CFA online TT (Trading) - #10 (Nadia Ahmed Case Scenario) - quick question

CFA Level III
#1

any chance somebody could explain why should Decision price be 25.5 (closing price from yesterday)?

Decision/benchmark price is the price at the moment when you decide to trade (initiate order, which is 25.00 here). Further, the 25.5 given in Exhibit 3 is from yesterday, and the actual trade was done atleast a couple of days before yesterday…?

EXHIBIT 3

SELECTED TRADING INFORMATION, LONDON STOCK EXCHANGE

Stock

Average Daily Volume (ADV)

Previous Day Price History

High

Low

Close

WWT

450,000

£12.50

£12.43

£12.48

JAK

2,000,000

£25.80

£ 24.20

£ 25.50

The final order from Moore that Ahmed asks Norsk to execute is a purchase of 1,000 shares of JAK, with a limit order of £25.00 good for the day.

Norsk was unsuccessful in filling the limit order on the first day and consults with the client, who agrees to revise the price limit. Two days later, Norsk successfully purchases 800 shares of JAK at £26.25 with commission costs of £135.00. Moore decides to cancel the order for the remaining 200 shares when the shares close that day at £26.75.

EXHIBIT 3

SELECTED TRADING INFORMATION, LONDON STOCK EXCHANGE

Stock

Average Daily Volume (ADV)

Previous Day Price History

High

Low

Close

WWT

450,000

£12.50

£12.43

£12.48

JAK

2,000,000

£25.80

£ 24.20

£ 25.50

The final order from Moore that Ahmed asks Norsk to execute is a purchase of 1,000 shares of JAK, with a limit order of £25.00 good for the day.

Norsk was unsuccessful in filling the limit order on the first day and consults with the client, who agrees to revise the price limit. Two days later, Norsk successfully purchases 800 shares of JAK at £26.25 with commission costs of £135.00. Moore decides to cancel the order for the remaining 200 shares when the shares close that day at £26.75.

#2

The DP is always the previous day market close unless otherwise stated. The choice to put in a limit order below this price (25 vs 25.5) is an attempt by the trader to achieve a better price at the risk of delaying the trade since it most likely won’t be executed immediately.

#3

Thanks, but 25.5 is the closing price on a date that is a atleast couple of days after the trade was executed (in this question). So this 25.5 is not even relevant datapoint for this question?

He is reviewing the trade TODAY, and the exhibit is from YESTERDAY (that shows closing price of 25.5). However, the trade was executed atleast a couple of days before YESTERDAY

Side note:

Also, DP as previous day close (is “always” for Realized p/l), not for missed trade (that’s the original DP/BP, which is when the decision is made). Eg. here would be the first item set on TTs and EoC #11

#4

Why not? There is only 1 DP if there is only a single trade and that would be the market close the day before the initial order was specified. The components would be EP - DP as realized P/L, CP - DP as missed trade and commissions.