dialogue (PGD) is an initiative within the Gemloc Advisory Services program, which brings
together and facilitates technical discussions among emerging market countries on critical issues in development of
local currency government debt markets. PGD activities include (i) periodic meetings via teleconference and web-
meeting guided by World Bank experts and consultants; and (ii) production of background materials, presentations,
and surveys on key topics, all of which are disseminated via the PGD website. Participants include representatives
from different combinations of approximately 33 emerging market countries, depending on the topic being
discussed. 2 The Gemloc Pilot Peer Group members are emerging market countries with the largest bond markets: Brazil,
Colombia, Hungary, India, Malaysia, Mexico, Poland, South Africa, and Turkey. (China, though eligible, has not
been an active member of the Peer Group). The July 20th
Peer Group meeting also included Italy as a guest
participant from a mature market; Italy was therefore also invited to take part in the survey.
4
respectively. Four of the countries have a closed auction format, granting PDs exclusive access
to competitive auctions (CA), while the other five have an open auction format, allowing other
entities, such as financial and public institutions, to also participate in CAs. Most of the Peer
Group countries have a NCS system for PDs (7 out of 9) with the exception of India and
Malaysia. The NCS system in Colombia is only available for long-term securities with maturities
equal to or longer than 1 year.
2. NCS Timing and Eligibility3(Table 2)
Post auction NCS is the most predominant practice among the 7 countries that offer NCS to PDs.
Two of these countries also offer NCS before (Turkey) and during (Hungary) the CA.
The exercise, or access, period is defined as the time between the end of the CA (determination
of prices) and the deadline by which non-competitive bids have to be submitted. It ranges from
1.5 to 2 hours (Brazil, Hungary, Poland) to around 1 day (Mexico, South Africa, Turkey).
Colombia stands out of this range with 12 days (see chart below).
Participation in post auction NCS is a PD’s exclusive right in all the Peer Group countries.
However, this right is always subject to some eligibility criteria. The most common criterion
requires PDs to have some accepted bid(s) at the corresponding CA. A few countries have
different or additional criteria, such as achieving a certain ranking or level of performance
among the PD group (Colombia and Mexico). Turkey applies a unique criterion, whereby NCS is
only available to those PDs who submitted bids above the average CA price.
3. NCS Allocation and Pricing (Table 3)
3 This and the following section focus on the 8 countries that offer NCS to PDs, excluding India and Malaysia.
1.5 1.5 221.5 24 25
288
0
50
100
150
200
250
300
350
Brazil Hungary Poland Mexico South Africa
Turkey Colombia
NCS Access Period(Number of hours)
5
The amount allocated to NCS is usually quantified as a certain percentage of the corresponding
CA amount, which is either the announced amount (Brazil, Poland) or the issued amount
(Colombia, Hungary, Mexico, and South Africa). The amount allocated ranges from 15% (South
Africa) to 25% (Mexico). Colombia stands out of this range with 100% (see chart below). A
specific regime is applied in Turkey, whereby the amount is equal to 40% of the net amount
purchased by PDs above the average price in the CA. Brazil makes a distinction by instruments
(fixed rate and inflation linked vs. floating rate bonds), while Hungary and Turkey apply a
distinction by timing of the NCS (before/during vs. post CA).
The amount allocated to each PD is generally a function of the share of the PD’s successful bids
in the CA. South Africa has equal allocation among PDs. A specific regime is applied in Turkey
(see above). Brazil, Colombia, and Mexico incorporate PDs’ performance ranking into the
method of allocation.
The practice of setting the exercise price varies according to the type of auction used for the CA.
Almost all the countries use a multiple price auction and correspondingly set the NCS exercise
price as the weighted average price of the auction. Mexico makes a distinction based on the type
of instrument, whereby NCS price for all securities except for T-bills is the cutoff (lowest
successful) price of the CA. South Africa uses the cutoff price for all securities, while Colombia
uses the weighted average price of all transactions for the auctioned security on the day of the
CA, including the cutoff CA price and secondary market transactions.
4. Comparison with Italy
By comparison, Italy has a relatively low total NCS allocation (10% of the amount announced
unless it is the first tranche of a bond in which case it is 25%) and a relatively long access period
(28.5 hours). Allocation among PDs is based on PDs’ average share in the previous three CAs. A
trend is currently emerging in some European markets to lengthen the NCS access period. A few
DMOs have now extended it up to 7 calendar days.
1520 20
2530
40
100
0
20
40
60
80
100
120
South Africa
Brazil Poland Mexico Turkey Hungary Colombia
Total NCS Allocation (as maximum % of the amount of the competitive auction)
6
III. Survey Results Tables
Table 1: General Information on Primary Dealer Systems
Brazil Colombia Hungary India Malaysia Mexico Poland South
Africa
Turkey Italy*
Number of PD groups Two1 One
2 One
3 One Two
4 One One One One One
PDs have exclusive
access to competitive
auctions (CA)
N5 Y Y N
6 Y N
7 Y
8 Y N
9 N
10
Non-competitive
subscription (NCS)
system for PDs exists
Y Y11
Y N12
N Y Y Y Y Y
* Italy served as a guest participant in the July 2009 Peer Group Dialogue and, therefore, was invited to take part in the survey.
Notes: 1. Brazil: There are 2 primary dealer groups: Primary Dealers (PDs), whose primary focus is on primary auctions and money market operations, and Specialist
Dealers (SDs), who act as liquidity providers, with a primary focus on secondary market operations. However, both PDs and SDs are expected to participate
and are evaluated according to their performance in all activities (primary auctions, secondary market, and money market operations) but with a higher
weight given to primary market and secondary market participation for PDs and SDs, respectively.
2. Colombia: The PD group is divided into two sub-groups – Market Makers (MM) and Candidates for Market Makers (CMM); however, they have the same
obligations and are evaluated based on the same criteria: primary market participation (20%), secondary market participation (40%) and presence on the
screen (40%). The difference is that MMs receive higher benefits than CMMs. Currently, there are 10 MMs and 4 CMMs. At the end of each year, all 14
PDs are ranked on their performance and the top ten PDs become MMs for the following year, while the rest become CMMs. As a result, there is continuous
competition to achieve highest performance and the top 10 ranking. The PDs only participate in the placement of Treasury bonds – securities with maturities
equal to or longer than 1 year.
