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SIPC Reimbursement

Course: Investment Planning
Lesson 2: Securities Markets and the Fed

Student Question:

The coursework states that the SIPC will pay claims up to $500,000, but in Example 2, they only gave Bruce $350,000. Why is that?

Thanks.

Wesley

Example 2

Bruce had $400,000 in cash and $100,000 in securities in his brokerage account. His broker/dealer declared bankruptcy and Bruce lost his entire brokerage balance of $500,000. How much of his $500,000 loss is covered by the SIPC?

Answer: $350,000. The SIPC will reimburse him for $350,000, which includes $100,000 for the securities and $250,000 for the cash.


Instructor Response:

Hi Wesley!

SIPC will protect investors up to $500,000 — but only $250,000 of which can be cash.  Bruce had $400,000 in cash with his broker, so he’s only getting $250,000 of that back.  And then his $100,000 of securities for a total of $350,000.

Have a great evening!

Dan