proposed Rule 18a-4 and to assist Commission examiners in reviewing
compliance.
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    \199\ See paragraph (a)(26) of Rule 17a-3, as proposed to be
amended; paragraphs (a)(13) and (b)(9) of proposed Rule 18a-5.
    \200\ See id.
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Customer Reserve Requirements Under Proposed Rule 18a-4
    Rule 15c3-3 requires a carrying broker-dealer to maintain a reserve
of funds or qualified securities in an account at a bank that is at
least equal in value to the net cash owed to customers.\201\ The amount
of net cash owed to customers is computed pursuant to a formula set
forth in Exhibit A to Rule 15c3-3.\202\ The Commission has proposed a
parallel requirement in proposed Rule 18a-4.\203\ Proposed Rule 18a-4
would require an SBSD, among other things, to maintain a security-based
swap customer reserve

account at an unaffiliated bank separate from any other bank account of
the SBSD.\204\ Further, it would provide that the SBSD must at all
times maintain in the security-based swap customer reserve account cash
and/or qualified securities in amounts computed daily in accordance
with Exhibit A to proposed Rule 18a-4.\205\
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    \201\ See 17 CFR 240.15c3-3(e). The term qualified security is
defined in Rule 15c3-3 to mean a security issued by the U.S. or a
security in respect of which the principal and interest are
guaranteed by the U.S. See 17 CFR 240.15c3-3(a)(6).
    \202\ See 17 CFR 240.15c3-3a.
    \203\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70282-70287. As noted above, broker-dealer SBSDs and broker-dealer
MSBSPs would be subject to Rule 15c3-3 with respect to customers
that are not security-based swap customers and, in the case of a
broker-dealer SBSD, Rule 18a-4 with respect to security-based swap
customers.
    \204\ Id.
    \205\ Id.
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    The Commission is proposing to require that all types of SBSDs make
and keep current a record of their reserve computations under proposed
Rule 18a-4 by amending Rule 17a-3 to add the requirement and to include
parallel requirements in paragraphs (a) and (b) of proposed Rule 18a-
5.\206\ The objective of this requirement would be to promote SBSD
compliance with the customer reserve computation requirement and to
assist Commission examiners in reviewing compliance.
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    \206\ See paragraph (a)(27) of Rule 17a-3, as proposed to be
amended; paragraphs (a)(14) and (b)(10) of proposed Rule 18a-5.
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Unverified Transactions
    Prudent practice requires counterparties to promptly confirm the
terms of executed OTC derivatives transactions.\207\ Consequently, the
Commission proposed Rule 15Fi-1 to promote the efficient operation of
the security-based swap market and to facilitate market participants'
management of the risk of trading in security-based swaps.\208\ Among
other things, proposed Rule 15Fi-1 would require broker-dealers, SBSDs,
and MSBSPs to provide trade acknowledgments containing the details of a
security-based swap transaction within prescribed timeframes and to
establish, maintain, and enforce written policies and procedures that
are reasonably designed to obtain prompt verification of the terms of
the trade acknowledgments.\209\
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    \207\ See Trade Acknowledgment and Verification of Security-
Based Swap Transactions, 76 FR 3860.
    \208\ Id. at 3861.
    \209\ Id. at 3861-3867.
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    To promote compliance with proposed Rule 15Fi-1 and the risk
management practices of broker-dealers, SBSDs, and MSBSPs, the
Commission is proposing to amend Rule 17a-3 to add a requirement to
make a record of each security-based swap trade acknowledgment that is
not verified within five business days of execution and to include
parallel provisions in paragraphs (a) and (b) of proposed Rule 18a-
5.\210\ Consequently, all types of SBSDs and MSBSPs would be required
to make and keep current these records. While the Commission did not
prescribe a timeframe in proposed Rule 15Fi-1 within which security-
based swap trade acknowledgements would need to be verified, the
proposed rule does require procedures reasonably designed to obtain
``prompt verification.'' \211\ The proposed requirement to make a
record of security-based swap trade acknowledgments that are not
verified within five business days is not intended to establish a
maximum timeframe within which verification should be obtained under
proposed Rule 15Fi-1. The five business day threshold is designed to
require SBSDs and MSBSPs to make a record of transactions that have
gone unverified for a significant length of time.\212\ This could
indicate a deficiency in the controls established to verify
transactions or the existence of a disagreement with the counterparty
as to the terms of the transaction.
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    \210\ See paragraph (a)(28) of Rule 17a-3, as proposed to be
amended; paragraphs (a)(15) and (b)(11) of proposed Rule 18a-5.
    \211\ See Trade Acknowledgment and Verification of Security-
Based Swap Transactions, 76 FR 3866.
    \212\ Proposed Rule 15Fi-1 requires registered entities to
verify the terms of security-based swap transactions with the
counterparty. However, a party that is not a registered entity is
not required to verify a security-based swap transaction. Registered
entities must have procedures to verify security-based swap
transactions with unregistered entities. Id. at 3866-3867.
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Records Relating to Business Conduct Standards
    The Commission has proposed Rules 15Fh-1 through 15Fh-6 and Rule
15Fk-1 to establish external business conduct requirements for SBSDs
and MSBSPs.\213\ As currently proposed, the requirements in these
rules, would address (among other things):
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    \213\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, Exchange Act
Release No. 64766 (June 29, 2011), 76 FR 42396 (July 18, 2011).
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     Verification of the status of the counterparty;
     Certain disclosures related to the daily mark and its
calculation;
     Disclosures regarding material incentives, conflicts of
interest, material risks, and characteristics of the security-based
swap, and certain clearing rights;
     Certain ``know your counterparty'' and suitability
obligations for SBSDs;
     Supervisory requirements including written policies and
procedures;
     Certain requirements regarding interactions with special
entities;
     Provisions intended to prevent SBSDs and independent
representatives of special entities from engaging in certain ``pay to
play'' activities; and
     Certain minimum requirements relating to chief compliance
officers.
    To promote compliance with these external business conduct
standards, the Commission is proposing amendments to Rule 17a-3 and to
include parallel provisions in paragraphs (a) and (b) of proposed Rule
18a-5.\214\ First, the Commission is proposing that all types of SBSDs
be required to make and keep current a record that demonstrates their
compliance with proposed Rule 15Fh-6 (regarding political contributions
by certain security-based swap dealers).\215\ Second, the Commission is
proposing that all types of SBSDs and MSBSPs be required to make and
keep current a record that demonstrates their compliance with proposed
Rules 15Fh-1 through 15Fh-5 and Rule 15Fk-1, as applicable.\216\ These
paragraphs would require covered firms to keep supporting documents
evidencing their compliance with the business conduct standards; a mere
attestation of compliance would not be sufficient. To the extent that
the rules require providing or receiving written disclosures or written
representations, the SBSD or MSBSP would be required to retain a copy
of such disclosure or representation.\217\
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    \214\ See paragraphs (a)(29) and (a)(30) of Rule 17a-3, as
proposed to be amended; paragraphs (a)(16), (a)(17), (b)(12) and
(b)(13) of proposed Rule 18a-5.
    \215\ See paragraph (a)(29) of Rule 17a-3, as proposed to be
amended; paragraphs (a)(16) and (b)(12) of proposed Rule 18a-5.
    \216\ See paragraph (a)(30) of Rule 17a-3, as proposed to be
amended; paragraphs (a)(17) and (b)(13) of proposed Rule 18a-5.
Paragraph (b)(2) of proposed Rule 15Fk-1 would require chief
compliance officers of SBSDs and MSBSPs to establish, maintain and
review written policies and procedures reasonably designed to
achieve compliance with section 15F of the Act and the rules and
regulations thereunder, by the SBSDs and MSBSPs.
    \217\ See paragraph (a)(14) of Rule 17a-4, as proposed to be
amended; paragraphs (b)(1)(xii) and (b)(2)(vii) of proposed Rule
18a-6.
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Request for Comment
    The Commission generally requests comment on the proposals to
require broker-dealers, SBSDs, and MSBSPs to make and keep current
certain types of records. In addition, the Commission requests comment,
including empirical data in support of comments, in response to the
following questions:
    1. Are the provisions in Rule 17a-3 that would be included as
parallel provisions in paragraph (a) of proposed Rule 18a-5 appropriate
for stand-alone SBSDs and stand-alone MSBSPs? If not, explain why not.
Are there alternative provisions the Commission should consider? If so,
describe them. Are there provisions in Rule 17a-3 that are not being
included as parallel provisions in paragraph (a) of proposed Rule 18a-5
that would be appropriate for stand-alone SBSDs and stand-alone MSBSPs?
If so, explain why.

    2. Are the provisions in Rule 17a-3 that would be included as
parallel provisions in paragraph (b) of proposed Rule 18a-5 appropriate
for bank SBSDs and bank MSBSPs? If not, explain why not. Are there
alternative provisions the Commission should consider? If so, describe
them. Are there provisions in Rule 17a-3 that are not being included as
parallel provisions in paragraph (b) of proposed Rule 18a-5 that would
be appropriate for bank SBSDs and bank MSBSPs? If so, explain why.
    3. Are the recordkeeping provisions that would be added to
paragraph (a) of Rule 17a-3 appropriate for broker-dealers, including
broker-dealer SBSDs and broker-dealer MSBSPs? If not, explain why not.
Are there alternative provisions the Commission should consider? If so,
describe them.
    4. Paragraph (a)(23) of Rule 17a-3, as recently amended, requires
certain broker-dealers to make and keep current a record documenting
the broker-dealer's credit, market, and liquidity risk management
controls.\218\ Should an analogous requirement be added to Rule 18a-5?
Explain why or why not.
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    \218\ See Financial Responsibility Rules for Broker-Dealers, 78
FR 51907.
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    5. Is the five business day time frame for triggering the
unverified transaction record requirement an appropriate length of
time? Should the time frame be shorter (e.g., three days)? Should the
time frame be longer (e.g., seven or ten days)?
    6. How do the types of records that would need to be made under
Rule 17a-3, as proposed to be amended, and proposed Rule 18a-5 align
with the types of records that an FCM or a swap dealer would be
required to make? Commenters are asked to identify and explain
requirements that they believe would result in a dually registered
entity (e.g., a broker-dealer/FCM or an SBSD/swap dealer) needing to
make two sets of records that address the same matter or information as
opposed to a single record that includes information that would satisfy
requirements of both recordkeeping programs.
    7. As noted above, certain data elements that would need to be
documented under the proposed amendments to Rule 17a-3 or proposed Rule
18a-5 are substantively the same as certain data elements that would
need to be reported under proposed Rule 901. Should any additional data
elements required to be reported under proposed Rule 901 be required to
be recorded in the daily trading records under the proposed amendments
to Rule 17a-3 or proposed Rule 18a-5? Are any of the data elements that
would be required to be recorded in the daily trading records not
appropriate for such records? If so, identify them and explain why. Are
there any data elements that should be required to be recorded even
though they are not required by proposed Rule 901? If so, identify them
and explain why.
    8. Can the data elements with respect to security-based swaps that
would be required to be recorded in the daily trading records under the
proposed amendments to Rule 17a-3 and proposed Rule 18a-5 be stored in,
and retrieved from, a single database in order to generate the various
types of records that would need to be made (e.g., ledger accounts,
securities record, memoranda of brokerage orders, and memoranda of
proprietary trades)? If not, explain why not. If so, describe any
system changes that would need to be made and identify, estimate, and
quantify the burden(s) associated with such system changes.
    9. Paragraph (a)(29) of Rule 17a-3, as proposed to be amended, and
paragraphs (a)(16) and (b)(12) of proposed Rule 18a-5 require broker-
dealer SBSDs, stand-alone SBSDs, and bank SBSDs, respectively, to make
and keep a record that demonstrates they complied with the business
conduct standards required under proposed Rule 15Fh-6. Should these
paragraphs also require these entities to make and keep specified
records pertaining to proposed Rule 15Fh-6 to help in evaluating
compliance? Explain why or why not. For example, based on the
provisions of proposed Rule 15Fh-6, should the following rule text be
used in paragraphs (a)(29) and (a)(30) of Rule 17a-3, as proposed to be
amended (and in paragraphs (a)(16) and (a)(17), and paragraphs (b)(12)
and (b)(13) of proposed Rule 18a-5):
    ``(29) A record with respect to Sec.  240.15Fh-6 [as proposed at 76
FR 42396, July 18, 2011] containing the following information:
    (i) The names, titles, and business and residence addresses of all
covered associates of the broker or dealer;
    (ii) All municipal entities to which a broker or dealer has
provided services in connection with the solicitation or entry into
security-based swaps or trading strategies involving security-based
swaps in the past five years, but not before six months prior to the
effective date of Sec.  240.15Fh-6 [as proposed at 76 FR 42396, July
18, 2011]; and
    (iii) In chronological order, all direct or indirect contributions
made by the broker or dealer or any of its covered associates
(including contributions made up to six months prior to becoming a
covered associate) to an official of a municipal entity, or direct or
indirect payments to a political party of a state or political
subdivision thereof, or to a political action committee, including:
    (A) The name and title of each contributor;
    (B) The name and title, including the city, county, state, or other
political subdivision, of each recipient of a contribution or payment;
    (C) Whether the contributor was entitled to vote for the recipient
at the time of the contribution;
    (D) The amount and date of each contribution and payment; and
    (E) Whether any such contribution was the subject of the exception
for certain returned contributions pursuant to Sec.  240.15Fh-6(d) or
(e) [as proposed at 76 FR 42396, July 18, 2011]; and
    (iv) The name and business address of each municipal advisor to
whom the broker or dealer provides or agrees to provide, directly or
indirectly, payment to solicit a municipal entity for services on its
behalf; and, for purposes of this paragraph, the terms contribution,
covered associates, municipal entity, official of municipal entity,
payment and solicit will have the same meaning as set forth in Sec.
240.15Fh-6(a) [as proposed at 76 FR 42396, July 18, 2011].
    (30) A record that demonstrates the broker or dealer has complied
with the business conduct standards as required under Sec.  240.15Fh-1
through Sec.  240.15Fh-6 and Sec.  240.15Fk-1 [as proposed at 76 FR
42396, July 18, 2011].''?
    If this rule text should be used, explain why. If this rule text
should not be used, explain why not. Is there alternative rule text
that should be used? If so, explain why alternative rule text should be
used?
b. Additional Proposed Amendments to Rule 17a-3
    The Commission is proposing several amendments to Rule 17a-3 to
eliminate obsolete text, improve readability, and modernize
terminology. Reference is made throughout Rule 17a-3 to ``members'' of
a national securities exchange as a distinct class of registrant in
addition to ``brokers'' and ``dealers''. The Commission is proposing to
remove these references to ``members'' given that the rule applies to
brokers-dealers, which would include members of a national securities
exchange that are brokers-dealers.\219\ The Commission is

