Series 53: 1.1.6.1. Purpose Of SIPC

Taken from our Series 53 Online Guide

1.1.6.1. Purpose of SIPC

The Securities Investor Protection Act of 1970 was created after several broker-dealers failed and their customers lost their investments. The Act created the Securities Investor Protection Corporation (SIPC) to help protect investors’ investments and to prevent a similar financial crisis. SIPC provides limited insurance for the assets contained in investors’ accounts.

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.

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 to registered investment or insurance companies

Firms that deal exclusively in transactions in security futures products

Banks that deal exclusively in municipal se

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