3. Hungary: Within the PD group, there is a sub-group “retail PDs” that is responsible for the placement of Interest Bearing T-bills, retail paper.
4. Malaysia: There are 2 primary dealer groups: Primary Dealers (PDs), who transact in both conventional and Sukuk securities, and Islamic Principal Dealers
(i-PDs), who transact only in Sukuks.
5. Brazil: Any financial institution can participate in competitive auctions.
7
6. India: In addition to PDs, any domestic entity/individual (and some categories of non-residents) can participate in competitive auctions. However, the issue
of granting PDs exclusive access has been under discussion.
7. Mexico: In addition to PDs, brokerage houses, banks, mutual funds, and other national entities duly authorized by the Central Bank can participate in
competitive auctions.
8. Poland: PDs have exclusive access to competitive auctions with the only exception being the state-owned bank BGK, which performs special tasks for the
Treasury.
9. Turkey: In addition to PDs, all retail and corporate investors can participate in competitive auctions.
10. Italy: In addition to PDs, the following entities can also participate in competitive auctions: Italian, EU, and non-EU banks, financial brokers, and EU and
non-EU investment companies.
11. Colombia: NCS system only applies to long-term securities with maturities equal to or longer than 1 year.
12. India: India has a NCS system for retail investors that lack the skill to bid competitively. Eligible investors can be individuals or firms that satisfy the
following conditions: 1) Do not maintain current account or Subsidiary General Ledger account with the Reserve Bank of India (RBI). 2) Make a single bid
for an amount no more than Rs. two crore (face value) per auction. 3) Submit their bid indirectly through any bank or PD offering this scheme. NCS bids are
submitted by banks/PDs on behalf of their retail clients to RBI 1 hour prior to the start of the competitive auction. The total allocation to NCS is 5% of the
notified amount. If the aggregated amount of bids exceeds the allocated amount (5%), then allotment to bidders is made on a pro rata basis. If the aggregate
amount of bids is less than the allocated amount, the shortfall will be added to the amount allocated to the competitive auction. NCS bids are fulfilled at the
weighted average rate of the price that will emerge in the competitive auction.
8
Table 2: NCS Timing and Eligibility
Brazil Colombia Hungary Mexico Poland South Africa Turkey Italy
NC bids submitted
during or before
the CA
N N Y – during1 N N N Y – before
2 N
NC bids
submitted
after the
CA
(Y/N) Y Y Y Y Y Y Y3
Y
Access
period4
1.5 hours 12 calendar
days 1.5 hours 21.5 hours
5 2 hours
6 24 hours
24.5 / 25
hours7
28.5 hours
PDs have exclusive
access to NCS Y Y Y Y Y Y
NCS before
the CA: N8
NCS after
the CA: Y
Y
Eligibility criteria
to participate in
NCS
Dealers must
meet their
targets.9
PDs are
required to
have accepted
bids in the CA
but SDs are
not.
NCS open to
MMs only:
must be part
of the
Market
Makers
(MMs)
group -- top
10 group of
PDs based
on previous
year’s
ranking. In
addition,
must have
accepted
bids in the
CA.
NCS open to
all PDs: both
NCS during
the CA: all
PDs are
eligible
NCS after
the CA: PDs
must have
accepted
bids in the
CA
PDs must
achieve 7% in
the Market
Maker Index
measure.10
PDs must have
accepted bids
in the CA
PDs must have
submitted
minimum
bids11
and
received
allotment of
some amount
in the CA.
NCS before
the CA: No
specified
criteria for
PDs. All
PDs can
participate.
NCS after
the CA:
Only those
PDs who
submitted
bids above
the average
price in the
CA.
PDs must
participate in
the CA and
must have a
successful bid
at least in one
of the 3
previous CAs
(including the
one
immediately
preceding the
NCS) for the
same security
type and
maturity
segment.
In addition, for
securities with
maturity of 2
9
Brazil Colombia Hungary Mexico Poland South Africa Turkey Italy
MMs and
Candidates
for Market
Makers
(CMMs) can
participate.
Must be
ranked top
10 for
secondary
market
performance
in the current
year.
years or less,
PDs must
make at least
one non-
speculative
bid.12
Notes: 1. Hungary: The first opportunity to purchase government securities on a non-competitive basis occurs during the competitive auction when PDs can buy an
additional (but limited) amount at the average auction price.
2. Turkey: Non-competitive bids are submitted up to 1.5 hours before the competitive auction. Total NCS allotment and allocation among PDs is announced 1
hour before the competitive auction.
3. Turkey: The NCS system that takes place after the competitive auction is referred to as “option bids,” while the one before the auction as “non-competitive
bids.”
4. Access Period – defined as the time between the end of the competitive auction (determination of prices) and the deadline by which non-competitive bids
have to be submitted.
5. Mexico: Competitive auction results are released at 11:30 am. The deadline for submitting NCS bids is 9:00 am on the following business day. However,
PDs have only a 10 minute window to submit their NCS bids – between 8:50 and 9:00 am.
6. Poland: The decision on whether a NCS will take place is announced 1 hour after the competitive auction, after which the PDs have 1 hour to submit their
non-competitive bids.
7. Turkey: Competitive auction results are released between 1:00 and 1:30 pm. NCS bids can be submitted until 2:00 pm on the following day (t+1).
8. Turkey: In addition to PDs, non-bank public institutions can also participate in NCS.
9. Brazil: In order to participate in NCS, dealers must meet their targets, as follows:
Primary Dealers (PDs) – Dealers need to have minimum 4% participation in primary auctions in the previous month
Specialist Dealers (SDs) – Dealers need to: a) achieve minimum 8% market share for 3 securities chosen by the dealer among a list of securities established
by the National Treasury and Central Bank; b) provide electronic quotes for the 3 chosen securities for at least 20 minutes 20 times per month; and c) meet
specific rules to guarantee that bid-ask spreads remain within a market range.
10
10. Mexico: The calculation of the Market Makers Index can be found in the Rules for Markets Makers available (in Spanish) at
http://www.apartados.hacienda.gob.mx/ucp/ing/index.html (under Federal Government Domestic Debt, Market Makers, Rules for Market Makers).
11. South Africa: Minimum bid is a percentage ratio that equals: (1 / Number of PDs) + 2%
12. Italy: Non-speculative bid is defined as a bid with a yield that is equal to or lower than the “exclusion yield” calculated by the Treasury. The exclusion yield
establishes the maximum acceptable yield (minimum acceptable price) in order to avoid speculative requests. See Annex 1 for more details.
