ethics- Locke EOC #3

Question asks about trade allocation and crediting short term interest on wrongful allocation.

I picked A because I think what they did was not a violation. Why it is B ?

Can anyone explain this to me?

Also, EOC #$ and 6 are contradicting each other.


Ans for #3 is given as C. Only interest claim is legitimate. For trade correction, i assume that they are inherently saying that NGM is not even allowed to make such mistakes and therefore there is no prescribed consistent correction method.

Since your question on question 3 is answered, I’m ignoring that.

Regarding Answers to Question 4 and 6 being contradictory, I had the same doubt too initially. But then I realised: for Question 4, he need not fire/suspend NGM immediately (YET) because the evaluation is still ongoing. And until it is completed and he has reasons to fire them, he is not obligated to do so. Especially in this case where NGM is providing a good diversification to the portfolio.

In Question 6, the evaluation is complete (Note the question starts with “Based on his complete evaluation…”). And although the conclusion is not clearly stated, the last thing Locke asks Black is “please make your trade allocation procedures compliant with CFA standards” and what does Locke do? Suggest a completely inconsistent way of reviewing and correcting the wrong allocations.

If the question went on to state that Locke then told Black “No! that’s not how you do it! This is how you do it” and then Locke said “Ok we do it that way”, then it’s possible that they would not be fired (but still highly probable).