Securities Investor Protection Corporation
The Securities Investor Protection Corporation (SIPC /ˈsɪpɪk/) is a federally mandated, non-profit, member-funded, United States government corporation created under the Securities Investor Protection Act (SIPA) of 1970[3] that mandates membership of most US-registered broker-dealers. Although created by federal legislation and overseen by the Securities and Exchange Commission, the SIPC is neither a government agency nor a regulator of broker-dealers. The purpose of the SIPC is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm.[4]
Abbreviation
SIPC
52-0910763[1]
To work to return customers' cash, stock, other securities, and other property when a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing.
1667 K Street NW, Suite 1000, Washington, D.C. 20006, United States
William S. Jasien[2]
Josephine Wang[2]
Charles E. Glover[2]
Karen L. Saperstein[2]
$335,525,137[1]
$67,218,040[1]
39[1]
History[edit]
Enactment[edit]
In response to the near collapse of the financial markets in 1970, Congress chose to enact legislation that could prevent an escalation of brokerage firm insolvencies and help stabilize the financial markets. In December 1970, Senator Edmund Muskie pushed forward a bill to create a Federal Broker Dealer Insurance Corporation. A compromise with the House resulted in the SIPA, which President Richard Nixon signed into law at the end of the month. Excerpts from the President's statement made clear the goals of the legislation:[5]
Functions[edit]
The SIPC serves two primary roles in the event that a broker-dealer fails. First, the SIPC acts to organize the distribution of customer cash and securities to investors. Second, to the extent a customer's cash and/or securities are unavailable, the SIPC can pay the customer (via its trustee) up to $500,000 for missing equity, including up to $250,000 for missing cash.[9][10] In most cases where a brokerage firm has failed or is on the brink of failure, SIPC first seeks to transfer customer accounts to another brokerage firm. Should that process fail, the insolvent firm will be liquidated.[11] In order to state a claim, the investor is required to show that their economic loss arose because of the insolvency of their broker-dealer and not because of fraud,[12] misrepresentation,[13] or bad investment decisions. In certain circumstances, securities or cash may not exist in full based upon a customer's statement. In this case, protection is also extended to investors whose "securities may have been lost, improperly hypothecated, misappropriated, never purchased, or even stolen".[14]
While customers' cash and most types of securities - such as notes, stocks, bonds and certificates of deposit - are protected, other items such as commodity or futures contracts are not covered. Investment contracts, certificates of interest, participations in profit-sharing agreements, and oil, gas, or mineral royalties or leases are not covered unless registered with the Securities and Exchange Commission.[15]
Organization[edit]
SIPC is led by seven directors, five appointed by the President of the United States with the advice and consent of the United States Senate, one by the United States Department of the Treasury, and one by the Federal Reserve.[16][17] Directors serve terms of 3 years.[17] In 2017, the total compensation and benefits of its 39 employees was $11 million.[1]
Coverage[edit]
Coverage Limits[edit]
The SIPC coverage limit is $500,000 (net equity) per cash/securities account; and $250,000 for cash-only accounts, as of 2023.[18]
If an investor has multiple accounts at a failing brokerage, the $500,000 limit is not strictly applied per account, instead, the notion of "capacity" is used by the SIPC, and the $500,000 (or $250,000) limit is applied per capacity. Multiple accounts are aggregated into capacities. The list of capacities is:[19]