Non-Competitive

Ministry of Finance

The 'non-competitive' option allows primary dealers to buy government bonds without offering a specific price in the auction. They get the bonds at the final clearing price of the auction, provided they meet requirements such as a minimum purchase during sovereign bond auctions.

Last change on 16th of April 2025, at 12:10 (CET) | Publication Standard 1.0

• Publication category: Impactful algorithms
• Impact assessment: Field not filled in.
• Status: In use

General information

Theme

Public finance

Begin date

2015

Contact information

[e-mail]

Responsible use

Goal and impact

The aim is to give Primary Dealers (large banks) additional incentives to buy enough volume at Dutch State Loans (DSL) auctions and to make the bonds attractive to buyers. This policy ensures that Dutch government securities remain easily tradable. The use of the non-competitive option also depends on how well they comply with the obligation to provide bid and offer prices. Primary Dealers therefore also have an incentive to offer good prices, which helps to improve the tradability of Dutch government securities.

Considerations

The deployment of the algorithm does not entail any adverse consequences. It helps the agency keep Dutch government securities easily tradable.

Human intervention

No automated decision-making takes place. The calculation of the non-competitive is done manually in Excel, but is based on fixed formulas set out in the policy. The variable input, offtake during auctions, is entered manually in Excel.

Risk management

A technical risk is the miscalculation of the non-competitive option, which could theoretically give Primary Dealers an additional financial benefit. Based on this technical risk, it can also become a financial risk for the Agency. To mitigate these risks as much as possible, the 'non-competitive' is calculated independently by the mid- and back-office using a 4-eye principle.

Legal basis

Comptabiliteitswet

Links to legal bases

Comptabiliteitswet: https://wetten.overheid.nl/BWBR0039429/2023-09-26

Operations

Data

The following three parameters are used to determine whether a Primary Dealer is entitled to the non-competitive option.

1. Quotation score (measure of liquidity): this determines 50% of the quoting ranking and thus the percentage of 'non-competitive' to which the Primary Dealer is entitled if the second condition is also met.
2. Secondary market turnover: this determines 50% of the quoting ranking.
3. Purchase in DSL auctions: at least 3% of the total issue.

Technical design

The quoter scores are filtered based on 2 criteria, namely the standard deviation and a minimum percentage to determine the number of Primary Dealers (PDs) that act as a lower limit. The standard deviation is currently 2. The lower limit is 75%. For example, if there are 10 PDs, at a rate of 75%, this equates to 8 PDs (rounded). This means that at least the quoting score is based on the mean of these 8 PDs, despite the fact that any number of standard deviations would cause more PDs to be excluded from the calculation. If the value 100 is entered here, the number of SDs is thus no longer relevant in the calculation, because by definition, the supplied values of all PDs are used to determine the quoting score. For the quoting requirement, a 3-month rolling average of the average end-month quoting rate is used.

For secondary market turnover, the amounts traded by each Primary Dealer in the secondary market with a selection of counterparty types are considered. Both buy and sell trades count. The ranking is done on a 2-month rolling average of turnover.

A percentage is attached to the quoting ranking. Currently, the percentage ranges from 21% (ranking 1) to 9% (ranking 13). This percentage is applied to the respective dealer's offtake during the auction to calculate the non-competitive.