Recordkeeping Requirements
The final piece of the disclosure framework is recordkeeping. After all the required disclosures, confirmations, and privacy notices have been delivered, broker-dealers must create and preserve detailed records of their business activities. SEC Rules 17a-3 and 17a-4 establish these requirements.
Records to Be Made
Broker-dealers must create and maintain the following records:
- Trade blotters - chronological records of all purchases, sales, receipts, and deliveries
- Asset and liability ledgers
- Income and expense ledgers
- Customer account records - name, address, tax ID, employment, investment objectives, authorized persons
- Securities records - showing each security held, location, and ownership
- Order tickets - memorandum of each order, including time of receipt, execution, and terms
- Customer account information (consistent with FINRA Rule 4512)
- Written customer complaints and the firm's response
Records to Be Preserved
SEC Rule 17a-4 specifies how long each type of record must be retained.
| Record Type | Retention Period |
|---|---|
| Trade blotters, general ledgers, customer account records | 6 years |
| Order tickets, trade confirmations, account statements | 6 years |
| Communications (correspondence, advertising, internal memos) | 3 years (first 2 years in an easily accessible place) |
| Written customer complaints | 4 years |
| Employment applications, Form U4/U5 | 3 years after termination |
Storage Format
- Records must be maintained in a non-rewriteable, non-erasable format, also called Write Once, Read Many (WORM), or under the newer audit-trail alternative
- The exam focuses on the general retention requirements, not the technical details of electronic storage
Exam Tip: Gotchas
- Broker-dealer records must be non-rewriteable. The WORM requirement prevents a firm from quietly modifying or deleting historical records once they have been written.
The "Easily Accessible" Rule
For the 3-year communications retention period, the records must be kept in an easily accessible place for the first 2 years. After that, they can be moved to off-site or less accessible storage for the remaining year.
This means:
- Years 1-2: easily accessible
- Year 3: may be stored off-site or in archives
State Authority Limitations
- The North American Securities Administrators Association (NASAA) has not issued a model rule on broker-dealer books and records
- Federal law (Securities Exchange Act) limits state regulatory authority over broker-dealer recordkeeping
- However, the Series 63 exam tests the federal rules (17a-3 and 17a-4) as they apply to broker-dealers operating within a state
Exam Tip: Gotchas
The key retention periods to memorize: 6 years for most financial records (blotters, ledgers, confirmations, statements), 3 years for communications (first 2 in an easily accessible place), and 4 years for customer complaints. The 4-year period for complaints is the odd one out; it does not fit neatly into the 3-year or 6-year categories.