The Competition Commission of Pakistan (CCP) has initiated an enquiry into the suspected cartelization by primary dealers in the recent auction of T-bills carried out by the Government of Pakistan (GoP).
CCP has undertaken a preliminary probe due to various concerns raised with respect to the significant rise in the yields for all tenors (3, 6, and 12 months) of T-bills issued by the government in recent auctions.
In addition the State Bank of Pakistan (SBP) in its monetary policy statement issued on December14, 2021 also termed the rise in yields unwarranted.
Moreover, the central bank expressed concerns that the government’s reliance on commercial banks for meeting its funding requirements has increased since it can no longer borrow directly from the SBP, hence increasing the bargaining power of commercial banks.
A preliminary analysis shows that since Market Treasury Bills (MTBs) are risk-free, their yields generally remain 25 to 50 basis points above the policy rate. However, from September to December 2021, the average difference between the policy rate and cut off yield for 3-month MTBs rose to 114 basis points. The highest cut off yields were witnessed in the auction on December 15, 2021.
The commission after reviewing the recent bidding data in its meeting formed an opinion that the common trend in the bidding pattern needs to be further probed as it raises suspicion of collusive bidding by the primary dealers.
The initial examination of the bidding data, shows that there were instances where primary dealers had submitted similar/identical bids and followed common bidding patterns. Moreover, there was also an indication of rotation among the primary dealers and the increase in rates quoted were also simultaneous.
The commission has decided to summon the senior officials of various banks who will be required to explain the reasons for the identified bidding patterns.
It is important to note that bid rigging or any form of coordination during the bidding process by the parties is prohibited under Section 4(2)(e) of the Competition Act, 2010. Once the enquiry is complete, the findings shall be submitted to the commission and also made public.
