[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Proposed Rules]
[Pages 55593-55602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27611]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-37850; File No. S7-27-96]
RIN 3235-AH04
Books and Records Requirements for Brokers and Dealers Under the
Securities Exchange Act of 1934
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Commission is proposing for comment amendments to the
broker-dealer books and records rules. The proposed amendments clarify,
modify, and expand recordkeeping requirements with respect to purchase
and sale documents, customer records, associated person records,
customer complaints, and certain other matters. In addition, the
proposed amendments specify certain types of books and records that
broker-dealers must make available in their local offices. The
Commission is proposing amendments to the books and records rules in
response to certain concerns raised by members of the North American
Securities Administrators Association (``NASAA''). The proposed
amendments are intended to obligate broker-dealers to make and retain
certain additional records that would be valuable to state regulators
during examination and enforcement proceedings.
DATES: Comments must be received on or before December 27, 1996.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Stop 6-9, Washington, DC 20549. Comments may also be submitted
electronically at the following E-mail address: [email protected].
All comment letters should refer to File No. S7-27-96. All comments
received will be available for public inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, NW., Washington,
DC 20549. Electronically submitted comment letters will be posted on
the Commission's Internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, (202) 942-
0131; Peter R. Geraghty, (202) 942-0177; or Matthew G. McGuire, (202)
942-7103; Office of Risk Management and Control, Division of Market
Regulation, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549.
[[Page 55594]]
SUPPLEMENTARY INFORMATION:
I. Introduction
Section 17(a)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') requires registered broker-dealers to make, keep, furnish, and
disseminate records and reports prescribed by the Commission ``as
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of'' the
Exchange Act.\1\ Rules 17a-3 and 17a-4 under the Exchange Act specify
minimum requirements with respect to the records that must be made by
broker-dealers as well as the periods during which such records and
other documents relating to the broker-dealer's business must be
preserved.\2\
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\1\ 15 U.S.C. 78q(a)(1).
\2\ 17 CFR 240.17a-3 and 240.17a-4.
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In 1993, a NASAA Committee (``NASAA Committee'') commenced work on
a model state regulation to supplement the books and records
requirements set forth in Rules 17a-3 and 17a-4. The NASAA Committee
observed that the existing Commission books and records requirements do
not obligate broker-dealers to make and retain certain types of records
that would be valuable to state regulators during examination and
enforcement proceedings. In addition, the NASAA Committee noted that
several states had commenced independent efforts to develop
supplemental books and records requirements and expressed concern about
the potential difficulties that would result if inconsistent books and
records requirements emerged from these independent efforts.
The NASAA Committee determined that supplementary rules should be
required with respect to purchase and sale documentation, registered
representatives, customer investment objectives, customer complaints,
exceptional or unusual numerical occurrences, background information on
underwritten or recommended securities, communications, contracts and
agreements, marketing materials, and licenses. In addition, the NASAA
Committee determined that supplemental requirements should specify the
types of records that broker-dealers must make available in each of
their local offices and should contain requirements obligating broker-
dealers to cooperate with inspections and investigations by state
regulators. The NASAA Committee released a final draft of its model
regulation (``NASAA Model'') in August 1995, which it presented for
membership approval at NASAA's October 1995 meeting.
At the October meeting, the Commission Chairman stated that
supplemental state books and records requirements would impose a
substantial burden on broker-dealers because of the likelihood that
each state's requirements would not be consistent with those adopted by
other states. The Chairman further noted that modification of the
Commission's books and records rules would be a considerably less
burdensome means of accomplishing the NASAA members' objectives than
would be the development of supplemental state requirements. The NASAA
membership thereafter voted to defer taking further action with respect
to the NASAA Model in order to give the Commission an opportunity to
develop appropriate amendments to its books and records rules.\3\
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\3\ The Commission notes that the National Securities Markets
Improvement Act of 1996, signed by the President on October 11,
1996, contains a provision that prohibits states from adopting
supplement books and records requirements.
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II. Proposed Amendments and Discussion
In preparing the proposed amendments to Rules 17a-3 and 17a-4,
Commission staff members met with the NASAA Committee on several
occasions to discuss the specific concerns of state securities
regulators. The NASAA Committee advised that state examinations of
broker-dealers are frequently hindered by the absence of relevant
records in local offices, by long delays in producing required records
from a central location, and by poorly organized records. In addition,
the NASAA Committee reported that certain provisions of the
Commission's current books and records rules have been interpreted
differently by broker-dealers, regulators, hearing officers, and
courts, and that clarification of the requirements of such provisions
would assist regulatory enforcement initiatives. Finally, the NASAA
Committee indicated that requiring broker-dealers to maintain certain
additional types of books and records would facilitate state
regulators' efforts to monitor and control the broker-dealer industry
and would increase levels of customer protection.
In general, the proposed amendments to Rule 17a-3 will require
broker-dealers to generate local office blotters, to record
supplemental information on brokerage order memoranda, to create
customer account forms, and to maintain additional records concerning
associated persons, customer complaints, and exceptional numerical
occurrences. The proposed amendments to Rule 17a-4 will require broker-
dealers to preserve certain additional types of records, including
advertising and marketing materials, registrations and licenses, audit
and examination reports, records concerning recommended securities, and
manuals relating to compliance, supervision, and procedures. In
addition, the proposed amendments to Rule 17a-4 will clarify and modify
the Commission's existing requirements concerning preservation of
certain correspondence and contracts. Finally, the proposed amendments
to Rule 17a-4 will supplement the existing standards concerning the
organization of books and records, will require broker-dealers to
designate a principal to be responsible for books and records
compliance, and will require broker-dealers to make certain records
available in each of their local offices. A discussion of the proposed
amendments follows.
A. Blotters and Memoranda
Rule 17a-3(a)(1) specifies the Commission's current requirements
concerning records of purchases and sales of securities, receipts and
deliveries of securities, and receipts and disbursements of cash. The
proposed amendments will add a requirement that records of purchases
and sales of securities for customer accounts be accessible with
respect to the activities of each local office.
The proposed amendments also specify certain additional information
that broker-dealers will be required to include in the memoranda of
brokerage orders currently required by Rule 17a-3(a)(6). Existing
requirements specify that brokerage memoranda include information
concerning the terms and conditions of the order, the account for which
the order is entered, the times of entry and execution, and the
execution price. The proposed amendments add requirements that each
memorandum indicate which associated person entered the order and also
indicate whether the order was solicited or unsolicited.
