Security segregation

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Security segregation or client funds, in the context of the

brokerage firm) be held separate from assets of the brokerage firm itself in a segregated account and that there is no commingling
.

Thus, for example, in the United States the law (in particular, the SEC's customer protection rule, Rule 15c3-3) generally requires that a broker must take steps to hold separately, in separate (segregated) accounts on the broker's books, securities it holds for its customers from securities of the broker itself.[1][2][3] The purpose of the rule is: a) to limit the broker's use of customer securities to support the broker's own business activities; and b) to facilitate the prompt return of customer securities in the event of the broker's insolvency.[3] In many jurisdictions segregated accounts cannot be used to pay creditors during a liquidation and must be returned to the customers directly.

This securities segregation requirement was developed due to problems in the U.S.

bankrupt, therefore, they were unable to return securities to their clients, inasmuch as they had not maintained accurate books and records of their clients' holdings.[4][1]

See also

References

  1. ^ a b "WHAT HAPPENS WHEN A BROKER-DEALER FAILS?; A SUMMARY OF CERTAIN KEY BANKRUPTCY CODE AND SIPA-RELATED ISSUES"
  2. FINRA
  3. ^ a b "SEC Proposes Amendments to its Financial Responsibility Rules for Broker-Dealers"
  4. ^ a b "What Happens When A Stock Broker Goes Bust?"


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