SIPC
Quick Definition
A nonprofit organization that protects customers of failed brokerage firms by recovering cash and securities up to $500,000 per account.
Key Takeaways
- Protects customers up to $500,000 per account ($250,000 for cash) at failed brokerages
- Does NOT protect against investment losses or market declines
- Created by the Securities Investor Protection Act of 1970
- Works to return securities and cash when brokerages become insolvent
- Different from FDIC — SIPC covers brokerage accounts, FDIC covers bank deposits
What Is SIPC?
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership organization created by the Securities Investor Protection Act of 1970 to protect customers when a brokerage firm fails financially or becomes insolvent. SIPC coverage protects up to $500,000 per customer account, including a $250,000 limit for cash claims. It is important to understand that SIPC protection differs fundamentally from FDIC insurance: SIPC does not protect against losses from market declines or bad investment decisions — it only covers the return of securities and cash held by a failed brokerage. When a brokerage fails, SIPC works to return customers' securities and cash as quickly as possible, and if the firm's assets are insufficient, SIPC uses its reserve fund to cover the gap up to the coverage limits. Most registered broker-dealers are required to be SIPC members.
SIPC Example
- 1When a brokerage firm went bankrupt, SIPC stepped in to transfer customer accounts to a healthy broker-dealer, ensuring clients retained their stock positions.
- 2An investor with $400,000 in securities and $300,000 in cash at a failed brokerage was covered for the full $400,000 in securities but only $250,000 of the cash under SIPC limits.
Related Terms
FDIC
Independent federal agency that insures bank deposits up to $250,000 per depositor, per institution, and supervises financial institutions for safety and soundness.
FINRA
A self-regulatory organization that oversees broker-dealers and their registered representatives in the United States.
SEC (Securities and Exchange Commission)
The primary U.S. federal agency responsible for regulating securities markets, protecting investors, and enforcing federal securities laws.
Compliance Officer
A professional responsible for ensuring a financial institution adheres to all applicable laws, regulations, and internal policies.
Insider Trading
The illegal practice of trading securities based on material, non-public information obtained through a position of trust or confidence.
Fiduciary Duty
A legal obligation to act in the best interest of another party, placing their interests above one's own.
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