proposing a second global change that would replace the word ``shall''
in the rule with the word ``must'' or ``will'' where appropriate.\220\
Similarly, when defining terms, the Commission is proposing to replace
the phrase ``shall mean'' with the word ``means''.\221\ The Commission
also proposes to make certain stylistic, corrective, and punctuation
amendments to improve the rule's readability.\222\
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    \219\ The proposed amendments would delete the word ``member''
from the title and from the following paragraphs of Rule 17a-3, as
proposed to be amended: (a), (a)(3), (a)(5)(i), (a)(6)(i),
(a)(7)(i), (a)(8)(i), (a)(9), (a)(10), (a)(11), (a)(12), (a)(17)(i),
(a)(18), (a)(19), (a)(20), (a)(22), (b), (e), (f)(2), and (f)(4).
See Rule 17a-3, as proposed to be amended.
    \220\ The proposed amendments would replace the word ``shall''
with the word ``must'' or ``will'' in the following paragraphs of
Rule 17a-3, as proposed to be amended: (a), (a)(6)(i)(A), (a)(7)(i),
(a)(10), (a)(11), (a)(12)(i), (a)(16)(ii), (a)(17)(i), (a)(18)(i),
(a)(19)(i), (b), (d), (e), and (f)(4). See Rule 17a-3, as proposed
to be amended.
    \221\ The proposed amendments would replace the phrase ``shall
mean'' with the word ``means'' in the following paragraphs of Rule
17a-3, as proposed to be amended: (a)(6)(i)(A), (a)(16)(ii)(A), and
(a)(16)(ii)(B). See Rule 17a-3, as proposed to be amended.
    \222\ The Commission proposes the following stylistic and
corrective changes to Rule 17a-3, as proposed to be amended: (1)
Adding to paragraph (a)(1) the phrase ``such securities were''; (2)
adding to paragraph (a)(4)(vi) the word ``and'' after the semicolon;
(3) replacing the word ``of'' with the word ``or'' in paragraph
(a)(5), resulting in the phrase ``for its account or for the account
of its customers or partners''; (4) replacing the phrase ``purchase
or sale of securities'' with the phrase ``purchase or sale of a
security'' in the first sentence of paragraph (a)(6)(i); (5)
replacing the word ``and'' with the word ``or'' in paragraph (a)(7),
resulting in the phrase ``A memorandum of each purchase or sale'';
(6) replacing the phrase ``in respect of'' to with the phrase ``with
respect to'' in paragraph (a)(9); (7) adding the phrase ``, as
applicable:'' after the word ``indicating'' in paragraph (a)(9); (8)
including the word ``and'' between the second-to-last and last
subparagraphs of paragraph (a)(9) (instead of after every
subparagraph); (9) replacing cross-reference in paragraph (a)(12) to
``paragraph (h)(4)'' with a cross-reference to ``paragraph (f)(4)''
due to the proposed deletion of two paragraphs; (10) amending
paragraph (a)(12)(i)(G) to refer to a ``broker or dealer'' instead
of a ``broker-dealer''; and (11) replacing the superfluous ``or''
with a comma in the phrase ``wrongful taking of property or
bribery'' in paragraph (a)(12)(i)(G).
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    The Commission is proposing to simplify the text in paragraph (a)
of Rule 17a-3 to state that Rule 17a-3 applies to ``every broker or
dealer'', since the undesignated introductory paragraph already
provides sufficient detail as to the types of registrants to which the
rule applies.\223\
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    \223\ See undesignated introductory paragraph of Rule 17a-3, as
proposed to be amended.
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    In recognition of the fact that broker-dealers may execute orders
for non-customers, the Commission is proposing to amend paragraph
(a)(6) of Rule 17a-3 to specify that a broker-dealer must maintain a
copy of the customer's or non-customer's subscription agreement.
    The Commission is proposing to restructure paragraph (a)(11) of
Rule 17a-3 to eliminate paragraphs (a)(11)(i)-(ii).\224\ Under these
amendments, the text of paragraph (a)(11)(i) of Rule 17a-3 would be set
forth in the second sentence of paragraph (a)(11) of Rule 17a-3, as
proposed to be amended, and the text of paragraph (a)(11)(ii) would be
deleted from the rule.\225\
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    \224\ See paragraph (a)(11) of Rule 17a-3, as proposed to be
amended.
    \225\ Id.
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    The Commission is proposing to amend the ``Provided, however''
paragraph in paragraph (a)(12) of Rule 17a-3 that follows paragraph
(a)(12)(i)(H) by replacing the list of SROs and exchanges with the term
``a self-regulatory organization.'' \226\ Thus, rather than naming
specific SROs, the paragraph would use the generic term ``a self-
regulatory organization.''
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    \226\ See paragraph (a)(12) of Rule 17a-3, as proposed to be
amended.
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    The Commission also is proposing amendments to paragraph (b) of
Rule 17a-3. Paragraph (b)(1) is designed to avoid duplication and
prevent an introducing broker-dealer from having to make and keep
current the same records that would customarily be made by the firm's
clearing broker-dealer. However, the language in paragraph (b)(1)
beginning with the phrase ``Provided, That'' is outdated insofar is it
references a capital standard that has been superseded. In revising
paragraph (b)(1), the intent of the provision--to avoid the duplicative
creation of records related to transactions introduced by one broker or
dealer and cleared by a different broker or dealer--remains the same.
However, the Commission is proposing to clarify the provision and
eliminate the outdated capital standard reference.\227\ The Commission
also is proposing to delete paragraph (b)(2) as it would be redundant
of paragraph (b) of Rule 17a-3, as proposed to be amended.
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    \227\ Paragraph (b) of Rule 17a-3, as proposed to be amended,
would read as follows: ``A broker or dealer registered pursuant to
section 15 of the Act, that introduces accounts on a fully-disclosed
basis, is not required to make or keep such records of transactions
cleared for such broker or dealer as are made and kept by a clearing
broker or dealer pursuant to the requirements of Sec.  240.17a-3 and
Sec.  240.17a-4. Nothing herein will be deemed to relieve such
broker or dealer from the responsibility that such books and records
be accurately maintained and preserved as specified in Sec.
240.17a-3 and Sec.  240.17a-4.''
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    The Commission is proposing to remove paragraphs (c) and (d) of
Rule 17a-3. Paragraph (c) is outdated and references instruments such
as U.S. Defense Savings Stamps and U.S. Defense Savings Bonds that are
no longer widely circulated and thus a specific carve-out for these
instruments from the general rule set forth in paragraph (a) of Rule
17a-3 is antiquated.\228\ Paragraph (d) provides a de minimis exception
from paragraph (a) of Rule 17a-3 for any cash transaction of $100 or
less involving only subscription rights or warrants which by their
terms expire within 90 days after the issuance thereof. This exemption
was adopted in 1953 to reduce the burden and expense of making
accounting entries for these rights transactions. The Commission
preliminarily believes that the burden associated with these accounting
entries is no longer significant in light of the technological advances
in recordkeeping systems since 1953.\229\ In addition, the Commission
preliminarily believes the removal of this exemption would affect a
small number of transactions.
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    \228\ The Defense Savings Bond initiated by the U.S. Treasury
and the U.S. Defense Savings Stamps introduced by the U.S. Postal
Service were measures to finance the U.S. effort in World Wars I and
II. The bonds matured in 10 years from the date of issuance. The
Defense Savings Bonds were replaced by Series E savings bonds, which
ceased to be issued as of June 1980. Today, these instruments are
not widely held and are valued more as collectibles than for their
face value. See information available at www.Treasurydirect.gov.
    \229\ See Preservation of Records and Reports of Certain
Stabilizing Activities, 18 FR 2879 (May 19, 1953) (``It has been
pointed out to the Commission that the accounting entries
appropriate in the case of the usual securities transaction are
unnecessarily burdensome and expensive as to these rights
transactions because of the small sums involved and because in many
cases there is no continuing relationship between the customer and
the firm'').
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    As a consequence of the proposed removal of current paragraphs (c)
and (d) from Rule 17a-3, current paragraphs (e), (f), (g), and (h)
would be redesignated as paragraphs (c), (d), (e), and (f),
respectively.
    Current paragraph (e) references Municipal Securities Rulemaking
Board (``MSRB'') Rule G-8 and states that compliance with such rule
will be deemed to be compliance with this section. The proposed
amendments would add the phrase ``or any successor rule'' to the
reference to Rule G-8 so that the cross-reference does not become
superseded over time.
Request for Comment
    The Commission generally requests comment on these additional
proposed amendments to Rule 17a-3, including comment on whether any of
the proposed amendments would result in substantive changes to the
requirements applicable to broker-dealers. In addition, the Commission
requests comment, including empirical data in support of comments, in
response to the following questions:
    1. Paragraphs (a)(12)(i)(E) through (G) of Rule 17a-3 currently
require broker-dealers to retain certain records with

regard to certain actions taken against their associated persons when
they were associated with a broker-dealer. Should these requirements be
expanded to include actions taken when they were associated with other
types of entities (e.g., SBSDs, MSBSPs, FCMs, investment advisers)? If
so, which entities should be covered? Please explain. Also identify,
estimate, and quantify any associated burdens with expanding these
requirements to include actions taken when broker-dealers are
associated with these other types of entities.
    2. Do broker-dealers still rely on the exemptions provided in
paragraphs (b)(2), (c), and/or (d) of Rule 17a-3? If so, quantify the
extent to which these exemptions are relied on, and the burden
associated with the Commission's proposal to eliminate these
exemptions. In addition, would any system changes be needed if the
exemptions provided in paragraphs (b)(2), (c), and/or (d) of Rule 17a-3
were eliminated? If so, identify, estimate, and quantify the burden(s)
associated with such system changes.
3. Record Maintenance and Preservation Requirements
    As discussed above, Rule 17a-4 requires a broker-dealer to preserve
certain types of records if it makes or receives them. The rule also
prescribes the period of time these records and the records required to
be made and kept current under Rule 17a-3 must be preserved and the
manner in which they must be preserved. The Commission is proposing
amendments to Rule 17a-4 that are designed to account for the security-
based swap activities of broker-dealers, including broker-dealer SBSDs
and broker-dealer MSBSPs.\230\ The Commission also is proposing
additional largely technical amendments to Rule 17a-4. With respect to
stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs, the
Commission is proposing new Rule 18a-6--which is modeled on Rule 17a-4,
as proposed to be amended--to establish record maintenance and
preservation requirements for these types of registrants.
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    \230\ Broker-Dealer SBSDs and broker-dealer MSBSPs would be
subject to all the record maintenance and preservation requirements
applicable to broker-dealers under Rule 17a-4, as proposed to be
amended, plus the additional requirements specifically applicable
only to SBSDs and MSBSPs.
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    For the reasons discussed above in sections I. and II.A.1. of this
release, proposed Rule 18a-6 does not include a parallel requirement
for every requirement in Rule 17a-4.\231\ In addition, for the reasons
described in section I. of this release, the recordkeeping requirements
in proposed Rule 18a-6 applicable to bank SBSDs and bank MSBSPs are
more limited in scope than the requirements in the rule applicable to
stand-alone SBSDs and stand-alone MSBSPs.
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    \231\ The Commission is not proposing to include in proposed
Rule 18a-6 requirements that would parallel the requirements in
paragraphs (b)(11), (g), (h), (k), and (l) of Rule 17a-4. These
requirements relate to activities that the Commission preliminarily
believes would not be relevant to stand-alone SBSDs or stand-alone
MSBSPs. Other requirements in Rule 17a-4 that would not be included
as parallel requirements in proposed Rule 18a-6 are discussed below.
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    The proposed amendments to Rule 17a-4 and proposed Rule 18a-6 are
discussed in more detail below.
a. Amendments to Rule 17a-4 and Proposed Rule 18a-6
Undesignated Introductory Paragraph
    Rule 17a-4, as proposed to be amended, would contain an
undesignated introductory paragraph explaining that the rule applies to
a broker-dealer, including a broker-dealer dually registered with the
Commission as an SBSD or MSBSP.\232\ The note further explains that an
SBSD or MSBSP that is not dually registered as a broker-dealer (i.e., a
stand-alone SBSD, stand-alone MSBSP, bank SBSD, or bank MSBSP) is
subject to the record maintenance and preservation requirements under
proposed Rule 18a-6.\233\
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    \232\ See undesignated introductory paragraph of Rule 17a-4, as
proposed to be amended.
    \233\ Id.
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    Similarly, proposed Rule 18a-6 would contain an undesignated
introductory paragraph explaining that the rule applies to an SBSD or
MSBSP that is not registered as a broker-dealer.\234\ The note further
explains that a broker-dealer that is dually registered as an SBSD or
MSBSP is subject to the record maintenance and preservation
requirements under Rule 17a-4.\235\
---------------------------------------------------------------------------

    \234\ See undesignated introductory paragraph of proposed Rule
18a-6.
    \235\ Id.
---------------------------------------------------------------------------

