348 10 Exit of Shareholders
different trading mechanisms, with a call auction used to open trading and a con-
tinuous auction used throughout the trading day. In a call auction, orders accumu-
late and the specialist sets a single market-clearing price at which all executed or-
ders transact. In a continuous auction, the specialist quotes bid and ask prices and
trades occur individually.^90
In the EU, the regulation of trading mechanisms is based on the MiFID. The
MiFID covers the activities of “regulated markets” and “multilateral trading facili-
ties” (MTF), among other things.^91 Both bring together or facilitate the bringing
together of multiple third-party buying and selling interests in financial instru-
ments in a way that results in a contract.
At a general level, the MiFID lays down pre-trade transparency requirements.
Investment firms and market operators operating an MTF or a regulated market
must make public current bid and offer prices and the depth of trading interests at
these prices on reasonable commercial terms and on a continuous basis during
normal trading hours.^92
Again at a general level, Regulation 1287/2006^93 specifies the types of trading
systems and contains a summary of information to be made public depending on
the type of system. There are four types of trading systems: the continuous auction
order book trading system; the quote-driven trading system; the periodic auction
trading system; and other trading systems.^94
Private auction. There are different ways to structure a private auction. Typi-
cally, the contents of the process will be disclosed to potential bidders in a process
letter. An information memorandum will be distributed to interested parties that
have undertaken confidentiality obligations. The seller and its advisers usually
limit the potential liability that may arise in the distribution of the information
memorandum. Interested parties will be able to engage in limited due diligence at
least by verifying the contents of the information memorandum in a data room. In
addition to the information memorandum, a draft contract will typically be sent to
prospective bidders. Interested bidders will submit their bids, together with any
comments on the draft contract. A closed auction often has more than one round
and may involve simultaneous negotiations with more than one bidder. As a rule,
the sale agreement that will be drafted by the parties will contain the same terms
as a privately negotiated agreement between two parties (Chapter 16).
The sale of Jaguar and Land Rover is a recent example of a private auction. In 2007, Ford
gave three banks a mandate to sell Jaguar and Land Rover, its two British luxury brands. In
(^90) O’Hara M, Market microstructure theory. Blackwell, Cambridge (1995).
(^91) For the definition of a “regulated market”, see Article 4(1)(14) of Directive 2004/39/EC
(MiFID). For the definition of a “multilateral trading facility” (MTF), see Article
4(1)(15).
(^92) Articles 29(1) and 44(1) of Directive 2004/39/EC (MiFID).
(^93) Regulation 1287/2006 implementing Directive 2004/39/EC as regards record-keeping
obligations for investment firms, transaction reporting, market transparency, admission
of financial instruments to trading, and defined terms for the purposes of that Directive.
(^94) For the definition of these four systems, see ANNEX II, Table 1 of Regulation
1287/2006.