Pro-rata allocation of IPOs receive, situation, recommend, allocation, 168

Sunshine4ever

Refer Q 57 Page 168: Is Aikliri's policy with respect to IPO allocations consistent with required and recommended CFA Institute Standards?

The answer states: The firm violates Standard III(B)—Fair Dealing. Under Aiklin’s policy, some clients for whom an IPO is suitable may not receive their pro-rata share of the issue. CFA Standards recommend that firms allocate IPOs on a pro-rata basis to clients, not to portfolio managers.


Now I would like you guys to consider this situation. Lets say that the number of units of the IPO suitable for a client (given his risk/return capabilities) is just 1 unit. Hence, the stock is suitable for him. Right?

But to what extent? Only to the extent of 1 unit in his current portfolio. If we do not allow the portfolio manager to review and we go by simple pro-rata allocation, he will end up receiving (say) 20 units.

I am not sure if pro-rata method would be appropriate in such a scenario. Your comments would be appreciated. Thanks.