Six Year Preservation Requirement for Certain Rule 17a-3 and Rule 18a-5
Records
    Paragraph (a) of Rule 17a-4 provides that brokers-dealers subject
to Rule 17a-3 must preserve for a period of not less than six years,
the first two years in an easily accessible place, certain categories
of records required to be made and kept current under Rule 17a-3 (the
``six year preservation requirement'').\236\ Specifically, the six year
preservation requirement applies to records required under the
following paragraphs of Rule 17a-3, as proposed to be amended:
Paragraph (a)(1) (trade blotters); paragraph (a)(2) (general ledgers);
paragraph (a)(3) (ledgers of customer and non-customer accounts);
paragraph (a)(5) (stock record); paragraph (a)(21) (person who can
explain records at each office); paragraph (a)(22) (principal
responsible for establishing compliance procedures); and paragraph (d)
(security future product records).\237\ Consequently, broker-dealer
SBSDs and broker-dealer MSBSPs would be required to preserve for six
years the same categories of records as broker-dealers not registered
as SBSDs or MSBSPs.\238\
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    \236\ See 17 CFR 240.17a-4(a).
    \237\ Id. As discussed below in section II.A.3.b. of this
release, the Commission is proposing technical amendments to
paragraph (a) of Rule 17a-4.
    \238\ See paragraph (a) of Rule 17a-4, as proposed to be
amended.
---------------------------------------------------------------------------

    As discussed above in section II.A.2.a. of this release, paragraphs
(a) and (b) of proposed Rule 18a-5 would contain certain recordkeeping
requirements that are parallel to existing requirements in Rule 17a-3.
Under these parallel requirements, stand-alone SBSDs, stand-alone
MSBSPs, bank SBSDs, and bank MSBSPs would need to make and keep current
certain categories of records that broker-dealers must maintain under
the six year preservation requirement in Rule 17a-4. Consequently,
paragraph (a) of proposed Rule 18a-6 similarly would require that these
categories of records must be preserved for a period of not less than
six years, the first two years in an easily accessible place.\239\
Further, similar to paragraphs (a) and (b) of proposed Rule 18a-5,
paragraph (a) of proposed Rule 18a-6 contains one set of six year
preservation requirements applicable to stand-alone SBSDs and stand-
alone MSBSPs and a separate set applicable to bank SBSDs and bank
MSBSPs.\240\
---------------------------------------------------------------------------

    \239\ See paragraph (a) of proposed Rule 18a-6.
    \240\ Id.
---------------------------------------------------------------------------

    In particular, paragraph (a)(1) of proposed Rule 18a-6 would apply
to stand-alone SBSDs and stand-alone MSBSPs.\241\ These registrants
would be required to preserve for at least six years, the first two
years in an easily accessible place, the records required to be made
and kept current under the following paragraphs of proposed Rule 18a-5:
Paragraph (a)(1) (trade blotters); paragraph (a)(2) (general ledgers);
paragraph (a)(3) (ledgers of customer

and non-customer accounts); and paragraph (a)(4) (stock record).\242\
Paragraph (a)(2) of proposed Rule 18a-6 would apply to bank SBSDs and
bank MSBSPs.\243\ These registrants would be required to preserve for
at least six years, the first two years in an easily accessible place,
the records required under the following paragraphs of proposed Rule
18a-5: Paragraph (b)(1) (trade blotters); paragraph (b)(2) (ledgers of
security-based swap customers and non-customers); and paragraph (b)(3)
(stock record).\244\
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    \241\ See paragraph (a)(1) of proposed Rule 18a-6 (providing
that it applies to SBSDs and MSBSPs subject to paragraph (a) of
proposed Rule 18a-5).
    \242\ See paragraph (a)(1) of proposed Rule 18a-6.
    \243\ See paragraph (a)(2) of proposed Rule 18a-6 (providing
that it applies to SBSDs and MSBSPs subject to paragraph (b) of
proposed Rule 18a-5).
    \244\ See paragraph (a)(2) of proposed Rule 18a-6.
---------------------------------------------------------------------------

Three Year Preservation Requirement for Certain Rule 17a-3 and Rule
18a-5 Records
    Paragraph (b) of Rule 17a-4 provides that broker-dealers subject to
Rule 17a-3 must preserve for at least three years, the first two years
in an easily accessible place, certain records required to be made and
kept current under Rule 17a-3 (the ``three year preservation
requirement'').\245\ Specifically, paragraph (b)(1) of Rule 17a-4
imposes the three year preservation requirement on the records required
to be made and kept current under the following paragraphs of Rule 17a-
3, as proposed to be amended: Paragraph (a)(4) (certain ledgers);
paragraph (a)(6) (memoranda of brokerage orders); paragraph (a)(7)
(memoranda of proprietary orders); paragraph (a)(8) (confirmations);
paragraph (a)(9) (accountholder information); paragraph (a)(10)
(options positions); paragraph (a)(16) (internal broker-dealer system);
paragraph (a)(18) (associated person complaints); paragraph (a)(19)
(associated person compensation); paragraph (a)(20) (advertisement and
sales literature compliance); and paragraph (e) (records of each
broker-dealer office).\246\
---------------------------------------------------------------------------

    \245\ See 17 CFR 240.17a-4(b).
    \246\ Id. Currently, Rule 17a-4 does not cross-reference
paragraph (a)(11) of Rule 17a-3 (trial balances and computation of
net capital). See 17 CFR 240.17a-3(a)(11); 17 CFR 240.17a-4. The
Commission is proposing to correct this omission by adding a cross
reference to paragraph (a)(11) of Rule 17a-3 in paragraph (b)(1) of
Rule 17a-4, as proposed to be amended. This would require broker-
dealers to preserve these records for three years, the first two
years in an easily accessible place. Based on staff experience, the
Commission believes that broker-dealers have been preserving these
records in a manner consistent with this proposed requirement.
---------------------------------------------------------------------------

    The Commission is not proposing to amend or change any of the
existing cross-references to Rule 17a-3 in paragraph (b)(1) of Rule
17a-4.\247\ The Commission is, however, proposing to add cross-
references to certain new paragraphs that would be added to Rule 17a-3
to address security-based swap activities of broker-dealers, including
broker-dealer SBSDs and broker-dealer MSBSPs. Specifically, paragraph
(b)(1) of Rule 17a-4, as proposed to be amended, would apply the three
year preservation requirement to the records required under the
following paragraphs of Rule 17a-3, as proposed to be amended:
Paragraph (a)(24) (liquidity stress test); paragraph (a)(25) (proposed
Rule 18a-3 calculations); paragraph (a)(26) (compliance with proposed
Rule 18a-4 possession or control requirements); paragraph (a)(27)
(proposed Rule 18a-4 reserve account computations); paragraph (a)(28)
(unverified transactions); paragraph (a)(29) (political contributions);
and paragraph (a)(30) (compliance with external business conduct
requirements).\248\
---------------------------------------------------------------------------

    \247\ See paragraph (b)(1) of Rule 17a-4, as proposed to be
amended.
    \248\ Id.
---------------------------------------------------------------------------

    As discussed above in section II.A.2.a. of this release, paragraphs
(a) and (b) of proposed Rule 18a-5 would require stand-alone SBSDs,
stand-alone MSBSPs, bank SBSDs, and bank MSBSPs to make and keep
current certain categories of records that broker-dealers are required
to make and keep current under Rule 17a-3 and certain categories of
records the Commission is proposing broker-dealers be required to make
and keep current under amendments to Rule 17a-3. Under these parallel
requirements, stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and
bank MSBSPs would need to make and keep current certain categories of
records that currently are subject to the three year preservation
requirement in Rule 17a-4 or, with respect to the new categories of
records, are proposed to be subject to the three year preservation
requirement. Consequently, paragraph (b) of proposed Rule 18a-6 would
similarly require that these categories of records be preserved for a
period of not less than three years, the first two years in an easily
accessible place.\249\ Further, similar to paragraph (a) of proposed
Rule 18a-6, paragraph (b) would contain two sets of provisions.\250\
---------------------------------------------------------------------------

    \249\ See paragraph (b) of proposed Rule 18a-6.
    \250\ Id.
---------------------------------------------------------------------------

    Paragraph (b)(1)(i) of proposed Rule 18a-6 would apply to stand-
alone SBSDs and stand-alone MSBSPs.\251\ These registrants would be
required to preserve for a period of not less than three years, the
first two years in an easily accessible place, the records required to
be made and kept current under the following paragraphs of proposed
Rule 18a-5, as applicable: Paragraph (a)(5) (memoranda of proprietary
orders); paragraph (a)(6) (confirmations); paragraph (a)(7)
(accountholder information); paragraph (a)(8) (options positions);
paragraph (a)(9) (trial balances and computation of net capital or
tangible net worth); paragraph (a)(11) (liquidity stress test);
paragraph (a)(12) (proposed Rule 18a-3 calculations); paragraph (a)(13)
(compliance with proposed Rule 18a-4 possession or control
requirements); paragraph (a)(14) (proposed Rule 18a-4 reserve account
computations); paragraph (a)(15) (unverified transactions); paragraph
(a)(16) (political contributions); and paragraph (a)(17) (compliance
with external business conduct requirements).\252\
---------------------------------------------------------------------------

    \251\ See paragraph (b)(1)(i) of proposed Rule 18a-6 (providing
that it applies to SBSDs and MSBSPs subject to paragraph (a) of
proposed Rule 18a-5).
    \252\ See paragraph (b)(1)(i) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Paragraph (b)(2) of proposed Rule 18a-6 would apply to bank SBSDs
and bank MSBSPs.\253\ These registrants would be required to preserve
for a period of not less than three years, the first two years in an
easily accessible place, the records required to be made and kept
current under the following paragraphs of proposed Rule 18a-5, as
applicable: Paragraph (b)(4) (memoranda of brokerage orders); paragraph
(b)(5) (memoranda of proprietary orders); paragraph (b)(6)
(confirmations); paragraph (b)(7) (accountholder information);
paragraph (b)(9) (compliance with proposed Rule 18a-4 possession or
control requirements); paragraph (b)(10) (proposed Rule 18a-4 reserve
account computations); paragraph (b)(11) (unverified transactions);
paragraph (b)(12) (political contributions); and paragraph (b)(13)
(compliance with external business conduct requirements).\254\
---------------------------------------------------------------------------

    \253\ See paragraph (b)(2) of proposed Rule 18a-6 (providing
that it applies to SBSDs and MSBSPs subject to paragraph (b) of
proposed Rule 18a-5).
    \254\ See paragraph (b)(2)(i) of proposed Rule 18a-6.
---------------------------------------------------------------------------

Three Year Preservation Requirement for Certain Other Records
    Paragraph (b) of Rule 17a-4 also provides that a broker-dealer
subject to Rule 17a-3 must preserve for a period of not less than three
years, the first two years in an easily accessible place, other
categories of records if the broker-dealer makes or receives the
record.\255\ These are not categories of records a broker-dealer is
required to make and keep

current under Rule 17a-3 but rather types of records that a broker-
dealer may make or receive in the ordinary course of business.\256\
---------------------------------------------------------------------------

    \255\ See 17 CFR 240.17a-4(b)(2) through (12).
    \256\ Id.
---------------------------------------------------------------------------

    As discussed in detail below, the Commission is proposing
amendments to these provisions in paragraph (b) of Rule 17a-4 to
account for security-based swaps, and is proposing amendments requiring
that broker-dealers, including broker-dealer SBSDs and broker-dealer
MSBSPs, preserve certain additional records related to security-based
swap activities. Further, the Commission is proposing in paragraph (b)
of proposed Rule 18a-6 that stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs be required to preserve similar records.
    In addition, paragraphs (b)(3), (b)(4), (b)(5), and (b)(7) of Rule
17a-4 require the preservation of certain types of records if they
relate to the broker-dealer's business as such (i.e., as a broker-
dealer).\257\ Security-based swap activities of a broker-dealer that is
not registered as an SBSD or MSBSP would be part of the broker-dealer's
business as such for the purposes of Rule 17a-4 just like activities
relating to other types of securities. In the case of a broker-dealer
SBSD or broker-dealer MSBSP, the Commission is proposing to amend
paragraph (m) of Rule 17a-4 to make clear that the business as such of
a broker-dealer dually registered as an SBSD or MSBSP would include the
firm's business as an SBSD or MSBSP.\258\
---------------------------------------------------------------------------

    \257\ See 17 CFR 240.17a-4(b)(3) through (5) and (b)(7).
    \258\ See paragraph (m)(5) of Rule 17a-4, as proposed to be
amended.
---------------------------------------------------------------------------

    The following is a discussion of the proposed amendments to Rule
17a-4 with respect to certain other records that would be subject to
the three year preservation requirement and parallel provisions that
would be included in proposed Rule 18a-6.
    Bank Records. Paragraph (b)(2) of Rule 17a-4 requires broker-
dealers to preserve all check books, bank statements, cancelled checks,
and cash reconciliations.\259\ The Commission is not proposing to amend
paragraph (b)(2) of Rule 17a-4 to specifically account for security-
based swaps. However, the Commission is proposing to include a parallel
requirement in paragraph (b)(1) of Rule 18a-6 that would mirror
paragraph (b)(2) of Rule 17a-4.\260\ In particular, paragraph
(b)(1)(ii) would require stand-alone SBSDs and stand-alone MSBSPs to
preserve these types of bank records.\261\
---------------------------------------------------------------------------

