FINRA DESCRIBES CUSTOMER PROTECTIONS FOR FAILED BROKER-DEALER
FINRA issued an investor alert titled “If a Brokerage Firm Closes Its Doors” in which it outlines all the regulatory protections offered to customers of a failed brokerage firm. The investor alert describes the parameters of SIPC protection (up to $500,000 per account but does not cover trading losses), the customer protection rule (15c3-3) which requires the segregation of assets, and the net capital rule (15c3-1). The alert also addresses the Lehman situation by explaining that the broker-dealer that holds customer accounts remains operating and that customer accounts will ultimately be moved to another broker-dealer.
OUR TAKE: We wonder about the net capital rule. As recent events have shown, a firm’s net capital base can rapidly deteriorate as proprietary portfolios decline in value. We expect revisions in the Rule and that way it is monitored.