(Ethics) Fair Dealing Question on Allocation

CFA Level II Ethics
#1

Hallo,

after a long time of passive reading I finally created an AF account to raise a question regarding the Level II curriculum. First of all, let me thank you for all your appreciated contributions to the forum.

I remember I stumbled once on a question with the following content (I don’t remember where it was exactly, hence no source I am afraid). Consider the following situation:

In an IPO you have three client orders of 10mn, 5mn and 1mn. The IPO was oversubscribed and you receive an allocation of 3mn shares. What would be the correct allocation to the accounts according to the ethics material?

a) Each account receives 1mn (3mn divided by 3 accounts) or b) 10mn gets: 0.1875 * 10mn 5mn gets: 0.1875 * 5mn 1mn gets: 0.1875 * 1mn

The thing is, I am pretty sure the correct answer that was indicated is a), which would not make sense to me with respect to fair dealing. What do you think?

Many thanks for your appreciated input.

#2

definitely b. allocations must be equitable. equitable would be everyone getting the same percent of what they wanted.

#3

That is what I also thought. However the indicated correct answer was a) … if nobody is able to come up with a possible rationale for answer a) I am more confident.

#4

The size of their account/AUM should not impact your impartiality. It is most fair to treat everyone evenly.

#5

Pro rate

#6

Pro rata means it should be b).

#7

Take a look at page 76 of the curriculum smiley

#8

Definitely b)