If your brokerage firm fails, your stocks, bonds, and cash are almost always safe. Federal rules require broker-dealers to keep customer assets separate from the firm’s own money, and the Securities Investor Protection Corporation (SIPC) covers up to $500,000 per customer if anything is actually missing when the doors close. Most investors get their full holdings back. The process usually takes a few weeks, though messy records or fraud can stretch it into months.
Why Your Assets Are Not the Firm’s to Lose
The main reason a brokerage failure rarely wipes out customers is that your securities were never available to the firm’s creditors in the first place. SEC Rule 15c3-3, known as the Customer Protection Rule, requires every broker-dealer to keep your fully paid securities physically separate from its own trading accounts and business assets. The firm cannot pledge your stocks or bonds to cover its own debts.1eCFR. 17 CFR 240.15c3-3 – Customer Protection – Reserves and Custody of Securities
The rule also forces firms to keep customer cash they aren’t using in a Special Reserve Bank Account that creditors cannot reach in bankruptcy.1eCFR. 17 CFR 240.15c3-3 – Customer Protection – Reserves and Custody of Securities So when a firm collapses, the vast majority of customer property is sitting right where the rules require it to be, ready to be handed back.
If You Borrowed on Margin
Margin accounts work differently. Your debt to the firm does not disappear when the firm fails. Your recovery is based on your net equity, which is the value of your securities minus what you owe.2Office of the Law Revision Counsel. 15 USC 78lll – Definitions A $200,000 account with a $50,000 margin loan produces a $150,000 claim. You can repay the margin debt within 60 days of the trustee’s notice, with the trustee’s approval, to raise your net equity before the claim is finalized.
What SIPC Covers and What It Doesn’t
Segregation handles the normal case. SIPC is the backstop when securities or cash are actually missing, usually because of fraud, sloppy recordkeeping, or the firm dipping into customer funds. Congress created SIPC through the Securities Investor Protection Act of 1970 as a nonprofit membership corporation, not a government agency.3Office of the Law Revision Counsel. 15 USC Chapter 2B-1 – Securities Investor Protection Nearly every SEC-registered broker-dealer must be a member; you can verify yours through the member search at sipc.org.4SIPC. List of Members
Coverage is up to $500,000 per customer, with a $250,000 sub-limit for cash.5SIPC. What SIPC Protects Protected assets include stocks, bonds, Treasury securities, certificates of deposit, and mutual funds. One quirk trips up a lot of investors: money market mutual funds are treated as securities, not cash, so they fall under the full $500,000 limit rather than the lower cash cap.6SIPC. How SIPC Protects You Protection is also available regardless of citizenship or residency.
Separate Capacities Multiply the Limit
The $500,000 cap applies per customer per separate capacity, not per account. An individual brokerage account and an IRA at the same failed firm are separate capacities, and each gets its own $500,000 in protection.2Office of the Law Revision Counsel. 15 USC 78lll – Definitions A joint account with a spouse counts as another capacity. Two individual accounts in your own name, however, are treated as one and share a single $500,000 limit.
What SIPC Will Not Pay For
SIPC is not investment insurance. It does not reimburse losses from a drop in stock prices, a bad recommendation, or poor market performance. It covers custody, not returns. Several asset types fall outside SIPC entirely:
- Commodity futures contracts, unless held in a special portfolio margining account.5SIPC. What SIPC Protects
- Foreign exchange trades.
- Unregistered investment contracts, including limited partnerships and fixed annuity contracts not registered with the SEC under the Securities Act of 1933.
- Cryptocurrency and digital assets. Non-security crypto held at a SIPC-member firm is not protected, and digital asset securities that qualify as unregistered investment contracts also fall outside SIPA’s definition of “security.”7U.S. Securities and Exchange Commission. Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology
The crypto exclusion matters most on platforms that combine traditional brokerage with digital asset trading. If that kind of firm fails, your stocks and bonds would be covered but the Bitcoin or Ethereum in the same account would not.
