Account Transfers

The account-transfer requirement is the operational rule (how transfers work). The transfer-interference prohibition is the customer-protection rule (you cannot block transfers to punish a departing rep). The exam pairs them because the second is the principal-supervision angle on the first.

ACATS: The Transfer Mechanism

ACATS is the Automated Customer Account Transfer Service operated by the National Securities Clearing Corporation (NSCC), a subsidiary of the Depository Trust & Clearing Corporation (DTCC). It is the standard mechanism for transferring most customer brokerage assets between FINRA member firms.

ACATS handles:

• Equity securities, mutual funds, ETFs, options
• Most fixed-income securities (Treasury, corporate, municipal bonds)
• Cash balances
• Most retail margin balances

ACATS does not handle:

• Annuities (separate insurance-industry transfer process)
• Limited partnership interests in retail accounts and other nontransferable assets (the customer is contacted in writing about how to dispose of them)
• Some proprietary mutual funds and structured products (require non-ACATS workflows)

The ACATS Workflow

Think of it this way: The receiving firm is the one who starts the transfer; the carrying firm is the one who executes it. The customer signs once (the TIF) and the rest happens between the two firms electronically.

Exam Tip: Gotchas

• ACATS timeline: 1 business day to validate, 3 business days to deliver after validation. The exam will sometimes ask the total elapsed time. From TIF submission to assets received: 1 + 3 = 4 business days, plus the customer's signing time on day 0.
• The receiving member starts the transfer; the carrying member executes it. The exam may flip the roles; the firm where the customer is moving to is the receiving member and starts the process.

Validation and Exceptions

The carrying member must validate the TIF within 1 business day. The carrying member may instead take exception (refuse to validate), but only on a ground the account-transfer requirement lists. The list is closed: a reason it does not name cannot block validation. Common exception categories:

• Social Security number (SSN) or tax ID mismatch: the SSN or tax ID on the TIF does not match the carrying-firm record
• Account title or account type mismatch: the title or type on the TIF does not match the carrying-firm record
• Account flat: no transferable assets (the account is empty); the receiving member may resubmit only with the most recent customer statement attached
• Duplicate request: a previous TIF is already in process for the same account
• Invalid account number, or a missing or improper authorization on the TIF
• Additional documentation required: for example, a death or marriage certificate
• Credit-policy violation, a customer rescission of the instruction, or the customer has taken possession of the assets

A dispute over positions or the money balance cannot block validation; the carrying member transfers what its books show. A lien is not one of the listed grounds either; it matters under the transfer-interference prohibition, covered below.

Exceptions must be promptly resolved by both firms. An exception is not a denial; it is a flag that the parties must clear before the transfer can proceed.

Exam Tip: Gotchas

• A lien is not an exception ground under the account-transfer requirement. The closed list does not name it. A lien matters under the transfer-interference prohibition, and only for money the customer owes the firm, not the reverse. If the firm owes the customer money, that is not a lien.
• An exception is a flag, not a denial. The firms must work to resolve it. A carrying firm that takes exception and then ignores the receiving firm's resolution attempts violates the ACATS promptness requirement.

Interference With Customer Transfers

When a registered representative changes employment, the customer often follows the rep to the new firm. The FINRA transfer-interference prohibition prohibits the prior (carrying) firm from interfering with that customer's transfer request.

The rule states that it is inconsistent with just and equitable principles of trade for a member or associated person to interfere with a customer's request to transfer the account in connection with a change in employment of the customer's registered representative.

What Is Prohibited

• Seeking judicial orders or decrees to bar or restrict a customer transfer request
• Imposing conditions on the transfer that are not imposed on transfers in the ordinary course (delay tactics, additional documentation requirements, etc.)
• Contacting the customer to dissuade the transfer in a manner that misrepresents the rep, the new firm, or the customer's rights

What Is Permitted

• An account subject to a lien or other bona fide claim: the prohibition reaches only an account that is not subject to a lien for money the customer owes (for example, a margin debit or unpaid fees) or another bona fide claim. Such an account falls outside the ban on interference; the account-transfer requirement still governs how the transfer itself is processed
• Pursuing claims against the departing rep: the rule protects the customer's right to transfer, not the rep's right to leave without consequence. Non-compete clauses, garden-leave provisions, and other employment claims against the departing rep are not restricted by the transfer-interference prohibition

Exam Tip: Gotchas

• A firm that owes a customer money cannot block the customer's transfer request. The prohibition's carve-out covers a lien for money the customer owes the firm (not money the firm owes the customer) or another bona fide claim. The exam will sometimes describe a customer with a credit balance, and the firm trying to delay; the credit balance is not a lien.
• The transfer-interference prohibition protects the customer, not the firm or the departing rep. Employment disputes between the firm and the rep continue under the rep's employment agreement and the FINRA arbitration code; the customer's account moves regardless.

How the ACATS Mechanics and the Transfer-Interference Prohibition Interact

The ACATS rule sets the mechanics (1 day to validate, 3 days to deliver). The transfer-interference prohibition sets the integrity (no improper interference). A firm that complies with the ACATS timing but takes exception on a pretextual ground (for example, demanding additional documentation that is not required for ordinary transfers) violates the transfer-interference prohibition even though the timeline looks correct.

A firm that taps the brakes on every transfer request from departing reps' customers will eventually face a transfer-interference charge regardless of how clean the ACATS paperwork is.

Exam Tip: Gotchas

• Compliance with the ACATS timing does not cure a transfer-interference violation. The exam will sometimes describe a firm that meets the 1-day / 3-day windows but invents pretextual exceptions. That firm violates the transfer-interference prohibition even though the transfer timing is satisfied.

What Should You Check on Exam Day?

• Can you state the ACATS timeline: 1 business day to validate the Transfer Instruction Form, then 3 business days to complete the transfer?
• Do you know which assets ACATS does not handle, such as annuities and nontransferable limited partnership units?
• Can you place the lien carve-out in the transfer-interference prohibition, not the account-transfer exception list, and tell a lien for money the customer owes from a credit balance the firm owes?
• Do you know that meeting the ACATS timing does not excuse a transfer-interference violation if the carrying firm invents a pretextual exception?