The Auction Takedown service reduces settlement risk and costs for participants in Fixed Income Clearing Corporation’s (FICC) Government Securities Division (GSD) that purchase securities through the U.S. Treasury Department’s auction programs.
The service nets Treasury auction purchases along with secondary market trades and repo transactions, thereby reducing securities movements and associated costs. Efficient delivery of auction awards by GSD streamlines the settlement process, enhances risk management and decreases participants’ exposure to daylight overdrafts.
Who Can Use This Service
Primary dealers and other institutions that are netting members of GSD can use this service.
FICC’s Auction Takedown service makes it easier and less risky for its GSD members to participate in U.S. Treasury auctions of securities. The advantages include:
- Elimination of the need for participants to submit auction purchase details to GSD;
- Submission of trades (purchases) to the GSD by Federal Reserve Banks on a locked-in basis, which allows for automatic trade confirmation;
- Electronic output options for netting results, including machine-readable output (MRO), print image reports, or on-line inquiry via a GSD RTTM® Web Front End;
- The netting and guarantee of compared Treasury auction awards with the rest of a participant’s trading activity in secondary markets on the night of trade submission; and
- Delivery of the securities to participants in long positions immediately after issue by the Federal Reserve.
How the Service Works
The Auction Takedown service eliminates the need for participants to submit auction purchase details to the GSD. Instead, participants can submit bids to the Treasury Department’s Bureau of Public Debt until 1:00 p.m. EST on the day of the auction. Securities available for auction and processing through FICC include Treasury bills, Notes, Bonds and Treasury inflation Protection securities (TIPs).
Winning bids are then submitted directly to the GSD by Federal Reserve Banks on a locked-in basis, and the GSD automatically generates trade confirmations based on the information supplied by the Federal Reserve Banks.
Several electronic output options for netting results are available, including machine-readable output (MRO), print image reports, on-line inquiry via the RTTM Web Front End.
On the auction date, the Federal Reserve Bank of New York (or a regional Federal Reserve Bank) provides details to the GSD for all eligible auction awards. The GSD then automatically generates a confirmation for the contra-side of each award based on the information supplied by the Federal Reserve Bank.
Treasury auction awards are reported to participants through comparison output, indicating that the trade was submitted on a locked-in basis and which Federal Reserve Bank submitted the information.
Compared Treasury auction awards are netted and guaranteed with the rest of a participant’s trading activity in secondary markets on the night of trade submission. Resulting net positions are treated as forward settling transactions and forward margin is assessed accordingly. The night before issue date, the net positions are replaced by settlement obligations versus the GSD. On issue date, the GSD delivers securities to participants in long positions immediately after receiving them from the Federal Reserve.
For More Information
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