G-Sec Auctions and STRIPS for the CTP Exam
RBI's own auction example, worked both ways, and how a bond is stripped into zeros.
The Government of India borrows by selling securities through auctions that RBI conducts on its E-Kuber platform. Short-term borrowing is in Treasury Bills; long-term borrowing is in dated securities (G-Secs). State governments issue only dated securities, called State Development Loans (SDLs). A bank treasury bids in these auctions both to meet its SLR requirement and to build its trading and investment books.
For the Certified Treasury Professional (CTP) exam, the questions are about mechanics: how the cut-off is found, who pays what price, what the non-competitive window is, and what STRIPS are. The examples below are RBI's own, from its G-Sec primer.
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Yield-Based vs Price-Based Auctions
Used when
Yield-based
A new security is issued
Price-based
An existing security is re-issued
Bidders quote
Yield-based
A yield, to two decimals (8.19%, 8.20%)
Price-based
A price per ₹100 (₹100.19, ₹100.14)
Bids ranked
Yield-based
Ascending yield
Price-based
Descending price
Successful bids
Yield-based
At or below the cut-off yield
Price-based
At or above the cut-off price
Coupon
Yield-based
Set equal to the cut-off yield
Price-based
Already fixed
| Yield-based | Price-based | |
|---|---|---|
| Used when | A new security is issued | An existing security is re-issued |
| Bidders quote | A yield, to two decimals (8.19%, 8.20%) | A price per ₹100 (₹100.19, ₹100.14) |
| Bids ranked | Ascending yield | Descending price |
| Successful bids | At or below the cut-off yield | At or above the cut-off price |
| Coupon | Set equal to the cut-off yield | Already fixed |
RBI's Example: ₹1,000 Crore Price-Based Auction of 8.22% GS 2026
Bids in descending order of price, ₹ crore. The notified amount is reached at bid 5.
1
Price
100.19
Amount bid
300
Cumulative
300
Allotted
300
2
Price
100.14
Amount bid
200
Cumulative
500
Allotted
200
3
Price
100.13
Amount bid
250
Cumulative
750
Allotted
250
4
Price
100.09
Amount bid
150
Cumulative
900
Allotted
150
5
Price
100.00
Amount bid
100
Cumulative
1,000
Allotted
50 (pro rata)
6
Price
100.00
Amount bid
100
Cumulative
1,100
Allotted
50 (pro rata)
7
Price
99.93
Amount bid
150
Cumulative
1,250
Allotted
Rejected
8
Price
99.87
Amount bid
100
Cumulative
1,350
Allotted
Rejected
| Bid | Price | Amount bid | Cumulative | Allotted |
|---|---|---|---|---|
| 1 | 100.19 | 300 | 300 | 300 |
| 2 | 100.14 | 200 | 500 | 200 |
| 3 | 100.13 | 250 | 750 | 250 |
| 4 | 100.09 | 150 | 900 | 150 |
| 5 | 100.00 | 100 | 1,000 | 50 (pro rata) |
| 6 | 100.00 | 100 | 1,100 | 50 (pro rata) |
| 7 | 99.93 | 150 | 1,250 | Rejected |
| 8 | 99.87 | 100 | 1,350 | Rejected |
The cut-off price is ₹100.00. Bids 5 and 6 are at the same price, so they share the last ₹100 crore pro rata, ₹50 crore each. Bids 7 and 8 are below the cut-off and get nothing.
Uniform Price vs Multiple Price: What the Government Raises
Same bids, two allotment methods. Amounts in ₹ crore, consideration = amount x price / 100.
