Multi acc trade allocation rules for CTA's

[trade2live]

Are there specific rules set by the CFTC that CTA's have to follow regarding how to allocate trades between accounts and who gets the best price in a multi account platform ? I know usually managers use a random allocation process, but from the point of view of the CFTC or SEC are there specific rules in that regard when the advisor trades for his own acc as well?

If not what's best practice ?

 

[bwolinsky]

I need to review this, too, but multi-acc allocations are primarily tricky with regard to price, and not allocation. Generally, you know how many to buy, but the prices are harder to differentiate with multiple executions.

The simple answer is "don't worry about it, put the contracts in at the average price", which is what you're institution should be able to do for you. Keep in mind that the price is executed based on the number of contracts you submit in the order, so essentially making the value of the trade is the real issue the CFTC has particularly but the SEC's handling of it is different because there are usually a lot more shares and complications with stocks than with futures.

True random allocation should be a rarity, and your broker should help you or you should allocate the contracts with the right price using in house software or a broker that'll do that for you and any clients you might have.

I can also suggest using an excel random number generator and giving the extra contract or contracts to someone in that range. If you have twenty people, break out into 5% increments, and run the random number generator, depending on where it lies that is the account that should get the shares. (Definitely don't just put them in your incentive accounts), but have some record of what you did and this is basically the prescribed procedure. They just want a procedure they can check, and that's all. The above will do that for you and you really shouldn't have that many contracts to randomly allocate so now that I finally articulated to myself how I would handle that, the fact is, I don't ever deal with it, and you probably won't either.

 

[trade2live]

I don't understand the last part with allocating extra contracts/shares

The main issue I have is I trade my own account
in addition to family accounts. In the past I would place trades first in my acc, because I then decided the position size according to the one I took in my account. If the "client" was a conservative investor I would then choose a lower position size.
The issue of "front running" was never on my mind since it's the FX market, and anyway all accounts are small. However once registered as an advisor I can see that this would be seen as front running. How do the regulators address those issues ?

 

[bwolinsky]

Quote from trade2live:

I don't understand the last part with allocating extra contracts/shares

The main issue I have is I trade my own account
in addition to family accounts. In the past I would place trades first in my acc, because I then decided the position size according to the one I took in my account. If the "client" was a conservative investor I would then choose a lower position size.
The issue of "front running" was never on my mind since it's the FX market, and anyway all accounts are small. However once registered as an advisor I can see that this would be seen as front running. How do the regulators address those issues ?

The issue's with the advisor. Size should be by a per unit allocation. In your analysis, choose a base unit, when your client makes it, add 1 more and so on and so forth. In futures and forex, this will eliminate the effects of equity position sizing on your forex trades as it will also on futures. Due to the leverage, you must consider this whenever you start a trading program. Have an idea what a minimum investment is, and as you trade, add units only when you've added enough money to equal a base unit, then add to your clients.

This process was not understood to me until I started trading commodity futures.

WRT the issue of front running, your clients should be able to follow your trades from your account if you are professionally registered then there are brokers that will let you do this. It is front running so definitely try to just put in the orders for your "clients" first then yours otherwise setup follower accounts so you don't have to worry about the timing of the placement and ethics.