An analyst has the opportunity to offer his clients shares in a “hot new issue.” One of the analyst’s clients is his brother. When the new issue comes out, for those clients he deems it would be appropriate, he offers them an equal share. He includes his brother in that group. With respect to Standard VI(B), Priority of Transactions, this is: A) congruent with the Standard if his brother is not a ‘covered person’. B) congruent with the Standard as long as he does not have a direct personal interest in his brother’s account. C) congruent with the Standard even if he has a direct personal interest in his brother’s account. Your answer: B was correct! Client accounts that belong to family members should be treated like any other account so long as there is no direct interest on the part of the analyst. In other words, these types of accounts should not be at a disadvantage relative to other client accounts when there is no direct interest on the part of the analyst overseeing the account. -------------------------------------------------------------------------------- I marked B as there was lack of answer options. I thought it should not be equal share but rather pro rata basis.
One more : Jim Kent is an individual investment advisor in San Francisco with 300 clients. Kent uses open-ended mutual funds to implement his investment policy. For most of his clients, Kent has used the Baker fund, a small company growth fund based in Boston, for a portion of their portfolio. As a result he has become very friendly with Keith Dunston, the manager of the fund, whom Kent feels is mainly responsible for Baker’s performance. One day Dunston calls Kent and tells him that he will be leaving the fund in four weeks and moving to San Francisco to work for a different money management company. Dunston is seeking suggestions on housing in the area. Baker has not yet announced Dunston’s departure. Kent immediately finds a fund that is a suitable replacement for the Baker fund, and over the next two days he calls his 30 clients with the largest dollar investments in the funds and tells them he feels they should switch their holdings. Baker feels the remaining clients’ positions are small enough to wait for their annual review to switch funds. Kent has: A) violated the Standards by not dealing fairly with clients but has not violated the Standards regarding material nonpublic information. B) violated the Standards regarding nonpublic information but has not violated the Standards in failing to deal fairly with clients. C) violated the Standards by not dealing fairly with clients and regarding material nonpublic information
A ?
Yeah the answer was A Your answer: C was incorrect. The correct answer was A) violated the Standards by not dealing fairly with clients but has not violated the Standards regarding material nonpublic information. Kent must treat all clients fairly in acting on the information, regardless of the size of the investment. The information concerning the fund manager’s departure is not material nonpublic information because its release would have no effect on individual security prices. I thought he violated both standards 
Anyone can explain the first answer to me?
Yes, A is correct if the release of this news would not effect stock prices. But I doubt this assumption. Keith Dunston is the manager of the fund. If the public believe Keith Dunston also takes his intelligence and relation network away from Baker fund, of course, stock prices would drop.
I meant the first question i posted at the top? … aren’t we supposed to use pro rata basis which means value weighted and not equal weighted for hot new IPO’s