What is Dutch Auction? A Dutch auction
Dutch auction
A Dutch auction is a type of auction in which 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. The winning participant pays the last an…
What is a Dutch auction in the stock market?
What it is: A Dutch auction is a method for pricing shares (often in an initial public offering) whereby the price of the shares offered is lowered until there are enough bids to sell all shares. All the shares are then sold at that price.
How do I Sell 10 million shares in a Dutch auction?
For example, let's assume Company XYZ wants to sell 10 million shares using a Dutch auction. To participate in a Dutch auction, an investor typically opens an account with Company XYZ's underwriter (usually an investment bank ), obtains a prospectus, and obtains an access code or bidder identification code (Dutch auctions often occur online).
Why does a Dutch auction encourage aggressive bidding?
A Dutch auction encourages aggressive bidding because the nature of the auction process means the bidder is protected from bidding a price that is too high. Assume that the company, Compu Inc., is using a Dutch auction to price its shares for an IPO.
What is the benefit of a Dutch auction?
An advantage of a Dutch auction is that it tends to result in higher payments being made to an issuer than what is derived from the more traditional initial public offering approach. It also tends to shift share purchases away from investment banks and toward smaller investors.
Is a Dutch auction good?
The Dutch auction allows individual investors to find the best traditional offerings. As a result, they benefit more and more by buying shares at lower prices and selling them at higher bid prices.
Why would a company do a Dutch auction?
In security markets, a Dutch auction, or modified Dutch auction, allows a company to buy back shares and lets investors partially determine the clearing price. Unlike under a normal course issuer bid (NCIB), a company in a Dutch auction can buy back a lot of shares in one fell swoop, rather than over a one-year period.
What is a Dutch forward auction?
A Dutch forward auction is a type of RFx that contains a list of items that buyers want to sell. In this auction, the price of the item falls after fixed intervals until a reserved price is reached.
What happens to a stock after Dutch auction?
Another drawback of Dutch Auctions is known as the "winner's curse." In this, a stock's price may crash immediately after listing when investors, who had bid a higher price earlier, realize that they may have miscalculated or overbid.
How does a Dutch auction work?
A Dutch auction is a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity. Alternatively, a Dutch auction is known as a descending price auction or a uniform price auction.
Are Dutch auctions illegal?
Dutch auctions are not illegal, but agents admit the practice is an ethical grey area.
How does a Dutch auction buyback work?
A buyback means that the company purchases a large amount of its own shares from existing investors. By doing that, it hopes to increase the value of its remaining shares in the market by decreasing the supply, potentially rewarding existing shareholders with a higher stock price.
Why are Dutch auctions better for sellers?
Dutch auction minimizes the difference between offering and actual listing price. This fact really increases the profits by buying at low prices and selling immediately after. Dutch auction prices are set in a more fair and transparent way.
What is the difference between an English auction and a Dutch auction?
An English Auction is an auction in which you are attempting to be the highest bidder on a listing of which there is only a quantity of one. A Dutch Auction is a unique type of auction designed for Sellers with a number of identical items to sell.
What is Dutch auction?
What is a Dutch Auction? A Dutch auction is a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity. Alternatively, a Dutch auction is known as a descending price auction or a uniform price auction.
How does Dutch auction work?
All bidders pay the same price per share. A Dutch auction encourages aggressive bidding because the nature of the auction process means ...
How many shares does Compu Inc have in IPO?
Assume that the company, Compu Inc., is using a Dutch auction to price its shares for an IPO. The company is looking to sell a total of 400 shares in its IPO.
What is an IPO?
Initial Public Offering (IPO) An Initial Public Offering (IPO) is the first sale of stocks issued by a company to the public. Prior to an IPO, a company is considered a private company, usually with a small number of investors (founders, friends, family, and business investors such as venture capitalists or angel investors). Learn what an IPO is.
Why are Dutch auctions important?
