What protects customer funds and securities at broker-dealers?
Bear Stearns’ corporate structure includes several broker-dealers registered with the SEC. As a result, notwithstanding the loss in market value in Bear Stearns’ stock, and independent of the transaction announced on March 17, many protections remain in place for customers of Bear Stearns’ broker-dealers. Under SEC rules, registered broker-dealers must maintain net capital to provide financial resources so that if the firm fails, customers will get their cash and securities back. Customer claims for their funds and securities are preferred over other claims on the broker-dealer. As a second level of protection, the Securities Investor Protection Corporation (SIPC) guarantees remaining customer securities claims up to $500,000. In addition to the protection provided by the net capital rule and SIPC, registered broker-dealers must segregate customer funds and fully paid securities from the brokers’ own proprietary funds and securities. Thus, customer money and the firm’s money are kept s
