Quick Answer
Books-and-records retention rules require broker-dealers to preserve different record categories for specified periods, keep certain records easily accessible, and continue preservation after ceasing securities business. Digital systems are permitted only when records are viewable, downloadable, reproducible, regulator-accessible, and protected through an audit trail or non-rewriteable, non-erasable storage.
Preservation is more than keeping a file. The firm must retain the right record for the right period, in a format that preserves its history and remains usable when requested.
How Long Must Each Record Be Preserved?
| Record category | Minimum preservation period | Accessibility requirement |
|---|---|---|
| Blotters, ledgers, and securities position records | 6 years | First 2 years easily accessible |
| Order memoranda, confirmations, and many other transaction records | 3 years | First 2 years easily accessible |
| Customer account opening and maintenance records | 6 years after account closing | Retained for the required period |
| Organizational documents and broker-dealer registration records | Life of the enterprise and any successor enterprise | Retained for the required period |
- Books-and-records rules: The firm's recordkeeping requirements operate with the Securities Exchange Act of 1934 recordmaking and records-retention requirements.
- Retention principle: A record remains preserved for its applicable period even if the firm stops conducting a securities business before that period ends.
- Blotters, ledgers, securities position records, order memoranda, confirmations, and many other transaction records must remain easily accessible during the first 2 years of their applicable preservation periods.
Exam Tip: Gotchas
- Stopping securities business does not end preservation duties. The firm still keeps each record for the remainder of its applicable retention period.
Which Electronic Preservation Method Is Permitted?
- Electronic recordkeeping system: A system may preserve required records digitally when records can be viewed and downloaded and the system meets records-retention requirements.
- Audit-trail method: The system maintains a complete time-stamped audit trail of modifications and deletions, allowing recreation of the original record.
- Non-rewriteable, non-erasable method: The system preserves records exclusively in a format that cannot be rewritten or erased.
- Automatic verification: The system automatically verifies the completeness and accuracy of its electronic storage and retention processes.
- Copies for the Commission: On request by a Securities and Exchange Commission representative, the firm promptly furnishes a legible, true, complete, and current copy of a required preserved record.
- Regulatory production: The system supports requested production in human-readable and reasonably usable electronic formats.
- Access and redundancy: A backup system or other redundancy ensures access if the original system is unavailable.
| Electronic system feature | Requirement |
|---|---|
| Time-stamped audit trail | Captures modifications and deletions, then permits recreation of the original record |
| Non-rewriteable, non-erasable storage | Prevents rewriting or erasing the stored record |
| Automatic verification | Checks the completeness and accuracy of electronic storage and retention processes |
Think of it this way: Electronic storage may replace paper, but it cannot erase the record's history. A usable system either preserves an unchangeable version or leaves a complete trail that can rebuild the original.
Exam Tip: Gotchas
- Electronic storage needs protected history and automatic verification. The audit-trail alternative must capture modifications and deletions and recreate the original record. The system also verifies the completeness and accuracy of its electronic storage and retention processes.
What Should You Check on Exam Day?
- Match each record category to its 3-year, 6-year, account-closing, or enterprise-life period. The last period includes any successor enterprise.
- Apply the first-2-years accessibility rule where required.
- Require viewable, downloadable, and regulator-usable electronic records.
- When a Securities and Exchange Commission representative requests a required preserved record, require prompt production of a legible, true, complete, and current copy.
- Look for either a complete time-stamped audit trail or exclusively non-rewriteable, non-erasable storage, plus automatic verification and access redundancy.