How Are Brokerage Accounts Insured?

Save
How Are Brokerage Accounts Insured?
How Are Brokerage Accounts Insured? (Image: http://www.freefoto.com/images/04/03/04_03_3_prev.jpg)

Brokerage Accounts & Insurance

You may know that your bank deposit is protected by the FDIC (Federal Deposit Insurance Corporation), so that even if the bank fails you have some recourse to get some or all of your money back. You'll be happy to learn that brokerage firms have a similar federal insurance agency to back customer money: the SIPC, or Securities Investor Protection Corporation. However, there are a few key differences between the FDIC and SIPC.

The Securities Investor Protection Corp. (SIPC)

The SIPC was created in 1970 to protect consumers against the loss of their stocks, bonds, and other assets held at brokerage firms, were a brokerage firm to go under. If a brokerage firm fails, the SIPC first tries to transfer customer's securities to another brokerage firm. Failing this, the SIPC then will attempt to rebuild the customer's portfolio, buying new stocks or bonds to make up for lost or missing shares. The SIPC uses up to $500,000 per account to try to reimburse investors for lost securities. In the case an investor's losses exceed the amount covered by SIPC's limits, most brokerages have other forms of supplemental insurance, especially from Lloyds of London or CAPCO (Customer Asset Protection Company).

SEC Guidelines

Further, it is important to note that brokerage firms have to follow strict rules enforced by the SEC (Securities and Exchange Commission) regarding segregation of company money and customer money. Theoretically, unless a brokerage has engaged in fraudulent use of a customer's money, even a bankrupt brokerage should be able to give back all investor money. When the SIPC uses up to $500,000 to try to restore an investor's portfolio, this does not mean that investors can only get up to $500,000 back. Instead, it is rare that the SIPC won't be able to restore your assets fully. However, be aware that these things take time, and also, the SIPC will not insure against market losses: If, during the possibly one to several weeks it will take from the time that your brokerage goes under to the time that the SIPC delivers your assets, the market goes on unhindered, you are responsible for those losses or gains.

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!