The SIPC, or Securities Investor Protection Corporation (SIPC), is a non-profit, non-governmental membership corporation, funded entirely by its member broker-dealers. The SIPC was created in 1970. Nearly all broker-dealers registered with the SEC are SIPC members.
The SIPC was created to return a client property if a clearing firm becomes insolvent or cannot return the client’s property. In this situation it would be the SIPC’s responsibility to return to the client their property: cash or securities.
The SIPC is not the same as the FDIC. The banking system is risk-averse; there exists very little risk of loss in putting your money within a bank product. The market, by contrast, relies on risk and reward. The FDIC addresses and strengthens the risk-averse system by guaranteeing against loss, up to $100,000.
The SIPC does not guarantee against loss, the risk inherent in the system causes loss and gain. Profit and principal are not guaranteed and the SPIC does not guarantee it. According to the SIPC Brochure, How SIPC Protects You: “the SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.”
So, what the SIPC does guarantee is that if you have purchased 100 shares of a particular security there will be a hundred shares there when you decide to sell.
Therefore, the SIPC does not protect against market risk, market risk is inherent in a fluctuating market. The SIPC limits its coverage to $500,000 per person, including a further limit of $100,000 in cash. Not all investments are protected by the SIPC however. Because of the nature of the SIPC and the protection it allows the SIPC generally covers stocks, bonds, mutual funds, company shares, and registered securities.
The following then are NOT protected by the SIPC:
* Unregistered securities contracts
* Limited partnerships
* Fixed Annuities
* Commodity futures
* Commodity Options
* Worthless stocks
When the SIPC steps in to return an investment to a customer they can expect to get their investment back in one to three months. The time frame is influences by the records of the broker; the better and more accurate the records of the broker the quicker the securities can be returned to the customer.
For more information please visit FINRA’s website at www.finra.org. A search for “SIPC” should procure a listing titled “SIPC Protection Index” where you may receive additional information.
For more information about investment fraud visit the US Securities and Exchange Commission at www.sec.gov or the National Fraud Information Center at www.nasdr.com.