affected entities. However, the amendments may result in both direct
costs arising out of the final rule (e.g., compliance costs for non-
bank SBS Entities altering their electronic systems to comply with
either the audit-trail or the WORM requirement), as well as indirect
costs that registrants may choose to bear in order to achieve greater
compliance efficiencies (e.g., broker-dealers may need to build new or
alter existing WORM-compliant electronic recordkeeping systems to the
extent they would like to meet the audit-trail alternative). Thus,
under the final amendments, broker dealers would have to choose whether
to continue using their baseline WORM-compliant systems or to upgrade
their systems to comply with the audit trail alternative. Importantly,
broker dealers may be incentivized to upgrade their WORM-compliant
systems if they face high baseline costs of compliance duplication and
expect to achieve greater compliance efficiencies from switching to the
audit-trail alternative. Thus, some of the costs discussed above may be
mitigated by the savings from the elimination of duplicative
recordkeeping and greater compliance efficiencies for broker-dealers
that choose to upgrade their systems to comply with the audit-trail
alternative.
    Section IV estimates the initial and ongoing compliance costs
arising out of the final amendments. \311\ As estimated in Section IV,
the initial cost to build and implement a WORM-compliant electronic
recordkeeping system for a large broker-dealer is $10 million, with an
additional cost of $1.2 million annually to maintain the system,\312\
and the Commission believes that the SBS Entities that would be
affected by the amendments are of large sizes comparable to the
universe of broker-dealers that the rulemaking petitioners used to
derive those estimates. In addition, as discussed in Section IV, the
Commission believes that the initial cost to build and implement an
electronic recordkeeping system that meets the audit-trail requirements
and the ongoing cost to maintain the system would be substantially
lower than the analogous costs that would be incurred with

respect to a WORM-compliant system.\313\ In particular, the Commission
estimates that the initial cost to build and implement an electronic
recordkeeping system that meets the audit-trail requirement for a large
broker-dealer or SBS Entity without a prudential regulator and that is
not a broker-dealer is $1,000,000, with an additional cost of $120,000
annually to maintain the system.
---------------------------------------------------------------------------

    \311\ See section V.D. of this release (discussing decreases and
increases in costs and burdens relating to the amendments for
purposes of the Paperwork Reduction Act).
    \312\ See Rule 17a-4(f) Rulemaking Petition Addendum at 4-5.
    \313\ See, e.g., Rule 17a-4(f) Rulemaking Petition at 6-7.
---------------------------------------------------------------------------

    There are 854 broker-dealers with assets of $10 million or more and
two SBSDs that would be subject to paragraph (e)(2) of Rule 18a-6. The
Commission anticipates that eliminating the application of the
technical requirements for electronic recordkeeping systems set forth
in paragraph (e)(2) of Rule 18a-6 to the 17 SBSDs that have a
prudential regulator and are subject to Rule 18a-6 would result in a
decrease of 100 hours per firm on an annual basis, or 1,700 hours per
year for all firms affected by the amendment, for an ongoing cost
savings of $537,000 per year for all affected firms.\314\ Further, the
elimination of the DEA notification requirement may decrease ongoing
costs by $136,828 per year for the industry.
---------------------------------------------------------------------------

    \314\ 1,700 hours x $316 per hour (at the compliance manager
rate) = $537,000.
---------------------------------------------------------------------------

    As discussed in Section IV.D, the Commission does not believe any
broker-dealers or SBSDs will elect to build a WORM-compliant electronic
recordkeeping system. Moreover, the Commission estimates that most of
these firms have electronic recordkeeping systems that could meet the
audit-trail requirement or that could be configured to meet that
requirement without the need to build a new system. The Commission
estimates that 20 of these firms would elect to modernize their
recordkeeping by building a new electronic recordkeeping system to meet
the audit-trail requirement for an initial one-time industry cost
burden of $20,000,000 and an annual cost burden of $2,400,000.
    The Commission estimates that the cost for the 2,654 broker-dealers
with less than $10,000,000 in total assets to build and maintain an
electronic recordkeeping system that meets the final audit-trail
requirement would be significantly less than the $1,000,000 initial and
$120,000 annual costs estimated for the 854 larger broker-dealers and
two SBSDs that would be subject to paragraph (e)(2) of Rule 18a-6.
Consequently, the Commission estimates that the initial cost to build
and implement an electronic recordkeeping system that meets the audit-
trail requirement for these smaller broker-dealers is $100,000, with an
additional cost of $12,000 annually to maintain the system. The
Commission estimates that most of the 2,654 broker-dealers with
$10,000,000 or less in total assets will continue to preserve records
in the manner they do today: using a WORM-compliant system, using
micrographic media, or maintaining paper records. As estimated in
Section IV, 80 of these firms would elect to build a new electronic
recordkeeping system to meet the audit-trail requirement for an initial
one-time industry cost burden of $8,000,000 and an annual cost burden
of $960,000.
    The Commission believes that broker-dealers and SBS Entities would
incur an initial burden and ongoing annual burden in establishing a
backup electronic recordkeeping system or other redundancy
capabilities. The Commission believes these burdens and costs would be
substantially less than the burdens and costs of the primary electronic
recordkeeping systems because of the benefit of economies of scale for
the backup system whereby common technology and personnel could be used
for both systems. The Commission estimates that the costs and burdens
for the 854 larger broker-dealers subject to paragraph (f)(2) of Rule
17a-4 and the two SBSDs that would be subject to paragraph (e)(2) of
Rule 18a-6 would be $250,000 in initial burdens and costs and $30,000
in annual burdens and costs. Further, the Commission expects that the
broker-dealers and SBS Entities that have electronic recordkeeping
systems that could meet the audit-trail requirement or that could be
configured to meet that requirement without the need to build a new
system also maintain backup recordkeeping systems or other redundancy
capabilities. Therefore, the initial and annual costs would be incurred
by the 20 firms that elect to build a new electronic recordkeeping
system that meets the final audit-trail requirements. Consequently, the
Commission estimates that the industry-wide costs and burdens for these
firms would be $5,000,000 in initial costs and burdens and $600,000 in
annual costs and burdens.
    The Commission estimates that the costs and burdens incurred by the
80 smaller broker-dealers that would build electronic recordkeeping
systems to meet the audit-trail requirement and, therefore, need to
build a backup recordkeeping system or other redundancy capabilities,
would be substantially less than the costs and burdens incurred by the
larger broker-dealers due to the smaller size and complexity of
recordkeeping systems of smaller broker-dealers. As discussed in
Section IV.D, the Commission estimates that these firms would incur an
initial costs and burdens of $25,000 and ongoing annual costs and
burdens of $3,000. Therefore, the Commission estimates that the
industry-wide costs and burdens for these firms would be $2,000,000 in
initial costs and burdens and $240,000 in ongoing annual costs and
burdens.
    In addition, Rule 18a-6(e) does not contain a third-party
undertakings requirement; however, the amendments to the rule add a
requirement that either a Designated Third Party or a Designated
Executive Officer complete the access and undertakings requirements in
a manner analogous to the requirements of Rule 17a-4(f), as amended. As
discussed in Section IV, this change, and, in the case of SBSDs, the
addition of a senior officer or third-party undertakings requirement,
will result in a one-time initial cost of $1,656,501 under Rule 17a-
4(f) and of $9,443 for SBSDs under Rule 18a-6(e).
    The Commission recognizes that the amendments would not harmonize
with the parallel recordkeeping rule for CFTC registrants (e.g.,
futures commission merchants and swap dealers). In contrast, the
amendments impose a bright line audit-trail or WORM requirement. The
Commission has received comment that the audit-trail alternative is not
``technology-neutral'' and may reduce the ability for firms to
implement future technological innovations or advancements.\315\
However, as discussed in Section II.D, the audit-trail alternative is
an option that affected entities may choose to rely on in lieu of the
baseline WORM-compliant electronic recordkeeping systems. Importantly,
the technical requirements in the final amendments related to the
system having the capacity to recreate an original record if it is
modified or deleted were designed to prevent records from being
altered, over-written, or erased. The Commission believes that a
principles-based approach that harmonizes with the CFTC would rely on
the broker-dealer or SBS Entity to establish appropriate systems and
controls that ensure the authenticity and reliability of regulatory
records without specifying that the systems and controls must permit
the recreation of an original record if it is modified or deleted. As
discussed in Section II.D.2, the Commission continues to believe that

providing the option to preserve records using an electronic
recordkeeping system that complies with the audit-trail requirement
appropriately addresses concerns about the WORM requirement while
meeting the objective of preserving electronic records in a manner that
protects the authenticity and reliability of original records. However,
the Commission recognizes that a lack of harmonization in the
recordkeeping requirements for certain registrants may give rise to
compliance inefficiencies for those broker dealers and SBS Entities
that are dually registered with the CFTC.
---------------------------------------------------------------------------

