in order to evaluate a thinly traded security that a pm has a large position, he sells one share each day using market order and then use the price in his valuation. is it a vilolation?
I don’t think so, there’s no market manipulation here, he’s just trying to figure out what the price is. However, a key question is whether the IPS would allow that. If this measurement is coming at the cost to the client (by changing the allocation decision from its target), that might be a problem. The other question is whether that price is the right price to use in valuation of the security. If the valuation does not recognize that there would likely be a penalty for selling a large number of shares, there could be misrepresentation going on. So, it’s not clearly a violation, but there may be more info in a vignette that would make it one.
IMHO, it is a bad practice but not a violation. The PM is not trying to manipulate the market. However, just selling one share to gauge the market price does not bring into picture the cost of illiquidity. As a result, he would be overestimating the worth of his investment.
I also agree with the rest of guys. His purpose : specifically said to evaluate the price. So it seems logical to check the market price. However, if it is client asset, he needs to get permission in advance from his client like bch said.
is there really a security outthere that one would have enough quantity of that doesn’t trade at least once per day to have enough to sell one per day? ? ? ? ?
flapechino Wrote: ------------------------------------------------------- > I also agree with the rest of guys. > > His purpose : specifically said to evaluate the > price. > > So it seems logical to check the market price. > > However, if it is client asset, he needs to get > permission in advance from his client like bch > said. Be very careful with “it is ok if you get permission from the client” - it is PM’s fiduciary duty to protect client’s interest even if client asks him to do otherwise. No ifs and buts, thou shalt not cause any harm.
I think you run into problems with GIPS… is it still discretionary if you have to sell a piece every day? Also, speaking from seeing this in the real world, you dont have to actually sell a piece of a security to get a price. The sales and trading guys will quote up thinly traded securities for you, and then you can say no thanks. They do not know you are just pricing your security.