French auction

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.

If demand for the stock is too high, then the IPO may be changed to fixed-price offering.

See also

• Book building

References

• 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