ICBCFS is a member of the Securities Investor Protection Corporation (“SIPC”), formed by Congress to protect “customers” of broker-dealers and to promote public confidence in the U.S. securities markets. Customers of a SIPC member that fails financially are afforded certain benefits under the Securities Investor Protection Act (“SIPA”). These benefits are relevant only if the broker-dealer that “carries” a customer’s account fails and is liquidated under SIPA.
While there can be no guarantee of what would occur in any specific situation if a member of SIPC failed, in a liquidation under SIPA, the goal is to promptly transfer customer accounts of a failed firm to another SIPC member firm. Once an account is transferred, a customer may generally transact in the account following transfer in the same manner as if the customer’s original broker-dealer had not failed.
If a customer’s account is not transferred to another SIPC member firm, such customer is entitled to receive the cash and securities in its account, minus any obligations the customer owes to the failed broker-dealer. Under SIPA, if sufficient cash and securities were not available to make full distributions to all customers of the failed broker-dealer, any distribution of customer property will be made pro rata on the basis of the customer’s net equity claim.
Customers are not considered general creditors of a failed broker-dealer, and are entitled to receive distributions from customer property ahead of general creditors. In contrast, general creditors of the failed broker-dealer do not receive any customer property unless all customers are first satisfied.
If the distributions from customer property are not sufficient to satisfy customers’ claims for the net equity in their accounts, SIPC protection would be available to satisfy customer claims for any remaining shortfall in their net equity, up to $500,000 per customer (of which up to $250,000 may be for cash claims).
The SIPC coverage described above does not cover any losses from changes in the market value of investments after a liquidation commences, from delays in the liquidation process, losses of assets not eligible for SIPC protection (such as futures, options on futures, foreign exchange transactions, commodity contracts, precious metals contracts, or any investment contracts that are not “securities” under SIPA) or losses incurred by persons that are not “customers” under SIPA. SIPC is not a government agency. Rather, it is a non-profit corporation which receives its revenue from those brokers and dealers required by law to be SIPC members and from its own investments.
SIPC protection is complex, and consequently, it is not possible to address all issues in this general summary. Should you have any questions regarding coverage, please consult your attorney, or visit the SIPC web-site at www.sipc.org.