Questions About Brokerage Firms
Questions About Customer Protection
Questions About Direct Payment Procedures
Questions About Liquidations
Questions About SIPC
Questions About Brokerage Firms
I am a customer of a brokerage firm that is a foreign affiliate of a SIPC member. Am I eligible for SIPC protection?
SIPC does not protect customers of non-SIPC member firms. If the affiliate is not itself a SIPC member, there is no SIPC protection. If the affiliate fails, or if the affiliate steals your cash or securities, you are not protected by SIPC. However, if the affiliate opens an account for you with the SIPC member firm and the SIPC member firm fails holding cash and/or securities for you, you may be eligible for SIPC protection.
I am a customer of a division of a SIPC member. Is there SIPC protection for my account?
SIPC protects customers of SIPC member broker-dealers. Determining whether your account is at the broker-dealer is a question that should be addressed to FINRA, the Securities and Exchange Commission, or your state securities regulator. If your account is at the broker-dealer, you will be eligible for SIPC protection.
I have a problem with my brokerage firm. Should I contact SIPC?
My brokerage firm has excess SIPC insurance. How does that work?
Excess-SIPC insurance is purchased by some brokerage firms to insure their customers against losses in customer property above and beyond the distributions they would receive in a liquidation proceeding, including advances from SIPC. In other words, payments under excess-SIPC insurance policies are only determined when all distributions from the liquidation are completed, and a customer has not been satisfied in full.
For details on how excess-SIPC insurance applies to your account, contact the insurance carrier for the excess-SIPC insurance policy.
My firm was a SIPC member, but isn’t anymore. Am I still protected by SIPC?
SIPC protection applies to a former SIPC member only up to 180 days after the brokerage firm ceases to be a SIPC member. If you have questions about when your broker-dealer ceased to be a SIPC member, Contact Us.
Questions About Customer Protection
Are commodity futures accounts protected by SIPC?
In most cases, no. Commodity futures do not qualify as “securities” because they are excluded from the definition of “security” under the Securities Investor Protection Act. Cash in a commodity futures account also is not protected by SIPC because it is not on deposit with a brokerage firm for the purpose of purchasing a security.
An exception is if the commodity futures contract is in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the U. S. Securities and Exchange Commission. A commodity futures contract in a special portfolio margining account meets the definition of “security” under the Securities Investor Protection Act. Also, certain security futures are “securities” for purposes of SIPC protection.
Are gold and/or silver coins protected by SIPC?
No. Gold and silver coins do not qualify as a “security” because they do not meet the definition of “security” under the Securities Investor Protection Act.
Are money market mutual funds protected? Are they subject to the $250,000 cash limit?
Money market mutual funds qualify as securities for purposes of SIPC protection and are protected when held in the custody of a SIPC-member broker-dealer. As “securities,” they are subject to the $500,000 limit of protection. It is important to remember that although many investors treat money market funds like cash, it is possible for such securities to lose value. In a liquidation proceeding under the Securities Investor Protection Act, SIPC will return your shares to you. SIPC does not protect you against market losses in the value of your shares.
Are Municipal Bonds protected by SIPC?
Yes. Municipal bonds qualify as a “security” because they meet the definition of “security” under the Securities Investor Protection Act.
Are my futures contracts in my portfolio margining account protected?
Only certain portfolio margining accounts are protected in a way that allows futures contracts to be protected by SIPC. Only if you have a portfolio margining account that is carried as a securities account pursuant to a portfolio margining program approved by the U.S. Securities and Exchange Commission, then futures contracts and options on futures contracts held in that account are protected by SIPC. See 15 U.S.C. section 78lll(2).
Are non-residents of the U.S protected by SIPC? What about non-U.S. citizens?
Non-residents and non-U.S. citizens are eligible for the same protections from SIPC as all other customers. There is no requirement that a customer reside in or be a citizen of the United States. An individual residing in a foreign country with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a brokerage firm that is a SIPC member.
Are Real Estate Investment Trusts (REITs) protected by SIPC?
