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Difficulty: MediumSIPC vs. FDIC Protection and Coverage Limits

David maintains an individual account at Sterling Capital, a SIPC-member broker-dealer currently undergoing financial liquidation. At the time of liquidation, David's account holds 280,000incash,280,000 in cash, 180,000 in corporate stock positions, and $90,000 in commodity futures contracts. What is the total dollar amount protected by SIPC for David's account?

Answer: 430000 USD

Answer

The total dollar amount protected by SIPC is $430,000.
SIPC protects customer accounts against broker-dealer insolvency up to 500,000totalperseparatecustomer,withcashclaimscappedat500,000 total per separate customer, with cash claims capped at 250,000. Commodity futures contracts are not securities and receive no SIPC coverage. Therefore, out of David's 280,000cash,only280,000 cash, only 250,000 is eligible for SIPC protection. Adding the full 180,000valueofstockpositionsyieldsatotalprotectedamountof180,000 value of stock positions yields a total protected amount of 430,000, which is fully covered because it does not exceed the overall $500,000 limit.

Step-by-Step Solution

1
Identify non-covered assets
Commodity futures contracts ($90,000) are excluded from coverage.
SIPC coverage applies only to cash and securities; futures and commodities contracts are not protected.
2
Apply SIPC cash sub-limit
Only 250,000ofthe250,000 of the 280,000 cash balance is covered.
SIPC coverage rules impose a strict maximum limit of $250,000 for cash claims per separate customer.
3
Calculate total protected amount
250,000(cashlimit)+250,000 (cash limit) + 180,000 (corporate stock) = $430,000 total SIPC protection.
The calculated total of 430,000isbelowthemaximumoverallSIPCcoveragecapof430,000 is below the maximum overall SIPC coverage cap of 500,000 per separate customer.

Key Concept

SIPC Protection Limits and Excluded Assets
Estimated Time:1m 30s
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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