Business Commons^™

Would Order-By-Order Auctions Be Competitive?, Thomas Ernst, Chester Spatt, Jian Sun

Research Collection Lee Kong Chian School Of Business

We model two different methods of executing segregated retail orders: broker's routing, whereby brokers allocate orders using market maker's overall performance, and order-by-order auctions, where market makers bid on individual orders, a recent SEC proposal. Order-by-order auctions improve market maker allocative efficiency, but face a winner's curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Existing Retail Liquidity Programs empirically suggest order-by-order auctions would attract few bidders in less liquid stocks and low-liquidity periods.

The Dutch Auction Myth, Peter B. Oh

Articles

The bursting of the internet bubble continues to have ripple effects on the initial public offering (IPO) process. Critics of this process have fashioned a complex set of interconnected objections to the orthodox bookbuilding method for conducting IPOs, pricing shares, and allocating them to preferred investors. Critics instead hail online reverse-bid, or Dutch, auctions (Dutch IPOs) as an alternative method promising more equitable access, efficient prices, and egalitarian allocations.

This article comprehensively assesses the case for Dutch IPOs. Part I dissects critiques of bookbuilding, which rely on anomalous data, derogate established financial literature, and largely evaporate in the face of …