Regulations Summary

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

The Securities and Exchange Commission is publishing 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:

  •  Written, enforceable retention policies
  •   A searchable index of all data stored
  •  Viewable and readily retrievable data
  •   Offsite storage of data
  •   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.

 

Additional information on regulations and rules.

 

SEC