Broker-Dealer Books and Records
To close out this unit, let's look at the recordkeeping requirements that support everything you have learned about communications, advertising, and supervision. SEC Rules 17a-3 and 17a-4 specify what records broker-dealers must create and how long they must keep them.
SEC Rule 17a-3 - Records to Be Made
Broker-dealers must create and maintain specific records including:
- Blotters - daily records of all purchases, sales, receipts, deliveries, and payments
- Ledgers - customer and firm accounts
- Order memoranda - details of every order received, including time of entry, terms, and the person who accepted the order
- Customer account records - name, address, investment objectives, associated person responsible
- Records of communications with the public (advertising, correspondence subject to review)
- Customer complaints - all written complaints received
- Records related to associated persons - employment history, disciplinary actions
SEC Rule 17a-4 - Records to Be Preserved
Rule 17a-4 specifies retention periods for different types of records:
| Record Type | Retention Period |
|---|---|
| Blotters, ledgers, customer account records | 6 years |
| Order memoranda, confirmations, customer complaints | 3 years (first 2 years in an easily accessible place) |
| Communications with the public (advertising) | 3 years from last use |
| Written supervisory procedures | 3 years after last effective date |
| Partnership articles, corporate charter | Life of the enterprise + 3 years |
Electronic Storage
- Records may be maintained electronically if they meet SEC requirements
- The 2022 amendments added an audit-trail alternative to the traditional WORM (Write Once, Read Many) requirement
- Electronic systems must maintain a complete time-stamped audit trail of all modifications and deletions
- Firms using third-party recordkeeping services retain full responsibility for compliance
Exam Tip: Gotchas
- 6-year retention: blotters, ledgers, customer account records
- 3-year retention: order memoranda, confirmations, complaints, advertising, and written supervisory procedures
- The "first 2 years easily accessible" rule applies to 3-year records only, not 6-year records
- Partnership articles and corporate charters are kept for the life of the enterprise + 3 years
Connection to Communications Supervision
Broker-dealers must retain:
- Copies of all retail communications
- A sample of correspondence reviewed
- Records of principal approval for retail communications
These recordkeeping requirements support the firm's supervisory obligations under FINRA Rule 3110.
Federal vs. State Authority
| Authority | Role |
|---|---|
| SEC (Rules 17a-3, 17a-4) | Makes the rules about what records must be created and retained |
| FINRA (Rule 4511) | Requires members to comply with SEC recordkeeping rules |
| State Administrator | Can examine broker-dealer books and records but cannot make rules about what records must be kept |
Exam Tip: Gotchas
- The state Administrator can examine broker-dealer books and records but cannot make rules about what records must be kept. That authority belongs to the SEC and FINRA.
- The Series 63 tests this division of federal vs. state authority.