Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
Hello I am a bankruptcy attorney and can provide some information for you regarding this matter, Most brokerages are members of the SIPC, the SIPC is a non-profit corporation created pursuant to the Securities Investor Protection Act of 1970 (SIPA) to (1) establish and administer procedures for the liquidation of failed broker-dealers that are SIPC members and (2) provide limited financial protection to customers of failed broker-dealers out of SIPC funds When a SIPC member firm fails, it ordinarily is liquidated under SIPA, not the Bankruptcy Code. SPIC generally steps in immediately and asks a federal court to appoint a trustee to liquidate the firm and protect its customers. Normally, the trustee will first try to have some or all customer accounts transferred from the failed broker-dealer to another SIPC member broker-dealer. Customers whose accounts are transferred are notified promptly and permitted to deal with the new firm or subsequently transfer their accounts to firms of their own choosing. If the trustee is unable to transfer customer accounts, the trustee satisfies claims on an individual basis after the customer files his or her claim with the trustee. There are a number of factors that may affect the timing of the liquidation process, including how quickly and completely claims are filed and the quality of the failed firm’s books and records. SIPA substantially alters the rights of unsecured creditors, giving customers with unsecured claims priority over other unsecured creditors in distributions of customer property.1 (SIPA generally does not alter the rights of secured creditors who have rights under the Bankruptcy Code.) While customers have a preferential claim to customer property, they rank pari passu with general creditors as to the distribution of other assets of the failed firm. Customers of a failed brokerage firm will get back all securities that are registered in their name or are in the process of being registered (customer name securities. If for some reason the brokerage is not a member, the brokerage was to separate clients accounts from the corporate accounts, so the clients money should still be protected.
Thanks again. I want to make sure I fully understand the legal implications of a client holding securities at a brokerage firm.
So client securities held at a brokerage firm remain in the ownership/title of the client at all times and do not become the broker's asset like in a bank deposit transaction, right?
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).