    \315\ See, e.g., Committee of Annuity Insurers Letter, FSI
Letter, NRS Letter.
---------------------------------------------------------------------------

    Certain other aspects of the amendments may also impose costs on
affected entities. Specifically, the amendments related to human
readable and reasonably usable electronic file formats may impose
compliance costs related to the required updates to recordkeeping
systems.\316\ Further, amendments requiring broker-dealers and SBS
Entities to have a backup set of records or have other redundancy
capabilities when records are preserved on an electronic recordkeeping
system may impose additional costs related to making updates to
compliance systems, as compared to the current rules' requirements to
store separately from originals a duplicate copy of a record.\317\ The
designated executive officer undertakings requirements may impose
additional time demands on senior officers, though these costs may be
at least partially offset for broker-dealers by savings attendant to
removing the requirement for third-party access. To the extent that
these requirements increase the scope of senior officer duties and
increase potential liability on the part of senior officers, senior
officers may demand higher compensation and liability insurance, which
may result in an increase to senior officer recruitment and retention
costs. Two important factors may reduce these costs. First, the final
amendments would provide valuable flexibility in carrying out the
designated executive officer undertakings, as discussed in Section II
above. Second, affected entities, for which the above costs of the
designated executive officer undertakings are highest, may continue to
rely on third party undertakings that are already required under the
baseline.
---------------------------------------------------------------------------

    \316\ See section V.D. of this release (discussing increases and
decreases in costs and burdens relating to the amendments for
purposes of the PRA).
    \317\ The Commission does not expect significant costs
associated with certain other final amendments, including amendments
to eliminate the notification and representation requirements from
Rule 17a-4(f); amendments to eliminate the escrow account option
from paragraph (f)(3)(vi) of Rule 17a-4 and paragraph (e)(3)(vi) of
Rule 18a-6; and amendments to the requirements of paragraph
(f)(2)(ii)(B) of Rule 17a-4 and paragraph (e)(2)(i) of Rule 18a-6 to
provide additional specificity regarding the requirement that
original records are completely and accurately captured.
---------------------------------------------------------------------------

    Moreover, as discussed in Section II, the final amendments would
allow affected broker-dealers and SBS Entities to have certain third
parties execute an Alternative Undertaking in lieu of the Traditional
Undertaking, under certain conditions. As discussed in Section IV, 500
of the broker-dealers and 10 of the SBSDs that currently employ cloud
service providers for electronic recordkeeping purposes will be
required to obtain the Alternative Undertaking from the third-party
cloud service provider (i.e., an undertaking tailored to how cloud
service providers hold electronic records for broker-dealers and SBSDs)
discussed above. This requirement would impose costs on broker-dealers
and cloud service providers: as estimated in Section IV, five different
cloud service providers will need to execute these 510 Alternative
Undertakings and 510 broker-dealers will need to obtain the
undertakings from the cloud service providers. The need for cloud
service providers to review and execute the Alternative Undertaking is
expected to result in an initial cost of $253,470 for cloud service
providers and $253,470 for broker-dealers.\318\
---------------------------------------------------------------------------

    \318\ One-time initial cost for five cloud service providers:
(102 hours x five cloud service providers) x $497 per hour (at the
controller hourly rate) = $253,470. And one-time initial cost for
broker-dealers and SBSDs: 510 hours x $497 per hour (at the
controller hourly rate) = $253,470.
---------------------------------------------------------------------------

    The Commission recognizes that cloud service providers may pass
along some or all of these costs, directly or indirectly, to broker-
dealers and SBS Entities that utilize cloud service providers, which
may increase costs of electronic recordkeeping. The Commission cannot
quantify the extent to which individual broker-dealers and SBS Entities
may experience such cost increases as that will depend on a number of
factors, including, among others, the willingness of cloud service
providers to pass on costs to other customers, competition by cloud
service providers for covered entity clients, new entry in the market
for cloud services (potentially reducing the cost per provider),
broker-dealer and SBS Entity size (potentially affecting their
bargaining power), information-sharing in the industry on standard-form
agreements, and the profitability of cloud services. In addition, some
affected entities that may experience increases in costs of third party
services may choose to reduce their reliance on third party service
providers.
    However, as discussed above, the conditions for the Alternative
Undertaking are intended to enhance access to broker-dealer and SBS
Entity records. The Commission continues to believe that Commission
access to the records of a broker-dealer or an SBS Entity for
examinations is essential for the protection of customers and
investors.

D. Reasonable Alternatives

    The Commission has considered a number of alternatives. First, the
Commission has considered harmonizing the recordkeeping rules for SBS
Entities with the CFTC's principles-based approach applicable to Swap
Dealers, but retaining the final audit-trail requirement for broker-
dealers.
    This alternative could help harmonize the treatment of cross-
registered Swap and SBS Entities, facilitating transactions across
integrated markets, while retaining the requirement that broker-dealers
are able to produce originals of deleted or altered records. However,
because prudentially regulated SBS Entities would not be subject to the
technical requirements governing electronic recordkeeping systems, to
benefit from this alternative, the SBS Entity would have to be
registered as a swap dealer and not be registered as a broker-dealer or
have a prudential regulator. Currently, only two SBSDs fit within this
category, and they are subject to the CFTC's electronic recordkeeping
requirements through application of the alternative compliance
mechanism. Moreover, this alternative would create a wedge between
single-name CDS markets intermediated by SBS Entities and markets for
reference entity securities intermediated by broker-dealers.
Importantly, costs of the final amendments are likely to be low
relative to the costs of maintaining duplicate systems under the
baseline. Thus, the relative magnitude of such economic effects may be
limited.
    Second, the Commission considered harmonizing recordkeeping rules
for both broker-dealers and SBS Entities with the CFTC's principles-
based approach.\319\ This alternative could help harmonize the
treatment of Swap Dealers and SBS Entities that are also broker-
dealers. However, as discussed in Section II.D.2, this alternative
would require the broker-dealer or SBS Entity to establish systems and
controls that ensure the authenticity and reliability of regulatory
records without specifying

that the systems and controls must permit the recreation of an original
record if it is modified or deleted. The Commission continues to
believe that the audit-trail requirement provides the flexibility of a
principles-based requirement by setting forth a high-level yet specific
outcome the electronic recordkeeping system must achieve--the ability
to recreate an altered or deleted record--without prescribing how the
system must be configured to meet that objective.
---------------------------------------------------------------------------

    \319\ See, e.g., Proposing Release, 86 FR at 68302.
---------------------------------------------------------------------------

