Template:Unallocatedtrades

A legal conundrum that arises in the context of bulk agency orders placed by an asset manager with a broker-dealer on behalf of several clients. Typically the agent will place the order first without naming the principals, only to advise the broker to which principals it should allocate the securities 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 in this way on behalf of their clients.

Oh really?

This convenient view — I mean, you would say that, wouldn’t you? — prompts more questions that it answers: if the agent isn’t responsible for unallocated trades, then, until they’re allocated,who is? The broker doesn’t know who the principal is, so it 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.