Securities Investor Protection: Update on Matters Related to the Securities Investor Protection Corporation

GAO-03-811 Published: Jul 11, 2003. Publicly Released: Aug 11, 2003.
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As result of ongoing concerns about the adequacy of disclosures provided to investors about the Securities Investor Protection Corporation (SIPC) and investors' responsibilities to protect their investments, GAO issued a report in 2001 entitled Securities Investor Protection: Steps Needed to Better Disclose SIPC Policies to Investors (GAO-01-653). GAO was asked to determine the status of recommendations made to the Securities and Exchange Commission (SEC) and SIPC in that report. GAO was also asked to review a number of issues involving excess SIPC insurance, private insurance securities firms purchase to cover accounts that are in excess of SIPC's statutory limits.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Other As SIPC continues to revamp and refine its investor education program, the Chairman, SIPC, should revise SIPC's brochure to provide links to specific pages on the relevant Web sites to help investors access information about avoiding ratifying potentially unauthorized trades in discussions with firm officials and other potentially useful information about investing.
Closed – Implemented
SIPC agreed to revamp the information provided to investors to include references to SIPC's Web site, which will include updated information on specific links to ratifying unauthorized trades. On March 24, 2004, SIPC revised its brochure to notify investors that the fraud education sites can be accessed through the SIPC Web site. Moreover, SIPC has modified its Web site by adding hyperlinks to specific investment fraud education sites such as SEC and NASD's Web pages.
United States Securities and Exchange Commission Given the concerns that we and others have raised about excess SIPC Self-Regulatory Orgcoverage, the Chairman SEC, in conjunction with the SROs, should ensure that firms are providing investors with meaningful disclosures about the protections provided by any new or existing excess SIPC policies. Furthermore, SEC and the SROs should monitor how firms inform customers of any changes in or loss of excess SIPC protection to ensure that investors are informed any changes in their coverage.
Closed – Implemented
SEC sent a letter to NYSE and NASD in 2003, requesting that these self regulatory organizations explore ways to implement this recommendation. In July 2003, both NASD and NYSE instructed their member firms to provide their customers with 30 days notice before the termination or reduction of excess SIPC coverage. Several large NASD clearing and carrying broker-dealers that faced termination of excess SIPC coverage indicated that they purchased coverage from Lloyd's of London. In addition, a consortium of some of the largest broker-dealers that are members of NYSE has established the Customer Asset Protection Company (CAPCO), a NY-based captive insurer, to provide excess SIPC coverage.

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