    Third, the Commission could require prudentially regulated SBS
Entities to meet the electronic recordkeeping system requirements. This
alternative would expand the scope of application of the requirements,
magnifying its benefits for Commission oversight as well as costs of
altering existing recordkeeping systems. As a baseline matter, the
Commission recognizes that prudentially regulated SBS Entities are
subject to a robust system of recordkeeping requirements for different
types of activities, including recordkeeping requirements under the
Bank Secrecy Act regarding funds transfers equal to or greater than
$3,000; \320\ recordkeeping requirements regarding fiduciary accounts;
\321\ recordkeeping requirements for securities transactions; \322\ and
recordkeeping requirements for small business and farm loans, including
a requirement to maintain the information in machine readable
form.\323\ Importantly, as discussed above, the Commission believes
that the final rule's requirements may conflict or overlap with the
recordkeeping systems banks have implemented under regulations or
guidance of the prudential regulators. The Commission believes that
requiring prudentially regulated SBS Entities to meet the final
electronic recordkeeping system requirements (in addition to the
recordkeeping requirements these entities are already subject to) would
not create significant incremental benefits.
---------------------------------------------------------------------------

    \320\ See, e.g., 31 CFR 1020.410.
    \321\ See 12 CFR 9.8.
    \322\ See 12 CFR 12.3.
    \323\ See 12 CFR 25.42.
---------------------------------------------------------------------------

    Fourth, the Commission could have eliminated the WORM alternative
and required all broker-dealers and nonbank SBS Entities to comply with
an audit-trail requirement. This alternative would require all affected
entities to modernize their recordkeeping systems to meet the audit-
trail requirement. While this alternative could produce long-term
compliance efficiencies for a greater number of affected participants,
it would also require all affected entities with WORM compliant systems
to upgrade their electronic recordkeeping systems. Since compliance
costs may be particularly burdensome for smaller entities, the
alternative could have a disproportionate effect on smaller and medium-
sized broker-dealers.
    As another alternative, the Commission could have required that a
second Designated Executive Officer have independent access to and the
ability to provide the records and to execute the undertakings at all
times. To the degree that relying on a single Designated Executive
Officer may present risks that the senior officer is unable or
unwilling to obtain records, this alternative could increase the
probability that the Commission would be able to access records. Thus,
relative to the final amendments, the alternative may further enhance
the efficiency of Commission examinations and oversight. However, the
final amendments would allow a Designated Executive Officer to appoint
other officers and specialists to fulfil their obligations, under the
conditions described above, ensuring that the Commission has access to
relevant records for purposes of examinations and oversight. At the
same time, this alternative may impose additional time demands on a
second Designated Executive Officer in each affected entity. To the
extent that the alternative would increase the scope of duties and
increase potential liability on the part of a greater number of
executive officers of affected entities, more executive officers may
demand higher compensation and liability insurance, which may result in
a greater increase to executive officer recruitment and retention costs
relative to the final amendments.
    The final amendments could have harmonized the compliance date for
all affected broker-dealers and SBS Entities.\324\ As a related
alternative, the Commission could have set the compliance date for the
amendments to Rules 17a-4 and 18a-6 at 18 months after publication of
the amendments in the Federal Register. Relative to the approach being
adopted, these alternatives would have given affected broker-dealers
and SBS Entities more time to comply with amended rules, including
developing audit trail compliant recordkeeping systems. Since broker-
dealers are already required to have WORM-compliant recordkeeping
systems and because, under the final rule, the audit trail is an
alternative to such systems, this benefit may be greater for SBS
Entities, which are not currently subject to WORM requirements. Thus,
under the final rule, broker-dealers would be able to continue to use
their existing WORM-compliant recordkeeping systems for regulatory
compliance and may transition to audit-trail compliant systems over
time. As discussed above, the Commission believes that SBS Entities may
generally elect to configure existing electronic recordkeeping systems,
rather than develop new systems, in order to come into compliance with
the final rules. Based on staff experience and given the relative size
and sophistication of SBS Entities, the Commission believes that twelve
months after publication in the Federal Register will be sufficient
time for SBS Entities to come into compliance with these new
requirements. Moreover, while the Commission acknowledges commenters'
request for an 18-month compliance period, it does not believe that the
timing concerns raised require more than a twelve month compliance
period. In addition, the Commission believes that the twelve-month
compliance period may help enhance Commission oversight and
examinations, while the audit-trail and WORM alternatives may provide
flexibility for broker-dealers and nonbank SBS Entities.
---------------------------------------------------------------------------

    \324\ See SIFMA Letter.
---------------------------------------------------------------------------

E. Effects on Efficiency, Competition, and Capital Formation

    The primary effect of the amendments on efficiency would stem from
increased efficiency of broker-dealer and SBS Entity recordkeeping.
Permitting either the audit-trail or WORM (introduced in the optical
disk era) alternative is intended to allow broker-dealers and SBS
Entities to modernize the records and systems such entities maintain
for regulatory purposes. The Commission anticipates that most of the
affected entities would respond to such a requirement by eliminating
duplicative recordkeeping for regulatory and business purposes, giving
rise to cost efficiencies discussed above. The amendments would not
alter the amount, type, or manner of disclosures available to investors
or the Commission, nor would it change broker-dealer or SBS Entity
business models or activities. Thus, the Commission does not anticipate
the amendments to impact informational or allocative efficiency.
    The amendments are not expected to significantly impact competition
between bank and nonbank SBS Entities. As described above, the
amendments would impose electronic recordkeeping system requirements
(including the audit-trail alternative) on

nonbank SBS Entities, but not on bank SBS Entities. Transitioning
regulatory recordkeeping systems from hardware solutions (such as
optical disks) meeting the WORM requirement to electronic records
compliant with the audit-trail requirement may require costly
modifications to existing recordkeeping systems of broker-dealers and
nonbank SBS Entities may need to modify existing electronic
recordkeeping systems to meet either the WORM or audit-trail
requirement; bank SBS Entities would not bear such costs.
    To the extent that the amendments result in cost savings for
broker-dealers and SBS Entities estimated above, affected entities may
be able to allocate newly available capital into capital forming
activities. However, it is not clear that affected entities would
direct cost savings to expanding their financial intermediation
business and given the magnitude of the cost savings estimated above,
the capital formation effects of the amendments are likely limited.
Therefore, the amendments are also not expected to have significant
effects on capital formation.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that Federal
agencies, in promulgating rules, consider the impact of those rules on
small entities.\325\ Section 3(a) of the RFA \326\ generally requires
the Commission to undertake a regulatory flexibility analysis of all
proposed rules to determine the impact of such rulemaking on small
entities unless the Commission certifies that the rule amendments, if
adopted, would not have a significant economic impact on a substantial
number of small entities.\327\ In the proposing release, the Commission
performed an initial regulatory flexibility analysis and sought comment
on the analysis.\328\ The Commission did not receive any comments on
the analysis.
---------------------------------------------------------------------------

    \325\ 5 U.S.C. 601 et seq.
    \326\ 5 U.S.C. 603.
    \327\ 5 U.S.C. 605(b).
    \328\ See Proposing Release, 86 FR at 68324-25.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Final Action

    The final amendments to Rules 17a-4 and 18a-6 are designed to
modernize the electronic recordkeeping requirements for broker-dealers
and SBS Entities, and to align the requirements in those rules more
closely to the current electronic recordkeeping practices of broker-
dealers and SBS Entities.
    Rule 17a-4 currently requires a broker-dealer to notify its DEA
before employing an electronic recordkeeping system.\329\ The
amendments to the rule eliminate this requirement as outdated.\330\ In
particular, this requirement is no longer necessary because the rule
was adopted at a time when the use of electronic recordkeeping systems
by broker-dealers to meet the record maintenance and preservation
requirements of Rule 17a-4 was a relatively new phenomenon, and the
staff of DEAs, including FINRA, now have substantial experience and
familiarity with the topic.
---------------------------------------------------------------------------

    \329\ Rule 18a-6 does not have a similar requirement.
    \330\ See section II.C. of this release (discussing these
amendments in more detail).
---------------------------------------------------------------------------

