Level III Core · Guidance for Standard VI: Conflicts of Interest

Standard VI(B) Priority of Transactions Explained

Updated 9 October 2026 · Fact-checked

Standard VI(B) says transactions for clients and your employer must come before transactions in which you are the beneficial owner. You must not trade ahead of pending client or employer transactions. To solve questions, find who traded, in what order, and what the Member knew. Trading ahead breaches priority, whether or not the price moved.

Understand Standard VI(B): Priority of Transactions

Standard VI(B) is about order and fairness. When you manage money for others, their trades come first. Your own trades, and trades of accounts where you hold a beneficial interest, come second.

The core risk is front-running: buying or selling for yourself ahead of a client or employer trade that is pending. Your trade can move the price against the client. You gain from information you only have because of your role. The standard also covers trading personally ahead of a pending recommendation change.

A beneficial owner is someone who has a direct or indirect economic interest in the account. This can include accounts held by family members that you control or benefit from. Check ownership, not just the name on the account.

The standard does not ban personal trading. It requires that clients and the employer come first. Front-running breaches the priority rule because the Member's interests were placed ahead of clients', whether or not the price moved. Other personal trades also breach the standard if they disadvantage clients or the employer. The Standards also say the same principle applies to a change in a recommendation: clients and the employer must be given time to act before you trade on it personally. Personal trades are not prohibited by this standard if they follow client trades, do not disadvantage clients, and follow your employer's rules.

Firms support the standard through compliance procedures. Typical elements are disclosure of holdings, pre-clearance of personal trades, blackout or restricted periods around client trades, reporting of transactions, and restricted lists. Your duty is to follow these and, if you are in a supervisory role, to help put them in place. Where no procedures exist, you still must put clients first.

Key rules to remember

Core rule: Client and employer transactions > transactions where you are the beneficial owner; Clients and employer come first. Your own trades must not disadvantage them.
Front-running test: Member trades personally ahead of a pending client or employer transaction, or in a way that disadvantages them (or ahead of a recommendation change before clients can act) = violation; Trading ahead of a pending client trade is front-running. It breaches priority because the Member's interests came first, whether or not the price moved. Other personal trades breach VI(B) if they disadvantage clients or the employer.
Recommendation change: Change in recommendation → give clients and the employer time to act → then personal trading; Do not trade personally on a new or changed recommendation before clients have had a fair chance to act.
Procedures list: Disclosure of holdings, pre-clearance, blackout/restricted periods, transaction reporting, restricted lists; Compliance tools that support the standard. Know what each does.
Beneficial ownership: Beneficial owner = direct or indirect economic interest in the account; Accounts you control or benefit from are treated as your own for this standard.

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

Use this method for any vignette or essay question on personal trading and client priority.

1Identify the accounts involved and who is the beneficial owner of each. Treat accounts you control or benefit from as personal.
2Put the trades in time order: client or employer trade, personal trade, recommendation change.
3Ask whether the Member knew of a pending client trade or recommendation when trading personally.
4Check whether the personal trade came first, disadvantaged clients, or exploited the price effect of a client trade.
5Check firm procedures: was pre-clearance obtained, was a blackout period respected, were holdings and trades reported?
6State the verdict: violation or no violation, naming Standard VI(B).
7If asked for action, give the fix: delay or cancel personal trades, disclose, seek compliance approval, or recommend procedures.
8Answer the command word only. Keep the justification to one or two linked sentences.

Quickest way: Clients first, then time order

When to use it: Use for multiple-choice questions where several trade timelines are shown and you need a verdict quickly.

Underline who traded first.
If the personal trade came ahead of a pending client or employer trade, or ahead of a recommendation change before clients can act, mark it a violation. For clear front-running you do not need the price to have moved.
If the personal trade came after clients had fully traded, did not disadvantage them, and procedures were followed, it is usually acceptable.
Eliminate options that say personal trading is banned outright or that disclosure alone cures front-running.
Pick the option that puts clients first and uses compliance procedures.

