How to Survive a Bankrupt Broker
The U.S. Securities Investor Protection Corporation (SIPC) is a federally chartered private corporation whose job is to insure shareholders against the situation of a U.S. stock-broker going bankrupt.
The National Association of Security Dealers requires all of their member brokers to have SIPC insurance. Many brokers supplement the limits that SIPC insures ($100,000 cash and $500,000 total, I think– I could be wrong here) with additional policies so you are covered up to $1 million or more.
If you deal with discount houses, all brokerages, their clearing agents, and any holding companies they have which can be holding your assets in street-name had better be insured with the S.I.P.C. You’re going to pay a modest SEC tax (less than US$1) on any trade you make anywhere, so make sure you’re getting the benefit. If a broker goes bankrupt it’s the only thing that prevents a total loss. Investigate thoroughly!
The bottom line is that you should not do business with any broker who is not insured by the SIPC.
Article Credits:
Contributed-By: Art Kamlet, Dave Barrett