former trader Wrote: ------------------------------------------------------- > what’s the difference between discretionary fee > paying and discretionary non-fee paying. > > For example, if someone runs a non-fee paying > account for his wife and there’s a IPO, does he > have to treat his wife’s account like all others > even if it’s non-paying account? I put he had to treat his wife like the others. She participated in IPOs (or she wouldn’t have been allocated in the first place) and neither of the wrinkles (worries about bias complaints, lack of fee paying) were enough to permit underallocating her.
Definitely not 100% sure (closer to 60%), but I think quality of the collateral is the correct answer (as least important). Repo might be on shares, commodities, etc. If I’m buying your stock, on the basis that you’ll buy it back + interest (even if e.g. the share price drops), I think I’m more concerned about whether or not you’ll follow through - I don’t want to be stuck with a lower priced collateral. Collateral is still a factor, but I think it’s quality will have more of an affect on how much I “lend” you, vs. what repo rate I charge. Just IMO though - Schweser doesn’t seem to specify.
oskigo Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > Fees are not a factor. He still has fiduciary > duty > > toward the account, and has to deal fairly. It > was > > in the CFAI book actually. Only if he has > direct > > interest in the account ( which was not stated > in > > this case), would he have to follow clearance > > procedures, but still has to allocate fairly. > > > no since it’s his wife’s account and obviously he > has an interest other clients must be put first. > if it is a family account that he doesn’t have an > interest in he should treat them like other > clients. Why do you assume he has interest in it ? I learned not to assume anything not given. There are tons of ways to have separate interests between wife and husband.
mo34 Wrote: ------------------------------------------------------- > thetank Wrote: > -------------------------------------------------- > ----- > > emarkhans Wrote: > > > -------------------------------------------------- > > > ----- > > > sandy_capone Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > borrower quality is the right choice. > > > > > > > > Risk free rate is not correct because it > > > > correlates with prevailing interest rates > (or > > > > federal funds rate) which is explicitly > > listed > > > as > > > > one of the factors on which it depends. I > had > > > all > > > > the factors in my notes and felt like an > > idiot > > > for > > > > spending so much time on trying to remember > > > these. > > > > > > I disagree that the repo rate closely > > corresponds > > > with interest rates as a whole in the > economy, > > > which is what the choice was. > > > > > > I also disagree that Bear Stearns the day > > before > > > it blew up could have got repo money at the > > same > > > rate as Goldman, even for the same > collateral. > > > > > > However, you will have the right answer and I > > will > > > have the wrong. > > > > I agree, if anything, quality of borrower > should > > be the MOST important > > Quality of the borrow should make a difference, > but not in CFAI land. It doesn’t, 100% sure of > that one. Agreed. One point off for me. I still have no idea why a textbook would not mention quality of the borrower as a factor in determining the rate you’d need to lend him money. The obvious implication of that is that the lender is completely indifferent as to whether it gets back its money or has to take the collateral – which is completely ridiculous on its face beyond any doubt. And at the risk of being repetitive, there’s simply no relationship between general interest rate levels and the repo rate, other than the relationship between general interest rates of loans of EQUAL TERM and the repo rate. But if that sliver of the concept is what’s really meant to an intelligent reader by “the level of general interest rates in the economy,” I’m the King of Siam.
mo34 Wrote: ------------------------------------------------------- > Why do you assume he has interest in it ? I > learned not to assume anything not given. There > are tons of ways to have separate interests > between wife and husband. true, but with immediate family it’s assumed he has an interest. i’m 100% positive. look it up.
oskigo Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > Why do you assume he has interest in it ? I > > learned not to assume anything not given. There > > are tons of ways to have separate interests > > between wife and husband. > > > true, but with immediate family it’s assumed he > has an interest. i’m 100% positive. look it up. This may be right, but then he would have been essentially allocating himself IPOs all along and been in total violation right from the get-go.
