Customer Account Transfers (ACATS)

When a customer wants to move an account from one firm to another, the Automated Customer Account Transfer Service (ACATS) carries the transfer on a fixed regulatory timeline. FINRA Rule 11870 governs the process for FINRA members; MSRB Rule G-26 runs parallel for municipal-securities accounts. The timing is one of the most-tested number sets in Function 3.4.

What does FINRA Rule 11870 require for ACATS transfers?

• ACATS: National Securities Clearing Corporation (NSCC)-operated electronic system used to transfer customer accounts between member firms
• Initiation: customer signs a Transfer Initiation Form (TIF) with the receiving firm (the firm the customer is moving to)
• The receiving firm electronically submits the transfer request to the carrying firm (the firm currently holding the account)

The 1-Day / 3-Day Timeline

Think of it this way: The receiving firm sends the request. The carrying firm has 1 business day to say "yes, this is our account, these are the positions" or "no, here is why we cannot transfer." Then the carrying firm has 3 more business days to actually move the assets. The full window is 4 business days when everything is clean.

Exam Tip: Gotchas

• The 1-day-validate, 3-day-complete ACATS timeline is one of the most-tested Series 6 numbers in Function 3.4. The full end-to-end is 4 business days under standard conditions. Do not confuse ACATS timing with T+1 settlement (SEA Rule 15c6-1) or the 7-day mutual fund redemption maximum (Investment Company Act (ICA) Section 22(e)).
• The receiving firm initiates, but the carrying firm controls the clock. The validation and completion windows run against the carrying firm. A delay by the carrying firm is a direct Rule 11870 violation.

Permitted Exceptions

The carrying firm may take exception only for enumerated reasons:

• Incomplete or incorrect TIF
• Different account title (name on the receiving-firm TIF does not match the carrying-firm record)
• Inconsistent Social Security number (SSN) or Taxpayer Identification Number (TIN)
• Account already transferred
• Position discrepancies unrelated to money balance

Exam Tip: Gotchas

• The carrying firm may take exception only for enumerated reasons. A carrying firm cannot refuse a transfer because the rep is losing a client; that would be a direct Rule 11870 and FINRA Rule 2010 violation.
• The rep at the losing firm cannot obstruct or delay the transfer. Even informal foot-dragging (returning calls late, requesting "extra paperwork" not required by the rule) is a 11870 violation when the TIF is valid on its face.

What does MSRB Rule G-26 require for municipal account transfers?

MSRB Rule G-26 is the parallel rule for accounts holding municipal securities, including 529 plans, Achieving a Better Life Experience (ABLE) accounts, and underlying municipals. After the 2018 harmonization:

• Validate or take exception: 1 business day
• Complete transfer: 3 business days after validation
• Both parties (carrying and receiving) must expedite and coordinate the transfer
• Residual positions: each party must handle residual cash or securities credits (late-arriving dividends, interest, fractional shares) for a minimum of 6 months after the main transfer completes
• Fail contracts and close-outs follow MSRB procedures

Exam Tip: Gotchas

• Residual positions after an ACATS transfer must be handled by both firms for at least 6 months under MSRB Rule G-26. The same 6-month window applies in industry practice for FINRA Rule 11870 transfers. The carrying firm does not get to "abandon" post-transfer residuals.
• MSRB Rule G-26 and FINRA Rule 11870 are now harmonized on the 1-day / 3-day timeline. A 529-plan transfer runs on the same clock as an equity-account transfer.

How do Series 6 products transfer between firms?

Different Series 6 products transfer through different mechanics:

Mutual Fund Shares

• Generally transferable in kind through ACATS for funds in the carrying firm's selling agreements
• Fund shares not eligible at the receiving firm may need to be liquidated, triggering a taxable event if the account is taxable
• Proprietary funds (funds offered only by the carrying firm) are the classic liquidation case: the receiving firm has no selling agreement with that fund family, so the customer must liquidate to transfer cash

Variable Annuity Contracts

• Typically not transferred through ACATS in the same mechanical way as securities
• The contract remains with the issuing insurance company
• The "transfer" is a change of broker-dealer of record via insurance-company forms, not an ACATS transaction
• A Section 1035 exchange is a different event: it is a tax-free swap into a new contract, involving surrender of the old contract and issuance of a new one at the same or a different insurer

529 Plan Accounts

• Transferred via plan-administrator forms or ACATS, depending on plan structure
• Subject to MSRB Rule G-26 timing and residual-position requirements

Exam Tip: Gotchas

• A Section 1035 exchange is NOT an ACATS transfer. The 1035 is a tax-free swap into a new variable annuity or variable life contract. It involves surrender of the old contract and issuance of a new one, handled through insurance-company forms. A "broker-dealer change of record" on an existing contract is a third, separate process.
• Proprietary-fund positions at the carrying firm often force a liquidation at transfer. The customer cannot move a proprietary fund to a firm that does not have a selling agreement with that fund family. In a taxable account, this forced liquidation triggers capital-gain tax the customer may not have planned for. A well-prepared rep raises this issue before the customer signs the TIF.