RBI announces change in Government securities auction methodology

The Reserve Bank of India has announced a change in Government securities auction methodology for benchmark securities. They noted in the latest update that on a review of market conditions and market borrowing program of the government, it has been decided that benchmark securities of tenor 2-year, 3-year, 5-year, 10-year, 14-year tenor and Floating Rate Bonds (FRBs) will be, henceforth, issued using the uniform price auction method.

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For other benchmark securities i.e. 30-year and 40-year, the auction will continue to be multiple price-based auctions, as hitherto. The above arrangement will continue till further review, note the bank.

About the Uniform Price auction:

In a Uniform Price auction, all the successful bidders are required to pay for the allotted quantity of securities at the same rate, i.e., at the auction cut-off rate, irrespective of the rate quoted by them.

About the Multiple Price auction:

In a Multiple Price auction, the successful bidders are required to pay for the allotted quantity of securities at the respective price/yield at which they have bid.

Important takeaways for all competitive exams: