8.4.3. SIPC Rules
Congress passed the Securities Investor Protection Act of 1970 after several broker-dealer firms failed and the investors they served lost their investments. The Act created the Securities Investor Protection Corporation (SIPC) to help protect investors’ investments and to prevent a similar financial crisis. The SIPC provides limited insurance for the assets contained in investors’ accounts.
When a brokerage firm is a member of the SIPC, it must pay into a general insurance fund used to meet customer claims in case of bankruptcy.
Note that the SIPC does not protect against all losses. For example, if the stock market crashes, the SIPC will not cover the funds in a customer’s account. However, the SIPC will protect against most customer losses due to a firm’s bankruptcy.
When a brokerage firm is a member of SIPC, it means that the firm’s customers’ assets are protected against firm bankruptcy. If the firm fails, the customers get back all securities that are registered in their name and those securities that are in the process of being re