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Difficulty: EasySIPC vs. FDIC Protection and Coverage Limits

A retail customer maintains an account at a broker-dealer that becomes insolvent and enters SIPC liquidation. Which of the following customer claims is eligible for coverage under SIPC protection?

  1. A $200,000 uninvested cash balance held in the account for purchasing securitiesAnswer
  2. B
    A $150,000 claim representing market value losses resulting from a sudden stock market decline
  3. C
    A $100,000 position in commodity futures contracts
  4. D
    A $300,000 fixed annuity contract purchased through the firm

Answer

The $200,000 uninvested cash balance held for purchasing securities is eligible for SIPC coverage.
SIPC provides protection up to 500,000perseparatecustomer,includingupto500,000 per separate customer, including up to 250,000 for cash claims, when a member broker-dealer undergoes liquidation. Uninvested cash held in a brokerage account for purchasing securities falls directly within this coverage scope.

Step-by-Step Solution

1
Identify the primary purpose and scope of SIPC coverage.
SIPC protects investors against loss of cash and securities resulting from member broker-dealer failure (insolvency), up to 500,000totalperseparatecustomer,whichincludesamaximumof500,000 total per separate customer, which includes a maximum of 250,000 for cash claims.
Understanding the limits and covered asset types is required to evaluate eligible claims.
2
Evaluate each listed asset against SIPC eligibility rules.
Uninvested cash for securities purchases is covered up to $250,000. Market losses, commodity futures, and fixed annuities are excluded from SIPC coverage.
Non-securities products, commodities, insurance products, and market value declines are not protected by SIPC.

Key Concept

SIPC Coverage Eligibility and Ineligible Assets
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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