CFA Level I · CFA Level I Exam · Guidance for Standard III: Duties to Clients
Morris's institutional clients oversubscribe a hot IPO. He fills all orders, including his own, but cuts the institutional blocks. To best meet Standard III(B), Morris should have:
Morris should have prorated the shares among clients and not taken any himself. Standard III(B) requires fair treatment of customers in IPO distribution, and his personal participation and arbitrary cuts to institutions favored himself over clients.
- Aprorated the distribution of shares to clients and taken none himselfCorrect
- Bfilled institutional orders first and taken the remainder himself
- Callocated shares by expected price impact of each client
Explanation
Morris should have refrained from taking shares himself and prorated the distribution or used another fair method. Taking shares ahead of clients or allocating by his assumption about market influence does not treat clients fairly.
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