    \259\ See 17 CFR 240.17a-4(b)(2).
    \260\ Compare paragraph (b)(1)(ii) of proposed Rule 18a-6, with
17 CFR 240.17a-4(b)(2).
    \261\ See paragraph (b)(1)(ii) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Bills. Paragraph (b)(3) of Rule 17a-4 requires broker-dealers,
which would include broker-dealer SBSDs and broker-dealer MSBSPs, to
preserve all bills receivable or payable, paid or unpaid, relating to
the business of the member, broker, or dealer.\262\ The Commission is
proposing to include a parallel requirement in paragraph (b)(1) of
proposed Rule 18a-6 that would mirror paragraph (b)(3) of Rule 17a-
4.\263\ In particular, paragraph (b)(1)(iii) of proposed Rule 18a-6
would require stand-alone SBSDs and stand-alone MSBSPs to preserve
these types of bills.\264\
---------------------------------------------------------------------------

    \262\ See 17 CFR 240.17a-4(b)(3).
    \263\ Compare paragraph (b)(1)(iii) of proposed Rule 18a-6, with
17 CFR 240.17a-4(b)(3).
    \264\ See paragraph (b)(1)(iii) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Communications. Paragraph (b)(4) of Rule 17a-4 requires broker-
dealers to preserve originals of all communications received and copies
of all communications sent (and any approvals thereof) by the broker-
dealer (including inter-office memoranda and communications) relating
to its business as such, including all communications which are subject
to rules of an SRO of which the broker-dealer is a member regarding
communications with the public.\265\ The Commission is proposing
amendments to paragraph (b)(4) to account for security-based swap
activities and to include parallel requirements in paragraphs (b)(1)
and (b)(2) of proposed Rule 18a-6 that are modeled on paragraph (b)(4)
of Rule 17a-4, as proposed to be amended.\266\
---------------------------------------------------------------------------

    \265\ See 17 CFR 240.17a-4(b)(4). Paragraph (b)(4) of Rule 17a-4
further provides the term communications as used in the paragraph
includes sales scripts. Id.
    \266\ Compare paragraphs (b)(1)(iv) and (b)(2)(ii) of proposed
Rule 18a-6, with paragraph (b)(4) of Rule 17a-4, as proposed to be
amended.
---------------------------------------------------------------------------

    The proposed amendments to paragraph (b)(4) of Rule 17a-4 also
would implement section 15F(g)(1) of the Exchange Act.\267\ Section
15F(g)(1) provides that each registered SBSD and MSBSP shall maintain
daily trading records of the security-based swaps of the registered
SBSD and MSBSP and all related records (including related cash or
forward transactions) and recorded communications, including electronic
mail, instant messages, and recordings of telephone calls, for such
period as may be required by the Commission by rule or regulation.\268\
The term communications, as used in paragraph (b)(4) of Rule 17a-4,
includes all electronic communications (e.g., emails and instant
messages).\269\ Moreover, communications related to daily trading of
security-based swaps would be communications relating to the business
as such of a broker-dealer, including a broker-dealer SBSD and broker-
dealer MSBSP. Consequently, the Commission need not amend paragraph
(b)(4) of Rule 17a-4 to establish a retention period applicable to
broker-dealers, including broker-dealer SBSDs and broker-dealer MSBSPs,
with respect to electronic mail and instant messages relating to their
trading in security-based swaps.
---------------------------------------------------------------------------

    \267\ See 15 U.S.C. 78o-10(g)(1).
    \268\ Id.
    \269\ See, e.g., Use of Electronic Media by Broker-Dealers,
Transfer Agents, and Investment Advisers for Delivery of
Information; Additional Examples Under the Securities Act of 1933,
Securities Exchange Act of 1934, and Investment Company Act of 1940,
Exchange Act Release No. 37182 (May 9, 1996), 61 FR 24644 (May 15,
1996), at n. 32 (``Broker-dealers also are subject to recordkeeping
requirements that would be applicable to all electronic
communications received and sent by the firm relating to its
business''); Reporting Requirements for Brokers or Dealers Under the
Securities Exchange Act of 1934, Exchange Act Release No. 38245
(Feb. 5, 1997), 62 FR 6469 (Feb. 12, 1997); Books and Records
Requirements for Brokers and Dealers Under the Securities Exchange
Act of 1934, 66 FR 55818, 55825 (``Paragraph (b)(4) of Rule 17a-4
previously required that each broker-dealer keep originals of all
communications received and copies of all communications sent by the
firm relating to its business as a broker-dealer, including inter-
office memoranda and communications. With respect to memoranda,
including email messages, the Commission has stated that the content
and audience of the message determine whether a copy must be
preserved, regardless of whether the message was sent on paper or
sent electronically'').
---------------------------------------------------------------------------

    However, the Commission has not previously interpreted the term
communications to include telephonic communications. Therefore, to
implement section 15F(g)(1) of the Exchange Act, the Commission is
proposing to amend the preservation requirement in paragraph (b)(4) of
Rule 17a-4 to include ``recordings of telephone calls required to be
maintained pursuant to section 15F(g)(1) of the Exchange Act.'' \270\
Under this proposed requirement, a broker-dealer SBSD or a broker-
dealer MSBSP would be required to preserve for three years telephone
calls that it chooses to record to the extent the calls are required to
be maintained pursuant to section 15F(g)(1) of the Exchange Act.\271\
---------------------------------------------------------------------------

    \270\ See paragraph (b)(4) of Rule 17a-4, as proposed to be
amended.
    \271\ See 15 U.S.C. 78o-10(g)(1).
---------------------------------------------------------------------------

    The Commission is proposing to include parallel communication
preservation requirements for stand-alone SBSDs, stand-alone MSBSPs,
bank SBSDs, and bank MSBSPs modeled on paragraph (b)(4) of Rule 17a-4,
as

proposed to be amended.\272\ The provision applicable to bank SBSDs and
bank MSBSPs would limit the requirement to communications that relate
to the business of an SBSD or MSBSP.\273\
---------------------------------------------------------------------------

    \272\ Compare paragraphs (b)(1)(iv) and (b)(2)(ii) of proposed
Rule 18a-6, with paragraph (b)(4) of Rule 17a-4, as proposed to be
amended.
    \273\ See paragraph (b)(2)(ii) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Trial balances. Paragraph (b)(5) of Rule 17a-4 requires broker-
dealers, which would include broker-dealer SBSDs and broker-dealer
MSBSPs, to preserve 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 firm's business as a
broker-dealer.\274\ The Commission is proposing to include a parallel
requirement in paragraph (b)(1) of proposed Rule 18a-6 applicable to
stand-alone SBSDs and stand-alone MSBSPs that is modeled on paragraph
(b)(5) of Rule 17a-4.\275\ In particular, paragraph (b)(1)(v) of
proposed Rule 18a-6 would require stand-alone SBSDs and stand-alone
MSBSPs to preserve similar types of records.\276\ In contrast to
paragraph (b)(5) of Rule 17a-4, the provision would not refer to
computations of ``aggregate indebtedness'' because this type of
computation would not be part of the capital rule for stand-alone SBSDs
or stand-alone MSBSPs.\277\ Further, to account for the proposed
capital standard for stand-alone MSBSPs, the paragraph would refer to
tangible net worth.\278\
---------------------------------------------------------------------------

    \274\ See 17 CFR 240.17a-4(b)(5). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to paragraph (b)(5) of proposed Rule 18a-6.
    \275\ Compare paragraph (b)(1)(v) of proposed Rule 18a-6, with
17 CFR 240.17a-4(b)(5).
    \276\ See paragraph (b)(1)(v) of proposed Rule 18a-6.
    \277\ See paragraph (b)(1)(v) of proposed Rule 18a-6. See also
Capital, Margin, and Segregation Requirements for Security-Based
Swap Dealers and Major Security-Based Swap Participants and Capital
Requirements for Broker-Dealers, 77 FR 70217-70256.
    \278\ See paragraph (b)(1)(v) of proposed Rule 18a-6. See also
Capital, Margin, and Segregation Requirements for Security-Based
Swap Dealers and Major Security-Based Swap Participants and Capital
Requirements for Broker-Dealers, 77 FR 70256-70257 (proposing a
tangible net worth capital standard for nonbank MSBSPs). A broker-
dealer MSBSP would be subject to the net capital requirements in
Rule 15c3-1.
---------------------------------------------------------------------------

    Account Documents. Paragraph (b)(6) of Rule 17a-4 requires broker-
dealers, which would include broker-dealer SBSDs and broker-dealer
MSBSPs, to preserve all guarantees of accounts and all powers of
attorney and other evidence of the granting of any discretionary
authority given in respect of any account, and copies of resolutions
empowering an agent to act on behalf of a corporation.\279\ The
Commission is proposing to include parallel requirements in paragraphs
(b)(1) and (b)(2) of proposed Rule 18a-6 modeled on paragraph (b)(6) of
Rule 17a-4.\280\ In particular, paragraphs (b)(1)(vi) and (b)(2)(iii)
of proposed Rule 18a-6 would require stand-alone SBSDs, stand-alone
MSBSPs, bank SBSDs, and bank MSBSPs, respectively, to preserve similar
types of records, but only with respect to security-based swap
accounts.\281\ For example, under the proposal, bank SBSDs and bank
MSBSPs would not be required to maintain these records with respect to
accounts involving exclusively banking related services.
---------------------------------------------------------------------------

    \279\ See 17 CFR 240.17a-4(b)(6).
    \280\ Compare paragraphs (b)(1)(vi) and (b)(2)(iii) of proposed
Rule 18a-6, with 17 CFR 240.17a-4(b)(6).
    \281\ See paragraphs (b)(1)(vi) and (b)(2)(iii) of proposed Rule
18a-6.
---------------------------------------------------------------------------

    Written Agreements. Paragraph (b)(7) of Rule 17a-4 requires a
broker-dealer to preserve all written agreements (or copies thereof)
entered into by such broker-dealer relating to its business as such,
including agreements with respect to any account.\282\ The Commission
is proposing amendments to paragraph (b)(7) of Rule 17a-4 to account
for security-based swaps and to include parallel requirements in
paragraphs (b)(1) and (b)(2) of proposed Rule 18a-6 modeled on
paragraph (b)(7) of Rule 17a-4, as proposed to be amended.\283\ The
amendments to paragraph (b)(7) of Rule 17a-4 would establish a
preservation requirement that written agreements with respect to a
security-based swap customer or non-customer, including governing
documents or any document establishing the terms and conditions of such
person's securities-based swaps, must be maintained with such person's
account records.\284\ This provision is designed to facilitate the
examination of the broker-dealer by requiring it to maintain these
records together.
---------------------------------------------------------------------------

    \282\ See 17 CFR 240.17a-4(b)(7).
    \283\ Compare paragraphs (b)(1)(vii) and (b)(2)(iv) of proposed
Rule 18a-6, with paragraph (b)(7) of Rule 17a-4, as proposed to be
amended.
    \284\ See paragraph (b)(7) of Rule 17a-4, as proposed to be
amended.
---------------------------------------------------------------------------

    The parallel requirements in proposed Rule 18a-6 would require
stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs to
preserve similar types of records and include the same preservation
requirement.\285\ The provision applicable to bank SBSDs and bank
MSBSPs would limit the preservation requirement to written agreements
relating to the registrant's business as an SBSD or MSBSP.\286\
---------------------------------------------------------------------------

    \285\ See paragraphs (b)(1)(vii) and (b)(2)(iv) of proposed Rule
18a-6.
    \286\ See paragraph (b)(2)(iv) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Information Supporting Financial Reports. Paragraph (b)(8) of Rule
17a-4 requires a broker-dealer to preserve records containing various
types of information that support amounts included in the broker-
dealer's FOCUS Report prepared as of the broker-dealer's audit date and
amounts in the annual audited financial statements the broker-dealer is
required to file under Rule 17a-5 or Rule 17a-12, as applicable.\287\
The paragraph specifically identifies the types of supporting
information that needs to be preserved, including money balances,
securities positions, futures positions, commodity positions, and
options positions, among other things.\288\ The Commission is proposing
amendments to paragraph (b)(8) of Rule 17a-4 to account for swap and
security-based swap activities of broker-dealers, including broker-
dealer SBSDs and broker-dealer MSBSPs, and to include parallel
requirements applicable to stand-alone SBSDs and stand-alone MSBSPs in
paragraph (b)(1) of proposed Rule 18a-6 modeled on paragraph (b)(8) of
Rule 17a-4, as proposed to be amended.\289\
---------------------------------------------------------------------------

    \287\ See 17 CFR 240.17a-4(b)(8); 17 CFR 240.17a-5; 17 CFR
240.17a-12. Rule 17a-12 prescribes reporting requirements for OTC
derivatives dealers that are similar to the reporting requirements
in Rule 17a-5 applicable to broker-dealers. Compare 17 CFR 240.17a-
12, with 17 CFR 240.17a-5.
    \288\ See 17 CFR 240.17a-4(b)(8)(i) through (xv).
    \289\ Compare paragraph (b)(1)(viii) of proposed Rule 18a-6,
with paragraph (b)(8) of Rule 17a-4, as proposed to be amended.
---------------------------------------------------------------------------

    The amendments to paragraph (b)(8) of Rule 17a-4 would add a
reference to proposed Form SBS in the introductory text after
references to certain parts of the FOCUS Report.\290\ Thus, broker-
dealer SBSDs and broker-dealer MSBSPs--which would file proposed Form
SBS rather than the FOCUS Report--would need to preserve information in
support of proposed Form SBS. Further, the amendments to paragraph
(b)(8) of Rule 17a-4 would add the phrase ``or swaps'' after the phrase
``commodity contracts'' and the phrase ``and swap'' after the term
``commodity'' wherever they appear in the paragraph.\291\ This would
require broker-dealers, including broker-dealer SBSDs and broker-dealer
MSBSPs, to preserve the same type of supporting information with
respect to swap

positions as is required with respect to commodity positions.
---------------------------------------------------------------------------

    \290\ See paragraph (b)(8) of Rule 17a-4, as proposed to be
amended.
    \291\ See paragraphs (b)(8)(v) through (viii) of Rule 17a-4, as
proposed to be amended.
---------------------------------------------------------------------------

