I can imagine funds being lost due to hackers or fraudsters stealing assets from an account, or simply an unreasonable brokerage institution refusing access to a customer of their assets. Does SIPC have any role in these scenarios, or is it just strictly limited to when a financially troubled brokerage institution gets liquidated under the Securities Investor Protection Act?

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    – UBSOS23
    Commented Jan 29, 2023 at 16:33
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    sipc.org/for-investors/investor-faqs - "Does SIPC protect me if my account is hacked and cash and/or securities are stolen? SIPC’s role and responsibilities are as defined under the Securities Investor Protection Act (SIPA). Under that law, SIPC protection is available only to customers of a member broker-dealer that is in liquidation under SIPA or is the subject of a direct ...
    – UBSOS23
    Commented Jan 29, 2023 at 16:39
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    ... payment procedure. If you discover that your account has been hacked and your securities or cash have been stolen, you should contact your brokerage firm, the Securities and Exchange Commission (www.sec.gov), the Financial Industry Regulatory Authority (www.finra.org), your state securities regulator, or other appropriate law enforcement authorities. Whether you would be protected if your account was hacked would depend upon the circumstances under which your account was gained access to, and other factors being present that justify the liquidation of the brokerage firm."
    – UBSOS23
    Commented Jan 29, 2023 at 16:40
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    I would guess the idea is that your proper remedy in such situations is through the courts, or maybe arbitration if that's what your agreement specifies. As long as the broker is solvent, they will be able to pay whatever the judgment might order them to, and there's in theory no need for an insurer to step in. Commented Jan 29, 2023 at 23:22
  • @NateEldredge This makes complete sense
    – UBSOS23
    Commented Jan 29, 2023 at 23:25

1 Answer 1


It is:

just strictly limited to when a financially troubled brokerage institution gets liquidated under the Securities Investor Protection Act

The SIPA is the securities industry analog to the FDIC (which protects depositors of insolvent banks). The SIPC's authority to take action is triggered by information from certain sources suggesting that a securities industry firm is insolvent.

There are similar laws and agencies addressing insolvent savings and loan institutions, and insolvent defined benefit pension plans.

In general, there are not similar agencies addressing insolvency by insurance companies (which is why some business contracts require insurance companies used to fulfill covenants in the contract to have a certain minimum credit rating), or most kinds of mutual companies (i.e. consumer owned companies) which have a history pre-FDIC of having very low insolvency rates because they aren't incentivized to leverage themselves in the same way.

The SIPA was in many ways prescient. Securities firms didn't go bankrupt in large numbers until the 2007-2008 financial crisis when many brokerage and investment banking firms converted themselves from being owned by the managing partners of those firms to being owned by third-party investors. This led to incentives that reduced a focus on risk management and increased a focus on leverage (i.e. investing with borrowed money), and resulted in mass bankruptcies in the next significant recession.

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