The Securities Investor Protection Corporation 
(SIPC) is a nonprofit, membership corporation, funded by its member broker-dealers. SIPC protects customers in the event of a broker dealer failure. If a broker dealer fails, and cash or securities are missing from customer accounts SIPC will provides insurance coverage against losses arising from the insolvency of up to $500,000 of the customer’s net equity balance, including up to $250,000 in cash. This coverage is available for each separate customer, which is typically defined by the account title. Thus, a single person may be considered a separate customer if that person held an individual, joint, and retirement account at the same firm. Many firms, however, purchase additional protection above and beyond the SIPC coverage in the event of the firm’s insolvency.
Importantly, SIPC coverage does not extend to losses arising from fraud, misrepresentation, or bad investment decisions.
Knopman Notes:
Candidates for FINRA license exams must be able to accurately identify how separate customers are defined and protected under SIPC. Additionally, candidates should be able to explain to customers what happens to assets above the protection limit: the customer has a general creditor claim against the broker dealer.
Relevant Exams:
Series 7, Series 24, Series 63, Series 65, Series 66, Series 79
