Brokerage failures are rare, and most end with customers made whole, because federal rules require a broker to hold customer securities and cash apart from its own business. SIPC coverage is the backstop for when that separation breaks down. This guide covers what SIPC restores and excludes, how its limits stack across accounts, what excess SIPC adds and how a liquidation runs, with three dated cases. FDIC vs SIPC compares it with bank deposit insurance, and the stocks hub covers the wider basics.
What does SIPC coverage protect?
SIPC coverage protects the custody of your account: if a member brokerage fails with customer assets missing, it restores your securities and cash up to set limits. The limit is $500,000 per customer, including up to $250,000 in cash (SIPC, as of Nov 1, 2026). A court-appointed trustee first returns whatever customer property can be found, and SIPC then advances funds to replace what is still missing, within those limits.
Protected securities include stocks, bonds, CDs, mutual funds, ETFs, money market funds, options on securities and Treasury securities such as Treasury bills, whether the broker holds them in street name for you or they are registered in your name. Cash counts when it is there to buy securities or came from selling them, in dollars or another currency. Investor.gov is explicit that cash placed in an account solely to earn interest is not protected.
Two rules shape every claim. Your account is valued on the filing date, usually the day the court acts, so shares that later halve come back as shares, and a cash payout uses the filing-date value. And SIPC protects net equity: what the firm owes you minus anything you owe it, with every account held in your own name added together first. Margin accounts explained covers the loan side.
Worked example: Net equity across two individual accounts
One investor holds two accounts in her own name at a member firm when it fails.
- Margin account: $420,000 of stocks and ETFs at filing-date prices, with a $90,000 margin loan
- Cash account: $35,000 of uninvested cash from a recent sale
- Both are individual accounts, so they form one claim: $420,000 − $90,000 + $35,000 = $365,000
- The claim is under $500,000 and its cash part is under $250,000, so SIPC's advance could replace all of it if customer property came up short
She cannot claim $455,000 of assets and leave the loan outstanding: the $90,000 debt is netted out first.
What does SIPC not cover?
SIPC does not cover losses from falling prices or bad advice, and it excludes several products that are not securities under the 1970 law that created it.
| What you hold, or how you lost it | Covered? | Why, or what applies instead |
|---|---|---|
| A fall in market value | No | SIPC replaces missing assets, never lost value |
| Bad advice, unsuitable recommendations or churning | No | Complain to the firm, then to FINRA, the SEC or a state regulator |
| Worthless shares a promoter talked you into | No | Fraud unrelated to the firm's custody is outside SIPC |
| Securities or cash the failed firm stole or never held | Yes | Missing customer property is what SIPC exists to restore |
| Commodity futures and the cash behind them | No, unless held in a special portfolio margining account | Futures customers rely on separate commodity-law rules for segregated funds |
| Foreign exchange trades | No | Currency is excluded from the law's definition of a security |
| Unregistered investment contracts, limited partnerships and fixed annuities | No | Only contracts registered with the SEC under the Securities Act of 1933 qualify |
| Bitcoin, ether and other crypto that is not a registered security; stablecoins | No | SEC staff confirm that non-security crypto held at a broker-dealer is outside the law |
| Cash swept into a bank deposit program | No | The money sits at partner banks, where FDIC insurance can apply within its limits |
| Money market fund shares, including sweep funds | Yes, as securities | Protected if missing, not against a fall in the fund's price |
| Assets at an affiliate, a foreign subsidiary or another firm, even if listed on your statement | No | Only the member firm's own custody counts |
Fraud is where people most often misjudge the line. SIPC can restore securities and cash that a failed member stole or never bought, which is why Madoff's customers received SIPC advances. It does not cover fraud unrelated to custody, such as money handed to a representative or an affiliate instead of the member firm, or an unauthorized trade you never disputed in writing; Investor.gov warns that silence can count as accepting the trade. Nor can SIPC act while a firm is still operating, so a hacked login at a solvent broker is a matter for the firm and its regulators.
The crypto line works the same way. A spot bitcoin ETF bought through a member broker is a registered security, while coins in a crypto account are not covered even at a SIPC member. Bitcoin ETFs vs owning bitcoin and whether crypto is safe on an exchange cover the details, while cash sweep accounts explained and how money market funds work cover where idle cash goes.
How do SIPC limits apply to several accounts?
SIPC applies its limit to each separate capacity in which you hold accounts, so different ownership types at one firm can each receive the full $500,000. SIPC's Series 100 rules, in 17 CFR Part 300, draw the lines:
- Individual. Every account in your own name at the firm, cash or margin, combines into one customer.
- Joint. A joint account counts separately if each co-owner can act for the whole account, and all joint accounts owned by the same people combine.
- Retirement. A traditional IRA and a Roth IRA are each protected separately, in SIPC's own examples.
- Trust. A valid express trust created by a written instrument is its own customer; an account that fails that test counts as the settlor's individual account.
