What Happens to Your Investment When Your Stockbroker Shuts Down?

Updated: July 19, 2022

What happens if your stockbroker goes broke and shuts down? Are you going to lose all your shares and money?

It’s an interesting and important question that one of our readers asked, which I’ll answer today.

From Mr. A

Hi, Sir Fitz.

I recently read an article about R&L at napa-isip po ako. What if mangyari po ‘yun sa stockbroker ko?

If magsara po ang stockbroker ko, ano pong mangyayari sa investments ko? Sana po masagot ninyo.

Maraming salamat.

Before I answer his question, let me give you a short backstory about the stockbroker he mentioned.

R&L is a 55-year old stock brokerage firm that collapsed in 2019 after it was discovered that 1 million shares of its clients amounting to P700 million, were systematically and unlawfully transferred by its trusted settlement clerk, Marlo Moron, to another person in another stock brokerage.

As the story goes, Marlo Moron was given the company’s access codes that allowed him to trade the said shares. This is a violation of procedure because he does not even have a license to trade on the floor.

The first time I read about it, my immediate thoughts were he can’t do that alone. He must be working with someone else inside the company. And it’s probably one of the owners because it’s the only way that could be done, in my opinion.

Anyway, the story is still developing and investigations are ongoing. There are more details in this article, which is the latest update that I’ve read on the case.

Now, to answer the question of Mr. A.

If your stockbroker closes down, the Philippine Stock Exchange office will coordinate or arrange for your assets to be transferred to another stockbroker. They’ll recommend one for you, but you can advise them of your preferred stockbroker. Or you can choose the stock certificates to be issued directly to you.

This covers the stocks or shares that you have. Unfortunately, you could lose the cash balance in your account as the broker has gone bankrupt and might have no way to give back that money.

However, if the stockbroker is a good standing member of the Securities Investors Protection Fund, Inc. (SIPF), as well as Securities Clearing Corporation of the Philippines (SCCP), you could get back a maximum of P100,000 of your available cash in your account.

Which makes it prudent to never leave a large amount of cash in your account. You should either invest it and buy stocks or just withdraw the cash. After all, your money could instead be earning interest in a bank savings account.

Do you have questions that you want me to answer? Then send me an email and maybe I’ll feature your question in the next Reader Mail.

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  1. Thank you very much Fritz for your greatly informative articles! All of them are worth to read. Following you here from UK.

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