You are reading the 2026 curriculum (exams up to November 2026). Sitting in February 2027 or later? Go to the 2027 Ethical and Professional Standards guide.
Standard VI(B): Priority of Transactions
Trades for clients and your employer come before trades in accounts where you are a beneficial owner. Do not trade ahead of clients (front running) or on knowledge of pending client orders or recommendations. Family accounts that are fee-paying clients are treated like any other client.
Before this: Standard VI(A): Avoid or Disclose Conflicts, Standard III(B): Fair Dealing
On the exam
- Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
- Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
- Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
Demonstrate VI(B), recommend procedures and identify compliant conduct. Expect front-running, initial public offering (IPO) participation and family-account items. The usual traps are excluding a relative's client account and confusing VI(B) with III(B).
How deeply to learn each part
- Know the idea
- Understand it in general. It frames other topics, but you will not calculate with it.
- Use it
- Understand it well enough to solve a question with it. Recognize when it applies.
- Memorize
- Learn it by heart. The exam will not give it to you.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
Whose trades go first?
Clients first, your employer second, you last. Under priority of transactions , trades for clients and the employer must come before trades in any account where you hold beneficial ownership .
Memorize
Personal investing is not banned. Nothing is unethical about making money on your own investments, provided that:
- the client is not disadvantaged by the trade;
- you do not benefit personally from trades made for clients; and
- you comply with applicable regulation.
The same test applies when you must make a personal trade that runs against your advice to clients, such as selling shares to pay a large tax bill.
- 1. Clients Memorize always first
- 2. Employer Memorize firm accounts
- 3. Personal Memorize accounts where you are a beneficial owner
- Your own account
- Family accounts unless a genuine fee-paying client account
- Accounts with a pecuniary interest trust, retirement
-
What counts as beneficial ownership?
Your own account, family accounts (spouse, children and other immediate family) and accounts in which you have a direct or indirect pecuniary interest, such as a trust or retirement account. You may trade these only after clients and the employer have had an adequate chance to act on a recommendation.
Do not pass on knowledge of pending trades or unpublished research to anyone whose securities you would beneficially own, and do not convey material nonpublic information to anyone.
What is front running?
Front running is trading for your own account before trading for clients, using your knowledge of what clients are about to do. The same rule stops you trading ahead of a research change before clients have had a chance to act on it: selling your shares before your own downgrade is published is a violation.
How are family accounts treated?
A family account that is a genuine fee-paying client account is a client account. It gets no special treatment and no disadvantage because of the relationship. Where you also have beneficial ownership in it, employer preclearance and reporting rules may apply on top.
Where do the lines fall?
| Situation | Verdict |
|---|---|
| A trader buys a stock for himself, then executes a large client buy order in it | Violation (front running) |
| An analyst sells her shares the day before publishing a downgrade | Violation |
| A manager’s spouse’s account (a regular fee-paying client) gets its pro rata share of a block trade | Fine |
| A manager excludes his father’s fee-paying account from a good trade to avoid looking bad | Violation (family clients must not be disadvantaged) |
| A manager buys a stock for himself two weeks after clients’ orders were filled, under the firm’s blackout rule | Fine |
Try this 0 of 3
- Put the three trades in a compliant order
- Find the trade that breaks the rule before the upgrade is even public
- Sort every policy right first time
You manage client money at Ashgrove Capital. The firm's analyst has upgraded Kestrel Mining to Buy. Tap a cell in a lane to move that lane's trade to that hour.
Shaded: Ashgrove's restricted period for your account, from the moment the research change is ready until the client and firm orders are filled.
Front running. Your buy goes in before the client order. You profit from the price move the client order will cause.
Order of the day: Your buy 10:00 → Client buy 11:00 → Firm buy 13:00
"You" means any account you beneficially own: your own, your spouse's, your children's, a trust you benefit from. A family member who is a fee-paying client belongs in the Clients lane and gets the same treatment as every other client, no better and no worse.
Which procedures does the firm need?
Firms should adopt a personal-investing policy suited to their size and clients, and prominently disclose it to clients and prospects.
- Limit IPO participation Memorize and preclear any
- Restrict private placements Memorize strict limits, supervisory review
- Blackout or restricted periods Memorize around client trades
- Reporting requirements Memorize
- Holdings disclosure at hire and at least annually
- Duplicate confirmations and periodic statements
- Preclearance of planned personal trades
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- IPO participation . A hot IPO taken by staff looks like taking an opportunity from clients, or like a reward for future favors. Limit it, and require preclearance of any participation, even when no conflict is apparent.
- Private placements . Strict limits and supervisory review. They can be offered as an enticement for continued business, and holders have a reason to push the investment to clients later.
- Blackout period or restricted period . Investment staff cannot trade personally around client trades. In a large firm that is close to a total ban, because the firm trades most securities continuously.
