Distribution Under SIPA — Bankruptcy Law Basics

Customer related property of the debtor is allocated in the following order:

(1), to SIPC in repayment of advances made to the extent they were used to recover securities apportioned to customer property;

(2), to customers of the debtor on the basis of their net equities;

(3), to SIPC as subrogee for the claims of customers; and

(4), to SIPC in repayment of advances made by SIPC to transfer or sell customer accounts to another SIPC member firm.

15 U.S.C. § 78fff-2(c)(1).

The trustee must deliver customer name securities to the customer if the customer is not indebted to the debtor. If indebted, the customer may, with the approval of the trustee, reclaim securities in his or her name upon payment to the trustee of all such indebtedness. 15 U.S.C. § 78fff-2(c)(2).

The trustee may, with the approval of the SIPC, sell or otherwise transfer to another member of the SIPC, without consent of any customer, all or any part of the account of a customer. 15 U.S.C. § 78fff-2(f). The trustee may also enter into any agreement, and the SIPC will advance funds as necessary, to indemnify the member firm against shortages of cash or securities in customer accounts sold or transferred. 15 U.S.C. § 78fff-2(f)(2). In addition, the trustee may purchase securities in a fair and orderly market in order to deliver securities to customers in satisfaction of their claims. 15 U.S.C. § 78fff-2(d).

To the extent customer property and the SIPC advances are not sufficient to pay or satisfy in full the net equity claims of customers, then customers are entitled to participate in the estate as unsecured creditors. 15 U.S.C. § 78fff-2(c)(1).

Last reviewed October 2024

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Distribution Under SIPA — Bankruptcy Law Basics

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