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Difficulty: MediumSIPC vs. FDIC Protection and Coverage Limits

An investor, Elena, maintains two separate account capacities at Apex Securities, a SIPC-member broker-dealer undergoing financial liquidation. Her individual cash account holds 180,000inequitysecuritiesand180,000 in equity securities and 70,000 in cash. Her joint account with her spouse holds 300,000incorporatebondsand300,000 in corporate bonds and 280,000 in uninvested cash. What is the maximum total amount of SIPC coverage available for the joint account?

  1. $500,000Answer
  2. B
    $550,000
  3. C
    $580,000
  4. D
    $250,000

Answer

The maximum total SIPC coverage available for the joint account is $500,000.
The Securities Investor Protection Corporation (SIPC) protects customer accounts against broker-dealer insolvency up to 500,000totalperseparatecustomer,includingamaximumof500,000 total per separate customer, including a maximum of 250,000 for cash claims. Joint accounts are considered separate legal customers from individual accounts. For the joint account, the 300,000insecuritiesiseligible,butoutof300,000 in securities is eligible, but out of 280,000 in cash, only 250,000iscoveredbySIPC.Combining250,000 is covered by SIPC. Combining 300,000 in securities and 250,000incoveredcashgives250,000 in covered cash gives 550,000, which is then capped at the statutory overall maximum limit of $500,000.

Step-by-Step Solution

1
Determine account capacity eligibility under SIPC.
Individual and joint accounts are recognized as distinct, separate customer capacities, each receiving separate SIPC coverage up to statutory limits.
SIPC rules evaluate coverage per separate customer registration, not per individual person.
2
Calculate covered cash for the joint account.
The joint account holds 280,000incash,butSIPCcoverageforcashclaimsiscappedat280,000 in cash, but SIPC coverage for cash claims is capped at 250,000.
SIPC limits cash protection to $250,000 per customer capacity.
3
Sum covered securities and covered cash, then apply the overall SIPC coverage cap.
300,000(securities)+300,000 (securities) + 250,000 (covered cash) = 550,000potentialcoverage,whichiscappedattheoveralllimitof550,000 potential coverage, which is capped at the overall limit of 500,000.
SIPC provides a maximum overall protection limit of $500,000 per separate customer.

Key Concept

SIPC Protection Limits & Account Capacities
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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