Skip to content

CFA Level I · CFA Level I Exam · Guidance for Standard III: Duties to Clients

Morris's firm manages an oversubscribed IPO. He fills all orders, including his own, but reduces the institutional blocks because he assumes institutions can drive the price up. To meet Standard III(B), Morris would most appropriately have:

Morris should have refrained from taking any shares himself and prorated the distribution among clients, or used another fair allocation method. Cutting only the institutional blocks discriminates, and disclosing his options does not cure an unfair allocation.

  1. Afilled retail orders in full and reduced only institutional orders
  2. Brefrained from taking shares himself and prorated the distribution to clientsCorrect
  3. Ctaken shares himself after disclosing his options to the institutional buyers

Explanation

Morris needed to refrain from taking any shares and to prorate the distribution or use another method treating clients fairly. Disclosure of his options is required under Standard VI(A) but does not cure the unfair allocation, so option C is wrong. Option A discriminates against institutions.

Did you get it right without looking?

One question tells you little. A timed set on Guidance for Standard III: Duties to Clients shows your real accuracy, how long you take and where you lose marks.

Practise Guidance for Standard III: Duties to ClientsFree diagnostic mock

More Guidance for Standard III: Duties to Clients questions