1

Non-Competitive Subscription Practices in Primary Dealer Systems

Gemloc Peer Group Survey Analysis

December 2009

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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 (tloladze@ifc.org), with

technical supervision provided by Anderson Silva (asilva3@worldbank.org) and Baudouin

Richard (baudouin.richard@live.be). Please refer to Annex 2 for the list of contributors to the

survey and their contact information.

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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.

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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)

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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.

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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.

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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

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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.

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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.

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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.

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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

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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.

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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.

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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 josefranco.morais@fazenda.gov.br

Colombia William Ortiz Ministry of Finance wortiz@minhacienda.gov.co

Hungary Laszlo Buzas Government Debt Management

Agency (AKK)

buzasl@akk.hu

India T. Rabi Sankar Reserve Bank of India trabishankar@rbi.org.in

Malaysia Kamilah Mohamad Bank Negara Malaysia kamilah@bnm.gov.my

Mexico Rodolfo Campos Ministry of Finance rodolfo_campos@hacienda.gob.mx

Poland Robert Zima Ministry of Finance robert.zima@mf.gov.pl

South Africa Phumzile Maseko National Treasury phumzile.maseko@treasury.gov.za

Turkey Ufuk Hazirolan Undersecretariat of Treasury ufuk.hazirolan@hazine.gov.tr

July 2009 Peer Group Dialogue Guest

Italy

Pierpaolo Battista Ministry of Economy and Finance pierpaolo.battista@tesoro.it

Davide Iacovoni Ministry of Economy and Finance davide.iacovoni@tesoro.it