Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-37850; File No. S7-27-96]

RIN 3235-AH04

Books and Records Requirements for Brokers and Dealers Under the

Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission is proposing for comment amendments to the

broker-dealer books and records rules. The proposed amendments clarify,

modify, and expand recordkeeping requirements with respect to purchase

and sale documents, customer records, associated person records,

customer complaints, and certain other matters. In addition, the

proposed amendments specify certain types of books and records that

broker-dealers must make available in their local offices. The

Commission is proposing amendments to the books and records rules in

response to certain concerns raised by members of the North American

Securities Administrators Association (``NASAA''). The proposed

amendments are intended to obligate broker-dealers to make and retain

certain additional records that would be valuable to state regulators

during examination and enforcement proceedings.

DATES: Comments must be received on or before December 27, 1996.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,

NW., Stop 6-9, Washington, DC 20549. Comments may also be submitted

electronically at the following E-mail address: [email protected].

All comment letters should refer to File No. S7-27-96. All comments

received will be available for public inspection and copying in the

Commission's Public Reference Room, 450 Fifth Street, NW., Washington,

DC 20549. Electronically submitted comment letters will be posted on

the Commission's Internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, (202) 942-

0131; Peter R. Geraghty, (202) 942-0177; or Matthew G. McGuire, (202)

942-7103; Office of Risk Management and Control, Division of Market

Regulation, Securities and Exchange Commission, 450 Fifth Street, NW.,

Washington, DC 20549.

[[Page 55594]]

SUPPLEMENTARY INFORMATION:

I. Introduction

Section 17(a)(1) of the Securities Exchange Act of 1934 (``Exchange

Act'') requires registered broker-dealers to make, keep, furnish, and

disseminate records and reports prescribed by the Commission ``as

necessary or appropriate in the public interest, for the protection of

investors, or otherwise in furtherance of the purposes of'' the

Exchange Act.\1\ Rules 17a-3 and 17a-4 under the Exchange Act specify

minimum requirements with respect to the records that must be made by

broker-dealers as well as the periods during which such records and

other documents relating to the broker-dealer's business must be

preserved.\2\

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\1\ 15 U.S.C. 78q(a)(1).

\2\ 17 CFR 240.17a-3 and 240.17a-4.

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In 1993, a NASAA Committee (``NASAA Committee'') commenced work on

a model state regulation to supplement the books and records

requirements set forth in Rules 17a-3 and 17a-4. The NASAA Committee

observed that the existing Commission books and records requirements do

not obligate broker-dealers to make and retain certain types of records

that would be valuable to state regulators during examination and

enforcement proceedings. In addition, the NASAA Committee noted that

several states had commenced independent efforts to develop

supplemental books and records requirements and expressed concern about

the potential difficulties that would result if inconsistent books and

records requirements emerged from these independent efforts.

The NASAA Committee determined that supplementary rules should be

required with respect to purchase and sale documentation, registered

representatives, customer investment objectives, customer complaints,

exceptional or unusual numerical occurrences, background information on

underwritten or recommended securities, communications, contracts and

agreements, marketing materials, and licenses. In addition, the NASAA

Committee determined that supplemental requirements should specify the

types of records that broker-dealers must make available in each of

their local offices and should contain requirements obligating broker-

dealers to cooperate with inspections and investigations by state

regulators. The NASAA Committee released a final draft of its model

regulation (``NASAA Model'') in August 1995, which it presented for

membership approval at NASAA's October 1995 meeting.

At the October meeting, the Commission Chairman stated that

supplemental state books and records requirements would impose a

substantial burden on broker-dealers because of the likelihood that

each state's requirements would not be consistent with those adopted by

other states. The Chairman further noted that modification of the

Commission's books and records rules would be a considerably less

burdensome means of accomplishing the NASAA members' objectives than

would be the development of supplemental state requirements. The NASAA

membership thereafter voted to defer taking further action with respect

to the NASAA Model in order to give the Commission an opportunity to

develop appropriate amendments to its books and records rules.\3\

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\3\ The Commission notes that the National Securities Markets

Improvement Act of 1996, signed by the President on October 11,

1996, contains a provision that prohibits states from adopting

supplement books and records requirements.