Table 3: NCS Allocation and Pricing
Brazil Colombia Hungary Mexico Poland South Africa Turkey Italy
Total NCS
allocation
amount
For fixed rate
and inflation
linked bonds:
20% of the
amount
announced
for the CA
For floating
rate bonds:
5% of the
amount
announced
for the CA
Up to 100%
of the amount
sold in the
CA: up to
50% for NCS
open to MMs
only and up to
another 50%
for NCS open
to all PDs
NCS during
the CA: 5-
20% of the
amount sold
in the CA,
depending on
the size of
the issue
NCS after
the CA: 0-
40% of the
amount sold
in the CA. 1
Up to 25% of
the total
amount sold
in the CA
Up to 20% of
the amount
announced for
the CA
Up to 15 % of
the total
amount sold
in the CA
NCS before
the CA: Up
to 30% of the
upper limit
of the CA. If
there is no
upper limit,
there is no
set
allocation.2
NCS after
the CA: Up
to 40% of the
net amount
purchased
above the
average price
in the CA.
For 12 and 6
month
discount T-
bills: 10 % of
the amount
announced
for the CA
For all other
securities:
25% of the
amount
announced
for the CA
for the first
tranche of
the bond;
10% for any
subsequent
tranche.
11
Brazil Colombia Hungary Mexico Poland South Africa Turkey Italy
NCS
allocation
among PDs
45% to
Primary
Dealers
55% to
Specialist
Dealers
Allocation is
based on each
dealer’s
overall
performance,
measured by
the Dealer
Performance
Index.3
NCS open to
MMs only:
in proportion
to the share
of their
successful
bids in the
CA.
NCS open to
all PDs:
according to
PDs’ ranking
for
secondary
market
performance
among the
top 10 PDs
for the
current year
NCS during
the CA:
Equal
allocation
among PDs.4
NCS after
the CA:
Each PD
may submit
NCS bids as
a percentage
of their
successful
bids in the
CA. All bids
less than or
equal to the
ceiling
announced
by the DMO
are satisfied.
Based on each
PD’s share of
qualified, or
computable,
bids5 in the
CA multiplied
by the NCS
amount
requested by a
PD.6
In proportion
to each PD’s
share of the
total amount
sold in the
CA.
Equal
allocation
among PDs
NCS before
the CA: PDs
receive the
same % of
the NCS bids
they
submitted
NCS after
the CA:
Eligible PDs
receive the
full NCS
amount they
requested (as
long as it is
up to 40% of
their
respective
net amount
purchased
above the
average price
in the CA.)
PDs are
rightfully
entitled to
receive up to
the amount
equal to the
average ratio
of their share
in the last
three CAs to
the total share
in those CAs
received by
the PDs
participating
in a given
NCS.7
PDs receive
the lesser of
the amount
they requested
through NCS
and the
amount to
which they are
rightfully
entitled.
12
Notes: 1. Hungary: The ratio (which is determined based on the CA demand) is made public after the CA and serves as a ceiling for PDs’ NCS bids.
2. Turkey: Sometimes the Treasury sets an upper limit for competitive auctions, which is the maximum amount the Treasury is willing to sell for a given bond
issue. When this is the case, the Treasury announces a set ratio or allocation for NCS, which cannot exceed 30% of the upper limit. The exact allocation
depends on the demand for a particular security, about which the Treasury learns by having PDs submit their non-competitive bids before the start of the
competitive auction. However, when there is no upper limit, which is the case in most auctions, the Treasury does not announce a set allocation and the non-
competitive amount can be at any volume that is deemed by the Treasury as convenient for a particular auction.
3. Brazil: See Annex 1 for further details.
4. Hungary: In the NCS that takes place during the competitive auction, all PDs receive an equal amount allocation, as follows: HUF 200 million per PD if
total issuance is less than HUF 41 billion or HUF 500 million per PD if total issuance is more than HUF 41 billion.
5. Mexico: Computable bids are calculated using a factor assigned to each PD based on the PD’s performance in the Market Maker program. By multiplying
this factor by the price a PD submitted in the CA, a slightly higher/lower price is achieved, at which the PD would have received a greater/lower share of the
overall CA amount. This amount is the PD’s computable bid. The PD’s share of computable bids is calculated by dividing this amount by total computable
bids of all PDs. (A detailed explanation of how computable bids are calculated can be found in the Rules for Market Makers.)
Brazil Colombia Hungary Mexico Poland South Africa Turkey Italy
NCS price Weighted
average CA
price
Weighted
average price
of all
transactions
for the
auctioned
security on the
day of the CA,
which takes
into account
both the cutoff
(lowest
successful)
price of the
CA and
secondary
market
transactions. 8
Weighted
average CA
price
For T-bills:
weighted
average CA
price
For T-bonds:
cutoff price
of the CA9
Weighted
average CA
price
Cutoff price
of the CA
Weighted
average CA
price
For T-Bills:
weighted
average
price
For all other
securities:
cutoff price
of the CA
13
6. Mexico: If NCS amount requested by PDs is not filled with this method, up to two more rounds of allocating the NCS amount can be held until all NCS bids
have been satisfied or the total NCS allocation (25% of the CA) has been distributed, whichever comes first. See Annex 1 for details.
7. Italy: In determining the NCS amount which PDs are rightfully entitled to receive, the competitive auction immediately preceding the NCS is included in
the last three competitive auctions.
8. Colombia: The price is published by a price vendor on the day after the CA.
9. Mexico: Treasury bills and bonds are auctioned according to a multiple price and uniform price auction, respectively.
14
Annex 1 – Complete Survey Results by Country
Brazil4
Brief description of
the PD system
The Primary Dealers System in Brazil is jointly regulated by the National Treasury
(NT) and the Central Bank (CB). It is aimed to enhance NT securities sales in the
primary market, facilitate CB open market operations and improve overall liquidity.
The system in Brazil is currently composed by 15 institutions, which are evaluated
every six months according to the following criteria: (i) primary market
participation (NT auctions), (ii) secondary market activity, and (iii) CB money
market operations. Based on a score card, those institutions with the poorest
performance are eventually removed and replaced by other institutions.
