Chapter 10.8 Flashcards
Securities Investor Protection Act
Its purpose is to provide protection for public customers against monetary losses due to the failure of their B/D. SIPC is a non-profit organization and not an agency of the U.S. Government. Membership consists of registered B/Ds.
If a B/D fails, the local federal district court will appoint a SIPC Trustee to liquidate the firm. The SIPC trustee is responsible for:
- The orderly liquidation of a failed firm
- Distribution of customer securities
- Notifying customers of a firm in SIPC liquidation
What are customers entitled to if a firm fails?
Customers are entitled to obtain any securities registered in their name. After the firm has paid liquidation expenses, all remaining assets of the firm are available to satisfy remaining portions of customer claims. If any customer claims still remain, SIPC will provide protection for customers of up to $500,000 per separate customer for cash and securities, but no more than $250,000 may be paid for a cash claim
What happens if the claim exceeds the maximum?
The customer becomes a general creditor of the firm, and securities will be settled at the market value on the date that a federal court was petitioned to appoint a trustee.
What account types does SIPC not cover?
Commodity accounts
On what basis does SIPC provide protection?
On a separate customer basis, not on a per account basis. Different account types would receive separate protection under the Act.
How does SIPC obtain its revenues?
Assessing B/D’s a percentage of their gross revenues or by a nominal annual assessment depending on the level of the SIPC fund
Member firms requirement for SIPC information
Member firms are required to advise all new customers in writing at the time that the account is opened and annually thereafter that they may obtain information about SIPC.