Again, not sure but… > I still have no idea why a textbook would not > mention quality of the borrower as a factor in > determining the rate you’d need to lend him money. > The obvious implication of that is that the > lender is completely indifferent as to whether it > gets back its money or has to take the collateral > – which is completely ridiculous on its face > beyond any doubt. In Schweser, the first thing mentioned is “Credit Risk”. If that’s not quality of the borrower, what is it?
It’s ok either way, in the big picture I figure one question will not make a difference. I felt that it was a trick to lead us to assume that he had direct interest, or to confuse people on the non-fee paying part.
Hmm… spouses are generally assumed to have beneficial interest in the CFAI code. I think you can also participate in IPOs along with other clients as long as you don’t do it before, which means that participating at the same time and in equal proportion is OK. You can’t use your position or influence to front run, or get extra shares, but you can run along-with and in equal proportions. Those are the principles I’d use in addressing stuff like this.
emarkhans Wrote: ------------------------------------------------------- > This may be right, but then he would have been > essentially allocating himself IPOs all along and > been in total violation right from the get-go. but i said his rule was fine since he eliminated her from oversubscribed ipos. the only other option that could have been right (IMO) is the one that said he should take her out of ipos that he knows are hot.
the “hot” answer seems fishy, that’s why I didn’t choose it 
i don´t know if this was in schweser or cfa text but, when talking about repo, they said that “essentially is a collateralised loan, so quality of the borrower is not important” (approx)
I think the key word in the exam is that this is a deliverable repo. Since you have to deliver the collateral, the borrow’s quality doesn’t matter anymore.
mo34 Wrote: ------------------------------------------------------- > thetank Wrote: > -------------------------------------------------- > ----- > > emarkhans Wrote: > > > -------------------------------------------------- > > > ----- > > > sandy_capone Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > borrower quality is the right choice. > > > > > > > > Risk free rate is not correct because it > > > > correlates with prevailing interest rates > (or > > > > federal funds rate) which is explicitly > > listed > > > as > > > > one of the factors on which it depends. I > had > > > all > > > > the factors in my notes and felt like an > > idiot > > > for > > > > spending so much time on trying to remember > > > these. > > > > > > I disagree that the repo rate closely > > corresponds > > > with interest rates as a whole in the > economy, > > > which is what the choice was. > > > > > > I also disagree that Bear Stearns the day > > before > > > it blew up could have got repo money at the > > same > > > rate as Goldman, even for the same > collateral. > > > > > > However, you will have the right answer and I > > will > > > have the wrong. > > > > I agree, if anything, quality of borrower > should > > be the MOST important > > Quality of the borrow should make a difference, > but not in CFAI land. It doesn’t, 100% sure of > that one. most people are not thinking deeper. i go to government and say please lend me $100. givernment says sure we can but you will have to put up your house as collateral. i say sure. i sign docs. now in truth i have a credit score of 320 and i am a liar and a thief and i plan to never return the $100. but the govt doesnt care anymore cuz i handed over my house as collateral. borrower quality is of no importance whatsoever.
Do you remember a question about why is the yield-curve risk higher for MBS ? Was it due to the options ?
