Under Section 17 of the Securities Exchange Act of 1934, every national securities exchange, national securities association, registered clearing agency and the Municipal Securities Rulemaking Board shall keep and preserve at least one copy of all documents, including all correspondence, memoranda, papers, books, notices, accounts and other such records as shall be made or received by it in the course of its business as such and in the conduct of its self-regulatory activity. These records must be kept for at least five years and, for the first two years, must be held in an easily accessible place.
Broker-dealers must maintain some records for at least six years (two years in an easily accessible place) including the following:
- Blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits. Such records shall show the account for which each such transaction was effected, the name and amount of securities, the unit and aggregate purchase or sale price (if any), the trade date and the name or other designation of the person from whom securities were purchased or received or to whom they were sold or delivered.
- Ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts.
- Ledger accounts (or other records) itemizing separately as to each cash and margin account of every customer and of such member, broker or dealer and partners thereof, all purchases, sales, receipts and deliveries of securities and commodities for such account and all other debits and credits to such account.
- Employment applications or questionnaires from each registered representative and other associated persons of the firm
The following records must be maintained by broker-dealers for at least three years (at least two years in an easily accessible place):
- All check books, bank statements, cancelled checks and cash reconciliations
- All bills receivable or payable (or copies thereof), paid or unpaid, relating to the business of such member, broker or dealer, as such
- 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 his or her business as such
- All trial balances, computations of aggregate indebtedness and net capital (and working papers in connection therewith), financial statements, branch office reconciliations and internal audit working papers relating to the business of such member, broker or dealer, as such
- Fingerprint records
- Customer confirmations and other notices
- Order tickets for all purchases and sales of securities
Broker-dealers are required to file certain financial reports on a regular basis. A general partner or other authorized officer of the firm must prepare an affidavit attesting to the truth or correctness of the return.
The annual report of financial condition must be certified by an independent public accountant. The report must contain a balance sheet and the firm's net capital and required minimum net capital must be included in the footnotes.
An audited financial statement must also be filed annually with the SEC within 60 days of the date of the statement and must be sent to customers within 45 days of the SEC filing. Should the SEC find any material inadequacies, customers must be notified that a report of the inadequacies is available for inspection at the SEC.
Financial and Operational reports (known as FOCUS reports) must be filed monthly by broker-dealers that clear or carry customer securities. FOCUS Part I must be filed within 10 business days of the end of the month. FOCUS Part II must be filed quarterly within 17 business days of the end of the quarter. Firms that do not clear or carry are only required to file Part II of the FOCUS report.
This SEC rule covers financial recordkeeping and the reporting of currency and foreign transactions. While Rule 17a-4 requires records to be kept for six years (the first two years in an easily accessible place), 17a-8 requires these foreign transactions to be kept for the longer of the period required under 17a-3 and the period required under part 103 of title 31 of the Code of Federal Regulations.
Broker-dealers must notify the SEC when certain financial conditions change, including:
- Net capital declines below the required minimum
- Aggregate indebtedness exceeds 1200% of its net capital
- Total net capital is less than 120% of required minimum net capital
Broker-dealers must report to the SEC within one business day of discovery of theft or loss of securities where there is a substantial basis for believing criminal activity is involved. Such a report must also be filed with the FBI. Missing or lost securities that are not believed to be involved with criminal activity must be reported after two days (one business day after the two day period). Exemptions to a report are allowed for certain situations, including:
- Securities lost in transit must be reported within two business days after notice of non-receipt.
- Securities lost or missing as a result of securities counts or verification must be reported within ten business days after completion of the count or verification (or as soon as possible after the certificate numbers can be ascertained).
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