Examkin

Question

Difficulty: EasySIPC vs. FDIC Protection and Coverage Limits

A client asks a registered representative to explain the key differences in protection provided by the Securities Investor Protection Corporation (SIPC) versus the Federal Deposit Insurance Corporation (FDIC). Which of the following statements regarding SIPC and FDIC protections are correct?

  1. FDIC insurance covers deposit accounts held at commercial banks, whereas SIPC protects customer cash and securities at insolvent member broker-dealers.Answer
  2. SIPC protection covers customer claims resulting from broker-dealer financial failure, but does not protect investors against market losses.Answer
  3. C
    SIPC provides coverage for cash claims up to $500,000 per separate customer account.
  4. D
    Commodity futures contracts and fixed annuities held in a brokerage account are fully protected under SIPC coverage limits.

Answer

FDIC covers bank deposit accounts against bank failure, while SIPC protects customer cash and securities against broker-dealer bankruptcy up to 500,000total(withamaximumof500,000 total (with a maximum of 250,000 for cash). SIPC does not cover market losses, commodity futures, or fixed annuities.
FDIC insurance specifically protects bank deposits in the event of a commercial bank failure, whereas SIPC protects customer cash and securities held at insolvent broker-dealers. Additionally, SIPC only protects against broker-dealer financial failure and asset insolvency; it does not protect against loss of market value.

Step-by-Step Solution

1
Identify institutional scope for FDIC versus SIPC
FDIC insures deposit accounts at banking institutions, whereas SIPC protects customer assets at broker-dealers.
Different regulatory protections apply to commercial bank deposits versus brokerage securities accounts.
2
Determine nature of protected risks under SIPC
SIPC protects against missing cash and securities due to broker-dealer insolvency, not investment loss due to market fluctuations.
SIPC is designed to restore customer assets following broker bankruptcy, not insure against market risk.
3
Evaluate sub-limits and excluded assets under SIPC
SIPC limits cash coverage to 250,000(withinthe250,000 (within the 500,000 total coverage limit) and excludes non-securities such as commodity futures and fixed annuities.
The 500,000cashcapassertionisincorrectbecausecashislimitedto500,000 cash cap assertion is incorrect because cash is limited to 250,000, and commodity futures/fixed annuities are non-covered assets.

Key Concept

SIPC vs. FDIC Institutional Scope and Coverage Rules
Rate this question

Topics

SIPC vs. FDIC Protection and Coverage Limits

More questions from this topic