WASHINGTON -- Calling the violations in government securities transactions committed by Salomon Brothers Inc. extremely serious, Federal Reserve Board Chairman Alan Greenspan last week said the Fed "ultimately [will] take whatever action is warranted" to improve the sales process.
The Fed chairman made his remarks in an Oct. 31 letter to Senate Banking Committee Chairman Donald Riegle Jr., D-Mitch., who had written Mr. Greenspan earlier in the month outlining six issues he believes should be included in the Fed's 90-day market study. The Fed is conducting the study with the Securities and Exchange Commission and the Treasury Department.
The study was spurred by disclosures in August that Solomon submitted phony bids to acquire more than its permitted share of Treasury securities at government auctions early this year.
Mr. Greenspan said all six issues are being reviewed, including whether there is a need for automated bidding procedures in Treasury auctions, whether the relationship between primary dealers and regulators is "too cozy," and whether Treasury securities should be sold continuously, rather than at specified auctions.
The study also is analyzing numerous alternatives to the present sealed-bid discriminatory price auction system, whether regulation should be consolidated under one agency, and whether the auction process should be opend to all bidders. The Treasury announced on Oct. 25 new auction rules that open up sales to all registered broker-dealers who bid on behalf of customers.
Sen. Riegle said the idea of the continous sale of Treasury securities -- a concept introduced by former Treasury Undersecretary Jack Bennett at congressional hearing on Sept. 12 -- should be considered "very seriously."
Mr. Bennett called for a system where eventually "electronic screens around the world would continuously offer a schedule of prices at which the U.S. Treasury currently offers to sell -- and, with an appropriate spread to buy -- its securities, from overnight to 30 years, in lots of some minimum size, say $100 million."
Mr. Bennett also said, "The bidding process for Treasury securities involves scribbling bids onb scraps of paper at the last possible second. All Federal Reserve banks should automate their bidding procedures as soon as possible. The study should consider how long this process will take and whether other areas of the auction process could benefit from technological modernization."
