OpenIPO

OpenIPO is an innovative auction process pioneered by the investment bank WR Hambrecht + Co for distributing stock in an initial public offering to individuals and institutions through an efficient and equitable process. It is a modified Dutch auction process which allows shares of an initial public offering to be allocated in an impartial way. All successful bidders pay the same price per share.^[1]

Based on an auction system designed by Nobel Prize-winning economist William Vickrey, the OpenIPO auction uses a mathematical model to treat all qualifying bids in an even-handed and impartial way. It is similar to the model used to auction Treasury bills, 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 has used OpenIPO to take a number of companies public including Morningstar, Interactive Brokers Group, Overstock.com, Ravenswood Winery, Clean Energy Fuels, and, most notably, functioned as co-manager to take Google public in 2004, using the Dutch auction system. Many traditional investment banks have balked 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 become more popular and has been used for over 20 public offerings.

References

1. ^ "E-commerce and the undulating distribution channel". portal.acm.org. http://portal.acm.org/citation.cfm?id=514240. Retrieved 2008-05-13.