bapswarrior

Alba Vasquez allocates trades of hot new IPOs as follows: m×p/(p+s) shares to performance-based fee accounts, m×s/(p+s) shares to standard fee accounts, where there are p suitable performance based fee accounts, s suitable standard fee accounts, and m shares available. This action is:

A) not permissible since it effectively favors the performance-based fee accounts.

B) not permissible since it is based upon a formula that is not inherently fair.

C) permissible since it effectively amounts to a strict pro rata basis of allocation.

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The formula shown above is nothing more than a simple pro rata basis of allocation (assuming that the shares are then subsequently allocated in the same fashion over all of the sub accounts by category). Hence, this is permissible.

bapswarrior

When a firm seeks to allocate a disproportionate number of shares of a hot IPO to performance-based fee accounts this constitutes a violation of the Standard concerning:

A) additional compensation arrangements.

B) fiduciary duty.

C) priority of transactions.

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The allocation of a disproportionate number of shares to performance-based fee accounts constitutes a violation of fiduciary duty, in addition to being a violation of the Standard concerning fair dealing.