The shares are allocated in proportion to the number of suitable clients
this topic is a dead horse, LOLA give us the OA!
“An eye for an eye would make the whole world blind.” Wait for the answer guys.
“In the land of the blind, the man with one eye is king.” -Chris Farley
I think its A
I’m gonna cave to A bsaed on victorv’s post.
i say A
i suck at ethics but I’m going B.
the answer is A apparently. I didn’t get it either.
and my rationalle (which is usually wrong) is that for B- B) on a pro rata basis over all suitable accounts on the basis of an advance indication of interest and indicated order size. what if you had some sh*tbag account worth like $5k but you were a “suitable” account, you did give an indication, and it was for a MASSIVE order size. So you want 100k shares of GOOG when it first IPO’d, but you have a small little account. If you alloated pro rata then over all accounts based on this advanced indication and order size instead of client’s account size or other factors, it seems like you might wind up hurting some of your larger clients actually in favor of smaller clients that came in with massive indications of interest for IPO’s. Disclosure- I haven’t read a page of ethics since passing June 07 L1.
I’m in the same boat / reasoning as bannisja, but it’s hard to build a convincing argument against victorv’s post
banni, that’s what confused me as well. apparently you can’t disadvantage the smaller guys no matter what. here’s more on this. I just realized this Q has been posted before: http://www.analystforum.com/phorums/read.php?12,560205,560336#msg-560336
makes sense in theory, sure. doesn’t happen in the real world, but alas, the CFA handbook and the real world seem like 2 very distinct places. i’ll get around to reading over the handbook a few times before I roll into the test, that’s for certain. good q to post though- thanks. feel free to fire over ethics questions any old time to reinforce the not so common sense rules.
I think the question is badly phrased. It assumes that the clients’ “indicated order size” is less than or equal to their respective pro-rata share and ignores the situation described above by bannisja.
well, it does make sense, if you want to buy a load of stock and you are a small account, based on these standards you can do so, even if it means buying more then the bigger clients, they should have simply indicated a greater order size going on the basis of order size ignores standard III B fair trade - allocating pro rata and not favoring clients that are larger. if this was the case and larger clients would always get what they want, other smaller accounts (which could pay higher fees) would never get a chance to participate, secondly they would probably get shares that they don’t want as well. its all about fairness a)the trade needs to be suitable for clients (and pro rating on value wont work) b) it needs to be fair, so small guys get a chance looking at it from a different perspective, my interpretation
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But what bannisja and I were concerned about is the ease with which such a system could be manipulated. For instance, lets consider the famed GOOG IPO. If I feel it’s going to be madly overprescribed, which I may, I can steal other’s shares by inflating my order volume to 10x what I really want, and my competitor may take a similar approach based on past performance and go 20x. In this way, people are stealing other’s fair shares by falsly inflating bids, and thus the firm that can afford the larger bid (the larger firm) wins shares. It’s just a very easily manipulatible system.
Makes sense to me, If I put in a order for 6 shares (my agent will only let me place orders if I have the cash available), and you put in a order for 4 shares. 10 shares in the IPO, we both get what we wanted. 5 shares in the IPO, I get 3, you get 2 The fact that I have a trading account with $10 cash and you have $100 cash has nothing to do with it.
Black Swan and banni have a point. But, I would argue that you aren’t stealing other people’s shares. It is oversubscribed in that example because of the demand and that demand is what results in the indicated order size. So your analysis results in you raising your indicated order size and when the allocation is made you are rewarded (in this example) for your work in that you are allocated shares based on that indicated interest, and not simply on the fact that you were a big account or a performance based account. If the big account wants more they can indicate they want more just like everyone else. If you were smart enough to inflate your order for goog 20x… good for you but you still have to pay for it. The ability and ease to manipulate the alternative system is much more troubling. Hey I got this hot ipo, you want it? …move your big account over here and you can have 70% of the shares allocated. Oh damn, I got this dog ipo, all these other accounts can divy this up based on **insert creative formula here**.
slouiscar Wrote: ------------------------------------------------------- > If you were smart enough to inflate your order for > goog 20x… good for you but you still have to pay > for it. . bang on baby