Number of PD
Groups
Two:
Primary Dealers (PD), whose primary focus is on primary auctions (executed by
the National Treasury) and money-market operations (executed by the Central
Bank); and
Specialist Dealers (SD), who are liquidity providers and whose primary focus is
on secondary market operations.
Although both PDs and SDs are evaluated according to the three criteria (primary
market, secondary market, and money market operations), primary market
participation has a higher weight for PDs, while secondary market participation has
a higher weight for SDs.
Out of 15 dealers, 4 belong exclusively to the PD group, 6 belong exclusively to the
SD group, and 5 are members of both groups.
PDs have exclusive
access to competitive
auctions (CA)
No. Any financial institution can participate.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
4 Because Brazil led the discussion on non-competitive subscription practices in the July Gemloc Peer Group
Dialogue and because the Brazilian DMO is currently critically engaged in assessing and introducing improvements
to its primary dealer system, including NCS practices, Brazil has provided some additional information and insights
that may be of interest to the peer group.
15
Access period
5 1.5 hours. Competitive auctions take place on a weekly basis, every Thursday
between noon and 1pm, with results released at 2:30pm. If the total amount offered
is sold, dealers whose targets have been met can acquire a certain amount of
securities on a non-competitive basis until 4pm at the average auction price. Both
competitive and non-competitive auctions settle on the following day (T+1).
PDs have exclusive
access to NCS
Yes
Eligibility criteria to
participate in NCS
Dealers must meet their targets, as follows:
PDs – Dealers need to have minimum 4% participation in primary auctions in the
previous month
SDs – Dealers need to: a) achieve minimum 8% market share for 3 securities
chosen by the dealer among a list of securities established by the NT and CB; b)
provide electronic quotes for the 3 chosen securities for at least 20 minutes 20
times per month; and c) meet specific rules to guarantee that bid-ask spreads
remain within a market range
In addition, PDs are required to have accepted bids in the CA. However, this is not
a requirement for SDs.
Total NCS allocation
amount
20% of the amount announced for the CA for fixed rate and inflation linked
bonds
5% of the amount announced for the CA for floating rate bonds
NCS allocation
among PDs
45% to Primary Dealers
55% to Specialist Dealers
Allocation within each group is based on each dealer’s overall performance,
measured by the Dealer Performance Index. For example, for the PD group, the
institution with the most outstanding participation in the primary auctions gets the
biggest share of the 45%; the second biggest participation gets a little less, and so
on. The same rationale applies for the SD group in terms of their trading activity in
the secondary market.
This mechanism not only encourages dealers to meet their minimum targets, but
also to go beyond them, as dealers’ NCS benefit increases with the improvement in
their performance.
5 Access period is defined as the time between the end of the competitive auction (determination of prices) and the
deadline by which non-competitive bids have to be submitted. It is applicable for NCS systems that have NC bids
submitted after the competitive auction.
16
Dealer Performance Index (DPI) Calculation
Primary Dealers:
The DPI for a PD for a specific month is based on the PD’s participation in the
previous month’s auctions relative to a benchmark index of 8%, limited to a factor
of one. For example, for August´09 the DPI for a PD “X” is:
1;%8
(%)X
JulyX
August
ionParticipatAuctionMínDPI
Once the DPI is calculated, the amount allocated for each dealer “X” in the group of
primary dealers which met their targets (“Z”) for a specific auction Y is:
ZindealersbyYAuctiononionParticipatOverall
XdealerbyYAuctiononionParticipat
DPI
DPIAllocation
Zz
z
August
X
AugustX
August
x
Thus, to receive a positive NCS allocation, PDs, in addition to meeting their targets,
are required to participate in the CA immediately preceding the non-competitive
auction.
Specialist Dealers:
The DPI for a SD for a specific month is based on the SD’s average market activity
in the previous month in 3 securities chosen by the dealer relative to a benchmark
index of 12%, limited to a factor of one. For example, for August´09 the DPI for a
SD “W” is:
1;3
%12
(%)3
%12
(%)2
%12
(%)1 BondActivityMarketBondActivityMarketBondActivityMarket
MínDPIW
August
Once the DPI is calculated, the amount allocated for each dealer “W” in the group
of SDs which met their targets (“V”) for a specific auction Y is:
Vv
v
August
W
AugustW
AugustDPI
DPIAllocation
Unlike PDs, SDs are not required to participate in the CA immediately preceding
the non-competitive auction in order to receive a positive NCS allocation, as long as
they have met their targets.
NCS price Weighted average CA price
17
Moving Forward The NT and CB are considering making certain improvements to the primary dealer
system to achieve increased participation of institutions in primary and secondary
public debt markets. They are in discussion with the dealers about possible
measures that could help increase the efficiency of the PD system. These might
include:
Merger of both groups of dealers into one single group. The idea is to
strengthen the link between the primary and secondary markets, which is
formally done nowadays only by the five institutions which belong
simultaneously to both groups of dealers.
Increase the number of bids that dealers can submit in the auction relative
to a non-dealer institution. Currently, each institution (dealer or non-dealer) can
submit up to 5 bids in competitive auctions. This measure would, for instance,
allow dealers to submit 7 bids, with non-dealers allowed to submit only 3 bids.
The measure would thus be an exclusive benefit for dealers and, eventually, may
help improve dealers’ ability to accommodate client subscriptions. Moreover, the
measure can provide dealers with more possibilities to segment their bids during
the auction. This added benefit is expected to increase the interest of institutions
to become primary dealers.
Increase the share allocated to non-competitive subscriptions. By increasing
the amount of bonds that dealers can buy at the average auction price, this
measure increases the size of the option that the dealers enjoy. It is intended to
motivate dealers to meet their targets in terms of participation in primary
auctions and secondary market activity.
Extend the access period during which the dealer can submit NCS bids and
acquire additional securities. Similar to the previous measure, this one also
intends to motivate dealers to meet their targets. However, instead of increasing
the size of the option, it increases the value of the option by increasing the
expected volatility of the bond price.
Simplify the PD system
Other Information http://www.tesouro.fazenda.gov.br/english/public_debt/domestic_market.asp
18
Colombia
Brief description of
the PD system
In 1997, Colombia established a Market Makers scheme, which has had several
amendments over the course of last 10 years. The scheme is used only for the
placement of Treasury bonds – securities with maturities equal to or longer than 1
year.
