RBI urges bond market players to use tool to prevent gilt auction errors

Central bank facility permits market participants to set maximum and minimum value for bids

Following instances of errors in placing bids at government bond auctions, the Reserve Bank of India has advised market participants to use a facility on its electronic platform, which is aimed at preventing such mistakes.

“Price/Yield range setting” is available on the ‘e-Kuber’ electronic platform where RBI conducts government bond auctions.

The facility permits market participants to set a maximum and minimum value for bids—both in yield terms and price terms—they wish to submit at bond auctions. The range can be set for each security that is up for auction and can be modified during the bond sale. Once the limits have been set by the market participant—or the investor—the bids are automatically validated only against the pre-determined limits.

“This is expected to eliminate instances of Fat-finger / Big-figure error by the bidders in the G-Sec (government security) auctions,” the RBI said.

“As there have been a few instances of Fat-finger / Big-figure error by the bidders in the G-Sec auctions conducted by Reserve Bank, it suggests that some of the market participants are yet to put in place the “Price / Yield range setting” facility in their system... It may be noted that no request for cancellation of bids will be entertained after the close of auction window.” the RBI said.

A fat-finger error refers to an erroneous bid placed by a market participant, often at prices that are enormously higher or lower than intended. When such incidents occur in the secondary market, there are certain mechanisms in place for trades to be reversed, though subject to the discretion of the concerned parties.

The RBI, which is the government’s debt manager, typically conducts gilt auctions on Fridays. For the remainder of the current financial year, the weekly government bond auctions are mostly in tranches of Rs 28,000 to Rs 30,000 crore.

The ‘e-Kuber’ platform is the Core Banking Solution platform of the RBI. Banks, primary dealers, insurance companies and provident funds which maintain fund accounts with the RBI are members of the platform.