One of SIPC’s main duties is to oversee the liquidation of SIPC member brokerage firms. A Securities Investor Protection Act (SIPA) liquidation is similar to a U.S. bankruptcy case. The liquidation is administered in federal bankruptcy court under the Securities Investor Protection Act and applicable U.S. bankruptcy laws and procedures.
SIPC initiates the liquidation process when it receives a referral from a securities regulator such as the U.S. Securities and Exchange Commission (SEC) or a securities self-regulator such as the Financial Industry Regulatory Authority (FINRA). A referral is made and a liquidation occurs when a firm fails and cash and/or securities are missing from customer accounts.
When starting a liquidation, SIPC asks the court to appoint a Trustee to liquidate the firm and protect its customers. In larger cases, the Trustee usually is a lawyer with experience in bankruptcy and securities law. In smaller cases, SIPC may be appointed as Trustee. In the smallest brokerage firm failures, SIPC deals directly with customers, outside of court, in a Direct Payment Procedure.
SIPC does not get involved in customer disputes with a brokerage before a liquidation proceeding is started. SIPC is neither a government agency nor a regulatory authority. If you have a complaint about your broker, you should contact FINRA or the SEC.