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Case Studies
Conflict with a client’s interest
Billy is a sales manager of a securities company. On one occasion, he recommends his client, Joe, to purchase the stocks of Earth Bank at the price of $10 per share because of its favourable development. Joe thus places an order with Billy to purchase 150,000 shares. As Billy also wants to buy the stocks of Earth Bank, he therefore aggregates his own order of 50,000 shares with that of Joe’s.
Because of the huge demand of Earth Bank's stocks in the market, Billy can only acquire 150,000 shares. He then allocates the stocks in the proportion of Joe's order and his own. As a result, 37,500 shares are allocated into his own account and the remaining 112,500 shares into Joe’s account.
Case Analysis
There is an apparent conflict of interest as Billy deals in the same stocks with his client simultaneously. Although the company permits staff to aggregate their own orders with the orders of clients, the *Codes of Conduct require that in this situation, financial practitioners must give priority to satisfying orders of clients in any subsequent allocation if all orders cannot be filled. Hence, even if Billy proportionally allocates the executed orders between Joe’s account and his own account, which does not appear to be blatantly wrong, he still breaches the Codes of Conduct as he has not given priority to satisfying Joe’s order in the subsequent allocation of the executed orders.
*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.