Dutch auctions have been praised as being more efficient and fairer as they can prevent Underwriters from allocating stocks to known or favoured clients. It has been suggested that improved efficiency in the IPO market is more likely to be felt in larger, already publicly listed companies as buyers are typically hedge funds or mutual funds. As such, the market has already priced their shares and an indication of issue size already exists.
What was the Dutch way of auctioning?
The Dutch manner of auctioning appeared in England by the 17th century, which was called "mineing".
What was the Dutch auction in 1957?
A 1957 Dutch auction in Germany to sell fruit. A Dutch auction is one of several similar types of auctions for buying or selling goods.
Where did descending price auctions take place?
History. Herodotus relates an account of a descending price auction in Babylon, suggesting that market mechanisms similar to Dutch auctions were used in ancient times. Descending-price auctions were used in 17th-century Holland for estate sales and paintings.
Is a Dutch clock more profitable than a first price auction?
The speed of the Dutch clock has a significant effect on final prices and the auctioneers revenue. A fast Dutch clock has been found to yield significantly lower bids and seller revenue when benchmarked against a First-price sealed-bid auction. On the contrary, a sufficiently slow Dutch clock is found to be more profitable than a First-price auction.
Can you view other bidders in Dutch auctions?
In Dutch auctions, bidders are unable to view other participants bids with the exception of the winning bid. This leads to participants experiencing greater uncertainty when assessing the competitive dynamics of the Dutch auction.
Overview
A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. This type of price auction is most commonly used for goods that are required to be sold quickly …
History
Herodotus relates an account of a descending price auction in Babylon, suggesting that market mechanisms similar to Dutch auctions were used in ancient times. Descending-price auctions were used in 17th-century Holland for estate sales and paintings. The Dutch manner of auctioning appeared in England by the 17th century, which was called "mineing". In that type of auction, said to be a "Method of Sale not hitherto used in England", the auctioneer began with a high price tha…
Auction process
Before the auction commences, the auctioneer presents information about the objects sold to bidders. This information is displayed on a clock or electronic device in front of the site.
A Dutch auction initially offers an item at a price in excess of the amount the seller expects to receive. The price lowers in steps until a bidder accepts the c…
Effect on stakeholders
The speed of the Dutch clock has a significant effect on final prices and the auctioneers revenue. A fast Dutch clock has been found to yield significantly lower bids and seller revenue when benchmarked against a First-price sealed-bid auction. On the contrary, a sufficiently slow Dutch clock is found to be more profitable than a First-price auction. More advanced age has a clear, statisticall…
Public offerings
Comparative to the standard Book building method, Dutch auctions have also been considered for Public Offerings and price discovery. Dutch auctions have been praised as being more efficient and fairer as they can prevent Underwriters from allocating stocks to known or favoured clients. It has been suggested that improved efficiency in the IPO market is more likely to be felt in larger, already publicly listed companies as buyers are typically hedge funds or mutual funds. As such, t…
Dutch auction share repurchases
The introduction of the Dutch auction share repurchase in 1981 gives firms an alternative to the fixed price tender offer when executing a tender offer share repurchase. The first firm to use the Dutch auction was Todd Shipyards. A Dutch auction offer specifies a price range within which the shares are purchased. Shareholders can choose to tender their stock at any price within the stated range. The firm compiles these responses, creating a supply curve for the stock. The purc…
eBay ascending uniform-price mechanism
Rather than implementing a traditional Dutch auction, internet auction and e-commerce site, eBay, once utilised a multi-quantity listing style. This allowed a person to bid by specifying a price and quantity collectively. This Dutch auction mechanism has been referred to as ascending uniform-price “Dutch” auction
The units were sold per the price and quantity bidden which added up to the highest overall valu…
Slow Dutch auction
Dutch flower auctions are considered to be a particularly fast auction form with particularly low transaction costs, and they use an electronic device to lower the price. Sometimes, slower processes such as the bargain basement of Filene's department store, in which the discount on goods is increased over time until the goods are sold, are considered Dutch auctions. When faced with a positive cost of returning to the auction site, prefer to purchase the object sooner (at a hig…