An investment adviser has placed a block trade for 500,000 shares of ABCD stock. The trade is filled in 5 separate lots of 100,000 shares each, at prices ranging from $13.56 to $14.04 per share. The adviser must allocate the shares to customers on a:

Question

Diamond

Business

26 October, 21:57

An investment adviser has placed a block trade for 500,000 shares of ABCD stock. The trade is filled in 5 separate lots of 100,000 shares each, at prices ranging from $13.56 to $14.04 per share. The adviser must allocate the shares to customers on a:

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Barbara Solomon · Answer 1

Answer: Pro-rata basis across all customers participating in the block.

Explanation:

Pro-rata basis in Business finance means that the resource being distributed which in this case is shares should be distributed according to the proportion of shares applied for by customers.

Essentially, the adviser should allocate a proportion of shares to the corresponding proportion of application requests by customers. This is usually used when shares are oversubscribed or differently priced as in the above.

For instance, If there were 3 customers and Customer 1 applied for 50,000 shares, Customer 2 applied for 30,000 and Customer 3 applied for 20,000. If there were only 10,000 shares available then using the Pro-rata basis, Customer 1 would get 5,000 shares, Customer 2 would get 3,000 and Customer 3 would get 2,000.