Every six months, broker dealers are subject to a SIPC payment. Today, we will discuss SIPC and why broker dealers must pay into this corporation.  

A Bit of Background

The Securities Investment Protection Corporation (“SIPC”) was founded by Congress in 1970 under the Securities Investment Protection Act (“SIPA”). SIPC’s purpose is to return cash and securities to customers of failed brokerage firms that are its members, with most U.S. broker dealers belonging to this non-profit corporation. SIPC offers limited protection in case of brokerage firm failure, but it does not safeguard customers’ assets from investment losses due to market changes or fraud. SIPC also has maximum protection limits – $500,000 per customer, including up to $250,000 in cash. 

Today’s SIPC Environment 

I recall a time when the annual membership fee to SIPC was $750 because the corporation was so well funded. Then came Bernie Madoff, and one of the largest Ponzi schemes ever in the financial services industry. With SIPC depleted, new calculations were put in place to calculate fees moving forward. Your broker dealer’s bookkeeper and FINOP are great resources for these bi-annual calculations. Effective in 2024, SIPC moved to an online portal that has streamlined the calculation, submission, and payment process.  

In the Event of Failure  

Should a member brokerage firm fall into bankruptcy or is otherwise unable to meet its customer obligations, the firm must follow these important steps:

  • Customers must complete and file a claim form (provided by SIPC). This form includes pertinent information about the customer and account details. Additionally, the customer must provide supporting documentation such as statements, trade confirmations, and any other relevant information. 
  • SIPC will review each claim based upon what is submitted by the customer, so it is imperative that all information be accurate. Upon verification and approval, SIPC will facilitate the transfer of securities and cash to eligible customers.  

 SIPC’s goal is to make a customer as whole as possible up to the maximum protection limit in the event of a brokerage firm failure, but we never want to see that happen. If your broker dealer is in need of compliance and/or accounting and FINOP services, please contact Securities Compliance Management here to set up a meeting to discuss your broker dealer’s needs. Our best-in-class team of professionals are available to help your broker dealer stay compliant and thrive in the financial services industry.