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