Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price (the seller's minimum acceptable price) is reached. "Auctioneer" redirects here For the DC Comics supervillain see Auctioneer (comics. Ask price, also called offer price, offer, asking price, or simply ask, is a Price a seller of a good is In Microeconomics, the reservation (or reserve) price is the maximum price a buyer is willing to pay for a good or service; or conversely the The winning participant pays the last announced price. This is also known as a "clock auction" or an open-outcry descending-price auction.
This type of auction is convenient when it is important to auction goods quickly, since a sale never requires more than one bid. Theoretically, the bidding strategy and results of this auction are equivalent to those in a Sealed first-price auction. A sealed first-price auction is a form of Auction where bidders submit one bid in a concealed fashion
The Dutch auction is named for its best known example, the Dutch tulip auctions. Tulip mania or tulipomania ( Dutch names include tulpenmanie tulpomanie tulpenwoede tulpengekte and bollengekte) was a period in the (In the Netherlands this type of auction is actually known as a "Chinese auction," and in China it's known as an "Irish auction"[1]).
The term Dutch auction was co-opted by eBay. com to describe a multi-unit ascending auction where several identical goods are sold simultaneously to potentially multiple bidders.
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The United States Department of the Treasury, through the Federal Reserve Bank of New York (FRBNY), raises funds for the U. The United States Department of the Treasury is a Cabinet department and the Treasury of the United States government. The Federal Reserve Bank of New York is the most important of the twelve Federal Reserve Banks of the United States. S. Government using a Dutch auction. The FRBNY interacts with primary dealers, including large banks and broker-dealers who submit bids on behalf of themselves and their clients using the Trading Room Automated Processing System ("TRAPS"), and are generally told of winning bids within fifteen minutes. A primary dealer is a Bank or securities Broker-dealer that may trade directly with the Federal Reserve System of the United States.
For example, suppose the sponsor of the issuance is seeking to raise $10 billion in ten-year notes with a 5. 125% coupon and in aggregate the bids are as follows:
- $1. 0 billion at 5. 115%
- $2. 5 billion at 5. 120%
- $3. 5 billion at 5. 125%
- $4. 5 billion at 5. 130%
- $3. 75 billion at 5. 135%
- $2. 75 billion at 5. 140%
- $1. 50 billion at 5. 145%
In this example, the Bid-to-Cover Ratio is 1. Bid-To-Cover Ratio is a Ratio used to express the demand for a particular security during offerings and Auctions In general it is used for shares bonds 95, therefore, not every bidder will receive bonds. Bids will be filled from the lowest yield (highest price) until the entire $10 billion has been raised. This auction will clear at a yield of 5. 130 percent and all bidders will pay the same amount. In theory, this feature of the Dutch auction format leads to more aggressive bidding as those who in this case bid 5. 115% will receive the bonds at the higher yield (lower price) of 5. 130%.
A variation on the Dutch auction, OpenIPO, was used on the IPO for Google stock. OpenIPO is an innovative auction process pioneered by the investment bank WR Hambrecht + Co for distributing stock in an Initial public offering to individuals and Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first Google Inc is an American public corporation, earning revenue from advertising related to its Internet search, e-mail, online
Dutch auction share repurchases
The introduction of the Dutch auction share repurchase in 1981 allows firms an alternative to the fixed price tender offer when executing a tender offer share repurchase. In some countries including the United States and the United Kingdom, Corporations can buy back their own Stock in a share repurchase also known as The first firm to utilize the Dutch auction was Todd Shipyards. A Dutch auction offer specifies a price range within which the shares will ultimately be purchased. Shareholders are invited to tender their stock, if they desire, at any price within the stated range. The firm then compiles these responses, creating a supply curve for the stock. [2] The purchase price is the lowest price that allows the firm to buy the number of shares sought in the offer, and the firm pays that price to all investors who tendered at or below that price. If the number of shares tendered exceeds the number sought, then the company purchases less than all shares tendered at or below the purchase price on a pro rata basis to all who tendered at or below the purchase price. If too few shares are tendered, then the firm either cancels the offer (provided it had been made conditional on a minimum acceptance), or it buys back all tendered shares at the maximum price.
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Notes
- ^ Mentioned among others on this blog which might have gotten the list from the book The Undutchables (as noted here). An auction rate security (ARS typically refers to a Debt instrument ( corporate or Municipal bonds with a long-term nominal maturity for which the
- ^ To understand the Dutch auction bidding and outcome from actual shareholder tendering responses, see Bagwell, Laurie Simon, "Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity,". 1992. Journal of Finance, Vol. 47, No. 1, 71-105.
Dictionary
dutch auction
-noun
- an auction where many of the same item are sold.
- a reverse auction that starts at a high price that is gradually reduced by the auctioneer until someone is willing to buy
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