    Rule 17a-4 currently requires a broker-dealer to maintain and
preserve electronic records exclusively in a WORM format. The
amendments to Rule 17a-4 add an audit-trail alternative to the WORM
requirement.\331\ Under the audit-trail alternative, a broker-dealer
will need to 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. Currently, Rule 18a-6
does not require an SBS Entity to use an electronic recordkeeping
system that meets either the audit-trail or the WORM requirement. The
amendments to Rule 18a-6 require a nonbank SBS Entity to maintain and
preserve electronic records using an electronic recordkeeping system
that meets either the audit-trail or the WORM requirement.\332\ Thus,
under the amendments to Rules 17a-4 and 18a-6, a broker-dealer and a
nonbank SBS Entity will need to use an electronic recordkeeping system
that meets either the audit-trail requirement or the WORM requirement.
The Commission believes that the amendments--by adding the audit-trail
alternative--will save many broker-dealers and nonbank SBS Entities
from the burden of maintaining and preserving records on an electronic
recordkeeping system that serves no function other than to comply with
the WORM requirement. The audit-trail alternative will permit them to
leverage the electronic recordkeeping systems they use for business
purposes to meet the record maintenance and preservation requirements
of Rules 17a-4 and 18a-6.
---------------------------------------------------------------------------

    \331\ See section II.D.2. of this release (discussing these
amendments in more detail).
    \332\ Id.
---------------------------------------------------------------------------

    Rule 17a-4 currently requires a broker-dealer to engage a third
party who has access to and the ability to download information from
the broker-dealer's electronic storage media to any acceptable medium
under the rule. The Designated Third Party must execute written
undertakings agreeing to, among other things, furnish promptly to the
Commission and other securities regulators the information necessary to
download information kept on the electronic storage media to any medium
acceptable under Rule 17a-4. The amendments to Rule 17a-4 modify the
form of the undertakings to make them more technology neutral and to
provide an alternative to engaging a Designated Third Party to perform
this function.\333\ Under the alternative, the broker-dealer can have a
Designated Executive Officer execute the undertakings if the Designated
Executive Officer has access to and the ability to provide records
maintained and preserved on the broker-dealer's electronic
recordkeeping system either directly or through a specialist who
reports directly or indirectly to the executive officer. Further, the
Designated Executive Officer can appoint in writing up to two employees
who are direct or indirect reports to fulfill the executive officer's
obligations if the executive officer is unavailable. The employees must
have the same ability as the executive officer to access and provide
the records either directly or through a specialist who reports
directly or indirectly to them. In addition, the Designated Executive
Officer can appoint in writing up to three specialists to assist in
fulfilling the executive officer's obligations. Rule 18a-6 currently
does not have either a third-party or executive officer undertakings
requirement. The amendments to Rule 18a-6 add the third-party
undertakings requirement and alternative executive officer undertakings
requirement to the rule.\334\ Thus, under the amendments to Rules 17a-4
and 18a-6, a broker-dealer and an SBS Entity must have either a third
party or an executive officer provide the written undertakings.
---------------------------------------------------------------------------

    \333\ See section II.E.6. of this release (discussing these
amendments in more detail).
    \334\ Id.
---------------------------------------------------------------------------

    These amendments are designed to promote the ability of the
Commission and other securities regulators in accessing broker-dealer
or SBS Entity records stored electronically. Further, by retaining the
Designated Third Party alternative, broker-dealers will be able to use
their existing Designated Third Parties if they choose not use the
Designated Executive Officer option. In addition, by adding the
Designated Executive Officer option, broker-dealers and SBS Entities
will be able to avoid

the costs of using a Designated Third Party. This option also will
address data leakage and cybersecurity concerns with giving a
Designated Third Party access to information necessary to view and
download records stored electronically.
    Rules 17a-4 and 18a-6 require a third party who prepares or
maintains the regulatory records of a broker-dealer or SBS Entity
(regardless of whether the records are in paper or electronic form) to
file a written undertaking with the Commission signed by a duly
authorized person.\335\ The undertaking must include a provision
whereby the third-party agrees, among other things, to permit
examination of the records by representatives or designees of the
Commission as well as to promptly furnish to the Commission or its
designee true, correct, complete, and current hard copies of any or all
or any part of such books and records. Some broker-dealers and SBS
Entities maintain their electronic recordkeeping systems and associated
electronic records on servers or other storage devices that are owned
or operated by a third party (e.g., a cloud service provider). The
broker-dealer or SBS Entity controls the electronic recordkeeping
system and the access to the electronic records preserved on the
system. Consequently, the third parties state that they cannot provide
the undertaking required under Rules 17a-4 and 18a-6.
---------------------------------------------------------------------------

    \335\ This undertaking requirement is designed to address access
to broker-dealer or SBS Entity records when they are held by a
person other than the broker-dealer or SBS Entity and regardless of
whether the records are in paper form, stored on micrographic media,
or stored on an electronic recordkeeping system. It is separate from
the third-party or executive officer undertakings requirements
discussed above, which are designed to address access to records
preserved and maintained on an electronic recordkeeping system
irrespective of whether they are held by a third party.
---------------------------------------------------------------------------

    The Commission is amending the Rules 17a-4 and 18a-6 to address
this development in electronic recordkeeping practices.\336\ Under the
amendments, the third party may provide an alternative undertaking that
is tailored to how cloud service providers hold electronic records for
broker-dealers and SBS Entities. The use of this alternative
undertaking is subject to certain conditions, including that the
records are maintained on an electronic recordkeeping system and the
broker-dealer or SBS Entity has independent access to the records,
meaning, among other things, the broker-dealer can access the records
without the need of any intervention of the third party. Consequently,
the alternative undertaking cannot be used if the records maintained
and preserved by the third party are not maintained and preserved by
means of an electronic recordkeeping system (e.g., it cannot be used if
the records are in paper form). It also cannot be used if the broker-
dealer or SBS Entity must rely on the third party to take an
intervening step to make the records available to the broker-dealer or
SBS Entity (e.g., it cannot be used if the broker-dealer or SBS Entity
must ask the third party to transfer copies of the records to the
broker-dealer or SBS Entity or must ask the third party to first
decrypt the records before they can be accessed). The final amendments
are designed to accommodate the use of cloud service providers by
broker-dealers and SBS Entities in manner that promotes the
accessibility of the records.
---------------------------------------------------------------------------

    \336\ See section II.G. of this release (discussing these
amendments in more detail).
---------------------------------------------------------------------------

    In the alternative undertaking, the third party must, among other
things, acknowledge that the records are the property of the broker-
dealer or SBS Entity and that the broker-dealer or SBS Entity has
represented to the third party that the broker-dealer or SBS Entity:
(1) is subject to rules of the Commission governing the maintenance and
preservation of certain records; (2) has independent access to the
records maintained by the third party; and (3) consents to the third
party fulfilling the obligations set forth in the undertaking. Further,
the third party must undertake to facilitate within its ability, and
not impede or prevent, the examination, access, download, or transfer
of the records by a representative or designee of the Commission as
permitted under the law. In the case of a broker-dealer, the third
party must also undertake to facilitate within its ability, and not
impede or prevent, a trustee appointed under SIPA to liquidate the
broker-dealer in accessing, downloading, or transferring the records as
permitted under the law.
    Rules 17a-4 and 18a-6 require a broker-dealer or SBS Entity,
respectively, to furnish promptly to a representative of the Commission
legible, true, complete, and current copies of records required to be
preserved under the rules and any other records subject to examination.
The amendments to Rules 17a-4 and 18a-6 require the broker-dealer or
SBS Entity to furnish a record and its audit trail (if applicable)
preserved on an electronic recordkeeping system in a reasonably usable
electronic format, if requested by a representative of the
Commission.\337\ This means the record will need to be produced in an
electronic format that is compatible with commonly used systems for
accessing and reading electronic records. The requirement to produce
records in a reasonably usable electronic format will facilitate
examinations and other regulatory reviews by making them more
efficient.
---------------------------------------------------------------------------

    \337\ See section II.H. of this release (discussing these
amendments in more detail).
---------------------------------------------------------------------------

    Finally, the amendments to both rules remove or replace text to
make them more technology neutral and to improve readability.

