Ecbwp 157

EUROPEAN CENTRAL BANK
WO R K I N G PA P E R S E R I E S
WORKING PAPER NO. 157
BIDDING AND PERFORMANCE

IN REPO AUCTIONS:
EVIDENCE FROM ECB OPEN
MARKET OPERATIONS
BY KJELL G. NYBORG,
ULRICH BINDSEIL
AND ILYA A. STREBULAEV
July 2002
EUROPEAN CENTRAL BANK
WO R K I N G PA P E R S E R I E S
WORKING PAPER NO. 157
BIDDING AND PERFORMANCE

IN REPO AUCTIONS:
EVIDENCE FROM ECB OPEN
MARKET OPERATIONS
BY KJELL G. NYBORG,
ULRICH BINDSEIL
AND ILYA A. STREBULAEV*
July 2002
* We wish to thank the ECBs Front Office Division for providing secondary market data and Jean-Louis Schirmann for helpful
discussions on the microstructure of the euro area money market. We also wish to thank seminar participants at the ECB for valuable
comments. Nyborg would like to thank the ECBs Directorate General Research for its invitation to a research stay in the autumn of
2001, when the bulk of this research was carried out. Strebulaev would like to thank the ECB for the opportunity to visit it for the
purpose of this research project. Nyborg: London Business School, Regents Park, London NW1 4SA, UK, knyborg@london.edu; CEPR.
Bindseil: European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany, ulrich.bindseil@ecb.int. Strebulaev: London
Business School, istrebulaev@london.edu
© European Central Bank, 2002
Address Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
Postal address Postfach 16 03 19
D-60066 Frankfurt am Main
Germany
Telephone +49 69 1344 0
Internet http://www.ecb.int
Fax +49 69 1344 6000
Telex 411 144 ecb d
All rights reserved.

Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.
The views expressed in this paper are those of the authors and do not necessarily reflect those of the European Central Bank.
ISSN 1561-0810
Contents
Abstract 4
Non-technical summary 5
1 Introduction 6
2 Institutional Framework 8
2.1 Operational Framework of the Eurosystem 8
2.2 Open Market Operations: The Auctions 9
2.3 The Liquidity Management (allotment policy) of the European Central
Bank 10
3 Overview of the Data and the Markets 11

3.1 The Auctions 11
3.2 The Secondary Market 13
4 Theoretical Considerations 15
4.1 Winners Curse and Collateral 15
4.2 Reserve Requirements: Shorts and Longs 15
4.3 Collateral, Auction Cycle and Minimum Bid Rate 16
5 Cross Sectional Analysis 17

5.1 Descriptive Statistics 17
5.2 Regression Analysis 19
6 Intertemporal Behavior and Performance 23

6.1 Behavior 23
6.2 Performance Across and Within Maintenance Periods 24
7 Size 26
8 Underbidding 28
9 Conclusion 30
10 Appendix: Conditional Volatility Estimation 31
11 References 32
Tables & Figures 34
European Central Bank Working Paper Series 54
ECB Working Paper No 157 July 2002 3

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Fig. 1: Standing Facilities and Minimum Bid Rate
6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
Jun-00 Sep-00 Dec-00 Mar-01 Jun-01
min bid rate deposit facility lending facility

200.0 Fig.2: Expected neutral allotment am ount and difference to actual allotment
am ount
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50.0
expected neutral and deviation (bn euro)

0.0
1
3
5
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9
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13
15
17
19
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29
31
33
35
37
39
41
43
45
47
49
51
53
49
Auction no.
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Fig. 3: Frequency of Participation
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100
80
60
40
Number of Bidders
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0
1 5 9 13 17 21 25 29 33 37 41 45 49 53
Number of Auctions

Fig. 4: T ime T rend of Number of Bidders
900
800

700
600
500
400
Number of Bidders
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200
Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01
Auctions
51
52
Fig. 5: Distribution of Number of Bids
10000
9000
8000
7000
6000
5000
4000
3000
2000
Individual Demand Schedules

1000
0
1 2 3 4 5 6 7 8 9 10
Number of Bids

Fig. 6: Secondary Market Rates
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5.55
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4.95
4.75
Rates (%)
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4.35
4.15
3.95
Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01
swap rate deposit rate EONIA forward rate
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EUROPEAN CENTRAL BANK

WORKING PAPER NO. 157

BIDDING AND PERFORMANCE

WORKING PAPER NO. 157

BIDDING AND PERFORMANCE

All rights reserved.

3 Overview of the Data and the Markets 11

5 Cross Sectional Analysis 17

6 Intertemporal Behavior and Performance 23

10 Appendix: Conditional Volatility Estimation 31

Tables & Figures 34

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