B. Additional Records Concerning Associated Persons
Rule 17a-3(a)(12) currently specifies the types of records that a
broker-dealer must maintain with respect to each of its associated
persons. In addition to basic background information, the existing rule
requires a broker-dealer to maintain records of each associated
person's employment and disciplinary history. The proposed amendments
will add a new Rule 17a-3(a)(20), which designates several
supplementary types of associated person records that a
[[Page 55595]]
broker-dealer must maintain. These new records include registration and
licensing materials, agreements between associated persons and the
broker-dealer, customer complaint information, and client trading
records for each associated person. It is the view of the Commission
that many of these supplemental records consist of documents that
broker-dealers would routinely keep in the course of operating their
businesses. However, the NASAA Committee has indicated that a statutory
specification of the precise records that broker-dealers must maintain
with respect to associated persons will facilitate inspection and
enforcement actions by regulatory authorities.
In addition, proposed Rule 17a-3(a)(21) will add a requirement that
broker-dealers maintain a list identifying each of their associated
persons and designating the local office where each associated person
conducts the greatest portion of his or her business. The NASAA
Committee has indicated that state investigations are sometimes delayed
because broker-dealers store associated person records in several
offices. Proposed Rule 17a-3(a)(21), in conjunction with proposed Rule
17a-4(l)(1), is intended to address this issue. In combination, these
rules will require all records concerning each associated person to be
stored where such associated person conducts most of his or her
business.
C. Account Forms
Proposed Rule 17a-3(a)(16) creates a new Commission requirement
that broker-dealers maintain an account form for each customer account.
The required account form will include basic identification and
background information about a customer, as well as a designation of
the customer's investment objective(s) and a specification of the
approximate percentage of investment capital that the customer would
like to allocate to speculative investments. The associated person
responsible for each account and a principal of the broker-dealer must
sign or initial each account form to indicate approval of the contents.
It is the understanding of the Commission that most broker-dealers
currently collect and maintain records of most of the information that
they will be required to include on the proposed account forms.
Proposed Rule 17a-3(a)(16) will apply with respect to both new and
existing customer accounts. The Commission recognizes that it will be
difficult as a practical matter for broker-dealers to prepare the
required account forms for existing customers immediately upon adoption
of the new rule. Accordingly, the Commission initially proposes a one-
year period from the date of adoption of the proposed rule as an
appropriate time frame for broker-dealers to comply with respect to
existing customer accounts. The Commission is expressly soliciting
comments concerning the feasibility of this phase-in period.
Proposed Rule 17a-3(a)(16) also will require that the material
contents of a new or changed customer account form be sent to the
customer for confirmation. In order to minimize burdens and allow
maximum flexibility for broker-dealers who send communications to their
customers from a central location, the proposed rule will permit a
broker-dealer to send a customer an alternate document containing a
copy of the material contents of the account form rather than a copy of
the account form itself. In addition, the proposed rule will not
require that the signatures or initials of the associated person and
principal of the broker-dealer be included on any alternate document
sent to a customer for confirmation.
Proposed Rule 17a-3(a)(16) will require a designation on account
forms of each customer's investment objective(s) from a list of defined
objectives. In instances where a customer designates multiple
objectives, one of which includes speculation, the proposed rule will
require a specification of the approximate percentage or range of
percentages of investment capital to be dedicated to speculation. The
proposed amendments do not include a definition of the term
``speculation.'' Accordingly, the Commission is expressly requesting
comments concerning whether such a definition should be provided and
suggesting possible definitions.
The Commission recognizes that the percentage of speculative
investments in a customer's portfolio could change as a result of
numerous factors outside of a broker-dealer's control, including
changes in the relative market prices of securities, changes in the
characterizations of specific securities (e.g., non-speculative to
speculative), or changes in a portfolio resulting from customer actions
such as adding to or withdrawing funds from the account. Accordingly,
broker-dealers might interpret the proposed rule as implying an
obligation to monitor all customer accounts for adherence to the
designated speculative percentage or might be concerned that the
designated speculative percentage provided on the customer account form
will serve as dispositive evidence of a broker-dealer's failure to
fulfill its suitability obligations if at any time a customer's
speculative holdings exceed such percentage.
In response, the Commission notes that the requirements to
designate a speculative percentage are not intended to create any
monitoring obligation. In addition, while the designated percentage
will be useful in assessing the suitability of recommendations made by
a broker-dealer, it is only a factor to be considered in determining
whether a broker-dealer has fulfilled its suitability obligations to a
particular customer.
The Commission recognizes that a customer's financial situation and
investment preferences will vary over time. In order to ensure that the
required account forms have enduring value as an indicator of customer
choices, proposed Rule 17a-3(a)(16) includes a one-year updating
requirement with respect to the investment objectives designated on
each customer's account form. The Commission is aware of the potential
burdens presented by the annual updating requirement. Accordingly, the
Commission is expressly soliciting suggestions of less burdensome
alternatives that would nevertheless provide broker-dealers and
regulators with a reasonably current indication of each customer's
investment objectives.
The Commission also recognizes that the nature of the businesses of
certain types of broker-dealers may render unnecessary the account form
requirements of proposed Rule 17a-3(a)(16). Therefore, the Commission
is expressly soliciting suggested standards for the exemption of
categories of broker-dealers from the proposed account form
requirements.
D. Complaints
Rules 17a-3 and 17a-4 do not currently contain any express
requirements concerning oral or written customer complaints that are
delivered to a broker-dealer. The proposed amendments add a new Rule
17a-3(a)(17), which will require broker-dealers to maintain files of
written materials relating to customer complaints. In addition,
proposed Rule 17a-3(a)(17) will require broker-dealers to make and keep
written memoranda of oral customer complaints alleging certain types of
fraud and theft.
In drafting the Rule 17a-3(a)(17) memoranda requirement, the
Commission attempted to respond to the NASAA Committee's view that such
memoranda would be of considerable value to state regulators in their
efforts to identify particularly problematic registered representatives
and broker-
[[Page 55596]]
dealer offices. However, in order to avoid unnecessary burdens, the
rule does not require a written memorandum where an oral customer
complaint is the result of customer misunderstanding or
misinterpretation and the complaint is quickly and completely explained
or resolved to the customer's satisfaction. This exception to the
written memorandum requirement specifies that a customer who makes such
an oral complaint must be advised to send a written complaint if the
customer remains unsatisfied with the broker-dealer's explanation or
has further concerns regarding the matter.
