A firm gives some clients priority in trade execution due to size, without justification. Violation?

• A. Standard IV.D (GIPS)
• B. Standard VI.A Disclosure of Conflicts
• C. Standard VI.B Priority of Transactions
• D. Standard I.B Independence and Objectivity

Answer: (C)

The main idea being tested is fair handling of trade execution and giving client orders priority. Client orders should be treated with priority over the firm’s own orders and over other clients, and any differential treatment must be justified and disclosed. Giving some clients priority merely because of the size of their orders introduces backdoor favoritism and undermines that obligation.

So, when a firm makes larger clients’ orders take precedence without any legitimate, disclosed justification, it violates Standard VI.B Priority of Transactions. This standard is about not placing the firm’s or certain clients’ interests above others and ensuring that orders are executed in a fair and nondiscriminatory manner. If there were a legitimate policy or disclosure explaining why size-based priority is used, it would need to be transparent and justified; but in this scenario there isn’t, hence the violation.

The other standards mentioned (GIPS, Independence and Objectivity, and disclosure of conflicts) address different areas—performance reporting, independence in analysis, and conflict disclosure—and do not directly govern the basic requirement that client orders have priority unless a justified, disclosed policy exists.