An order for the accounts of several customers is sometimes placed as a single order. The CFTC rule 17 CFR 1.35(b)(5) sets conditions for such a bunched order when the accounts are allocated after execution instead of being recorded when the order is placed. The person who allocates must have been granted written investment discretion, the allocation must be fair and use an objective method, and the allocation information must be provided as soon as practicable after execution and no later than set times. The set times are sufficiently before the end of the day of execution for cleared trades, where the information goes to the futures commission merchant, and by the end of the calendar day of execution for uncleared trades, where it goes to the counterparty1.
OSTTRA describes allocation matching, processing, and break management as one post-trade step. An asset manager can allocate either bilaterally with the counterparty or through give-ups to several prime brokers2.
Consider a hypothetical example in which Company J, an asset manager, executes an FX forward with a notional of JPY 3 billion as one order and, after execution, allocates JPY 2 billion to Fund 1 and JPY 1 billion to Fund 2. The allocations add up to the JPY 3 billion that was executed.