Bidder Profitability Under Uniform Price Auctions and Systematic Reopenings : The Case of Italian Treasury Bonds

This paper analyzes the uniform price auctions for Italian Treasury securities in 1995-1996 and examines the revenue-efficiency of the auction mechanism, employing an extremely detailed dataset which includes all transactions made by the 41 primary dealers on the screen-based secondary market with their identity. The main findings are that initial auction discounts are negligible and not statistically different from zero. The feature of systematic reopening of a security significantly reduces the variance of price bids between the first and the following auctions, due to the information aggregation function of secondary market trading. Using various trading strategies, market-average price discounts in the reopenings are not statistically different from zero. Price discounts are affected inversely by auction participation, bidders' competition and information dispersion. Finally, no individual primary dealer is able to capture a positive and significant price discount. From a policy viewpoint these results indicate that, following the market reform of 1994 and the increase in competition caused by the entry of international dealers, the uniform price auction mechanism together with systematic reopening has become an efficient selling technique for the Italian Treasury