    Paragraph (b)(8)(xiii) of Rule 17a-4 requires broker-dealers to
preserve records containing detail relating to information for
possession or control requirements under Rule 15c3-3 and reported on a
schedule to certain parts of the FOCUS Report.\292\ As noted above in
section II.A.2.a. of this release, Rule 15c3-3 requires a carrying
broker-dealer to maintain physical possession or control over
customers' fully paid and excess margin securities.\293\ The Commission
has proposed a parallel requirement in proposed Rule 18a-4 that would
apply to SBSDs with respect to their security-based swap
customers.\294\ Moreover, as discussed below in section II.B.2.b. of
this release, the Commission is proposing that SBSDs report information
relating to possession or control requirements in proposed Form SBS.
Consequently, the Commission is proposing to amend paragraph (b)(8) of
Rule 17a-4 by adding a new paragraph that is modeled on paragraph
(b)(8)(xiii) of Rule 17a-4 but that relates to the possession or
control requirements in proposed Rule 18a-4 instead of the possession
or control requirements in Rule 15c3-3.\295\ Thus, broker-dealer SBSDs
would be required to preserve records that contain detail relating to
information for possession or control requirements under Rule 18a-4 and
reported on proposed Form SBS.
---------------------------------------------------------------------------

    \292\ See 17 CFR 240.17a-4(b)(8)(xiii).
    \293\ See 17 CFR 240.15c3-3.
    \294\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70278-70282.
    \295\ Compare paragraph (b)(8)(xiii) of Rule 17a-4, as proposed
to be amended, with 17 CFR 240.17a-4(b)(8)(xiii).
---------------------------------------------------------------------------

    Finally, the Commission's proposed capital requirements for nonbank
SBSDs would require these registrants to maintain minimum net capital
of not less than the greater of a fixed-dollar amount or a ratio
amount.\296\ The ratio amount for a broker-dealer SBSD would be the sum
of the current ratio amount prescribed in Rule 15c3-1 and an amount
equal to 8% of the firm's risk margin amount (``8% margin
factor'').\297\ The ratio amount for a stand-alone SBSD would be an
amount equal to the 8% margin factor.\298\ The term risk margin amount
would be defined as the sum of: (1) The greater of the total margin
required to be delivered by the nonbank SBSD with respect to security-
based swap transactions cleared for security-based swap customers at a
clearing agency or the amount of the deductions that would apply to the
cleared security-based swap positions of the security-based swap
customers pursuant to paragraph (c)(1)(vi) of Rule 18a-1; and (2) the
total margin amount calculated by the stand-alone SBSD with respect to
non-cleared security-based swaps pursuant to proposed new Rule 18a-
3.\299\ Accordingly, to determine its minimum net capital requirement,
a nonbank SBSD would need to calculate the amount equal to the 8%
margin factor.\300\ The Commission is proposing to amend paragraph
(b)(8) of Rule 17a-4 by adding a new paragraph that would require a
broker-dealer SBSD to preserve records that contain detail relating to
the calculation of the risk margin amount.\301\
---------------------------------------------------------------------------

    \296\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70221-70229. The fixed-dollar amount applicable to nonbank SBSDs,
other than ANC broker-dealer SBSDs, would be $20 million. The fixed
dollar amount applicable to ANC broker-dealer SBSDs would be $1
billion. Id. In addition, stand-alone ANC SBSDs would be subject to
a $100 million minimum tentative net capital requirement and ANC
broker-dealer SBSDs would be subject to a $5 billion minimum
tentative net capital requirement. Id.
    \297\ Id. Rule 15c3-1 prescribes two financial ratio
requirements. See 17 CFR 240.15c3-1(a)(1). The first financial ratio
requirement provides that a broker-dealer must not permit its
aggregate indebtedness to all other persons to exceed 1500% of its
net capital (i.e., a 15-to-1 aggregate indebtedness to net capital
requirement). See 17 CFR 240.15c3-1(a)(1)(i). Stated another way,
the broker-dealer must maintain, at a minimum, an amount of net
capital equal to 1/15th (or 6.67%) of its aggregate indebtedness.
This financial ratio generally is used by smaller broker-dealers
that do not hold customer securities and cash and is the default
financial ratio requirement that all broker-dealers must apply
unless they affirmatively elect to be subject to the second
financial ratio requirement by notifying their designated examining
authority (``DEA'') of the election. See 17 CFR 240.15c3-1(a)(1)(i)
and (ii). The second financial ratio requirement provides that a
broker-dealer must not permit its net capital to be less than 2% of
aggregate debit items (i.e., customer-related obligations to the
broker-dealer). See 17 CFR 240.15c3-1(a)(1)(ii). Customer debit
items--computed pursuant to Rule 15c3-3--consist of, among other
things, margin loans to customers and securities borrowed by the
broker-dealer to effectuate deliveries of securities sold short by
customers. See 17 CFR 240.15c3-3; 17 CFR 240.15c3-3a. This ratio
generally is used by larger broker-dealers that hold customer
securities and funds.
    \298\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70221-70229. Neither the 15-to-1 aggregate indebtedness to net
capital ratio nor the 2% of aggregate debit items ratio would be
applicable to stand-alone SBSDs. Id.
    \299\ Id. at 70223.
    \300\ Id. at 70221-70229.
    \301\ See paragraph (b)(8)(xvi) of Rule 17a-4, as proposed to be
amended.
---------------------------------------------------------------------------

    As indicated above, the Commission is proposing to include a
parallel requirement in paragraph (b)(1) of proposed Rule 18a-6, which
is modeled on paragraph (b)(8) of Rule 17a-4, as proposed to be
amended.\302\ Thus,

stand-alone SBSDs and stand-alone MSBSPs would be required to preserve
similar types of records, as applicable, containing information
supporting their financial reports.\303\
---------------------------------------------------------------------------

    \302\ Compare paragraph (b)(1)(viii) of proposed Rule 18a-6,
with paragraph (b)(8) of Rule 17a-4, as proposed to be amended. More
specifically: (1) Paragraph (b)(1)(viii)(A) of proposed Rule 18a-6
would be modeled on paragraph (b)(8)(i) of Rule 17a-4, as proposed
to be amended, except the former would refer to security-based swap
customers rather than customers and not contain a reference to cash
accounts; (2) paragraph (b)(1)(viii)(B) of proposed Rule 18a-6 would
be modeled on paragraph (b)(8)(ii) of Rule 17a-4, as proposed to be
amended, except the former would refer to security-based swap non-
customers instead of non-customers and to security-based swap
accounts instead of securities accounts, and not contain a reference
to cash accounts; (3) paragraph (b)(1)(viii)(C) of proposed Rule
18a-6 would mirror paragraph (b)(8)(iii) of Rule 17a-4, as proposed
to be amended; (4) paragraph (b)(1)(viii)(D) of proposed Rule 18a-6
would mirror paragraph (b)(8)(v) of Rule 17a-4, as proposed to be
amended; (5) paragraph (b)(1)(viii)(E) of proposed Rule 18a-6 would
mirror paragraph (b)(8)(vi) of Rule 17a-4, as proposed to be
amended; (6) paragraph (b)(1)(viii)(F) of proposed Rule 18a-6 would
mirror paragraph (b)(8)(vii) of Rule 17a-4, as proposed to be
amended; (7) paragraph (b)(1)(viii)(G) of proposed Rule 18a-6 would
mirror paragraph (b)(8)(viii) of Rule 17a-4, as proposed to be
amended; (8) paragraph (b)(1)(viii)(H) of proposed Rule 18a-6 would
mirror paragraph (b)(8)(ix) of Rule 17a-4, as proposed to be
amended; (9) paragraph (b)(1)(viii)(I) of proposed Rule 18a-6 would
mirror paragraph (b)(8)(x) of Rule 17a-4, as proposed to be amended;
(10) paragraph (b)(1)(viii)(J) of proposed Rule 18a-6 would mirror
paragraph (b)(8)(xi) of Rule 17a-4, as proposed to be amended; (11)
paragraph (b)(1)(viii)(K) of proposed Rule 18a-6 would be modeled on
paragraph (b)(8)(xii) of Rule 17a-4, as proposed to be amended,
except the former would refer to proposed Rule 18a-1 (the proposed
capital rule for stand-alone SBSDs) rather than Rule 15c3-1 (the
broker-dealer capital rule); (12) paragraph (b)(1)(viii)(L) of
proposed Rule 18a-6 would mirror paragraph (b)(8)(xiv) of Rule 17a-
4, as proposed to be amended; (13) paragraph (b)(1)(viii)(M) of
proposed Rule 18a-6 would be modeled on paragraph (b)(8)(xv) of Rule
17a-4, as proposed to be amended, except the former would refer to
proposed Rule 18a-1 and proposed Rule 18a-2 (the proposed tangible
net worth rule for nonbank MSBSPs) rather than Rule 15c3-1; (14)
paragraph (b)(1)(viii)(N) of proposed Rule 18a-6 would be modeled on
paragraph (b)(8)(xvi) of Rule 17a-4, as proposed to be amended,
except the former would refer to proposed Rule 18a-1 rather than
Rule 15c3-1; and (15) paragraph (b)(1)(viii)(O) of proposed Rule
18a-6 would be modeled on paragraph (b)(8)(xvii) of Rule 17a-4, as
proposed to be amended, except the former would refer to proposed
Rule 18a-7 (the proposed reporting rule for nonbank SBSDs and
nonbank MSBSPs) rather than Rule 17a-5 (the broker-dealer reporting
rule) and Rule 17a-12 (the OTC derivatives dealer reporting rule).
The Commission is not proposing to include in paragraph (b)(1)(viii)
of proposed Rule 18a-6 provisions that would be analogous to
paragraphs (b)(8)(iv) and (b)(8)(xiii) of Rule 17a-4, as proposed to
be amended. Paragraph (b)(8)(iv) relates to a provision in Rule
15c3-1 for which there is not a parallel provision in proposed Rule
18a-1. See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70255-70256. Paragraph (b)(8)(xiii) relates to Rule 15c3-3, which
does not apply to stand-alone SBSDs or stand-alone MSBSPs. Id. at
70274-70288.
    \303\ See paragraphs (b)(1)(vii) and (b)(2)(iv) of proposed Rule
18a-6.
---------------------------------------------------------------------------

    The Commission is proposing a preservation requirement for bank
SBSDs that would require these registrants to preserve the same types
of records related to Rule 18a-4 that broker-dealer SBSDs would need to
preserve under paragraph (b)(8)(xiv) of Rule 17a-4, as proposed to be
amended, and that stand-alone SBSDs would be required to preserve under
paragraph (b)(1)(viii)(L) of proposed Rule 18a-6.\304\ Specifically,
bank SBSDs would be required to preserve records containing detail
relating to information for possession or control requirements under
proposed Rule 18a-4 and reported on proposed Form SBS that is in
support of amounts included in the report prepared as of the audit date
on proposed Form SBS and in annual audited financial statements
required by proposed Rule 18a-7.\305\
---------------------------------------------------------------------------

    \304\ Compare paragraph (b)(2)(v) of proposed Rule 18a-6, with
paragraph (b)(8)(xiv) of Rule 17a-4, as proposed to be amended, and
paragraph (b)(1)(viii)(L) of proposed Rule 18a-6.
    \305\ See paragraph (b)(2)(v) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Rule 15c3-4 Risk Management Records. OTC derivatives dealers and
ANC broker-dealers are required to comply with Rule 15c3-4.\306\ This
rule requires these types of broker-dealers to establish, document, and
maintain a system of internal risk management controls to assist in
managing the risks associated with the firm's business activities,
including market, credit, leverage, liquidity, legal, and operational
risks.\307\ The rule also requires periodic reviews (which may be
performed by internal audit staff) and annual reviews (which must be
conducted by independent certified public accountants) of the firm's
risk management systems.\308\ Paragraph (b)(10) of Rule 17a-4 requires
broker-dealers subject to Rule 15c3-4 (i.e., OTC derivatives dealers
and ANC broker-dealers) to preserve the records required to be made
under the rule and the results of the periodic reviews required to be
conducted under the rule.\309\ The Commission has proposed that nonbank
SBSDs and nonbank MSBSPs be required to comply with Rule 15c3-4.\310\
Consequently, nonbank SBSDs and nonbank MSBSPs should be required to
preserve the same types of records relating to Rule 15c3-4 as ANC
broker-dealers and OTC derivatives dealers.\311\
---------------------------------------------------------------------------

    \306\ See 17 CFR 240.15c3-4. See also OTC Derivatives Dealers,
63 FR 59362; Alternative Net Capital Requirements for Broker-Dealers
That Are Part of Consolidated Supervised Entities, and Exchange Act
Release No. 49830 (June 8, 2004), 69 FR 34428 (June 21, 2004).
    \307\ See 17 CFR 240.15c3-4.
    \308\ See 17 CFR 240.15c3-4(c)(3). The annual review must be
conducted in accordance with procedures agreed to by the firm and
the independent public accountant conducting the review.
    \309\ See 17 CFR 240.17a-4(b)(10).
    \310\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70250-70251.
    \311\ See paragraph (b)(1)(ix) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Paragraph (b)(10) of Rule 17a-4 applies the preservation
requirements for records relating to Rule 15c3-4 to broker-dealers,
which includes broker-dealer SBSDs and broker-dealer MSBSPs.\312\ The
Commission is proposing to include a parallel requirement in paragraph
(b)(1) of proposed Rule 18a-6 applicable to stand-alone SBSDs and
stand-alone MSBSPs that would mirror paragraph (b)(10) of Rule 17a-
4.\313\ In particular, paragraph (b)(1)(ix) of proposed Rule 18a-6
would require stand-alone SBSDs and stand-alone MSBSPs to preserve the
records required to made under Rule 15c3-4 and the results of the
periodic reviews required to be conducted under the rule.\314\ The
Commission did not propose that bank SBSDs and bank MSBSPs comply with
Rule 15c3-4.\315\ Consequently, the Commission is not proposing a
parallel record preservation requirement for these registrants.
---------------------------------------------------------------------------

