Trade Allocation

A manager running several funds or separately managed accounts usually executes one block order and then allocates the fills across accounts. Allocation instructions are sent to the executing broker, prime broker or custodian so each account settles its own quantity at its own price, and the allocation is booked into the order management system and the IBOR.

Most managers allocate pro rata to target weights, available cash or NAV, and use an average price across partial fills so every account receives the same price for the same order. The allocation policy should be written down before the trade, applied consistently, and reviewed by compliance, because allocation is one of the areas regulators examine most closely for favoritism between accounts.

Operationally, the key controls are timeliness (allocations sent before the broker’s cut-off), rounding rules for odd lots, and a same-day check that the sum of allocations equals the block. Late or incorrect allocations are a frequent root cause of trade breaks and settlement fails.

Example

A manager buys 100,000 shares across three funds with NAVs of USD 50M, 30M and 20M. A pro rata allocation gives 50,000, 30,000 and 20,000 shares, each at the block’s average price of USD 24.3187, with any rounding residue assigned by a documented rule.