The program consists of two sub-groups: Market Makers (MMs) and Candidates for
Market Makers (CMMs). They have the same obligations are evaluated based on
the same criteria: primary market participation (20%), secondary market
participation (40%), and presence on the screen (40%). The difference is that MMs
receive higher benefits than CMMs. Currently, there are 10 MMs and 4 CMMs. At
the end of each year, all 14 PDs are ranked on their performance and the top ten
PDs become MMs for the following year, while the rest become CMMs. As a result,
there is continuous competition to achieve highest performance and the top 10
ranking.
PDs perform their operations using an electronic system facilitated by the Central
Bank.
Number of PD
Groups
One.
PDs have exclusive
access to competitive
auctions (CA)
Yes
Non-competitive
subscription (NCS)
system for PDs exists
Yes, but only for securities with maturities equal to or longer than 1 year.
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
Access period
12 calendar days. The CA is held on Wednesday. NCS bids can be submitted up
until Monday 12 days following the CA.
PDs have exclusive
access to NCS
Yes
Eligibility criteria to
participate in NCS
NCS open to MMs only: must be part of the MM group -- top 10 group of PDs
based on previous year’s ranking. In addition, must have accepted bids in the
CA.
19
NCS open to all PDs: both MMs and CMMs can participate. Must be ranked top
10 for secondary market performance in the current year.
Total NCS allocation
amount
Up to 100% of the amount sold in the CA: up to 50% for NCS open to MMs
only and up to another 50% for NCS open to all PDs
NCS allocation
among PDs
NCS open to MMs only: in proportion to the share of their successful bids in the
CA.
NCS open to all PDs: according to PDs’ ranking for secondary market
performance among the top 10 PDs for the current year
NCS price
Weighted average price of all transactions for the auctioned security on the day of
the CA, which takes into account both the cutoff (lowest successful) price of the CA
and secondary market transactions. The price is published by a price vendor on the
day after the CA.
Other Information
20
Hungary
Brief description of
the PD system
The Hungarian primary dealer system was introduced in 1996. Currently there are
11 primary dealers, of which 9 are local banks or local subsidiaries of foreign banks
and 2 are remote primary dealers that fulfill their responsibilities via their local
branch(es).
The main objectives of the system are to ensure that government securities are
easily accessible for investors, to provide a solid basis for the financing of the
central government, and to improve the transparency and liquidity of the secondary
market.
One of the basic responsibilities and, at the same time, an exclusive right of primary
dealers is to actively participate in the placement and trading of Hungarian
government securities. Another basic task of PDs is to quote, on a continuous basis,
two-way prices for government bonds and T-Bills. Furthermore, PDs are obliged to
provide certain services for investors and the Government Debt Management
Agency (AKK). Rights and obligations are defined in a Primary dealer contract.
Number of PD
Groups
One.
However, there is a subgroup within the primary dealers, the so-called retail
primary dealers, who take part in the placement of the Interest Bearing Treasury
Bill (a retail paper).
PDs have exclusive
access to competitive
auctions (CA)
Yes. Exclusive access compensates PDs for their obligations and makes PD
membership more attractive.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
Yes – during. The first opportunity to purchase government securities on a non-
competitive basis occurs during the competitive auction when PDs can buy an
additional (but limited) amount at the average auction price.
NC bids are
submitted after the
CA.
Yes. The NCS after the CA was introduced in early 2009 in order to increase the
flexibility of AKK in local issuance. Using this tool, AKK can react to the changes
in demand more efficiently without stressing the market with the announcement of
large auctions.
Access period
1.5 hours
PDs have exclusive
access to NCS
Yes. This increases the exclusivity of the primary dealer membership.
Eligibility criteria to
participate in NCS
NCS during the CA: all PDs are eligible
NCS after the CA: PDs must have accepted bids in the CA
21
Total NCS allocation
amount
NCS during the CA: 5-20% of the amount sold in the CA, depending on the size
of the issue
NCS after the CA: 0-40% of the amount sold in the CA. The ratio, determined
based on the CA demand, is made public after the CA and serves as the ceiling
for PDs’ NCS bids.
NCS allocation
among PDs
NCS during the CA: Equal allocation among PDs, as follows: HUF 200 million
per PD if total issuance is less than HUF 41 billion or HUF 500 million per PD if
total issuance is more than HUF 41 billion.
NCS after the CA: Each PD may submit NCS bids as a percentage of their
successful bids in the CA. All bids less than or equal to the ceiling announced by
the DMO are satisfied.
NCS price
Weighted average CA price
Other Information http://www.akk.hu/object.e1818f95-2006-4f24-ad88-d8a55d71b896.ivy
22
India
Brief description of
the PD system
There are currently 19 PDs, 11 of which are commercial banks and the remaining
are non-bank financial companies that do PD business exclusively. PDs are required
to underwrite 100% of primary auction issuances, for which they are paid
underwriting commission. The latter is determined for each issuance through
separate competitive auctions among PDs. In the secondary market, PDs are
expected to provide liquidity through two-way quotes. All PDs can access the
Central Bank for overnight funds.
Number of PD
Groups
One. Though all PDs have the same rights, obligations and functions, there is a
difference in the way they are regulated given that some PDs are banks while others
are non-bank financial institutions.
PDs have exclusive
access to competitive
auctions (CA)
No. In addition to PDs, any domestic entity/individual (and some categories of non-
residents) can participate in competitive auctions. However, the issue of granting
PDs exclusive access has been under discussion.
Non-competitive
subscription (NCS)
system for PDs exists
No. India has a NCS system for retail investors that lack the skill to bid
competitively. Eligible investors can be individuals or firms that satisfy the
following conditions:
1. Do not maintain current account (CA) or Subsidiary General Ledger (SGL)
account with the Reserve Bank of India (RBI). Exceptions: Regional Rural
Banks (RRBs) and Cooperative Banks in view of their statutory obligations.
2. Make a single bid for an amount no more than Rs. two crore (face value) per
auction.
3. Submit their bid indirectly through any one bank or PD offering this scheme.
Exceptions: RRBs and CBs that maintain CA and SGL account with the RBI are
eligible to submit their non-competitive bids directly.
NCS bids are submitted by banks/PDs on behalf of their retail clients to RBI 1 hour
prior to the start of the competitive auction. The total allocation to NCS is 5% of the
notified amount. If the aggregated amount of bids exceeds the allocated amount
(5%), then allotment to bidders is made on a pro rata basis. If the aggregate amount
of bids is less than the allocated amount, the shortfall will be added to the amount
allocated to the competitive auction. NCS bids are fulfilled at the weighted average
rate of the price that will emerge in the competitive auction.