Proposed Rule 17a-3(a)(17) expressly specifies that the requirement
to prepare a written memorandum concerning certain oral complaints does
not convert the complaint into a reportable event for purposes of Form
U-4 or other reporting requirements. In addition, proposed Rule 17a-
3(a)(17) requires broker-dealers to provide routine notification in
account statements that customers should set their complaints in
writing in order to establish an independent record of the complaint.
This final requirement is intended to address the NASAA Committee's
concern that some broker-dealers have adopted a practice of
discouraging their customers from delivering written complaints.
E. Other Required Records
In addition to the records described in the preceding paragraphs,
the proposed amendments to Rule 17a-3 will require broker-dealers to
create commission and compensation records and activity reports of
unusual numerical occurrences, such as frequent trading in customer
accounts, unusually high commissions, or an unusually high number of
trade corrections or cancelled transactions. The proposed amendments
will also modify the definition of ``associated person'' in Rule 17a-
3(a)(12)(ii) to codify an existing interpretation of such term.
The proposed amendments will add several new items to the record-
preservation requirements of Rule 17a-4.4 The new types of records
include copies of advertisements and marketing materials, information
relating to underwritten or recommended securities, registrations and
licenses, audit and examination reports, and manuals relating to
compliance, supervision, and procedures. Furthermore, the proposed
amendments will augment and clarify the existing record maintenance
standards set forth in Rule 17a-4(b)(4) with respect to communications
and in Rule 17a-4(b)(7) with respect to written agreements.
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\4\ In addition, the proposed amendments include a modification
of Rule 17a-4(b)(8) that corrects a typographical error.
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F. Record Retention Periods
Rules 17a-4(a) and 17a-4(b) currently require broker-dealers to
preserve specified types of records for six and three years,
respectively. In addition, Rule 17a-4(a) records must be maintained for
the first two years in an ``easily accessible place,'' while Rule 17a-
4(b) records must be maintained for the first two years in an
``accessible place.''
The NASAA Committee has indicated that the designated record
retention periods in Rules 17a-4(a) and 17a-4(b) do not provide clear
standards to state regulators concerning record accessibility
requirements. In addition, the Commission believes that advances in
record-storage technologies and decreased reliance on paper records by
broker-dealers have minimized the relevance of the provisions in such
rules that vary the accessibility requirements during the designated
record retention periods. Accordingly, the proposed amendments modify
Rules 17a-4(a) and 17a-4(b) to require broker-dealers to maintain the
specified records in an ``easily accessible place'' for the entire
retention period. The Commission expressly requests comments concerning
any burdens that might be imposed on broker-dealers by this proposed
modification.
G. Record Form and Access
The NASAA Committee has advised the Commission that some
inspections and investigations of broker-dealers are hindered by delays
in producing records or by poorly maintained records. While the
Commission is sensitive to the importance of this issue, the Commission
and members of the NASAA Committee share the view that obligations to
cooperate with inspections and investigations by state securities
authorities should be addressed primarily through state regulations
rather than through the Commission's books and records rules.
Accordingly, the NASAA Committee has prepared a model production and
access rule attached as Exhibit A to this document. The model
production and access rule sets cooperation standards for broker-
dealers and references Rules 17a-3 and 17a-4 with respect to
substantive record-keeping requirements. It is our understanding that
the NASAA Committee intends to submit this model production and access
rule to the NASAA membership for adoption.
The proposed amendments will modify and augment the Commission's
current record production and organization requirements set forth in
Rule 17a-4(j) in order to make these requirements consistent with
correlating provisions in NASAA's proposed model production and access
rule. Similarly, the proposed amendments establish a definition for the
term ``promptly'' in Rule 17a-4(j) that is consistent with the document
production obligations in NASAA's proposed model production and access
rule. The definition specifies that requested records must be produced
immediately when the records are located in the office where the
request is made and within three business days if the requested records
are not located in such office.
H. Local Office Access; Designation of Principal
Proposed Rule 17a-4(l) will adopt a new requirement that broker-
dealers make available certain records in each of their local offices.
This proposed requirement was developed to address the NASAA
Committee's concern that storage of records in distant locations can be
an impediment to some inspections and investigations. The records that
must be available in local offices consist of items that the NASAA
Committee believes are essential to conducting effective inspections.
Required records include certain blotters of the local office's
activities, memoranda of brokerage orders, complaint and correspondence
files, associated person records, and customer account forms. In order
to accommodate centralized electronic record storage systems used by
some broker-dealers and to minimize the overall burden of the local
office requirements, proposed Rule 17a-4(l) specifies that the ability
to display the necessary records electronically in a local office and
immediately produce printed copies will satisfy the rule. The
Commission also attempted to minimize the burden of this proposed rule
by limiting the local office record availability period to three years.
In addition, broker-dealers can comply with the proposed rule's
requirements with respect to single-agent offices if the required local
office records are made available in certain other offices of the
broker-dealer.
Finally, proposed Rule 17a-4(k) will require each broker-dealer to
designate a principal for purposes of the books and records rules. The
designated principal's responsibilities include indicating approval of
records such as outgoing correspondence and marketing materials.
[[Page 55597]]
III. Request for Comments
The Commission invites interested persons to submit written
comments on the proposed amendments. As noted above, the Commission
specifically requests comments from broker-dealers on the feasibility
of the proposed one-year phase-in period with respect to the account
form requirement for existing customers, on possible definitions for
the term ``speculation,'' on possible alternatives to the annual
account form investment objective updating requirement, on the
desirability of exempting certain categories of broker-dealers from the
proposed account form requirement, and on the desirability of modifying
the record accessibility requirements of Rules 17a-4(a) and 17a-4(b).
IV. Costs and Benefits of the Proposed Amendments and Their Effects on
Competition
To assist the Commission in its evaluation of the costs and
benefits that may result from the proposed amendments to Rules 17a-3
and 17a-4, commenters are requested to provide analyses and data
relating to costs and benefits associated with any of the proposals
herein. The Commission preliminarily believes that compliance burdens
presented by the proposed amendments will not be substantial and that
the proposed amendments will significantly increase levels of customer
protection.
