Securities Investor Protection Corporation (SIPC)
The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation that protects brokerage customers if their broker-dealer fails. Coverage is limited to $500,000 per separate customer, of which no more than $250,000 can be cash.
The Securities Investor Protection Corporation (SIPC) was created by the Securities Investor Protection Act of 1970 to restore investor confidence after a wave of brokerage firm failures. It is a nonprofit membership corporation — not a government agency — funded by assessments on its member firms. Virtually all registered broker-dealers are required to be members.
SIPC steps in when a member broker-dealer becomes insolvent and customer assets are missing. It works to return customers' securities and cash, covering shortfalls up to $500,000 per separate customer, including a maximum of $250,000 in cash. Separate capacities get separate coverage: an individual account, a joint account, and an IRA held by the same person are each covered independently.
Just as important is what SIPC does not do. It does not protect against market losses — a portfolio that declines in value is simply investing risk. It also does not cover commodities or futures contracts, and it does not investigate fraud the way a regulator would. SIPC insurance is about custody failure, not bad investments.
SIPC is a reliable exam topic. The SIE exam tests the coverage limits, the separate-customer concept, and the distinction between SIPC and FDIC insurance, while the Series 63 exam ties SIPC membership to broker-dealer financial requirements. Remember for the exam: SIPC covers a failed firm, never a failed investment.
Key takeaways
- SIPC is a nonprofit membership corporation created by the Securities Investor Protection Act of 1970 — it is not a government agency.
- Coverage is $500,000 per separate customer, of which no more than $250,000 may be cash.
- Separate capacities — individual, joint, and retirement accounts — each receive their own coverage.
- SIPC protects against broker-dealer failure, not against market losses, and it does not cover commodities or futures.
- The SIE and Series 63 exams test SIPC's limits and its role in broker-dealer financial responsibility.