Auction Rules and Process FAQs
These FAQs are not a substitute for reading and understanding Treasury's auction rules.We encourage anyone involved with the auction process to become knowledgeable about the auction rules, and to contact us if you have questions or need clarification.
- Where can I find Treasury's securities auction rules?
- Who determines the total amount of money that Treasury can borrow?
- Who is responsible for setting policy and administering the federal government's borrowing program?
- How are Treasury marketable securities sold to the public?
- How can an entity participate in an auction?
- How is the rate or yield awarded in an auction determined?
- How do bidders pay for their auction purchases and how are securities provided to the purchaser?
- What is the payment arrangement for depository institutions or dealers who are bidding for customers?
- Are there limitations on bidding or the amount of securities a bidder will be awarded?
- How would Treasury know a bidder's net long position?
- What types of entities are eligible to be bidders?
- Some corporations and partnerships are large and complex. Is it possible for them to be separated into more than one component for bidding purposes?
- How does a major organizational component obtain separate bidder recognition?
- Are the bids of a customer considered to be separate from those of the submitting depository institution or government securities dealer?
- Must the depository institution or government securities dealer list customer bids separately if the customers' and the submitters' bids, when added together, do not exceed $5 million (for noncompetitive bids) or the 35 percent limit (for competitive bids)?
Treasury's auction rules are codified at 31 CFR Part 356 (Sale and Issue of Marketable Book-Entry Treasury Bills, Notes and Bonds), which is also referred to as the Uniform Offering Circular ("UOC") or "Auction Rules." Links to the UOC, and PDFs of recent amendments, are available at www.treasurydirect.gov/instit/statreg/auctreg/auctreg.htm
Congress makes this determination by setting the statutory limit on the public debt.
The Treasury Department has discretionary authority to determine policy governing all other aspects of the federal government's borrowing program, such as what Treasury securities to offer, how to sell them, who may participate and how, and the specific amount of each offering. See Chapter 31 of Title 31 of the United States Code for Treasury's borrowing authority. The program is administered by the Bureau of the Fiscal Service.
Treasury marketable securities are auctioned through a competitive, confidential bidding process open to the public. Competitive bidders state the amount(s) of securities they want to purchase, with the corresponding rate(s) or yield(s) they desire. In addition to competitive bidding, those seeking to purchase $5 million or less in an auction are allowed to bid noncompetitively. Noncompetitive bidders are awarded securities in full at the rate or yield determined by the competitive bidding process.
Institutional bidders can submit bids using the Treasury Automated Auction Processing System (TAAPS). TAAPS accepts both competitive and noncompetitive bids. "Retail-level" bidders (primarily individuals) can submit bids into TreasuryDirect and Legacy Treasury Direct. These systems only accept noncompetitive bids.
After accepting all noncompetitive bids, Treasury accepts competitive bids beginning at the lowest competitive rates or yields bid. Treasury then accepts bids at each successively higher rate or yield, stopping at the rate or yield at which the offering amount is reached. All competitive bidders bidding at or below this rate or yield, the "stop-out" rate or yield, as well as all noncompetitive bidders, will pay the same price for their securities – the price that corresponds to the "stop-out" rate or yield. Bids right at the stop-out rate or yield are prorated, which means that Treasury accepts only the proportion of each bid needed to reach the offering amount. The technique of awarding all successful bidders the same rate or yield is called a "single-price"or "uniform-price" auction technique, which Treasury has used for all marketable securities auctions since November 1998. See Section 356.20 of the UOC.
Purchases made by institutional accounts via TAAPS are generally paid for by debiting the account of a depository institution with an account at the Federal Reserve. For example, purchases by a bank are generally paid for by the Federal Reserve debiting the bank for the funds and simultaneously crediting the bank with the securities they were awarded at the auction. Purchases by securities dealers without an account at the Federal Reserve are transacted through a clearing bank with which the dealer has executed an "autocharge agreement" to pay for and receive securities. See Section 356.25 of the UOC.
Purchases made by "retail" accounts via TreasuryDirect are generally paid for by debiting an investor's designated bank account or certificate of indebtedness (C of I) account maintained with Treasury. Securities awarded to the investor are credited to the investor's TreasuryDirect account.
Treasury expects payment from the depository institution or dealer, and as such, they must always stand ready to provide payment if the customer's bid(s) is awarded in a Treasury auction.
Noncompetitive bidders may bid in amounts from $100 to $5 million in $100 increments. Their bids will be awarded in full.
A competitive bidder may submit more than one competitive bid. However, for any competitive bidder, Treasury will not recognize any amount at a single rate or yield above 35 percent of the offering amount and limits a bidder's total award to 35 percent. This award limit includes a bidder's reportable "net long position," which is comprised of a bidder's holdings, certain trading positions, and any futures or forward contracts that require delivery of the security being auctioned (including any STRIPS principal components). The specific bid and award limits, as well as other pertinent details are listed in each auction's offering announcement. See §356.22 of the UOC for more information on limitations on auction awards and §356.13 for more information on the net long position components and calculation.
A competitive bidder must report its net long position with one of its bids if the sum of its net long position and its bids equals or exceeds the net long position reporting threshold specified in the auction announcement.The net long position must be calculated as of one half-hour prior to the competitive bidding deadline. Treasury will not allow a bidder's net long position plus the total of its auction awards to exceed 35 percent of the offering amount. See §356.13 of the UOC for more information on how to report the net long position.
There are generally no restrictions on the type of entity that can bid in an auction. The categories of bidder specified in Treasury's auction rules are: corporation, partnership, government-related entity, trust or other fiduciary estate, individual, and Foreign and International Monetary Authority.Treasury also has a bidder category that it calls "Other Bidder," which means an institution or organization with a unique IRS-assigned employer identification number, such as an association, church, university, union, or club. See Appendix A of the UOC — Bidder Categories.
Yes, if a major organizational component within a corporation or partnership meets certain criteria, Treasury may recognize that component as a separate bidder from its larger corporate or partnership structure. See Appendix A of the UOC.The criteria are:
- the component must not exchange information related to bidding in Treasury auctions with any other component in the corporation or partnership;
- the component must not be created for the purpose of circumventing the Treasury auction bidding or award limitations;
- the component's employees must make their own decisions about buying or selling Treasury securities; and
- the component must maintain its own, separate records regarding transactions in Treasury securities.
If it meets the above criteria, the component must:
- request separate-bidder recognition from Treasury,
- provide a description of the component and its position within the corporate or partnership structure, and
- provide a required certification.
See Appendix A of the UOC.
Yes, customers are separate bidders and the auction rules, such as the bidding and award limitations, are applied separately to them. See Section 356.2 of the UOC.
Must the depository institution or government securities dealer list customer bids separately if the customers' and the submitters' bids, when added together, do not exceed $5 million (for noncompetitive bids) or the 35 percent limit (for competitive bids)?
Yes, Treasury wants to know the name(s) and corresponding bid amount(s), as well as the discount rates/yields bid (for competitive bidders) for all bidders.See Section 356.14 of the UOC.