Quick Answer
Funds and securities move through external payment systems or internal firm records. A wire transfer and an Automated Clearing House transfer move funds between financial institutions, while a journal moves cash or securities between accounts on the same firm's books. Customer authorization, signature protection, reporting, reinvestment, and sweeps control the movement.
The first question is where the movement occurs: outside the firm through a payment network, or inside the firm through its own records.
Fund-Transfer Methods
| Method | Core use |
|---|---|
| Wire transfer | Transfers funds electronically between financial institutions. |
| Automated Clearing House (ACH) transfer | Transfers funds through the ACH network. |
| Journal | Moves cash or securities between accounts on the firm's books. |
- External payment route: wire transfer or ACH transfer -> funds move between financial institutions.
- Internal book-entry route: journal -> cash or securities move between accounts at one firm.
Exam Tip: Gotchas
- A journal is an internal book-entry movement. It is not an external payment-system transfer.
- A wire transfer and an ACH transfer move funds externally, even though the customer may see all three movements on a firm statement.
Customer Instructions and Authorization
- Letter of Authorization (LOA): A customer's written instruction authorizing a specified movement of funds or securities.
- Account-specific transfer process: Apply the process that fits the account's registration, ownership, and transfer requirements.
- Medallion signature guarantee program: Provides a signature guarantee supporting a securities transfer and protecting against unauthorized transfers.
Exam Tip: Gotchas
- Do not treat every account the same. Registration, ownership, and transfer requirements determine the process that applies.
- The medallion signature guarantee supports a securities transfer and helps protect against an unauthorized transfer.
Cash Management and Reporting
- Currency Transaction Report (CTR): A report for qualifying currency transactions under Bank Secrecy Act requirements.
- Reinvestment: Uses distributions or proceeds to acquire additional investments instead of distributing cash.
- Sweep: Automatically moves available cash to or from a designated cash-management or investment vehicle.
| Tool | What happens to available cash or proceeds |
|---|---|
| Reinvestment | Distributions or proceeds acquire additional investments. |
| Sweep | Available cash moves automatically to or from a designated vehicle. |
Think of it this way: Reinvestment puts money back to work buying more investments. A sweep is an automatic parking system that moves available cash according to the account's designated arrangement.
Exam Tip: Gotchas
- Reinvestment uses proceeds or distributions to acquire investments. A sweep automatically moves available cash to or from a designated vehicle.