Canadian Securities Course (CSC) Level 1 Practice Exam

Why do client orders have priority over non-client orders?

1. Non-client orders have a higher commission rate.

2. Client orders are more profitable for the broker.

3. Non-client orders involve more regulatory paperwork.

4. Non-clients may include individuals with direct interests in the dealer member.

The correct answer is: Non-clients may include individuals with direct interests in the dealer member.

Client orders take priority over non-client orders primarily because prioritizing client interests helps to maintain trust and integrity within the financial markets. Client orders represent the interests of individual investors who rely on their brokers to execute trades on their behalf fairly and transparently. This prioritization safeguards the interests of clients and is essential for maintaining a strong fiduciary duty that brokers and dealers have towards their clients. Furthermore, non-client orders can include individuals or entities with direct interests or ties to the dealer, which may create potential conflicts of interest or perceptions of favoritism. By prioritizing client orders, the market fosters confidence in the fairness of trade execution for all participants, reinforcing the overall health of the financial system. Other options do not provide a compelling rationale for prioritizing client orders. For instance, the idea that non-client orders involve higher commission rates or more regulatory paperwork does not directly affect the ethical imperative of prioritizing client interests. Similarly, while non-client orders may potentially be more profitable for brokers, this consideration should not outweigh the fundamental principle of fairness owed to clients. In essence, prioritizing client orders is crucial for maintaining credibility and trust in the financial markets.