What Is the Securities Investor Protection Corporation (SIPC)?
The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy.
SIPC members include all brokers and dealers registered under the Securities Exchange Act of 1934, all members of securities exchanges, and most National Association of Securities Dealers (NASD) members. SIPC coverage protects members in the event the firm fails.
Key Takeaways
- The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy.
- SIPC members include all brokers and dealers registered under the Securities Exchange Act of 1934, all members of securities exchanges, and most NASD members.
- The SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm (although coverage of cash is limited to $250,000).
Understanding the Securities Investor Protection Corporation (SIPC)
Authorized and created under the Securities Investor Protection Act of 1970, the SIPC oversees the liquidation of broker-dealers who go bankrupt, lapse into financial trouble, or if the assets of their customers go missing. The intent of the SIPC is to return the customers’ securities and funds to them as quickly as possible.
The focus of the SIPC is getting assets returned from bankrupt or financially troubled firms. The SIPC does not investigate fraud or securities crimes. It is not an agency, nor is it part of the United States government. Essentially, it is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm, with a limit of up to $250,000 for cash.
From its creation by Congress in 1970 through December 2020, the SIPC has helped to recover $141.8 billion in assets for an estimated 773,000 investors.
The SIPC Fund was established with the corporation to cover its expenditures. The fund comes from members and interest from U.S. government securities that the SIPC purchased. The corporation also maintains a $2.5 billion line of credit with the U.S. Treasury.
Member firms of the SIPC must seek the corporation’s approval before entering into insolvency or bankruptcy proceedings.