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Difficulty: Very hardSIPC vs. FDIC Protection and Coverage Limits

An investor holds three separate accounts at a FINRA-member broker-dealer undergoing SIPC liquidation:

1. An Individual Account containing 180,000inequitysecuritiesand180,000 in equity securities and 300,000 in cash that was transferred into an insured bank sweep program at an affiliated FDIC member institution.
2. A Joint Account (held with a spouse) containing 400,000incorporatebondsand400,000 in corporate bonds and 100,000 in uninvested cash.
3. A Commodity Futures Account containing $50,000 in cash margin for trading futures.

What is the total maximum SIPC protection available for this investor's claims at the insolvent broker-dealer?

  1. $680,000Answer
  2. B
    $730,000
  3. C
    $930,000
  4. D
    $430,000

Answer

The maximum SIPC protection available is $680,000.
SIPC provides coverage up to 500,000totalper′separatecustomer′registration,withasub−limitof500,000 total per 'separate customer' registration, with a sub-limit of 250,000 for cash claims held at the broker-dealer. The Individual Account has 180,000incoveredsecuritiesatthebroker−dealer(the180,000 in covered securities at the broker-dealer (the 300,000 bank sweep cash is covered separately by FDIC at the bank). The Joint Account is a separate customer capacity and is covered up to its full 500,000value(500,000 value ( 400,000 bonds + 100,000cash).CommodityfuturesaccountsarenotcoveredbySIPC(100,000 cash). Commodity futures accounts are not covered by SIPC ( 0). Therefore, total SIPC coverage equals 180,000+180,000 + 500,000 = $680,000.

Step-by-Step Solution

1
Evaluate coverage for the Individual Account
SIPC coverage = $180,000.
SIPC covers securities and cash held at the broker-dealer up to 500,000total.The500,000 total. The 180,000 in equity securities is fully protected. The 300,000banksweepcashresidesatanFDIC−insuredbankandisprotectedbyFDICinsurance(300,000 bank sweep cash resides at an FDIC-insured bank and is protected by FDIC insurance ( 250,000 per depositor), not SIPC.
2
Evaluate coverage for the Joint Account
SIPC coverage = $500,000.
A joint account represents a separate customer capacity under SIPC rules. The total account value is 400,000(bonds)+400,000 (bonds) + 100,000 (cash) = 500,000.Becausecash(500,000. Because cash ( 100,000) does not exceed the 250,000cashsub−limit,theentire250,000 cash sub-limit, the entire 500,000 balance is covered.
3
Evaluate coverage for the Commodity Futures Account
SIPC coverage = $0.
SIPC explicitly excludes commodity contracts, futures, and related cash margin balances from coverage because they are not securities.
4
Sum the SIPC coverage across all eligible customer accounts
180,000+180,000 + 500,000 + 0=0 = 680,000.
Total SIPC protection is the sum of protected claims across separate customer capacities at the failed broker-dealer.

Key Concept

SIPC separate customer capacity rules and exclusions vs. FDIC bank sweep protection
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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