When should allocations be done by...?

H

heech

I'd be interested in hearing from other CTAs and/or people with FCM back-office operational experience. What's an acceptable time frame for getting your end of day trade allocations in?

I have a *lot* of trades... 361 lines (for 4 accounts) in my Excel spreadsheet today, and it can take me a while to double check / verify all of my entries. Today, it took me until about 4:00 PM CST to get everything in to the FCM.

But the feedback from my FCM back-office has been making me feel bad. They're hoping for a draft (with at least some of the positions) earlier in the day, and then the final version by 3:30 PM CST. Otherwise, we end up with late allocations that might not make it into the clients accounts.

So... how bad should I feel?
 
Quote from rwk:

Can your FCM do the allocations for you? Some (e.g. IBKR) have that capability.
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In theory, certainly. There are several pre-configured allocation schemes they can use.

In practice, because of the specifics of what I do, that's not an option.
 
This is an interesting issue and an important one.

I would suggest you or a developer you hire handle create an automated program to perform these allocations for you according to one of the NFA approved schemes.

I assume with a custom allocation program you/your developer designs, the intricacies of your trading that are not addressed by the existing FCM schemes can be addressed.

It is important here that you have this allocation done by an external party in a repeatable, rules based way.

I am sure you have a repeatable rules base approach, but I just feel you expose yourself to too much risk by getting "your hand dirty" everyday doing this.

You want a scenario where an outside party or program handles this for you automatically so there can never be the question of you improperly allocating trades.

I think that is a more important issue than the FCM being unhappy with late submissions and of course with an automated approach, you should be able to address the problem of late submissions also.

Please let us know how you ultimately resolve this.

P.S. This is why I passionately hate managed accounts and notional funding, etch

P.P.S Look into HedgeFacts and DMAXX they have CTA/CPO middleoffice/backoffice/admin software that might be able to solve your problem off the shelf or could customize their software to solve your problem. I stress again, have a software or an outside party determine your allocations to protect yourself!
 
My allocations are being handled systematically by my own software. Right now, the "work" involved is in reconciliation of the report generated by the software + back-office trades (making sure there are no errors), as well as integrating some manual trades.

But I'm interested in what you're referring to, when you say "protecting myself". Can you point me to examples of potential trouble that have come from allocations gone wrong? What are these "risks" you say I might be exposing myself to?
 
This is the NFA interpretive notice. I'm pretty comfortable I'm in compliance... but I'd definitely like to hear the nightmare stories of what might go wrong.

http://www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=9029&Section=9

The same set of core principles govern the procedures to be used in handling both of these issues. Any procedure for the general allocation of trades or the allocation of split and partial fills must be:

- designed to meet the overriding regulatory objective that allocations are non-preferential and are fair and equitable over time, such that no account or group of accounts receive consistently favorable or unfavorable treatment;

- sufficiently objective and specific to permit independent verification of the fairness of the allocations over time and that the allocation methodology was followed for any particular bunched order; and

- timely, in that the CTA must provide the allocation information to FCMs as soon as practicable after the order is filled and, in any event, sufficiently before the end of the trading day to ensure that clearing records identify the ultimate customer for each trade.
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Quote from heech:

My allocations are being handled systematically by my own software. Right now, the "work" involved is in reconciliation of the report generated by the software + back-office trades (making sure there are no errors), as well as integrating some manual trades.

But I'm interested in what you're referring to, when you say "protecting myself". Can you point me to examples of potential trouble that have come from allocations gone wrong? What are these "risks" you say I might be exposing myself to?
More...

If you have a systematic approach that fully eliminates the appearance or reality of bias in trade allocation and this can be documented, then that's great. It is still best that an outside 3rd party handles this for you to fully eliminate the appearance of any bias.

The risk is being accused (even if falsely) of improperly allocating trades in a preferential way to benefit you or a preferred investor.
 
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