NC bids are
submitted during or
before the CA
N/A
NC bids are
submitted after the
CA.
N/A
Access period
N/A
23
PDs have exclusive
access to NCS
N/A
Eligibility criteria to
participate in NCS
N/A
Total NCS allocation
amount
N/A
NCS allocation
among PDs
N/A
NCS price
N/A
Other Information http://rbidocs.rbi.org.in/rdocs/notification/PDFs/56AMI010709_FL.pdf
24
Malaysia
Brief description of
the PD system
The Central Bank of Malaysia (BNM) introduced the PD system in 1989 which
was part of the initiatives to develop the primary and secondary markets of public
debt securities. This includes building a stable demand for Government and BNM
issuances and improving trading of these papers in the secondary market.
Issuances from the Government and BNM comprise both conventional and
Islamic papers (Sukuks). Over the years, several changes were implemented to
make the PD system more robust and in line with the development of the
Malaysian financial market.
The increasing importance of Islamic finance and the prominent role played by
the Islamic banks in supporting this development has prompted BNM to
introduce the Islamic Principal Dealer (i-PD) system in July 2009 to complement
the role played by the PDs. Under the PD and i-PD system, BNM appoints
selected banking institutions as both PDs and i-PDs based on a set of criteria,
including their ability to handle large-volume transactions as measured by their
participation in the primary auctions, secondary market trading volumes and their
overall risk management capabilities.
PDs and i-PDs have the obligations of bidding for all Government and BNM
issuances in the primary market and to provide two-way price quotations for
benchmark securities under all market conditions to ensure liquidity in the
secondary market. For i-PDs, they are only required to bid for only Government
and BNM Sukuk. In addition, PDs are also required to bid for the money market
and repo auctions conducted by BNM from time to time.
Number of PD
Groups
Two:
Primary Dealers (PDs) that transact in both conventional and Sukuk securities;
and
Islamic Principal Dealers (i-PDs) that transact only in Sukuks
PDs have exclusive
access to competitive
auctions (CA)
Yes. This is to ensure full subscription at competitive rates
Non-competitive
subscription (NCS)
system for PDs exists
No
NC bids are
submitted during or
before the CA
N/A
NC bids are
submitted after the
CA.
N/A
Access period N/A
25
PDs have exclusive
access to NCS
N/A
Eligibility criteria to
participate in NCS
N/A
Total NCS allocation
amount
N/A
NCS allocation
among PDs
N/A
NCS price
N/A
Other Information http://bondinfo1.bnm.gov.my/portal/server.pt
26
Mexico
Brief description of
the PD system
The Central Bank (Banco de México) is the Federal Government’s financial agent in
charge of the primary dealer coordination system. Different types of securities are
placed weekly via primary auction, according to the quarterly schedule released by
the Ministry of Finance and Public Debt Office (Secretaría de Hacienda y Crédito
Público).
The auction takes place regularly on Tuesdays from 10:00 AM to 11:00 AM and the
results are released at 11:30 AM. The different government securities – Cetes for
28, 91, 182 and 364 days (zero coupon bonds), Bonos M for 3, 5, 10, 20, and 30
years (fixed rate bonds), Udibonos for 3, 10, and 30 years (inflation-linked bonds),
and Bonde D for 5 years (floating rate bonds) – are offered alternatively each week.
There are two ways of submitting auction bids: via the SIAC system (electronic
bids) or postal system (physical bids). Also, two auction types are used: multiple
and uniform price.
Number of PD
Groups
One
PDs have exclusive
access to competitive
auctions (CA)
No. In addition to PDs, brokerage houses, banks, mutual funds, and other national
entities duly authorized by the Central Bank can participate in competitive auctions.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
Access period
21.5 hours. Competitive auction results are released at 11:30 am. The deadline for
submitting NCS bids is 9:00 am on the following business day. However, PDs have
only a 10 minute window to submit their NCS bids – between 8:50 and 9:00 am.
PDs have exclusive
access to NCS
Yes
Eligibility criteria to
participate in NCS
PDs must achieve 7% in the Market Maker Index measure. The calculation of the
Market Makers Index can be found in the Rules for Markets Makers available (in
Spanish) at http://www.apartados.hacienda.gob.mx/ucp/ing/index.html (under
Federal Government Domestic Debt, Market Makers, Rules for Market Makers).
27
Total NCS allocation
amount
Up to 25% of the total amount sold in the CA
NCS allocation
among PDs
Based on each PD’s share of qualified, or computable, bids in the CA multiplied by
the total NCS amount allocation (25% of the CA). Computable bids are calculated
using a factor assigned to each PD based on the PD’s performance in the Market
Maker program. By multiplying this factor by the price a PD submitted in the CA, a
slightly higher/lower price is achieved, at which the PD would have received a
greater/lower share of the overall CA amount. This amount is the PD’s computable
bid. The PD’s share of computable bids is calculated by dividing this amount by
total computable bids of all PDs. (A detailed explanation of how computable bids
are calculated can be found in the Rules for Markets Makers.)
If the amount requested by PDs is not filled with this method and there is still some
amount remaining from the total amount allocated to NCS, each PD receives an
additional amount calculated as the lesser of:
The difference between the total NCS amount requested by a PD and the amount
the PD received based on the first method; and
Each PD’s share of computable bids in the CA multiplied by the amount needed
to reach the total NCS amount allocation (25% of the CA).
If, after this second method, the NCS amount requested by PDs is still not filled and
there is still some amount remaining from the total NCS allocation, a third method
is applied: The remaining unfulfilled amount is allocated among those PDs whose
requested NCS amounts have not been filled according to each PD’s share of
computable bids; those PDs who have reached their requested amounts are removed
from this last step.
The Central Bank is responsible for choosing the method to achieve the NCS
allocation and can change the method at any time if it deems so necessary. Detailed
rules on the NCS allocation can be found in the Regulation for Placement of
Government Securities available (in Spanish) at
http://www.banxico.gob.mx/tipo/disposiciones/Circular2019/anexo06.html.
