Allocation Mechanisms for Dutch Auction of Securities
A method is described for auctioning securities by an auction offeror. Bids are received for an offered number of securities. Each bid includes a bid price, a desired number of securities, and a timestamp indicting a time that the bid was received by the system. After a final bid time, a final price for the securities is established based upon the received bids. Then the desired number of securities is allocated to each bid having a bid price more favorable for the auction offeror than the final price. The desired number of securities is also allocated to each bid having a bid price at the final price, in bid timestamp order favoring earlier timestamps, until the offered number of securities has been allocated.
1 . A method for auctioning securities by an auction offeror, the method comprising:
receiving a plurality of bids for an offered number of securities, each bid including:
i. a bid price,
ii. a desired number of securities, and
iii. a timestamp indicting a time that the bid was received by the system;
after a final bid time, establishing a final price for the securities based upon the received bids;
allocating the desired number of securities to each bid having a bid price more favorable for the auction offeror than the final price; and
allocating the desired number of securities to each bid having a bid price at the final price, in bid timestamp order favoring earlier timestamps, until the offered number of securities has been allocated.
2 . A method according to claim 1 , further comprising:
for a last bid to have securities allocated, if a remaining number of unallocated securities is less than the desired number of securities for the last bid, allocating the remaining number of unallocated securities to the last bid.
3 . A method according to claim 1 , further comprising:
during allocation of securities at the final price, if a remaining number of unallocated securities is less than a total desired number of securities for a plurality of bids having the same timestamp, allocating the remaining number of unallocated securities on a pro rata basis to the plurality of bids having the same timestamp.
4 . A method according to claim 1 wherein the securities include bonds and the bid price represents an offer to buy the bonds such that a bid price is more favorable for the auction offeror when it represents a lower clearing spread relative to a benchmark security.
5 . A method according to claim 1 wherein the securities include stocks and the bid price represents an offer to buy the stocks such that a bid price is more favorable for the auction offeror when it represents a higher price per share.
6 . A method according to claim 1 wherein the securities include stocks and the bid price represents an offer to sell the stocks such that a bid price is more favorable for the auction offeror when it represents a lower price per share.