B. Legal Basis

    Pursuant to Exchange Act Sections 15F(f) (15 U.S.C. 78o-10(f)) and
17(a) (15 U.S.C. 78q(a)), the Commission revises Sec. Sec.  240.17a-
4(f), (i), and (j) and 240.18a-6(e), (f), and (g) of title 17 of the
Code of Federal Regulations.

C. Small Entities Subject to the Final Rules

    As discussed above, the Commission estimates that approximately
3,508 broker-dealers and 19 SBS Entities will be subject to the new
requirements as a result of the amendments to Rules 17a-4(f), (i), and
(j) and 18a-6(e), (f), and (g), respectively. For purposes of this
regulatory flexibility analysis, the Commission refers to broker-
dealers that might be deemed small entities under the RFA as ``small
entities.''
    Based on FOCUS Report data, the Commission estimates that as of
December 31, 2021, approximately 744 of those broker-dealers might be
deemed small entities for purposes of this analysis. Based upon the
Commission's prior RFA certification that adoption of Rule 18a-6 would
not have a significant economic impact on a substantial number of small
entities for the purposes of the RFA,\338\ the Commission believes that
no small entities will be affected by the final amendments to Rule 18a-
6.
---------------------------------------------------------------------------

    \338\ See SBSD/MSBSP Recordkeeping Adopting Release, 84 FR at
68645.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The RFA requires a description of the projected reporting,
recordkeeping, and other compliance requirements of the amendments to
Rules 17a-4(f), (i), and (j) and 18a-6(e), (f), and (g), including an
estimate of the classes of small entities that would be subject to the
requirements and the type of professional skill necessary to prepare
required reports and records. Following is a discussion of the
associated costs and burdens of compliance with the

final amendments, as incurred by small entities.\339\
---------------------------------------------------------------------------

    \339\ See section IV.D. of this release (discussing the total
initial and annual reporting burdens and related costs for smaller
broker-dealer, some of which will be small entities for purposes of
the RFA).
---------------------------------------------------------------------------

    The Commission does not believe that the compliance costs of the
final amendments will be significant. The audit-trail alternative to
should be consistent with existing broker-dealer practices. Broker-
dealers have explained to the Commission that the electronic
recordkeeping systems used for business purposes are dynamic and
updated constantly (e.g., with each new transaction or position) and
easily accessible for retrieving records. The Commission believes that
these contemporary electronic recordkeeping business systems, in many
cases, can be configured to meet the audit-trail requirement in Rule
17a-4(f), as amended. Moreover, small broker-dealers could continue to
preserve records on electronic recordkeeping systems that meet the WORM
requirement.
    The addition of the Designated Executive Officer requirement as an
alternative to the Designated Third Party requirement should reduce the
burden on small broker-dealers because they will be able to use an
internal resource at no marginal cost rather than an external source to
comply with the requirement. Moreover, retention of the Designated
Third Party requirement as an alternative to the Designated Executive
Officer requirement will permit small broker-dealers to continue with
their existing arrangements.
    The amendments requiring a broker-dealer to furnish a record and
its audit trail (if applicable) preserved on an electronic
recordkeeping system pursuant Rule 17a-4(f) in a reasonably usable
electronic format, if requested by a representative of the Commission,
should not impose a burden on small entities. Most existing electronic
recordkeeping systems should have this capacity.
    Finally, the amendments providing for the use of the Alternative
Undertaking will accommodate the use of cloud service providers by
small broker-dealers. This should provide them with more options for
maintaining and preserving records in an electronic format by
facilitating the use of cloud service providers for this purpose.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission does not believe that the final amendments impacting
small entities that are broker-dealers would duplicate, overlap, or
conflict with other Federal Rules.

F. Significant Alternatives

    The RFA directs the Commission to consider significant alternatives
that would accomplish its stated objective, while minimizing any
significant economic impact on small entities. The Commission
considered the following alternatives for small entities: (1) exempting
broker-dealers that are small entities from the proposed requirements,
to account for resources available to small entities; (2) establishing
different requirements, including frequency, to account for resources
available to small entities; (3) clarifying, consolidating, or
simplifying the compliance requirements under the proposal for small
entities; and (4) using performance rather than design standards.
    The Commission considered exempting broker-dealers that are small
entities from the new requirements and establishing different
requirements for these firms.\340\ However, the Commission elected not
to do so for a number of reasons, including: (1) the option for small
entities to keep their records in paper or micrographic media, rather
than electronically; (2) the importance of establishing requirements
for reliable and secure electronic recordkeeping systems for broker-
dealers; (3) the availability of multiple third-party vendors to
provide the electronic recordkeeping services; and (4) the ability of
small entities to continue to use existing WORM-compliant electronic
recordkeeping systems.
---------------------------------------------------------------------------

    \340\ As stated above, the Commission does not believe any SBS
Entities qualify as ``small entities'' for the purposes of the RFA.
---------------------------------------------------------------------------

    In this vein, the Commission also considered eliminating the WORM
alternative and requiring all broker-dealers to comply with an audit-
trail requirement. This alternative would require all affected entities
to modernize their recordkeeping systems to meet the audit-trail
requirement. While this alternative could produce long-term compliance
efficiencies for a greater number of affected participants, it would
also require all affected entities with WORM-compliant systems to
upgrade their electronic recordkeeping systems. The Commission elected
not to propose this alternative because the accompanying compliance
costs could be particularly burdensome for smaller entities and could
have a disproportionate effect on smaller and medium-sized broker-
dealers.
    The Commission also considered simplifying compliance by proposing
performance rather than design standards similar to the approach taken
by the CFTC. The CFTC amended the electronic recordkeeping requirements
by replacing prescriptive requirements for electronic recordkeeping
systems with a principles-based approach.\341\ The Commission believes
that the final amendments establishing electronic recordkeeping
requirements for broker-dealers will provide greater protection to the
original records created and preserved by broker-dealers, thereby
giving regulators more reliable and secure access to those
records.\342\ Moreover, the Commission believes that the final
amendments address the same concerns accounted for in the CFTC's rule,
namely the security and authenticity of and access to records. For
these reasons, the Commission determined not adopt principles-based
rules.
---------------------------------------------------------------------------

    \341\ See CFTC, Recordkeeping, 82 FR at 24480.
    \342\ See Section II.D.2. of this release (discussing why the
Commission adopted the audit-trail requirement).
---------------------------------------------------------------------------

VII. Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
    Pursuant to the Congressional Review Act,\343\ the Office of
Information and Regulatory Affairs has designated these rules as not a
major rule as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \343\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

VIII. Statutory Basis

    The Commission is revising Rules 17a-4 and 18a-6 under the Exchange
Act (17 CFR 240.17a-4 and 17 CFR 240.18a-6) pursuant to the authority
conferred by the Exchange Act, including Sections 15F and 17.

List of Subjects in 17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and
recordkeeping requirements, Securities.

Text of Rule Amendments

    For the reasons set out in the preamble, the Commission is amending
title 17, chapter II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Section 240.17a-4 also issued under secs. 2, 17, 23(a), 48 Stat.
897, as amended; 15 U.S.C. 78a, 78d-1, 78d-2; sec. 14, Pub. L. 94-
29, 89 Stat. 137 (15 U.S.C. 78a); sec. 18, Pub. L. 94-29, 89 Stat.
155 (15 U.S.C. 78w);
* * * * *

0
2. Amend Sec.  240.17a-4 by:
0
a. Revising paragraphs (f), (i), and (j).
0
b. Removing the heading from paragraph (k).
    The revisions read as follows:

Sec.  240.17a-4  Records to be preserved by certain exchange members,
brokers and dealers.

