What Happens To My Stocks (and CASH!) if My Stockbroker’s Gone Broke?

Most newbie investors (and some senior traders alike) still have this fear that their investments are not protected in case their stockbroker shuts down its operations.

Is there really no equivalent to the bank’s PDIC or Philippine Deposit Insurance Corp. which insures the stock traders and investors should there be a judicial declaration of insolvency or closure of a stockbroker?

The Securities Investor Protection Fund or SIPF

The Philippine Stock Exchange and the Securities and Exchange Commission (SEC) have put in place several measures that promote transparent, fair, and organized trading of stocks where every trader or investor is protected from any type of fraud, manipulative trading practices, and stockbrokers committing offenses.

They have also provided stock market investors some sigh of relief (somehow) with a mechanism that allows the recovery of undelivered stock certificates or unpaid sales proceeds through the Securities Investors Protection Fund or SIPF.

The PSE Academy defines what SIPF can do to protect us who invest and actively trade in the Philippine stock market:

Another tool created for the protection of investors is the Securities Investors Protection Fund, Inc. or SIPF. The SIPF, which is comparable to the Philippine Deposit Insurance Corp. providing insurance for bank deposits, seeks to build and enhance investors’ confidence in the market and is envisioned to protect the investing public from extraordinary losses, other than the ordinary market fluctuations, arising as a result of fraud, failure of business, or judicial insolvency of PSE-accredited stockbrokers.

Protection to investors is automatic upon the opening of an account with a PSE-accredited stockbroker and given by way of compensation for trade-related obligations of stockbrokers to its customers.

These safeguards, along with other investor protection initiatives of the PSE, serve to protect the health of the equities market and the integrity of capital formation process, making investing in the Philippine stock market secure. The PSE continues to perform its functions and duties under the law in ensuring that the market operates in an orderly, efficient, and transparent manner, and that investors are properly protected.

What Happens To Stocks and Cash Balance If The Stockbroker Closes Down?

The PSE will coordinate or arrange for your assets to be transferred to another stockbroker. But you can decide and ask PSE to find another one for you if you don’t like the stockbroker that they are recommending you.

However, you have to be aware that whatever is left in your portfolio cash balance may disappear when a broker gets “broke”.  So make sure your broker is a member in good standing of the SIPF and SCCP (Clearing Corporation of the Philippines).  

In any case, the PSE can also arrange to transfer your assets (stocks and cash) directly to you. (Remember to always update your stock investment profile with your latest bank and contact details).

Also, keep only a very small cash balance in your portfolio “wallet” as the SIPF can only pay you a maximum of Php100,000 in case your stockbroker closes down.

You may also choose to uplift your stock investments so that a stock certificate can be issued to you. This is good if you intend to hold your investment for some time.

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Photo credit: Lazaro