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II. Proposed Amendments and Discussion

In preparing the proposed amendments to Rules 17a-3 and 17a-4,

Commission staff members met with the NASAA Committee on several

occasions to discuss the specific concerns of state securities

regulators. The NASAA Committee advised that state examinations of

broker-dealers are frequently hindered by the absence of relevant

records in local offices, by long delays in producing required records

from a central location, and by poorly organized records. In addition,

the NASAA Committee reported that certain provisions of the

Commission's current books and records rules have been interpreted

differently by broker-dealers, regulators, hearing officers, and

courts, and that clarification of the requirements of such provisions

would assist regulatory enforcement initiatives. Finally, the NASAA

Committee indicated that requiring broker-dealers to maintain certain

additional types of books and records would facilitate state

regulators' efforts to monitor and control the broker-dealer industry

and would increase levels of customer protection.

In general, the proposed amendments to Rule 17a-3 will require

broker-dealers to generate local office blotters, to record

supplemental information on brokerage order memoranda, to create

customer account forms, and to maintain additional records concerning

associated persons, customer complaints, and exceptional numerical

occurrences. The proposed amendments to Rule 17a-4 will require broker-

dealers to preserve certain additional types of records, including

advertising and marketing materials, registrations and licenses, audit

and examination reports, records concerning recommended securities, and

manuals relating to compliance, supervision, and procedures. In

addition, the proposed amendments to Rule 17a-4 will clarify and modify

the Commission's existing requirements concerning preservation of

certain correspondence and contracts. Finally, the proposed amendments

to Rule 17a-4 will supplement the existing standards concerning the

organization of books and records, will require broker-dealers to

designate a principal to be responsible for books and records

compliance, and will require broker-dealers to make certain records

available in each of their local offices. A discussion of the proposed

amendments follows.

A. Blotters and Memoranda

Rule 17a-3(a)(1) specifies the Commission's current requirements

concerning records of purchases and sales of securities, receipts and

deliveries of securities, and receipts and disbursements of cash. The

proposed amendments will add a requirement that records of purchases

and sales of securities for customer accounts be accessible with

respect to the activities of each local office.

The proposed amendments also specify certain additional information

that broker-dealers will be required to include in the memoranda of

brokerage orders currently required by Rule 17a-3(a)(6). Existing

requirements specify that brokerage memoranda include information

concerning the terms and conditions of the order, the account for which

the order is entered, the times of entry and execution, and the

execution price. The proposed amendments add requirements that each

memorandum indicate which associated person entered the order and also

indicate whether the order was solicited or unsolicited.

B. Additional Records Concerning Associated Persons

Rule 17a-3(a)(12) currently specifies the types of records that a

broker-dealer must maintain with respect to each of its associated

persons. In addition to basic background information, the existing rule

requires a broker-dealer to maintain records of each associated

person's employment and disciplinary history. The proposed amendments

will add a new Rule 17a-3(a)(20), which designates several

supplementary types of associated person records that a

[[Page 55595]]

broker-dealer must maintain. These new records include registration and

licensing materials, agreements between associated persons and the

broker-dealer, customer complaint information, and client trading

records for each associated person. It is the view of the Commission

that many of these supplemental records consist of documents that

broker-dealers would routinely keep in the course of operating their

businesses. However, the NASAA Committee has indicated that a statutory

specification of the precise records that broker-dealers must maintain

with respect to associated persons will facilitate inspection and

enforcement actions by regulatory authorities.

