The best quarterbacks to ever play in the NFL (looking at you, Peyton Manning and Tom Brady) always knew to study defenses before the play even began. That way, they would know exactly where they wanted to throw the ball after the snap.

As the quarterback of your asset management team, your responsibility is first and foremost to your clients. You’re not in a situation like hedge funds, who can buy and sell shares for the fund and then distribute to various strategies; you’re closer to the action, regularly making individualized decisions for each client to help move them closer toward their goals.

That’s why we’re talking about trade allocation processes in today’s article – including how Flyer’s Co-Pilot platform improves on the allocation phase of trade order management.

Ready to dig in?

Full and Partial Orders

At the end of the trading day, you need to allocate the appropriate shares to your underlying accounts based on your set criteria, whether the orders have been either partially or completely filled. There are two ways to go about doing so, (1) human intervention to manually generate the allocations and upload them or (2) using software to automatically handle the generation and electronic submission of the allocations.

Flyer fully automates the allocation process.

Likewise, once you send a block order off for execution, that same automated process can finish the heavy lifting and take those monotonous end-of-day tasks off your hands.

[There is one exception: In cases where the order is a partial fill and you choose to use a method other than our standard pro-rata (where shares are equally doled out to accounts that need them), you’ll have to take some steps to finish things off correctly. Co-Pilot will allow you to change allocation methods to your preferred methodology, and thus avoid unnecessary fees to your clients.]

Another bonus? If you’d like, you can even retain the remaining unallocated quantity on partially filled orders for trading the next day to fill them then, or choose to cancel the remaining.

Allocation Distribution Methods

There are four primary methods of allocation distribution:

Pro-rata

This common method delivers fair allocation and distribution based on an account’s target allocation quantity.

Random

The random method avoids commission charges on small allocations.

Sequential

This method allocates based on target quantity size.

Manual

A manual method, as the name suggests, allows portfolio managers to allocate everything manually

Average Pricing

There are two average pricing tactics: Pricing by Order and Pricing by Custodian.

Average Pricing by Order allocates average prices across a single block order. For example, if Manager A puts in an order early in the day and gets an execution at $26, but Manager B later in the day gets their trades executed at $25 for the same security, the Average Pricing by Order process would deliver $26 to Manager B.

In contrast, the Average Pricing by Custodian method employed by Flyer would average those amounts and deliver trades for the security at $25.50 between both blocks, if both portfolio managers work at the same firm.

Why is Average Pricing by Custodian the better option (and the one we use by default)?

Simple. Because it’s a more fair and equitable outcome across all your accounts and clients. It mitigates the possibility of one portfolio having much better performance than another simply because it was traded at a different time in the same day.

Omnibus Blocking

Omnibus blocking streamlines settlement for asset managers and makes trading away and communication easier.

For example, imagine you have a block order with accounts custodied at both Schwab and Fidelity. You need to communicate the allocation details to your tradeaway broker – but instead of sending 100 allocations, you only need to send your two omnibus blocks per custodian.

Then, your broker simply needs to know which custodian to book the trades to, and your involvement is done. Flyer sends an account allocation directly to the custodians, thus simplifying the allocation process and the work you need to do.

Automate Your Allocations with Co-Pilot

Tried and true, routine tasks are necessary for efficient trading – but they’re also oftentimes the most difficult part of the entire process.

Flyer’s software puts those processes into practice for you. Once you allocate, we automatically send your trades, freeing up your time to focus on the skilled work that requires your attention.

Ready to see Flyer Co-Pilot in action? Click here to schedule a consultation with us today. 

Learn more about the trade lifecycle