Account Transfer Process
Most transfers of customer accounts from one brokerage firm (the "carrying firm") to another (the "receiving firm") occur through the Automated Customer Account Transfer Service (ACATS), an electronic transfer system developed by the National Securities Clearing Corporation (NSCC) to automate and standardize the transfer of accounts. 1 When it is not possible to use ACATS, either because the assets in the account are not transferable through ACATS, or because one or both of the parties to the transfer do not participate in ACATS, customer account transfers are handled manually. Manual transfers follow similar procedures, but can take longer than those occurring electronically.
In either case, a customer account transfer begins when a customer completes and submits a Transfer Initiation Form (TIF) to the receiving firm. If the transfer is via ACATS, the receiving firm electronically enters specified data from the TIF, including the customer’s name, social security number and account number, into ACATS. If the submitted data meets ACATS minimum requirements, then the ACATS system electronically informs the carrying firm of the transfer instruction. If the data submitted does not meet ACATS’s minimum requirements, the system automatically rejects the transfer instruction. 2 Upon receiving a transfer instruction via ACATS, the carrying firm must either validate or take exception to the instruction within three business days.
Validating a Transfer Instruction
Except in limited circumstances, the carrying firm must validate a transfer instruction to the receiving firm, which is done by validating and returning the transfer instruction to the receiving firm, along with a list of all securities positions and money balances that are subject to the transfer request, as shown on the carrying firm’s books. At the same time, the carrying firm must freeze the account until the transfer is complete; all open orders, with the exception of option positions that expire within seven business days, must be cancelled, and no new orders may be taken by the carrying firm. (If the transfer instruction applies only to certain assets in the account, only trading in the affected assets would be frozen.)
The purpose of sending a list of transferable assets in an account to the receiving firm before transferring the account is to give the receiving firm the opportunity to review and accept or reject the account before the transfer occurs, eliminating the need to transfer assets back to the carrying firm in the event that the receiving firm is unable or unwilling to carry them. For example, the account might not meet the firm’s credit policies or minimum equity requirements. The receiving firm may also not be able to carry certain assets, such as third party money market funds, because it does not maintain the necessary relationship or arrangement with appropriate third parties. In that case, the receiving firm must contact the customer and request instructions regarding the disposition of those assets. The customer may instruct the receiving firm to liquidate the asset, continue to retain the asset at the carrying firm, transfer the asset in the customer’s name to the customer, or transfer the asset to the third party that is the original source of the product.
Taking Exception to a Transfer Instruction
In certain limited circumstances, a carrying firm may take exception to a transfer instruction. Specifically, NASD Rule 11870 provides that a carrying firm may take exception to a transfer instruction only if:
If the carrying firm takes exception to the instruction, NASD Rule 11870 requires the carrying firm and the receiving firm to work together to "promptly resolve" the issue. This may require the customer or the receiving firm to supply corrected or additional information. If the carrying firm takes exception because it deems some or all of the assets in the account to be nontransferable, it must identify those assets to the customer in writing and request instructions from the customer with respect to the disposition of such assets. 4 The customer may ask the carrying firm to liquidate the assets, keep them, or transfer them directly to the customer.
Settlement and Delivery
Once the instruction has been validated and any exceptions have been resolved, the delivery of the account from the carrying firm to the receiving firm must occur within three business days. (If there is a dispute or exception regarding some but not all assets, the transfer of assets not at issue must be completed within that time frame.) On the date of settlement, NSCC automatically debits the carrying firm with the value of the assets being transferred through ACATS and credits the receiving broker with the same amount.Back to Main FAQ Page
1 NSCC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation (DTCC).
2 NSCC determines the data necessary to initiate the transfer process. The critical data on the TIF includes the names of the receiving and carrying firms, the account numbers at both firms, the account type and title, and the customer’s social security number or tax identification number.
3 For example, after a transfer is completed, credits, such as stock or cash dividends, may accumulate. If the carrying firm sends the credits to the receiving firm without the proper account identification (e.g., the wrong account number), the receiving firm may not be able to identify the account to which they belong.
4 Reasons an asset may be non-transferable include: regulatory limitations on the scope of the receiving firm's business; the asset is a bankrupt issue for which the carrying firm does not possess the proper denominations to effect delivery and no transfer agent is available to re-register the shares; the asset is an issue for which the proper denominations cannot be obtained pursuant to governmental regulation or the issuance terms of the product (e.g., foreign securities, baby bonds, etc.); or the asset is not by its terms portable for transfer.