Quick Answer
Wire transfers and Automated Clearing House (ACH) transfers use external payment systems, while journals use a firm's internal records. A wire or ACH transfer moves funds between financial institutions, and a journal moves cash or securities between accounts at one firm. Customer authorization directs movement; signature guarantees support securities transfers; reporting covers qualifying currency transactions; reinvestment and sweeps manage cash.
For wire transfers, ACH transfers, and journals, first determine whether the movement uses an external payment network or the firm's records.
Do Wires, ACH Transfers, or Journals Use an External System or the Firm's Books?
| 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. The customer may see all three movements on a firm statement.
What Authorizes and Protects the Movement?
- 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
- Each account can require a different transfer process. Registration, ownership, and transfer requirements determine the process that applies.
- The medallion signature guarantee supports a securities transfer. It helps protect against an unauthorized transfer.
Is the Firm Reporting, Reinvesting, or Sweeping Cash?
- 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: Gives a customer the option to automatically transfer free credit balances into a money market mutual fund product or an account at a bank with deposits insured by the Federal Deposit Insurance Corporation. The customer can order liquidation, after which the proceeds return to the securities account or are remitted to the customer.
| Tool | What happens to available cash or proceeds |
|---|---|
| Reinvestment | Distributions or proceeds acquire additional investments. |
| Sweep | Free credit balances move automatically into a sweep product. Liquidation follows the customer's order. |
Think of it this way: Reinvestment puts money back to work buying more investments. A sweep automatically parks free credit balances in a sweep product. The customer orders liquidation to leave that parking place.
Exam Tip: Gotchas
- Reinvestment uses proceeds or distributions to acquire investments. The cash buys additional investments instead of being distributed to the customer.
- Automatic sweep movement goes into the sweep product. The customer orders liquidation to move proceeds out.
What Should You Check on Exam Day?
- Separate external wire and ACH transfers from an internal journal.
- Match the account's registration, ownership, and transfer requirements to the process used.
- Distinguish a written letter of authorization from a medallion signature guarantee.
- Separate a qualifying currency report from reinvestment.
- For a sweep, distinguish automatic transfer into the sweep product from customer-ordered liquidation out of it.