It depends on whether the REIT is an investment contract registered with the Securities and Exchange Commission (SEC). Under the Securities Investor Protection Act, only investment contracts registered with the SEC are protected by SIPC. If the REIT is registered with the SEC as an investment contract, it is protected by SIPC as a security. If the REIT is not registered, it is NOT protected by SIPC.
Are Treasury Bills protected by SIPC?
Yes. Treasury bills qualify as a “security” because they meet the definition of “security” under the Securities Investor Protection Act.
Does SIPC protect me if my account is hacked and cash and/or securities are stolen?
SIPC’s role and responsibilities are as defined under the Securities Investor Protection Act (SIPA). Under that law, SIPC only becomes involved when a SIPC member brokerage firm is eligible for liquidation under the Securities Investor Protection Act. If you discover that your account has been hacked or your securities or cash have been stolen, you should contact your brokerage firm, the SEC, FINRA, your state securities regulator, and/or law enforcement authorities.
Does SIPC protect my interest in my employer’s pension fund?
Except in limited circumstances, SIPC only protects the direct customer of a brokerage firm. If your employer’s pension fund is held at a SIPC member brokerage firm, the pension fund account may be eligible for protection by SIPC up to the $500,000 limit for securities and cash (including the $250,000 cash limit). There is no separate protection for the underlying participants trading indirectly through the pension fund.
How are margin accounts protected?
Margin accounts are afforded the same degree of protection as non-margin accounts. A customer is eligible for protection based on a margin account. A margin customer is only eligible for protection up to his or her “net equity,” meaning that the amount the customer owes the broker is subtracted from the cash and the value of securities in the account. The customer’s net equity is the difference. That difference in cash and/or securities is protected by SIPC up to the limits of protection.
I believe my securities are "customer name securities." Does SIPC protection apply?
In a Securities Investor Protection Act liquidation, "customer name securities" are returned outright to customers so long as they are held by or are under the control of the broker.
I have a joint account with one other person. Are we each protected up to $500,000 by SIPC?
I have a securities account. Isn’t everything in my securities account protected by SIPC?
Not necessarily. SIPC protection is determined on a transaction by transaction basis. Your account may contain an investment that is not a “security” under the Securities Investor Protection Act. In that event, there would be no SIPC protection as to such investment, unless the investment is held in a special portfolio margining account (see 15 U.S.C. 78lll(14)).
I have accounts at two brokerage firms. Does each account have separate SIPC protection?
Customers with accounts at different brokerage firms receive separate protection as to their accounts at each firm. In the unlikely event that you had accounts with two different SIPC member broker-dealers that were the subject of liquidation proceedings, your accounts at each broker-dealer would be eligible to be protected within the statutory limits.
I have an account with two different brokerage firms, both of which clear their transactions through the same clearing firm. Is each of my accounts eligible for separate protection?
Yes. If you have multiple accounts at a clearing broker, each introduced by a different brokerage firm, they are each protected separately by SIPC. (See the SIPC Series 200 Rules.)
I have two accounts – a margin account and a non-margin (cash account). Is each account protected separately?
No. The determination of separate protection from SIPC is determined by the ownership of the account, not whether the account is on margin. If you have a margin account and a non-margin (cash) account, both in your name, they are combined for purposes of SIPC protection. For more information, see Investors with Multiple Accounts.
I have two joint accounts - one with a spouse/significant other and one with my adult child. Is each account separately protected?
Yes. Joint accounts with different owners are eligible for separate protection from SIPC up to the $500,000 limit for securities and cash (of which the cash protection is up to $250,000), provided that each co-owner has control over the entire account. See Investors with Multiple Accounts and SIPC Rule 105. The limit of protection for the joint account is $500,000, irrespective of the number of co-owners.
I have two joint accounts and the account owners are the same for both accounts. If I reverse the names on the accounts, will each account be protected up to the limits?
Joint accounts owned by the same persons are combined and protected as one account up to the $500,000 limit for securities and cash (including a $250,000 limit for cash only). Reversing the names on the account title does not increase the SIPC protection. See Investors with Multiple Accounts.
If I have a margin account, what can I do to get my securities back?
SIPA section 78lll(11)(C) allows payment of the margin balance within a time period established by the Trustee. The claimant can get all securities back under this section, up to the amount of the SIPC limits. Customers can also pay for a trade made in the last days of the firm’s operations under that section.
