The Securities Investor Protection Corporation (SIPC) had its origins in the difficult years of 1968-70, when the paperwork crunch, brought on by unexpectedly high trading volume, was followed by a very severe decline in stock prices. Hundreds of broker-dealers were merged, acquired or simply went out of business. Some were unable to meet their obligations to customers and went bankrupt. Public confidence in the U.S. securities markets was in jeopardy.
Congress acted swiftly, passing the Securities Investor Protection Act of 1970, 15 U.S.C. § 78aaa et seq. (SIPA). SIPA's purpose is to protect customers against certain types of loss resulting from broker-dealer failure and, thereby, to promote investor confidence in the nation’s securities markets.
Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever. Although not every investor or transaction is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back with the help of SIPC. From its creation by Congress in 1970 through December 2020, SIPC advanced $3.1 billion in order to make possible the recovery of $141.8 billion in assets for an estimated 773,000 investors.
At year end, the Trustee for the Bernard L. Madoff Investment Securities LLC liquidation had recovered $14.4 billion, and distributed nearly $13.9 billion. Any customer with a net asset value of up to approximately $1.58 million was made whole. Customers with larger claims have received over 68.60% of the net amount entrusted to the Madoff firm.
SIPC announces the availability of an electronic filing system for customers and other claimants in the event of a brokerage firm failure.
The Trustee for the MF Global Inc. liquidation closes the case with a 100% distribution to customers and commodities claimants, and a 95% distribution to general creditors.
The Trustee for the Lehman Brothers Inc. liquidation completes a 100% distribution to customers, and the Trustee for the Bernard L. Madoff Investment Securities LLC liquidation surpasses $10.5 billion in recoveries.
MF Global Inc. fails, beginning the 8th largest bankruptcy in history. SIPC steps in to protect securities customers.
Cash Protection Increased
The Dodd-Frank Wall Street Reform and Consumer Protection Act passes. It increases SIPC’s line of credit with the Treasury to $2.5 billion and increases the protection of cash in a customer’s account to $250,000, with a possible adjustment for inflation.
SIPC Board of Directors raises the target balance of the SIPC fund to $2.5 billion.
Lehman Brothers Inc. fails as part of the largest bankruptcy in U.S. history. SIPC steps in to protect customers. The Trustee transfers more than 110,000 customer accounts, containing more than $92 billion in customer assets, within weeks.
Bernard L. Madoff confesses to the largest Ponzi scheme in history. SIPC steps in to protect customers of Bernard L. Madoff Investment Securities LLC.
For the first time in SIPC history, SIPC is not called upon to initiate a customer protection proceeding during a calendar year.
In the liquidation of MJK Clearing, Inc., the largest at the time, SIPC transfers nearly 175,000 customer accounts, involving customer assets exceeding $10 billion, in approximately one week.
291 Proceedings in 30 Years
SIPC celebrates its 30th anniversary. In its first 30 years, SIPC protects customers in 291 customer protection proceedings.
The SIPC Fund reaches a $1 billion balance, ahead of schedule.
The liquidation of Adler, Coleman Clearing Corp. is initiated, creating, at the time, the largest SIPA liquidation in number of accounts and value of customer assets. SIPC rapidly transfers accounts of over 50,000 customers to other broker-dealers.
Fund Target Raised
The SIPC Board of Directors raises the target balance of the SIPC fund to $1 billion on the advice of an industry task force.
SIPC advances over $42 million to the Trustee in the Bell & Beckwith liquidation, the most costly SIPC case up to this point.
The level of protection is raised to $500,000, including up to $100,000 for cash.
The first substantive amendments to SIPA are passed. Customers are protected up to $100,000, with a ceiling of up to $40,000 for cash.
SIPC celebrates its fifth anniversary. In SIPC's first 5 years, SIPC protects customers in 117 customer protection proceedings.
Weis Securities, Inc. is the first liquidation involving a New York Stock Exchange member.
Initial SIPC Fund totals $77.6 million, comprised of member assessments of $9.6 million, the transfer of $3 million from the American Stock Exchange, Inc. trust fund, and confirmed lines of credit totaling $65 million.
SIPC Is Created
Securities Investor Protection Act (SIPA) passes and SIPC is created. Each customer is protected up to $50,000, including a ceiling of $20,000 for cash claims.