- Custodial and estate. An account held as custodian for a minor is separate from the custodian's own account, and all accounts of a deceased person's estate combine into one.
- Business. A corporation or partnership counts separately if it existed for a purpose other than mainly getting more SIPC protection.
- Introduced accounts. At a clearing firm, accounts brought in by different introducing brokers are protected separately under Rule 300.201.
Worked example: One household at one failed firm
| Account | Capacity | Value | Limit that applies |
|---|---|---|---|
| Ana's taxable account | Individual | $380,000 | One $500,000 limit shared with the next row |
| Ana's margin account | Individual | $210,000 | Combined with the row above |
| Ana and Ben's joint account | Joint | $300,000 | $500,000 |
| Ana's traditional IRA | Traditional IRA | $450,000 | $500,000 |
| Ben's Roth IRA | Roth IRA | $120,000 | $500,000 |
| Their daughter's account, Ben as custodian | Custodian for a minor | $40,000 | $500,000 |
The household holds $1,500,000. Ana's two individual accounts total $590,000 against one limit, so $90,000 sits beyond SIPC's advance. Because the trustee's pro rata share of customer property is paid first and SIPC then tops it up by as much as $500,000, Ana is still made whole unless the trustee recovers less than 1 − ($500,000 ÷ $590,000) = 15.3% of the customer property owed.
What does excess SIPC insurance add?
Excess SIPC is a private insurance policy a brokerage firm buys for its customers that pays only after SIPC's own limits are exhausted. Investor.gov says SIPC offers no way to buy extra protection and does not monitor or regulate these policies, so questions go to the firm. A 2003 GAO review found that policies typically cover cash and securities as SIPC does, but with amounts ranging from full net equity to a fixed dollar figure, caps that varied per customer and per firm, and some terms that did not match the law SIPC applies. An aggregate cap matters most in a large failure, when every customer above SIPC's limits draws on the same pool.
Questions to ask about an excess SIPC policy
- Who is the insurer, and when does the current policy expire?
- What is the aggregate limit for all customers, and is there a per-customer cap for cash?
- Does it follow SIPC's definitions of customer, security and net equity, and who files the claim?
- Does it cover the firm you deal with, its clearing firm, or both?
How does a brokerage liquidation work?
A liquidation starts when SIPC asks a federal court to appoint a trustee, who takes over the firm, moves or returns customer property and pays claims. It follows a referral from the SEC or FINRA once customer cash or securities are missing. Many closures never get that far: a firm winding down can transfer its accounts itself, and if a client-facing introducing broker fails, the clearing firm holding the assets usually finds a new one, as how the stock market works explains.
Customer assets usually survive because SEC Rule 15c3-3 makes brokers keep customers' fully paid securities under their control and hold a cash reserve for what they owe customers. Since June 30, 2026, carrying firms with average total credits of $500 million or more must compute that reserve daily rather than weekly. In the smallest cases, with total claims of no more than $250,000, SIPC pays customers directly without going to court.
| Stage | What happens | What customers do |
|---|---|---|
| Court order | The court appoints a trustee, or SIPC itself in smaller cases; this is usually the filing date that fixes values | Keep recent statements and trade confirmations |
| First weeks | The trustee takes control of the books and, where records are accurate, moves accounts in bulk to a solvent member | A transferred account can be usable within about a week |
| Claims | The trustee publishes notice and sends claim forms to everyone with an account in the past 12 months, with online filing | File even if the account moved: the court's first deadline is usually 30 or 60 days, and claims after six months are denied |
| Distribution | Securities registered in your name go back to you; street-name property is pooled and shared pro rata | Answer the trustee's questions and read the determination letter |
| SIPC advance | SIPC fills each shortfall up to the limits and pays the cost of the case if the firm is insolvent | Nothing extra to file |
| What is left | Any unpaid balance becomes a general creditor claim against the firm's own assets | Follow the estate's later payments |
Worked example: How the pro rata share and the SIPC advance combine
The trustee recovers 80% of the customer property owed. Three customers have claims made up entirely of street-name securities.
| Claim | Pro rata share at 80% | Shortfall | SIPC advance | Left as a general creditor claim |
|---|---|---|---|---|
| $400,000 | $320,000 | $80,000 | $80,000 | $0 |
| $2,500,000 | $2,000,000 | $500,000 | $500,000 | $0 |
| $4,000,000 | $3,200,000 | $800,000 | $500,000 | $300,000 |
At an 80% recovery, SIPC's $500,000 can top up any claim as large as $500,000 ÷ (1 − 0.80) = $2.5 million. If part of a claim is cash, the advance for that part stops at $250,000.
What happened to customers of MF Global and Lehman Brothers?
Customers of both firms were repaid in full, but most Lehman claims were settled within weeks, while MF Global customers waited up to two and a half years.
