Regulations Summary


Rule & Regulation Summary


SEC Rule 17a-4 – Electronic Storage of Broker-Dealer Records

The Securities and Exchange Commission has published its views on the operation of its rule permitting broker-dealers to store required records in electronic form. Under the Rule 17a-4, electronic records must be preserved exclusively in a non-rewriteable and non-erasable format. This interpretation clarifies that broker-dealers may employ a storage system that prevents alteration or erasure of the records for their required retention period.

Broker-dealers are allowed to preserve records on “electronic storage media.” Rule 17a-4 defines the term “electronic storage media” as any digital storage medium or system.

In addition, Rule 17a-4 requires that preservation of electronic storage media be done exclusively in a non-rewriteable and non-erasable format. WORM optical media (write once read many) is used for compliance with Rule 17a-4. Also, the member, broker or dealer must be stored separately from the original. This duplicate copy of the record must be stored on any medium acceptable for the required.

Rule 17a-4 is commonly grouped with SEC Rule 17a-3. Together, these rules require:

  1. Written, enforceable retention policies

  2. A searchable index of all data stored

  3. Viewable and readily retrievable data

  4. Offsite storage of data

  5. Storage of data on WORM (write once read many) optical media

FINRA 3110 – Books & Records

Each member shall make and preserve books, accounts, records, memoranda, and correspondence in conformity with all applicable laws, rules, regulations and statements of policy promulgated there under and with the Rules of this Association and as prescribed by SEC Rule 17a-3. The record keeping format, medium, and retention period shall comply with Rule 17a-4 under the Securities Exchange Act of 1934.

Investment Advisers Act of 1940 Rule 204-2

One of the most important set of the federal securities laws which relate to registered investment advisers is the Investment Advisers Act of 1940. The Investment Advisers Act provides the manner in which investment advisers will register with the SEC, provides the laws that must be followed as an investment adviser, and makes it illegal for both registered and unregistered investment advisers to act fraudulently toward any investors.

Rule 204-2 Books and Records To Be Maintained by Investment Advisers

Requires the retention of books and records relating to all written communications received and sent by an investment adviser, Rule 204-2 now applies to hedge funds and private equity firms under the Dodd-Frank Financial Reform Act.

Investment Company Act of 1940

This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The regulation is designed to minimize conflicts of interest that arise in these complex operations. Section 31(a) of the Act requires these companies to “maintain and preserve such records for such period or periods as the Commission, by rules and regulations, may prescribe as necessary or appropriate in the public interest or for the protection of investors.


Dodd Frank

Dodd Frank imposes new recordkeeping, reporting and disclosure requirements on all Investment Advisers, Broker Dealers, and newly deemed Major Swap Participants. In all cases, registered advisers will be required to maintain records relating to their business activities as mandated by Rule 17a-4 of the Securities Exchange Act (Broker Dealers) and Rule 204-2 of the Investment Advisors Act (Investment Advisors). Dodd- Frank adds new, confidential reporting requirements which compels virtually all advisers to disclose to the SEC/CFTC their trading and investment positions, practices, and exposures that relate to systemic risks, e.g., assets under management, use of leverage including off balance sheet leverage, exposures to particular counterparties and types of securities, credit risk exposures, calculation policies, side letters. Dodd-Frank also commands that registered entities will have to provide any other information the SEC/CFTC and the Financial Stability Oversight Council (FSOC), the new systemic risk regulator, deems necessary and appropriate.

SEC Rule 15a-6

Rule 15a-6 under the Securities Exchange Act of 1934 provides conditional exemptions from broker-dealer registration for foreign broker-dealers1 that engage in certain specified activities involving U.S. investors. These activities include:

  1. Effecting unsolicited securities transactions;

  2. Providing research reports to major U.S. institutional investors, and effecting transactions in the subject securities with or for those investors;

  3. Soliciting and effecting transactions with or for U.S. institutional investors or major U.S. institutional investors through a “chaperoning broker-dealer”2; and

  4. Soliciting and effecting transactions with or for registered broker-dealers, banks3 acting in a broker or dealer capacity, certain international organizations, foreign persons temporarily present in the U.S., U.S. citizens resident abroad, and foreign branches and agencies of U.S. persons.4

In adopting Rule 15a-6, the SEC sought “to facilitate access to foreign markets by U.S. institutional investors through foreign broker-dealers and the research that they provide, consistent with maintaining the safeguards afforded by broker-dealer registration,” and “to provide clear guidance to foreign broker-dealers seeking to operate in compliance with U.S. broker-dealer registration requirements.”5

It is important to keep in mind, however, that if the foreign broker‑dealer has a chaperoning arrangement with a registered broker-dealer that satisfies the requirements of Rule 15a-6(a)(3), any transactions with the foreign broker-dealer in securities discussed in the research reports must be effected only through the chaperoning broker-dealer in compliance with the requirements of paragraph (a)(3). Among other things, Rule 15a-6(a)(3) requires the chaperoning broker-dealer to maintain all books and records relating to the transactions effected thereunder, including those required by Rules 17a-3 and 17a-4 under the Exchange Act. Accordingly, to the extent that a chaperoning broker-dealer obtains a copy of a research report distributed directly to major U.S. institutional investors by a foreign broker-dealer pursuant to Rule 15a-6(a)(2) (regardless of the source from which it was obtained), such research report should be retained by the chaperoning broker-dealer in light of its obligation to effect transactions in the relevant securities as described above.

FINRA Rule 2210 / FINRA Rule 2211 (as pertains to record keeping)

FINRA Rule 2210 (replacing previous FINRA Rule 2211) outlines the regulatory recordkeeping requirements for institutional communications including evidence that supervisory procedures have been implemented and carried out.  The recordkeeping requirements include:

2210(b)(4)(A) Members must maintain all retail communications and institutional communications for the retention period required by SEA Rule 17a-4(b) and in a format and media that comply with SEA Rule 17a-4. The records must include:

(i)            a copy of the communication and the dates of first and (if applicable) last use of such communication;

(ii)           the name of any registered principal who approved the communication and the date that approval was given;

(iii)          in the case of a retail communication or an institutional communication that is not approved prior to first use by a registered principal, the name of the person who prepared or distributed the communication;

(iv)         information concerning the source of any statistical table, chart, graph or other illustration used in the communication; and

(v) for any retail communication for which principal approval is not required pursuant to paragraph (b)(1)(C), the name of the member that filed the retail communication with the Department, and a copy of the corresponding review letter from the Department.

(B) Members must maintain all correspondence in accordance with the record-keeping requirements of NASD Rule 3010(d)(3) and Rule 4511.

FINRA Consolidated Supervision Rules: SEC Rule 3110 and 3120

The SEC approved FINRA’s consolidated rules governing supervision. The new Rules 3110 and 3120 replace NASD Rules 3010 and 3012 and other corresponding NYSE rule provisions. The new rules become effective on December 1, 2014 and impact:

  1. Personnel that are permitted to act as supervisors;

  2. Personnel that may perform office inspections;

  3. Requirements for review of certain internal communications; and

  4. Obligations to actively monitor for insider trading, including the duty to conduct internal investigations and report information related to those internal investigations back to FINRA.

The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. 

For more information or to request a compliance consultation.


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