CFA Level I · CFA Level I Exam · Equity Issuance and Trading
A portfolio manager must sell a very large block of a thinly traded stock and wants to reduce the risk of revealing the full order size to the market. Which execution instruction is most appropriate?
An iceberg order is most appropriate because it shows only part of the total quantity to the market and replenishes as portions execute. This lowers information leakage and price impact, whereas fill-or-kill demands immediate complete execution and market-on-close does not conceal size.
- AFill-or-kill instruction
- BIceberg (hidden quantity) order displaying only part of the sizeCorrect
- CMarket-on-close order for the full quantity
Explanation
An iceberg order displays only a portion of the total quantity, replenishing as it fills, which limits information leakage. Fill-or-kill requires immediate complete execution, which is unlikely in a thin market and does not hide size. A market-on-close order for the whole block still risks large price impact and is not designed to conceal size.
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