Pro rata allocation

CFA Level III Ethics
#1

Hey guys,

the answers in the forum confuse me a bit. Is pro rata distribution of shares based on account size or order size?

Example:

IPO - 1000 shares available

Client A: Portfolio Size: 1.000.000 €

Client B: Portfolio Size: 500.000 €

Client C: Portfolio Size: 100.000 €

Scenario 1: each client wants 1000 shares. Does everyone get 333 or is the allocation based on portfolio size?

Scenario 2: client A wants 1.000, client B wants 10.000 shares, client C is not interested. How does the allocation looks like? Does client B receives 10/11 * 1000 shares or is it weighted with the portfolio size?

Thanks :slight_smile:

#2

Pro rata means that (1000.000 +500.000 + 100.000 = 1.600.000) thus client A will receive 1000 x (1000.000/1.600.000) new shares allocated and so on…