Trade corrections

CFA Level III Ethics
#1

IPO Share Allocation
Locke “The Fund’s portfolio received 50,000 shares of an initial public offering (IPO) on 1 April. On 15 May, 30,000 shares were removed at the current market price.”
Black “There was a problem with NGM’s IPO allocation algorithm. Initially, you were overallocated. When we discovered the error, your account was adjusted.”
Locke “Short-term interest should have been credited to the Fund for use of its cash to cover the trade. In any case, this was an IPO of a large international high-tech company. It was not an appropriate investment for the portfolio.”

With regard to the IPO share allocation, are both NGM’s method of trade correction on 15 May and Locke’s demand for a short-term interest credit, respectively, consistent with the CFA Institute Standards of Professional Conduct?
A Yes
B No, only the method of trade correction is consistent
C No, only the demand for a short-term interest credit is consistent

C is correct. What is the problem with the trade correction, anyone? Could you please assist?

#2

Are there more facts to this question? If not, it’s a poorly written question. “Your account was adjusted” is pretty vague.
What’s the explanation given?

#3

I’ll have a look tomorrow, as I do not remember where this question comes from. And btw thank you for commenting on so many of my posts

#4

Oh I just realized what the issue was. Shares were removed at market value. They should have been removed at cost.

1 Like
#5

I read on another thread that - It was not an appropriate inv for the portfolio so NGM should have removed all the shares, which implies that the method of trade correction (removing only 30000) was incorrect.