SIPC
SIPP INDUSTRIES INC NEW
stockOTC

Here's a good answer from nisiprius on the forum: it's important to understand the difference between a bank account and a brokerage account (an ordinary brokerage cash account). Banks practice "fractional reserve banking." They are not Scrooge McDuck money bins. When you put $100,000 "in" the bank, it doesn't stay there, most of it gets lent out. They keep only enough on hand to meet withdrawal requests, and rely on experience and statistics to know what will be enough. This happens a lot in life--for example, the main circuit breaker in our house is rated for much less than the grand total of all of the branch circuits. Things will be sized for the average, plus a margin of safety. When you deposit $100,000 they may only keep $10,000 on hand. That's not cheating, that is the way it is supposed to work. But brokerages do not. When you buy $100,000 worth of a mutual fund, ETF, stock, or bond, the brokerage buys it and holds it in a segregated account. It stays there. The full amount of what you have bought, 100%, is there. Of course it's one big holding and accounting to keep track of how much of it is yours. You could worry about bad recordkeeping. You could worry that a negligent or fraudulent broker's system might be telling 100 customers that they each have $100,000 worth when the brokerage does not have the full $10 million. But that would be cheating. So there is much more risk with banks, because they are not supposed to keep all of your money at hand, and much less with brokerages, because they are. Do not confuse FDIC with SIPC. Because banks do not keep 100% of their deposits in ready cash, without FDIC there would be a meaningful real-world risk for ordinary personal deposits, as there was before FDIC. FDIC stands for "Federal Deposit Insurance Corporation," and it is very good protection. Banks fail all the time. It's a normal event. Banks are supposed to take some amount of risk, and failures are a normal event. The FDIC is very good at managing them. Because brokerages DO keep 100% of customers' assets on hand in a segregated account--or are supposed to--failure to have enough assets to meet a customer's sell order can only happen if the brokerage has broken the rules. This is a very rare event. It was enough of a problem in the 1970s to spur the creation of the SIPC, but again, be clear, it only happens when the brokerage is breaking the rules. In the 1970s there was a back office crisis, brokerages weren't fully computerized and sometimes lost track of things. There was also little security (!) and there were at least rumors of organized crime involvement. And there were literal cases of stock certificates missing from brokerages found miles away in places where they shouldn't have been. The SIPC protects against brokerages breaking the rules. It is NOT "insurance" at all, SIPC stands for "Securities Industry Protection Corporation." It is pretty hard to say how effective it is because it is not a thing that happens normally. https://www.bogleheads.org/forum/viewtopic.php?t=399991

I googled it and sounds like it. All your shares will then get transferred to another running establishment. Im just curious whats with the $500k SIPC limit if the shares are under your name. Incase they commit fraud or do something shady and you dont get all your shares from them somehow?

Not really. It's an investing question about SIPC insurance and broker risk. How is that not a valid question for the boglehead group?

Brokerages cannot comingle money like a bank. A deposit is legally like you loaning money to a bank. Brokerages actually hold your security's, they are not a loan. If rh goes bust SIPC might not even be needed. RH just transferrs your assets to another brokerage. SIPC is only really needed if there is fraud. Brokerages can go bankrupt without fraud. If there is no fraud SIPC isn't needed as brokerages don't comingle assets like namks

From what I understanding, US brokers are required segregate customer fund and operating fund. Even hood goes bankrupted, you will still get your fund back. The 500k SIPC is for missing funds such as fraud.

If the brokerage is following the rules, your assets are still untouched even before any SIPC insurance payout. Brokerages earn their money from the fees they charge for services they perform. If the run out of fee money then they are bankrupt, but the money and other assets you entrusted to them is still there. The government will come in and move your assets to a new account at a new broker. If they broke the law and didn't separate your assets from their assets, then SIPC insurance will kick in up to $500,000. If the fraudulent brokerage only spent $200k of your assets, then you get all your money back. If they spend $700k before getting shut down, then you get the $300k they didn't spend plus the $500k insurance payout. If they spent every penny you had there, then just the $500k insurance payout.

If SIPC or FDIC insurance limits become relevant, I would not assume your assets over that threshold are protected. How and why is probably a very specific question about what happened and why the broker is going under.

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We all know what happened with Stockal [https://www.msn.com/en-in/news/other/stockal-scam-nearly-30-indian-investors-allege-100-crore-losses-after-us-stock-holdings-sold-without-authorisation/ar-AA2gPzhk](https://www.msn.com/en-in/news/other/stockal-scam-nearly-30-indian-investors-allege-100-crore-losses-after-us-stock-holdings-sold-without-authorisation/ar-AA2gPzhk) The total number is actually above 30. As usual Stockal is denying to take any responisibily. DriveWealth denied too initially but now they are saying this [https://legal.drivewealth.com/cyber-response-nonuscustomers](https://legal.drivewealth.com/cyber-response-nonuscustomers) [https://help.revolut.com/help/security-logging-in/drivewealth-security-incident/question-drivewealth-data-incident/](https://help.revolut.com/help/security-logging-in/drivewealth-security-incident/question-drivewealth-data-incident/) My questions are- \- What happens to the investors now? \- Does the SIPC insurance kick in? \- Can the affected investors take any legal action against stockal? \- Taking action against DW will be hard as they are a US based company right? \- Companies like INDMoney, though not impacted by this, are saying that they are registered in GIFT city so they are immune from this as they have to comply by the regulations of IFSCA. Is that true? What about other such Indian platforms which are not registered in the GIFT city?

This has been removed for violating rule #2: **limit discussion of securities and investments**. Thanks for your post seeking investment advice or discussing specific securities. Please keep all conversations about portfolios and specific investments in our monthly discussion post. Fellow Redditors may offer an opinion on investments. Fidelity doesn’t endorse any of the expressions, opinions, or content posted by non-Fidelity members or any third parties on  r/fidelityinvestments. Do not rely on comments to form the basis of an investment decision. Always make sure to do your due diligence before investing. Remember to look for the “Community Care Representative” flair to make sure it’s us. *Fidelity Brokerage Services LLC, Member NYSE, SIPC*