A French auction (Offre à Prix Minimal, formerly Mise en Vente) is a multiple-price auction used for pricing initial public offerings.
In this offering, the firm announces a minimum (reserve) price. Investors place sealed bids for quantity and price. When the bids are in, the firm negotiates a minimum and maximum price with the market regulator (the Société des Bourses Françaises, or SBF).
Any bid above the maximum price is eliminated as a virtual market order. The bidders who bid between the minimum and maximum price are awarded shares on a pro rata basis, each paying the minimum price.
In the event that demand for the stock is too high, the IPO may be changed to fixed-price offering.
- McDonald, John G.; Jacquillat, Bertrand C. (1974), “Pricing of Initial Equity Issues: The French Sealed-Bid Auction”, Journal of Business, 47(6): 37, doi:10.1086/295606
- Derrien, Francois; Womack, Kent L. (2003), “Auctions vs. Bookbuilding and the Control of Underpricing in Hot IPO Markets”, Review of Financial Studies, 16(1): 31–61, doi:10.1093/rfs/16.1.31
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.