Is the difference mentioned below in the form of answers correct ? The first question talks about pro rata allocation whereas the seconds one talks about strict rata allocation. Allocation on a strict pro rata basis means each account for which the shares are suitable: A) and which has expressed an advance indication of interest, shall receive w*m shares, where w is the account’s proportional value of all such accounts and there are m shares available. B) and which has expressed an advance indication of interest, shall receive m/n shares, where there are m shares available and n such accounts. C) shall receive m/n shares, where there are m shares available and n such accounts. Your answer: C was correct! Strict pro rata means that each suitable account should receive m/n shares, where there are m shares available and n suitable accounts. *********************************************************************** Pro rata allocation on the basis of an advance indication of interest means each account for which the shares are suitable: A) and which has expressed an advance indication of interest, shall receive m/n shares, where there are m shares available and n such accounts. B) shall receive m/n shares, where there are m shares available and n such accounts. C) and which has expressed an advance indication of interest, shall receive w*m shares, where w is the account’s proportional value of all such accounts and there are m shares available. Your answer: B was incorrect. The correct answer was A) and which has expressed an advance indication of interest, shall receive m/n shares, where there are m shares available and n such accounts. Pro rata allocation on the basis of an advance indication of interest means that all accounts that are suitable and that have expressed an interest in the issue shall receive m/n shares, where there are m shares available and n suitable accounts have expressed interest.
Perfect.
haha… i hope this wouldnt come up, but i guess you never know… looks like pro-rate the accounts have to have expressed interest to get shares, whereas strict pro rate the shares go into suitable accounts, with no interest being required.
I KNEW IT I encountered this too but I second-guessed myself thinking my memory sucked. Good find.
what’s tricky about that? Something must be wrong with me, because these two questions look as straightforward as can be to me. Do you think I’m alright, or shoud I check with a shrink?
was this difference seen in schweser or cfai materials?
This is the kind of CFA trickery that chaps my @$$. They call this allocation “pro-rata” but they mean evenly divided. That is NOT the definition of pro-rata.
There was a post earlier about allocating IPO’s based on the size of accounts - apparently it’s ok?
not ok if the proration is by account size.
newsuper Wrote: ------------------------------------------------------- > There was a post earlier about allocating IPO’s > based on the size of accounts - apparently it’s > ok? There was a thread a couple weeks ago where several people said allocating by account size was not allowed.
Schweser Volume 2 Exam 3AM Question 2 seems to imply that it’s ok
It’s too long to post, but it says inter alia “Mason allocates his 10,000 share order of the IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under mgmt in each account” The question then asks if his allocation practice was a violation and the answer is that both of them conform to CFAI Stds.
> This is the kind of CFA trickery that chaps my @$$. They call this allocation “pro-rata” but they mean evenly divided. That is NOT the definition of pro-rata. I see, but there is no account size given, so you just have to assume it is same as evenly divided. As for the ethical part, true you cannot favor some accounts over other accounts, but not if the accounts want it that way. Here, some have expressed interests, some said no we don’t want any of this stuff, so you only allocate to those that want it.
Nice post.