When a brokerage firm fails, customer assets are typically safe. Registered firms are required to follow certain rules in order to decrease the chance of failure. These rules require brokerages to maintain certain levels of liquid assets. In addition, customers' cash must be placed in separate “reserve” accounts and fully paid customer securities must be kept separate from company and customer margin securities.

When a brokerage fails, they will either find a buyer or self -liquidate. If a buyer is found, all assets are transferred to the new firm. If self-liquidation is initiated, securities regulators - including the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) - work with the firm to ensure that customer assets are transferred to one or more Securities Investor Protection Corporation (SIPC) insured brokerage firms. Unfortunately, there will probably be a window-of-time that an investor will not be able to trade or transfer the account.

If a firm shuts down due to financial circumstances in which customer assets are at risk or are missing due to fraud, SIPC protection is invoked. All brokerages are required to be members of the SIPC. SIPC provides limited insurance, including the replacement of missing securities up to $500,000, including $100,000 in cash claims. Some firms may carry additional insurance, but most still impose limits on protection.

If SIPC liquidation takes place, each investor is notified by letter that the brokerage firm has closed. An investor should promptly gather pertinent brokerage account records, including monthly or quarterly statements, trade confirmations, canceled checks, and correspondence. He/she should also check account statements for accuracy and make sure all transactions were authorized. Verify your address and follow SIPC instructions to fill out necessary forms. Send in claims during the specified time limit, as late claims cannot be satisfied. Most customers can expect to receive their assets in one to three months.

For additional information, visit the FINRA Web site or the SIPC Web site.