In addition, section 23(a) of the Exchange Act requires the
Commission, in adopting rules under the Exchange Act, to consider the
anti-competitive effects of such rules, if any, and to balance any
impact against regulatory benefits gained in terms of furthering the
purposes of the Exchange Act.5 The Commission preliminarily has
considered the proposed amendments to Rules 17a-3 and 17a-4 in light of
the standards cited in section 23(a)(2) and believes preliminarily
that, if adopted, they would not likely impose any significant burden
on competition not necessary or appropriate in furtherance of the
Exchange Act, in that any burden imposed would be less than that
imposed by individual, and possibly divergent, state regulations. The
Commission solicits commenters' views regarding the effects of the
proposed rules on competition.
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\5\ See 15 U.S.C. 78w(a)(2).
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V. Summary of Initial Regulatory Flexibility Analysis
In accordance with 5 U.S.C. 603, the Commission has prepared an
Initial Regulatory Flexibility Analysis (``IRFA'') concerning the
proposed amendments. The IRFA notes that the purpose of the proposed
amendments is to facilitate the efforts of federal and state agencies
in protecting investors and indicates that the Commission believes that
the proposed amendments are necessary to ensure that registered broker-
dealers keep books and records that are sufficient to permit state and
federal regulators to undertake complete operational examinations. The
IRFA further indicates that the proposed amendments would affect all
broker-dealers, including the approximately 5,250 small broker-dealers,
but notes that the requirements of the proposed amendments were
designed to minimize additional burdens. The IRFA indicates that the
proposed amendments would require broker-dealers to adjust their
recordkeeping and reporting practices, to update certain customer
information records on an annual basis, and to modify their record
storage systems. The IRFA adds that no federal securities laws
duplicate, overlap, or conflict with the proposed amendments and states
that the Commission does not believe that any less burdensome
alternatives are available to accomplish the objectives of the proposed
amendments.
The Commission encourages the submission of written comments with
respect to any aspect of the IRFA. Written comments will be considered
in preparation of the Final Regulatory Flexibility Analysis, if the
proposed amendments are adopted. Such comments will be placed in the
same public file as that designated for the proposed amendments
themselves. A copy of the IRFA may be obtained by contacting Matthew G.
McGuire, Division of Market Regulation, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549, (202) 942-
7103.
VI. Paperwork Reduction Act
Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995,6 and the Commission has submitted them to
the Office of Management and Budget for review in accordance with 44
U.S.C. 3507(d) and 5 CFR 1320.11. The title for the collection of
information is: ``Proposed Books and Records Amendments.''
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\6\ 44 U.S.C. 3501 et seq.
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A. Collection of Information Under Proposed Books and Records
Amendments
The Proposed Books and Records Amendments would require registered
broker-dealers to maintain information with respect to purchase and
sale documents, customer information, associated person information,
customer complaints, and certain other matters.
B. Proposed Use of Information
The information collected pursuant to the Proposed Books and
Records Amendments would be used by the Commission, self-regulatory
organizations, and representatives of state securities regulatory
authorities. No governmental agency or third party would regularly
receive any of the information described above. The Commission, self-
regulatory organizations, and state securities regulatory authorities
would use the records required by the Proposed Books and Records
Amendments in examinations and investigations of broker-dealers.
C. Respondents
The Proposed Books and Records Amendments would apply with respect
to all of the approximately 8,500 broker-dealers that are currently
registered with the Commission. However, most of the provisions of the
Proposed Books and Records Amendments would apply only with respect to
the approximately 5,300 broker-dealers who do business with the general
public.
D. Total Annual Reporting and Recordkeeping Burden
The hour burden of the Proposed Books and Records Amendments would
vary widely because of differences in the levels of activities of the
respondents and because of differences in the current recordkeeping
systems of the respondents. Most of the requirements of the Proposed
Books and Records Amendments involve collections of information that
typical broker-dealers already maintain as customary and usual business
practices or in compliance with existing regulations. Accordingly, the
additional annual burden created by most of the new requirements of the
Proposed Books and Records Amendments will not be substantial.
The Commission believes that the only provision of the Proposed
Books and Records Amendments that will present a significant new burden
to broker-dealers is the annual account form updating requirement of
proposed Rule 17a-3(a)(16). Broker-dealers currently maintain
approximately 46,000,000 customer accounts. The Commission estimates
that approximately 10% of the customer accounts of a typical broker-
dealer will require updating each year and that it
[[Page 55598]]
will require approximately five minutes for a typical broker-dealer to
update each such customer account. Thus, the Commission estimates that
approximately 383,333 hours (five minutes times 4,600,000 updated
customer accounts) would be required by the account form updating
requirement of proposed Rule 17a-3(a)(16) in each year.
Other than the account form updating requirement, the provisions of
the Proposed Books and Records Amendments should create only minimal
annual compliance burdens. Variables relating to the recordkeeping
practices and levels of customer business of broker-dealers make it
difficult to estimate the precise burden of the Proposed Books and
Records Amendments. However, based on conversations with members of the
securities industry and based on the Commission's experience in this
area, the Commission estimates that, in addition to the requirement of
updating account forms pursuant to the provisions of proposed Rule 17a-
3(a)(16), the Proposed Books and Records Amendments should result in an
increase of approximately 2% of the time that a typical broker-dealer
spends making records required by Rule 17a-3 and an increase of
approximately 2% of the time that a typical broker-dealer spends making
records required by Rule 17a-4.
The current estimate of the time required to comply with the
existing provisions of Rule 17a-3 is one hour per broker per working
day. Thus, the Commission estimates that complying with the proposed
amendments to Rule 17a-3 (other than updating account forms pursuant to
proposed Rule 17a-3(a)(16)) should require an additional 42,330 hours
per year (1.2 minutes per working day times 249 working days times
8,500 broker-dealers). The current estimate of the time required to
comply with the existing provisions of Rule 17a-4 is also one hour per
broker per working day. Thus, the Commission also estimates that
complying with the proposed amendments to Rule 17a-4 should require an
additional 42,330 hours per year (1.2 minutes per working day times 249
working days times 8,500 broker-dealers).
In addition to the time necessary to make the required records, the
Proposed Books and Records Amendments would also impose burdens on
respondents in connection with storing the new types of records and in
connection with complying with new record access requirements.
