OpenIPO is an alternative approach to initial public offerings developed by W.R. Hambrecht & Co that substitutes an auction based system for the traditional Wall Street book-building process. OpenIPO uses an auction process to find the intersection of supply and demand in pricing Initial Public Offerings.
Just like a typical auction, the highest bidders win in an OpenIPO auction. But there are important differences. The entire auction is private, and winning bidders all pay the same price per share – the public offering price.
An OpenIPO auction is typically open for bids for 3–5 weeks prior to the effective date of the offering. Once the bidding concludes, the OpenIPO auction assembles the bids and, working from highest to lowest, finds the first bid price that will sell all the offering’s shares. This is the “clearing price” and will be the maximum price at which the issuing company will offer its shares.
The issuing company and the underwriters then decide the price at which the company will offer the shares, taking a number of economic and business factors into account in addition to the clearing price. The company may choose to sell shares at the clearing price, or it may offer the shares at a lower offering price.
If the number of shares bid for exceeds the number of shares in the offering, WR Hambrecht + Co allocates on a pro-rata basis. Under these circumstances, allocations will be rounded to multiples of 100 or 1,000 shares, depending on the size of the bid.