CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

Dave Jones is a compliance officer at a large brokerage house. As part of his job description, he is required to put in place procedures to ensure that all trades are allocated fairly and accurately, and in a timely and efficient manner. In terms of CFA Institute's Standards of Professional Conduct per Standard III (B) Fair Dealing, what are some of the factors that he will need to consider?

I. All orders should be in writing with the date stamped on them.
II. Orders should be processed on a first-in, first-out basis.
III. All clients in a block should be given the same execution price.
IV. Establish procedures for determining material change in opinions.
A. I and III only
B. All of the above
C. I, II and III only
Explanation: Establishing procedures for determining material change in opinions is not a specific procedure to ensure that all trades are allocated fairly and accurately and in a timely and efficient manner.

User Contributed Comments 15

User Comment
Yooo NO way II. Nowhere in the Codes does it speak about first-in, first out. The only thing mentioned is "treat clients fairly in terms of both trade execution order and price, and execute orders in an efficient and timely manner".

So how about all the different types of orders one can expect to receive?
No way you can FIFO all market orders and stop-limit orders. No wonder this site is so cheap to purchase. You get what you pay for.
notebook should include II, it's part of fair dealing for compliance officer to be considered.
Done I have worked at a trading desk and II is right.
infy33836 i second the 2 above me
017759 How could you give the same execution price? For example, orders are particially executed in the block. The rest portion will be in different price. So, III is not a durable option.
shayu 017759: yes you can at least get an average price for a block trade, and the point here is to treat your clients equally.
linr0002 hmmm the code says to treat clients fairly but may not be equally.
surob I guess it is not talking about "block trade", but just clients in block.
volkovv IV is not correct. Both II and III are correct. Quotes straight from CFA book for recommended procedures for compliance for the standard of Fair Dealing:
"processing and executing orders on a first-in, first-out basis"
"giving all clients accounts participating in a block trade the same execution price and charging the same commision"
jmcarr02 Ah ah! Orders in writing with the date stamped on them... Are we in the 1980's or in the 21st century ?
adam08 Putting them in writing and getting them stamped can be done via e-forms. Remember you need to click "I agree" button when doing lots of thing online these days - clicking the button has the same legal effect as signing.
ba777 I'm assuming IV is not correct because of the word determining (ie valuation, future expectations, mgmt guidance etc.)instead of disseminating. Right?

Were they trying to be tricky with that wording and catch people being lazy? If so are there a lot of word tricks on the real test?

I thought I remember reading on the CFAI site that they don't try to intentionally trick you. Maybe I made that up or that doesnt apply to the ethics part. Not knocking the question here btw just wonderin what to expect come game day.
ksnider oh they try to trick you!
jpowers Firs-in, first-out refers to the order the instructions are received and processed. You can't hold a market order to execute it later.
Dilaraj There are many possibilities, II is just a certain case in which a treatment would be fair - such as execution of market orders. But what about IPOs, competitive bid orders? Allocation has to be fair, but not always FIFO is fair.
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