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SIPC BASIC PROTECTION:

SIPC protects securities customers of member broker-dealers. If a member fails financially, SIPC may ask a federal court to appoint a trustee to liquidate the firm and protect its customers, or, in limited situations involving smaller firms, SIPC may protect the customers directly. In both cases, protection of securities customers is similar.

The trustee and SIPC may arrange to have some or all customer accounts transferred to another SIPC member broker-dealer. Customers whose accounts are transferred are notified promptly and permitted to deal with the new firm or subsequently transfer their accounts to firms of their own choosing. Accounts so transferred are subject to the limitations of protection discussed below. This procedure minimizes disruption in customers trading activities. In many cases (for example, where failed firms' records are inaccurate), account transfers are not feasible. SIPC then protects customer accounts in the following manner:

Customers of a failed firm receive all securities registered in their names or in the process of being so registered and which are not be  endorsement or otherwise in negotiable form.

Customers receive, on a pro rata basis, all remaining customer cash and securities held by the firm.

After the above distribution, SIPC's funds are available to satisfy the remaining claims of each customer up to a maximum of $500,000, including up to $100,000 on claims for cash (as distinct from claims for securities). When a customer has sold a security, any claim with respect to that transaction would be subject to the $100,000 limit of protection for cash.

WHO IS A "CUSTOMER" PROTECTED UNDER THE ACT?:

"Customers" are persons with claims for securities received, acquired or held by the firm from or for the securities accounts of such persons for safekeeping, with a view to sale, to cover consummated sales, pursuant to purchases, as collateral security, or for purposes of effecting a transfer. Persons who have cash on deposit with a firm for the purpose of purchasing securities or as a result of sales thereof are also considered "customers."

Cash on deposit with a SIPC member for the purpose of earning interest or for any purpose other than purchasing securities is not protected under the Act.

A person is not considered a "customer" under the Act to the extent that his claim (a) is for cash or securities which, by contract, agreement, or understanding, or by operation of law, is part of the capital of the firm or is subordinated to the claims of creditors of the firm, or (b) arises out of transactions with a foreign subsidiary of the firm.

WHAT PROPERTY DOES SIPC PROTECT?:

Customers' cash and securities. Most types of securities, such as stocks, notes, bonds, and certificates of deposit are covered. No protection, however, is provided for investment contracts which are not registered as securities with the Securities and Exchange Commission under the Securities Act of 1933 or for any interest in gold, silver or other commodity, or commodity contract, or commodity option. It is important to remember, however, that SIPC protection does not cover decline in the market value of securities.

Cash balances are protected under the Securities Investor Protection Act if the money was deposited or left in a securities account for the purpose of purchasing securities. This is true whether or not the broker pays interest on the cash balances. Cash balances maintained solely for the purpose of earning interest are not protected.

SIPC presumes that cash balances are left in securities accounts for the purpose of purchasing securities. It would require substantial evidence to the contrary to overcome the presumption.

WHAT ARE PROTECTED SECURITIES?:

In addition to notes, stocks, bonds, debentures and certificates of deposit, the term "security"  includes investment contracts and certificates of participation of interest in any profit-sharing agreement or in any oil, gas, or mineral royalty or lease if such contracts or interests are registered as securities with the Securities and Exchange Commission under the Securities Act of 1933. Warrants or rights to purchase, sell or subscribe to the securities mentioned above and any other instrument commonly referred to as a security are also protected under the Act.

DOES SIPC PROTECT MONEY MARKET FUNDS?:

Shares of money market funds, although often thought of by investors as cash, are in fact securities when such funds are organized as mutual funds. When held by a SIPC member in a customer's securities account, such fund shares are protected as any other covered security.

WHY IS CASH PROTECTION LIMITED TO $100,000?:

Two Federal Government agencies have similar limitations on cash claims: the Federal Deposit Insurance Corporation established by Congress in 1933 and the National Credit Union Administrator's share insurance program authorized in October 1970. Both limit cash protection to $100,000.

MAY A CUSTOMER HAVE PROTECTED ACCOUNTS WITH MORE THAN ONE SIPC MEMBER?:

Yes. Customers' securities accounts with each SIPC member are protected without regard to accounts with other SIPC members.

MAY I HAVE MORE THAN ONE PROTECTED ACCOUNT WITH THE SAME SIPC MEMBER?:

Yes, where a customer holds accounts with the same SIPC member in separate capacities. For example, if a person deals with the member in the person's own capacity and also maintains accounts as a trustee for another person under certain trust arrangement, the person would be deemed a different customer in each capacity. A customer having several different accounts must be acting in a good faith separate capacity with respect to each.

An investor might, for example, have one account in his or her name and maintain a joint account with his or her spouse, providing each possesses authority to act with respect to the entire account.

All such accounts, however, must meet the requirements of SIPC rules identifying accounts of "separate" customers of SIPC members.

A person who in a single capacity has several different accounts with the same firm, e.g., cash and margin, would be considered a single customer, for purposes of applying the $500,000/$100,000 limits.

If you have any additional questions about your account protection please do not hesitate to call our customer service department.

Copyright© 1996 - 2006 PCITrade, Inc.

PCITrade Securities, Inc.
1313 North Milpitas Blvd. Suite 245 - F
Milpitas, CA 95035