What is a Dutch Auction IPO?
In a Dutch Auction IPO, the issuing company works with investment banks to decide on an initial price range for the shares. However, the actual price at which each investor eventually gets the shares is the highest bid (“clearing price”) that will sell all of the available shares – even if that price is lower than a given investor bid. Bids occur when potential buyers (qualified investors who have accounts at one of the underwriting firms) indicate the number of shares they want to buy and the price they are willing to pay. Bids can be higher, lower or within the initially stated range. Once all of the bids are received, the company and its underwriters calculate the clearing or actual IPO price. Some claim that Dutch Auction IPOs do not benefit individual investors since they can make the price higher at the auction than it will be soon thereafter in the secondary market. However, others say this is a positive factor since Dutch Auction IPOs produce a price that more closely reflects
