Bond Auctions and Buybacks Disclosure for Rates Clients
This disclosure sets out certain information we provide to our clients in connection with bond auctions and buybacks. The contents of these disclosures should not be treated as investment, regulatory or legal advice.
The disclosures set out below relate to Barclays role in the bond auctions and buybacks of government, sovereign, supranational and agency issuers in the different countries we operate in around the globe.
The disclosures set out below refer to ‘bids’ in the ‘auctions’ of ‘government debt management offices’ for the sake of simplicity, but they apply equally to offers in buybacks as well as for other types of issuers such as sovereign, supranational and agency issuers and the disclosures should be construed accordingly.
Conflicts of interest
Potential conflicts of interest may arise as a result of Barclays acting as a primary dealer in bond auctions. These potential conflicts of interest include the following:
• Client order vs. Barclays bid
When Barclays participates as a primary dealer in bond auctions it has three main objectives: (i) to fill the client orders it has received, (ii) to satisfy its own inventory need and (iii) to fulfil its primary dealer obligations to the government debt management office. This creates a potential conflict between the interests of our clients and the interests of Barclays to the extent that knowledge of client orders could inform Barclays own submissions.
• Client order vs. Barclays hedging activity
Barclays may hedge the risk of a client order either in the market ahead of the auction or in the auction itself. This is consistent with market practice, but it creates a potential conflict of interest because Barclays trading activity in the market may have an impact on the final auction results which could adversely impact a client.
• Client order vs. Barclays primary dealer ranking
Barclays performance as a primary dealer in each country is typically assessed by the relevant government debt management office and primary dealers with higher rankings may be granted certain privileges by a government debt management office (see Primary dealer obligations and privileges section below). As a result, Barclays may benefit from client business in government bond auctions.
Barclays attempts to mitigate these potential conflicts of interest via the implementation of internal controls including restricting the use of information relating to client bids in certain auctions. Clients should note, that it may not be possible to restrict this information flow in every auction due to a combination of factors including auction processes imposed by government debt management offices as well as specific client order requirements and requests.
Where Barclays has implemented restrictions on client order information flow and a client leaves an order to be filled at a specific price, the Barclays traders responsible for determining Barclays own bid will not have knowledge of the client’s order prior to the auction. Clients should note, Barclays cannot guarantee that these client orders will be filled (in part or in full) as the likelihood of fill will depend on the outcome of the auction run by the relevant government debt management office.
If a client leaves a guaranteed fill order Barclays will provide clients with execution certainty, but to do so Barclays traders must have knowledge of the order to effectively manage Barclays risk.
Clients should note, when selecting the order type you wish to place with Barclays you should consider the points set out above. If you have any questions about the above, please ask your Barclays coverage person.
Barclays role as primary dealer
Primary dealer obligations and privileges
When acting as primary dealer, Barclays may be required by a government debt management office to satisfy certain obligations, or meet predefined targets in respect of its performance in auctions. In return for satisfying these obligations or meeting these targets, government debt management offices may grant certain privileges to a primary dealer (for example, being invited to be a lead management role in a syndicated issuance).
Also, a small number of European government debt management offices and some US government sponsored enterprises may pay a fee to primary dealers for their performance in auctions and other primary distribution duties.
In a number of countries outside the US, the government debt management office may offer Non-Competitive Subscriptions (NCS) to primary dealers. Clients should note, in countries where Barclays is granted a NCS for an auction, a client placing an order in the auction may request that Barclays offers it a portion of the NCS. This request must be received at the same time as the order for the competitive auction to be considered.
Barclays will exercise sole and absolute discretion in electing whether to grant a request for a portion of the NCS and may take into account (i) any rules imposed by the relevant government debt management office regarding NCS and (ii) any internal constraints on offering the NCS.
Submission of client orders to auctions
In most cases and absent express instructions from the client, orders at a specific price in auctions where Barclays has implemented information restrictions will be submitted directly into the electronic auction system of the government debt management office in Barclays name.
Where Barclays has not implemented information restrictions, Barclays may elect not to submit the client order directly to the government debt management office and instead may elect to fill the order by alternative means, such as from existing inventory. You must inform the Barclays employee if your preference is for the order to be submitted directly into the electronic auction system of the government debt management office.
For UK government bond auctions, if Barclays receives a client order and the order is accompanied by a DMO ID code, Barclays will assume the client is instructing for the order to be submitted to the UK government debt management office.
Barclays always acts as principal, not client’s agent, in respect of client orders for auctions.
Primary dealer reporting obligation
Some government debt management offices require primary dealers to report certain information about purchases and sales on the primary and secondary markets of the bonds issued by that government debt management office. The reporting format set by a government debt management office may require primary dealers to specify a counterparty type and country of counterparty incorporation for each purchase or sale. If you would like more information about any of the reports that Barclays is required to submit as a primary dealer, please speak to your dedicated Barclays coverage person.
Handling of client information
In addition to the controls regarding client bid information, Barclays also has policies addressing the proper handling of other types of auction information. In particular, Barclays restricts the communication of specific yields, rates or amounts of securities that clients may be bidding to other clients, as well as existing securities positions that Barclays or other clients may have. Barclays does provide clients general market colour around auctions provided that such information is provided on the basis of general impressions of the market and not knowledge of specific client information.
Guidelines for handling information related to US Treasury auctions
The policies described in this document serve as a disclosure of Barclays role in the bond auctions and buybacks of government, sovereign, supranational and agency issuers in the different countries we operate in around the globe, including the US. Accordingly, this document also serves as a summary disclosure of Barclays policies for the handling of US Treasury auction related information in response to the Department of the Treasury’s guidelines for handling information related to treasury securities auctions.
Please contact your dedicated Barclays coverage person if you have any queries about any of the disclosures set out above.