Variations in the current record storage systems of respondents make it
difficult for the Commission to provide any meaningful estimate of the
costs of these burdens to a typical respondent. To the extent that the
additional records required by the Proposed Books and Records
Amendments can be stored and produced for inspection by electronic
means, the additional costs should not be substantial.
Finally, the Proposed Books and Records Amendments will impose
burdens on respondents in connection with necessary modifications to
their record storage systems. Variations in the current record storage
systems of respondents make it difficult for the Commission to provide
any meaningful estimate of the costs of these burdens to a typical
respondent. However, the Commission notes that such burdens would be
one-time expenses rather than recurring costs.
E. General Information about the Collection of Information
The collection of information under the Proposed Books and Records
Amendments would be mandatory. The information collected pursuant to
Rules 17a-3(a) (17), (19), and (21) would be retained for six years.
The information collected pursuant to Rules 17a-3(a)(18), 17a-4(b)(4),
(7), (10), and (11), and 17a-4(e)(5) would be retained for three years.
The information collected pursuant to Rule 17a-4(a)(16) would be
retained for six years following the closing of the related customer's
account. The information collected pursuant to Rule 17a-4(d) would be
retained for the life of the enterprise or any successor enterprise.
The information collected pursuant to Rule 17a-3(a)(20) would be
retained for three years following the termination of employment or
other connection with the broker-dealer of the related associated
person. The information collected pursuant to Rule 17a-4(e)(6) would be
retained for three years after the date of the termination of use of
such information. In general, the information collected pursuant to the
Proposed Books and Records Amendments would be held by the respondent.
The Commission, self-regulatory organizations, and state securities
regulatory authorities would only gain possession of the information
upon request. Any information received by the Commission pursuant to
the Proposed Books and Records Amendments would be kept confidential,
subject to the provisions of the Freedom of Information Act, 5 U.S.C.
552.
F. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
(i) Evaluate whether the proposed collection of information is
necessary for the proposed performance of the functions of the agency,
including whether the information shall have practical utility;
(ii) Evaluate the accuracy of the Commission's estimate of the
burden of the proposed collection of information;
(iii) Enhance the quality, utility, and clarity of the information
to be collected; and
(iv) minimize the burden of collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms of information technology.
Persons desiring to submit comments on the collection of
information requirements should direct them to the Office of Management
and Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and should also send a copy of their comments to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Washington, DC 20549, and refer to File No. S7-27-96. OMB is
required to make a decision concerning the collections of information
between 30 and 60 days after publication of this release in the Federal
Register, so a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of this publication.
VII. Statutory Analysis
The amendments are proposed pursuant to the authority conferred on
the Commission by section 17(a)(1) of the Exchange Act.
List of Subjects in 17 CFR Part 240
Brokers; Reporting and recordkeeping requirements; Securities.
For the reasons set forth in the preamble, Title 17 Chapter II of
the Code of Federal Regulation is proposed to be amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78l, 78m, 78n,
78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23,
80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. Section 240.17a-3 is amended by adding a sentence at the end of
paragraph (a)(1), revising paragraph
[[Page 55599]]
(a)(6), adding paragraphs (a)(16), (a)(17), (a)(18), (a)(19), (a)(20),
and (a)(21), and (f) to read as follows, and removing and reserving
paragraph (a)(12)(ii):
Sec. 240.17a-3 Records to be made by certain exchange members, brokers
and dealers.
(a) * * *
(1) * * * The blotters (or other records of original entry)
containing an itemized daily record of all purchases and sales of
securities for accounts of customers of such member, broker or dealer
shall be maintained so that such records are accessible with respect to
the activities of each local office of such member, broker or dealer.
* * * * *
(6) A memorandum of each brokerage order, and of any other
instruction, given or received for the purchase or sale of securities,
whether executed or unexecuted. Such memorandum shall show: The terms
and conditions of the order or instructions and of any modification or
cancellation thereof; the account for which entered; the time of entry;
the price at which executed, if any; information identifying the
associated person who entered the order on behalf of the customer;
information identifying whether the transaction was solicited or
unsolicited; and, to the extent feasible, the time of execution or
cancellation. Orders entered pursuant to the exercise of discretionary
authority by such member, broker or dealer, or any associated person
thereof, shall be so designated. The term instruction shall be deemed
to include instructions between partners and employees of a member,
broker or dealer. The term time of entry shall be deemed to mean the
time when such member, broker or dealer transmits the order or
instruction for execution or, if it is not so transmitted, the time
when it is received.
* * * * *
(12) * * *
(ii) [Reserved]
* * * * *
(16) An ``account form'' for every customer account:
(i) Each account form shall be approved by the associated person
responsible for such account (who, in the case of a new account, shall
be the associated person who opened such account) and a principal of
the member, broker or dealer. Approval by the associated person and
principal shall be indicated by signature or individual initials and
date of signature or initialing on each account form. A member, broker
or dealer shall send to each customer, no later than 30 calendar days
after the date of the first transaction execution for the account of
such customer, a copy of such customer's account form or an alternate
document containing all required information set forth on such account
form. The account form or alternate document shall include or be
accompanied by a prominent statement advising the customer that, if any
information on the account form or alternate document is incorrect, the
customer should mark any corrections and return the account form or
alternate document to the member, broker or dealer. Within 30 days of
receipt from a customer of any corrections or changes to the contents
of an account form or alternate document, a member, broker or dealer
shall send a copy of the revised account form or alternate document to
such customer and to the associated person who is responsible for such
customer's account.
(ii) Each account form shall contain the following information:
(A) For natural persons, the customer's name, Social Security
number (or other identifying tax number), address and telephone number,
age, marital status and number of dependents, educational level,
employment status including occupation and employer's name, annual
income, and net worth (excluding value of primary residence). In the
case of a joint account, such information shall be included for each
individual on the joint account.
(B) For customers other than natural persons, the name of the
entity, its address, telephone number, Internal Revenue Service
employer identification number, and the name and telephone number of
the individual or individuals at that entity authorized to effect
securities transactions in that account.
(C) A designation of the customer's investment objective(s), from a
list of objectives that shall include a definition of each category of
objective in simple language. If speculation or a similar high-risk
objective is among the alternatives presented, such objective must be
presented as an independent category on the list of objectives and may
not be presented on the list in combination with any other category of
objective. Any definition of speculation or a similar high-risk
objective shall state that such investments involve a high risk of loss
that may exceed the losses in general market averages on any specific
day or over a longer period of time. Where a customer designates
multiple investment objectives, and one of the objectives is
speculation or similar high-risk objective, the approximate percentage
or range of percentages of investment capital dedicated to speculation
or such similar high-risk objective shall be specified. No investment
objective shall be marked or otherwise indicated on an account form
unless specified or expressly authorized by the customer. The
investment objectives on customer account forms shall be designated
upon opening a new account and updated, if required, on an annual basis
thereafter.
