Safety of Assets for U.S. Investing Account
May 21, 2021 / 05:04 PM IST
Under the Financial Industry Regulatory Authority (FINRA), all accounts are regulated under Securities Investor Protection Corporation (SIPC) with account insurance up to $500,000. Under unlikely events of dissolution of any one stakeholder, the customer’s securities and cash are always secure. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a brokerage firm that is a member of SIPC.
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Stockal's brokerage partner, DriveWealth LLC, a member of the Securities Investor Protection Corporation (SIPC), will serve as the custodian for your securities account. In the event that DriveWealth LLC fails and is placed in liquidation under the Securities Investor Protection Act, securities in your brokerage account may be protected up to $500,000. For details, please see www.sipc.org.
How are the customer assets secured?
In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Multiple layers of protection safeguard investor assets. For example, registered brokerage firms must keep their customers' securities and cash segregated from their own so that, even if a firm fails, its customers' assets will be safe. Brokerage firms are also required to meet minimum net capital requirements to reduce the likelihood of insolvency and to be members of the Securities Investor Protection Corp (SIPC), which protects customer securities accounts up to $500,000. SIPC protection comes into play in those rare cases of firm failure where customer assets are missing because of theft or fraud.
Who are the custodians of the customer accounts?
The assets of the customer are owned by the custodian which services multiple brokerages who are in turn registered with SEC and regulated by FINRA. The custodians in the case of Stockal are Axos Clearing and Citibank which have over many large brokerage clients.
What is the role of the SIPC? As a member of the Securities Investor Protection Corporation (SIPC), funds are available to meet customer claims up to a ceiling of $500,000, including a maximum of $250,000 for cash claims. The SIPC fund protects over 3,500 brokerage firms and has advanced $2.9 billion in order to make possible the recovery of $139.8 billion in assets for an estimated 773,000 investors until 2020.
One of SIPC’s main duties is to oversee the liquidation of SIPC member brokerage firms.
A Securities Investor Protection Act (SIPA) liquidation is similar to a U.S. bankruptcy case. The liquidation is administered in federal bankruptcy court under the Securities Investor Protection Act and applicable U.S. bankruptcy laws and procedures. SIPC initiates the liquidation process when it receives a referral from a securities regulator such as the U.S. Securities and Exchange Commission (SEC) or a securities self-regulator such as the Financial Industry Regulatory Authority (FINRA). A referral is made and a liquidation occurs when a firm fails and cash and/or securities are missing from customer accounts.When starting a liquidation, SIPC asks the court to appoint a Trustee to liquidate the firm and protect its customers. In larger cases, the Trustee usually is a lawyer with experience in bankruptcy and securities law. In smaller cases, SIPC may be appointed as Trustee. In the smallest brokerage firm failures, SIPC deals directly with customers, outside of court, in a Direct Payment Procedure.
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