	Introduction

The Securities Investor Protection Corporation (SIPC) is a nonprofit, nongovernmental corporation created by Congress in 1970. In 1970, to avoid a recurrence of these events and accompanying negative consequences for investor confidence in the securities markets, Congress enacted the Securities Investor Protection Act of 1970 (SIPA), and significantly changed it via the Securities Investor Protection Act Amendments of 1978. Under SIPA, any entity that is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 or who is a member of a national securities exchange must be a SIPC member. This report provides an overview of various issues related to SIPC, including policy issues highlighted by the Madoff fraud, SIPC reforms in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and pending legislation. It protects customer assets (securities and cash) against losses of up to $500,000 at the time of a firm's collapse. Under the Dodd-Frank Act ( P.L. 111-203 ) enacted on July 21, 2010, up to $250,000 may be for cash losses, in contrast to the historical amount of up to $100,000. Customer cash and securities collected by the SIPA trustee administering the liquidation become part of a fund of customer property that is shared on a prorated basis by customers. The SIPC Fund and Member Assessments

The SIPC funds that are used to make advances for customers and to supplement the recovered assets to satisfy customer claims derive from what is known as the SIPC Fund, sometimes known as the SIPC reserves. The Fund's assets come from interest on investments in U.S. government securities and an annual assessment on SIPC-member firms. In the event that the SIPC reserves have become or threaten to become insufficient for carrying out SIPA's mission, SIPC has the authority to indirectly borrow up to $2.5 billion from the U.S. Treasury, an amount mandated by the Dodd-Frank Act, which replaced the historical amount of $1 billion. Between 1996 and 2001, the size of the SIPC Fund ranged between $1.0 billion and $1.2 billion. In 2007, the SIPC Fund ranged from $1.4 billion to $1.52 billion. To reach the significantly higher target level, SIPC also increased its member assessments from a flat $150 annual rate for all members to a rate that is now 0.25% of each member's net operating revenue. 6531 , which Chairman Garrett introduced in the 111 th Congress and which could be reintroduced in the 112 th Congress, would have amended SIPA to determine a customer's net equity based on the customer's last statement. SIPA does not cover indirect investors. H.R. 5032 (Ackerman, 111 th Congress ), which could be reintroduced in the 112 th Congress, would have required SIPC to provide up to $100,000 worth of protection to indirect investors in "Ponzi schemes." Moreover, while the bill would apply to the indirect investors of all such feeder funds, some criticize such an indiscriminate payout policy, arguing that SIPC's funds are limited and that payments to indirect investors should prioritize investors in smaller pension funds and other investment vehicles, which are often said to be the kind of feeder funds that have failed to inform the applicable broker-dealers of all of the individual accounts that they hold. Under H.R. 1376) was signed into law on July 21, 2010. The highest amount that SIPC can impose as a minimum assessment is changed from $150 per annum to 0.02% of the gross revenues from the securities business of SIPC member. Section 929C increases the amount of money that SIPC can borrow from the Treasury Department (through the SEC) from $1 billion to $2.5 billion. Section 929H increases the amount of SIPC protection available for claims for cash from $100,000 to $250,000. Provision of SIPC Protection to Customers with Futures Contracts.
The Securities Investor Protection Corporation (SIPC) is a nonprofit, nongovernmental corporation that was established in 1970 through the Securities Investor Protection Act (SIPA) to protect securities investors in the event of a broker-dealer failure. Except as otherwise provided in SIPA, the provisions of the Securities Exchange Act of 1934 (1934 act) apply as if SIPA were an amendment to, and included as a section of, the 1934 act.
A court-appointed trustee generally presides over a SIPC member broker's liquidation and returns the remaining cash and securities to the firm's former customers. If the returned customer assets do not make customers whole, SIPC advances additional cash and securities to the customers. With the broad goal of helping to maintain investor confidence in the securities markets, SIPC has historically provided up to $500,000 per customer, of which up to $100,000 could be in satisfaction of claims for cash only (as opposed to claims for recovered securities). Signed into law on July 21, 2010, and in effect the next day, the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) expanded SIPC protection available for cash claims up to $250,000 of the maximum customer protection of $500,000.
The SIPC funds that are used for such customers derive from the SIPC Fund. The Fund's assets come largely from annual assessments on SIPC broker-dealer members, at a rate that has been adjusted by SIPC. From 1997 to 2009, SIPC charged a flat rate of $150 per member.
In September 2008, immediately before the start of the Lehman Brothers liquidation, the size of the SIPC Fund was $1.5 billion. Beginning in April 2009, following the commencement of large liquidations of firms like Lehman Brothers and Bernard L. Madoff Investment Securities LLC, SIPC re-instituted assessments on a percentage basis. At that time, the Fund stood at $1.6 billion. SIPC increased the SIPC Fund level target from $1 billion to $2.5 billion, and increased annual member assessments from $150 to 0.25% of each member's net operating revenue. On January 31, 2010, the size of the Fund reached a low point of $1.07 billion. As of August 31, 2010, the Fund stood at $1.31 billion. The Dodd-Frank Act increases from $1 billion to $2.5 billion the amount that SIPC can borrow from the Treasury Department if the SIPC Fund is insufficient, and it imposes a minimum assessment on SIPC members not to exceed 0.02% of the gross revenues from the securities business of each SIPC member.
The Madoff case drew public attention to a number of public policy concerns. One concern is that SIPA does not cover so-called indirect investors, individuals invested in investment pools such as family partnerships or pension plans (also known as "feeder funds"), who have SIPA coverage as single entities. Under SIPA, each feeder fund is treated as an individual investor whose maximum SIPC protection is $500,000. Investors in feeder funds are thus entitled to a prorated and hence diluted portion of the payment to such a fund. Various observers say this is unfair. H.R. 5032 (Ackerman, 111th Congress), which could be reintroduced in the 112th Congress, would have required SIPC to provide up to $100,000 worth of protection to indirect investors in Ponzi schemes, including those involving Madoff. In addition, under H.R. 6531 (Garrett, 111th Congress), which also could be reintroduced in the 112th Congress, a victim's losses would be determined by the last amount on the individual's account statement. Currently, trustees use the last statement minus any amounts that have already been withdrawn by a customer, which is another concern. This report will be updated as events warrant.