NCS price
For Treasury bills, which are auctioned according to a multiple price auction:
weighted average CA price
For Treasury bonds, which are auctioned according to a uniform price auction:
the cutoff (lowest successful) price of the CA
Other Information http://www.apartados.hacienda.gob.mx/ucp/ing/index.html
28
Poland
Brief description of
the PD system
The System of Treasury Securities Dealers (TSDs) was introduced at the beginning
of 2003. It limited the access to the Treasury Securities (TS) primary market to
entities with the TSD status. The TSD System was implemented in order to ensure
financing of the borrowing requirements of the State budget and to improve liquidity,
transparency, and effectiveness of the TS market.
Entities eligible to apply for TSD status are limited to Polish and foreign banks,
which meet requirements stated in Rules and Regulations Governing the Activities of
the TSD for a given year. The document sets forth the rules and criteria for TSD
selection. Selection criteria include: (i) primary market activity (TSDs only) (ii)
secondary market performance (share of each candidate in different market
segments), and (iii) other areas, such as daily quoting of benchmarks, participating in
everyday Treasury bond fixing, and broad-based cooperation with the Minister.
In 2009 the Minister of Finance appointed 11 Treasury Securities Dealers.
Number of PD
Groups
One
PDs have exclusive
access to competitive
auctions (CA)
Yes. The only exception is the state-owned bank BGK, which performs special tasks
for the Treasury.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
Access period
2 hours. The decision on whether a NCS will take place is announced 1 hour after the
competitive auction, after which the PDs have 1 hour to submit their non-competitive
bids.
PDs have exclusive
access to NCS
Yes
Eligibility criteria to
participate in NCS
PDs must have accepted bids in the CA
29
Total NCS allocation
amount
Up to 20% of the amount announced for the CA
NCS allocation
among PDs
In proportion to each PD’s share of the total amount sold in the CA
NCS price
Weighted average CA price
Other Information http://www.mf.gov.pl/?const=1&lang=en
http://www.mf.gov.pl/_files_/dlug_publiczny/primary_dealers/regulationspd2009.pdf
30
South Africa
Brief description of
the PD system
As of 2009, there are 9 primary dealers who have the exclusive right to participate
in primary auctions. PDs are banking institutions that have a banking license and
are supervised by the central bank. They must be domicile in South Africa or have a
representative office if they do not meet this requirement. They should have at least
zar1 billion of tier 1 and 2 capital standards as defined under the Basle Accord. Any
bank that meets the basic requirements may apply and subsequently be appointed as
a PD after the due diligence process is completed and the Registrar of Banks is
satisfied beyond reasonable doubt that the applying PD will be able to fulfill PD
functions. The Minister of Finance provides the final approval of the PD
application.
Number of PD
Groups
One
PDs have exclusive
access to competitive
auctions (CA)
Yes
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
Access period
24 hours
PDs have exclusive
access to NCS
Yes
Eligibility criteria to
participate in NCS
PDs must have submitted minimum bids and received allotment of some amount.
Minimum bid is a percentage ratio that equals: (1 / Number of PDs) + 2%
Total NCS allocation
amount
Up to 15 % of the total amount sold at the CA
NCS allocation
among PDs
Equal allocation among PDs
NCS price
Weighted average CA price
Other Information http://www.treasury.gov.za/divisions/alm
31
Turkey
rief description of the
PD system
By giving certain rights and obligations to a group of professional intermediaries,
the purpose of the Primary Dealership System is to reduce rollover risk, broaden the
investor base, constitute a transparent, competitive, and more organized market, as
well as increase liquidity and reduce volatility in the secondary market of
government securities. There are 12 primary dealers for the 2009-2010 term. The
following are PDs’ main privileges and obligations:
Privileges:
PDs are exempt from the collateral requirement for participation in auctions
PDs have the right to submit non-competitive bids before the auctions
PDs have the right to submit option bids after an auction till 14.00 P.M. on the
issue date
PDs have the exclusive right to participate in buyback and switching auctions
Obligations:
PDs must purchase at least 3% in each month and at least 5% in each three month
period, on net basis, of the securities issued or programmed to be issued by
Treasury. The purchases through option bids and 3 month reference auctions will
not be taken into account in the calculation of these obligations.
PDs must quote continuous bid and offer prices on every trading day for
benchmark securities at the Istanbul Stock Exchange Bonds and Bills Market
Number of PD
Groups
One
PDs have exclusive
access to competitive
auctions (CA)
No. In addition to PDs, all retail and corporate investors can participate in
competitive auctions. The Turkish Treasury chooses not to grant exclusive excess to
PDs to competitive auctions, as it is not in line with its debt management objective
of broadening the investor base.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
Yes – before. This is the first opportunity to purchase government securities on a
non-competitive basis, referred to as “non-competitive bids.” Non-competitive bids
are submitted up to 1.5 hours before the competitive auction. Total NCS allotment
and allocation among PDs is announced 1 hour before the competitive auction.
Rationale: PDs need to guarantee certain amount of purchase over the average price
before the auction.
NC bids are
submitted after the
CA.
Yes. This is the second opportunity to purchase securities on a non-competitive
basis, referred to as “option bids.”
Access period
24.5 / 25 hours. Competitive auction results are released between 1:00 and 1:30 pm.
NCS bids can be submitted until 2:00 pm on the following day (t+1).
32
PDs have exclusive
access to NCS
NCS before the CA: No. In addition to PDs, non-bank public institutions are also
allowed to participate in NCS. This is because these institutions do not have the
capacity to bid in competitive auctions and are, therefore, allowed to purchase
government securities via NCS at the average CA price.
NCS after the CA: Yes
Eligibility criteria to
participate in NCS
NCS before the CA: all PDs are eligible. No specified criteria. Rationale: There
are already specific eligibility criteria for being a PD. Therefore, there is no need
for further criteria for participating in NCS.
NCS after the CA: Only those PDs who submitted bids above the average price
in the CA.
Total NCS allocation
amount
NCS before the CA: Up to 30% of the upper limit of the CA. If there is no upper
limit, there is no set allocation.
Sometimes the Treasury sets an upper limit for competitive auctions, which is the
maximum amount the Treasury is willing to sell for a given bond issue. When this is
the case, the Treasury announces a set ratio or allocation for NCS, which cannot
exceed 30% of the upper limit. The exact allocation depends on the demand for a
particular security, about which the Treasury learns by having PDs submit their
non-competitive bids before the start of the competitive auction. However, most
auctions do not have an upper limit, given the volatility of demand, especially after
a crisis. When this is the case, the Treasury does not announce a set allocation and
the non-competitive amount can be at any volume that is deemed by the Treasury as
convenient for a particular auction.
