What is a French auction?

A type of auction used for pricing initial public offerings (IPOs) in which the firm offering shares works with the market regulator to agree a share price once sealed bids have been received.

Where have you heard about a French auction?

Although referred to as a French auction, this approach is used in several countries. You may also hear it referred to as Offre à Prix Minimal or Mise en Vente.

What you need to know about a French auction.

A minimum or reserve price for shares is set before bidding begins. Investors submit sealed bids for the quantity of shares they want and the price they’re willing to pay. Once all the sealed bids are in, the firm uses this data to negotiate a minimum and maximum price for the shares with the market regulator.

Any bids that are above the agreed maximum price are eliminated. Remaining bidders pay the agreed minimum price and shares are awarded on a pro rata basis, using the original bids as a guide.

If there’s a high demand for the shares, then the strategy of fixing a minimum and maximum price may be discarded in favour of a fixed-price offering.