ISLAMABAD: The Competition Commission of Pakistan (CCP) has initiated an inquiry into the suspected cartelisation by primary dealers (PDs) in the recent auctions of Market Treasury Bills (T-bills) carried out by the government.

A preliminary probe was undertaken due to various concerns raised with respect to the significant rise in the yields for all tenors including 3-, 6- and 12-month T-bills.

The State Bank of Pakistan (SBP) in its Monetary Policy Statement issued on December 14 also termed the rise in yields unwarranted.

Concerns were also expressed that since the government could no longer borrow directly from the SBP it was reliant on commercial banks for meeting its funding requirements, which placed the commercial banks in a position to dictate terms.

Average difference between policy rate and cut-off yield for 3-month T-bills rose to 114 basis points

The CCP inquiry shows that since T-bills 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 T-bills rose to 114 basis points.

The highest cut-off yields were witnessed in the auction on December 15.

After reviewing the recent bidding data in its meeting, the CCP 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 PDs.

From the initial examination of the bidding data, it was observed that there were instances where PDs have submitted similar/identical bids, and common bidding patterns were also followed by some of them.

The initial inquiry said that there was indication of rotation among the PDs and the increase in rates quoted were also simultaneous.

It was also noted that in most of the bids the major chunk of the bid was won by or awarded to, one single bidder.

The above factors required further scrutiny for any possible collusive bidding on part of the primary dealers and/or also required to enquire into the factors, if any, that may have contributed to the quoting/charging of higher rates than before.

The CCP also decided that the senior officials of the banks will be summoned and asked to explain the reasons for bidding patterns that has been identified.

The commission has also decided to require the SBP to appoint a focal person and to assist the enquiry officers and to help understand the processes in place to ensure free-market operation in the bidding process.

Published in Dawn, January 26th, 2022