ill Hambrecht discusses the advantages of an auction to billion dollar IPOs and discusses the latest OpenIPO^®: Interactive Brokers' $1.2 billion offering.

WR Hambrecht + Co’s OpenIPO is leveling the playing field among investors, issuers and the investment banks and has been called one of the few disruptive innovations in modern finance. manages WR Hambrecht Ventures I & II, early stage venture funds focused on disruptive technologies.

If you would like more information on this series of conversations with Bill, contact Peter Morrissey at 415-551-8613, or visit us on the web at: http://www.wrhambrecht.com/ind/strategy/bill_invest/index.htm

It went really well. Although we have done smaller deals in the past, we have found that the bigger the deal, the more advantageous the OpenIPO is versus the traditional book building method.

Not really. The more participants a market has the more efficient the market becomes. An auction won’t work with only one bidder, but with 100 bidders it becomes the most efficient way to sell something and with 1,000 bidders it becomes the only way to set a price: you can’t conduct 1,000 simultaneous negotiations. Traditional book building methods can only process investor feedback from about a dozen or so key accounts.

Trying to aggregate price talk from a hundred accounts is impossible for even the most talented capital markets desk. But an auction is designed to collect demand from a huge potential market. For example, with Interactive Brokers we processed over 13,000 bids and allocated shares to over 8,000 of them.

It used to be deals could be too big: not enough liquidity in the market, or it would take too long to gather all the bids by phone or coordinate a road show to enough investors. That is not true today, largely due to technology. Almost every aspect of an IPO has become easier for larger deals: we can communicate with investors electronically and display the road show on a website and we collect bids over the internet.

The public markets have much deeper liquidity than ever in the past. When Ford sold $640 million of shares to the public in 1956 the entire US market value was about $300 billion. Now the markets are about 65 times larger – an equivalent IPO would have to sell over $40 billion of shares.

Right on the dot. We determined that Interactive Brokers could sell the deal at $33.00 a share, but it chose a slightly lower price, $30.01, in order to increase the breadth of accounts that received shares. Interactive Brokers wanted to achieve a broad distribution of its shares and we enabled them to allocate shares to over eight thousand different accounts. As predicted, the stock opened at almost exactly $33 and traded within a few percentage points of the clearing price all day.

One of the advantages to an auction-based offering is its ability to allocate shares to thousands of accounts in a rational, fair and transparent process. Since Interactive Brokers has thousands of customers who are professional investors, many of them also invested in the IPO. It was critical to Interactive Brokers that its customers be treated fairly and the only way to accomplish that would be through an auction-based offering.

Yes, in fact that is exactly what happened on the Interactive Brokers deal. The auction opens several days before pricing the deal and we constantly monitor the demand and compare it to our experience in past offerings. For this deal the data indicated that the clearing price would be significantly higher than our initial filing range of $23 to $27 per share. As a result, during the auction the company both increased the range to $27 to $31 and sold twice as many shares as originally expected. Without the information provided by the auction system the company would not have had the confidence to upside the offering so significantly. We believe that the OpenIPO system allowed Interactive Brokers to sell an additional $600,000,000 worth of shares than it could have through a conventional offering.

Most bankers will tell you that in order to sell more shares you need to reduce your price or if you want to optimize the price you need to limit the number of shares you sell, but with the auction we can quantify those tradeoffs for a company so that they can make their own decisions. As a result our clients can typically get the best of both worlds: a higher price and more shares sold.

No one knows the financial markets better than Thomas Peterffy, the Chairman of Interactive Brokers. When he analyzed how to take his company public he realized that best solution was to use an auction-based process. It also fit with how he runs his own business. Interactive Brokers was founded to use technology to bring price transparency and efficiency to the options markets – very similar to our goal of creating an open and fair IPO process. I think that the common philosophy attracted Thomas to us and our OpenIPO. As we got to know each other, he was so impressed that he invested in WR Hambrecht + Co and is our newest board member.

For more information on Interactive Brokers please see its prospectus:

	Going to: http://www.wrhambrecht.com/IBKR
	Writing to: WR Hambrecht + Co, P.O. Box 677, Berwyn, PA  19312-0677
	Calling: 1-800-673-6476