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What is SIPC Insurance?

The Securities Investor Protection Corporation (SIPC) is a nonprofit, membership corporation, funded by its member securities brokerage firms. Although it was created by Congress in the Securities Investor Protection Act of 1970, SIPC is neither a government agency nor a regulatory authority. It is not the securities world's equivalent of the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits. SIPC's reserve funds are available to satisfy customer claims up to a maximum of $500,000, including up to $250,000 on claims for cash in the event your brokerage firm fails. Some firms obtain additional coverage for your account through private insurance companies; which is designed to protect your securities in excess of the insured limits.

If your brokerage firm goes out of business and is a member of the SIPC, then your cash and securities held by the brokerage firm may be protected. When a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm's liquidation and to process investors' claims. SIPC covers most types of securities, such as stocks, bonds, and mutual funds.

Always make sure that the brokerage firm and its clearing firm are members of SIPC. Firms are required by law to tell you if they're not. You can also search SIPC's Membership Database to find out whether a firm is a member of SIPC.

Neither SIPC protection nor additional coverage will safeguard you from a decline in the market value of your securities or from stockbroker misconduct. You will need a securities attorney to help you recover funds lost from a broker's unsuitable recommendations, excessive trading, misrepresentations and omissions, churning, theft of funds, or other forms of misconduct by your stockbroker/investment adviser.

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