OpenIPO: Sample Auction

In this hypothetical example, IronBit Industries seeks to sell 1 million shares. The clearing price is determined by the market, not by an investment banker.

IronBit Industries
Bid Information					Auction Results
	Shares Requested	Cumulative Shares Requested	Bid Price		Shares Allocated	Allocated Requested Shares	Clearing Price	Amount Raised
	100,000	100,000	$14.00		100,000	100.0%	$10.00	$1,000,000
	175,000	275,000	$13.00		175,000	100.0%	$10.00	$1,750,000
	225,000	500,000	$12.00		225,000	100.0%	$10.00	$2,250,000
Clearing Price	275,000	775,000	$11.00		275,000	100.0%	$10.00	$2,750,000
» »	750,000	1,525,000	$10.00		225,000	30.0%	$10.00	$2,250,000
	877,000	2,325,000	$9.00		0
	850,000	3,175,000	$8.00		0
					1,000,000		$10.00	$10,000,000

The auction engine calculates the clearing price by tallying the bids, ranking them from highest to lowest, and applying the lowest accepted bid price--in this case--to all successful bids. IronBit winds up with $10 million for its 1 million shares.

Investors who bid higher than $10 a share receive all the shares they have bid for at $10 per share. Everyone who bids exactly $10 per share receives a fixed percentage of the number of shares they want based on the number of shares remaining.

In this case, after everyone who bids over $10 gets their allocation, there are still 225,000 shares that remain unallocated. There are bids for 750,000 shares at exactly $10. Since 225,000 is 30% of 750,000, everyone who bids at $10 receives 30% of the shares they bid for.

In certain instances, bids for more than a million shares may be accepted so as to ensure that the company in fact sells the million shares offered. In this example, this may result in an allocation of more than 30% to those who bid $10.

Please Note: After the auction has been conducted to calculate a clearing price and determine which bidders will receive shares, the company may elect to set a public offering price that is lower than the clearing price. In that event, all successful bidders (those who bid at or above the clearing price) will receive shares at the public offering price. Bidders who bid below the clearing price, even if they bid at or above the public offering price, will NOT receive shares.

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