In addition, proposed Rule 17a-3(a)(21) will add a requirement that

broker-dealers maintain a list identifying each of their associated

persons and designating the local office where each associated person

conducts the greatest portion of his or her business. The NASAA

Committee has indicated that state investigations are sometimes delayed

because broker-dealers store associated person records in several

offices. Proposed Rule 17a-3(a)(21), in conjunction with proposed Rule

17a-4(l)(1), is intended to address this issue. In combination, these

rules will require all records concerning each associated person to be

stored where such associated person conducts most of his or her

business.

C. Account Forms

Proposed Rule 17a-3(a)(16) creates a new Commission requirement

that broker-dealers maintain an account form for each customer account.

The required account form will include basic identification and

background information about a customer, as well as a designation of

the customer's investment objective(s) and a specification of the

approximate percentage of investment capital that the customer would

like to allocate to speculative investments. The associated person

responsible for each account and a principal of the broker-dealer must

sign or initial each account form to indicate approval of the contents.

It is the understanding of the Commission that most broker-dealers

currently collect and maintain records of most of the information that

they will be required to include on the proposed account forms.

Proposed Rule 17a-3(a)(16) will apply with respect to both new and

existing customer accounts. The Commission recognizes that it will be

difficult as a practical matter for broker-dealers to prepare the

required account forms for existing customers immediately upon adoption

of the new rule. Accordingly, the Commission initially proposes a one-

year period from the date of adoption of the proposed rule as an

appropriate time frame for broker-dealers to comply with respect to

existing customer accounts. The Commission is expressly soliciting

comments concerning the feasibility of this phase-in period.

Proposed Rule 17a-3(a)(16) also will require that the material

contents of a new or changed customer account form be sent to the

customer for confirmation. In order to minimize burdens and allow

maximum flexibility for broker-dealers who send communications to their

customers from a central location, the proposed rule will permit a

broker-dealer to send a customer an alternate document containing a

copy of the material contents of the account form rather than a copy of

the account form itself. In addition, the proposed rule will not

require that the signatures or initials of the associated person and

principal of the broker-dealer be included on any alternate document

sent to a customer for confirmation.

Proposed Rule 17a-3(a)(16) will require a designation on account

forms of each customer's investment objective(s) from a list of defined

objectives. In instances where a customer designates multiple

objectives, one of which includes speculation, the proposed rule will

require a specification of the approximate percentage or range of

percentages of investment capital to be dedicated to speculation. The

proposed amendments do not include a definition of the term

``speculation.'' Accordingly, the Commission is expressly requesting

comments concerning whether such a definition should be provided and

suggesting possible definitions.

The Commission recognizes that the percentage of speculative

investments in a customer's portfolio could change as a result of

numerous factors outside of a broker-dealer's control, including

changes in the relative market prices of securities, changes in the

characterizations of specific securities (e.g., non-speculative to

speculative), or changes in a portfolio resulting from customer actions

such as adding to or withdrawing funds from the account. Accordingly,

broker-dealers might interpret the proposed rule as implying an

obligation to monitor all customer accounts for adherence to the

designated speculative percentage or might be concerned that the

designated speculative percentage provided on the customer account form

will serve as dispositive evidence of a broker-dealer's failure to

fulfill its suitability obligations if at any time a customer's

speculative holdings exceed such percentage.

In response, the Commission notes that the requirements to

designate a speculative percentage are not intended to create any

monitoring obligation. In addition, while the designated percentage

will be useful in assessing the suitability of recommendations made by

a broker-dealer, it is only a factor to be considered in determining

whether a broker-dealer has fulfilled its suitability obligations to a

particular customer.

The Commission recognizes that a customer's financial situation and

investment preferences will vary over time. In order to ensure that the

required account forms have enduring value as an indicator of customer

choices, proposed Rule 17a-3(a)(16) includes a one-year updating

requirement with respect to the investment objectives designated on

each customer's account form. The Commission is aware of the potential

burdens presented by the annual updating requirement. Accordingly, the

Commission is expressly soliciting suggestions of less burdensome

alternatives that would nevertheless provide broker-dealers and

regulators with a reasonably current indication of each customer's

investment objectives.

