Coming Soon for Investors: Shorter Turnaround on Account Transfers
In a change that U.S. investors will welcome, the industry is gearing up to reduce the time it takes to transfer assets in an investor account from one brokerage firm and/or bank to another. Starting in October, the seven-day transfer process will be shortened to five days, with plans to bring it to four days before the end of 2008.
National Securities Clearing Corporation’s (NSCC) Automated Customer Account Transfer Service (ACATS), which handles the transfer process, submitted the proposed rule change to the Securities and Exchange Commission (SEC) on August 15. The Financial Industry Regulatory Authority (FINRA) submitted a comparable rule filing for NASD and NYSE Euronext.
Quicker access to assets following an account transfer helps reduce uncertainty for investors, giving them more time to make investment decisions, which is especially important when market volatility and global events drive market fluctuations.
Next steps
“We have been in participant testing since July 16 and we fully expect to be ready for a successful rollout on October 22 once regulatory approval is granted,” said Bill Kapogiannis, DTCC director, Product Marketing and Development. “Member firms will have to implement procedural changes to comply with the shortened timeframe.”
The timeframe adjustment required modest programming changes for NSCC.
NSCC launched ACATS in 1986 to automate and standardize account transfers, which then took 30 to 90 days to complete. Today, broker/dealers are mandated by NYSE Rule 412 and NASD Rule 11870 to use the service when transferring retail customer accounts. Bank usage is voluntary.
Getting to five
The customer account division of the Securities Industry and Financial Markets Association (SIFMA), along with NSCC and its members, have been planning this change since 2006, when a report published by the Customer Account Transfer Task Force of the NASD (now FINRA) recommended a shorter transfer period.
The five-day cycle represents an adjustment to the initial proposal, which called for shortening the process to at least four days. “In managing the transition, we needed to take into account our customers’ requirements for settling foreign securities and option assets,” explained Kapogiannis.
U.S. equity and fixed income securities are handled by a single depository, The Depository Trust Company (DTC), while foreign stocks and bonds may be settled in local depositories or international depositories (Clearstream or Euroclear). Separate depositories may require different sets of transfer instructions and may be located in different time zones. Likewise, options assets carry special requirements, such as the assessment of short positions, which involves the transfer of certain obligations.
Moving to a four-day cycle, which is subject to SEC approval, would require eliminating the settlement preparation day, a change many firms are not yet ready to make. “Discussions with our customers revealed concerns about the timing of their preparations for the settlement and transfer of options assets and foreign securities,” said Kapogiannis. “We took the prudent approach to hold off eliminating the settlement prep day until all firms have implemented the required changes to their systems.”
As a result, the two-day reduction will come from the lengthiest part of the seven-day process – the “request” period between the originating and receiving firms, which now takes three days to complete.
Getting to four
To advance the goal of four-day turnaround, the industry has formed advisory groups to consider three areas of preparation: options assets, foreign securities and other settlement issues with DTC and the Continuous Net Settlement system.
For its part, NSCC already has plans to add data fields to ACATS to handle foreign securities, allowing for input of the name of a foreign depository and the related trade and settlement data.
“Once all the concerns have been addressed, we expect to make the move to four days, most likely in 2008,” Kapogiannis said. @