Argue about the effectiveness of Dutch auctions in the Prozorro.Sale system doesn't make any sense. The following advantages should be considered as the confirmation:
- Speed of selling a number of assets at Dutch auctions.
- Price compliance with market indicators.
It should be noted that both the seller and the buyer benefit from the auction.
Procedure for determining the market value of assets
The ProZorro.Sale system is often chosen for the sake of electronic trading. A special feature of such operations is the use of a classic English auction to raise the price. But often there are difficulties in determining the market price for some assets. This explains the absence of buyers even after the auction is announced. There is only such a way out:
- Cancellation of scheduled auctions.
- Decrease in the asset value.
- Announcement of a new auction.
But what happens next does not exclude the possibility of repeating the previous situation.
It is to solve this problem that the Dutch auction in the ProZorro.Sale system is aimed at. The fact is that determining the minimum market price of an asset is the responsibility of the participants themselves. The explanation for this state of affairs is that the main principle of the event is considered to be trading to lower the initial price of an asset.
Stages of Dutch auction
Speaking of this auction, it usually includes as follows:
- Bidding to reduce the cost;
- Price increase that was determined at the previous stage;
- Determining the final value of the asset.
Price reduction at Stage 1
Reduction of the initial value of the lot during the Dutch auction in the ProZorro.Sale system is performed automatically. From 100% book value, the price can drop to 20%. It should be noted that certain time intervals are provided for the reduction. For example, the value of an asset in the amount of UAH 100,000 can theoretically fall to UAH 20,000.
If you need to get information about the date or time of electronic trading, you need to study the ad on the corresponding page. Such an auction begins at a clearly defined time. Its duration is 6 hours. Also, you need to know that these 6 hours are divided into 80 equal steps. The end of each period of time automatically leads to a 1% reduction in price. If we talk about the example above, the reduction will be equal to UAH 1,000.
All this will last until one of the participants uses the "purchase" button. Thus, the lot is purchased at the asset price fixed at this stage. When the button worked at the level of UAH 50,000, the value of the conditional asset stops at this amount. But here we need to mention the advantage gained by the participant who stopped the Dutch auction. In this case, it is granted the right to determine the final price at the final stage.
Submission of proposals at Stage 2
At this stage, bidding for an increase is carried out. However, only participants who are pre-registered at the auction will be able to submit closed price offers. A special feature of such offers is the mandatory excess of the cost (at least 1 step of the auction), during which the automatic step-by-step price reduction was stopped. For example, stopping the bid at UAH 50,000 level implies closing the offer from UAH 51,000. This is how the competition among participants takes place.
Determining the winner of stage 2 depends on the maximum size of the closed offer. It may even be the one who offered UAH 52,000 for an asset.
Submission of open price offers at Stage 3
This stage is considered the final one. It is during its course that the pre-emptive right of the participant who made the final bet is realized, that is, the Dutch auction is stopped. As required by the regulations of the Prozoro.Sale system, the bid must be at least 1 step higher than the maximum closed price offer. There can be no other way out but to pay UAH 53,000 for the asset and become the winner, or be left with nothing. When the player who has the pre-emptive right is in no hurry to raise the price, the winner of Stage 2 gets assets.
Restrictions to expect
If the English auction does not take place with an insufficient number of buyers, then 1 participant per lot will be enough for the Dutch auction. In addition, the list of players includes both professional market representatives and individuals.
A condition to keep in mind is timely registration on the electronic platform. It is this action that determines the right to submit offers and place bets. What also needs to be taken into account is the payment of a guarantee fee of 5% of the book value of the lot. Although it would be better to pay this amount in advance, the registered participant will be able to join the auction even on the date of the auction.
If the organizer was unable to sell some lots after the price was reduced to 20% and the auction was completed, this becomes a reason for combining them into collective pools. In this case, there is a batch submission for sale using the system. The difference from previous trades should be considered the pool price, which starts at 20%, and the price reduction will occur automatically.
Thus, the effectiveness of the Dutch auction remains beyond doubt. This is especially important in electronic trading of assets, for which there are difficulties in determining a fair market price. The same pattern is observed for assets with low demand. It is precisely these opportunities that explain the increase in the demand for the use of such a mechanism in sales of balance sheet and other assets.