Fair Dealing: Trade Allocation

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thegooddocta

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I understand that you must allocation trades on a pro-rata basis across all client accounts and family members should get shares on a pro-rata basis if they are indeed clients. The question is, do free accounts (including free family member accounts) get shares along with the other fee paying accounts? Or do you allocate shares to the fee paying accounts first, and then to all other accounts?
Thanks
 
I answered that the father also will need to be treated like the other clients, fairness among all clients..I may be wrong
 
i’m with ya, but the fact that the client is a free client as a family member throws a wrench into it
 
As a free client, plus a family member, I think he cannot get equal treatment, but that’s me..
 
Although I am not sure what is the right answer, I agree with yours, all clients are treated equal. I though that when it comes to fair trade allocation, there is not separation among clients if there is not suitability issue.
 
My choice was also that the father should be treated like all other clients.
People who pay smaller fees should get treated the same as those that pay higher fees leading to those that pay no fees be treated the same when it comes to allocating shares of a limited amount of stock assuming it is suitable for them.
That was my thinking….
 
Why would this account classify as a client’s one, it seems like you are doing a favor to one of your family member; why should it not pay a fee, when it comes to equality? it’s a bit contradictory, although I am not sure of the right answer…
 
It does seem like you are doing the family member a favor, but there is no mention of the account being managed “on the side”. I think it was a “client” acct.
 
If your papa is a fee paying client, then he should be treated equally. If he is not a fee paying client, then shares of oversubscribed IPOs should be pro-rated among fee paying clients first and any shares left over should be giving to papa.
and the way to distribute them should be in an equitable fashion.
 
The family member is not paying fees, therefore they are not technically a client. I think you only distribute to the actual clients paying fees.
Think about it this way, should a non fee paying family member(or anyone not paying) get shares allocated ahead of someone paying fees for a service? No.
If they are all technically clients you should not discriminate between them, if they are managing their family account on the side it should be disclosed to the employer.
You have to be ethical but you also are running/working for a business, I think in this instance if you showed equal treatment to a non paying family member you are not being fair with the others who do pay and essentially you are allocating trades away from those who should receive it.
Just my opinion, I could be wrong I don’t have my book to look it up. I’m with rinald
 
Rasec Wrote:
——————————————————-
> If your papa is a fee paying client, then he
> should be treated equally. If he is not a fee
> paying client, then shares of oversubscribed IPOs
> should be pro-rated among fee paying clients first
> and any shares left over should be giving to
> papa.
>
> and the way to distribute them should be in an
> equitable fashion.
I agree with this. However, it was not concerning an oversubscribed IPO. Just normal block trade allocation.
 
Rasec Wrote:
——————————————————-
> If your papa is a fee paying client, then he
> should be treated equally. If he is not a fee
> paying client, then shares of oversubscribed IPOs
> should be pro-rated among fee paying clients first
> and any shares left over should be giving to
> papa.
>
> and the way to distribute them should be in an
> equitable fashion.
The order of how shares should be distributed from what I learned was
Client First, then Firm, then yourself. Never read anything about fee paying and non fee paying distributions of stock.
 
osu8ball08 Wrote:
>
> The order of how shares should be distributed from
> what I learned was
>
> Client First, then Firm, then yourself. Never read
> anything about fee paying and non fee paying
> distributions of stock.
exactly, this is why it’s confusing to me
 
Of course you didn’t read about it, CFA wants to throw you off, haha.
Think of it this way, if everyone is standing in line to collect a hot dog that they already paid for, does it make sense to let your friend come up who hasn’t paid to get a free hot dog ahead of those in line who have paid?
Just my thoughts
 
Legacy01, i’m with you in theory. It’s just all the practice problems I did saying you treat all clients eqaully when allocating trades made me think twice about this one.
 
I quickly searched the The Standards of Practice Book. I am not sure if this is the last edition.
http://www.cfapubs.org/toc/ccb/2005/2005/3?cookieSet=1
I did not see anywhere where a non fee client should be treated differently on this issue. It does not prove that tehy should be treated equally either. It is a little frustrating not been able to find the correct answer.
Legacy perspective makes sense though, but if the issue is not oversubscribe, I am not sure if paying clients would be treated unfairly.
 
thegooddocta,
I know I also had to think about it as well because it is not cut and dry as they sometimes aren’t. In general it is not ethical to treat others differently but given the two scenarios I don’t think it is ethical to treat non paying people like paying people. If they are low paying vs. high paying that is a different story, they should all be treated equally and offered the opportunity for the same services.
 
I think allocating shares on a ‘pro rata basis’ is considered fair to all customers. I remember Schweser alluding to the fact that fair doesn’t necessarily mean equal, so you can provide different levels of customer service based on fees, but when it comes to trade allocation it has to be ‘fair’. hope this helps
 
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