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[[Asset manager]]s will often proudly declare that they act as [[agent]]: at no time, in no circumstances, can they ever be principally liable for transactions they instruct on behalf of their clients. | [[Asset manager]]s will often proudly declare that they act as [[agent]]: at no time, in no circumstances, can they ever be principally liable for transactions they instruct on behalf of their clients. As a general proposition you can see what they’re trying to say but it isn’t quite that straightforward. | ||
Where the [[manager]] instructs the transaction first and allocates it to a given client later — which is usually how managers like to carry on — this puts a [[dealer]] in an invidious position in between times. For a [[dealer]] cannot reject a trade against the street once it has executed it. | Where the [[manager]] instructs the transaction first and allocates it to a given client later — which is usually how managers like to carry on — this puts a [[dealer]] in an invidious position in between times. For a [[dealer]] cannot reject a trade against the street once it has executed it. | ||
*The dealer must carry out the transaction regardless of whether the manager allocates to its client. Therefore the [[dealer]] is exposed to market risk immediately. That market risk is for the manager′s client’s account. | *The dealer must carry out the transaction regardless of whether the manager allocates to its client. Therefore the [[dealer]] is exposed to market risk immediately. That market risk is for the manager′s client’s account. | ||
*If the manager has not disclosed the | *If the manager has not disclosed the client’s identity to the dealer, as its agent the manager has two options. It can either: | ||
**Disclose the [[principal]] | **Disclose the [[principal]]’s identity (so the dealer can take it up with the principal directly), or | ||
**Perform the [[principal]]’s obligations to the dealer on the principal’s behalf, as a good agent should (whereupon the manager can settle up with its client later – this is not the | **Perform the [[principal]]’s obligations to the dealer on the principal’s behalf, as a good {{tag|agent}} should (whereupon the [[manager]] can settle up with its client later – this is not the [[dealer]]’s concern). This is in fact performance of an agency role, but economically (from the dealer’s perspective) it is identical to a principal obligation.<br /> | ||