embedded options
needhelp Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > thetank Wrote: > > > -------------------------------------------------- > > > ----- > > > emarkhans Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > sandy_capone Wrote: > > > > > > > > > > -------------------------------------------------- > > > > > > > > > > ----- > > > > > borrower quality is the right choice. > > > > > > > > > > Risk free rate is not correct because it > > > > > correlates with prevailing interest rates > > (or > > > > > federal funds rate) which is explicitly > > > listed > > > > as > > > > > one of the factors on which it depends. I > > had > > > > all > > > > > the factors in my notes and felt like an > > > idiot > > > > for > > > > > spending so much time on trying to > remember > > > > these. > > > > > > > > I disagree that the repo rate closely > > > corresponds > > > > with interest rates as a whole in the > > economy, > > > > which is what the choice was. > > > > > > > > I also disagree that Bear Stearns the day > > > before > > > > it blew up could have got repo money at the > > > same > > > > rate as Goldman, even for the same > > collateral. > > > > > > > > However, you will have the right answer and > I > > > will > > > > have the wrong. > > > > > > I agree, if anything, quality of borrower > > should > > > be the MOST important > > > > Quality of the borrow should make a difference, > > but not in CFAI land. It doesn’t, 100% sure of > > that one. > > most people are not thinking deeper. > > i go to government and say please lend me $100. > givernment says sure we can but you will have to > put up your house as collateral. i say sure. i > sign docs. > > now in truth i have a credit score of 320 and i am > a liar and a thief and i plan to never return the > $100. but the govt doesnt care anymore cuz i > handed over my house as collateral. > > borrower quality is of no importance whatsoever. what happens if the collateral you give loses significant value. there was a similar question in the end of chapters where they said that the collateral could lose value.
oskigo Wrote: ------------------------------------------------------- > emarkhans Wrote: > -------------------------------------------------- > ----- > > This may be right, but then he would have been > > essentially allocating himself IPOs all along > and > > been in total violation right from the get-go. > > > but i said his rule was fine since he eliminated > her from oversubscribed ipos. the only other > option that could have been right (IMO) is the one > that said he should take her out of ipos that he > knows are hot. If she’s a discretionary account and gets IPOs to begin with, I don’t see how you can ethically treat her worse.
because the payments are distributed through the whole maturity, so the shape of the yield curve will affect it more 100% sure it was said in CFA book, just not sure where
former trader Wrote: ------------------------------------------------------- > needhelp Wrote: > -------------------------------------------------- > ----- > > mo34 Wrote: > > > -------------------------------------------------- > > > ----- > > > thetank Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > emarkhans Wrote: > > > > > > > > > > -------------------------------------------------- > > > > > > > > > > ----- > > > > > sandy_capone Wrote: > > > > > > > > > > > > > > > -------------------------------------------------- > > > > > > > > > > > > > > > ----- > > > > > > borrower quality is the right choice. > > > > > > > > > > > > Risk free rate is not correct because > it > > > > > > correlates with prevailing interest > rates > > > (or > > > > > > federal funds rate) which is explicitly > > > > listed > > > > > as > > > > > > one of the factors on which it depends. > I > > > had > > > > > all > > > > > > the factors in my notes and felt like > an > > > > idiot > > > > > for > > > > > > spending so much time on trying to > > remember > > > > > these. > > > > > > > > > > I disagree that the repo rate closely > > > > corresponds > > > > > with interest rates as a whole in the > > > economy, > > > > > which is what the choice was. > > > > > > > > > > I also disagree that Bear Stearns the day > > > > before > > > > > it blew up could have got repo money at > the > > > > same > > > > > rate as Goldman, even for the same > > > collateral. > > > > > > > > > > However, you will have the right answer > and > > I > > > > will > > > > > have the wrong. > > > > > > > > I agree, if anything, quality of borrower > > > should > > > > be the MOST important > > > > > > Quality of the borrow should make a > difference, > > > but not in CFAI land. It doesn’t, 100% sure > of > > > that one. > > > > most people are not thinking deeper. > > > > i go to government and say please lend me $100. > > givernment says sure we can but you will have > to > > put up your house as collateral. i say sure. i > > sign docs. > > > > now in truth i have a credit score of 320 and i > am > > a liar and a thief and i plan to never return > the > > $100. but the govt doesnt care anymore cuz i > > handed over my house as collateral. > > > > borrower quality is of no importance > whatsoever. > > what happens if the collateral you give loses > significant value. there was a similar question > in the end of chapters where they said that the > collateral could lose value. Therefore the quality of the collateral is a factor that determines the repo rate. the government could charge me 150% interest rate if my house is in the slums. also remember that repo is a short term loan.