books-and-records

What this skill does

# Books and Records

## Purpose
Guide the design, implementation, and maintenance of recordkeeping programs for broker-dealers and investment advisers under federal securities laws. This skill covers the creation, retention, and storage of required records under SEC Rules 17a-3, 17a-4, and 204-2, FINRA recordkeeping obligations, electronic storage standards including WORM (Write Once, Read Many) requirements, and the archiving of electronic communications and social media. It enables users to build compliant document retention systems and respond to regulatory examinations of books and records.

## Layer
9 — Compliance & Regulatory Guidance

## Direction
prospective

## When to Use
- Designing a document retention policy or schedule for a broker-dealer or investment adviser
- Determining what records must be created under SEC Rule 17a-3
- Determining how long specific records must be retained under SEC Rule 17a-4
- Establishing recordkeeping systems for an investment adviser under Rule 204-2
- Evaluating electronic storage solutions for compliance with WORM or audit trail requirements
- Implementing email, instant messaging, or text message archiving systems
- Addressing social media archiving and supervision challenges
- Responding to an SEC or FINRA examination request for books and records
- Assessing gaps in a firm's recordkeeping practices after a systems migration or platform change
- Designing BYOD (Bring Your Own Device) policies that satisfy communications archiving obligations
- Evaluating third-party archiving vendors for regulatory compliance
- Remediating recordkeeping deficiencies identified in an examination or internal review

## Core Concepts

### SEC Rule 17a-3 (Records to be Made)
SEC Rule 17a-3 (17 CFR 240.17a-3) specifies the books and records that every registered broker-dealer must create and maintain. These records form the foundation of regulatory oversight, enabling examiners to reconstruct transactions, verify compliance, and protect investors. The principal categories of required records are:

- **Blotters (daily records):** Purchase and sale blotters recording every securities transaction (date, time, security, quantity, price, counterparty), cash receipts and disbursements blotters recording all cash flows, and securities received and delivered blotters tracking the movement of securities into and out of the firm.
- **General ledger:** A complete general ledger reflecting all assets, liabilities, income, expense, and capital accounts of the broker-dealer. Must be current and maintained in accordance with generally accepted accounting principles.
- **Customer account records:** For each customer account, the firm must create and maintain records containing: customer name and tax identification number (SSN or EIN), address, telephone number, date of birth, employment status and name of employer, whether the customer is an associated person of another broker-dealer, investment objectives, annual income and net worth, and the names of persons authorized to transact on the account. The 2003 amendments to Rule 17a-3 (Exchange Act Release No. 34-47910) expanded customer account record requirements to include customer investment profile information — specifically, investment objectives (e.g., capital preservation, income, growth, speculation), investment time horizon, risk tolerance, and other information the firm uses in making recommendations. Firms must also record the date the account was opened and the name of the associated person responsible for the account.
- **Order tickets:** A memorandum of each order received for the purchase or sale of securities, showing the terms of the order, the time of entry, the time of execution, the price, and the identity of the associated person who accepted and executed the order. For discretionary orders, the ticket must identify that discretion was exercised.
- **Confirmations:** Copies of all trade confirmations sent to customers and received from counterparties pursuant to SEC Rule 10b-10.
- **Memoranda of proprietary orders:** Records of each purchase and sale of securities for the firm's proprietary accounts, including the identity of the person who authorized the transaction.
- **Customer complaints:** A record of each written customer complaint received by the firm, including the complainant's name, the date the complaint was received, the subject matter, and the firm's response or disposition. FINRA Rule 4513 supplements this requirement with specific complaint recordkeeping standards.
- **Associated person employment applications:** Records related to associated persons including Form U4 (Uniform Application for Securities Industry Registration), employment history, disciplinary history, and background investigation results. These records must include the associated person's name, date of birth, address, and the starting date of employment or association with the firm.

### SEC Rule 17a-4 (Records to be Preserved)
SEC Rule 17a-4 (17 CFR 240.17a-4) prescribes the retention periods for broker-dealer records. Records are categorized into three tiers based on their required retention period:

**Six-year records (Rule 17a-4(a) and (b)):**
- Blotters (purchase and sale, cash receipts and disbursements, securities received and delivered)
- General ledgers and subsidiary ledgers
- Customer account records (including account statements)
- Partnership articles, if the broker-dealer is a partnership, and all amendments thereto
- Articles of incorporation or charter, if the broker-dealer is a corporation, including bylaws and amendments
- Financial statements (trial balances, computations of net capital, reserve formula calculations)
- Records of securities positions (stock record, securities record)

**Three-year records (Rule 17a-4(b) and (c)):**
- Communications — originals of all communications received by the broker-dealer and copies of all communications sent by the broker-dealer relating to its business as such, including inter-office memoranda. This encompasses letters, emails, instant messages, and other forms of business correspondence.
- Memoranda of brokerage orders and all other memoranda relating to the firm's business
- Written compliance and supervisory procedures (for the three most recent years)
- Employment applications and related documentation for associated persons — retained for three years after the individual terminates association with the firm
- Written agreements entered into by the broker-dealer (including customer agreements, clearing agreements, and employment contracts)
- Reports and questionnaires produced in connection with FINRA examinations and inspections

**Lifetime-of-enterprise records (Rule 17a-4(d)):**
- Articles of incorporation or organization, charter, minute books, and stock certificate books (or equivalent organizational documents for partnerships, LLCs, or other legal forms)
- These records must be preserved for the life of the enterprise and any successor enterprise

**First two years — easily accessible:** For all records subject to three-year or six-year retention, the records must be maintained in an easily accessible place during the first two years of the applicable retention period (Rule 17a-4(a), (b)). "Easily accessible" means the firm must be able to produce the records promptly upon regulatory request — they cannot be stored in a manner that requires extensive effort or delay to retrieve during this initial period.

**Electronic storage requirements (Rule 17a-4(f)):**
Rule 17a-4(f) governs the conditions under which broker-dealers may maintain required records in electronic format. Historically, this rule mandated that electronic records be preserved exclusively in non-rewriteable, non-erasable format — the WORM (Write Once, Read Many) standard. The 2022 SEC amendments to Rule 17a-4(f) (Exchange Act Release No. 34-96034, effective January 3, 2023) modernized these requirements by introducing an alternative to WORM storage. Under