(iii) The neglect, refusal, or inability of a customer to provide
the required information for such customer's account form shall excuse
a member, broker or dealer from obtaining such required information,
provided that the member, broker or dealer maintains a written
memorandum of such customer's neglect, refusal, or inability to provide
the required information.
(17)(i) Customer complaint files containing all correspondence,
memoranda, and other documents received or generated in connection with
any complaint by or on behalf of a customer. Customer complaint files
shall also include a record showing what action, if any, has been taken
by the member, broker or dealer in response to each complaint. Customer
complaint files must be accessible by associated person name and local
office location. Each local office shall maintain a customer complaint
file that can be sorted by associated person name for all complaints
involving that office. Local office customer complaint files shall
include, at a minimum, the complaint and the response or resolution, if
any.
(ii) Any oral complaint from a customer received by an employee of
a member, broker or dealer alleging facts that, if true, would
constitute theft, conversion of funds or securities, unauthorized
trading, churning, misrepresentation or lack of material disclosure,
lack of suitability, or falsification of records, must be noted in a
memorandum containing the name and address of the complainant, the
customer account number, and the date of the complaint. The memorandum
shall be prepared by a branch manager, principal, or compliance
department employee of the member, broker or dealer. For purposes of
Form U-4 and other reporting requirements, the preparation of such a
memorandum shall not convert an oral complaint into a reportable event.
It shall not be necessary to prepare a memorandum of an oral complaint
in instances where:
(A) The oral complaint is clearly the result of a misunderstanding
or misinterpretation by the customer;
(B) The nature of the misunderstanding or misinterpretation
[[Page 55600]]
is fully explained to the customer by an employee of the member, broker
or dealer; and
(C) The employee who explains the misunderstanding or
misinterpretation also advises the customer that, if the customer is
not satisfied with the explanation or has further concerns regarding
the matter, the customer should send a written complaint to the broker-
dealer, and provides the customer with the appropriate address to send
such written complaint.
(iii) Every member, broker or dealer shall routinely notify its
customers in a prominent notice on its customer account statements that
customers should put their complaints in writing in order to establish
an independent record of the complaint. Such notice shall also advise
customers of the address and telephone number of the office or
department of the member, broker or dealer where complaints should be
directed.
(iv) Customer complaint files need not include copies of litigation
and arbitration documents if these documents are referenced in the
customer complaint files and such documents are readily available to
representatives of a securities regulatory authority.
(18) Records of all commissions, overrides, and other compensation
(including any bonus) identified by each transaction to the extent
earned or accrued specifically for that transaction, the person or
persons receiving the compensation, the customer account number, the
date the transaction occurred, the amount of compensation, and the name
of the security involved. To the extent that compensation is based on
factors other than remuneration per trade, such as a total production
system or bonus system, the member, broker or dealer must be able to
demonstrate and to document, upon request, the method by which the
compensation paid was earned.
(19) Activity reports to identify exceptional numerical
occurrences, such as frequent trading in customer accounts, unusually
high commissions, or an unusually high number of trade corrections or
cancelled transactions, for management's attention and information. For
the purpose of this paragraph (a)(19), the systems and criteria used to
generate such activity reports shall be determined by each member,
broker or dealer, as long as the system and its parameters are
reasonably designed to monitor levels of activity in accounts that may
warrant further review and analysis by management. Actual copies of
activity reports need not be retained by a member, broker or dealer if
the member, broker or dealer maintains through electronic storage the
data necessary to create or recreate promptly the required activity
reports upon request by representatives of a securities regulatory
authority.
(20) The following records with respect to each associated person
of such member, broker or dealer:
(i) All registration application forms (Form U-4), termination
forms (Form U-5), and amendments, which forms and amendments shall be
manually executed, including complete documentation as to any ``yes''
answer pertaining to disciplinary history on Form U-4 (including items
reported on a Disclosure Reporting Page).
(ii) All licenses or other documentation showing registration with
state securities jurisdictions or self-regulatory organizations.
(iii) All contracts and other records pertaining to the
relationship between each associated person and the member, broker or
dealer.
(iv) A summary of each associated person's compensation agreement
with the member, broker or dealer, including commission schedules and
details of any commission overrides.
(v) Copies of all written inquiries and customer complaints
concerning each associated person (for purposes of this paragraph
(a)(20)(v), a member, broker or dealer shall not be required to include
copies of litigation and arbitration documents among the required
records so long as such documents are referenced in the records and are
readily available for inspection by representatives of a securities
regulatory authority).
(vi) Records showing that upon every change in licensing affecting
an associated person, such associated person has been notified of such
change, including any restrictions or other provisions affecting the
associated person's license.
(vii) A client trading record listing all trades in chronological
order for all customers of each associated person, including the items
specified in paragraph (a)(1) of this section and the total dollar
amount of remuneration per trade (if applicable) to the associated
person (if remuneration is on other than a per-trade basis, such as on
a total production system or a bonus system for each office, the
records required by paragraph (a)(18) of this section shall apply in
lieu of the requirement to maintain remuneration records on a per trade
basis).
(21) A current list identifying any internally assigned number for
each associated person and a designation of the local office of the
member, broker or dealer where each associated person conducts the
greatest percentage of such associated person's business for such
member, broker or dealer.
* * * * *
(f) When used in this section:
(1) The term associated person shall mean a partner, officer,
director, salesman, trader, manager, or any employee handling funds or
securities or effecting any transactions in, or inducing or attempting
to induce the purchase or sale of any security, or otherwise soliciting
transactions or accounts for such member, broker or dealer.
(2) The term local office means any location where an associated
person regularly conducts the business of handling funds or securities
or effecting any transactions in, or inducing or attempting to induce
the purchase or sale of any security, or otherwise soliciting
transactions or accounts for a member, broker or dealer.
(3) The term principal shall mean an individual registered with the
National Association of Securities Dealers, Inc. as a principal or
branch manager of a member, broker or dealer.