Uniform price
Who pays what
Every successful bidder pays the cut-off, ₹100.00
Total paid for ₹1,000 crore face
₹1,000.00 crore
Multiple price
Who pays what
Each bidder pays its own bid price
Total paid for ₹1,000 crore face
300 x 1.0019 + 200 x 1.0014 + 250 x 1.0013 + 150 x 1.0009 + 100 x 1.0000 = ₹1,001.31 crore
| Method | Who pays what | Total paid for ₹1,000 crore face |
|---|---|---|
| Uniform price | Every successful bidder pays the cut-off, ₹100.00 | ₹1,000.00 crore |
| Multiple price | Each bidder pays its own bid price | 300 x 1.0019 + 200 x 1.0014 + 250 x 1.0013 + 150 x 1.0009 + 100 x 1.0000 = ₹1,001.31 crore |
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The Trade-Off
A multiple price auction raised ₹1.31 crore more in this example, but it punishes aggressive bidders, so bidders shade their bids down. A uniform price auction lets bidders bid their true value, knowing they will pay only the cut-off. Which method a given auction uses is stated in its notification.
Ways to Take Part
- Competitive bid
- A bid at a specific price or yield, allotted only if within the cut-off. Made by banks, PDs, mutual funds and insurers. Minimum ₹10,000, multiples of ₹10,000, and multiple bids at different levels are allowed.
- Non-competitive bid (NCB)
- A bid with no price or yield, for retail investors without a current or SGL account with RBI, placed through an aggregator. Up to 5% of the notified amount is reserved, minimum ₹10,000, maximum ₹2 crore per security per auction for dated securities, allotted at the weighted average price of the competitive bids.
- Aggregator charge
- An aggregator or facilitator can recover up to 6 paise per ₹100 for the service.
- When Issued
- Trading in a security after its issue is notified but before it is issued. Trades happen on NDS-OM only and all settle on the issue date.
STRIPS
STRIPS (Separate Trading of Registered Interest and Principal of Securities) cut a regular G-Sec into its separate cash flows: each half-yearly coupon and the final principal. Each piece is a zero coupon bond and trades on its own. RBI notes that STRIPS are created only from existing securities, never auctioned, and count for SLR because they are G-Secs.
RBI's example: when ₹100 of the 8.60% GS 2028 is stripped, each half-yearly coupon of ₹4.30 becomes a coupon STRIP and the ₹100 at maturity becomes a principal STRIP. STRIPS give the market sovereign zero coupon bonds, which help build a zero coupon yield curve, and carry no reinvestment risk.
Worked Example: Pricing STRIPS
Illustrative. Price each STRIP as a zero coupon bond at 7% a year, compounded half-yearly (3.5% per half year).
Coupon STRIP: ₹4.30 due in 2.5 years
Working
4.30 / 1.035⁵
Price
₹3.6205
Principal STRIP: ₹100 due in 5 years
Working
100 / 1.035¹⁰
Price
₹70.8919
| STRIP | Working | Price |
|---|---|---|
| Coupon STRIP: ₹4.30 due in 2.5 years | 4.30 / 1.035⁵ | ₹3.6205 |
| Principal STRIP: ₹100 due in 5 years | 100 / 1.035¹⁰ | ₹70.8919 |
Auction Facts the Exam Asks
- check_circleRBI publishes T-Bill auction results at 1:30 PM and dated security results at 2:00 PM (or half-hourly after if delayed).
- check_circleSettlement of primary auctions is T+1.
- check_circleNon-E-Kuber members, such as non-scheduled UCBs, bid through a scheduled bank or PD and hold securities in a Gilt Account.
- check_circleSpecial securities such as oil and fertiliser bonds are not SLR-eligible but can be used as repo collateral.
- check_circleCash Management Bills have no non-competitive window.
FAQs
What is the difference between uniform price and multiple price auctions?expand_more
In a uniform price auction every successful bidder pays the cut-off rate. In a multiple price auction each successful bidder pays the price or yield it bid.
How is the coupon on a new G-Sec decided?expand_more
Through a yield-based auction. The cut-off yield at which the notified amount is filled becomes the coupon rate.
Are STRIPS eligible for SLR?expand_more
Yes. RBI's primer says STRIPS, being G-Secs, are eligible for SLR.
At what price are non-competitive bids allotted?expand_more
At the weighted average price or yield that emerges from the competitive bids in the same auction.
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