Expectations Under 17a-4 for Electronic Records

Here's a summary of the Books and Records rules, as they relate to electronic storage. This is technical, so it's okay if you get sleepy reading it... but it's a nice reference for when you need it.

SEC Rule 17a-3 and 17a-4

SEC Rule 17a-3 requires broker-dealers to make certain records, including trade blotters, asset and liability ledgers, income ledgers, customer account ledgers, securities records, order tickets, trade confirmations, trial balances and various employment related documents. Rule 17a-4 specifies the manner and length of time that the records maintained by broker-dealers must be preserved. In combination, Rules 17a-3 and 17a-4 require broker-dealers to create and preserve a comprehensive record of all securities transactions the broker-dealer effects and of the securities business in general. The SEC views these requirements as the primary means of monitoring compliance with the securities laws, including anti-fraud provisions and financial responsibility standards.

Email is one of the most significant communications applications of the modern era and is no doubt a book and record under Exchange Act Rules 17a-3 and 17a-4 if it is a communication related to a broker-dealer's "business as such." The key requirements with regards to email archiving gleaned from SEC Rule 17a-4 are as follows:

SEC 240.17a-4(f)(2)(ii)(A)
"Preserve the records exclusively in a non-rewritable, non-erasable format."

SEC 240.17a-4(f)(2)(ii)(B)
"Verify automatically the quality and accuracy of the storage media recording process."

SEC 240.17a-4(f)(2)(ii)(C)
"Serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media."

SEC 240.17a-4(f)(2)(ii)(D)
"Have the capacity to readily download indexes and records preserved on the electronic storage media to any medium acceptable under this paragraph (f) as required by the Commission or the self-regulatory organizations of which the member, broker, or dealer is a member."

SEC 240.17a-4(f)(3)(i)
"At all times have available, for examination by the staffs of the Commission and self-regulatory organizations of which it is a member, facilities for immediate, easily readable projection or production of micrographic media or electronic storage media images and for producing easily readable images."

SEC 240.17a-4(f)(3)(ii)
"Be ready at all times to provide, and immediately provide, any facsimile enlargement which the Commission or its representatives may request."

SEC 240.17a-4(f)(3)(iii)
"Store separately from the original, a duplicate copy of the record stored on any medium acceptable under Rule 17a-4 for the time required."

SEC 240.17a-4(f)(3)(iv)
"Organize and index accurately all information maintained on both original and any duplicate storage media."

SEC 240.17a-4(f)(3)(iv)(A)
"At all times, a member, broker, or dealer must be able to have such indexes available for examination by the staffs of the Commission and the self-regulatory organizations of which the broker or dealer is a member."

SEC 240.17a-4(f)(3)(iv)(B)
"Each index must be duplicated and the duplicate copies must be stored separately from the original copy of the index."

SEC 240.17a-4(f)(3)(iv)(C)
"Original and duplicate indexes must be preserved for the time required for the indexed records."

SEC 240.17a-4(f)(3)(v)
"The member, broker, or dealer, must have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved pursuant to Rules 17a-3 and 17a-4 to electronic storage media and inputting of any changes made to every original and duplicate record maintained and preserved thereby."

SEC 240.17a-4(f)(3)(v)(A)
"At all times, a member, broker, or dealer must be able to have the results of such audit system available for examination by the staffs of the Commission and the self-regulatory organizations of which the broker or dealer is a member."

SEC 240.17a-4(f)(3)(v)(B)
"The audit results must be preserved for the time required for the audited records."

SEC 240.17a-4(f)(3)(vi)
"The member, broker, or dealer must maintain, keep current, and provide promptly upon request by the staffs of the Commission or the self-regulatory organization of which the member, broker, or broker-dealer is a member all information necessary to access records and indexes stored on the electronic storage media; or place in escrow and keep current a copy of the physical and logical file format of the electronic storage media, the field format of all different information types written on the electronic storage media and the source code, together with the appropriate documentation and information necessary to access records and indexes."

SEC 240.17a-4(f)(3)(vii)
"For every member, broker, or dealer exclusively using electronic storage media for some or all of its record preservation under this section, at least one third party (the undersigned), who has access to and the ability to download information from the member's, broker's, or dealer's electronic storage media to any acceptable medium under this section, shall file with the designated examining authority for the member, broker, or dealer the following undertakings with respect to such records."