ACATS Transfer

An ACATS transfer is the movement of a customer's securities account assets from one broker-dealer (the "carrying" firm) to another (the "receiving" firm) through the Automated Customer Account Transfer Service, a system operated by the National Securities Clearing Corporation. FINRA's rules describe the process for its member firms in Rule 11870, "Customer Account Transfer Contracts," and the SEC states that most account transfers between firms go through ACATS. The name people search for is "ACATS transfer," but the thing being transferred is the account: the positions and cash balances move from one firm's books to the other's without being sold, so the holdings, and for most securities their tax cost, are unchanged.

The sequence the rule requires. The customer gives a transfer instruction to the receiving firm, which must "immediately" enter it in ACATS. The carrying firm then confirms the instruction, with a list of every position and balance to be moved, or rejects it. The SEC explains that the old firm can reject a request only if the form is wrong or there is a question about the account's ownership or the number of shares, and the new firm can reject only if the account does not meet its credit policies or minimum asset requirements. Once a full transfer is validated the account is frozen: all open orders, except options expiring within seven business days, are cancelled and no new orders are taken until the transfer completes. The SEC describes the whole process, start to finish, as taking "approximately three to five business days." A request that stalls on a problem the two firms do not resolve drops out of the system and has to be started again.

What does not transfer. Rule 11870 lists the assets that count as nontransferable. The ones an individual is most likely to meet are a product that is proprietary to the old firm, which "shall be deemed nontransferable unless the receiving member has agreed to accept transfer," a mutual fund or money market fund the new firm has no arrangement to hold, and limited partnership interests in retail accounts. For a full transfer, the old firm must list those assets and ask for instructions, offering liquidation (with any redemption or liquidation fees identified), retention by the old firm, or transfer directly to the customer. The SEC adds that fractional shares generally cannot be transferred and may have to be sold, and that selling anything in a taxable account to make it portable can realize a gain or loss.

What follows the account afterwards. Dividends, interest and other credits that land in the old account after it has moved must be swept along: the rule requires the clearing corporation's residual-credit processing to be used where available and, for six months after a full transfer, requires the old firm to pass on new credit balances within ten business days. For covered securities, the old firm must also send the new one a written transfer statement with the cost basis, generally within 15 days of the transfer (26 U.S.C. § 6045A).

Where ACATS is not used. Banks, mutual fund companies, credit unions, insurance companies and limited partnerships are not required to participate. Many banks join voluntarily through the clearing corporation's "ACATS for Banks" program. Outside ACATS the firms exchange paperwork directly, and the SEC notes it is "not uncommon" for that to take up to 30 days.

ACATS fraud. Because the receiving firm starts the transfer, a criminal holding someone's stolen personal and account information can open an account in that person's name at another firm and use ACATS to pull the real customer's assets into it, then move them out. FINRA warned member firms about this pattern in Regulatory Notice 22-21 in October 2022. For the account owner, the signs are a transfer-out notice or a missing position they did not initiate, and the fix is to call the old firm immediately.

The customer does three things; the firms do the rest.

1. Open the new account first, of the same type as the old one (individual, joint, IRA), and sign the new firm's transfer instruction form. The SEC says most delays come from an incorrect or incomplete form, so copy the old account's name and number exactly from a statement.
2. Ask both firms about fees and about assets that will not move before submitting. The old firm may charge a transfer-out fee, the new firm may charge a fee of its own, and the SEC suggests asking the new firm to waive or reimburse transfer fees.
3. Check the result. Compare the first statement at the new firm with the last one at the old firm, position by position, and confirm the cost basis came across.

Consider an example. Jada's account at her old firm holds $150,000 of stocks and ETFs, $24,000 in the firm's own proprietary bond fund, fractional shares worth $300 and $5,700 in cash, and the old firm's fee schedule lists a $75 transfer-out fee. The new firm will not accept the proprietary fund, so she is offered three choices for it: sell it, leave it at the old firm, or have it transferred into her own name directly. She bought the fund for $20,000, so selling it in her taxable account realizes a $4,000 gain. If she sells both the fund and the fractional shares, and the fee comes out of her cash, the cash that arrives is $5,700 + $24,000 + $300 − $75 = $29,925, beside the $150,000 of stocks and ETFs, which move as shares and are never sold. If she keeps the fund where it is and sells only the fractional shares, $5,925 of cash moves ($5,700 + $300 − $75), the fund stays behind, and she should ask whether the old firm charges a fee on the inactive account.

Pros

• Positions move in kind, so there is no sale, no tax and no time out of the market for anything that is transferable.
• The process is standardized and fast, usually finishing in about three to five business days.
• Cost basis for covered securities travels with a transfer statement, so the new firm can report it.

Cons

• The old account is frozen during the transfer, and open orders other than short-dated options are cancelled.
• Proprietary funds, some third-party funds, limited partnerships and fractional shares may not move, and selling them to make them portable can realize a taxable gain.
• Fees can apply at both ends.
• Holdings bought before broker basis reporting began (noncovered securities) may arrive without their cost basis, leaving the owner to supply it from old records.
• The same speed makes ACATS useful to identity thieves, who can pull an account using stolen information if a new firm's checks fail.