Auction

Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange.(2) A method for allocating government paper. At an auction, a bond is offered at a given nominal interest rate, maturity and redemption profile. An eligible group of market participants may submit bids for a certain volume of bonds at a given price (or interest rate). Often a distinction is drawn between two different methods of fixing the price paid by the bidders. In the "uniform pricing" method, a cut-off price is fixed on the basis of the bids received, and all bids at the cut-off price or above are met at the cut-off price. If the total volume of bids at the cut-off price and above exceeds the volume that the issuer intends to sell, allocation can take place on a pro?rata basis. This entails that for bidders who have submitted bids at the actual cut-off price only a part of the bids are honoured. By the "multiple pricing" method, a cut-off price is likewise fixed on the basis of the bids received, and all bids at the cut-off price or above are met at the prices offered by the individual bidders.