Template:Unallocatedtrades

A legal conundrum most relevant in the context of agency orders for securities and derivatives placed with a broker-dealer by an asset manager in bulk on behalf of several clients. Typically the agent will place the order first, and advise the executing broker of the identity of the principals to whom the securities should be allocated later in the day. Agents will often proudly declare that at no time, in no circumstances, can they ever be liable as a principal for transactions they instruct on behalf of their clients.

The question arises: who is liable for those executed transactions in the mean time? The broker doesn't know who the principal is, so can hardly take up matters with it directly. On the other hand, asset managers will hotly deny any kind of personal liability, appealing to their regulatory status, meagre capitalisation, or sheer importance as a valued client in intimating that this risk ought to be the broker's problem.

So much bunk — all of these reasons. The manager is the agent chose not to disclose its principal. By doing so it accepted unconditional responsibility for settling its client’s transaction.