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Suppose I open an account at an SIPC-protected broker (say Interactive Brokers) and buy 500,000$ worth of BP stocks on the LSE (London Stock Exchange).

Now suppose Interactive Brokers goes bankrupt, and my BP stocks are missing. Am I insured? Had I bought 500,000$ worth of Coca-Cola shares on NYSE the answer would of course be yes. Is that still the case with foreign exchanges ?

By the way, I am a non-resident alien (not a citizen of the US and don't live in it), but I'm pretty sure that's irrelevant.

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    IB has three different entities: US, Canadian and UK. If you're trading on LSE, I suspect the legal entity you're working with is the UK one, which has nothing to do with SIPC. Check this out. – littleadv Nov 10 '13 at 1:12
  • I think as long as I register at their global (.com) site I'll be working with the american entity, but that's a good point and I'll verify this with IB. – t0x1n Nov 10 '13 at 12:20
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I'll give it a shot, even though you don't seem to be responding to my comment.

SIPC insures against fraud or abuse of its members. If you purchased a stock through a SIPC member broker and it was held in trust by a SIPC member, you're covered by its protection. Where you purchased the stock - doesn't matter. There are however things SIPC doesn't cover.

That said, SIPC members are SEC-registred brokers, i.e.: brokers operating in the USA. If you're buying on the UK stock exchange - you need to check that you're still operating through a US SIPC member. As I mentioned in the comment - the specific company that you mentioned has different entities for the US operations and the UK operations. Buying through them on LSE is likely to bind you with their UK entity that is not SIPC member. You'll have to check that directly with them.

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    Turns out your instinct was right. IB got back to me today and indeed, only US stocks are SIPC protected with them. They still offer protection in the form of insurance from Lloyds of London, though I suspect it is less reliable than SIPC. – t0x1n Nov 11 '13 at 20:25
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I have received a response from SIPC, confirming littleadv's answer:

For a brief background, the protections available under the Securities Investor Protection Act ("SIPA"), are only available in the context of a liquidation proceeding of a SIPC member broker-dealer and relate to the "custody" of securities and related cash at the SIPC member broker-dealer. Thus, if a SIPC member broker-dealer were to fail at a time when a customer had securities and/or cash in the custody of the SIPC member broker-dealer, in most instances it would be SIPC's obligation to restore those securities and cash to the customer, within statutory limits. That does not mean, however, that the customer would necessarily receive the original value of his or her purchase. Rather, the customer receives the security itself and/or the value of the customer's account as of the day that the liquidation commenced. SIPC does not protect against the decline in value of any security. In a liquidation proceeding under the SIPA, SIPC may advance up to $500,000 per customer (including a $250,000 limit on cash in the account).

Please note that this protection only applies to the extent that you entrust cash or securities to a U.S. SIPC member. Foreign broker dealer subsidiaries are not SIPC members. However, to the extent that any assets, including foreign securities, are being held by the U.S. broker dealer, the assets are protected by SIPC. Stocks listed on the LSE are protected by SIPC to the extent they are held with a SIPC member broker dealer, up to the statutory limit of $500,000 per customer.

As I mentioned in the comments, in the case of IB, indeed they have a foreign subsidiary, which is why SIPC does not cover it (rather they are insured by Lloyds of London for such cases).

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