You’re able to transfer an external brokerage account of stock with an existing Portfolio Line of Credit into Frec Securities LLC (“Frec”) through a process called the Automated Customer Account Transfer Services (“ACATS”). This system facilitates the transfer of stock and cash balances from one trading account to another trading account at a different brokerage firm.
There are risks associated with such transfers as shown below:
a. You must request a full ACATS to transfer an external portfolio line of credit
To transfer an outside trading account with an existing portfolio line of credit into Frec, you will be required to complete a full ACATS and not a partial ACATS. A full ACATS will transfer over all the securities in the external trading account of your ACATS transfer request except for certain securities (i.e., over-the-counter stock) and mutual funds we do not to support. If those securities or mutual funds are included in your transfer, then your ACATS may be completely rejected, or those securities may be rejected from the ACATS transfer. Additionally, some securities may be transferred with your ACATS and not eligible for trading on Frec’s platform, such as over-the-counter securities and options. See our help center article on Securities we offer for more details.
Any securities that are successfully transferred via your ACATS can be sold on Frec’s platform, even if those securities are not eligible for trading. However, you will not be able to buy any additional positions. You may want to transfer the securities we don’t support to a different trading account or trade out of them prior to submitting a full ACATS into Frec.
b. 5-7 Business Day ACATS Transfer Time
When you submit an incoming ACATS transfer with Frec, we will reach out to your external brokerage firm and request a transfer of your external trading account into Frec. The external brokerage firm will review the request and if approved, will begin the transfer.
This process can take anywhere from five to seven business days. During this time, you will be unable to trade the stock in your account, which could result in losses.
c. Margin Call Risk on your external portfolio line of credit
When you utilize a portfolio line of credit by borrowing cash based on the value of the securities in your trading account, you risk having to make a payment or sell securities if your account has a margin call. A margin call occurs when the value of the securities that you’re borrowing against for the portfolio line of credit drop below a minimum required value.
This value is dependent on how much you’re able to borrow against any specific underlying security. Some stocks permit you to borrow up to 75% of its value and others only permit up to 25% or do not permit you to borrow any amount against them. These values can fluctuate based on several factors including the stock’s volatility and performance.
The potential fluctuations in the amount you’re able to borrow against a stock could result in a margin call during an ACATS transfer of your securities. If this occurs, your external brokerage firm may halt the full ACATS transfer or require a deposit of cash or sell securities before completing the full ACATS transfer.
Additionally, your external brokerage firm may also have margin call requirements that are different than Frec’s requirements. As such, submitting an ACATS transfer request may trigger a margin call at your external brokerage firm. We recommend consulting with your external brokerage firm about their margin call rules prior to initiating an ACATS transfer for a margin account utilizing a portfolio line of credit into Frec.
d. Fractional shares may be sold prior to completion of a full ACATS transfer
The ACATS process does not allow for transferring of fractional shares. When you request a full transfer of your trading account, your external brokerage firm may liquidate any fractional securities prior to transferring your account. These sales may result in tax implications. Frec does not provide tax advice and recommends seeking a tax adviser for any tax questions.
Frec Securities LLC is an introducing brokerage firm providing brokerage services to customers and is a member of FINRA/SIPC.