Securities Investor Protection Corporation - Explained
What is a Securities Investor Protection Corporation?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is a Securities Investor Protection Corporation?
The Securities Investor Protection Corporation (SIPC), is a non-profit organization that protects investors. SIPC was created upon the passage of Securities Investor Protection Act of 1970. The membership of SIPC consists of dealers and brokers under the auspices of the Securities Exchange Act of 1934 and some members of NASD (National Association of Securities Dealers). SIPC after it was created by an act of congress, has been giving protection to clients over 50 years. The Securities Investor Protection Corporation has recovered investment capital if the brokerage firms they invest in go into bankruptcy.
A Little More on What is the Securities Investor Protection Corporation
SIPC manages the liquidation of brokers or dealers who go bankrupt after investors have invested in them, despite the bankruptcy, SIPC provides insurance for their customers or investors. SIPC also intervenes when firms land in financial troubles which can lead to insolvency or when assets are mismanaged by broker-dealers. The provisions of the Securities Investor Protection Act of 1970 stipulates that member firms of SIPC must have SIPCs approval before entering into insolvency or bankruptcy proceedings. When this happens, SIPC focuses on retrieving the assets of investors of bankrupt or financially troubled firms. SIPC does not investigate fraud or securities crimes, it only provides coverage for investors funds held by bankrupt or insolvent firms.