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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

A DP is processing a request from an investor who wants to buy Treasury Bills in the primary auction through a non-competitive bid. What is the key feature of a non-competitive bid?

A non-competitive bidder does not quote a price or yield and is allotted securities at the weighted average rate discovered in the auction. This differs from a competitive bid, where the bidder states a price or yield and risks rejection if the bid is out of range.

  1. AThe bidder names the yield and may be rejected if too low
  2. BThe bidder is allotted at the weighted average price or cut-off determined in the auction without quoting a priceCorrect
  3. CThe bidder receives securities only at face value
  4. DThe bidder can bid only in the secondary market

Explanation

In a non-competitive bid, the investor does not quote a price or yield and is allotted securities at the weighted average price/yield discovered in the auction. Quoting a yield is a feature of a competitive bid.

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