Ethics Allocation

CFA Level III
#1

From time to time, PIA receives initial public offering (IPO) allocations from FTI. Danko allocates these IPOs to those discretionary accounts that normally participate in IPOs. If the IPO is oversubscribed, he excludes his wife’s discretionary non-fee-paying account so that he is not accused of bias when allocating the oversubscribed IPOs.

Does Danko violate the CFA Institute Standards when he allocates oversubscribed IPO issues?

  1. No
  2. Yes, because he should allocate the oversubscribed IPOs across all discretionary accounts
  3. Yes, because he should treat his wife’s account the same as other discretionary accounts and include it in the oversubscribed IPO allocations

Correct Answer is A, but don’t you think by not allocating the IPO to his wife, he is disadvantaging his client, he even haven’t given disclosure about how IPO allocation will be made?

1 Like
#2

As his wife is not paying fees she is not treated the same as everyone else, if she paid fees (presumably as other clients do) then she should receive an allocation.

She is consider a beneificial connected account as she is not paying fees.

#3

Does this imply that if the IPO was oversubscribed, he is completely allowed to allocate excess shares to his wife, despite the fact that she is not a fee-paying client of the firm?

Thank you.