WASHINGTON - The Treasury Department plans to announce the details of its proposed experiment with the single-price auction of government securities within two months. Treasury Undersecretary Jerome Powell said yesterday.
"We expect to make an announcement of the parameters of our single-auction experiment sometime in the next 60 days," Mr. Powell said. "We'll identify the security, the duration of the experiment, and all the other details."
The Treasury currently auctions government bills, notes, and bonds under a multiple-price bidding system that involves the participation of primary dealers, individuals, and depository institutions.
Mr. Powell said the academic literature suggest that single-price auctions could save taxpayers money by creating a more efficient system. Among other things, proponents say single-price sales would eliminate the "winner's curse," in which bidders shy away from making overly aggressive bids for fear of ending up with too much of an issue.
During a June conference on government auctions sponsored by the Treasury and the Federal Reserve, Deputy Assistant Secretary Deborah Danker said experimentation with single-price awards is "very attractive" as a step toward open rounds of bidding.
In an open bidding system, dealers and other market participants would be able to see, through their computerized hookups to a central system, the total volume and prices offered in each round.
Mr. Powell said Treasury officials remain hopeful they will complete automation of the government market bidding system by the end of the year, a move that would allow large primary dealers to participate by using special software and Fedline terminals. Currently, primary dealers still submit bids manually through the Federal Reserve Bank of New York.
In June, the Treasury unveiled a system allowing registered dealers and brokers to place orders for government securities directly using Fedline terminals.
However, Mr. Powell said it may take "a couple of years or more" before going to an open bidding system in which participants could see each round of action unfold on their computer screens.
Micah Greene, executive vice president for the Public Securities Association, said there is widespread support in the government bond industry for automation. "There's a need for automation in the primary market for government securities to provide more timely information to market participants," he said.
But market participants are less enthusiastic about an open bidding system, Mr. Greene said. "There's a lot of change going on in the Treasury market, and there's some question about how much change you want to have in a short period of time when you have a $2 trillion market. You want to proceed very carefully."
Patrick Rothstein, chairman of the PSA's primary dealers committee, said an open bidding system could benefit the Treasury by encouraging strong price submissions in a bullish market. But, he warned, in a bear market participants might be encouraged to sell, and that would tend to depress prices even further.
In other developments, Mr. Powell said the Treasury continues to oppose the House Democrat's version of legislation to reauthorize the Government Securities Act. A bill approved by the Energy and Commerce Committee would expand the regulatory powers of the Securities and Exchange Commission and set record-keeping and reporting rules for brokers and dealers.
The Treasury prefers a less stringent bill approved by the Senate, Mr. Powell said, and tales the position that "no bill is better than a bad bill."
Also yesterday, Salomon Brothers Inc. resumed its full status as a primary dealer in the government bond market as a 60-day suspension from trading with the Fed on the firm's own account ended.