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The SEC’s Client Protection Rule requires brokers to keep clients’ credit balances in separate reserve accounts for protection and ease of execution. It complements other government actions and is not unique to the US.
Created by the Securities and Exchange Commission, the Client Protection Rule is a rule that requires all brokers and brokers to keep their clients’ credit balances in separate reserve accounts, instead of including these funds in the broker’s trading accounts . The purpose of the SEC decision is to protect customers’ credit balances from being lost in the shuffle of constant financial dealings, as well as making it much easier for brokers to execute orders on customers’ accounts.
Along with the day-to-day trading process, the Client Protection Rule can also provide protection for an investor’s assets in the event of broker failure. As the investor’s assets are segregated from assets directly related to the business, they cannot be used to pay off the outstanding debt of the failing venture. Instead, the assets contained in the client’s account can simply be transferred to another brokerage company and the investor can continue to engage in his usual trading and investing activities.
The customer protection rule complements a number of other government actions related to providing adequate customer protection for investors. The Rule works in conjunction with the Securities Investor Protection Law, helping to define the practices involved in managing investor accounts entrusted to a brokerage firm. The Customer Protection Rule, along with the Equity Rule, is an important component of the broader Financial Responsibility Rules that define the basics of doing business with the United States.
The customer protection rule, although written and enforced in the United States, is not unique. Many countries around the world have adopted similar regulations that work to protect the best interests of investors by defining the processes that brokers and other financial organizations will use to responsibly and ethically manage investments entrusted to companies. While the exact verbosity and process may vary slightly from country to country, the end result is the creation of a stable and secure environment for investors to work with financial experts to increase the value of the assets contained in investment portfolios.
Asset Smart.
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