Editor's note: This is a special alert from FINRA -- Financial Industry Regulatory Authority. It has been republished for TheStreet.com readers.
Given the turbulence affecting the financial services industry these days--including recent announcements concerning Lehman Brothers (STOCK QUOTE: LEH) -- you may be wondering what would happen to your securities account if your brokerage firm closed its doors.
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 insures customer securities accounts up to $500,000. SIPC is used in those rare cases of firm failure where customer assets are missing because of theft or fraud. In other words, SIPC is the last course of action in the unlikely event that the other customer protections have failed.Concerning Lehman Brothers Holdings Inc., which filed for protection under Chapter 11 of the bankruptcy laws on September 15, the firm's U.S. regulated broker-dealer subsidiaries, Lehman Brothers, Inc. and Neuberger Berman, LLC, are still solvent and functioning. The broker-dealer subsidiaries have not filed for bankruptcy, and are expected to close only after the orderly transfer of customer accounts to another registered and SIPC-insured broker-dealer. If you are a customer of Lehman and have questions about your account or the liquidation and transfer process, you should contact your financial advisor or visit the firm's Web site for updates and additional information.
In light of this situation, this publication explains the role regulators -- including FINRA -- play when a firm goes out of business unexpectedly, and what you should know and do in the event that your brokerage firm ceases to operate. While the customer safeguards are extensive and the track record of making investors whole in the aftermath of a financial crisis is strong, not all investor assets may be covered, and there are steps and precautions investors can take to help protect their assets--not to mention their peace of mind.