What does the Securities Investor Protection Corporation (SIPC) do?

The Securities Investor Protection Corporation (SIPC) is an essential organization that plays a crucial role in safeguarding investors. Its primary function is to protect customers of securities firms that become bankrupt or insolvent. SIPC provides limited protection to customers by ensuring that they can recover their cash and securities up to a certain amount if their brokerage firm fails. Customers are typically covered for up to $500,000, which includes a maximum of $250,000 for cash.

In effect, SIPC acts as a safety net for investors, helping to restore confidence in the financial system. During a brokerage firm's failure, SIPC steps in to manage the liquidation process and ensures that the assets held by the firm are effectively returned to the investors. This protection helps to maintain trust in the securities markets, which is vital for economic stability.