Q:

What is a modified Dutch auction?

A:

Quick Answer

Investopedia describes a modified Dutch auction as a sales technique for selling stock shares where the purchase bid starts high and gradually drops until enough bids are placed to sell all of the available shares at once. Regardless of their individual bids, all bidders pay the same price, which is determined by the highest bid that guarantees the sale of all available shares.

Continue Reading

Full Answer

Investopedia explains that an underwriter serves as the auctioneer for the sales and he typically sets the initial price higher than each share's estimated market value. As an example, 100,000 shares are available and the opening bid is set at $25 a share. At $25, the auctioneer does not receive any bids. The price drops to $24, and there are several bids that add up to 50,000 shares. At $23, bids are received for all of the available shares. At $22, bidders are willing to buy 150,000 shares. The final price of the shares is then $23 since this is the highest price that ensures the sale of the entire bidding lot.

According to Investopedia, modified Dutch auctions are employed by the U.S. Treasury to sell securities. Many corporations also choose this method for initial public offerings and stock buybacks. Modified Dutch auctions are an effective method of finding the optimal sale price for a security and reflect the supply and demand of the market.

Learn more about Investing
Sources:

Related Questions

  • Q:

    How do you read a NY Stock Exchange live ticker?

    A:

    Stock exchange tickers tend to read with letters, numbers and symbols; generally, the letters represent a specific company's stock ticker symbol while the numbers and symbols indicate how many shares have traded at what price and the change that price represents, whether higher or lower than the previous price, as reported by Investopedia. Tickers produce information when a stock price changes, and the symbols on a stock ticker typically include both an up and a down arrow to indicate that a stock price has risen or fallen since the close of the stock exchange on the previous day. These arrows may be monochrome or in two different colors, often green for a price raise and red for a price fall, indicated by an upward and downward arrow, respectively.

    Full Answer >
    Filed Under:
  • Q:

    What is the procedure for a stock split with Exxon Mobil?

    A:

    As with most stocks, an Exxon Mobil stock split occurs when the company decides to increase or decrease the current amount of shares outstanding, explains Investopedia. Part of the procedure requires Exxon Mobil’s Board of Directors to approve the stock split.

    Full Answer >
    Filed Under:
  • Q:

    What is stock split history?

    A:

    A company's stock split history is a listing of all of the times in which the company has split its shares into multiple units, according to Texas Instruments and Investopedia. A stock split keeps the shares' total dollar value constant. The effect is multiplying the share number, not the value.

    Full Answer >
    Filed Under:
  • Q:

    What factors contribute to a rising stock price?

    A:

    Market forces such as supply and demand have a major impact on stock price, meaning that if many people want to buy shares of a certain company's stock, that stock price will very likely rise, as reported by Investopedia. Both low supply and high demand are likely to lead to higher stock prices. The more people who want a stock and are willing to pay any price for it, the smaller the supply will be.

    Full Answer >
    Filed Under:

Explore