Question #25
Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III
PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf
Page: 10
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
In securing the shares for all accounts under her management, Linda Kammel of Northwest Futures purchased three blocks of shares at three different prices. She then allocated these shares by placing shares from the first block in accounts with surnames beginning with A-G. The second was allocated over accounts H-P, and the third over Q-Z. This action is:
Answer Choices:
A. permissible only if the clients are informed of the allocation procedure
B. not permissible under the Code and Standards
C. consistent with her responsibilities under the Code and Standards
Explanation
Standard III(B) requires a member to deal fairly with all clients when taking investment
actions. Since she knew at the outset that she was going to place shares in all accounts,
regardless of the first letter of the surname, all accounts must participate on a pro-rata
basis in each block in order to conform to the Standard. Her actions constitute a violation
of the Standard concerning fair dealing.
(Module 42.5, LOS 42: III(B))