Which of the following statements is least accurate? It is permissible under the Standards to allocate trades: A) on a pro rata basis over all accounts. B) on a pro rata basis over all suitable accounts based upon account value. C) on a pro rata basis over all suitable accounts on the basis of an advance indication of interest and indicated order size. Your answer: B was incorrect. The correct answer was A) on a pro rata basis over all accounts. Allocating trades on a pro rata basis, pro rata based upon order size (when there are too few shares to fill all orders, e.g., filling 2/3 of all orders actually submitted), or pro rata based upon an advance indication of interest are all permissible. However, accounts must be checked for suitability. Ok I’m Calling Bullsh*t. You aren’t supposed to allocate based on account size. Ok I get the suitability thing, but how the hell can “on a pro rata basis over all accounts.” be more ethically reprehensible than allocating based on account value… Ugh I hate my life…
did you miss the least accurate part of the question? (and are now ranting over it)?
Whoops, meant to post in L2
I think the key issue in this question is suitability. Between option a and b, it is more in line with the standards to allocate shares only to suitable accounts as opposed to all accounts. “Across account value” is by definition on a pro rata basis which is in line with the standards so option b would not be a violation. Allocating shares to all accounts without determining suitability first would be a violation of the standards.
cpk123 Wrote: ------------------------------------------------------- > did you miss the least accurate part of the > question? > > (and are now ranting over it)? No I didn’t With the answer attached, to me , it reads like this "It is least accurate to say that under the standards it it permissible to allocate trades on a pro rata basis over all accounts. Which seems far Less “Less Accurate” than to allocate based on account size…you cant allocate based on account size, therefore, it is least accurate to say that is permissible… Am I misreading?
Anna237 Wrote: ------------------------------------------------------- > I think the key issue in this question is > suitability. Between option a and b, it is more in > line with the standards to allocate shares only to > suitable accounts as opposed to all accounts. > “Across account value” is by definition on a pro > rata basis which is in line with the standards so > option b would not be a violation. Allocating > shares to all accounts without determining > suitability first would be a violation of the > standards. But it doesn’t say “across account value” it says " based on account value" which seems to mean based on customer size
you are misreading. you can allocate based on Account size to all SUITABLE accounts. (Suitable makes this right). you can allocate based on advance indication of interest and indicated order size. you cannot allocate pro-rata over ALL Accounts… (would violate suitability) since you have not determined if the trade is suitable for ALL accounts. ALL is the key.