By James Chen Updated Apr 3, Competitive tender is an auction process through which large institutional investors also called primary distributors purchase newly issued government debt.
Competitive tender is also called competitive bidding. Breaking Down Competitive Tender Competitive tender is one of two bidding processes for buying new government securities in the primary market i.
The other bidding process for buying government securities is non-competitive tender. The U.
Treasury primarily uses non-competitive tender, while Canada's central bank, the Bank of Canadaprimarily uses competitive tender but also accepts non-competitive bids. Those who receive securities in the competitive tender process may then choose to sell them on the secondary market.
Consequently, those concerns whose tenders were received late, that is, on 2nd January,were granted the contracts whereas the petitioner-company whose tender was the lowest, was denied the contract. Aggrieved by that, the petitioner-company approached the Civil Court for the grant of injunction bat when the same was declined, the present writ petition was filed.
Primary distributors may also choose to bid on behalf of smaller customers. Interested parties typically place bids for the price and amount of debt securities they are willing to purchase from the Treasury.
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The bids are confidential and kept sealed until the auction date. Participants in any Treasury auction consist of small investors and institutional investors who submit bids categorized as auto trading tenders competitive or non-competitive tenders. Non-competitive tenders are submitted by smaller investors who are guaranteed to receive securities.
However, there is no guarantee on the price or yield received. The yield on the bond will be determined by the competitive side of the auction which is handled as a Dutch auction — a type of auction in which the price on an item is lowered until it gets a bid.
A competitive tender is a bid auto trading tenders by bigger investors, such as institutional investors. Each bid submitted specifies the lowest rate, yield, or discount margin that the investor is willing to accept for the debt securities.