ISLAMABAD: The Competition Commission of Pakistan (CCP) has launched a probe into suspected collusion activities of commercial banks in auctioning Market Treasury Bills (MTBs) to provide funding to the government at higher rates.
Following the IMF programme, the government banned borrowing from the State Bank of Pakistan and yawned to meet the budget deficit, leaving it dependent on commercial banks to meet financing requirements. This situation is being taken advantage of by banks, so the CCP has begun investigations to find elements of cartelization to participate in T-bills by offering higher markup rates. According to details available with 'The News', stating that the CCP has started an investigation into suspected cartelization by Primary Dealers (PDs) in the recent auctions of Market Treasury Bills (T-Bills) conducted by the Government of Pakistan. ,
The preliminary scrutiny was due to various concerns raised in the recent auctions regarding significant increase in returns for all periods (3, 6, and 12 months) of T-bills issued by the government. The State Bank of Pakistan (SBP) in its Monetary Policy Statement issued on 14 December 2021 also termed the increase in yields as unfair. Concerns were also expressed that since the government could no longer borrow directly from the SBP, it was thus dependent on commercial banks to meet their financing requirements, which placed commercial banks in a position to set the terms .
A preliminary analysis showed that since MTBs were risk-free, their returns were generally 25 to 50 basis points higher than the policy rate. However, from September to December 2021, the average difference between the policy rate and the cut-off yield for 3-month MTB increased to 114 basis points. The highest cut-off yield was observed in the auction on December 15, 2021. The Commission in its meeting, after reviewing the recent bidding data, formed an opinion that the general trend in the bidding pattern should be further examined as it raises suspicion of collusion. by PD.
From a preliminary examination of the bid data, it was observed that there were instances where PDs have submitted similar/similar bids, and some PDs also followed the normal bidding pattern. In addition, there was an indication of rotation between PDs and an increase in the rates quoted simultaneously, and it was noted that in most of the bids, the bulk of the bids were won or awarded by a single bidder. The above factors require further investigation for any possible collusive bidding on the part of the primary dealers and/or the factors, if any, which have led to the quoting/charging of higher rates than before. have contributed.
In the above circumstances there is a need to initiate investigation under section 37(1) of the Act. The Commission also decided that senior officers of banks may be called and there is a need to explain the reasons for identifying the pattern of bidding. The Commission in its meeting has also decided to appoint the State Bank of Pakistan as a focal person and assist the Investigating Officers and understand the procedures to ensure free market operation in the bidding process.
It is important to note that bid rigging or any kind of co-ordination by the parties during the bidding process is prohibited under Section-4(2)(e) of the Competition Act-2010. Once the investigation is complete, the findings will be presented to the commission and will also be made public.