What if my online stock broker goes out of business?

[BrandonR]

Excuse this question if it's a dumb one with a really silly answer but what happens to my stocks if the online brokerage I used to buy them with goes out of business for some reason? I would assume they would still belong to me irregardless of what happens to the broker but how would I transfer them to another brokerage or the like? Or am I wrong and would I truly be SOL?

[yabob]

There is an entity called SIPC provides the same sort of protection for brokerages that fail as FDIC does for banks that turn belly up. You are probably holding securities in "street name" in a brokerage account, which you are not guaranteed to be able to recover should your brokerage fail. SIPC provides up to $500K worth of insurance per account:

http://www.sipc.org/who.html

Any reputable brokerage should be a member of SIPC. Many other brokerage houses have further insurance on top of SIPC. Schwab, for instance, carries extra insurance with Travelers Insurance Co.

[yabob]

I should say per customer, not per account.

[BrandonR]

Okay my brokerage states that it's a member of NASD/SIPC... With the SIPC, does it insure my original investment or the value of my stocks at the time of the company collapse? Thanks again!

[yabob]

You should have ability to make a claim based on the value of your account when the brokerage went bust. See the SIPC's claims page:

http://www.sipc.org/claimsprocess.html

Wherever possible, the actual stocks and other securities owned by a customer are returned to them. To accomplish this, SIPC’s reserve funds will be used, if necessary, to purchase replacement securities (such as stocks) in the open market.

[Early Out]

Originally Posted by BrandonR

With the SIPC, does it insure my original investment or the value of my stocks at the time of the company collapse?

When you're buying stocks, ain't nothin' that guarantees the value of your original investment! In the event of a brokerage failure, the SIPC would look to the current market value of your stocks, whether they're higher than what you paid (lucky you!) or lower (still got those Enron shares?).