* * * * *
    (f) Subject to the conditions set forth in this paragraph (f), the
records required to be maintained and preserved pursuant to Sec.
240.17a-3 and this section may be immediately produced or reproduced by
means of an electronic recordkeeping system or by means of micrographic
media and be maintained and preserved for the required time in that
form.
    (1) For purposes of this paragraph (f):
    (i) The term micrographic media means microfilm or microfiche, or
any similar medium;
    (ii) The term electronic recordkeeping system means a system that
preserves records in a digital format in a manner that permits the
records to be viewed and downloaded;
    (iii) The term designated executive officer means a member of
senior management of the member, broker, or dealer who has access to
and the ability to provide records maintained and preserved on the
electronic recordkeeping system either directly or through a designated
specialist who reports directly or indirectly to the designated
executive officer;
    (iv) The term designated officer means an employee of the member,
broker, or dealer who reports directly or indirectly to the designated
executive officer and who has access to and the ability to provide
records maintained and preserved on the electronic recordkeeping system
either directly or through a designated specialist who reports directly
or indirectly to the designated officer;
    (v) The term designated specialist means an employee of the member,
broker, or dealer who has access to, and the ability to provide records
maintained and preserved on, the electronic recordkeeping system; and
    (vi) The term designated third party means a person that is not
affiliated with the member, broker, or dealer who has access to and the
ability to provide records maintained and preserved on the electronic
recordkeeping system.
    (2) An electronic recordkeeping system must:
    (i)(A) Preserve a record for the duration of its applicable
retention period in a manner that maintains a complete time-stamped
audit trail that includes:
    (1) All modifications to and deletions of the record or any part
thereof;
    (2) The date and time of actions that create, modify, or delete the
record;
    (3) If applicable, the identity of the individual creating,
modifying, or deleting the record; and
    (4) Any other information needed to maintain an audit trail of the
record in a way that maintains security, signatures, and data to ensure
the authenticity and reliability of the record and will permit re-
creation of the original record if it is modified or deleted; or
    (B) Preserve the records exclusively in a non-rewriteable, non-
erasable format;
    (ii) Verify automatically the completeness and accuracy of the
processes for storing and retaining records electronically;
    (iii) If applicable, serialize the original and duplicate units of
the storage media, and time-date the required period of retention for
the information placed on such electronic storage media;
    (iv) Have the capacity to readily download and transfer copies of a
record and its audit trail (if applicable) in both a human readable
format and in a reasonably usable electronic format and to readily
download and transfer the information needed to locate the electronic
record, as required by the staffs of the Commission, the self-
regulatory organizations of which the member, broker, or dealer is a
member, or any State securities regulator having jurisdiction over the
member, broker, or dealer; and
    (v)(A) Include a backup electronic recordkeeping system that meets
the other requirements of this paragraph (f) and that retains the
records required to be maintained and preserved pursuant to Sec.
240.17a-3 and in accordance with this section in a manner that will
serve as a redundant set of records if the original electronic
recordkeeping system is temporarily or permanently inaccessible; or
    (B) Have other redundancy capabilities that are designed to ensure
access to the records required to be maintained and preserved pursuant
to Sec.  240.17a-3 and this section.
    (3) A member, broker, or dealer using an electronic recordkeeping
system must:
    (i) At all times have available, for examination by the staffs of
the Commission, the self-regulatory organizations of which the member,
broker, or dealer is a member, or any State securities regulator having
jurisdiction over the member, broker, or dealer, facilities for
immediately producing the records preserved by means of the electronic
recordkeeping system and for producing copies of those records.
    (ii) Be ready at all times to provide, and immediately provide, any
record stored by means of the electronic recordkeeping system that the
staffs of the Commission, the self-regulatory organizations of which
the member, broker, or dealer is a member, or any State securities
regulator having jurisdiction over the member, broker, or dealer may
request.
    (iii) For a broker-dealer operating pursuant to paragraph
(f)(2)(i)(B) of this section, 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 Sec.  240.17a-3 and this section to the electronic recordkeeping
system 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 organization of which
the broker or dealer is a member.
    (B) The audit results must be preserved for the time required for
the audited records.
    (iv) Organize, maintain, keep current, and provide promptly upon
request by the staffs of the Commission, the self-regulatory
organizations of which the member, broker, or dealer is a member, or
any State securities regulator having jurisdiction over the member,
broker, or dealer all information necessary to access and locate
records preserved by

means of the electronic recordkeeping system.
    (v)(A) Have at all times filed with the designated examining
authority for the member, broker, or dealer the following undertakings
with respect to such records signed by either a designated executive
officer or designated third party (hereinafter, the ``undersigned''):
    The undersigned hereby undertakes to furnish promptly to the U.S.
Securities and Exchange Commission (``Commission''), its designees or
representatives, any self- regulatory organization of which [Name of
the Member, Broker, or Dealer] is a member, or any State securities
regulator having jurisdiction over [Name of the Member, Broker, or
Dealer], upon reasonable request, such information as is deemed
necessary by the staff of the Commission, any self-regulatory
organization of which [Name of the Member, Broker, or Dealer] is a
member, or any State securities regulator having jurisdiction over
[Name of the Member, Broker, or Dealer], and to download copies of a
record and its audit trail (if applicable) preserved by means of an
electronic recordkeeping system of [Name of the Member, Broker, or
Dealer] into both a human readable format and a reasonably usable
electronic format in the event of a failure on the part of [Name of the
Member, Broker, or Dealer] to download a requested record or its audit
trail (if applicable).
    Furthermore, the undersigned hereby undertakes to take reasonable
steps to provide access to the information preserved by means of an
electronic recordkeeping system of [Name of the Member, Broker, or
Dealer], including, as appropriate, downloading any record required to
be maintained and preserved by [Name of the Member, Broker, or Dealer]
pursuant to Sec. Sec.  240.17a-3 and 240.17a-4 in a format acceptable
to the staff of the Commission, any self-regulatory organization of
which [Name of the Member, Broker, or Dealer] is a member, or any State
securities regulator having jurisdiction over [Name of the Member,
Broker, or Dealer]. Specifically, the undersigned will take reasonable
steps to, in the event of a failure on the part of [Name of the Member,
Broker, or Dealer] to download the record into a human readable format
or a reasonably usable electronic format and after reasonable notice to
[Name of the Member, Broker, or Dealer], download the record into a
human readable format or a reasonably usable electronic format at the
request of the staffs of the Commission, any self-regulatory
organization of which [Name of the Member, Broker, or Dealer] is a
member, or any State securities regulator having jurisdiction over
[Name of the Member, Broker, or Dealer].
    (B) A designated executive officer who signs the undertaking
required pursuant to paragraph (f)(3)(v)(A) of this section may:
    (1) Appoint in writing up to two designated officers who will take
the steps necessary to fulfill the obligations of the designated
executive officer set forth in the undertakings in the event the
designated executive officer is unable to fulfill those obligations;
and
    (2) Appoint in writing up to three designated specialists.
    (C) The appointment of, or reliance on, a designated officer or
designated specialist does not relieve the designated executive officer
of the obligations set forth in the undertaking.
    (4) A broker-dealer using a micrographic media system must:
    (i) At all times have available, for examination by the staffs of
the Commission, self-regulatory organizations of which it is a member,
and any State securities regulator having jurisdiction over the member,
broker, or dealer, facilities for immediate, easily readable projection
or production of micrographic media and for producing easily readable
images;
    (ii) Be ready at all times to provide, and immediately provide, any
facsimile enlargement which the staffs of the Commission, any self-
regulatory organization of which it is a member, or any State
securities regulator having jurisdiction over the member, broker, or
dealer may request;
    (iii) Store, separately from the original, a duplicate copy of the
record stored on any medium acceptable under this section for the time
required; and
    (iv) Organize and index accurately all information maintained on
both original and duplicate storage media.
    (A) At all times, a member, broker, or dealer must be able to have
such indexes available for examination by the staffs of the Commission,
the self-regulatory organizations of which the broker or dealer is a
member, and any State securities regulator having jurisdiction over the
member, broker or, dealer.
    (B) Each index must be duplicated and the duplicate copies must be
stored separately from the original copy of each index.
    (C) Original and duplicate indexes must be preserved for the time
required for the indexed records.
* * * * *
    (i)(1)(i) If the records required to be maintained and preserved
pursuant to the provisions of Sec.  240.17a-3 and this section are
prepared or maintained by an outside service bureau, depository, bank,
or other recordkeeping service, including a recordkeeping service that
owns and operates the servers or other storage devices on which the
records are preserved or maintained, (none of which operate pursuant to
Sec.  240.17a-3(c)) on behalf of the member, broker, or dealer required
to maintain and preserve such records, such outside entity must file
with the Commission a written undertaking in a form acceptable to the
Commission, signed by a duly authorized person, to the effect that such
records are the property of the member, broker, or dealer required to
maintain and preserve such records and will be surrendered promptly on
request of the member, broker, or dealer and including the following
provision:

    With respect to any books and records maintained or preserved on
behalf of [Name of the Member, Broker, or Dealer], the undersigned
hereby undertakes to permit examination of such books and records at
any time or from time to time during business hours by
representatives or designees of the Securities and Exchange
Commission and to promptly furnish to said Commission or its
designee true, correct, complete and current hard copies of any or
all or any part of such books and records.

