Underwriting Government Debt Auction
Speaker(s) Dr. Sudip Gupta, Professor, Fordham University, New York, USA Publication Reserve Bank of India, CAFRAL, Mezzanine floor, Main Building, Shahid Bhagat singh road, Fort, Mumbai 400001

We examine a novel two-stage mechanism for selling government securities, wherein the dealers underwrite in the first stage the sale of securities, which are auctioned in stage 2, via either a Discriminatory Auction (DA) or a Uniform Price Auction (UPA). Using proprietary data on auctions during 2006-2012, we find under DAs (a) Theunderwriting commissions are higher and exhibit more volatility, (b) Stage 1 award concentrations are higher, and (c) Stage 2 bid-shading and the degree of underpricing are higher. Stage 1 outcomes are powerful in explaining Stage 2 auction outcomes including the likelihood of devolvement, and bid shading.