HOUSTON, TX, Oct. 8 /CNW/ - Trade Extensions, procurement software
provider and specialist in game theory and auction optimisation, urges the
US Treasury to use a volume-constrained auction structure instead of
'simultaneous auctions' when buying 'Troubled Mortgage-Related Assets'.
The RFP (Request for Proposal) issued by the US Treasury to Financial
Institutions interested providing custodian and auction services highlights
the need for the successful party to be able to 'conduct multiple simultaneous
auctions'(1), but this format may not be the most suitable.
Trade Extensions, CEO, Arne Andersson said, "Using simultaneous auctions
could mean the process is more luck than judgement and ultimately waste
billions of dollars of tax payers' money."
When designing the most efficient auction for the sale of the 'troubled
assets' the US Treasury needs to consider two key points. Firstly, each
financial institution looking to sell their assets will have different needs
so the auction must be able to allocate different volumes to each seller.
Secondly, it is conceivable that some institutions may sell some, but not
enough, of their assets to cover their needs. In these situations, the assets
that were sold will have been bought in vain - at the tax payers' expense.
One other drawback with simultaneous auctions is the total available
budget is generally always used because it is divided across all lots. This
means in a situation where 90% of the budget would save 10 sellers and saving
one more would mean going over budget, the government would waste 10% of its
budget (and tax payers' money) to achieve the same result.
One solution to these concerns is to use an auction mechanism that allows
sellers to set their own price and volume constraints. This has two key
- Sellers will only make bids that represent a meaningful volume for
them, so there is less risk a bidder may end up with the wrong
volume. A bidder may end up with no volume but this is a better
situation for the tax payer than if the bidder won insufficient
- The total traded does not necessarily add up to 100% of total budget
available which means the buyer can achieve a true saving.
Andersson said, "An auction with volume-constrained bids will achieve the
best solution for the financial institutions, the government and tax-payers
(1) "Notice to Financial Institutions Interested in Providing Custodian,
Accounting, Auction Management and Other Infrastructure Services for
a Portfolio of Troubled Mortgage-Related Assets" (Section IV, Page 3)
Read Arne Andersson's paper "Saving the Financial System by Buying
Troubled Assets" on the Trade Extensions website:
About Trade Extensions
Trade Extensions (www.tradeextensions.com) sets new standards for on-line
procurement and negotiation. It was set up in 2000 by computer scientists from
Uppsala University, Sweden, and the founder and CEO - Arne Andersson - is one
of the leaders in the field of algorithm design and sort theory.
The Trade Extensions platform has been used in a large number of
volume-constrained auctions where complexity both in terms of number of active
bids and number of used constraints is considerably larger than what is
required for the sale of Troubled Mortgage-Related Assets.
For further information:
For further information: Niklas Pettifor, Pettifor & Pettifor,