Securities Investor Protection Act of 1970
The Securities Investor Protection Act of 1970 (SIPA) created the Securities Investor Protection Corporation (SIPC). SIPC is a non-profit membership corporation, funded by its member securities broker-dealers. It either acts as trustee or works with independent court-appointed trustees.
SIPC's Board of Directors consist of seven persons as follows:
- One director shall be appointed by the Secretary of the Treasury form among the officers and employees of the Department of Treasury
- One director shall be appointed by the Federal Reserve Board from among the officers and employees of the Federal Reserve Board
- Five directors shall be appointed by the President, by and with the advice and consent of the Senate, as follows
- Three such directors shall be selected from among persons who are associated with, and representative of different aspects of, the securities industry, not all of whom shall be from the same geographical area of the United States, and
- two such directors shall be selected from the general public from among persons who are not associated with a broker or dealer or associated with a member of a national securities exchange or any self-regulatory organization or other securities industry group, and who have not had any such association during the two years preceding appointment
The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities that are already registered in their names or in the process of being registered. All other so-called "street name" securities are distributed on a pro-rate basis. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash. Recovered funds are used to pay investors whose claims exceed SIPC's protection limit of $500,000.
According to SIPC under liquidations administered by it:
- 99 percent of eligible investors get their investments back
- in its thirty year history, SIPC has advanced $391 million in order to make possible the recovery of $3.8 billion in assets for an estimated 443,000 investors.