    \312\ See 17 CFR 240.17a-4(b)(10).
    \313\ Compare 17 CFR 240.17a-4(b)(10), with paragraph (b)(1)(ix)
of proposed Rule 18a-6.
    \314\ See paragraph (b)(1)(ix) of proposed Rule 18a-6.
    \315\ See 15 U.S.C. 78o-10(d)(2)(A) (providing that the
Commission may not prescribe rules imposing prudential requirements
on SBSDs and MSBSPs for which there is a prudential regulator).
---------------------------------------------------------------------------

    Credit Risk Determinations. Under Appendix E to Rule 15c3-1, ANC
broker-dealers are permitted to add back to net worth uncollateralized
receivables from counterparties arising from OTC derivatives
transactions when computing net capital.\316\ Instead of the 100%
deduction that applies to most unsecured receivables under Rule 15c3-1,
ANC broker-dealers are permitted to take a credit risk charge based on
the uncollateralized credit exposure to the counterparty.\317\ In most
cases, the credit risk charge is significantly less than a 100%
deduction, since it is a percentage of the amount of the receivable
that otherwise would be deducted in full. The Commission has proposed
that this treatment be narrowed under proposed amendments to the
capital requirements for ANC broker-dealers so that it would apply only
to uncollateralized receivables from commercial end users arising from
security-based swaps (i.e., uncollateralized receivables from other
types of counterparties would be subject to the 100% deduction from net
worth).\318\ In addition, the proposed capital requirements for nonbank
SBSDs permitted to use internal models to calculate market and credit
risk charges when computing net capital (i.e., ANC broker-dealer SBSDs
and stand-alone ANC SBSDs) similarly would allow these registrants to
take credit risk charges with respect to uncollateralized receivables
but only from commercial end users arising from security-based
swaps.\319\
---------------------------------------------------------------------------

    \316\ See 17 CFR 240.15c3-1e(c). OTC derivatives dealers are
permitted to treat such uncollateralized receivables in a similar
manner. See 17 CFR 240.15c3-1f.
    \317\ See 17 CFR 240.15c3-1(a)(7); 17 CFR 240.15c3-1e(c).
    \318\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70240-70245.
    \319\ See id.
---------------------------------------------------------------------------

    The method for computing the credit risk charge is set forth in
Appendix E of Rule 15c3-1.\320\ Among other things, the amount of the
credit risk charge is based on the creditworthiness of the
counterparty.\321\ Paragraphs (c)(4)(vi)(D) and (E) of Appendix E of
Rule 15c3-1 require ANC broker-dealers to make and keep current records
relating to the bases of their internal credit assessments of
counterparties for purposes of the credit risk charge.\322\ The
Commission has proposed a parallel requirement for stand-alone ANC
SBSDs.\323\ Paragraph (b)(12) of

Rule 17a-4 requires ANC broker-dealers--and would require ANC broker-
dealer SBSDs--to preserve the records required under paragraphs
(c)(4)(vi)(D) and (E) of Appendix E of Rule 15c3-1 in accordance with
Rule 17a-4.\324\ The Commission is proposing to include a parallel
requirement in paragraph (b)(1) of proposed Rule 18a-6 applicable to
stand-alone ANC SBSDs that is modeled on paragraph (b)(12) of Rule 17a-
4.\325\ Consequently, stand-alone ANC SBSDs would be required to
preserve the same types of records required to be made under proposed
Rule 18a-1.
---------------------------------------------------------------------------

    \320\ See 17 CFR 240.15c3-1e(c).
    \321\ See id. Consistent with section 939A of the Dodd-Frank
Act, the Commission recently adopted amendments eliminating the use
of credit ratings of nationally recognized statistical rating
organizations for the purposes of determining the credit risk
charges under Appendix E. See Public Law 111-203, 939A; Removal of
Certain References to Credit Ratings Under the Securities Exchange
Act of 1934, Exchange Act Release No. 71194 (Dec. 27, 2013), 79 FR
1522 (Jan. 8, 2014). Consequently, an ANC broker-dealer must use
internal credit assessments to determine the credit risk charges (as
would an ANC broker-dealer SBSD). See also Capital, Margin, and
Segregation Requirements for Security-Based Swap Dealers and Major
Security-Based Swap Participants and Capital Requirements for
Broker-Dealers, 77 FR 70240-70245 (proposing that stand-alone ANC
SBSDs must use internal credit assessments for purposes of
determining credit risk changes).
    \322\ See 17 CFR 240.15c3-1e(c)(4)(vi)(D) and (E).
    \323\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, 77 FR
70340 (setting forth the text of paragraphs (e)(2)(iv)(F)(1) and (2)
of proposed Rule 18a-1).
    \324\ See 17 CFR 240.17a-4(b)(12).
    \325\ See paragraph (b)(1)(x) of proposed Rule 18a-6.
---------------------------------------------------------------------------

    Regulation SBSR. Section 13A(a)(1) of the Exchange Act provides
that all security-based swaps that are not accepted for clearing shall
be subject to regulatory reporting.\326\ Section 13(m)(1)(G) of the
Exchange Act \327\ provides that each security-based swap (whether
cleared or uncleared) shall be reported to a registered swap data
repository, and section 13(m)(1)(C) of the Exchange Act \328\ generally
provides that transaction, volume, and pricing data of all security-
based swaps shall be publicly disseminated in real time, except in the
case of block trades.\329\ On November 19, 2010, the Commission
proposed Regulation SBSR to implement these requirements.\330\ On May
1, 2013, the Commission re-proposed Regulation SBSR as part of its
release on cross-border security-based swap activities.\331\
---------------------------------------------------------------------------

    \326\ See 15 U.S.C. 78m-1(a)(1).
    \327\ See 15 U.S.C. 78m(m)(1)(G).
    \328\ See 15 U.S.C. 78m(m)(1)(C).
    \329\ Section 13(m)(1)(E) of the Exchange Act provides, among
other things, that, with respect to cleared security-based swaps,
the rule promulgated by the Commission related to public
dissemination shall contain provisions that specify the criteria for
determining what constitutes a large notional security-based swap
transaction (block trade) for particular markets and contracts and
specify the appropriate time delay for reporting large notional
security-based swap transactions (block trades) to the public. 15
U.S.C. 78m(m)(1)(E).
    \330\ See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, 75 FR 75208.
    \331\ See Cross-Border Security-Based Swap Activities, Re-
Proposal of Regulation SBSR and Certain Rules and Forms Relating to
the Registration of Security-Based Swap Dealers and Major Security-
Based Swap Participants, 78 FR 30968.
---------------------------------------------------------------------------

    Re-proposed Regulation SBSR would assign to one side of a security-
based swap transaction the duty to report the transaction to a
registered swap data repository.\332\ Although any type of counterparty
could in theory become a reporting side, re-proposed Regulation SBSR
includes a reporting hierarchy that would assign the duty primarily to
SBSDs and MSBSPs. In addition, re-proposed Regulation SBSR would
require SBSDs and MSBSPs to establish, maintain, and enforce written
policies and procedures that are reasonably designed to ensure that
such entities comply with any security-based swap transaction reporting
obligations.\333\
---------------------------------------------------------------------------

    \332\ See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, 75 FR 75208.
    \333\ See id.
---------------------------------------------------------------------------

    The Commission is proposing to amend paragraph (b) of Rule 17a-4 to
add a requirement that broker-dealers, including broker-dealer SBSDs
and broker-dealer MSBSPs, preserve the information they are required to
submit to a registered swap data repository under Regulation SBSR.\334\
In addition, the Commission is proposing to include parallel
requirements in paragraphs (b)(1) and (b)(2) of proposed Rule 18a-
6.\335\ Consequently, stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs would be required to preserve the same types of
records.\336\
---------------------------------------------------------------------------

    \334\ See paragraph (b)(14) of Rue 17a-4, as proposed to be
amended.
    \335\ Compare paragraph (b)(14) of Rule 17a-4, as proposed to be
amended, with paragraphs (b)(1)(xi) and (b)(2)(vi) of proposed Rule
18a-6.
    \336\ See paragraphs (b)(1)(xi) and (b)(2)(vi) of proposed Rule
18a-6.
---------------------------------------------------------------------------

    Records Relating to Business Conduct Standards. As discussed above
in section II.A.2.a. of this release, the Commission has proposed Rules
15Fh-1 through 15Fh-6 and Rule 15Fk-1.\337\ These rules, among other
things, would require SBSDs and MSBSPs to make certain disclosures,
provide certain notices, and make other records.\338\ The Commission is
proposing to amend paragraph (b) of Rule 17a-4 to add a requirement
that broker-dealer SBSDs and broker-dealer MSBSPs preserve copies of
documents, communications, and notices related to business conduct
standards as required under Rules 15Fh-1 through 15Fh-6 and Rule 15Fk-
1.\339\ In addition, the Commission is proposing to include parallel
requirements in paragraphs (b)(1) and (b)(2) of proposed Rule 18a-
6.\340\ Consequently, stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs would be required to preserve the same types of
records.\341\
---------------------------------------------------------------------------

    \337\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 76 FR 42396.
    \338\ See id.
    \339\ See paragraph (b)(15) of Rule 17a-4, as proposed to be
amended.
    \340\ Compare paragraph (b)(15) of Rule 17a-4, as proposed to be
amended, with paragraphs (b)(1)(xii) and (b)(2)(vii) of proposed
Rule 18a-6.
    \341\ See paragraphs (b)(1)(xii) and (b)(2)(vii) of proposed
Rule 18a-6.
---------------------------------------------------------------------------

    Section 15F(h)(4)(C) of the Exchange Act imposes duties on SBSDs
that act as advisors to special entities.\342\ Proposed Rule 15Fh-2(a)
would provide an exclusion to the definition of acting as an advisor to
a special entity.\343\ To fall within the exclusion, the SBSD would be
required to obtain a written representation from the special entity
that it will not rely on recommendations provided by the SBSD, and that
the special entity will rely on advice from a qualified independent
representative (as defined in proposed Rule 15F-5(a)).\344\ The SBSD
also would be required to have a reasonable basis to believe that the
special entity is advised by a qualified independent representative (as
defined in proposed Rule 15F-5(a)), and the SBSD would be required to
disclose to the special entity that it is not undertaking to act in the
best interest of the special entity as otherwise required by section
15F(h)(4) of the Exchange Act.\345\
---------------------------------------------------------------------------

    \342\ See 15 U.S.C. 78o-10(h)(4)(C).
    \343\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 76 FR 42424.
    \344\ See id.
    \345\ See id.
---------------------------------------------------------------------------

    If an SBSD is acting as an advisor to a special entity, section
15F(h)(4)(C) and proposed Rule 15Fh-4(b) would require the SBSD to make
reasonable efforts to obtain such information as it considers necessary
to make a reasonable determination that a security-based swap or
trading strategy involving a security-based swap is in the best
interests of the special entity.\346\ The information that would be
required to be collected to make this determination includes, but is
not limited to: The authority of the special entity to enter into the
transaction; the financial status and future funding needs of the
special entity; the tax status of the special entity; the investment or
financing objectives of the special entity; the experience of the
special entity with respect to security-based swap transactions
generally and of the type and complexity being recommended; whether the
special entity has the financial capability to withstand changes in
market conditions during the

term of the security-based swap; and other relevant information.\347\
---------------------------------------------------------------------------

    \346\ See 15 U.S.C. 78o-10(h)(4)(C); Business Conduct Standards
for Security-Based Swap Dealers and Major Security-Based Swap
Participants, 76 FR 42423-42424.
    \347\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, 76 FR 42423-
42424.
---------------------------------------------------------------------------

    Section 15F(h)(5)(A) and proposed Rule 15Fh-5 would require an SBSD
or MSBSP that is acting as a counterparty to a special entity to have a
reasonable basis to believe that the special entity has an independent
representative that is independent of the SBSD or MSBSP and that meets
certain specified qualifications, including that the independent
representative:
     Has sufficient knowledge to evaluate the transaction and
related risks;
     is not subject to a statutory disqualification;
     undertakes a duty to act in the best interests of the
special entity;
     makes appropriate and timely disclosures to the special
entity of material information concerning the security-based swap;
     will provide written representations to the special entity
regarding fair pricing and appropriateness of the security-based swap;
     in the case of employee benefit plans subject to the
Employee Retirement Income Security Act of 1974 (``ERISA''), is a
fiduciary as defined in section 3(21) of ERISA; and
     in the case of a State, State agency, city, county,
municipality, other political subdivision of a State, or governmental
plan, is subject to restrictions on certain political
contributions.\348\
---------------------------------------------------------------------------

    \348\ See id. at 42428, n. 224.
---------------------------------------------------------------------------

