Benefits of a Modified Dutch Auction methodology
Competitive Prices
Market makers are incentivised to show ‘best possible’ prices for varying volumes of non-competitive bids and offers as their orders will always benefit from an improvement if the auction settles through their level
Equilibrium
The settlement level reflects the new equilibrium term rate for that tenor of ARR given the net demand from the non-competitive orders and the supply of competitive orders
Equivalence
The single transacted rate allows end users the ability to switch their fixing exposures between the FAIRFix term rate and the realised overnight rate making both economically equivalent