How It Works: During An Auction
Institutional investors bid for a dollar value of bonds at a desired spread over a pre-selected benchmark Treasury security. Bids can be placed in 1 basis point increments (1/100th of a percent). Participating investors may place a Limit Bid, a Market Bid, or one of each (see below for description of bid types).
Auction participants can place, modify, or cancel bids at any time during the auction. WR Hambrecht + Co reserves the right to exclude bidders from an auction for any reason, including activity that it deems disruptive to the auction process.
Limit Bids
A Limit Bid is composed of four parts: the "Public Bid," the "Private Bid," the "Size" (or dollar amount) and the "Time Stamp". Both the Public Bid and Private Bid are specified as a spread over the benchmark that an investor is willing to accept on a bond.
The Public Bid
A Public Bid is placed by indicating a size and spread above the benchmark
Treasury. Auction participants are anonymously shown all Public Bids
in the auction on a chart that updates continuously as the auction progresses.
The chart shows the accumulation of Public Bids at each basis point
increment and gives participants a sense of the interest in the issue
being auctioned.
When a Public Bid is placed, a Time Stamp is set and limits on the
improvement of the Private Bid are established. (See below for limitations
on the Private Bid).
The Private Bid
A Private Bid is a firm offer to buy securities at a spread over the
benchmark Treasury and is not revealed to other participants in an auction
until the auction has ended. The Private Bid (not the Public Bid) is
the component of a Limit Bid used to determine the clearing spread for an auction and award bonds.
As long as the Private Bid does not improve the Public Bid by more than
the protected spread, a bidder can modify his or her Private Bid any number of times
without resetting the Time Stamp.
If a bidder's Private Bid is tightened by more than the protected spread
range from his Public Bid, the Time Stamp of the bid will be reset.
The value of the Public Bid will be reset to the value of the Private Bid just entered.
After the auction ends, winning participants will be able to view the
distribution of Private Bids. Bidders' identities will remain anonymous.
Size
Limit Bids must be for $1,000,000 or greater in
increments of $1,000. During the auction, a bidder may increase the
Size of each Limit and Market Bid by up to
50% over its starting bid Size without resetting the Time Stamp. Increasing
the size by more than 50% will result in a new Time Stamp. Any decrease
in Size will also reset the Time Stamp.
The sum of an investor's Limit and Market Bids may not
exceed the maximum bid Size, which is the lower of the investor's purchase
limit or the maximum award Size set by the issuer.
Time Stamps
The OpenBook® auction system assigns a Time Stamp to every new bid in one minute increments.
These Time Stamps are used to award bonds if competing bids are tied
at the auction clearing spread.
Time Stamps for a bid will be reset under the following circumstances:
- The bidder decreases the size of a bid.
- The bidder increases the size of a bid by more than 50% of the starting
size.
- The bidder improves a Private Bid by more than the protected spread.
- The bidder changes the Public Bid.
Market Bids
Market Bids are bids at the minimum permitted spread and consist
of two parts: the size and the Time Stamp. A Market Bidder requests
a size in dollars at the market clearing spread as determined by the auction.
Market Bids may be in any size at or above $1,000, in multiples
of $1,000.
Time Stamps for Market Bids will be reset under the following circumstances:
- The bidder decreases the size of a bid or
- The bidder increases the size of a bid by more than 50%.
