The Division of Trading and Markets (“Division”), U.S. Securities and Exchange Commission (“Commission”), has prepared the following responses to questions about the recent amendments to the electronic recordkeeping requirements applicable to broker-dealers, security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”).  These responses represent the views of the staff of the Division.  They are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved this content.  These responses, like all staff statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.  Additional information can be found in the Commission’s adopting release. 

The staff may update these questions and answers periodically.  In each update, the questions added after publication of the last version will be marked with “MODIFIED” or “NEW”.

Effective Date / Compliance Date of the Amendments

Question 1:  The effective date for the amendments to Rule 17a-4, applicable to broker-dealers, including broker-dealers registered as SBSDs and MSBSPs, was January 3, 2023.  The compliance date for the amendments to Rule 17a-4 is May 3, 2023. Rule 17a-4 currently requires a broker-dealer to maintain and preserve electronic records exclusively in a non-rewriteable, non-erasable format (also known as a write once, read many (“WORM”) format).  The amendments to Rule 17a-4 add an audit-trail alternative to the WORM requirement.  Under the audit-trail alternative, a broker-dealer must use an electronic recordkeeping system that maintains and preserves electronic records in a manner that permits the recreation of an original record if it is modified or deleted.  Can a broker-dealer begin complying with the audit-trail alternative before the May 3, 2023 compliance date for the amendments?

Answer:  Yes, beginning on or after the January 3, 2023 effective date of the amendments to Rule 17a-4, a broker-dealer can comply with the audit-trail alternative.  The provisions of paragraphs (f)(1) through (3) and (j) of Rule 17a-4, as amended, effective on January 3, 2023, constitute the required elements for a broker-dealer that elects the audit-trail alternative.[1]  Consequently, compliance with the audit-trail alternative means compliance with paragraphs (f)(1) through (3) and (j) of Rule 17a-4, as amended, effective on January 3, 2023.[2]  

Question 2:  The Commission amended the requirements in Rule 17a-4 that a “designated third party” must execute and file undertakings agreeing to, among other things, promptly furnish the Commission and other securities regulators the information necessary to download records kept on the electronic storage media to any medium acceptable under Rule 17a-4.  The amendments to Rule 17a-4 give the broker-dealer the option to designate an executive officer to make the required undertakings in lieu of designating a third party.[3]  Can a broker-dealer switch from using a third party to a designated executive officer for the purposes of executing these undertakings before the May 3, 2023 compliance date for the amendments?

Answer:  Yes, beginning on or after the January 3, 2023 effective date of the amendments to Rule 17a-4 a broker-dealer can switch from using a third party to a designated executive officer for purposes of executing these undertakings.  The requirements for using a designated executive officer are set forth in paragraphs (f)(1) and (f)(3)(v) of Rule 17a-4, as amended, effective on January 3, 2023.  Consequently, to use a designated executive officer in lieu of a designated third party, the broker-dealer must meet the requirements of paragraphs (f)(1) and (f)(3)(v) of Rule 17a-4, as amended, effective on January 3, 2023.