Purpose of SIPC
The Securities Investor Protection Corporation is not a government agency but a nonprofit membership corporation. Its membership consists of virtually every broker-dealer that is registered with the SEC. Broker-dealers that are not SIPC members must disclose this fact to their customers.
When a brokerage firm is a member of SIPC, it must pay into a general insurance fund used to meet customer claims in case of bankruptcy. The broker-dealer pays an initial membership fee and an annual assessment fee into the fund, consisting of a fixed percentage of its gross revenue.
SIPC has no authority to combat investment fraud or to investigate or regulate its members. It has the narrower focus of overseeing the liquidation of member firms that close due to bankruptcy or financial trouble.
All brokers and dealers registered with the SEC must be SIPC members except:
- • Firms whose principal business is conducted outside the U.S.
- • Firms that deal exclusively in the distribution of shares of registered open-end investment companies (mutual funds) or unit investment trusts
- • Firms that deal exclusively in the sale of variable annuities
- • Firms that deal exclusively in the business of insurance or provide investment advice services