Quick Answer
Members make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules. Records required by the FINRA rules are preserved in a format and media that complies with the records retention rule. FINRA records with no specified period are preserved for at least six years.
Two layers sit on top of each other. FINRA's general recordkeeping rule points at the federal rules, and the federal rules say which record must be made and how long each one lives.
What Does the General Recordkeeping Rule Require?
The general recordkeeping rule has three parts.
- Members shall make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.
- Members shall preserve for a period of at least six years those FINRA books and records for which there is no specified period under the FINRA rules or applicable Exchange Act rules.
- All books and records required to be made under the FINRA rules shall be preserved in a format and media that complies with the records retention rule.
The six-year residual is a floor for records nothing else times. It does not displace a specific period set elsewhere, so a record with its own three-year period keeps that period.
The records retention rule that fixes the format and media also fixes where a record sits. For the six-year group and the three-year group alike, the first two years must be in an easily accessible place.
Exam Tip: Gotchas
- The six-year residual applies only where no period is specified. A record that already has a period under a FINRA rule or an Exchange Act rule keeps it, and the residual never lengthens it.
- The format duty travels with every FINRA record. Anything required to be made under the FINRA rules is preserved in a format and media that complies with the federal retention rule, whatever period applies.
Which Records of Original Entry and Ledgers Must a Firm Make?
The records to be made rule starts with the record of original entry that sits behind every order memorandum.
- Blotters, or other records of original entry. These contain an itemized daily record of all purchases and sales of securities, including security-based swaps; all receipts and deliveries of securities, including certificate numbers; all receipts and disbursements of cash; and all other debits and credits.
- What the blotter must show. The account for which each purchase or sale was effected, the name and amount of securities, the unit and aggregate purchase or sale price if any, the trade date, and the name or other designation of the person from whom the securities were purchased or received or to whom sold or delivered.
Four further record groups follow.
| Record | What it must reflect |
|---|---|
| Ledgers, or other records | All assets and liabilities, income and expense and capital accounts |
| Ledger accounts, or other records | Itemized separately as to each cash, margin or security-based swap account of every customer and of the member, broker or dealer and its partners: all purchases, sales, receipts and deliveries of securities and commodities for that account, and all other debits and credits to that account |
| Ledgers, or other records | Securities in transfer; dividends and interest received; securities borrowed and securities loaned; moneys borrowed and moneys loaned, together with a record of the collateral and any substitutions in it; securities failed to receive and failed to deliver; all long and all short securities record differences arising from the examination, count, verification and comparison, by date of that examination, count, verification and comparison, and showing for each security the number of long or short count differences; and repurchase and reverse repurchase agreements |
| Securities record or ledger | Reflecting separately for each security, other than a security-based swap, as of the clearance dates, all long or short positions, including securities in safekeeping and securities that are the subjects of repurchase or reverse repurchase agreements, carried for the firm's account or for the account of its customers or partners or others |
The securities record carries three further requirements inside that last row.
- It shows the location of all securities long and the offsetting position to all securities short.
- It includes long security count differences and short security count differences, classified by the date of the physical count and verification in which they were discovered.
- In all cases it shows the name or designation of the account in which each position is carried.
Exam Tip: Gotchas
- The securities record does not stop at long and short locations. It also carries the count differences by the date of the physical count, and the name or designation of the account holding each position, in all cases.
- A ledger and a ledger account are different records. The ledgers reflect the firm's own assets, liabilities, income, expense and capital, while the ledger accounts are itemized account by account, for every customer and for the firm itself and its partners.
What Should You Check on Exam Day?
- Apply the six-year FINRA residual only where no FINRA or Exchange Act rule specifies a period for that record.
- Separate a ledger, which reflects the firm's own assets, liabilities, income, expense and capital, from a ledger account itemized account by account, for every customer and for the firm and its partners.
- On the securities record, look past long and short locations for the count differences by physical count date and the account designation in all cases.
- Sort by retention period: the blotter, asset, liability, income, expense and capital ledgers, the ledger accounts and the securities record are six-year records; the other ledgers, including transfers, dividends and interest, borrowings, fails and count differences, are three-year records.
- Check the first two years of any record, three-year or six-year, are in an easily accessible place.