Security segregation or client funds, in the context of the securities industry, refers to regulatory rules requiring that customer assets held by a financial institution (generally a 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. stock markets towards the end of the 1960s. At the time, there was not any requirement that brokers segregate client securities from the firm's own assets on the firm's books and records.[4] When brokers went 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]
security, segregation, client, funds, context, securities, industry, refers, regulatory, rules, requiring, that, customer, assets, held, financial, institution, generally, brokerage, firm, held, separate, from, assets, brokerage, firm, itself, segregated, acco. Security segregation or client funds in the context of the securities industry refers to regulatory rules requiring that customer assets held by a financial institution generally a 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 stock markets towards the end of the 1960s At the time there was not any requirement that brokers segregate client securities from the firm s own assets on the firm s books and records 4 When brokers went 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 editPonzi scheme Deposit insurance Trust account Securities accountReferences edit a b WHAT HAPPENS WHEN A BROKER DEALER FAILS A SUMMARY OF CERTAIN KEY BANKRUPTCY CODE AND SIPA RELATED ISSUES Security Futures Know Your Risks or Risk Your Future FINRA a b SEC Proposes Amendments to its Financial Responsibility Rules for Broker Dealers a b What Happens When A Stock Broker Goes Bust nbsp This finance related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Security segregation amp oldid 1199378370, wikipedia, wiki, book, books, library,
