SEC 17a-3 and 17a-4

Resources Case Studies Solution Briefs White Papers Brochures Compliance Rules

LEARN MORE

Make the Next Move

Contact Us
Request a Quote
Request Information
Request a Product Demo
Request a Callback
Find a Partner
Submit an RFP
E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Regulatory Compliance Rules & Acts

SEC 17a-3 and 17a-4

Country:

USA

Applies To:

Defined Exchange Members

Regulatory Body:

SEC

Summary:

SEC 17a-3 specifies the records to be made by Certain Exchange members.
SEC 17a-4 specifies the records to be preserved by Certain Exchange Members.

Together they specify the rules surrounding supervision, records retention, nonrewriteable storage,and ease of retrieval and viewing. Paragraph (f)(2)(ii)(A) of Rule 17a-4, requires broker-dealers maintaining records electronically to use a digital storage medium or system that "preserves the records exclusively in a non-rewriteable, non-erasable format."

NASD 3010 requires member firms to supervise the activities of each registered representative. The supervisory responsibility of the member firm covers the use of email, group email, bulletin boards, chat rooms, and websites when it relates to the firm’s business member firms.
NASD 3110 addresses the document storage and accessibility (Books and Records) requirements for NASD registered representatives, and is largely based on the SEC 17a-4 rules regarding electronic document storage

Penalties:

Large fines ($50 million in one case) and penalties and sanctions that can severely impair the business. Public disclosures can decrease investor confidence and damage brand/reputation.

KOMpliance and SEC 17a-3 and SEC 17a-4 Requirements

Acceptable Media	Rule 17a-4(f)(2)(ii) the electronic storage media must: Preserve the records exclusively in a non-rewriteable, non-erasable format; The SEC interpretive release states: “A broker-dealer would not violate the requirement in paragraph (f)(2)(ii)(A) of the rule if it used an electronic storage system that prevents the overwriting, erasing or otherwise altering of a record during its required retention period through the use of integrated hardware and software control codes.”	This requirement is fulfilled by the following KOMpliance® options based on the requirements and the customer’s compliance strategy. The actual option chosen is the decision of the customer based on the customer’s legal interpretation of the rules. Data stored to the KOMworx® Volume (email, files, documents, and so on) is not modifiable for the whole duration of the file retention period. Data can be stored using different archive modes: Archive: Files are stored on Regulatory compliant WORM media e-WORM: Files are archived, protected and preserved on hard disk e-WORM++: Files are stored on both hard disk and regulatory compliant optical storage media. This mode provides the ideal platform to archive files and maintain multiple copies by combining the benefits of both technologies to deliver hard disk performance with optical permanence, agility and reliability.
Quality Verification	Rule 17a-4(f)(2)(ii) A. “Verify automatically the quality and accuracy of the storage media recording process;”	The following KOMpliance® capabilities fulfill this requirement: Writes are verified by hardware to ensure that the committed buffers are identical. The final phase of the commit process validates and compares the entire contents of the archive storage volume with the original contents. KOMworx® creates a digital signature that is used to validate and compare the archive volume contents with the original image. KOMworx® provides a WORM digital signature validation capability. This provides a complete validation of the accuracy of the recording process and guarantees the integrity of the contents.
Record Duplication and Time-Dating	Rule 17a-4(f)(2)(ii) B. 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;”	KOMpliance® solution — The following KOMpliance capabilities fulfill this requirement: Serializes the archive media and the associated duplicates stored. The retention period is stored on the archive media. Files with common retention periods are grouped together and archived on the same archive media. The retention period is propagated across all the duplicates. Each archive storage volume has a Unique Identifier and creation information. Each duplicate archive volume maintains references to the original master and the serial number of the archive volume it was duplicated from.
Downloadable Indexes and Records	Rule 17a-4(f)(2)(ii) C. 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.”	Fully supported. The files stored in KOMpliance® are readily available and fully accessible by authorized users and applications. The files can be readily copied to media of choice; as required by the Commission or the self-regulatory organizations of which the member, broker, or dealer is a member.
Easily Readable Images	Rule 17a-4(f)(3) If a member, broker, or dealer uses micrographic media or electronic storage media, it shall: 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.”	Fully supported.
Facsimile Enlargement	Rule 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.”	Fully supported.
Separate Storage of Duplicate Records	Rule 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.”	Fully supported. KOMpliance® fulfills this requirement by: Supporting data replication and duplication to duplicate media.
Organizing and Indexing of Records	From Rule 17a-4(f)(3)(iv): “Organize and index accurately all information maintained on both original and any duplicate storage media. 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. Each index must be duplicated and the duplicate copies must be stored separately from the original copy of each index. Original and duplicate indexes must be preserved for the time required for the indexed records.”	Indexing is created by the authoring and managing applications. All data that is stored on KOMworx archive volumes is readily accessible at all times. All the contents of the archive storage volumes is duplicated to separate archive media of choice. All originals and duplicate volumes are retained for the same exact period.
Audit System	Rule 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 Rule 17a-3 and Rule 17a-4 to electronic storage media and inputting of any changes made to every original and duplicate record maintained and preserved thereby. 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. B. The audit results must be preserved for the time required for the audited records.” The SEC interpretive release states: “The audit procedures for a storage system using integrated software and hardware codes to comply with paragraph (f) would need to provide accountability regarding the length of time records are stored in a non-rewriteable and non-erasable manner.”	Fully supported. The file creation and modification dates are readily accessible and can be easily audited to validate and confirm when the data was inputted into the volume The creation and logging of the Audit information is the sole responsibility of third party applications All audit information committed to the archive volumes will be retained according to the assigned retention policies
Documentation	Rule 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 organizations 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.”	Fully supported. Files stored within KOMworx® volumes are readily accessible using standard system tools and applications.
Third-party Access Filing	Rule 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:” The following information was omitted because it pertains specifically to the responsibilities of the third parties.	Fully supported. KOMpliance® can provide current data formats and data to a third-party record download provider.

Additional Information:

http://www.sec.gov/rules/interp/34-47806