An investor maintains an individual account at a SIPC-member broker-dealer that enters fin… — FINRA SIE (Securities Industry Essentials)

An investor maintains an individual account at a SIPC-member broker-dealer that enters financial liquidation. At the time of the firm's failure, the account contains $150,000 in common stocks,$ 50,000 in corporate bonds, $310,000 in uninvested cash, and$ 60,000 in commodity futures contracts. What is the maximum total dollar amount of SIPC coverage the investor will receive for this account?

Answer: 450000 dollars

Answer

$450,000

SIPC protects customer accounts against broker-dealer failure up to

500,000 per separate customer, which includes a maximum sub-limit of

250,000 for cash claims. Securities (stocks and corporate bonds) total

200,000 and are fully covered. Although the investor holds

310,000 in cash, SIPC cash coverage is capped at

250,000. Commodity futures contracts are not covered by SIPC. Combining the

200,000 in securities with

250,000 in covered cash yields a total protection amount of

450,000.

Step-by-Step Solution

Calculate total eligible securities balance

150,000 (stocks) +

50,000 (bonds) = $200,000

SIPC covers equity securities and debt instruments against broker-dealer insolvency.

Determine eligible cash coverage

Min(

310,000 actual cash,

250,000 cash limit) = $250,000

SIPC limits cash coverage to $250,000 per separate customer.

Identify non-covered assets

60,000 commodity futures =

0 covered

Commodities, futures contracts, and fixed annuities are specifically excluded from SIPC protection.

Calculate total protected claim and apply overall cap

200,000 (securities) +

250,000 (cash) = $450,000

The total claim of

450,000 is fully covered because it does not exceed the total SIPC cap of

500,000 per separate customer.

Key Concept

SIPC Cash Coverage Limit and Excluded Assets

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