Examkin

Question

Difficulty: HardSIPC vs. FDIC Protection and Coverage Limits

An investor, Marcus, maintains three separate accounts at Meridian Securities, a SIPC-member broker-dealer that has entered financial insolvency and liquidation proceedings:

1. Individual Cash Account: Holds $310,000\$310,000 in equity securities and $160,000\$160,000 in uninvested cash.
2. Joint Account (with spouse): Holds $380,000\$380,000 in municipal bonds and $290,000\$290,000 in uninvested cash.
3. Roth IRA Account: Holds $210,000\$210,000 in mutual funds, $80,000\$80,000 in uninvested cash, and $60,000\$60,000 in fixed annuity contracts.

Based on Securities Investor Protection Corporation (SIPC) coverage rules and limits, what is the total dollar amount of SIPC coverage that Marcus is entitled to receive across all three accounts?

Answer: 1260000 USD

Answer

The total dollar amount of SIPC protection across all three accounts is $1,260,000.
SIPC protects up to 500,000perseparatecustomercapacity,ofwhichnomorethan500,000 per separate customer capacity, of which no more than 250,000 can be for cash claims. Individual accounts, joint accounts, and IRAs are distinct customer capacities, each receiving separate 500,000coveragelimits.Account1receivesfull500,000 coverage limits. Account 1 receives full 470,000 protection (310,000securities+310,000 securities + 160,000 cash). Account 2 has cash protection capped at 250,000(yielding250,000 (yielding 630,000 in eligible claims), which is then capped at the 500,000overalllimitpercapacity.Account3excludesthe500,000 overall limit per capacity. Account 3 excludes the 60,000 fixed annuity (an non-covered insurance product), protecting 210,000insecuritiesplus210,000 in securities plus 80,000 in cash (290,000total).Summingthethreecapacitiesgives290,000 total). Summing the three capacities gives 470,000 + 500,000+500,000 + 290,000 = $1,260,000.

Step-by-Step Solution

1
Evaluate Account 1 (Individual Account) under SIPC rules
Protected amount = $470,000
Individual accounts represent a distinct customer capacity. The account holds 310,000insecuritiesand310,000 in securities and 160,000 in cash. Since cash is under the 250,000cashcapandthetotal250,000 cash cap and the total 470,000 claim is below the 500,000overalllimitpercustomercapacity,theentire500,000 overall limit per customer capacity, the entire 470,000 is protected.
2
Evaluate Account 2 (Joint Account) under SIPC rules
Protected amount = $500,000
Joint accounts are recognized as a separate customer capacity from individual accounts. SIPC limits cash protection to a maximum of 250,000.Protecting250,000. Protecting 380,000 in securities plus 250,000incashyields250,000 in cash yields 630,000, but overall SIPC protection is capped at $500,000 per separate customer capacity.
3
Evaluate Account 3 (Roth IRA) under SIPC rules
Protected amount = $290,000
IRAs represent a distinct fiduciary/retirement customer capacity. Fixed annuities are insurance products, not securities, and are not covered by SIPC. Eligible assets consist of 210,000inmutualfundsplus210,000 in mutual funds plus 80,000 in cash (290,000total).Sincecashiswithinthe290,000 total). Since cash is within the 250,000 limit and total claim is within 500,000,500,000, 290,000 is protected.
4
Calculate total protected coverage across all three capacities
$1,260,000
Add the protected amounts from each separate customer capacity: 470,000+470,000 + 500,000 + 290,000=290,000 = 1,260,000.

Key Concept

SIPC Protection Limits and Separate Customer Registration Capacities
Rate this question

Topics

SIPC vs. FDIC Protection and Coverage Limits

More questions from this topic