OpenIPO is a modified

Dutch auction A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant acc ...

which allows shares of an

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investme ...

(IPO) to be allocated impartially. It is a variation on the traditional way that shares are sold during the IPO process and results in all successful bidders paying the same price per share. Based on an auction system designed by the economist

William Vickrey William Spencer Vickrey (21 June 1914 – 11 October 1996) was a Canadian-American professor of economics and Nobel Laureate. Vickrey was awarded the 1996 Nobel Memorial Prize in Economic Sciences with James Mirrlees for their research into the e ...

, the OpenIPO auction uses a mathematical model to treat all qualifying bids impartially. It is similar to the model used to auction

Treasury bills United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...

, notes, and bonds. Just like in a typical auction, the highest bidders win in an OpenIPO auction, but there are important differences. In the OpenIPO auction, the entire auction is private, and winning bidders all pay the same price per share—the public offering price.

WR Hambrecht + Co WR Hambrecht + Co. is a full-service investment bank with headquarters in San Francisco and offices in New York, Boston, Philadelphia, and Tokyo. It was founded in 1998 by Bill Hambrecht. It specializes in using its unique auction process called ...

has used OpenIPO to take various companies public including Morningstar,

Interactive Brokers Group Interactive Brokers LLC (IB) is an American multinational brokerage firm. It operates the largest electronic trading platform in the U.S. by number of daily average revenue trades. The company brokers stocks, options, futures, EFPs, futures ...

, Overstock.com, Ravenswood Winery, Clean Energy Fuels, and Boston Beer Company. The company also functioned as co-manager to take

Google Google LLC () is an American Multinational corporation, multinational technology company focusing on Search Engine, search engine technology, online advertising, cloud computing, software, computer software, quantum computing, e-commerce, ar ...

public in 2004, using the Dutch auction system. Many traditional

investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

s have baulked at the idea of using an auction process, such as OpenIPO to engage in public securities offerings as this new method allows for equal access to the allocation of shares and eliminates the “behind the scenes” dealings of shares and favorable treatment often found in conventional IPOs. Despite other banks’ resistance to using this method, however, OpenIPO has been used for over 20 public offerings. Financial historians

Richard Sylla Richard Eugene Sylla (born ) is the chairman of the board of trustees of the Museum of American Finance. Before his retirement in 2015, he served as the Henry Kaufman Professor of the History of Financial Institutions and Markets and a professor ...

and Robert E. Wright have shown that before the Civil War, most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks. The direct public offering or DPO, as they term it,Robert E. Wright and Richard Sylla, "Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790-1860: New Data and Perspectives.” In Jonathan Koppell ed., ''Origins of Shareholder Advocacy'' (New York: Palgrave Macmillan, 2011), 231-51. was not done by auction but rather at a share price set by the issuing corporation. The DPO eliminated the

agency problem Agency may refer to: Organizations * Institution, governmental or others ** Advertising agency or marketing agency, a service business dedicated to creating, planning and handling advertising for its clients ** Employment agency, a business that ...

associated with offerings intermediated by investment banks, but was not as effective at

price discovery In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Overview Price discovery is diff ...

References

Initial public offering Types of auction {{Econ-stub