Legal Definitions - Securities Investor Protection Corporation

The Securities Investor Protection Corporation (SIPC) is a government organization that was created to protect investors and assist brokers who are experiencing financial difficulties. It was established under the Securities Investor Protection Act (SIPA) in 1970.

SIPC provides insurance coverage for investors in case their brokerage firm fails. If a brokerage firm goes bankrupt, SIPC will step in to return securities and cash to the investors. The maximum amount of coverage is $500,000, including up to $250,000 in cash.

For example, if an investor has $400,000 in securities and $100,000 in cash with a brokerage firm that goes bankrupt, SIPC will return the full $400,000 in securities and up to $100,000 in cash. However, if the investor had $600,000 in securities and $100,000 in cash, SIPC would only return $500,000 in total.

SIPC also helps to protect investors by monitoring brokerage firms and taking action against those that engage in fraudulent or unethical behavior. It is important to note that SIPC does not protect against losses due to market fluctuations or bad investment decisions.