MF Global (2011 to 2016). The securities and futures broker failed on October 31, 2011. Its trustee traced more than $105 billion of transactions in the firm's final week and called its failure to segregate customer property unprecedented. The final 100% distribution began on April 4, 2014, bringing the total returned to $6.7 billion for more than 26,000 customers. Only 428 were securities customers, with $376 million; 24,020 traded futures on US exchanges and 2,047 on foreign ones. With about 98% of customers holding futures, which SIPC does not protect, repayment depended on the trustee recovering the money. The case closed on February 9, 2016, with $6.9 billion paid on allowed customer claims.
Lehman Brothers Inc. (2008 to 2022). The largest brokerage liquidation in US history began on September 19, 2008, and a pre-arranged sale of most of the US brokerage business moved many customers to a solvent firm within weeks. When the case closed on September 28, 2022, customers had received $106 billion on 111,000 claims, everything they were owed, with no SIPC or government money.
Madoff (2008 to today). Here the firm stole customer money, so SIPC's fund was needed. After the 17th distribution on February 27, 2026, customers had received nearly $15.38 billion, including about $850.9 million of SIPC advances, and 1,547 of the 2,291 accounts with allowed claims, those up to $1.824 million, were fully repaid. It was the only case on SIPC's open-case list when we checked on November 2, 2026.
How is SIPC funded, and could the fund run out?
Member broker-dealers fund SIPC, which held about $5.5 billion at the end of 2025 and can borrow up to $2.5 billion more through the SEC. Members pay 0.15% of their net operating revenues from the securities business, a rate the board kept for 2027 at its September 17, 2026 meeting, and SIPC says it has never drawn on the Treasury-funded credit line. It is a nonprofit corporation created by Congress, not a government agency or a regulator. The fund is rarely tapped: of about $143 billion returned to customers in 330 cases since 1970, roughly $142 billion came from the failed firms' own estates and $909 million from the SIPC Fund.
The cash limit was reviewed in 2025. A formula tied to the Personal Consumption Expenditures price index pointed to $350,000, but SIPC's board kept $250,000 to stay level with the FDIC limit, warning that a higher figure could tempt people to park savings at brokers, where cash unrelated to investing is not protected. It also noted how rarely claims exceed the limits: 355 times in about 770,400 satisfied claims. The SEC approved the decision in March 2026, so the cash limit stays at $250,000 for the five years from January 1, 2027.
| Year set | Total limit per customer | Of which cash |
|---|---|---|
| 1970 | $50,000 | $20,000 |
| 1978 | $100,000 | $40,000 |
| 1980 | $500,000 | $100,000 |
| 2010 | $500,000 | $250,000 |
Each rise in the cash limit has matched a change in the FDIC's deposit insurance limit.
How can you check your own SIPC protection?
Identify which legal entity holds your assets, confirm it on SIPC's member list, then sort each account into a capacity and each holding into covered or not. How to choose a brokerage account covers the BrokerCheck lookup when comparing firms; these steps apply to accounts you already have.
Find the firm that holds custody
Your statement names the carrying or clearing firm, which may differ from the app or adviser you deal with. That entity's failure is the one SIPC would address.
Confirm membership
Search the exact legal name on SIPC's list of members. Members must say so in their offices, websites and advertising, and a firm that is not a member must tell you before or when it trades for you.
Map accounts to capacities
Label each account individual, joint, IRA, Roth IRA, trust, custodial or business, and total the values within each. Anything above $500,000, or cash above $250,000, in one capacity is the part SIPC's advance might not reach.
Sort your holdings
Mark anything outside SIPC, such as futures, currency, non-security crypto, fixed annuities and unregistered private deals, and read the sweep disclosure to see where idle cash goes.
Keep records and dispute errors in writing
Statements and trade confirmations support a claim if the firm's books are incomplete. Report any unauthorized trade in writing at once.
What risks does SIPC leave with investors?
SIPC leaves you with market risk, the risk of frozen access during a liquidation, and every gap above its limits or outside its definition of a security.
- Price moves. SIPC never pays for a fall in value, and the filing-date rule cuts both ways: shares returned after a drop carry the drop, and a cash payout at filing-date prices misses any rebound.
- Time without access. Until a transfer or distribution, you may be unable to trade. Under Rule 300.400, listed options positions are closed out promptly unless they can be moved to another member, so a hedge can vanish when it is most needed.
- Cash above $250,000. Uninvested cash beyond the cash limit in one capacity at one firm is exposed if customer property is short; how to insure more than $250,000 covers ways to spread large balances.
- Missed deadlines. A claim filed after six months is denied, and outside very narrow exceptions that deadline cannot be extended.
- Products outside the law. Futures, currency, non-security crypto and unregistered deals depend on other rules or on bankruptcy law, and excess policies help only within their own terms and caps.
The stocks overview shows how much share prices move from day to day, and that market risk is the one SIPC was never built to absorb. Borrowing and derivatives add risks no protection program covers: short selling explained and options basics show how losses can exceed the money you put in.