| The Dutch auction, also known as a descending price | | | | was able to fullyparticipate, and, as of this writing, the |
| auction, uses a bidding process to find the optimal | | | | stock has gone to over $400! |
| market price for the stock, the highest price at which | | | | How does it work? Let's take a look at a simple |
| an issuing company can sell ALL the available shares. | | | | example to illustrate the principle. |
| An alternative to the traditional negotiated pricing | | | | Let's say a company wants to offer a total of 1,000 |
| process used by Wall Streetinvestment bankers to set | | | | shares to the public. So they invitethe public to bid using |
| the price of a corporations' initial public offering (IPO) of | | | | the Dutch auction method. |
| its shares, it is THE method used for US Treasury | | | | Let's further say one investor bids up to $10 for 100 |
| auctions. | | | | shares, a second investor bidsup to $9 for 200 shares, |
| It's also similar to the method used by New York | | | | a third bids up to $8 for 300 shares, a fourth bids up to |
| Stock Exchange specialists to set theopening price of | | | | $7 for |
| their assigned stocks for trading each day. | | | | 400 shares, a fifth bids up to $6 for 500 shares, a |
| Deriving its name after the famous auctions of Dutch | | | | sixth bids up to $5 for 600 shares. |
| tulip bulbs in the 17th century,it's based on a pricing | | | | Starting with the highest bid and working down, all 1000 |
| system devised by Nobel prize winning economist | | | | shares will be sold at $7. |
| William Vickrey. | | | | It's fair to everyone involved. It's capitalism at it's best. |
| What's so good about it? Ask Google. It's the method | | | | So why do the Wall Street investment bankers hate |
| they used to bring their companypublic and it couldn't | | | | Dutch auctions with such a passion? |
| have worked out any better for all concerned. | | | | The obvious answer is they lose control of their |
| The company obtained a better price for its stock | | | | favorite "toy". No more fat underwritingfees, no more |
| (over $100, rather than the $45 or sothe investment | | | | favored few, no more anything! |
| bankers wanted to "steal" it for their friends), the public | | | | |