NCS after the CA: Up to 40% of the net amount purchased above the average
price in the CA.
NCS allocation
among PDs
NCS before the CA: PDs receive the same percent of the NCS bids they
submitted
NCS after the CA: Up to 40% of the respective net amount purchased above the
average price by each PD in the CA. Example:
Nominal Price Net
Bank A 1,000 107 1,070
Bank B 1,000 106 1,060
Bank C 1,000 105 1,050
Bank D 1,000 104 1,040
Bank A 1,000 100 1,000
If the first 4 bids are accepted at the auction, the average price would be 105.5.
Only Bank A and Bank B have the right to participate in the option bid, or the
post-auction NCS, because they had successful bids above the average price.
Bank A can purchase up to 1,070*0.4=428 (net amount)
Bank B can purchase up to 1,060*0.4=424 (net amount)
NCS price Weighted average CA price
33
Other Information Primary Dealership Contract
34
Italy6
Brief description of
the PD system
Italian Government Bond Specialists are Primary Dealers selected by the Treasury
Department in order to guarantee a high level of efficiency and transparency in the
Italian government securities market. The Treasury expects each PD to:
Participate with continuity and efficiency in the government securities auctions
Contribute to the efficiency of the secondary market and not compromise the
orderly process of market trading
Possess an organizational structure suitable for the status of Government Bond
Specialist which has to be a dealer able to buy and distribute government bonds
in large size
Contribute to public debt management and debt issuance policy choices,
including through advisory and research activities
Respect the confidentiality of information to which PDs have access
In order to maintain their PD status, PDs must meet the following market and
organizational requirements:
Market requirements:
Maintain a share of the primary market of government securities equal to at least
3% of the total annual issuance through auctions
Maintain an efficient participation in the secondary market
Organizational requirements:
Meet capital requirement for supervisory purposes equal to at least 38,734,267
Euros
Possess distributional capacity suitable to place government bonds to a wide
range of investors, both in terms of type and geographical location
Number of PD
Groups
One. Given the size of the Italian government debt, it is extremely valuable for the
Treasury that all PDs make efforts in the whole spectrum of debt securities offered
by the Government. Thus, the Treasury has not envisaged the segmentation of the
PD group by type of instrument or market.
PDs have exclusive
access to competitive
auctions (CA)
No. In addition to PDs, the following entities can also participate in competitive
auctions:
Italian, EU, and non-EU banks
Financial brokers
EU and non-EU investment companies
In particular, the following operators are admitted to auctions:
Italian banks both within and outside the European community as provided by
6 Italy served as a guest participant in the July 2009 Peer Group Dialogue on non-competitive subscription practices
and therefore was invited to take part in the survey.
35
the Italian Consolidated Act of Laws on Banking and Credit Matters, namely:
– Banks within the European community can participate in auctions without
establishing branches in the territory of the Republic;
– Banks outside the European community can also participate in auctions
without establishing branches and upon authorization of the Bank of Italy
Financial intermediaries and investment firms outside the European community
or investment firms within the European community.
Rationale: To reach the largest possible investor base and diversification of banking
and financial intermediaries.
Non-competitive
subscription (NCS)
system for PDs exists
Yes
NC bids are
submitted during or
before the CA
No
NC bids are
submitted after the
CA.
Yes
Access period
28.5 hours. This lag has been set to give enough value to the implicit option
embedded in the NCS.
PDs have exclusive
access to NCS
Yes. Having access to NCS is considered an exclusive reward for PDs for fulfilling
their obligations to the Treasury.
Eligibility criteria to
participate in NCS
PDs must participate in the CA and must have a successful bid at least in one of the
3 previous CAs (including the one immediately preceding the NCS) for the same
security type and maturity segment.
In addition, for securities with maturity of 2 years or less, PDs must make at least
one non-speculative bid (NSB). NSB is defined as a bid with a yield that is equal to
or lower than the “exclusion yield” calculated by the Treasury. The exclusion yield
establishes the maximum acceptable yield (minimum acceptable price) in order to
avoid speculative requests. It is calculated by adding 100 basis points to the
weighted average yield calculated for those bids, ordered from the lowest yield to
the highest, that make up the first half of the amount offered by the Treasury. (In
this calculation the bids that fall below the minimum acceptable yield, also
calculated by the Treasury, are excluded.)
More information is available at:
http://www.dt.tesoro.it/en/debito_pubblico/titoli_di_stato/aste_titoli_stato.html
http://www.dt.tesoro.it/en/debito_pubblico/titoli_di_stato/esempi_di_calcolo.html
36
Total NCS allocation
amount
For 12 and 6 month discount T-bills: 10 % of the amount announced for the CA
For all other securities: 25% of the amount announced for the CA for the first
tranche of the bond; 10% for any subsequent tranche.
NCS allocation
among PDs
PDs are rightfully entitled to receive up to the amount equal to the average ratio of
their share in the last three CAs to the total share in those CAs received by the PDs
participating in a given NCS. The last three CAs includes the CA immediately
preceding the non-competitive auction. PDs receive the lesser of the amount they
requested through NCS and the amount to which they are rightfully entitled.
NCS price
For T-Bills: weighted average price
For all other securities: marginal, or cutoff, price of the CA, which is equal to the
lowest price at which a successful bid is made.
Other Information http://www.dt.tesoro.it/en/debito_pubblico/specialisti_titoli_stato/index.html
37
Annex 2 – List of Survey Contributors
Country Name Institution Email
Gemloc Pilot Peer Group Members
Brazil Jose Franco Morais Ministry of Finance [email protected]
Colombia William Ortiz Ministry of Finance [email protected]
Hungary Laszlo Buzas Government Debt Management
Agency (AKK)
India T. Rabi Sankar Reserve Bank of India [email protected]
Malaysia Kamilah Mohamad Bank Negara Malaysia [email protected]
Mexico Rodolfo Campos Ministry of Finance [email protected]
Poland Robert Zima Ministry of Finance [email protected]
South Africa Phumzile Maseko National Treasury [email protected]
Turkey Ufuk Hazirolan Undersecretariat of Treasury [email protected]
July 2009 Peer Group Dialogue Guest
Italy
Pierpaolo Battista Ministry of Economy and Finance [email protected]
Davide Iacovoni Ministry of Economy and Finance [email protected]