What is a potential conflict of interest in side-by-side trading?

In the context of side-by-side trading, a potential conflict of interest arises primarily from the timing of investment actions. This refers to situations where an investment adviser manages multiple client accounts or strategies concurrently, and the adviser might execute trades for one client ahead of trades for another client. This could lead to one client benefiting at the expense of another, especially if the adviser is aware of how a trade might affect market prices.

For example, if a firm has a fund and also manages separate individually managed accounts, the adviser may execute a trade for the fund before executing trades for the separately managed accounts. This timing can create an unfair advantage and raises concerns about whether all clients are treated equitably and fairly. Thus, managing the timing of trades is critical to avoid conflicts and ensure that all clients receive fair treatment.

Other answer choices do not accurately characterize the nature of conflicts in side-by-side trading. While some trades must be executed simultaneously to promote fairness, it's not an inherent regulation of side-by-side trading. The requirement for public disclosure of trade execution also does not address conflicts of interest directly, nor does stating that the practice is strictly regulated negate the potential for conflicts to arise. Thus, focusing on the timing of investment actions highlights the core issue of fairness and