Chapter 15
SIPC and Other Investment Protection Schemes around the World
In the United States, if a broker-dealer were to become insolvent, any bankruptcy proceeding would be governed by the Security Investor Protection Act (SIPA), which incorporates by reference much of the U.S. Bankruptcy Code. SIPA and the U.S. Bankruptcy Code essentially separate the insolvent broker-dealer's estate into three parts—“customer name securities,” “customer property,” and the remaining assets. SIPA generally bestows priority on the claims of a “customer” over a broker-dealer's unsecured creditors with respect to customer name securities and customer property.1
Section 16(4) of SIPA defines the term customer property to include “cash and securities (except customer name securities delivered to the customer) at any time received, acquired, or held by or for the account of a debtor from or for the securities accounts of a customer, and the proceeds of any such property transferred by the debtor, including property unlawfully converted.” Customer property is returned to each customer based on the customer's net equity, which is determined by adding (1) the amount of cash held in the customer's account to (2) the value of securities held in such account (determined as of the SIPA filing date), and subtracting (3) any amounts the customer owes to the broker-dealer.
