Practice Quiz

FINRA Series 7

Category - Series 7

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Under the terms of the 1970 Securities Investor Protection Act, what is the status of a customer whose account assets exceed SIPC insurance coverage when his broker/dealer becomes insolvent?
  1. the US Treasury is pledged to make up the deficiency
  2. all broker/dealers are assessed to fully satisfy the deficiency
  3. the customer becomes a general creditor of the insolvent firm for the amount of deficiency
  4. SIPC will issue a debenture to guarantee eventual repayment of the deficiency
Explanation
Answer: C - the customer becomes a general creditor of the insolvent firm for the amount of deficiency. After the SIPC coverage is exhausted, the customer becomes a general creditor. Due to the insolvency of the broker/dealer, there is no likelihood of the customer receiving restitution.
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