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Difficulty: HardSIPC vs. FDIC Protection and Coverage Limits

A financial compliance manager is preparing a regulatory comparison guide detailing investor protection rules for broker-dealers and commercial banks. Which of the following statements regarding the coverage limits and scope of protection provided by SIPC and FDIC are correct?

  1. SIPC protection covers customer claims up to 500,000perseparatecustomerintheeventofamemberbroker−dealer′sinsolvency,withasub−limitcapof500,000 per separate customer in the event of a member broker-dealer's insolvency, with a sub-limit cap of 250,000 for cash claims.Answer
  2. FDIC insurance protects deposit accounts such as checking, savings, and certificates of deposit up to $250,000 per depositor per insured bank, but does not extend coverage to investment products like mutual funds or equity securities.Answer
  3. C
    SIPC indemnifies retail investors against investment portfolio losses resulting from severe market downturns or unsuitable broker recommendations up to the $500,000 threshold.
  4. D
    Commodity futures contracts and fixed annuities maintained within a brokerage account receive full cash-claim protection under SIPC up to $250,000.

Answer

SIPC protection covers up to 500,000perseparatecustomer(withcashclaimscappedat500,000 per separate customer (with cash claims capped at 250,000) against broker-dealer insolvency, while FDIC protects traditional bank deposit accounts up to $250,000 per depositor per bank excluding non-deposit investments. Neither framework covers market losses, and SIPC explicitly excludes commodity futures and fixed annuities.
SIPC coverage provides protection up to 500,000perseparatecustomerwitha500,000 per separate customer with a 250,000 cash claim cap upon broker-dealer insolvency. FDIC covers bank deposit accounts up to $250,000 per depositor per bank while excluding investment products like mutual funds. Both statements represent fundamental regulatory standards.

Step-by-Step Solution

1
Evaluate SIPC maximum coverage limits and cash sub-limits.
SIPC protects up to 500,000totalperseparatecapacity,ofwhichcashclaimscannotexceed500,000 total per separate capacity, of which cash claims cannot exceed 250,000.
Establishing accurate financial caps is necessary to define SIPC protection bounds.
2
Evaluate FDIC deposit coverage scope and product exclusions.
FDIC covers traditional deposit accounts up to $250,000 per depositor per insured bank, but excludes investment securities like mutual funds and stocks.
Differentiating deposit accounts from investment products determines FDIC eligibility.
3
Identify non-covered risks and excluded asset classes.
Neither agency protects against market loss, and SIPC excludes commodity futures, currencies, and fixed annuities.
Exclusions prevent conflation of insolvency insurance with investment guarantee schemes.

Key Concept

SIPC vs. FDIC Protection Scope and Coverage Caps
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SIPC vs. FDIC Protection and Coverage Limits

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