auction market
system by which securities are bought and sold through brokers on the securities exchanges, as distinguished from the over-the-counter market, where trades are negotiated. Best exemplified by the
New York Stock Exchange
, it is a double auction system or
two-sided market
. That is because, unlike the conventional auction with one auctioneer and many buyers, here we have many sellers and many buyers. As in any auction, a price is established by competitive bidding between brokers acting as agents for buyers and sellers. That the system functions in an orderly way is the result of several trading rules: (1) The first bid or offer at a given price has priority over any other bid or offer at the same price. (2) The high bid and low offer "have the floor." (3) A new auction begins whenever all the offers or bids at a given price are exhausted. (4) Secret transactions are prohibited. (5) Bids and offers must be made in an audible voice.
Also, the competitive bidding by which Treasury bills are sold.
See also
dutch auction
,
bill
auction market
system by which securities are bought and sold at the best possible price through competitive bidding. Prices are established by brokers acting as agents of buyers and sellers, as well as principal dealers acting for their own accounts. In the securities market, the best example is the New York Stock Exchange, where buyers and sellers make competitive bids for exchange listed securities by submitting order tickets to the exchange. The commodity futures market where interest rate fixtures are traded, is in contrast, an open outcry market, where market prices are set by direct interaction of exchange members, standing in a pit on the trading floor.
The U.S. Treasury Department sells new issues of Treasury bills on a
discount yield
basis through competitive auction bidding in which the price of bills offered for sale is gradually lowered, starting with the lowest yield (and highest price) until the entire amount being offered is sold.
See also
competitive bid
,
dutch auction
In general: (1) short for bill of exchange, an order by one person directing a second to pay a third. (2) document evidencing a debtor's obligation to a creditor, the kind of bill we are all familiar with. (3) paper currency, like the $5 bill. (4) bill of sale, a document used to transfer the title to certain goods from seller to buyer in the same way a deed to real property passes.
Investments: short for due bill, a statement of money owed. Commonly used to adjust a securities transaction when dividends, interest, and other distributions are reflected in a price but have not yet been disbursed. For example, when a stock is sold ex-dividend, but the dividend has not yet been paid, the buyer would sign a due bill stating that the amount of the dividend is payable to the seller.
A due bill may accompany delivered securities to give title to the buyer's broker in exchange for shares or money.
U.S. Treasury bill: commonly called bill or T-bill by money market people, a Treasury bill is a short-term (maturities up to a year), discounted government security sold through competitive bidding at weekly and monthly auctions in denominations from $10,000 to $1 million.
The auction at which bills are sold differs from the two-sided auction used by exchanges. Here, in what is sometimes termed a Dutch auction, the Treasury invites anyone interested to submit a bid, called a tender, then awards units to the highest bidders going down a list. Three- and six-month bills are auctioned weekly, nine-month and one-year bills monthly. Although the yield on bills may barely top the inflation rate, the high degree of safety together with the liquidity provided by an active secondary market make bills popular with corporate money managers as well as with banks and other government entities.
Individuals may also purchase bills directly, in amounts under $500,000, at no transaction charge, from a Federal Reserve bank, the Bureau of Federal Debt, or certain commercial banks. Bills bought on this basis are priced by noncompetitive bidding, with subscribers paying an average of the accepted bids.
Treasury bills are the most widely used of all government debt securities and are a primary instrument of Federal Reserve monetary policy. See also Tax Anticipation Bill; treasury direct.
sealed bid, containing price and terms, submitted by a prospective underwriter to an issuer, who awards the contract to the bidder with the best price and terms. Many municipalities and virtually all railroads and public utilities use this bid system. Industrial corporations generally prefer negotiated underwriting on stock issues but do sometimes resort to competitive bidding in selecting underwriters for bond issues.
