Markets in Financial Instruments Directive – MiFID

The Securities Investor Protection Act of 1970 provides retail investors with protection against losses incurred in the event of a brokerage firm failure, missing securities, or theft (15 U.S.C. §78aaa-111, as amended through December 12, 2006). SIPIC is not the FDIC that insures bank deposits up to $100,000 per account. SIPIC does not protect the investor against market losses since rewards are only possible through the assumption of risk. Rather, SIPIC replaces stocks and other securities under certain conditions even when the investments have increased in value. Nevertheless, SIPIC’s coverage does not extend to commodity futures contracts and currency, as well as investments in limited partnerships.

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The European Union equivalent is Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes. The minimum coverage is EUR 20,000, with a 10% deductible, providing insurance up to EUR 18,000. Like SIPIC, the Directive applies to designated investment instruments [originally identified in the now repealed Investment Services Directive]. Membership in an investor compensation scheme is mandatory. However, since the Directive is a minimum harmonisation Directive and levels of coverage differ among Member States, the scheme of the Home State of the investment firm generally applied to that firm’s customers.