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Securities Investor Protection Corporation

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The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by the Securities Investor Protection Act in 1970. The SIPC oversees the liquidation of broker-dealers that have declared bankruptcy or are at financial risk. The SIPC reports to and is overseen by the Securities and Exchange Commission.[1]

HIGHLIGHTS
  • The Securities Investor Protection Corporation oversees the liquidation of broker-dealers that have declared bankruptcy or are at financial risk.
  • The SIPC reports to the Securities Exchange Commission, which has authority to regulate and oversee the SIPC.
  • Though its creation was mandated by federal law, the SIPC is not a government agency; the agency does not have investigatory or regulatory authority over broker-dealers.

    • Background

    In 1969, a recession occurred in the United States; this recession lasted from December 1969 to November 1970. According to the SIPC, during this recession, stock prices declined and hundreds of broker-dealers went out of business or declared bankruptcy. In response, the United States Congress passed the Securities Investor Protection Act of 1970, and President Richard Nixon (R) signed the act into law on December 30, 1970.[2]

    Organization

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    The SIPC is led by a seven-member board of directors responsible for determining the policies of the SIPC. Members of the board serve three-year terms. The Securities Investor Protection Act mandated the following requirements for board members:[3]

    • One member is appointed by the Secretary of the Treasury from among the officers and employees of the U.S. Department of the Treasury
    • One member is appointed by the Federal Reserve board from among its officers and employees
    • Five member are appointed by the president with the advice and consent of the United States
      • Of these five, three are selected from among the securities industry, and not all may be from the same geographic area of the United States
      • The remaining two are selected from the general public; these members cannot be associated with a broke-dealer or a member of a securities exchange.

    The president appoints the chairman and vice-chairman of the board.[3]

    The SIPC does not receive public funds. As a nonprofit corporation, it is funded by fees paid by its member broker-dealers.[3]

    Authorities and responsibilities

    In the event that a broker-dealer fails, the SIPC oversees the liquidation of the broker-dealer to distribute customer cash and securities to investors. The SIPC also provides insurance coverage up to $500,000 per customer. This insurance covers cash and most types of securities, but does not cover commodities or futures contracts.[3]

    As the SIPC is not a government agency, it does not have investigatory or regulatory power over broker-dealers; it oversees the liquidation process of these businesses, but cannot write rules or oversee the conduct of these businesses. The SIPC is required to reports its activities to the Securities and Exchange Commission. The commission has the authority to conduct inspections of the SIPC and approve its bylaws, rules, and policies.[3]

    See also

    External links

    Footnotes

    1. ↑ Securities Investor Protection Corporation, "SIPC Mission," accessed January 22, 2017
    2. ↑ Securities Investor Protection Corporation, "History and Track Record," accessed January 22, 2017
    3. ↑ 3.0 3.1 3.2 3.3 3.4 Securities Investor Protection Corporation, "Securities Investor Protection Act of 1970," accessed January 22, 2017
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