(4) The term securities regulatory authority shall mean the
Commission, a state securities regulatory agency, or a self-regulatory
organization.
3. Section 240.17a-4 is amended by revising paragraphs (a), (b)(1),
(b)(4), (b)(7), (c), (d), (e)(1), (j), and the introductory text to
paragraph (b)(8), and adding paragraphs (b)(10), (b)(11), (e)(5),
(e)(6), (k), (l), and (m) and to read as follows:
Sec. 240.17a-4 Records to be preserved by certain exchange members,
brokers and dealers.
(a) Every member, broker and dealer subject to Sec. 240.17a-3 shall
preserve for a period of not less than six years in an easily
accessible place all records required to be made pursuant to
Sec. 240.17a-3(a)(1), (2), (3), (5), (17), (19) and (21).
(b) Every such member, broker and dealer shall preserve for a
period of not less than three years in an easily accessible place:
(1) All records required to be made pursuant to Sec. 240.17a-
3(a)(4), (6), (7), (8), (9), (10), and (18).
* * * * *
(4) Originals of all communications received and copies of all
communications sent by such member, broker or dealer (including inter-
office memoranda and communications) relating to its business, and a
record that all outgoing communications have been approved by a
principal of the member,
[[Page 55601]]
broker or dealer. Communications files shall be maintained in each
local office with respect to communications sent from or received by
that office, but communications sent from or received at a central
location of a member, broker or dealer may be maintained at such
central location. Records of principal approval of the outgoing
communications of a member, broker or dealer may be kept at a central
record storage location rather than at each local office.
Correspondence sent with identical text, including any handwritten
notes, to two or more customers may be recorded by one copy and a list
of recipients. All communications pertaining to a specific customer
account that are sent from or received at any local office of a member,
broker or dealer shall be preserved with all other communications
pertaining to that customer account that have been sent from or
received at the same local office.
* * * * *
(7) All written agreements (or copies thereof) entered into by such
member, broker or dealer relating to his business as such, including
agreements with respect to any account. Written agreements for purposes
of this paragraph (b)(7) shall include all written contracts, options
agreements, margin agreements, and discretionary trading agreements
between the customer and the member, broker or dealer. The customer
shall receive a copy of every written contract or agreement between the
customer and the member, broker or dealer.
(8) Records which contain the following information in support of
amounts included in the report prepared as of the audit date on Form X-
17A-5 (Sec. 249.617 of this chapter) Part II or Part IIA and in annual
audited financial statements required by Sec. 240.17a-5(d).
* * * * *
(10) All advertisements, marketing materials, sales scripts, and
other paper or electronic records, including audio and video tapes,
used by the member, broker or dealer or any associated person to offer
or sell any security. This provision includes documents and other
records that are intended exclusively for internal use. All documents
and other records used by the member, broker or dealer or any
associated person to offer or sell any security shall be approved by a
principal, a record of whose approval must be maintained.
(11) Any information relating to the basis for any recommendation
of a security by the member, broker or dealer with respect to each
security that is underwritten by the member, broker or dealer and each
security that the member, broker or dealer trades as principal and
recommends to its customers. The requirement of this paragraph (b)(11)
shall not be deemed to supersede the requirements of Sec. 240.15c2-11
with respect to any securities for which a member, broker or dealer
publishes quotations or submits such quotations for publication.
(c) Every such member, broker and dealer shall preserve for a
period of not less than six years after the closing of any customer's
account any account cards or records that relate to the terms and
conditions with respect to the opening and maintenance of such account
and any account forms required by Sec. 240.17a-3(a)(16).
(d) Every such member, broker and dealer shall preserve during the
life of the enterprise and of any successor enterprise all Forms BD
(Sec. 249.501 of this chapter), all Forms BDW (Sec. 249.501a of this
chapter), and amendments to such Forms, which Forms and amendments
shall be manually executed, all licenses or other documentation showing
registration with state securities jurisdictions and self-regulatory
organizations, and all organizational documents of the member, broker
or dealer.
(e) * * *
(1) All records required under paragraphs (a)(12) and (a)(20) of
Sec. 240.17a-3 until at least three years after the ``associated
person'' has terminated his employment and any other connection with
the member, broker or dealer.
* * * * *
(5) All audit or examination reports that are required by law or
that are completed by a party other than the member, broker or dealer
for at least three years after the date of each such audit or
examination report.
(6) Compliance, supervisory, and procedures manuals describing the
policies and practices of the member, broker or dealer with respect to
operations, compliance with all applicable securities laws and
regulations, and supervision of the activities of each natural person
associated with the member, broker or dealer until at least three years
after the termination of use of each such manual. Such manuals that
pertain to the operation of a local office shall be kept at that
office.
* * * * *
(j)(1) Every member, broker or dealer subject to this section shall
furnish promptly to representatives of a securities regulatory
authority such authentic, accurate, legible, complete, and current
(where a record requires updating) copies of those records of the
member, broker or dealer that are required to be preserved under this
section, as are requested by such representative of a securities
regulatory authority. Records shall be organized in a systematic and
easily recognizable order, such as chronologically or alphabetically.
Each member, broker or dealer shall without delay make available to
representatives of a securities regulatory authority an individual who
is familiar with the records (or type of records) and qualified to
explain them.
(2) For purposes of this section, the term promptly shall mean
immediately when the requested records are located in the office of the
member, broker or dealer where the request for such records is made. In
the case of requested records that are not located in the office of the
member, broker or dealer where the request for such records is made,
the term promptly shall mean within three business days.
(k) Every member, broker or dealer shall designate a principal to
ensure compliance with the provisions of this section and Sec. 240.17a-
3 that require approval of a record by a principal. Copies of documents
provided to customers pursuant to the requirements of this section and
Sec. 240.17a-3 need not show the approval of a principal.
