Securities Investor Protection Corporation

What Does Securities Investor Protection Corporation Mean?

The Securities Investor Protection Corporation (SIPC), established by a legislative act in 1970, provides insurance to clients of its member brokerage firms.

Insuranceopedia Explains Securities Investor Protection Corporation

Although established by a congressional act, the Securities Investor Protection Corporation (SIPC) is not a government agency. Instead, its operations are funded by its member brokerage firms.

When a member firm becomes insolvent, the SIPC provides compensation to clients, covering up to $500,000 per account, including a maximum of $250,000 for cash-only losses. This acts as a form of insurance for individuals investing through SIPC-member brokerage firms. Notably, non-U.S. clients are also eligible for coverage against financial damages.

However, the SIPC’s protection is limited to specific risks. It only covers losses due to bankruptcy or unauthorized trading, excluding losses caused by other issues, such as poor financial advice from a member firm. Clients who suffer losses from bad advice would need to pursue other remedies, and firms themselves typically carry professional liability insurance to cover claims of that kind. SIPC also does not cover insurance-based products like annuities, which are protected separately by state guaranty associations rather than by SIPC.