The Dutch Auction Approach.
A rare method of issuing new shares, just like the public offering it begins with a prospectus that alerts potential subscribers of the stocks to be sold. Investors (individuals and institutional investors) bid on the number of share and price they are willing to subscribe for. It works the same way as the ordinary auction process shares will be issued starting from the highest bidder cascading downwards.
Let us use the following example to illustrate the Dutch approach.
| Investors | DE | FG | HI | JK | LM | OP |
| No# of shares | 150 | 1000 | 600 | 100 | 1200 | 500 |
| Price | R100 | R85 | R90 | R105 | R83 | R88.50 |
The bidding process using the Dutch auction approach. For a maximum of 1300 shares
Shares allocation.
- JK- R105 100 shares (1300 – 100) 1200 shares remaining
- DE- R100 150 shares (1200 – 150) 1050 shares remaining
- HI- R90 600 shares (1050 – 600) 450 shares remaining
- OP- R88.50 450 shares (450 – 500) -50 shares (share price)
OP will obtain 450 shares instead of 500 shares
The share price will be quoted at R88.50. All the R1300 shares will be sold at the lowest successful bidder`s price (OP).