The new process is really an accounting change and will give a more precise measure of ALL customer interest.
Previously many dealers would bid for customers with a direct bid and then sell that award to the client. The bid was not the dealers and the dealer had no risk in the transaction as the client had agreed to take the bonds at a price.
The Treasury, with the change in procedure, is providing market transparency which was only available before to those who submitted those customer bids as direct bids. That dealer would know that a substantially larger amount of bonds had been “put away” or sold to end users than was actually being reported.
Under the old system the award to the dealers was larger as the customer bid was included in the dealers bid. In that way the total to dealers was misleading as it made it look as though dealers were buying more bonds than they truly were. This gave an unfair advantage to the dealer who submitted the investor bid.
Simply stated many people look at the dealer total and view those bonds as bonds that will be quickly flipped back into the street. Now the number will be more accurate and in the aggregate we will have a better handle on total client demand.
There is also a very inside baseball game here. The Federal Reserve reviews the participation of primary dealers in the auction process. I know factually that some smaller dealers were hassled for the small percentage of the auction for which they bid. The Federal Reserve would sometimes compare different dealers and critique some for lack of participation relative to a peer.
In fact some dealers were bulking up their totals by including the client bid as their own and in that way overstating their participation. Now the Fed and the Treasury will have a better handle on the true participation rates of the various parties.
All of this sprang from the famous Solomon Brothers bidding scandal in the two year note auction in ( I believe ) May 1991. I will leave the details of that for a slow July Friday.