Magazine article American Banker

Treasury Pledges Better Auction Policing; Goal: Eliminate 'Short Squeezes' in Market for Government Securities

Magazine article American Banker

Treasury Pledges Better Auction Policing; Goal: Eliminate 'Short Squeezes' in Market for Government Securities

Article excerpt

WASHINGTON -- A senior Treasury Department official told a House subcommittee on Thursday that the government securities market is "not flawed or broken in any fundamental sense."

But Jerome Powell, assistant secretary for domestic finance, said there can be some improvements allowing for "better enforcement of Treasury auction rules [and] preventing and alleviating 'short squeezes.'"

A short squeeze occurs when one player in the market buys up an inordinately big proportion of an issues, creating a shortage that drives up the price.

Mr. Powell testified to a subcommittee of the House Banking Committee. While he noted some disagreement among the three agencies that studied the Treasury market after Salomon Inc.'s 1991 bidding scandal, he said they shared common objectives.

Balancing Objectives, Costs

"Among these objectives are preserving and enhancing the efficiency of the government's financing mechanism, ensuring the integrity and fairness of the marketplace, deterring and detecting fraud, and protecting investors," the official said.

He added that change must be carefully managed so the public debt is financed at the lowest possible cost.

Mr. Powell said that, in general, market-oriented solutions have been put forward whenever possible, with an eye toward benefiting taxpayers by lowering interest on the public debt.

Meanwhile, E. Gerald Corrigan, president of the Federal Reserve Bank of New York, said his institution could sanction Salomon Brothers for its wrongdoings in Treasury auctions, even if it is not convicted of a felony. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.