Transfer Procedures: What It Means, How It Works

What Are Transfer Procedures?

Transfer procedures are the means by which the ownership of a stock (or other security) moves from one party to another. This process is effected by a transfer agent, who follows a detailed, documented series of steps governed by the Securities and Exchange Commission (SEC) to ensure that a transaction has been completed. Transfer procedures are used whenever a buyer and seller transact between one another (the asset is transferred from the seller's custodian to the buyer's), or when the owner of an asset changes brokerage firms or transfers assets between one or more brokerage accounts that they control.

Many events occur simultaneously during the account transfer procedure. Even with today’s modern technology, a successful account transfer from one customer’s account to another can take up to a week although it is best to plan ahead for any potential delays. In the U.S., stocks are regulated to clear in T+2 trading days prior to May 28, 2024, and T+1 days thereafter.

How Transfer Procedures Work

The following information on transfer procedures is provided by FINRA, a financial regulator in the United States: Most assets held in brokerage accounts are transferred between broker-dealers through an automated electronic process. The National Securities Clearing Corporation (NSCC) operates the Automated Customer Account Transfer Service (ACATS) to facilitate the transfer of a customer account from one broker-dealer to another. Transfers involving the most common asset classes, that is, cash, stocks, corporate bonds issued by domestic companies, and listed options, are readily transferable through ACATS.

ACATS serves as a transfer agent, who has record of the personal details of an owner of a share of stock. When a share's ownership changes, the transfer agent cancels the stock certificate (or the electronic record thereof) of the seller and makes a new stock certificate for the buyer. Although automated, the account transfer process is somewhat complicated and is impacted by certain factors and regulations, the most important of which are discussed below.

Once the receiving firm obtains the trade information, it enters certain customer data, including the name on the account, Social Security number, and account number at the delivering firm into ACATS. Shortly after the data is entered, an automated function permits the delivering firm to see that a request to transfer the account has been made. Once the customer account information is properly matched, and the receiving firm decides to accept the account, the delivering firm will take approximately three days to move the assets to the new firm. This is called the delivery process. In total, the validation process and delivery process generally take about six days to complete. Generally, transfers where the delivering entity is not a broker-dealer (for example a bank, mutual fund, or credit union) will take more time. In addition, transfers of accounts requiring a custodian, like an Individual Retirement Account (IRA) or a Custodial Account for a minor child, may take additional time.