Is a Certificate of Deposit (CD) treated like cash?
A CD is a "security" for purposes of SIPC protection. Customers are protected against the loss of their securities up to $500,000. SIPC does not protect against the decline in value of CDs or any other securities. SIPC only protects the securities that the brokerage firm is holding for you in your account. If your CD is being held by a non-member affiliate or by a bank, your CD will not be protected by SIPC.
My brokerage firm sweeps my cash. Is that cash protected by SIPC?
If your brokerage firm sweeps cash into a money market mutual fund or into another securities investment, your account now contains securities. These securities are eligible for SIPC protection up to the SIPC limit for securities provided that the securities are held for you by your broker-dealer.
If your cash is swept into a bank account, SIPC only protects you until the funds leave your brokerage account. Once the brokerage firm sweeps your cash into a bank account, that cash is no longer eligible for SIPC protection, but may be eligible for protection by the FDIC.
What is the difference between a foreign currency trade and cash held in a foreign denomination?
SIPC does not protect foreign currency trades. However, SIPC protects cash held in your brokerage account for the purpose of purchasing securities, even if the cash is in a non-U.S. denomination. If your account is in a non-U.S. denomination and you intend to buy securities with the cash (on a foreign exchange, for example), your cash will be protected by SIPC. However, if your cash is in a foreign denomination as an investment in that foreign denomination, your cash will not be protected by SIPC. In either case, a Trustee would examine the facts and evidence pertaining to your account to determine whether you are eligible for protection.
Who is ineligible for SIPC Protection?
Most customers with cash and securities missing from customer accounts are eligible for SIPC protection. However, SIPC's funds may not be used to pay claims of any failed brokerage firm customer who is:
- A general partner, officer, or director of the firm.
- The beneficial owner of five percent or more of any class of equity security of the firm (other than certain nonconvertible preferred stocks).
- A limited partner with a participation of five percent or more in the net assets or net profits of the firm.
- Someone with the power to exercise a controlling influence over the management or policies of the firm.
- A broker or dealer or bank acting for itself rather than for its customers.
While these customers are not eligible for the $500,000/$250,000 protection from SIPC, they may share in the distribution of customer property from the firm on a pro rata basis.
Questions About Direct Payment Procedures
What is a direct payment procedure?
In certain instances, when a small brokerage firm fails, SIPC may conduct an out-of-court claims process which is referred to as a direct payment procedure. In a direct payment procedure, customers submit claims to SIPC. If valid, the claims are satisfied from SIPC advances only; there is no collection of customer property or general estate as in the case of a liquidation proceeding.
Will SIPC protection be different in a direct payment procedure?
No. Customers in a direct payment are eligible for protection up to $500,000 for securities and cash (including a $250,000 limit for cash only).
Questions About Liquidations
What is a liquidation?
A liquidation under the Securities Investor Protection Act is similar to a U.S. bankruptcy case. The liquidation is administered in federal bankruptcy court under the Securities Investor Protection Act and applicable U.S. bankruptcy laws and procedures.
When does SIPC start a liquidation?
The U.S. Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA) must first notify SIPC that a brokerage firm is in or is approaching financial difficulty. SIPC then determines whether (1) the firm has customers eligible for protection by SIPC; (2) the brokerage firm has failed or is in danger of failing to meet its obligations to customers; and (3) certain financial conditions of the brokerage firm are met. See Securities Investor Protection Act, sections 78eee(a)(3) and 78eee(b). The referral process is detailed in the Securities Investor Protection Act, section 78eee(a).
After a referral is made and SIPC has determined that there are customers in need of protection, in most circumstances, SIPC files an application for a protective decree in United States District Court. If the application is granted, the liquidation starts.
Questions About SIPC
Is SIPC a Self-Regulatory Organization (SRO)?
No. SIPC is not a self-regulatory organization. SIPC has no regulatory authority.
Is SIPC a U.S. Government Agency?
No. SIPC is not an agency or establishment of the United States Government. SIPC is a non-profit membership corporation created under the Securities Investor Protection Act. See Securities Investor Protection Act, section 78ccc(a)(1)(A).