Tilted Forum Project Discussion Community - View Single Post

Yakk · 05-18-2004, 03:15 PM

It's a Dutch auction, not a normal IPO.

You submit two numbers: what is the most you will pay per share, and how many shares you will buy.

If they are selling 1 million shares, they take the highest 1 million offers for shares, and charge them all the lowest amount bid in that top 1 million shares.

Example:
10 shares for sale.
A asks for 10 shares at 1$
B asks for 5 shares at 5$
C asks for 1 share at 100$
D asks for 5 shares at 3$
E asks for 10 shares at 0.01$

The top share offers are
C asks for 1 share at 100$
B asks for 5 shares at 5$
D asks for 4 shares at 3$
The lowest price here is 3$. So, C gets 1 share at 3$, B gets 5 shares at 3$ and D gets 4 shares at 3$.

If D bowed out, then the share price would drop to 1$, and A would get 4 shares instead of D.

The bidding is done in a blind fashon. Luckily, the dutch auction is set up so that with the number of people involved, there really isn't much point in gaming the system.

Multiple bids from one person make sense btw.

Imagine if A bid 100$ for up to 10 shares, then 10$ for up to 20 shares.

If the share price was over 100$, A would get 0 shares. If the share price was between 100$ and 10$, A would get 10 shares. If the share price was under 10$, A would get 30 shares.

In all cases, A would get the shares at the same price everyone else did.

The goal of this dutch auction is manyfold.

First, it is aimed to reduce the "next day pop" on the stock. This is viewed as a waste.

Second, instead of giving institutional investors a special place in the pecking order, everyone can choose to step in and pick up shares. The price is determined by the market from the get go, not some investment bankers.

Third, a dutch auction doesn't require arcane knowledge to set up, just some technical archtecture. This could help mitigate the parasitic stranglehold a few institutions have on the IPO process.

05-18-2004, 03:15 PM	#15 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	It's a Dutch auction, not a normal IPO. You submit two numbers: what is the most you will pay per share, and how many shares you will buy. If they are selling 1 million shares, they take the highest 1 million offers for shares, and charge them all the lowest amount bid in that top 1 million shares. Example: 10 shares for sale. A asks for 10 shares at 1$ B asks for 5 shares at 5$ C asks for 1 share at 100$ D asks for 5 shares at 3$ E asks for 10 shares at 0.01$ The top share offers are C asks for 1 share at 100$ B asks for 5 shares at 5$ D asks for 4 shares at 3$ The lowest price here is 3$. So, C gets 1 share at 3$, B gets 5 shares at 3$ and D gets 4 shares at 3$. If D bowed out, then the share price would drop to 1$, and A would get 4 shares instead of D. The bidding is done in a blind fashon. Luckily, the dutch auction is set up so that with the number of people involved, there really isn't much point in gaming the system. Multiple bids from one person make sense btw. Imagine if A bid 100$ for up to 10 shares, then 10$ for up to 20 shares. If the share price was over 100$, A would get 0 shares. If the share price was between 100$ and 10$, A would get 10 shares. If the share price was under 10$, A would get 30 shares. In all cases, A would get the shares at the same price everyone else did. The goal of this dutch auction is manyfold. First, it is aimed to reduce the "next day pop" on the stock. This is viewed as a waste. Second, instead of giving institutional investors a special place in the pecking order, everyone can choose to step in and pick up shares. The price is determined by the market from the get go, not some investment bankers. Third, a dutch auction doesn't require arcane knowledge to set up, just some technical archtecture. This could help mitigate the parasitic stranglehold a few institutions have on the IPO process. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.