Reading 8: Trade Allocation: Fair Dealing and Disclosure -

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Q1. Which of the following statements regarding allocating trades is TRUE? It is:

A) never permissible to deviate from a proportional account value weighting method of trade allocation, unless this is done on the basis of an advance indication of interest in the issue.

B) permissible under the standards to allocate trades on the basis of a predetermined formula that may deviate from a pro rata basis but is inherently fair.

Q2. Pro rata allocation on the basis of an advance indication of interest means each account for which the shares are suitable:

A) shall receive m/n shares, where there are m shares available and n such accounts.

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) 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.

Q3. Allocation on a strict pro rata basis means each account for which the shares are suitable:

A) shall receive m/n shares, where there are m shares available and n such accounts.

B) 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.

C) and which has expressed an advance indication of interest, shall receive m/n shares, where there are m shares available and n such accounts.

Q4. Which of the following trade allocation procedures is improper? Allocation:

A) on a strict pro rata basis over all suitable accounts.

B) based upon a predetermined formula.

C) based upon past participation in IPOs.

Q5. Which of the following statements regarding allocating trades is TRUE? It is permissible under the Standards to allocate trades:

A) based upon compensation arrangements.

B) based upon any method the firm deems suitable so long as the allocation procedure has been disclosed to all clients.

C) on a pro-rata basis over all suitable accounts.