The Commission also recognizes that the nature of the businesses of

certain types of broker-dealers may render unnecessary the account form

requirements of proposed Rule 17a-3(a)(16). Therefore, the Commission

is expressly soliciting suggested standards for the exemption of

categories of broker-dealers from the proposed account form

requirements.

D. Complaints

Rules 17a-3 and 17a-4 do not currently contain any express

requirements concerning oral or written customer complaints that are

delivered to a broker-dealer. The proposed amendments add a new Rule

17a-3(a)(17), which will require broker-dealers to maintain files of

written materials relating to customer complaints. In addition,

proposed Rule 17a-3(a)(17) will require broker-dealers to make and keep

written memoranda of oral customer complaints alleging certain types of

fraud and theft.

In drafting the Rule 17a-3(a)(17) memoranda requirement, the

Commission attempted to respond to the NASAA Committee's view that such

memoranda would be of considerable value to state regulators in their

efforts to identify particularly problematic registered representatives

and broker-

[[Page 55596]]

dealer offices. However, in order to avoid unnecessary burdens, the

rule does not require a written memorandum where an oral customer

complaint is the result of customer misunderstanding or

misinterpretation and the complaint is quickly and completely explained

or resolved to the customer's satisfaction. This exception to the

written memorandum requirement specifies that a customer who makes such

an oral complaint must be advised to send a written complaint if the

customer remains unsatisfied with the broker-dealer's explanation or

has further concerns regarding the matter.

Proposed Rule 17a-3(a)(17) expressly specifies that the requirement

to prepare a written memorandum concerning certain oral complaints does

not convert the complaint into a reportable event for purposes of Form

U-4 or other reporting requirements. In addition, proposed Rule 17a-

3(a)(17) requires broker-dealers to provide routine notification in

account statements that customers should set their complaints in

writing in order to establish an independent record of the complaint.

This final requirement is intended to address the NASAA Committee's

concern that some broker-dealers have adopted a practice of

discouraging their customers from delivering written complaints.

E. Other Required Records

In addition to the records described in the preceding paragraphs,

the proposed amendments to Rule 17a-3 will require broker-dealers to

create commission and compensation records and activity reports of

unusual numerical occurrences, such as frequent trading in customer

accounts, unusually high commissions, or an unusually high number of

trade corrections or cancelled transactions. The proposed amendments

will also modify the definition of ``associated person'' in Rule 17a-

3(a)(12)(ii) to codify an existing interpretation of such term.

The proposed amendments will add several new items to the record-

preservation requirements of Rule 17a-4.4 The new types of records

include copies of advertisements and marketing materials, information

relating to underwritten or recommended securities, registrations and

licenses, audit and examination reports, and manuals relating to

compliance, supervision, and procedures. Furthermore, the proposed

amendments will augment and clarify the existing record maintenance

standards set forth in Rule 17a-4(b)(4) with respect to communications

and in Rule 17a-4(b)(7) with respect to written agreements.

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\4\ In addition, the proposed amendments include a modification

of Rule 17a-4(b)(8) that corrects a typographical error.

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F. Record Retention Periods

Rules 17a-4(a) and 17a-4(b) currently require broker-dealers to

preserve specified types of records for six and three years,

respectively. In addition, Rule 17a-4(a) records must be maintained for

the first two years in an ``easily accessible place,'' while Rule 17a-

4(b) records must be maintained for the first two years in an

``accessible place.''

The NASAA Committee has indicated that the designated record

retention periods in Rules 17a-4(a) and 17a-4(b) do not provide clear

standards to state regulators concerning record accessibility

requirements. In addition, the Commission believes that advances in

record-storage technologies and decreased reliance on paper records by

broker-dealers have minimized the relevance of the provisions in such

rules that vary the accessibility requirements during the designated

record retention periods. Accordingly, the proposed amendments modify

Rules 17a-4(a) and 17a-4(b) to require broker-dealers to maintain the

specified records in an ``easily accessible place'' for the entire

retention period. The Commission expressly requests comments concerning

any burdens that might be imposed on broker-dealers by this proposed

modification.

