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Norwegian government paper has been issued by means of auction for many years. However an automatic auction function first became available when bond trading moved onto the Oslo Stock Exchange´s automatic trading system in September 1999. The Oslo Stock Exchange is the first stock exchange in the Nordic countries to provide a function that fully satisfies issuers´ requirements for the rapid and efficient operation of auctions. The system also satisfies investor demand for reduced risk by significantly improving the time taken to determine the issue price and allocate subscriptions.
Following today´s successful auction Bodil Østby, Vice President of the Fixed Income Instruments business area at the Oslo Stock Exchange, commented "We are very pleased to see that the new functionality offered by the trading system has now been brought into use. The major advantage which carrying out an auction through the trading system offers is that allotment can take place immediately after the close of the bidding period, and participants receive real-time notification of the result of the auction and the amount allotted to them." Bodil Østby went on to point out that issuers similarly benefit from an exceptional degree of flexibility. The system gives issuers a full overview at all times of bids received and accordingly allows them to monitor interest in the auction to evaluate the final auction price. "The system accommodates both American and Dutch auctions, and can be used not only for new issues - both public issues and private placements - but also for offers to purchase" notes Bodil Østby. "The system´s functionality is also suitable for equity instruments."
The loan issued by the Norwegian Central Bank today through the auction is a zero-coupon issue amounting to NOK 4.5 billion, with a term to 19 September 2001. Bids received totalled NOK 6.605 billion, and the issue price was 93.267 %.
The procedure for an automatic auction is as follows:
Before an auction takes place, the borrower publishes details of the conditions for the auction, i.e. which bond is to be issued, the applicable terms and conditions such as interest rate, the amount to be issued, date of final maturity, timetable for bids to be received and the allotment principles to be applied. This will normally take place a couple of days before the auction. An auction is normally open to all investors who wish to participate, either through their broker or directly through the borrower.
On the day of the auction bids, are entered as orders in the Oslo Stock Exchange´s trading system and are ranked by price. In order to be eligible for allotment, bids must be registered in the trading system before the end of a specified bidding period, also known as the bidding deadline. Throughout the bidding process the borrower is able to see all the orders entered into the system and accordingly monitor the scale of interest in the auction. Allotment takes place immediately following the bidding deadline in accordance with the principles set for the auction.
Allotment takes place by the borrower registering the details of its acceptance, and the system then automatically allots participations to the participants in relation to the prices at which orders were submitted. All participants who have registered an order at a higher price than the borrower accepts will receive allocation in full, whilst participants who registered an order at the same price as the borrower accepts will receive a proportionate allotment. Participants who have submitted an order at a lower price than that accepted by the borrower will not receive any allotment. In the case of Dutch auctions all participants who receive an allotment will pay the same price, whilst in the case of an American auction participants who receive an allotment will pay the price at which they registered their order.
It has previously not been unusual for it to take 1-2 hours before the results of an auction were advised to the market, whilst the results of today's auction were known as quickly as 6 minutes after the bidding deadline. This helps to reduce the risk involved for participants who have submitted orders since they know more quickly whether their bids have been successful or not.
