FROM THE OFFICE OF PUBLIC AFFAIRS

Treasury released today letters exchanged between Treasury and a securities firm concerning violations of the rules governing noncompetitive bidding in auctions of U.S. Treasury securities. Treasury is releasing these letters to emphasize the importance of the auction rules and the seriousness with which it views compliance with them. All Treasury auction participants are expected to be knowledgeable about the applicable requirements of the auction rules and to maintain policies and procedures that will ensure that these requirements are met. Auction participants must exercise vigilance to prevent auction rule violations, must promptly report to the Treasury any violations that do occur, and must take remedial action to address the underlying causes of violations as quickly as possible. The management of firms participating in auctions is expected to supervise the personnel responsible for Treasury auction bidding.

The Uniform Offering Circular for Treasury Securities requires that, prior to a specified deadline, noncompetitive bidders in Treasury auctions may not enter into any agreement to purchase or sell or otherwise dispose of the securities they are acquiring in an auction. Prior to January 28, 1998, the applicable deadline for this prohibition was the designated closing time for receipt of competitive bids. Effective January 28, 1998, this deadline was extended so that prearranged sales may not be entered into before the time that the results of the auction are announced. Treasury permits noncompetitive bidding as a means of encouraging broader participation in Treasury auctions by providing relatively small investors an avenue for participating successfully in Treasury auctions. Given this goal, the prohibition on prearranged sales, and a similar rule relating to positions in when-issued trading or futures or forward contracts, are designed to minimize the use of noncompetitive bidding by bidders that more appropriately should bid competitively.