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Difficulty: MediumSIPC vs. FDIC Protection and Coverage Limits

A compliance officer is preparing an educational guide distinguishing Securities Investor Protection Corporation (SIPC) coverage from Federal Deposit Insurance Corporation (FDIC) protection for retail investors. Which of the following statements regarding the scope and coverage limits of SIPC and FDIC protections are correct? Select all that apply.

  1. SIPC provides protection against broker-dealer failure up to 500,000totalperseparatecustomer,withamaximumsub−limitof500,000 total per separate customer, with a maximum sub-limit of 250,000 for cash claims.Answer
  2. B
    FDIC insurance protects bank depositors against investment market losses in money market mutual funds purchased through an insured commercial bank.
  3. Commodity futures contracts and fixed annuities held in a customer account at a failed broker-dealer are excluded from SIPC coverage.Answer
  4. D
    An investor holding both an individual cash account and an individual margin account at the same broker-dealer is treated as two separate customers for SIPC coverage limits.

Answer

The correct statements are that SIPC coverage is capped at 500,000totalperseparatecustomer(includingupto500,000 total per separate customer (including up to 250,000 for cash), and that commodity futures contracts and fixed annuities are excluded from SIPC coverage.
SIPC protection covers securities and cash at a failed broker-dealer up to 500,000perseparatecustomer(max500,000 per separate customer (max 250,000 for cash). Non-securities such as commodity futures and fixed annuities are not covered.

Step-by-Step Solution

1
Evaluate the statutory protection limits of SIPC.
SIPC protects customer claims up to 500,000totalperseparatecustomer,witha500,000 total per separate customer, with a 250,000 cap on cash claims.
This matches statutory SIPC liquidation rules.
2
Examine FDIC protection scope relative to investment products.
FDIC insurance covers deposit accounts (checking, savings, CDs) against bank insolvency up to $250,000 per depositor per bank, but does not cover market decline or non-deposit investment instruments.
Money market mutual funds carry investment risk and are not bank deposits.
3
Identify excluded assets under SIPC coverage.
Commodity futures contracts and fixed annuities are excluded from SIPC protection.
SIPC covers securities and cash held to buy securities, explicitly excluding commodities and insurance products.
4
Analyze SIPC account aggregation rules for separate customer capacity.
Individual cash and margin accounts owned by the same person at the same broker-dealer are aggregated.
Separate coverage limits apply to separate capacities (e.g., individual vs. joint vs. IRA), not separate accounts under the same ownership capacity.

Key Concept

SIPC vs. FDIC Coverage Scope and Account Aggregation
Estimated Time:1m 30s
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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