What changed
The minimum bidding commitment for each Primary Dealer in the Additional Competitive Underwriting (ACU) auction was changed from 3% of the notified amount to an amount equal to the dealer's Minimum Underwriting Commitment (MUC). An illustrative example in the annex shows that for a notified amount of Rs. 5,000 crore with 19 PDs, the per-PD ACU bidding requirement dropped from Rs. 150 crore to Rs. 132 crore, aligning it with the MUC.
What it means for you
This change reduces the total underwriting commitment for each PD from Rs. 282 crore to Rs. 264 crore in the example, lowering the capital required for bidding. It simplifies the calculation by making the ACU bid requirement identical to the MUC, potentially easing liquidity pressure on PDs and banks undertaking PD business departmentally.
What you must do
- Update internal underwriting bid calculation models to use MUC instead of 3% of notified amount for ACU auctions.
- Communicate the revised bidding requirement to treasury and risk management teams handling government securities auctions.
- Review capital allocation for underwriting commitments to reflect the reduced total exposure per auction.
- Ensure compliance with all other unchanged terms of the underwriting scheme as per the November 14, 2007 circular.
Who it affects
All Primary Dealers in the Government Securities Market, Scheduled Commercial Banks undertaking PD business departmentally
What exactly changed in the ACU bidding requirement?
Previously, each PD had to bid at least 3% of the notified amount in the Additional Competitive Underwriting auction. Now, the minimum bid is equal to the PD's Minimum Underwriting Commitment (MUC), which is the notified amount divided by twice the number of PDs, rounded up.
Does this change affect the total underwriting commitment for all PDs?
Yes, the total underwriting commitment for all PDs collectively decreases. In the example with a Rs. 5,000 crore notified amount and 19 PDs, the total dropped from Rs. 5,358 crore to Rs. 5,016 crore.
Are any other terms of the underwriting scheme modified?
No, all other terms and conditions of the underwriting scheme remain unchanged as per the circular.