1. U.S. Treasury Treasury ----------------------- U.S. Treasury (Government credibility, more flexible to trade) Goal of Treasury Auction Goal of Treasury Auction: Government: The Higher price to sell, the better Bidder: as low price as possible to get the bond/note/bill with a certain amount of par value U.S. Treasury Auction Which kind of financial asset has both the certain amount of payback and the certain amount of time period?

2. Bill--<1 Y 3month weekly 6month weekly 1year 4 week http://www.treasurydirect.gov/RI/OFAnnce Note—2-10Y 2year monthly 5year monthly 10 year quarterly Bond-->10Y 15year quarterly 20 year quarterly 30year quarterly U.S. Treasury Auction Types are clarified by maturity period

3. Step1. Announcement day Total amount issued to be auctioned Each type of maturities Auction Date

4. As a qualified bidder(able to access online system ), Longtan wants to bid for a U.S. Treasury Options to choose: Tender------- 2Billion Tender------- 2Billion (amount I want to buy) Yield Bid-2.58% Yield Bid-----2.58% (minimum yield I can accepted) 5-year Note 5-year Note

5. Step. 2 Auction day Submit Submit before 1:00 pm eastern time Noncompetitive tender and nonpublic purchase submit before 12:00pm Amount available to auction Amount available to auction = Total amount issued to be auctioned - Noncompetitive tenders( 1M limited each ) - nonpublic purchase( Treasury reserve )

6. Auction day One hour after submission through online system : One hour after submission through online system : Available to provide in book entry form @ Federal Reserve Bank Only a receipt to show ownership Ownerships transfer more easier through Bank account

7. What happen during this one hour? NameYields BidTenderAccumulate Total(Billion) Keiko2.55%33 Ploy2.56%69 Sea2.56%413 Mini2.57518 Longtan2.58%220 Chip2.59%9(9/15 )*(30-20) Mike2.59%3(3/15) *(30-20) Sarah2.59%330(3/15) *(30-20) Frances3.00%530 Ketch3.01%830 “Missed” “Shut out” Chip2.59%6.6726.67(9/15 )*(30-20) Mike2.59%1.6728.34(3/15) *(30-20) Sarah2.59%1.6730(3/15) *(30-20) Stop Yield Assume 10 billion for nonpublic and noncompetitive tender Total Amount available to auction= 40-10=30Billion 15 demand

8. Who are qualified to buy in the primary market? Could Longtan able to afford 2 billion? Who can guarantee that I will purchase after I bid for it ? Nonprimary dealer- Nonprimary dealer-----------Longtan(need guarantee) Primary dealer- Primary dealer-------------report to Federal Reserve and continue meet criteria to bid for a certain amount After 1991 Commercial bank Commercial bank -----------Longtan to be customer Qualified broker-dealer Qualified broker-dealer --------customer/ to be dealer my own (Possible if I have money)

9. Conclusion Step1 Step1. get information from announcement day Step2 Step2. Submit request before auction day Step 3 Step 3. The specific online system run through all requirements and comes to a result based on the process explained on slides 7

11. Reference: http://www.treasurydirect.gov/ http://www.treasury.gov/services/Pages/aucti ons_index.aspx http://www.treasury.gov/services/Pages/aucti ons_index.aspx http://www.treasurydirect.gov/RI/OFAnnce http://www.youtube.com/watch?v=WLx1_nyn JD0 http://www.youtube.com/watch?v=WLx1_nyn JD0

12. Frequently ask Q&As? 1. What is Noncompetitive tenders? 1. What is Noncompetitive tenders? Non-competitive tender is for small investors, while competitive tender is for large institutional investors. The price that a non-competitive bidder receives is the average bid price of all competitive bids.

13. continued 2. Who will be in the primary dealers? http://newyorkfed.org/research/current_issues/ci13-1/ci13-1.html