Reference Notes® Securities Auction FAQ
- Why is Freddie Mac conducting Reference Notes® securities auctions?
- What products will Freddie Mac sell by auction?
- What type of auction will Freddie Mac use?
- Who can participate?
- Why should investors participate?
- When will the auctions be held?
- What are the auction rules?
- How does an investor or intermediary become eligible to submit bids?
- How does one submit bids?
- Will my bids and activity be known?
- Will there be WI (When Issued) trading?
- What are Freddie Mac's control measures?
Freddie Mac is committed to deliver value to investors by promoting the transparency, regularity, and liquidity of its debt products. Reference Notes securities auctions will offer investors highly transparent, market-driven new issue pricing on a regular schedule. We expect these auctions to contribute to the orderly growth and evolution of the fixed-income market, including WI (When Issued) and repo trading.
Currently, Freddie Mac auctions Reference Bills® securities (discount notes with terms of 12 months and less). Reference Notes securities are offered via either a dealer syndicate or an auction.
The auctions will use a closed-bid, Dutch auction (uniform yield and price) format. Participants will submit bids electronically prior to the auction close, without knowledge of bids submitted by other participants. All notes are awarded at the highest accepted yield. After determining the highest accepted yield, Freddie Mac then sets the coupon rate and price. We expect the calculation time to generally be only a few minutes from the close of the auction.
Freddie Mac has designated a group of about 35 dealers. All bids must be submitted by, or through, these dealers, including those bids submitted by investors. Investors may also submit bids through intermediary dealers that transact with Freddie Mac's designated dealer group members.
Depending upon prevailing market conditions, the auction may provide the least expensive way to purchase new issue Reference Notes securities. Investors can participate directly in the auctions to buy the product at the price corresponding to the stop rate. Investors should discuss with their designated dealer(s) any specific clearing and settlement fees that may apply.
To facilitate liquid when-issued markets, Freddie Mac will indicate the issue size and the CUSIP number on the official auction announcement date as indicated on the Global Issuance Calendar.
Freddie Mac's 2013 Funding Calendar states the announcement dates for Reference Notes securities. On the announcement date, Freddie Mac will announce whether the offering will take place via auction or via an underwriting syndicate. Dealers may submit bids during the window that the auction remains open.
The Freddie Mac Reference Notes Securities Auction Procedures are intended to facilitate broad distribution of the auctioned Reference Notes securities, to protect against manipulation, and to be market-friendly. All auction participants are deemed to certify that they are in compliance with and bound by the Auction Procedures.
Any investor or intermediary desiring to submit bids must sign up with Freddie Mac on its website (see Investor and Intermediary Information) at least 48 hours prior to an auction. Investors need to designate dealers only once and may modify this list from auction to auction, as desired. Participants must provide account contact information and designate the dealers on whose bid entry screens they wish their name to appear. This step helps ensure investor privacy -- only dealers designated by the investor will be aware of the investor's auction participation eligibility. Investors and intermediary dealers must only designate dealers from among those with whom they have active accounts established.
Investors submit bids by notifying one or more of their designated dealers and formally giving a bid or bids for submission in a specific auction. Such bids must include an amount, a yield (unless non-competitive), and a net long position, if applicable (see the Auction Procedures).
Investors may submit or modify bids up to, but not beyond, the closing time of the auction, subject to any administrative restrictions that the designated dealer may choose to impose. For instance, a dealer may impose its own policy to limit modifications or bid entry only up to a certain time before the auction.
Intermediaries may submit bids to Dealer Group members for their own account or for the accounts of others. At Freddie Mac's request, any participating intermediary must disclose the identity of the account on behalf of which it submits each of its bids.
The data contained within Freddie Mac auctions is secure and confidential. Bids and awards are known only to Freddie Mac, its auction administrator, and the dealer or dealers through which bids are submitted. Investor names appear only on the screens of the primary Dealer Group members they designate. Investors may use more than one dealer per auction, if desired. However, because Freddie Mac sees the identity of each bidder, it is able to aggregate all bids from the same investor, monitor compliance, and award notes within applicable Auction Procedures.
Freddie Mac specifies the issue size and CUSIP number to enable pre-auction WI secondary market trading but is not a counter-party or participant in such activity. Investors may contact dealers for pre-auction bids and offers of Reference Notes securities.
Freddie Mac intends for its Reference Notes securities auctions to be efficient, orderly, and transparent pricing events for the fixed-income markets. In an effort to foster as orderly a market possible, Freddie Mac imposes rules (see Auction Procedures) that are binding upon all who participate in the auctions. Among other safeguards, Freddie Mac reserves the right to contact participating dealers, intermediaries and investors to request, verify, and audit auction-related activity including, but not limited to, WI positions, bids submitted, account names and other information which it deems necessary to ensure efficient and orderly auctions. Freddie Mac may suspend dealers, intermediaries or investors, temporarily or permanently, from participating in its auctions, may pursue legal action if its rules have been violated and will cooperate with regulatory authorities with respect to monitoring or enforcement activities.