Types of Auction

Government of Pakistan (GOP) Securities are issued through an “auction” process conducted by State Bank of Pakistan (SBP). The investors can participate in auctions during specific times pre-announced in auction calendars. In primary auction participants bid in terms of the amount and price per hundred of face value at which they want to purchase. In case of fresh auctions of GIS-FRR and GIS-VRR the investors bid on the yield and margin (bps) respectively rather than the price per hundred on face value. Government of Pakistan decides how many bids to accept based on the bid prices/yields and their borrowing plans. Auctions can be conducted as multiple or single price auction system.

The following two types of auctions are generally conducted:

• Single / Uniform Price Competitive Bidding Auction: In this type of auction, bidders submit their bids in terms of the price/rate they are willing to pay and the amount of security they want to purchase. All successful bidders are issued the securities at a single/uniform price at the cut-off.
• Multiple Price Competitive Bidding Auction: In this type of auction, bidders also submit their bids in terms of price/rate as well as the amount of security. However, each successful bidder is issued the security at its own bid price. Hence, each successful bidder is issued the security at a different price.

Fresh Issuance vs Re-openings

• Auctions are conducted for fresh issuance of new securities as well as re-opening of existing issues.
• Re-opening is a type of auction in which an additional amount of a security already issued is offered for sale. Re-opening auctions are conducted in order to ensure that a large amount of an issue is available in the market instead of small amounts of multiple issues, therefore the investors can buy and sell easily from the market at a reasonable price.