Overview of the Securities Investor Protection Corporation

The Securities Investor Protection Corporation (SIPC) is a nonprofit company that works under a federal mandate. This organization was created in 1970, and it is not a government organization. The purpose of this company is to try to protect investors in the financial markets. Here are the basics of the Securities Investor Protection Corporation and what it provides to investors.

Securities Investor Protection Corporation

The basic idea behind the SIPC is that it will help investors if their broker goes out of business. It is going to try to provide financial protection for these individuals if the broker that they are working with fails.

What It Does

The SIPC provides help to investors in two different ways. When a broker goes out of business, the SIPC steps in and makes sure that the assets of the investors get distributed properly. In addition to that, if the funds are insufficient, it will also offer insurance protection. It will pay back up to $500,000 of assets and as much as $100,000 in cash. 

When It Pays

In order to get repaid by the SIPC, the funds from your account have to have been misappropriated or stolen. For example, if the brokerage said that it purchased securities with your funds and never did, then the SIPC will step in and make sure that your money is repaid. 

What Is Covered

In order to be covered, you have to own certain types of securities. For example, if you own stocks, bonds, CDs or notes, you would be able to be covered by the SIPC. However, other types of investments may not be covered under the protection. If you have futures contracts, commodities contracts, investment contracts, profit sharing contracts or anything else, you may not be able to get your money back. Annuities are also not covered under this type of protection.

Recovering Assets

The SIPC will do its best to recover the assets that have been lost during the bankruptcy process. This is possible because the investors' and broker's assets have to be held separately. They are not all in one account, commingled. Instead, each investor is going to have his or her own account with the proper assets in it. If the brokerage commingled everything, it is against the law, and it can be much more difficult to separate everything out after the company goes into bankruptcy.

Investor Protection

The SIPC provides a great deal of protection for investors. In order to make sure that your funds are safe, you should keep in mind the rules associated with this type of protection. For example, if you have more than $500,000 to invest, you should most likely keep it in separate accounts. You can open accounts with different brokers so that you will be able to get the insurance coverage for each account.

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