Securities Investor Protection Corporation

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Securities Investor Protection Corporation (SIPC)
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Founded 1970
Products investor protection
Website www.sipc.org

The Securities Investor Protection Corporation (SIPC) is a nonprofit, membership corporation chartered by Congress to help protect U.S. investors from brokerage firm losses. Rather than focus on fraud - which other federal, state, and self-regulatory agencies do - SIPC focuses on restoring funds to investors with assets in the hands of bankrupt and financially troubled brokerage firms.[1]

Though created by the Securities Investor Protection Act of 1970 (15 U.S.C. §78aaa et seq., as amended), SIPC is neither a government agency nor a regulatory authority. it is funded by its member securities broker-dealers.

When a brokerage firm closes because of bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers' cash, stock and other securities. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever or wait for years while their assets are tied up in court.

Although not every investor is protected by SIPC, 99 percent of eligible persons get their investments back from SIPC. From its creation by Congress in 1970 through December 2007, SIPC advanced $508 million in order to make possible the recovery of $15.7 billion in assets for an estimated 625,000 investors.[2]

History

SIPC was created as part of the Securities Investor Protection Act of 1970. SIPC was to be a non-profit corporation and exist until dissolved by an act of Congress.[3]

In July 2012, Michael Dawley, chairman of the Futures Industry Association, stressed the importance of the creation of an insurance fund to protect futures customers, after the MF Global bankruptcy in October 2011 and Peregrine Financial Group collapse in July 2012 shook confidence in the market. The FIA explained that a futures insurance fund similar to the Securities Investor Protection Corp. would be beneficial, as it guarantees securities investments up to $500,000 in the event a brokerage firm collapses.[4]

John Lothian News Interviews

Protection Fund: Slip it to SIPC
If there is one solution to restoring customer confidence in futures that has been talked about more than any other, it would be the creation of a customer or insurance fund. Securities customers have the Securities Investor Protection Corporation (SIPC), so why can’t futures customers use SIPC as well? That’s the idea from Neal Wolkoff, Of Counsel at the law firm of Richardson & Patel and longtime exchange executive, who argues that not only does it make rational sense, but using SIPC could be the easiest and most cost effective way to protect futures customers. This approach differs from others who have touted some type of insurance protection fund just for the futures industry. Published Feb. 4, 2013.[5]

Products and Services

In most cases, broker-dealers must be members of SIPC. Registered broker-dealers automatically become SIPC members unless an exclusion applies. Broker-dealers must pay an annual assessment fee to SIPC in order to remain a SIPC member and continue to do business legally as a broker-dealer.[6]

When a brokerage firm fails owing customers cash and securities that are missing from customer accounts, SIPC usually asks a federal court to appoint a trustee to liquidate the firm and protect its customers. With smaller brokerage firm failures, SIPC sometimes deals directly with customers.[7]

SIPC coverage covers losses of as much as $500,000 per customer. Losses from theft and proven unauthorized trading are covered, but losses from fraud, churning or stock-price manipulation aren't. SIPC also doesn't cover investment losses or some holdings not registered with the SEC, such as currencies, hedge funds and limited partnerships.

In June of 2008, SIPC said a 13-person panel would launch a "full-scale review" of the agency set up by Congress to help customers of failed brokerages. The task force included plaintiffs' lawyers, state securities regulators, industry representatives and other experts who will consider recommending changes to the federal law that set up SIPC.[8]


Key People

  • Orlan Maurice Johnson, Chairman
  • Josephine Wang, General Counsel


References

  1. Why Was SIPC Created?. SIPC.
  2. The SIPC Mission. SIPC.
  3. Securities Investor Protection Act of 1970. SEC.
  4. U.S. futures industry head seeks study of insurance fund. Reuters.
  5. Protection Fund: Slip it to SIPC. John Lothian News.
  6. Broker-Dealer Registration. SEC.
  7. When SIPC Gets Involved. SIPC.
  8. SIPC Sets Up Review Panel. WSJ.com.
Last modified on 28 July 2016, at 03:57