Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsEasy
Which of the following describes the primary function of the Securities Investor Protection Corporation (SIPC)?
- ATo provide insurance against losses due to market fluctuations.
- BTo ensure the solvency of the U.S. banking system.
- CTo regulate broker-dealers and protect investors from fraud.
- DTo protect customers against losses resulting from broker-dealer failure.
Show answer & explanationAnswer & explanation
Correct answer: D. To protect customers against losses resulting from broker-dealer failure.
SIPC protects customers of failed broker-dealers against the loss of cash and securities up to $500,000, including $250,000 for cash. It does not protect against market risk or poor investment decisions.
Why the other options are wrong
- A. SIPC does not protect against market risk; that is inherent in investing.
- B. This is primarily the role of the Federal Reserve and FDIC.
- C. This is primarily the role of FINRA and the SEC.
SIPC (Securities Investor Protection Corporation)
A non-profit, non-government corporation that protects securities customers of its members up to $500,000 (including $250,000 in cash) in the event a broker-dealer fails.
- Protects against broker-dealer insolvency, not market losses.
- Coverage limit: $500,000 total, with maximum $250,000 for cash.
- Mandatory membership for most broker-dealers.
Memory trick: SIPC 'Saves' your 'Securities' if your broker 'Stops'.