(l)(1) Records required to be preserved by the provisions of this
section must be maintained at the headquarters office of a member,
broker or dealer. The following records must be maintained for a period
of at least three years also at each local office of a member, broker
or dealer for such local office's activity: the blotters (or other
records of original entry) containing an itemized daily record of all
purchases and sales of securities for any accounts of customers
required by Sec. 240.17a-3(a)(1); the memoranda required by
Sec. 240.17a-3(a)(6); with respect to each associated person who
conducts the greatest percentage of such associated person's business
for such member, broker or dealer at such local office, all of the
records required by Secs. 240.17a-3(a)(12) and 240.17a-3(a)(20) (except
that records reflecting the amount of remuneration per trade required
by Sec. 240.17a-3(a)(20)(vii) may be kept at a central location with
the other records of the member, broker or dealer instead of at each
local office); a copy of the list required by Sec. 240.17a-3(a)(21);
all account forms, including any updated versions, required by
Sec. 240.17a-3(a)(16); all local office customer complaint files
required by Sec. 240.17a-3(a)(17) and all
[[Page 55602]]
local office communications required by paragraph (b)(4) of this
section; and all local office compliance, supervisory, and procedures
manuals required by paragraph (e)(6) of this section.
(2) The capability of electronically displaying and immediately
producing printed copies of the local office records described herein
in a local office will be deemed to comply with the local office record
maintenance requirements of this section. This capability shall not be
deemed to supersede paragraph (f) of this section.
(3) With respect to a single-agent office of a member, broker or
dealer, local office records may be aggregated with the records of one
or more other such offices in a regional record depository if the
following requirements are met:
(i) The regional record depository, which may be another office of
the member, broker or dealer, is located within the same state as the
single-agent office.
(ii) The records stored in the regional record depository can be
easily disaggregated and accessed for the single-agent office to the
same extent as if the single-agent office kept separate records in
compliance with the local office record-keeping requirements of this
section.
(m) When used in this section:
(1) The term associated person shall have the meaning set forth in
Sec. 240.17a-3(f)(1).
(2) The term local office shall have the meaning set forth in
Sec. 240.17a-3(f)(2).
(3) The term principal shall have the meaning set forth in
Sec. 240.17a-3(f)(3).
(4) The term securities regulatory authority shall have the meaning
set forth in Sec. 240.17a-3(f)(4).
Dated: October 22, 1996.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
Exhibit A
(Note: This Exhibit will not appear in the Code of Federal
Regulations)
Model State Regulation Governing Access to Records Required To Be
Kept By Broker-Dealers (Prepared by NASAA)
I. Required Books and Records.
Every broker-dealer registered in this State shall comply with
the record-keeping requirements of 17 CFR 240.17a-3 (hereinafter
``Rule 17a-3'') and 17 CFR 240.17a-4 (hereinafter ``Rule 17a-4''),
promulgated under the Securities Exchange Act of 1934.
II. Access to Records.
(a) Duty to produce.
All records required to be maintained shall be kept within the
possession and control of the broker-dealer, except as permitted in
section (e) below with respect to a broker-dealer that has ceased
transacting business in securities or that has terminated its
registration. All records within the possession or control of a
broker-dealer shall be produced to [the Administrator] or [the
Administrator's] designee upon request. Every broker-dealer shall
ensure that each office makes available to [the Administrator] or
[the Administrator's] designee all local office records required by
Rules 17a-3 and 17a-4.
(b) Time in which to produce.
It is the responsibility of each broker-dealer to make all
required records quickly and easily accessible. Whenever records are
required to be produced by this rule, the time limits set forth in
this subparagraph shall control. When requested records are present
on the premises of a broker-dealer, including paper records in a
local office and electronic records retrievable over a computer
terminal, they shall be produced immediately. When requested records
are not present on the premises, such as microfilm in a central
storage location outside this State, they shall be produced no later
than the third business day after the date of the request. For good
cause shown in writing, such as the unusually large scope of a
request requiring production of a large volume of records, [the
Administrator] may extend the time period for production.
(c) Forms of record retention; duty to organize.
Every broker-dealer shall ensure that all records required to be
maintained shall be organized and made available for examination in
one of the forms specified in Rules 17a-3 and 17a-4. Such records
shall be authentic, accurate, legible, complete, and current (where
a record requires updating). They shall be organized in a systematic
and easily recognized order, such as chronologically or
alphabetically, and they shall be easily accessible and readily
explained. Each broker-dealer shall without delay make available to
[the Administrator] or [the Administrator's] designee an individual
who is familiar with the records (or type of records) and qualified
to explain them. In the case of any records that require equipment
to allow review or copying, the broker-dealer shall immediately make
available such equipment in working order to the office that has
responsibility to maintain the records.
(d) Duty to cooperate.
Every broker-dealer and broker-dealer employee shall cooperate
with efforts by the [the Administrator] or [the Administrator's]
designee to review for compliance with this regulation. [The
Administrator] or [the Administrator's] designee may conduct
announced or unannounced examinations at any office within or
outside this State to review the business activities of the broker-
dealer. Every broker-dealer shall furnish access to all areas of its
securities operations conducted on or off the premises and otherwise
facilitate the examination. [The Administrator] or [the
Administrator's] designee may further require that any records
subject to examination by submitted [the Administrator's] agency to
determine compliance with applicable laws and regulations.
(e) Miscellaneous records.
Every broker-dealer shall make available for examination all
records in its possession or control that are in any way related to
its business or that may lead to evidence pertaining to its business
regardless of whether or not routine maintenance of such records is
required by this regulation or Rules 17a-3 and 17a-4. Such records
which are not in the immediate possession of the broker-dealer but
which the broker-dealer has the ability to obtain must be obtained
and produced [the Administrator] or [the Administrator's] designee
on request, unless such records are equally available to [the
Administrator].
(f) Privileged records.
If, in response to a request for records by [the Administrator]
or [the Administrator's] designee during an examination or
investigation, a broker-dealer refuses to produce any record on a
claim of privilege, each such document must be identified in detail
and the specific privilege identified an to each item. An assertion
of privilege does not excuse a broker-dealer from maintaining
records.
(g) Records retention time periods; control by other parties.
All records required by this rule shall be maintained for the
time periods specified in the applicable provisions of Rules 17a-3
and 17a-4. Should a broker-dealer cease transacting business in
securities to terminate its registration, the broker-dealer shall
continue to maintain the records for the time period specified in
Rules 17a-3 and 17a-4. Should a terminated broker-dealer have
another party maintain control of the broker-dealer's records,
notice shall include the reason for the arrangement and the name,
address, and telephone number of the other party.
(h) Waiver of requirements.
[The Administrator] may, for good cause as determined in [the
Administrator] discretion, waive any requirements in this regulation
with respect to any requirements in this regulation with respect any
broker-dealer or class of broker-dealers.
[FR Doc. 96-27611 Filed 10-25-96; 8:45 am]
BILLING CODE 8010-01-P