    (ii)(A) If the records required to be maintained and preserved
pursuant to the provisions of Sec.  240.17a-3 and this section are
maintained and preserved by means of an electronic recordkeeping system
as defined in paragraph (f) of this section utilizing servers or other
storage devices that are owned or operated by an outside entity
(including an affiliate) and the broker, dealer, or member has
independent access to the records as defined in paragraph (i)(1)(ii)(B)
of this section, the outside entity may file with the Commission the
following undertaking signed by a duly authorized person in lieu of the
undertaking required under paragraph (i)(1)(i) of this section:

    The undersigned hereby acknowledges that the records of [name of
member, broker, or dealer] are the property of [name of member,
broker, or dealer] and [name of member, broker, or dealer] has
represented: one, that it is subject to rules of the Securities and
Exchange Commission governing the maintenance and preservation of
certain records, two, that it has independent access to the records
maintained by [name of outside entity], and, three, that it consents
to [name of outside entity] fulfilling the obligations set forth in
this undertaking. The undersigned undertakes that [name of outside
entity] will facilitate within its ability, and not impede or
prevent, the examination, access, download, or transfer of the
records by a representative or designee of the Securities and
Exchange Commission as permitted under the law. Further, the
undersigned undertakes to facilitate within

its ability, and not impede or prevent, a trustee appointed under
the Securities Investor Protection Act of 1970 to liquidate [name of
member, broker, or dealer] in accessing, downloading, or
transferring the records as permitted under the law.

    (B) A broker, dealer, or member utilizing servers or other storage
devices that are owned or operated by an outside entity has independent
access to records with respect to such outside entity if it can
regularly access the records without the need of any intervention of
the outside entity and through such access:
    (1) Permit examination of the records at any time or from time to
time during business hours by representatives or designees of the
Commission; and
    (2) Promptly furnish to the Commission or its designee a true,
correct, complete and current hard copy of any or all or any part of
such records.
    (2) An agreement with an outside entity will not relieve such
member, broker, or dealer from the responsibility to prepare and
maintain records as specified in this section or in Sec.  240.17a-3.
    (j) Every member, broker and dealer subject to this section must
furnish promptly to a representative of the Commission legible, true,
complete, and current copies of those records of the member, broker, or
dealer that are required to be preserved under this section, or any
other records of the member, broker, or dealer subject to examination
under section 17(b) of the Act (15 U.S.C. 78q(b)) that are requested by
the representative of the Commission. The member, broker, or dealer
must furnish a record and its audit trail (if applicable) preserved on
an electronic recordkeeping system pursuant to paragraph (f) of this
section in a reasonably usable electronic format, if requested by a
representative of the Commission.
* * * * *

0
3. Amend Sec.  240.18a-6 by revising paragraphs (e) through (g) to read
as follows:

Sec.  240.18a-6  Records to be preserved by certain security-based swap
dealers and major security-based swap participants.

* * * * *
    (e) Subject to the conditions set forth in this paragraph (e), the
records required to be maintained and preserved pursuant to Sec.
240.18a-5 and this section may be immediately produced or reproduced by
means of an electronic recordkeeping system and be maintained and
preserved for the required time in that form.
    (1) For purposes of this paragraph (e):
    (i) The term electronic recordkeeping system means a system that
preserves records in a digital format in a manner that permits the
records to be viewed and downloaded;
    (ii) The term designated executive officer means a member of senior
management of the security-based swap dealer or major security-based
swap participant who has access to and the ability to provide records
maintained and preserved on the electronic recordkeeping system either
directly or through a designated specialist who reports directly or
indirectly to the designated executive officer;
    (iii) The term designated officer means an employee of the
security-based swap dealer or major security-based swap participant who
reports directly or indirectly to the designated executive officer and
who has access to and the ability to provide records maintained and
preserved on the electronic recordkeeping system either directly or
through a designated specialist who reports directly or indirectly to
the designated officer;
    (iv) The term designated specialist means an employee of the
security-based swap dealer or major security-based swap participant who
has access to, and the ability to provide records maintained and
preserved on, the electronic recordkeeping system; and
    (v) The term designated third party means a person that is not
affiliated with the security-based swap dealer or major security-based
swap participant who has access to and the ability to provide records
maintained and preserved on the electronic recordkeeping system.
    (2) An electronic recordkeeping system of a security-based swap
dealer or major security-based swap participant without a prudential
regulator must:
    (i)(A) Preserve a record for the duration of its applicable
retention period in a manner that maintains a complete time-stamped
audit trail that includes:
    (1) All modifications to and deletions of the record or any part
thereof;
    (2) The date and time of actions that create, modify, or delete the
record;
    (3) If applicable, the identity of the individual creating,
modifying, or deleting the record; and
    (4) Any other information needed to maintain an audit trail of the
record in a way that maintains security, signatures, and data to ensure
the authenticity and reliability of the record and will permit re-
creation of the original record if it is modified or deleted; or
    (B) Preserve the records exclusively in a non-rewriteable, non-
erasable format;
    (ii) Verify automatically the completeness and accuracy of the
processes for storing and retaining records electronically;
    (iii) If applicable, serialize the original and duplicate units of
the storage media, and time-date the required period of retention for
the information placed on such electronic storage media;
    (iv) Have the capacity to readily download and transfer copies of a
record and its audit trail (if applicable) in both a human readable
format and in a reasonably usable electronic format and to readily
download and transfer the information needed to locate the electronic
record, as required by the staffs of the Commission, or any State
regulator having jurisdiction over the security-based swap dealer or
major security-based swap participant; and
    (v)(A) Include a backup electronic recordkeeping system that meets
the other requirements of this paragraph (e) and that retains the
records required to be maintained and preserved pursuant to Sec.
240.18a-5 and in accordance with this section in a manner that will
serve as a redundant set of records if the original electronic
recordkeeping system is temporarily or permanently inaccessible; or
    (B) Have other redundancy capabilities that are designed to ensure
access to the records required to be maintained and preserved pursuant
to Sec.  240.18a-5 and this section.
    (3) A security-based swap dealer or major security-based swap
participant using an electronic recordkeeping system must:
    (i) At all times have available, for examination by the staffs of
the Commission or any State regulator having jurisdiction over the
security-based swap dealer or major security-based swap participant,
facilities for immediately producing the records preserved by means of
the electronic recordkeeping system and for producing copies of those
records.
    (ii) Be ready at all times to provide, and immediately provide, any
record stored by means of the electronic recordkeeping system that the
staffs of the Commission or any State regulator having jurisdiction
over the security-based swap dealer or major security-based swap
participant may request.
    (iii) For a security-based swap dealer or major security-based swap
participant operating pursuant to paragraph (e)(2)(i)(B) of this
section, the security-based swap dealer or major security-based swap
participant must have in place an audit system providing for
accountability regarding inputting of

records required to be maintained and preserved pursuant to Sec.
240.18a-5 and this section to the electronic recordkeeping system and
inputting of any changes made to every original and duplicate record
maintained and preserved thereby.
    (A) At all times a security-based swap dealer and major security-
based swap participant must be able to have the results of such audit
system available for examination by the staff of the Commission.
    (B) The audit results must be preserved for the time required for
the audited records.
    (iv) Organize, maintain, keep current, and provide promptly upon
request by the staffs of the Commission or any State regulator having
jurisdiction over the security-based swap dealer or major security-
based swap participant all information necessary to access and locate
records preserved by means of the electronic recordkeeping system.
    (v)(A) Have at all times filed with the Commission the following
undertakings with respect to such records signed by either a designated
executive officer or designated third party (hereinafter, the
``undersigned''):