    The Commission is proposing to amend paragraph (b) of Rule 17a-4 to
add a requirement that broker-dealer SBSDs and broker-dealer MSBSPs
preserve records relating to the determinations made pursuant to
section 15F(h)(4)(C) and section 15F(h)(5)(A) of the Exchange Act.\349\
In addition, the Commission is proposing to include parallel
requirements in paragraphs (b)(1) and (b)(2) of proposed Rule 18a-
6.\350\ Consequently, stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs would be required to preserve the same types of
records.\351\
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    \349\ See paragraph (b)(16) of Rue 17a-4, as proposed to be
amended.
    \350\ Compare paragraph (b)(16) of Rule 17a-4, as proposed to be
amended, with paragraphs (b)(1)(xiii) and (b)(2)(viii) of proposed
Rule 18a-6.
    \351\ See paragraphs (b)(1)(xiii) and (b)(2)(viii) of proposed
Rule 18a-6.
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Corporate Documents
    Paragraph (d) of Rule 17a-4 requires broker-dealers to preserve
during the life of the enterprise corporate documents such as articles
of incorporation, minute books, and stock certificate books.\352\ It
also requires broker-dealers to preserve during the life of the
enterprise registration and licensing information such as all Forms BD,
Forms BDW, and licenses or other documentation showing registration
with a securities regulatory authority.\353\ The Commission is
proposing to amend paragraph (d) of Rule 17a-4 to add references to
proposed Form SBSE-BD and proposed Form SBSE-W.\354\ Forms SBSE and
SBSE-W are the registration and withdrawal of registration forms,
respectively, the Commission has proposed for broker-dealer SBSDs and
broker-dealer MSBSPs.\355\
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    \352\ See 17 CFR 240.17a-4(d).
    \353\ See id.
    \354\ See paragraph (d) of Rule 17a-4, as proposed to be
amended.
    \355\ See Registration of Security-Based Swap Dealers and Major
Security-Based Swap Participants, Exchange Act Release No. 65543
(Oct. 12, 2011), 76 FR 65784 (Oct. 24, 2011).
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    The Commission is proposing to include a parallel requirement in
paragraph (c) of proposed Rule 18a-6 that is modeled on paragraph (d)
of Rule 17a-4, as proposed to be amended.\356\ This would require
stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs to
preserve the same types of records during the life of the
enterprise.\357\ Paragraph (c) of proposed Rule 18a-6 would reference
proposed Form SBSE and proposed Form SBSE-A rather than proposed Form
SBSE-BD because these are the registration forms that the Commission
has proposed for SBSDs and MSBSPs that are not dually registered as
broker-dealers.\358\
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    \356\ Compare paragraph (d) of Rule 17a-4, as proposed to be
amended, with paragraph (c) of proposed Rule 18a-6.
    \357\ See paragraph (c) of proposed Rule 18a-6.
    \358\ See Registration of Security-Based Swap Dealers and Major
Security-Based Swap Participants, 76 FR 65802-65807.
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Associated Persons
    As discussed above in section II.A.2.a. of this release, paragraph
(a)(12) of Rule 17a-3 requires broker-dealers, which would include
broker-dealer SBSDs and broker-dealer MSBSPs, to make and keep current
records of information about associated persons of the broker-
dealer.\359\ The Commission is proposing to include parallel
requirements in Rule 18a-5 to require stand-alone SBSDs, stand-alone
MSBSPs, bank SBSDs, and bank MSBSPs to make and keep current the same
types of records.\360\ Paragraph (e)(1) of Rule 17a-4 requires broker-
dealers to maintain and preserve these records in an easily accessible
place until at least three years after the associated person's
employment and any other connection with the broker-dealer has
terminated.\361\ The Commission is proposing to include a parallel
record maintenance and preservation requirement in proposed Rule 18a-6
that would apply to the associated person records that stand-alone
SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs would be
required to make and keep current.\362\
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    \359\ See 17 CFR 240.17a-3(a)(12). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to this paragraph.
    \360\ See paragraphs (a)(10) and (b)(8) of proposed Rule 18a-5.
    \361\ See 17 CFR 240.17a-4(e)(1).
    \362\ Compare 17 CFR 240.17a-4(e)(1), with paragraph (d)(1) of
proposed Rule 18a-6. Paragraph (h)(2) of proposed Rule 18a-6 would
define the term associated person to have the same meaning as that
term is defined in paragraph (c) of proposed Rule 18a-5.
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Regulatory Authority Reports
    Paragraph (e)(6) of Rule 17a-4 requires broker-dealers, which would
include broker-dealer SBSDs and broker-dealer MSBSPs, to maintain and
preserve in an easily accessible place each report that a securities
regulatory authority has requested or required the firm to make and
furnish to it pursuant to an order of settlement, and each regulatory
exam report until three years after the date of the report.\363\ The
Commission is proposing to include parallel record maintenance and
preservation requirements in proposed Rule 18a-6.\364\ Specifically,
paragraph (d)(2)(i) of proposed Rule 18a-6 would require stand-alone
SBSDs and stand-alone MSBSPs to maintain and preserve in an easily
accessible place each report which a regulatory authority has

requested or required the firm to make and furnish to it pursuant to an
order or settlement, and each regulatory authority examination report
until three years after the date of the report.\365\ Paragraph
(d)(2)(ii) of proposed Rule 18a-6 would require bank SBSDs and bank
MSBSPs to maintain and preserve the same types of records for the same
period of time, but only if the records relate to security-based swap
activities.\366\
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    \363\ See 17 CFR 240.17a-4(e)(6). Paragraph (m)(3) of Rule 17a-4
defines the term security regulatory authority to have the meaning
set forth in paragraph (h)(3) of Rule 17a-3. See 17 CFR 240.17a-
4(m)(3). Paragraph (h)(3) of Rule 17a-3 defines the term securities
regulatory authority to mean the Commission, any self-regulatory
organization, or any securities commission (or any agency or office
performing like functions) of the States. See 17 CFR 240.17a-
3(h)(3). The Commission is proposing to amend this definition to
include the CFTC and a prudential regulator to the extent the
prudential regulator oversees security-based swap activities. See
paragraph (f)(3) of Rule 17a-3, as proposed to be amended. Paragraph
(h)(1) of proposed Rule 18a-6 would define the term securities
regulatory authority in the same way as that term would be defined
in paragraph (f)(3) of Rule 17a-3, as proposed to be amended.
Compare paragraph (f)(3) of Rule 17a-3, as proposed to be amended,
with paragraph (h)(1) of proposed Rule 18a-6. As discussed below in
section II.A.3.b. of this release, the Commission is proposing
technical amendments to paragraph (h)(3) of Rule 17a-3.
    \364\ Compare 17 CFR 240.17a-4(e)(6), with paragraphs (d)(2)(i)
and (ii) of proposed Rule 18a-6.
    \365\ See paragraph (d)(2)(i) of proposed Rule 18a-6.
    \366\ See paragraph (d)(2)(ii) of proposed Rule 18a-6.
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Compliance, Supervisory, and Procedures Manuals
    Paragraph (e)(7) of Rule 17a-4 requires broker-dealers, which would
include broker-dealer SBSDs and broker-dealer MSBSPs, to maintain and
preserve in an easily accessible place each compliance, supervisory,
and procedures manual, including any updates, modifications, and
revisions to the manual, describing the policies and practices of the
broker-dealer with respect to compliance with applicable laws and
rules, and supervision of the activities of each natural person
associated with the broker-dealer until three years after the
termination of the use of the manual.\367\ The Commission is proposing
to include parallel record maintenance and preservation requirements in
proposed Rule 18a-6.\368\ Specifically, paragraph (d)(3)(i) of proposed
Rule 18a-6 would require stand-alone SBSDs and stand-alone MSBSPs to
maintain and preserve in an easily accessible place each compliance,
supervisory, and procedures manual, including any updates,
modifications, and revisions to the manual, describing the policies and
practices of the firm with respect to compliance with applicable laws
and rules, and supervision of the activities of each natural person
associated with the firm until three years after the termination of the
use of the manual.\369\ Paragraph (d)(3)(ii) of proposed Rule 18a-6
would require bank SBSDs and bank MSBSPs to maintain and preserve the
same types of compliance, supervisory, and procedures manuals for the
same period of time, but only if the manuals involve compliance with
applicable laws and rules relating to security-based swap
activities.\370\
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    \367\ See 17 CFR 240.17a-4(e)(7). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to this paragraph.
    \368\ Compare 17 CFR 240.17a-4(e)(7), with paragraphs (d)(3)(i)
and (ii) of proposed Rule 18a-6.
    \369\ See paragraph (d)(3)(i) of proposed Rule 18a-6.
    \370\ See paragraph (d)(3)(ii) of proposed Rule 18a-6.
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Electronic Storage
    Paragraph (f) of Rule 17a-4 provides that the records a broker-
dealer, which would include a broker-dealer SBSD or a broker-dealer
MSBSP, is required to maintain and preserve under Rule 17a-3 and Rule
17a-4 may be immediately produced or reproduced on micrographic media
or by means of electronic storage media.\371\ The rule defines the term
micrographic media to mean microfilm or microfiche, or any similar
medium.\372\ The term electronic storage media is defined to mean any
digital storage medium or system that meets the requirements set forth
in paragraph (f) of Rule 17a-4.\373\ Paragraph (f)(2) of Rule 17a-4
prescribes requirements that are specific to the use of electronic
storage media and paragraph (f)(3) prescribes requirements that apply
to micrographic media and electronic storage media.\374\ These
requirements are designed to ensure ready access to, and the
reliability and permanence of, records a broker-dealer maintains and
preserves using micrographic or electronic storage media.\375\ Thus,
the requirements, among other things, include safeguards against data
erasure, provisions for immediate verification of stored material, and
requirements for back-up facilities.\376\
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    \371\ See 17 CFR 240.17a-4(f). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to this paragraph.
    \372\ See 17 CFR 240.17a-4(f)(1)(i).
    \373\ See 17 CFR 240.17a-4(f)(1)(ii). See also Electronic
Storage of Broker-Dealer Records, 68 FR 25281 (Commission
interpretation of electronic storage requirements in paragraph (f)
of Rule 17a-4).
    \374\ See 17 CFR 240.17a-4(f)(2) and (3).
    \375\ See Reporting Requirements for Brokers or Dealers Under
the Securities Exchange Act of 1934, 62 FR 6469-6470.
    \376\ See id.
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    The Commission is proposing to include a parallel record
maintenance and preservation requirement in proposed Rule 18a-6, but
only with respect to electronic storage media.\377\ The Commission
preliminarily believes that SBSDs and MSBSPs that are not dually
registered as broker-dealers would not use micrographic media to
maintain and preserve records because electronic storage media is more
technologically advanced and offers greater flexibility in managing
records.\378\ However, the Commission is seeking comment below on
whether proposed Rule 18a-6 should permit micrographic media as an
option.
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    \377\ Compare 17 CFR 240.17a-4(f), with paragraph (e) of
proposed Rule 18a-6.
    \378\ The Commission preliminarily believes that most broker-
dealers use electronic storage media rather than micrographic media
for the same reasons.
---------------------------------------------------------------------------

    Paragraph (e) of proposed Rule 18a-6 would permit stand-alone
SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs to use
electronic storage media to maintain and preserve the records required
to be maintained and preserved under the rule.\379\ The paragraph would
prescribe requirements for using electronic storage media that parallel
the requirements in paragraph (f) of Rule 17a-4, which, as discussed
above, are designed to ensure ready access to, and the reliability and
permanence of, the records.\380\
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    \379\ See paragraph (e) of proposed Rule 18a-6.
    \380\ Compare 17 CFR 240.17a-4(f)(2) and (3), with paragraphs
(e)(2) and (3) of proposed Rule 18a-6.
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Prompt Production of Records
    Rule 17a-4 contains provisions designed to ensure that the records
a broker-dealer, including a broker-dealer SBSD or broker-dealer MSBSP,
is required to maintain and preserve under the rule will be promptly
produced to the Commission and other security-regulators. In this
regard, paragraph (i) of Rule 17a-4 contains provisions that apply when
a broker-dealer uses a third party to prepare or maintain the records
required to be maintained and preserved pursuant to Rules 17a-3 and
17a-4.\381\ In particular, the paragraph requires the third-party to
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 broker-dealer and will be
surrendered promptly on request of the broker-dealer and including the
following representation:
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    \381\ See 17 CFR 240.17a-4(i). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to this paragraph.

    With respect to any books and records maintained or preserved on
behalf of [broker-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 copy of any or all or any part of such books and
records.\382\
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    \382\ Id.

    The Commission is proposing to include a parallel requirement in
proposed Rule 18a-6 that would apply when a stand-alone SBSD, stand-
alone

