Cashless accounts

Cashless brokerage Accounts are a way for partners to seamlessly move cash between customer brokerage Accounts and their originating banking sources without requiring customers the step of depositing and withdrawing money.

Partners are eligible to use this functionality if they or their third party provider (e.g. banking-as-a-service platform) have the ability to custody and control customer cash. Partners should also be able to put temporary holds and apply journals to such cash.

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The cashless Account functionality must be enabled by DriveWealth for your partner environment, which will allow for the workflows seen on this page.

Cashless workflow

The customer experience for a new customer investing in an asset starts with Order creation. There is no first step to fund the account by following a Deposit workflow.

Instead, a customer can place any size Order, regardless of their Account having no Buying Power at DriveWealth. Whether that Order is accepted is controlled by you, and dependent on the amount of cash you already custody for that customer.

This also means the customer never sees a "brokerage balance" or "investing balance"—hence the label of Cashless. Purchase orders use funds directly from a customer's linked banking system, and sale orders (or other cash events like dividends) return funds directly to that same banking balance.

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Order validation

It is extremely important to create additional validation on all sized orders. Partners who utilize Cashless Accounts understand that all orders—no matter the size—will be executed without buying power checks on the individual customer’s brokerage Account.

If DriveWealth receives an Order for a buy a million dollars worth of stock, that Order will be accepted, because it is assumed that the partner validated the customer had the funds to pay for the securities first.

As purchase orders are placed, partners should be able to move funds into an omnibus settlement account on their banking system to settle with DriveWealth on settlement day T+1. It's common for this account to be titled "For Benefit Of" your customers or "Exclusive Benefit Of" your customers.

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About temporary holds

Holds are critical to prevent customers from double-spending funds earmarked for security purchases.

While not required, it's strongly recommended to verify that a customer has slightly more than the intended purchase amount—especially for market orders—when assessing available cash.

Example:
Marcus has $100.00 in his Acme Bank account and places a market order to buy 1 share of ABCD, currently trading at $100.00. Since market prices can fluctuate, the actual purchase price could exceed $100.00. Therefore, this order should be denied before submission to DriveWealth, as Marcus may not have sufficient funds to cover the difference.

Instead, Marcus resubmits the order as a cash amount order for $95.00. This guarantees he will not spend more than $95.00.

Before submitting the order to DriveWealth, Acme Bank places a hold on Marcus’s account for $95.00. Once the order executes and is confirmed at $95.00, Acme Bank moves those funds from Marcus’s account to an omnibus settlement account to settle with DriveWealth on T+1 (Trade Date + 1).

Partners—and by extension, customers—will automatically receive funds from the sale of securities on the respective settlement date.

Each day, DriveWealth and its partners reconcile settlements, and corresponding deposit or withdrawal journal entries are automatically posted to accounts.
For example, if a customer purchases an equity on Wednesday, a purchase transaction will be journaled immediately. Then, on Thursday (the settlement date), a deposit journal will appear once the funds are received from the partner.

Reconciliation Report Analysis

The following parameters are derived from the reconciliation report, along with the types of transactions that are included under each:

{
  "id": "80f9b672-120d-4b73-9cc9-42fb3262c4b9_20240417",
  "date": "2024-04-17",
  "status": "APPROVED",
  "statusComment": "Finished processing breakdown",
  "amounts": {
    "total": -1263.56,
    "purchases": -1680.07,
    "sales": 416.51,
    "dividends": 0,
    "fees": 0,
    "other": 0
  },
  "transferAmounts": {
    "currency": "USD",
    "payablesToDW": 1263.56,
    "receivablesFromDW": 0
  },
  "reconciliationBreakdown": "https://du2c4wzqz90h1.cloudfront.net/reconcilationReport....",
  "partnerID": "80f9b672-120d-4b73-9cc9-42fb3262c4b9",
  "created": "2024-04-15T22:28:21.810Z",
  "updated": "2024-04-17T22:28:21.810Z",
  "updatedBy": "SYSTEM"
}

purchases – Total notional value of all buy orders.
sales – Total notional value of all sell orders.
dividends – Total notional value of all dividends paid out on the settlement date.
fees – Schedule B fees such as ACAT fees.
other – Total notional value of other charges, including commissions and SEC/TAF fees.
offset – Amount withheld from settlement due to other trading activities. This is a legacy field from T+2 settlement days and will always be 0.
date – The settlement date.
payablesToDW – Funds DriveWealth expects to receive from the partner.
receivablesFromDW – Funds DriveWealth expects to remit to the partner.
total – Net amount to be settled. A positive value indicates DriveWealth will wire funds to the partner; a negative value means the partner must send funds to DriveWealth.
reconciliationBreakdown.JSON – A downloadable JSON containing a full breakdown of all transactions, including corporate actions, by account. The URL has a 15-minute time-to-live (TTL).

Based on the above, the partner must account for the various transactions occurring in customer accounts to calculate the settlement figures. For more details on the settlement process, refer to: Cashless Reconciliations.