The U.S. Treasury had been using multiple-price sealed-bid auctions to sell its bills since their introduction in 1929. In this auction format, buyers submitted confidential bids on the new securities and winning bidders paid the price of their own bid, resulting typically in different prices for different bidders. This traditional procedure came under sharp attack by several prominent economists when illegal manipulations by a trader at Salomon Brothers came to light in 1991. As a pilot program, the Treasury announced on September 3, 1992, that it would conduct single-price sealed-bid auctions of its 2-year and 5-year notes for a limited period of time. In the single-price sealed-bid auction, participants again submitted confidential bids but, in contrast to the multiple-price auction, a single clearing price was determined that equalized supply and demand. When the 1992 pilot program was extended until 1998, the majority of Treasury sales were conducted in the traditional multiple-price format and a decision on the usability of single-price auctions had yet to be taken.
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