Atlantic Capital Management has access to a limited number of shares in a popular new issue expected to be oversubscribed. Atlantic's portfolio managers have determined the issue to be a prudent addition within Atlantic's developing growth equity strategy. A number of the firm's investment professionals have family-member accounts that are managed to the developing growth strategy. Which of the following allocation options most likely adheres to the Code and Standards? Atlantic should allocate the shares:

• A. to family-member accounts only after non-family accounts have been allocated their shares.
• B. on a prorated basis across all developing growth accounts, including the family-member accounts.
• C. on a prorated basis across all developing growth accounts, excluding the family-member accounts.
• D. on a first-come, first-served basis for all accounts.

Answer: (B)

Allocations of a scarce new issue must be fair and non-discriminatory across all client accounts with a legitimate interest in the investment. When several accounts, including family-member accounts, share the same investment objective (developing growth), they should be treated the same. A pro rata allocation distributes shares proportionally to all eligible accounts, preventing favoritism and conflicts of interest.

In this scenario, pro rata across all developing growth accounts, including the family-member accounts, best upholds the obligation to treat all clients fairly and avoids giving special access to personal connections.

Allocating after non-family accounts (or excluding family accounts) or using a first-come, first-served approach could introduce bias or manipulation and would violate fair dealing principles, even if it seems to benefit some accounts.