What is an Auction Market?
An auction market is an example of buying and selling of financial instruments that takes place on the floor of an exchange, such as the New York Stock Exchange. Sometimes referred to as open outcry trading, the auction market provides a means for buyers and sellers to compete in a real time environment, with the stocks and bonds usually going to the highest bidder. The attraction of auction markets is that the process allows for quick and swift trading. Competitive bids for available stocks and bonds can be accepted and approved immediately, since everyone on the floor of the stock exchange have to meet strict criteria in order to participate in the bidding process. As with any type of auction, these qualified participants are free to make as many bids as possible, creating a lively atmosphere. For many, this form of bidding is much more exciting than any type of online or indirect negotiations through a third party, such as in the case of over the counter markets. While most auctions
Second, what is an acceptable auction market? Last month we examined the first question and found there is no fixed auction market. Instead, an auction market is whatever an auctioneer can create for a particular sale. This means every auction, with its many variables (sellers, auctioneers, goods, budgets, marketing campaigns, locations, terms of sale, bidders, economic factors, product demand, and other issues), will represent a unique marketplace not found elsewhere. Now we’ll look at the second question as to what is an acceptable auction market. The test I’m going to use to answer that question will be that of a “commercially reasonable sale.” -Background The Uniform Commercial Code and the various state statutes it has spawned provide no exact definition for a commercially reasonable sale. The term is commonly used in the context of a sale conducted by a creditor enforcing a security interest against a debtor in default on a loan obligation. The creditor moves to protect its inter
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