MSBSP, bank SBSD, or bank MSBSP uses a third party to prepare or
maintain records required pursuant to Rules 18a-5 and 18a-6.\383\
Consequently, the third party would be required to file with the
Commission an undertaking in which it agrees, among other things, to
furnish to the Commission or its designee true, correct, complete, and
current hard copy of any or all or any part of such books and
records.\384\
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    \383\ Compare 17 CFR 240.17a-4(i), with paragraph (f) of
proposed Rule 18a-6.
    \384\ See paragraph (f) of proposed Rule 18a-6.
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    Paragraph (j) of Rule 17a-4 requires a broker-dealer, which would
include a broker-dealer SBSD or broker-dealer MSBSP, to furnish
promptly to a representative of the Commission legible, true, complete,
and current copies of those records of the broker-dealer that are
required to be preserved under Rule 17a-4, or any other records of the
broker-dealer subject to examination under section 17(b) of the
Exchange Act that are requested by the representative of the
Commission.\385\ The Commission is proposing to include a parallel
requirement in proposed Rule 18a-6.\386\ Specifically, paragraph (g) of
proposed Rule 18a-6 would require SBSDs and MSBSPs to furnish promptly
to a representative of the Commission legible, true, complete, and
current copies of those records of the SBSD or MSBSP that are required
to be to be preserved under the rule, or any other records of the SBSD
or MSBSP subject to examination or required to be made or maintained
pursuant to section 15F of the Exchange Act, which are requested by a
representative of the Commission.\387\
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    \385\ See 17 CFR 240.17a-4(j). Section 17(b) of the Exchange Act
provides, among other things, that all records of a broker-dealer
are subject at any time, or from time to time, to such reasonable,
periodic, special, or other examinations by representatives of the
Commission and the appropriate regulatory agency of the broker-
dealer as the Commission or the appropriate regulatory agency deems
necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of the
Exchange Act. See 15 U.S.C. 78q(b). As discussed below in section
II.A.3.b. of this release, the Commission is proposing technical
amendments to this paragraph.
    \386\ Compare 17 CFR 240.17a-4(j), with paragraph (g) of
proposed Rule 18a-6. Section 15F(f)(1)(C) of the Exchange Act
provides that SBSDs and MSBSPs shall keep books and records
described in sections 15F(f)(1)(B)(i) and (ii) open to inspection
and examination by any representative of the Commission. See 15
U.S.C. 78o-10(f)(1)(C). In addition, section 15F(j) of the Exchange
Act imposes duties on SBSDs and MSBSPs with respect to monitoring of
trading, risk management procedures, disclosing information to the
Commission and the prudential regulators, obtaining information,
conflicts of interest, and antitrust considerations. See 15 U.S.C.
78o-10(j). With respect to disclosing information, section 15F(j)(3)
provides that an SBSD and MSBSP shall disclose to the Commission and
to the prudential regulator for the SBSD or MSBSP, as applicable,
information concerning: (1) Terms and conditions of its security-
based swaps; (2) security-based swap trading operations, mechanisms,
and practices; (3) financial integrity protections relating to
security-based swaps; and (4) other information relevant to its
trading in security-based swaps. See 15 U.S.C. 78o-10(j)(3).
    \387\ See paragraph (g) of proposed Rule 18a-6.
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Request for Comment
    The Commission generally requests comment on the proposals to
require broker-dealers, SBSDs, and MSBSPs to maintain and preserve
certain records. In addition, the Commission requests comment,
including empirical data in support of comments, in response to the
following questions:
    1. Are the Commission's proposals regarding the records SBSDs and
MSBSPs must maintain and preserve under Rule 17a-4, as proposed to be
amended, and proposed Rule 18a-6 comprehensive enough to capture all
records relating to their activities as SBSDs and MSBSPs, including
records that must be made and/or maintained pursuant to provisions in
section 15F of the Exchange Act that are not otherwise covered by Rule
17a-4, as proposed to be amended, and proposed Rule 18a-6? Conversely,
are these proposals too broad? Explain why or why not. For example,
should the Commission establish a catch-all record maintenance and
preservation requirement in Rule 17a-4 and proposed Rule 18a-6 that
applies to any record relating to the registrant's activities as an
SBSD or MSBSP or required to be made and/or maintained pursuant to
section 15F of the Exchange Act? Explain why or why not.
    2. Are the provisions in Rule 17a-4 that would be included as
parallel provisions in proposed Rule 18a-6 applicable to stand-alone
SBSDs and stand-alone MSBSPs appropriate for these types of
registrants? If not, explain why not. Are there alternative provisions
the Commission should consider? If so, describe them. Are there
provisions in Rule 17a-4 that are not being included as parallel
provisions in proposed Rule 18a-6 applicable to stand-alone SBSDs and
stand-alone MSBSPs that would be appropriate for these types of
registrants? If so, explain why.
    3. Are the provisions in Rule 17a-4 that would be included as
parallel provisions in proposed Rule 18a-6 applicable to bank SBSDs and
bank MSBSPs appropriate for these types of registrants? If not, explain
why not. Are there alternative provisions the Commission should
consider? If so, describe them. Are there provisions in Rule 17a-4 that
are not being included as parallel provisions in proposed Rule 18a-6
applicable to bank SBSDs and bank MSBSPs that would be appropriate for
these types of registrants? If so, explain why.
    4. Are the recordkeeping provisions that would be added to Rule
17a-4 appropriate for broker-dealers, including broker-dealer SBSDs and
broker-dealer MSBSPs? If not, explain why not. Are there alternative
provisions the Commission should consider? If so, describe them.
    5. Should proposed Rule 18a-6 include a record storage provision
that permits the use of micrographic media? If so, explain why.
    6. The Commission proposes to establish a retention period for
recordings of telephone calls related to security-based swaps that must
be maintained in accordance with section 15F(g) of the Exchange Act.
Should the Commission require broker-dealers, SBSDs, and/or MSBSPs to
make recordings of telephone calls relating to security-based swaps?
Should the Commission require broker-dealers, SBSDs, and/or MSBSPs to
retain recordings of telephone calls relating to any topic? Explain why
or why not.
    7. Should the retention period for recorded telephone calls be
different than the proposed three year period? For example, should it
be a longer or shorter time frame? If the retention period should be
different than three years, explain how long such recordings should be
kept and why that different retention period would be more appropriate.
    8. Are there recordkeeping requirements currently not included in
these proposed rules that should be applied to ANC broker-dealer SBSDs?
If so, please describe them.
    9. Are there additional requirements that should be included in
these proposed rules to promote compliance with the external business
conduct standards for SBSDs and MSBSPs? If so, please describe them.
    10. Are there additional requirements to promote the disaggregation
by the reporting entities of composite security-based swap transactions
into segments based on risk as opposed to limiting the data collected
to the transaction documents? If so, please describe them.
b. Additional Proposed Amendments to Rule 17a-4
    The Commission is proposing several amendments to Rule 17a-4 to
eliminate obsolete text, improve readability, and modernize
terminology. Reference is made throughout Rule 17a-4 to ``members'' of
a national securities exchange as a distinct class of registrant

in addition to brokers-dealers. The Commission is proposing to remove
these references to ``members'' given that the rule applies to brokers-
dealers, which would include members of a national securities exchange
that are brokers-dealers.\388\ The Commission is proposing a second
global change that would replace the phrase ``Every broker and dealer''
with ``Every broker or dealer''.\389\
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    \388\ The proposed amendments would delete the word ``member''
from the title and from the following paragraphs of Rule 17a-4, as
proposed to be amended: (a), (b), (b)(3), (b)(4), (b)(5), (b)(7),
(c), (d), (e), (e)(1), (e)(6), (e)(7), (e)(8), (f)(2), (f)(3), (i),
(j), (k)(1), (k)(2), and (l). See Rule 17a-4, as proposed to be
amended.
    \389\ The proposed amendments would replace the phrase ``Every
broker and dealer'' with the phrase ``Every broker or dealer'' in
the following paragraphs of Rule 17a-4, as proposed to be amended:
(a), (b), (c), (d), (e), and (j). See Rule 17a-4, as proposed to be
amended.
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    The Commission is proposing a global change that would replace the
use of the word ``shall'' in the rule with the word ``must'' or
``will'' where appropriate.\390\ In paragraph (m) of Rule 17a-4 the
Commission would replace the words ``shall have'' with the word
``has''.\391\ The Commission also proposes to make certain stylistic,
corrective, and punctuation amendments to improve the readability of
Rule 17a-4.\392\
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    \390\ The proposed amendments would replace the word ``shall''
with the word ``must'' or ``will'' in the following paragraphs of
Rule 17a-4, as proposed to be amended: (a), (b), (b)(11), (c), (d),
(e), (e)(8), (f)(2), (f)(3), (g), (i), (j), (k)(1), and (l). See
Rule 17a-4, as proposed to be amended.
    \391\ The proposed amendments would replace the phrase ``shall
have'' with the word ``has'' in the following paragraphs of Rule
17a-4, as proposed to be amended: (m)(1), (m)(2), (m)(3), and
(m)(4). See Rule 17a-4, as proposed to be amended.
    \392\ The Commission proposes the following stylistic and
corrective changes to Rule 17a-4, as proposed to be amended: (1) In
paragraph (a), replacing the phrases ``paragraphs Sec.  '' and
``paragraph Sec.  '' with the symbols ``Sec. Sec.  '' and ``Sec.
'', respectively; (2) adding the word ``and'' between phrase ``money
balance'' and the word ``position'' in paragraph (b)(8)(i) of Rule
17a-4 for consistency with paragraph (b)(8)(ii) of Rule 17a-4; (3)
replacing the phrase ``out of the money options'' with the phrase
``out-of-the-money options'' in paragraph (b)(8)(ix) of Rule 17a-4;
(4) replacing the phrase ``paragraph (a)(12) of Sec.  240.17a-3''
with the phrase ``Sec.  240.17a-3(a)(12)'' in paragraph (e)(1); (5)
replacing the phrase ``paragraph (a)(13) of Sec.  240.17a-3'' with
the phrase ``Sec.  240.17a-3(a)(13)'' in paragraph (e)(2); (6)
replacing the phrase ``paragraph (a)(15) of Sec.  240.17a-3'' with
the phrase ``Sec.  240.17a-3(a)(15)'' in paragraph (e)(3); (7)
replacing the phrase ``for the life'' with the phrase ``during the
life'' in paragraph (e)(3) of Rule 17a-4; (8) replacing the phrase
``paragraph (a)(14) of Sec.  240.17a-13'' with ``Sec.  240.17a-
13(a)(14)'' in paragraph (e)(4); (9) replacing the phrase ``this
paragraph'' with the phrase ``this section'' in paragraph (f); (10)
replacing the phrase ``each index'' with the phrase ``the index'' in
paragraph (f)(3)(iv)(B); (11) replacing the phrase ``the self-
regulatory organizations'' with the phrase ``any self-regulatory
organization'' in paragraph (f)(3)(vi); (12) in paragraph
(f)(3)(vii), adding quotation marks around the phrase ``the
undersigned'' to clarify that the phrase is a defined term; (13)
replacing the phrase ``Rule 17a-4'' with the phrase ``Sec.  240.17a-
4'' in paragraph (f)(3)(vii); and (14) in paragraph (g), replacing
the phrase ``section 15 of the Securities Exchange Act of 1934 as
amended (48 Stat. 895, 49 Stat. 1377; 15 U.S.C. 78o)'' with the
phrase ``section 15 of the Act (15 U.S.C. 78o''.
---------------------------------------------------------------------------

    Further, as discussed above in section II.A.2.b. of this release,
the Commission is proposing to eliminate the requirements in current
paragraphs (c) and (d) of Rule 17a-3 and, as a consequence current
paragraphs (e), (f), (g), and (h) would be redesignated as paragraphs
(c), (d), (e), and (f), respectively. The Commission proposes to amend
Rule 17a-4 to make corresponding changes to cross-references to these
paragraphs of Rule 17a-3.
    Proposed amendments to paragraph (a)(8) would replace the phrase
``annual audited financial statements'' with the phrase ``the annual
financial statements'' to reflect the broader range of documents
required by Rule 17a-5. Due to the insertion of paragraphs (a)(8)(xiv)
and (a)(8)(xvi) to Rule 17a-4, as discussed above, the Commission
proposes to redesignate paragraphs (a)(8)(xiv) and (a)(8)(xv) as
paragraphs (a)(8)(xv) and (a)(8)(xvii), respectively.
    Proposed amendments to paragraph (h) would add after the phrase
``Rule G-9 of the Municipal Securities Rulemaking Board'' the phrase
``or any successor rule'' to address the possibility of a future change
in how the MSRB's rules are designated.
Request for Comment
    The Commission generally requests comment on these additional
proposed amendments to Rule 17a-4, including comment on whether any of
the proposed amendments would result in substantive changes to the
requirements applicable to broker-dealers.

B. Reporting

1. Introduction
    As discussed above, section 764 of the Dodd-Frank Act added section
15F to the Exchange Act.\393\ Section 15F(f)(2) provides that the
Commission shall adopt rules governing reporting for SBSDs and
MSBSPs.\394\ Further, section 15F(f)(1)(A) provides that SBSDs and
MSBSPs shall make such reports as are required by the Commission, by
rule or regulation, regarding the transactions and positions and
financial condition of the SBSD or MSBSP.\395\ In addition, the
Commission has concurrent authority under section 17(a)(1) of the
Exchange Act to prescribe reporting requirements for broker-
dealers.\396\
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    \393\ See Public Law 111-203, 764; 15 U.S.C. 78o-10.
    \394\ See 15 U.S.C. 78o-10(f)(2).
    \395\ See 15 U.S.C. 78o-10(f)(1)(A).
    \396\ See 15 U.S.C. 78q(a)(1).
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    After considering the anticipated business activities of SBSDs and
MSBSPs, the Commission is proposing to establish a reporting program
for these registrants under sections 15F and 17(a) of the Exchange Act
that is modeled on the reporting program for broker-dealers codified in
Rule 17a-5.\397\ Rule 17a-5--which was recently amended \398\--has two
main elements: (1) A requirement that broker-dealers file periodic
unaudited reports containing information about their financial and
operational condition on a FOCUS Report; and (2) a requirement that
broker-dealers annually file financial statements and certain reports
and a report covering the financial statements and reports prepared by
an independent public accountant registered with the Public Company
Accounting Oversight Board (``PCAOB'') in accordance with PCAOB
standards.\399\
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    \397\ See 17 CFR 240.17a-5; 17 CFR 249.617.
    \398\ The recent amendments to Rule 17a-5 are discussed below.
See Broker-Dealer Reports, Exchange Act Release No. 70073 (July 30,
2013), 78 FR 51910 (Aug. 21, 2013). These amendments will not be
fully effective until June 1, 2014. This release refers to these
amendments as the recently adopted amendments or recently adopted
requirements of Rule 17a-5.
    \399\ See id. These requirements are described in more detail
below.
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    The reporting program established under Rule 17a-5 is designed,
among other things, to promote compliance with Rules 15c3-1 and 15c3-3
and to assist the Commission, SROs, and state securities regulators in
conducting effective examinations of broker-dealers. As the Commission
has stated, the reporting requirements, ``together with the
Commission's inspection powers, [are] an integral element in the
arsenal for protection of customers against the risks involved in
leaving securities with their broker-dealer.'' \400\ The broker-dealer
reporting requirements promote transparency of the financial and
operational condition of the broker-dealer to the Commission, the
firm's DEA, and, in the case of a portion of the annual reports, to the
public.\401\ In the release adopting Rule 17a-5, the Commission stated
its intention to periodically review the reporting requirements ``in
order to continue modifying and updating the financial

and operational reporting systems to keep pace with the changing
securities industry.'' \402\
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    \400\ See Commission, Study of Unsafe and Unsound Practices of
Brokers and Dealers, H.R. Doc. No. 231, 92d Cong., 1st Sess. 6
(1971) at 24.