JAMSHEDPUR (Nov 6,'09, Times of India): XLRI School of Business and Human Resources simulated a simultaneous auction along with the Rs 90-billion government securities auction by the RBI on Friday.
The bond auction game was conceptualised and designed by professor of finance H K Pradhan as a part of the fixed income securities course conducted by him. The idea was to give the students a practical feel of the bond market to help them better imbibe the concepts in the course.
"In trying to do this, we created an exact market situation that they would have to handle in their professional careers tomorrow. It is important to have some sort of experience along with theory classes," said H K Pradhan, the instructor of fixed income securities course.
The game comprised two teams with 20 teams acting as primary dealers in the market that bid for the Rs 90-billion government debt auction held the same day by the RBI, though in a simulated environment.
Pradhan was assisted by students Amit Kumar and Kartik Bakshi and senior executive members of the Finance Association at XLRI (FINAX), who were mock representatives of the Reserve Bank of India and conducted the whole process.
In real situations, the RBI carries out this process to check liquidity adjustment, known as inflation in layman's term.
The whole game was conducted within a three-hour span and the winning bids were to be determined at the closing time of market, i.e. 5 pm. The auction consisted of 2 types of bids uniform pricing and discriminatory pricing in the 3 government securities that were up for auction on Friday 7.32 percent bonds maturing in 2014 for 30 billion rupees, 6.35 percent 2020 bonds for 40 billion rupees and 7.5 percent 2034 bonds for 20 billion rupees. There were simultaneous trades at the "when-issued" market and the auction market of these bonds.
"Such events are important to us so that we get the real picture' of the present market trends. It helps understand the market functioning and we learn to effectively and expeditiously handle the problems," Vivek Seshadri, one of the participating students at the auction, said.
The results of the market are yet to be decided as there were 60 bids with 240 transactions involving some serious calculations. Though it was a hypothetical market, quotes were real ones made by the RBI in the real market auction.