What protections are available for customer funds and securities held by a registered broker-dealer?
Broker-dealers are regulated by the Securities and Exchange Commission (SEC). The primary mechanism the SEC uses to assess a brokerage firm’s financial integrity is the net capital rule (17 CFR Section 15c3-1), which requires broker-dealers to maintain enough liquid assets, net of liabilities, to satisfy promptly the claims of customers in the event they must liquidate. Brokerage firms must remain in compliance continuously with their net capital requirements, file regular periodic reports of their financial and operational condition and file special early warning reports if their liquid capital falls below specified levels. Additionally, under the customer protection rule (17 CFR Section 15c3-3), broker-dealers are required to segregate customer funds and maintain possession and control of customer fully paid and excess margin securities (securities carried as margin collateral with a value in excess of 140% of a customer’s debit balance). Margin securities may be used for a broker’s