SIPC Is Not the Same as FDIC
FDIC insurance covers cash deposits at banks (checking, savings, and bank CDs) up to $250,000 per depositor, per bank. SIPC covers securities and cash held at brokerages up to $500,000. If your brokerage sweeps uninvested cash into an FDIC-insured bank through a sweep program, that portion of your money may be covered by FDIC rather than SIPC while it sits at the bank. Neither program covers what the other one covers, so knowing which rule protects each slice of your account matters.
Getting Your Assets Back After a Failure
When SIPC determines a member firm has failed, it asks a federal court to appoint a trustee. The trustee takes over the firm’s records and runs the liquidation. The trustee then publishes a notice telling customers how to file claims.
The preferred way to return assets is a bulk transfer: entire blocks of customer accounts move to a healthy brokerage. When this works, you can regain access to your portfolio within one to three weeks.8SIPC. The Investor’s Guide to Brokerage Firm Liquidations The receiving firm sets up new accounts mirroring your holdings and sends login instructions. Trading is usually frozen during the transfer so the data can be reconciled cleanly.
Not every case moves quickly. If the failed firm’s records are in disarray, delays of several months are common. Fraud cases run longer still, because the trustee has to rebuild account records from incomplete or falsified data.8SIPC. The Investor’s Guide to Brokerage Firm Liquidations When a bulk transfer isn’t feasible, the trustee may send checks or securities certificates to individual investors instead.
If a security that belongs to you simply isn’t in the firm’s possession, the trustee uses SIPC’s fund to buy a replacement, up to the statutory limits. The value is set as of the date the liquidation proceeding was filed, not any later market price.
Filing Your Claim and the Deadlines
You don’t need a formal proof of claim form. A written statement of your claim is enough, but you have to back it up with documentation.9Office of the Law Revision Counsel. 15 USC 78fff-2 – Special Provisions of a Liquidation Proceeding Pull together:
- Recent monthly or quarterly account statements showing your holdings at or near the time of the failure.
- Trade confirmations for anything that settled shortly before the firm closed.
- A government-issued ID or Social Security documentation to verify ownership.
Claim forms and firm-specific instructions are posted on the Cases and Claims page at sipc.org once a liquidation begins.10SIPC. Cases and Claims Keep your own copies of everything now. Once the liquidation starts, online access to the failed firm’s portal usually disappears.
Two deadlines control your recovery, and both are firm:
- Sixty days. A net equity claim that arrives more than 60 days after the trustee’s published notice no longer has to be paid out of the pool of customer property. It may still be satisfied from SIPC advances, but the trustee chooses whether to pay in cash, securities, or a mix, in whatever way is cheapest for the estate.9Office of the Law Revision Counsel. 15 USC 78fff-2 – Special Provisions of a Liquidation Proceeding
- Six months. A claim received more than six months after the published notice is not allowed at all, with narrow exceptions for government entities or people without a legal guardian.9Office of the Law Revision Counsel. 15 USC 78fff-2 – Special Provisions of a Liquidation Proceeding
File early. Claims in the first 60 days get first access to customer property, which is the fastest and most complete path back to your money.
If Your Account Is Larger Than $500,000
Two paths exist above the SIPC cap. Many large brokerages carry private excess insurance, often through Lloyd’s of London syndicates, that covers missing securities and cash above the SIPC limits. Policies vary; some carry aggregate firm-wide limits reaching into the billions. Excess insurance, like SIPC, does not pay for market losses. Your brokerage’s account agreement or website should say whether it carries this coverage.
Whatever remains uncovered can still be pursued as a claim against the failed firm’s estate. Customer claims for unpaid net equity are paid ahead of most general unsecured creditors under federal priority rules.11eCFR. Part 302 – Orderly Liquidation of Covered Brokers or Dealers How much you actually recover depends on what is left in the estate. In widespread fraud cases where the firm’s assets have been drained, that final tier may yield little or nothing.