Dutch auctions have been going on since at least the 16th century. Originally, a “Dutch auction” just meant a reverse auction where a single item would go up for bid at a very high price, with the price being steadily lowered by the auctioneer until someone raised their paddle to buy the item and finish the auction. Dutch auctions are still used once in a while in the collectibles or real estate markets.
As Dave Nadig, Director of Exchange Traded Funds for FactSet, notes in a recent report: “In financial markets, we use the term [Dutch auction] to refer to almost any configuration of rules that result in crossing a maximum volume of securities at a single price. The Treasury department uses a system like this to sell bonds. WR Hambrecht uses a similar system to price IPOs. The New York Stock Exchange uses it every day to open and close stocks.”
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How NYSE uses Dutch auctions
The NYSE version of a Dutch auction collects all of the Market-on-Open and Limit orders together and determ