The Oversubscribed Allocation

There are three overlapping conflicts:

• Scarce resource allocation - a valuable, oversubscribed line has to be split, and someone will get less than they want.
• Commercial pressure versus client interest - allocating to retain a £40m client is a commercial motive dressed as an investment decision.
• Personal interest - the CEO's own account sits in the eligible pool, so the CEO has a direct financial interest in the split.

The email must not be acted on. 'Look after the big one' is an instruction to depart from a fair allocation method, and following it would be a breach regardless of the CEO's intentions. Practical steps:

• Do not reply with agreement or disagreement by email alone; acknowledge receipt and state that allocation will follow the documented policy.
• Escalate to compliance and, if the CEO is not the most senior person, to the CEO's supervisor or the board.
• Log the email on the conflicts register and in the allocation record.
• Make sure the person who runs the allocation is not the CEO and is not remunerated on the retention of that client.

The strongest protection is that the allocation method is agreed and written down before the allocation is known to be valuable.

No. The broker's terms prohibit allocation to employees and connected persons, and that condition binds the firm irrespective of the mandate. Even without the letter, a personal account dealing policy would require pre-clearance and would treat an IPO allocation to the CEO as a conflict that needs independent approval. The answer is no, and the reasoning must be documented so it is clear this was a rule, not a judgement about the CEO's character.

For the two eligible clients:

• Apply the firm's written IPO/allocation policy. If the policy is pro rata to indicated demand, do that. If there is no policy, adopt one before allocating - the absence of a policy is the real finding here.
• A client's threat to leave is not a legitimate allocation criterion. If the largest client receives a larger share, the reason must be an objective one that would apply equally if she were a £2m client.
• Consider appropriateness: an IPO with a 30-day hold and an expected pop may not suit every mandate, and the large client's demand should be evidenced by her own instruction, not assumed.
• Record the split, the reasons, and who approved it.

Take the smaller of what was indicated and what is justified. A six-fold overshoot from a broker who is 'rewarding flow' is an inducement risk: the firm should ask why the allocation is so large, decline the excess, and document the request and the response. Accepting it and then allocating it to clients who did not ask for it is a further problem - clients have to consent to the trade and it must fit the mandate.

On the 30-day hold: the restriction has to be assessed against each client's objective and liquidity needs before the shares are accepted. A discretionary manager buying IPO stock that cannot be sold for a month is taking a position it may not be able to exit; that must be consistent with the mandate and recorded. The restriction also means the firm cannot simply flip the stock to lock in the gain, which is often the unstated plan.

On the house position: allocating a profitable oversubscribed line to the firm's own book ahead of or alongside clients is a conflict that should be avoided entirely in a firm of this size. Best practice is to decline any allocation to the house account and to return the shares to the broker, documenting why.