In the wake of recent turbulence in the financial markets, the North American Securities Administrators Association (NASAA) today joined with the Securities Industry Protection Corporation (SIPC), which maintains a special reserve fund authorised by Congress to help investors at failed brokerage firms, to remind investors of the important and effective safeguards already in place to protect their brokerage account assets.
“In light of the recent financial impairment of a major Wall Street firm and the ongoing volatility in the US securities markets, it is understandable that Main Street investors may have questions about the safety of assets in their brokerage accounts. NASAA and SIPC want to ensure that investors are well informed about their rights and protections under our nation’s securities laws”, says Karen Tyler, President, NASAA and North Dakota Securities Commissioner.
“When a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers’ cash, stock and other securities. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever or wait for years while their assets are tied up in court,” adds Stephen Harbeck, president, SIPC.
SIPC either acts as trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds. The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities such as stocks or bonds — that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash.
Rules of the US Securities and Exchange Commission require registered broker-dealers to maintain net capital to provide financial resources so that customers will get their cash and securities back if the firm fails. According to the SEC, customer claims for their funds and securities are senior to other claims on the broker-dealer.
In addition to the protections provided by SIPC and the SEC’s net capital rule, the SEC requires registered broker-dealers to place client assets into accounts segregated from the brokers’ own proprietary funds and securities. As a result, clients are protected from the firm’s trading losses.