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Difficulty: EasySIPC vs. FDIC Protection and Coverage Limits

An investor holds a cash balance of $310,000 in an individual brokerage account at a SIPC-member broker-dealer that enters bankruptcy liquidation. Under Securities Investor Protection Corporation (SIPC) rules, what is the maximum amount of cash protection available to this investor?

  1. $250,000Answer
  2. B
    $310,000
  3. C
    $500,000
  4. D
    $0

Answer

Under SIPC rules, the maximum protection for cash claims is $250,000 per separate customer account.
SIPC protects customer accounts against broker-dealer insolvency up to 500,000perseparatecustomer,butuninvestedcashbalancesarecappedatamaximumof500,000 per separate customer, but uninvested cash balances are capped at a maximum of 250,000.

Step-by-Step Solution

1
Identify the type of institution and asset being evaluated.
The scenario involves uninvested cash in a brokerage account at an insolvent SIPC-member firm.
SIPC rules govern broker-dealer insolvencies, whereas FDIC rules apply to commercial banks.
2
Apply SIPC statutory protection limits for cash balances.
SIPC offers total coverage up to 500,000percustomer,ofwhichnomorethan500,000 per customer, of which no more than 250,000 can be for cash claims.
Cash claims are capped at 250,000regardlessofwhethertotalclaimsareunder250,000 regardless of whether total claims are under 500,000.
3
Calculate the protected amount for a $310,000 cash claim.
The investor receives 250,000inSIPCcoverage,andtheremaining250,000 in SIPC coverage, and the remaining 60,000 becomes a general creditor claim.
The claim exceeds the maximum cash sublimit.

Key Concept

SIPC Cash Coverage Limit ($250,000)
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Topics

SIPC vs. FDIC Protection and Coverage Limits

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