Asset Manager Code (2011 Schweser Mock)

individual, different, particular, 2011, his

How many of ya got this one right?

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Afternoon Exam, Question 1

Schmidt manages portfolios for a broad range of clients, from individual investors to
large institutional investors. Several of his largest clients have sufficiently large portfolios
that when trades are placed they will often move share prices. In order to avoid
negatively impacting his smallest clients, when he trades a particular security for a
number of different accounts, Schmidt executes trades in increasing order of size: trades
are executed for the smallest accounts first, and the largest institutional investors last.
Schmidt sometimes receives an allocation of oversubscribed initial public offering shares,
though often he does not receive enough shares to allow all eligible clients to participate.
Rather than distributing an equal number of shares to each client, Schmidt’s procedures
result in the eligible client with the largest portfolio receiving the greatest number of
shares, while smaller clients receive proportionally fewer shares.

1. Are Schmidt’s actions and procedures related to the order in which he executes
trades and the manner in which he allocates oversubscribed IPO shares in
compliance with the recommendations and requirements of the Asset Manager
Code of Professional Conduct?

A. Yes.
B. No, with respect to his IPO allocation policy.
C. No, with respect to his trade execution policy.