Auction Rules & Process FAQs
Treasury's auction rules are codified at 31 CFR Part 356 (Sale and Issue of Marketable Book-Entry Treasury Bills, Notes and Bonds), which is also referred to as the Uniform Offering Circular ("UOC") or "Auction Rules." Links to the UOC, and PDFs of recent amendments, are available at https://www.treasurydirect.gov/laws-and-regulations/auction-regulations-uoc/
Congress makes this determination by setting the statutory limit on the public debt.
The Treasury Department has discretionary authority to determine policy governing all aspects of the federal government's borrowing program, such as what Treasury securities to offer, how to sell them, who may participate and how, and the specific amount of each offering. See Chapter 31 of Title 31 of the United States Code for Treasury's borrowing link authority. The program is administered by the Bureau of the Fiscal Service.
Treasury marketable securities are auctioned through a competitive, confidential bidding process open to the public. Competitive bidders state the amount(s) of Securities they want to purchase, with the corresponding rate(s) or yield(s) they desire. Those seeking to purchase $10 million or less in an auction may bid noncompetitively. Noncompetitive bidders are awarded securities in full at the rate or yield determined by the competitive bidding process.
Institutional bidders can submit bids using the Treasury Automated Auction Processing System (TAAPS). TAAPS accepts both competitive and noncompetitive bids. Individuals can submit bids into TreasuryDirect. TreasuryDirect only accepts noncompetitive bids.
After accepting all noncompetitive bids, Treasury accepts competitive bids beginning at the lowest competitive rate, yield, and discount margin bid. Treasury then accepts bids at each successively higher rate, yield, and discount margin stopping at the rate of return at which the offering amount is reached. All competitive bidders bidding at or below this rate, yield, and discount margin, the "stop-out" rate, yield, and discount margin, as well as all noncompetitive bidders, will pay the same price for their securities – the price that corresponds to the stop-out rate of return. Bids right at the stop-out rate, yield, and discount margin are prorated, which means that Treasury accepts only the proportion of each bid needed to reach the offering amount. The technique of awarding all successful bidders the same rate, yield, and discount margin is called a "single-price" or "uniform-price" auction technique, which Treasury has used for all Treasury marketable securities auctions since November 1998. See Section 356.20 of the UOC.
Purchases made by institutional accounts via TAAPS are generally paid for by debiting the account of a depository institution with an account at the Federal Reserve. For example, purchases by a bank are generally paid for by the Federal Reserve debiting the bank for the funds and simultaneously crediting the bank with the securities they were awarded at the auction. Purchases by securities dealers without an account at the Federal Reserve are transacted through a clearing bank with which the dealer has executed an AutoCharge Agreement to pay for and receive securities. See Section 356.25 of the UOC.
Purchases made by "individual" accounts via TreasuryDirect are generally paid for by debiting an investor's designated bank account or certificate of indebtedness (C of I) account maintained with Treasury. Securities awarded to the investor are credited to the investor's TreasuryDirect account.
Treasury expects payment from the depository institution or dealer. They must always stand ready to provide payment if the customer's bid(s) is awarded in a Treasury auction.
Noncompetitive bidders may bid in amounts from $100 to $10 million in $100 increments. Their bids will be awarded in full.
A competitive bidder may submit more than one competitive bid. However, for any competitive bidder, Treasury will not recognize any amount at a single rate or yield above 35 percent of the offering amount and limits a bidder's total award to 35 percent. This award limit includes a bidder's reportable "net long position," which is comprised of a bidder's holdings, certain trading positions, and any futures or forward contracts that require delivery of the security being auctioned (including any STRIPS principal components). The specific bid and award limits, as well as other pertinent details are listed in each auction's offering announcement. See §356.22 of the UOC for more information on limitations on auction awards and §356.13 UOC for more information on the net long position components and calculation.
A competitive bidder must report its net long position (NLP) with one of its bids if the sum of its NLP and its bids equals or exceeds the NLP reporting threshold specified in the auction announcement. The NLP must be calculated as of one half-hour prior to the competitive bidding deadline. Treasury will not allow a bidder's net long position plus the total of its auction awards to exceed 35 percent of the offering amount. See §356.13 the UOC for more information on how to report the NLP.
There are generally no restrictions on the type of entity that can bid in an auction. The categories of bidder specified in Treasury's auction rules are: corporation, partnership, government-related entity, trust or other fiduciary estate, individual, and Foreign and International Monetary Authority. Treasury also has a bidder category that it calls "Other Bidder," which means an institution or organization with a unique IRS-assigned employer identification number, such as an association, church, university, union, or club. See Appendix A of the UOC — Bidder Categories.
Yes, if a major organizational component within a corporation or partnership meets certain criteria, Treasury may recognize that component as a separate bidder from its larger corporate or partnership structure. See Appendix A of the UOC. criteria are:
- The component must not exchange information related to bidding in Treasury auctions with any other component in the corporation or partnership;
- The component must not be created to circumvent the Treasury auction bidding or award limitations;
- The component's employees must make their own decisions about buying or selling Treasury securities; and
- The component must maintain its own, separate records regarding Treasury securities transactions.
If it meets the above criteria, the component must:
- Request separate-bidder recognition from Treasury,
- Provide a description of the component and its position within the corporate or partnership structure, and
- Provide a required certification.
See Appendix A of the UOC.
Yes, customers are separate bidders and the auction rules, such as the bidding and award limitations, are applied separately to them. See Section 356.2 of the UOC.
Yes, Treasury wants to know the name(s) and corresponding bid amount(s), as well as the discount rates/yields/discount margin submitted (for competitive bidders) for all bidders. See Section 356.14 of the UOC