- Reporting. Holdings disclosed at hire and at least annually, duplicate trade confirmations and statements sent to the firm, and preclearance of planned trades.
Duplicate confirmations do two jobs: staff know there is independent verification, and the firm can track the flow of trades, which holdings alone do not show.
The family accounts rule is the one the exam likes most: treat a fee-paying relative exactly like any other client.
Exam tip Fair dealing (III(B)) is client against client. Priority of transactions (VI(B)) is you against clients.
Go deeper Why blackout periods also protect the employee
A blackout rule gives staff a bright line. If they never trade in a name around client activity, nobody can accuse them of front running, however innocent the trade. It also protects the firm from the appearance of a conflict, which Standard VI(B) is designed to prevent as well as the conflict itself.
Go deeper Co-investing is not automatically a conflict
Holding the same positions as clients does not always create a conflict. Some clients want the manager’s interests aligned with theirs. What the Standard forbids is personal positions or trades that adversely affect client investments.
Memorize this
MemorizeStandard VI(B): what to know cold
| Point | The rule |
|---|---|
| Order | Clients, then employer, then you (any account with beneficial ownership) |
| Personal trading is allowed if | client not disadvantaged; you do not benefit from client trades; you follow regulation |
| Forbidden | Front running; trading on pending client orders, recommendation changes or research |
| Beneficial ownership | Own, family, and accounts with a pecuniary interest (trust, retirement) |
| Family client accounts | Treat like any client: no favor, no disadvantage |
| Procedures | IPO limits, private placement limits, blackout periods, reporting |
| Reporting | Holdings at hire and at least annually; duplicate confirmations; preclearance |
Memory hook Clients, firm, me: the same order as a queue at a counter. Jumping the queue is front running.
Know it cold Personal trade ahead of a related client trade = violation. A fee-paying relative gets no special treatment and no penalty.
- 1. Clients Memorize always first
- 2. Employer Memorize firm accounts
- 3. Personal Memorize accounts where you are a beneficial owner
- Your own account
- Family accounts unless a genuine fee-paying client account
- Accounts with a pecuniary interest trust, retirement
-
- Limit IPO participation Memorize and preclear any
- Restrict private placements Memorize strict limits, supervisory review
- Blackout or restricted periods Memorize around client trades
- Reporting requirements Memorize
- Holdings disclosure at hire and at least annually
- Duplicate confirmations and periodic statements
- Preclearance of planned personal trades
-
How it is asked
-
Buy for yourself, then for the client
A manager buys a thinly traded stock for himself minutes before a large client order. Violation?
Yes, VI(B). Trap: III(B) Fair Dealing, which is client versus client.
-
Family fee-paying account
A manager leaves his sister's fee-paying account out of IPO allocations to avoid the look of a conflict. Violation?
Yes. A family client must be treated like any other client. Trap: "this avoids a conflict".
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Recommended procedure
Which personal-trading procedure is most consistent with VI(B)?
Preclearance plus duplicate confirmations to compliance. Traps: free IPO trading, disclosing after the trade.
Exam traps
- Excluding a relative's fee-paying account from good trades. That disadvantages a client and is a violation.
- Thinking personal trading is banned. It is allowed when clients are not disadvantaged.
- Confusing VI(B) (you versus clients) with III(B) (one client versus another).
- Treating disclosure after the fact as a cure for trading ahead of clients.
Checkpoint
3 exam-style questions. About 90 seconds each.
1A portfolio manager buys shares for his own account minutes before placing a large client order in the same thinly traded stock. Did he violate the Standards?
2A manager's sister is a fee-paying client. To avoid any appearance of a conflict, the manager leaves her account out of all IPO allocations. Did the manager violate the Standards?
3Which procedure is most consistent with the recommended procedures for Standard VI(B)?
Key takeaways
- Clients first, employer second, beneficial-owner accounts last.
- No front running, and no trading on pending orders or research changes.
- Family fee-paying accounts get the same treatment as other clients.
- Preclearance, blackouts, IPO limits and reporting are the recommended controls.
Questions about this lesson?
Where this comes back
- Standard VI(C): Referral Fees Guidance for Standards I–VII
Questions candidates ask
What is front running under the CFA Standards?
Trading for your own account, or one you benefit from, before trading for clients, using your knowledge of their pending orders or of a coming recommendation change. Standard VI(B) forbids it. Clients must have a fair chance to act first.
Can a CFA member own stocks they recommend?
Yes. Personal investing is allowed if clients are not disadvantaged, you do not benefit from client trades and you follow regulation. Standard VI(A) also requires you to disclose beneficial ownership of securities you recommend.
How should family accounts be treated?
A family account that is a genuine fee-paying client account is treated like any other client: no special treatment and no disadvantage. If you have beneficial ownership in the account, employer preclearance and reporting rules may also apply.
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