Settling Locations

The 05–CNS and 05 DTC–DTC (8902 Eligible) categories are for CNS and non-CNS DTC eligible securities. The ACATS settlement process facilitates the settlement of transferred assets that are eligible for settlement through CNS or through DTC, but not CNS (also known as non-CNS DTC eligible assets). Assets that settle through the ACATS settlement process do not incur incentive charges. ACATS assesses incentive charges only for the items that do not settle, either because they were exited from the process or failed at the end of ACATS settlement date. ACATS reports the exited items on output to clients on the evening before ACATS settlement date and reports fails on the afternoon of ACATS settlement date after settlement has completed for the day.

Incentive charges for exited items that are either CNS eligible or non-CNS DTC eligible are applied to code 014 on the evening before ACATS settlement date.

The incentive charge for a failed CNS-eligible item is 100% of the CNS market value of the item on the day when it is journeyed into the CNS A sub-account on the general ledger. This charge is assessed through Federal Funds Settlement (FFS) code 082.

Incentive charges for failed non-CNS DTC eligible items are applied to code 014 on the afternoon of ACATS settlement date, after the settlement cycle is complete.

The 10–Fund/SERV category is for the Fund/SERV eligible settlement process. ACATS assesses incentive charges for all Fund/SERV eligible assets in broker-to-broker transfers. The application takes a conservative approach and assumes that the fund companies will not acknowledge any of the transferred assets. Each time a fund company acknowledges the registration of a mutual fund asset through the ACATS-Fund/SERV interface, ACATS reduces the incentive charge by the value of the acknowledged asset. A fund company has approximately one day and a half to acknowledge the transfer of an asset through ACATS-Fund/SERV. After the deadline has passed, ACATS labels that asset as failed, and the incentive charge for that asset is collected on the ACATS settlement date. Incentive charges for Fund/SERV-eligible assets are applied to code 007.

If a fund company does not acknowledge the automated transfer of a mutual fund asset through the ACATS-Fund/SERV interface, the delivering and receiving brokers register the mutual fund manually outside of ACATS. After this manual registration is complete, the deliverer can recoup the incentive charge for the asset by submitting a Mutual Fund Cleanup (MFC) transaction to ACATS. The Mutual Fund Cleanup (MFC) transaction reverses the incentive money charged to the deliverer and credited to the receiver from the original transfer. A Mutual Fund Cleanup (MFC) is the transfer of cash, not a mutual fund asset, so the incentive charge for this nonstandard transaction type is applied to code 008.

The 25–DTC category is for ACATS to facilitate the settlement of transferred assets that are eligible for settlement through CNS, or through DTC but not CNS (also known as non-CNS DTC eligible assets). Not all non-CNS DTC eligible assets are eligible for the ACATS settlement process. DTC-eligible assets ineligible for the ACATS settlement processed are assigned Settling Location and Reason 25-DTC if the deliverer is eligible for the Auto-Deliver Order (DO) process from ACATS. For those firms set up for the Auto-DO process, ACATS automatically sets up deliver orders at DTC. For firms not set up for the Auto-DO process, ACATS issues receive and deliver tickets to the receiver and deliverer of the transfer, using settlement location 50.

ACATS applies incentive charges to all assets settling in this location to Federal Funds Settlement (FFS) codes 006 and 008. ACATS applies charges for one-day settling items to code 008, and two-day settling items to code 006.

One-day settling items are assets transferred as a part of nonstandard ACATS transfers which do not contain any mutual fund or option assets. These items are entered into ACATS and staged for settlement on the same day; the transfer settles the next day. Two-day settling items are the assets transferred as a part of a full transfer, or a nonstandard transfer that contains at least one mutual fund or option asset. These items settle two days after ACATS stages them for settlement.

ACATS does not assess incentive charges for assets with a settling location of 30–Undeliverable. These assets do not transfer, so incentive charges are irrelevant.

ACATS does not assess incentive charges for assets with a settling location of 35–OCC Option. The assets with this settling location are options eligible for settlement at the Options Clearing Corporation (OCC). These items settle free at the OCC, so it is not necessary for ACATS to apply incentive charges to them.

ACATS does not assess incentive charges for cash balances: an incentive charge would be redundant for a cash asset. Cash assets in broker to broker transfers are debited and credited using codes 006 and 008 and netted with the brokers’ incentive charges. Cash assets in transfers with a bank settle through a Security Payment Order (SPO) charge at DTC.

ACATS does not assess incentive charges for a memo. A memo transfers between firms—no asset moves in this case. Memo reasons include: 90-day restrictions, underlying cash balances, comments, REG T calls, special miscellaneous accounting values, and underlying securities.

The receiver and deliverer (R&D) categories, 50–R&D, is for assets that do not fit into any other settling location and reason category. ACATS applies incentive charges to all assets settling in this location, with two exceptions noted below, to Federal Funds Settlement (FFS) codes 006 and 008. One-day settling items are charged to code 008, and two-day settling items are charged to code 006.

One-day settling items are assets transferred as a part of nonstandard ACATS transfers that do not contain any mutual fund or option assets. These items are entered into ACATS and staged for settlement on the same day; the transfer settles the next day. Two-day settling items are the assets transferred as a part of a full transfer, or a nonstandard transfer that contains at least one mutual fund or option asset. These items settle two days after ACATS stages them for settlement.

There are two settling location reasons—delayed delivery and foreign currency—that do not incur incentive charges. Delayed delivery securities are defined by FINRA rule 11870, the rule that governs customer account transfers, as insurance policies (annuities), stripped coupons, and when-issued or when-distributed securities.

The 55–Foreign category is used for transfer of foreign assets. ACATS applies incentive charges to all assets settling in this location to Federal Funds Settlement (FFS) codes 006 and 008.

The 60–IPS category is used for transfer of insurance assets using the ACATS/IPS interface. Insurance assets always settle free of value in ACATS; therefore, there are no incentive charges associated with insurance assets.

ACATS does not assess incentive charges for an insurance memo. An insurance memo transfers information from the deliverer to the receiver—no asset moves in this case.