In: Financial Services

Going Paperless With Your Financial Services Practice

SEC Rule 17A-4(F) for Broker-Dealers – Are You Compliant?

What’s are the major obstacles in going paperless as a Broker-Dealer? Probably the most prevalent obstacle for a small broker-dealer firm is the cost of being compliant. This is where paperless financial services comes into play. We’ll look at some of the challenges as well as the solutions to going paperless.

  • Electronic Storage of Broker-Dealer Records
  • Produce, and maintain in an readily accessible method, a thorough record of each and every securities transaction
  • Retention Period for Documents

Electronic Storage of Broker-Dealer Records

LINK: http://www.sec.gov/rules/interp/34-47806.htm

The SEC allows broker-dealers to store records electronically but by rule they have to be stored so that they can’t be manipulated. To meet this requirement a non-rewritable and non-erasable storage format must be used. Commonly this is WORM technology (Write Once Read Many). This technology requirement must be met until the records retention period has been met. Retention periods vary by document type.

Rule 17a-3 Types of documents covered by retention periods:

  • Trade blotters
  • Asset and liability ledgers
  • Income ledgers
  • Customer account ledgers
  • Securities records
  • Order tickets
  • Trade confirmations
  • Trial balances
  • Various employment related documents

Rule 17a-4 specifies the manner in which records created in coordination with Rule 17a-3 must be maintained

With these two rules in effect the broker-dealer is required to maintain in an easily accessible the records. In order to maintain the SEC’s investor protection function the records need to show compliance with securities law, anti fraud law and financial responsibility standards.

WORM Drive Technology

In May of 2003 the SEC commission recognized WORM (write once, read many) technology as meeting it’s requirements to provide for a non-erasable, non-rewritable method of maintaining records which met rule 17a-4. While the commission does not recommend any specific technology it requires that the records cannot be rewritten or overwritten.

Small broker dealers simply burn their files off to a CD/DVD every month. While this meets the requirement for preservation it still does not meet the overall storage requirement since you need to have multiple copies in different physical locations. To do this you need to burn multiple copies of your disks and ship one set offsite.

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