    The undersigned hereby undertakes to furnish promptly to the
U.S. Securities and Exchange Commission (``Commission'') and its
designees or representatives, or any State securities regulator
having jurisdiction over [Name of the Security-Based Swap Dealer or
Major Security-Based Swap Participant], upon reasonable request,
such information as is deemed necessary by the staff of the
Commission or any State regulator having jurisdiction over [Name of
the Security-Based Swap Dealer or Major Security-Based Swap
Participant], to download copies of a record and its audit trail (if
applicable) preserved by means of an electronic recordkeeping system
of [Name of the Security-Based Swap Dealer or Major Security-Based
Swap Participant] into both a human readable format and a reasonably
usable electronic format in the event of a failure on the part of
[Name of the Security-Based Swap Dealer or Major Security-Based Swap
Participant] to download a requested record or its audit trail (if
applicable).
    Furthermore, the undersigned hereby undertakes to take
reasonable steps to provide access to the information preserved by
means of an electronic recordkeeping system of [Name of the
Security-Based Swap Dealer or Major Security-Based Swap
Participant], including, as appropriate, downloading any record
required to be maintained and preserved by [Name of the Security-
Based Swap Dealer or Major Security-Based Swap Participant] pursuant
to Sec. Sec.  240.18a-5 and 240.18a-6 in a format acceptable to the
staff of the Commission or any State regulator having jurisdiction
over [Name of the Security-Based Swap Dealer or Major Security-Based
Swap Participant]. Specifically, the undersigned will take
reasonable steps to, in the event of a failure on the part of [Name
of the Security-Based Swap Dealer or Major Security-Based Swap
Participant] to download the record into a human readable format or
a reasonably usable electronic format and after reasonable notice to
[Name of the Security-Based Swap Dealer or Major Security-Based Swap
Participant], download the record into a human readable format or a
reasonably usable electronic format at the request of the staff of
the Commission or any State regulator having jurisdiction [Name of
the Security-Based Swap Dealer or Major Security-Based Swap
Participant].

    (B) A designated executive officer who signs the undertaking
required pursuant to paragraph (e)(3)(v)(A) of this section may:
    (1) Appoint in writing up to two designated officers who will take
the steps necessary to fulfill the obligations of the designated
executive officer set forth in the undertakings in the event the
designated executive officer is unable to fulfill those obligations;
and
    (2) Appoint in writing up to three designated specialists.
    (C) The appointment of, or reliance on, a designated officer or
designated specialist does not relieve the designated executive officer
of the obligations set forth in the undertaking.
    (f)(1)(i) If the records required to be maintained and preserved
pursuant to the provisions of Sec.  240.18a-5 and this section are
prepared or maintained by a third party, including by a third party
that owns and operates the servers or other storage devices on which
the records are preserved or maintained, on behalf of the security-
based swap dealer or major security-based swap participant, the third
party must file with the Commission a written undertaking in a form
acceptable to the Commission, signed by a duly authorized person, to
the effect that such records are the property of the security-based
swap dealer or major security-based swap participant and will be
surrendered promptly on request of the security-based swap dealer or
major security-based swap participant and including the following
provision:

    With respect to any books and records maintained or preserved on
behalf of [SBSD or MSBSP], the undersigned hereby undertakes to
permit examination of such books and records at any time or from
time to time during business hours by representatives or designees
of the Securities and Exchange Commission, and to promptly furnish
to said Commission or its designee true, correct, complete, and
current hard copies of any or all or any part of such books and
records.

    (ii)(A) If the records required to be maintained and preserved
pursuant to the provisions of Sec.  240.18a-5 and this section are
maintained and preserved by means of an electronic recordkeeping system
as defined in paragraph (e) of this section utilizing servers or other
storage devices that are owned or operated by a third party (including
an affiliate) and the security-based swap dealer or major security-
based swap participant has independent access to the records as defined
in paragraph (f)(1)(ii)(B) of this section, the third party may file
with the Commission the following undertaking signed by a duly
authorized person in lieu of the undertaking required under paragraph
(f)(1)(i) of this section:

    The undersigned hereby acknowledges that the records of [SBSD or
MSBSP] are the property of [SBSD or MSBSP] and [SBSD or MSBSP] has
represented: one, that it is subject to rules of the Securities and
Exchange Commission governing the maintenance and preservation of
certain records, two, that it has independent access to the records
maintained by [name of third party], and, three, that it consents to
[name of third party] fulfilling the obligations set forth in this
undertaking. The undersigned undertakes that [name of third party]
will facilitate within its ability, and not impede or prevent, the
examination, access, download, or transfer of the records by a
representative or designee of the Securities and Exchange Commission
as permitted under the law.

    (B) A security-based swap dealer or major security-based swap
participant utilizing servers or other storage devices that are owned
or operated by a third party has independent access to records with
respect to such third party if it can regularly access the records
without the need of any intervention of the third party and through
such access:
    (1) Permit examination of the records at any time or from time to
time during business hours by representatives or designees of the
Commission; and
    (2) Promptly furnish to the Commission or its designee a true,
correct, complete and current hard copy of any or all or any part of
such records.
    (2) Agreement with a third party will not relieve such security-
based swap dealer or major security-based swap participant from the
responsibility to prepare and maintain records as specified in this
section or in Sec.  240.18a-5.
    (g) Every security-based swap dealer and major security-based swap
participant subject to this section must furnish promptly to a
representative of the Commission legible, true, complete, and current
copies of those records of the security-based swap dealer or major
security-based swap participant that are required to be preserved under
this section, or any other records of the security-based swap dealer or
major

security-based swap participant subject to examination or required to
be made or maintained pursuant to section 15F of the Act that are
requested by a representative of the Commission. The security-based
swap dealer and major security-based swap participant must furnish a
record and its audit trail (if applicable) preserved on an electronic
recordkeeping system pursuant to paragraph (e) of this section in a
reasonably usable electronic format, if requested by a representative
of the Commission.
* * * * *

    By the Commission.

    Dated: October 12, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-22670 Filed 11-2-22; 8:45 am]
BILLING CODE 8011-01-P


% Volitalization exposure, inhalation 24h/day 1 day
% Dose to reach average cpfos conc in blood = 0.004 ug/L
% Oct 14, 2016
% Cecilia Tan

% Setting model parameters
use human_parameters_MRP
use preg_female_parameters
BWSW=1;		% Set BW to a fixed value
BWST=69;	 % Set BW
QPC = 39.84 %QALV = 39.84*69^0.74*0.7 = 640 L/h = 0.64 m3/h (from Kelly/Wade 10/13/2016)
PREG=0;		% Not pregnant
TSTOP=24;	%Simulation time = 21 days work week

% Inhalation exposure
%CONCMGM=0.802 % Inhalation concentration mg/m3
CONCMGM = 0.0004;
D3IN=7;  %DAYS/WEEK
P2IN=24; %HRS/DAY
S2IN=0 ;%OFFSET FROM 0 START TIME (EG IF YOU WANT TO MODEL FROM MIDNIGHT, BUT DOSE AT 8 AM)
W2IN=1; %1 day exposure

prepare @clear@all
start @NoCallback
simall = [_time _rbcce _urinetcpy _cv*350.6 _cvo*334.5 _blauc*350.6 _blauco*334.5 _blaucavg*350.6 _blaucoavg*334.5];	%conc unit = ug/L

save simall @file='vol_adult_inhalation_a' @format=ascii