The SIPC has earned an impressive track record. Since its founding in 1970, the SIPC has returned 99% of eligible customer claims. The SIPC has engaged in 330 proceedings, which is less than 1% of the 40,000 broker-dealers that have been SIPC members over its history. One-third of these proceedings fell between 1971 and 1974. This spike in cases resulted from difficult years in the late 1960s when hundreds of broker-dealers were merged, acquired, or forced out of business.
The SIPC is not a government agency or regulator. It is a non-profit organization created under the Securities Investor Protection Act to protect consumers from financially insolvent brokerage firms. Mentioned above, the SIPC is financially backed by the U.S. Treasury’s line of credit.
SIPC is backed by the SIPC Fund with contributions from member brokerage firms. The SIPC Fund currently stands at $3.5 billion, and since 2020 has been targeting additional contributions to reach $5 billion. In addition, the U.S. Treasury provides a generous $2.5 billion line of credit. In its 50 years, the SIPC has never needed to tap this line or use taxpayer money to support consumers.
Even with separate capacity, many affluent families have investment portfolios far exceeding the SIPC limits. In these situations, claims will first be paid out up to the limits. Those with accounts exceeding the limits will have a claim on the brokerage firm’s assets distributed during the bankruptcy liquidation process. History has shown that the SIPC process works, even with large cases. After Lehman Brothers Inc. filed for bankruptcy in 2008 (the largest filing in U.S. history), the
SIPC does cover multiple accounts, but with a caveat—the accounts must be of a different “type” to be covered up to the set limits. These coverage limits are based on a principle called “separate capacity,” which refers to accounts held in different capacities. Categories of separate capacity include individual, joint, IRA, and corporation, among others. For example, an investor who holds $500,000 in her individual name, $500,000 in a joint account
SIPC covers securities valued at up to $500,000 per customer, including up to $250,000 in cash securities. As explained below, these limits apply separately to each account type. Investors with multiple accounts may receive more protection.
SIPC insurance covers the loss of cash and most investments at a member brokerage firm up to set limits. This includes cash held for investment, money markets, stocks, bonds, ETFs (Exchange-Traded Funds), mutual funds, notes, and other registered securities. Bank accounts, such as savings, checking, and CDs, are protected separately through FDIC (Federal Deposit Insurance Corporation) insurance. Not every loss is covered by SIPC insurance—namely market fluctuation and identity theft—which we discuss in the article above.
Congress created SIPC insurance to protect consumers against the loss of assets from a bankrupt brokerage firm unable to meet its obligations. In its five decades of operation, 99% of those eligible have recovered their investments, giving investors confidence that their money will remain safe no matter what happens to their brokerage firm.