The State Bank of Pakistan (SBP) is not cooperating with the Competition Commission of Pakistan (CCP) in conducting an important inquiry on treasury bills.
In this connection, the CCP Chairperson Rahat Kaunain Hassan has formally requested the Chairman of the Senate Standing Committee on Finance to intervene and direct the SBP to assist the CCP for the timely completion of the said inquiry.
The CCP has initiated an inquiry into the suspected cartelization by primary dealers (PDs) including banks in the auctions of Market Treasury Bills (T-bills) carried out by the government of Pakistan.
According to the chairperson, the commission is doing a very critical inquiry on treasury bills. We have written 4-5 letters to the central bank seeking data on the issue. The CCP has repeatedly requested the SBP to assist in the inquiry and also provide the necessary information on the matter. The Standing Committee should direct the SBP to cooperate with the CCP in the inquiry, she added.
The Chairman of the Committee Saleem Mandviwala asked the CCP Chairperson to give us details in writing and we will direct the SBP in this regard.
A preliminary probe was undertaken due to various concerns raised with respect to the significant rise in the yields for all tenures of T-bills issued by the government in auctions. The scheduled banks, DFIs, investment banks, and listed brokerage houses are eligible to become PDs of government securities.
The State Bank of Pakistan (SBP) in its Monetary Policy Statement issued on December 14, 2021, also termed the rise in yields unwarranted. Concerns were also expressed that since the government could no longer borrow directly from the SBP, thus, it was reliant on commercial banks for meeting its funding requirements, which placed the commercial banks in a position to dictate terms.
A preliminary analysis shows that since MTBs 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 MTBs rose to 114 basis points. The highest cut-off yields was witnessed in the auction on 15th December 2021.
The Commission after reviewing the bidding data in its meeting 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 submitted similar/identical bids, and common bidding patterns were also followed by some of the PDs. Moreover, there was an indication of rotation among the PDs and the increase in rates quoted was 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 said 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 above circumstances warranted the initiation of inquiry under Section 37(1) of the Act.
The Commission has also asked the SBP to appoint a focal person, to assist the inquiry officers and help understand the processes in place to ensure free market operation in the bidding process. Bid rigging or any form of coordination during the bidding process by the parties is prohibited under Section 4(2)(e) of the Competition Act, 2010.