What Is TAAPS?
Treasury securities trade through an auction process in the primary market. TAAPS receives tenders from brokers wishing to purchase marketable securities. Each bid is processed and reviewed automatically by TAAPS to ensure it complies with the Treasury’s Uniform Offering Circular.
- Treasury Automated Auction Processing System (TAAPS) is a computer system used developed to auction Treasury securities.
- TAAPS receives bids and tenders from brokers and institutional investors who want to purchase marketable securities.
- Each bid is processed and reviewed automatically by TAAPS to ensure it complies with regulations.
- TAAPS allows institutions to purchase securities directly, reducing or eliminating intermediary costs.
How TAAPS Works
The Treasury Automated Auction Processing System (TAAPS) was developed to become the heart of the operational process for the auctioning of Treasury securities. The U.S. Government sells securities through the Treasury Department and Federal Reserve Bank to raise money to fund the national public debt.
The Treasury Department authorizes Federal Reserve Banks to act as fiscal agents of the United States so that they can carry out the announcement of the auction, the sale of the securities, and any applicable regulations. The auction is a bidding process in which the Treasury department sells debt securities. The auction’s offering amount is the value of the Treasury, which is also called the bond’s by value or face value.
The bidder is the person or party offering to buy the securities either by themselves or through a financial institution. Typically, institutional investorsincluding banks, brokers, dealers, investment funds, retirement funds, and pensions, foreign accounts, and insurance companies may bid on Treasury securities through TAAPS.
Benefits of TAAPS
TAAPS provides institutions with direct access to U.S. Treasury auctions, via their computer, in which the system electronically receives and processes tenders. TAAPS allows institutions to purchase securities directly, reducing or eliminating intermediary costs. However, individual investors do not have access to TAAPS and must use Treasury Direct or go through an organization with access to TAAPS.
History of TAAPS
Treasury auctions began in 1929 with the auctioning of 3-Month Treasury Bills. From 1973 through 1976 the auction system expanded to include bills, notes, bonds, Treasury Inflation Protected Securities (TIPS), and Floating Rate Notes (FRNs). Until 1993, bids were received in paper form and processed manually, which was an extremely time-consuming and inefficient process. The TAAPS system created the streamlined and efficient process needed to handle the growing volume of Treasury securities trades.
Using Treasury Automated Auction Processing System
Below is an explanation of some of the steps involved in a Treasury auction in which TAAPS is responsible for the following:
- Receiving bids
- Separating competitive and non-competitive bids
- Ranking of competitive bids by increasing yield or discount rate
- Preparing a summary of the auction results.
To use the TAAPS system, financial institutions must apply for an account. The application includes an agreement certifying that the institution is not engaging in fraud by trading Treasury securities and certification of authority that the contacts listed on the application have the power to use TAAPS on behalf of the organization.
Once a TAAPS account has been established, institutions follow the published schedule of auctions of various Treasury securities. For each auction, the Treasury announces the following information:
- Amount of the security being sold
- Date of the auction
- Issue date of the security
- Maturity date
- Terms and conditions of the purchase
Schedules of auctions also include any applicable eligibility rules and the close times for competitive and non-competitive bidding. Typically, a non-competitive tender is a bid usually made by a smaller investor, while a competitive tender is a bid made by a larger, institutional investor.
The interested parties submit bids, and at the closing times for those bids, TAAPS sorts out the bids and awards them to bidders according to a set of rules designed both to fund the Treasury at the lowest cost and to maintain a competitive financial market. Winning bids are determined, who then submit tenders, and the securities are issued to the winners.