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CFA Level II Exam · Guidance for Standard VI: Conflicts of Interest

Standard VI(B): Priority of Transactions Explained

Updated 7 October 2026 · Fact-checked

Standard VI(B) says transactions for clients and your employer must come before transactions for your own benefit. You may trade personally, but never ahead of, against or at the expense of clients. To solve questions, find who traded, when, and whether the client was disadvantaged or the trade was properly disclosed and pre-cleared.

Understand Standard VI(B): Priority of Transactions

Standard VI(B) is about order and fairness. Clients and employers come first. Your own trades come last. The Standard does not ban personal investing. It bans using your position to get a better outcome than your clients get.

The core danger is front-running: trading for yourself before a client trade you know is coming, hoping to profit from the price move that the client order will cause. A related danger is trading just after a client trade in a way that exploits it, or taking a limited investment opportunity that should have gone to clients.

The Standard covers all accounts in which you have a beneficial interest. That includes accounts of family members, such as a spouse, over which you have influence. It also applies to transactions in investment opportunities such as IPOs and private placements. These are often limited in supply and can be profitable. If you take them for yourself, clients may miss out.

The Handbook recommends compliance procedures that make this workable. These include limiting participation in IPOs, restricting private placements, using pre-clearance of personal trades, having a reporting system for personal holdings and transactions, using blackout and restricted periods around client trades, and setting reporting of beneficial ownership and disclosure of policies to clients on request. Pre-clearance and reporting help show that client interests came first.

In an item set, the facts are usually small details: a date, a sequence of orders, a family account, a new issue. Your job is to spot whether the personal trade came ahead of client interests or used information about client trading.

Key formulas to remember

Core rule
Client and employer transactions > personal transactions
Members and candidates must not act in a way that disadvantages clients or employer for personal benefit.
Front-running test
Personal trade before a known client trade in the same security, to profit from the expected price impact = violation
Applies even if the client later receives a fair price. The misuse of knowledge of client trading is the problem.
Scope of accounts
Own accounts + accounts where you have beneficial ownership (for example, family accounts you influence)
Do not assume a spouse's or relative's account is outside the Standard.
Limited opportunities
IPOs and private placements: clients and employer first; personal participation needs pre-approval
Handbook compliance recommends restricting these and requiring prior approval from the employer.
Recommended compliance procedures
Limit participation in IPOs; restrict private placements; pre-clearance; reporting; blackout/restricted periods; disclosure of policies
Know these as the supporting procedures, not as separate Standards.

How to solve Standard VI(B): Priority of Transactions questions

Use this sequence on any Standard VI(B) item. It keeps you on the facts that decide the answer.

  1. 1Identify who is trading for personal benefit: the analyst, a family member, or an account the member influences.
  2. 2Establish the timing. Compare the personal trade with client trades, recommendations or rating changes.
  3. 3Check whether the member knew of, or influenced, the client trade or recommendation.
  4. 4Ask whether the trade took an opportunity clients should have had, such as an IPO or private placement.
  5. 5Check whether the employer's policies were followed: pre-clearance, reporting, and any blackout period.
  6. 6Decide if a client or the employer was disadvantaged, or whether the member's own interest came first.
  7. 7Choose the answer that names VI(B) and gives the fix: let clients trade first, obtain approval, report, or disclose.

Quickest way: Who traded first, and did clients lose out?

When to use it: Use when the vignette gives a timeline of personal and client trades and you must pick a violation or action quickly.

  1. Write the order of trades in one line: client first or member first.
  2. If the member traded first on knowledge of a client order or a recommendation, it is a violation.
  3. If an IPO or private placement is involved, look for approval and for clients having priority.
  4. If the member traded after clients and followed policy, usually no violation.
  5. Eliminate options that say personal trading is banned outright or that disclosure alone cures front-running.

Common mistakes in Standard VI(B): Priority of Transactions

  • Thinking personal trading is prohibited.

    The Standard sounds restrictive.

    Fix: Personal trading is allowed. It must not disadvantage clients or the employer, and clients come first.

  • Ignoring family accounts.

    Students focus on the member's own name.

    Fix: Include accounts in which the member has beneficial ownership or influence, such as a spouse's account.

  • Believing disclosure fixes front-running.

    Confusing VI(B) with VI(A).

    Fix: Disclosure does not cure trading ahead of clients. Clients' trades must come first.

  • Assuming a trade is fine if the client got a good price.

    Focusing on the client outcome only.

    Fix: The test is whether the member put their own trade ahead of clients using knowledge of client trading or recommendations.

  • Treating IPO and private placement participation as ordinary trades.

    Missing that these are limited opportunities.

    Fix: Look for restriction and prior approval, and for whether clients had priority.

Worked examples

Example 1

Vignette: Maya Rao is a portfolio manager at a global asset manager. On Monday morning she decides to buy 200,000 shares of Corvane Ltd for several client portfolios, which will likely raise the price because the stock is thinly traded. Before placing the client order, she buys 2,000 shares of Corvane in her spouse's account, which she manages. She places the client order that afternoon. Questions: (1) Did Rao violate Standard VI(B)? (2) What should she have done?

Show the solution
  1. Order of trades: spouse's account first, client order after.
  2. Rao knew a large client order was coming and that it would likely move the price.
  3. The spouse's account is one in which she has a beneficial interest and control, so it is covered.
  4. Trading ahead of the client order for personal benefit is front-running.

Answer: (1) Yes. She violated Standard VI(B) by trading ahead of clients. (2) She should have executed the client order first and only then traded personally, if at all and in line with firm pre-clearance and reporting rules.

Example 2

Vignette: Tom Lee, an analyst at an investment firm, is offered shares in an oversubscribed IPO by an investment bank. The firm's clients could also buy this IPO, and the firm's policy requires approval for IPO participation. Questions: (1) What does Standard VI(B) require before Lee participates? (2) Is disclosing to his supervisor after the purchase enough?

Show the solution
  1. IPOs are limited opportunities, so personal participation could take supply that clients might have had.
  2. The firm's policy requires approval, and Handbook procedures recommend restricting IPO participation.
  3. Lee must obtain approval before buying, and clients' and the employer's interests come first.
  4. Disclosure after purchase does not satisfy a requirement for prior approval.

Answer: (1) He must obtain prior approval under the firm's policy and ensure clients' interests are not disadvantaged. (2) No. After-the-fact disclosure is not enough where prior approval is required.

Exam tips

  • Read the timeline first. The order of personal and client trades often decides the answer.
  • Watch for family and beneficial-ownership accounts hidden in the vignette.
  • For IPOs and private placements, look for the words approval, pre-clearance or restricted.
  • Reject answers that say all personal trading is banned or that disclosure alone is enough.
  • Name the Standard in your reasoning: VI(B) is about priority of trades, VI(A) about disclosure.

Standard VI(B): Priority of Transactions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard VI(B): Priority of Transactions: frequently asked questions

What is Standard VI(B) in the CFA Code and Standards?

It requires members and candidates to give transactions for clients and employers priority over transactions for their own benefit. Personal trading is allowed but must not disadvantage clients or the employer.

Can I take part in IPOs and private placements under Standard VI(B)?

These are limited opportunities, so clients should not lose out. The Handbook recommends restricting them and getting prior approval from your employer. Follow your firm's policy.

What is front-running?

Front-running is trading for yourself before a known client trade or recommendation to profit from the expected price move. It is a clear breach of the priority principle.

How is VI(B) different from VI(A)?

VI(A) is about disclosing conflicts of interest. VI(B) is about the order of trading: clients first. Disclosure under VI(A) does not excuse a VI(B) breach.