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IMC Auction Platform
In order to facilitate the marketing and sale of finished goods produced in its centralized separation facilities, Innovation Metals Corp. (IMC) will build an advanced, proprietary auction platform, which will allow the end-use consumers, traders and government stockpile managers who are members of the IMC Consortium to express certain requirements and to have them met by the facilities’ output. Regular auctions will be held for various classes of material, and the unique, transparent design of the auction system will lead to true price discovery for rare-earth products.
The IMC auction platform will be built around the so-called second-item auction concept. Bidders indicate the price that they are willing to pay for specific quantities of material. A clearing price is established, based on the lowest successful bid price. Allocation of materials is subsequently prioritized, with the highest bidders getting their allocation first, before lower bidders are accommodated. The same occurs for the sellers – sellers with the lowest offer prices have their materials sold first (at the clearing price), ahead of higher offerors.
As an example, let us suppose that 220 kg of a material is available for sale, from five different producers. Five end users place their bids, with the results as follows:
|Consumer||Bid Quantity||Bid Price||Ask Price||Ask Quantity||Producer|
In this scenario, the clearing price would be $70/kg and the total quantity traded would be 40 kg, with the allocations as follows:
|Consumer||Quantity Bought||Producer||Quantity Sold|
Auctions will fail if neither buyers or sellers find a suitable clearing price, but all bid information will subsequently be shared with all participants, thus ensuring transparency. Rare-earth producers will receive the benefit of controlling their sale-price decisions and ensuring that they got the maximum spot price for their materials. All Consortium members will receive the benefit of an authenticated market place. Volumes will be guaranteed if market prices were paid.
Unsold product will be returned to its producer or stored on-site for future sales, and unused bid quantities would be put back to the buyers’ bid pool. Potential buyers will only be able to bid on the amount of product for which they have previously purchased separation capacity. In any case, participating buyers will still have the flexibility of purchasing product elsewhere, or of making subsequent bids with IMC helping to find suppliers at that price, through its Rare-Earth Exchange.
Consortium members that participate in auctions will likely change their decisions on occasion, after receiving the clearing price and other information for each auction that IMC will share with all participants. Such information will be available to Consortium members only.
Potential buyers will still be free to source material from other companies and rare-earth producers will still be free to seek other customers for their materials. IMC’s auction platform does not restrict Consortium members from finding other solutions; it is however likely that significant volumes will be transacted through IMC’s auction platform, because of its low cost and the resulting transparency that is inherent in the system. This will lead to fair product pricing and will benefit all members of the Consortium.