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

Saying all personal trading is prohibited.
The standard sounds strict, so students assume a ban.
Fix: State that personal trading is allowed if clients are not disadvantaged and firm rules are followed.
Ignoring accounts of family members.
Students look only at accounts in the Member's own name.
Fix: Check beneficial ownership. Accounts where the Member has a direct or indirect economic interest count.
Thinking disclosure of a personal trade cures front-running.
Disclosure fixes conflicts under VI(A), so students apply it here.
Fix: Front-running is a priority breach. Disclosure does not make trading ahead of clients acceptable.
Missing the recommendation-change rule.
Students focus on trades and forget that a new rating can be traded on.
Fix: Remember clients must have time to act on a changed recommendation before you trade personally.
Confusing VI(B) with Standard III(B) Fair Dealing.
Both involve trade ordering.
Fix: VI(B) is about you versus clients. III(B) is about clients versus other clients.
Treating pre-clearance or blackout as optional in the answer.
Students see them as firm choices, not as expected compliance tools.
Fix: Name them as procedures that support the standard and say the Member must follow those in place.

Worked examples

Example 1

An analyst learns that her firm's portfolio managers will buy a large block of a small-cap stock for client accounts tomorrow. Today she buys the stock in an account held jointly with her spouse, intending to sell after the client purchases lift the price. Has she violated Standard VI(B)?

Show the solution

Identify ownership: the joint account gives her a direct economic interest, so she is a beneficial owner.
Order the trades: her personal purchase comes before the client purchase.
Knowledge: she knew of the pending client trade.
Effect: she plans to profit from the price rise caused by client buying, and her trade may raise the price clients pay.
Conclusion: this is front-running, so client transactions did not have priority.

Answer: Yes. She violated Standard VI(B) by trading personally ahead of a known client trade to profit from its price impact.

Example 2

A portfolio manager's firm has a policy requiring pre-clearance of personal trades and a restricted period after client trades in the same security. The manager wants to sell shares he owns in a stock that clients bought two days ago and that remains within the restricted period. What should he do?

Show the solution

Identify the personal trade: a sale of his own shares in a security client accounts recently traded.
Note the order: the client purchase came first, so this is not front-running.
Check procedures: pre-clearance is required and the restricted period is still running.
Apply the standard: he must follow the firm's procedures, which support Standard VI(B) and protect clients from being disadvantaged.
Action: seek pre-clearance from compliance and wait until the restricted period ends unless compliance approves.
Do not rely on disclosure alone to justify trading inside the period.

Answer: He should request pre-clearance and wait until the restricted period ends, trading only if compliance approves. Selling inside the period without pre-clearance would breach the firm's procedures, which he must follow in support of Standard VI(B). It would not be a VI(B) front-running violation, because the client trade came first.

Exam tips

Draw a quick timeline of trades. Most questions are decided by who traded first and what the Member knew.
Link the verdict to the client being disadvantaged or exploited. A bare label scores less than a label with the reason.
In action questions, list firm procedures: pre-clearance, blackout or restricted periods, reporting, and holdings disclosure.
Watch for family or controlled accounts. Beneficial ownership is a favourite trap.
Avoid options that say disclosure alone solves the problem or that personal trading is always forbidden.

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 front-running under the CFA Standards?

Front-running is trading for your own benefit ahead of a client or employer trade that you know is coming. It breaches Standard VI(B) because your interests were put before clients'.

Can a Member or Candidate trade personally under Standard VI(B)?

Yes, as long as clients and the employer are not disadvantaged and firm procedures are followed. Client trades must have priority.

What are pre-clearance and blackout periods?

Pre-clearance means getting approval from compliance before a personal trade. A blackout or restricted period bars personal trades in a security around the time clients trade it. Both support the standard.

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

VI(A) is about avoiding or disclosing conflicts of interest. VI(B) is about transaction priority, so clients must trade before you. Disclosure does not excuse trading ahead of clients.