69. In which of the following scenarios does SIPC provide coverage?
Answer: A
SIPC provides coverage when an investor holds cash in an account at a SIPC member firm that has failed.
An investor holding $250,000 cash in an account at a SIPC member firm that recently failed is covered by SIPC. This coverage is designed to protect customers against the loss of cash and securities held at member firms in the event of firm insolvency.
A) An investor holds $250,000 cash in an account at a SIPC member firm that recently failed.
This option is correct because SIPC coverage is specifically intended to protect customers of member firms that have failed. The $250,000 cash held in the investor's account is eligible for SIPC protection, ensuring that the investor can recover their funds.
B) An investor experiences losses of $250,000 in one calendar year at a SIPC member firm that is still in business.
This option is incorrect because SIPC does not cover investment losses resulting from market fluctuations or the performance of investments. SIPC only provides protection in the case of firm insolvency, not for losses incurred while the firm is operational.
C) An investor holds $500,000 in cash at a bank that has recently failed.
This option is incorrect as SIPC does not provide coverage for funds held in banks. SIPC's protection is limited to member brokerage firms, and funds at banks are typically insured by the FDIC, not SIPC.
D) An investor holds $500,000 worth of commodities and futures contracts at a SIPC member firm that has recently failed.
This option is incorrect because SIPC coverage does not extend to commodities and futures contracts. SIPC primarily protects cash and securities, and while the investor may hold significant assets, they would not be covered under SIPC for these types of investments.
Conclusion
SIPC coverage is specifically designed to protect investors in the event of a member firm's failure, particularly for cash and securities held in accounts. Option A clearly meets the criteria for SIPC coverage, while the other options either involve losses not covered by SIPC, assets held in banks which fall under different regulations, or types of investments not protected by SIPC. Thus, option A stands out as the only correct choice in this context.