G. Record Form and Access

The NASAA Committee has advised the Commission that some

inspections and investigations of broker-dealers are hindered by delays

in producing records or by poorly maintained records. While the

Commission is sensitive to the importance of this issue, the Commission

and members of the NASAA Committee share the view that obligations to

cooperate with inspections and investigations by state securities

authorities should be addressed primarily through state regulations

rather than through the Commission's books and records rules.

Accordingly, the NASAA Committee has prepared a model production and

access rule attached as Exhibit A to this document. The model

production and access rule sets cooperation standards for broker-

dealers and references Rules 17a-3 and 17a-4 with respect to

substantive record-keeping requirements. It is our understanding that

the NASAA Committee intends to submit this model production and access

rule to the NASAA membership for adoption.

The proposed amendments will modify and augment the Commission's

current record production and organization requirements set forth in

Rule 17a-4(j) in order to make these requirements consistent with

correlating provisions in NASAA's proposed model production and access

rule. Similarly, the proposed amendments establish a definition for the

term ``promptly'' in Rule 17a-4(j) that is consistent with the document

production obligations in NASAA's proposed model production and access

rule. The definition specifies that requested records must be produced

immediately when the records are located in the office where the

request is made and within three business days if the requested records

are not located in such office.

H. Local Office Access; Designation of Principal

Proposed Rule 17a-4(l) will adopt a new requirement that broker-

dealers make available certain records in each of their local offices.

This proposed requirement was developed to address the NASAA

Committee's concern that storage of records in distant locations can be

an impediment to some inspections and investigations. The records that

must be available in local offices consist of items that the NASAA

Committee believes are essential to conducting effective inspections.

Required records include certain blotters of the local office's

activities, memoranda of brokerage orders, complaint and correspondence

files, associated person records, and customer account forms. In order

to accommodate centralized electronic record storage systems used by

some broker-dealers and to minimize the overall burden of the local

office requirements, proposed Rule 17a-4(l) specifies that the ability

to display the necessary records electronically in a local office and

immediately produce printed copies will satisfy the rule. The

Commission also attempted to minimize the burden of this proposed rule

by limiting the local office record availability period to three years.

In addition, broker-dealers can comply with the proposed rule's

requirements with respect to single-agent offices if the required local

office records are made available in certain other offices of the

broker-dealer.

Finally, proposed Rule 17a-4(k) will require each broker-dealer to

designate a principal for purposes of the books and records rules. The

designated principal's responsibilities include indicating approval of

records such as outgoing correspondence and marketing materials.

[[Page 55597]]

III. Request for Comments

The Commission invites interested persons to submit written

comments on the proposed amendments. As noted above, the Commission

specifically requests comments from broker-dealers on the feasibility

of the proposed one-year phase-in period with respect to the account

form requirement for existing customers, on possible definitions for

the term ``speculation,'' on possible alternatives to the annual

account form investment objective updating requirement, on the

desirability of exempting certain categories of broker-dealers from the

proposed account form requirement, and on the desirability of modifying

the record accessibility requirements of Rules 17a-4(a) and 17a-4(b).

IV. Costs and Benefits of the Proposed Amendments and Their Effects on

Competition

To assist the Commission in its evaluation of the costs and

benefits that may result from the proposed amendments to Rules 17a-3

and 17a-4, commenters are requested to provide analyses and data

relating to costs and benefits associated with any of the proposals

herein. The Commission preliminarily believes that compliance burdens

presented by the proposed amendments will not be substantial and that

the proposed amendments will significantly increase levels of customer

protection.

In addition, section 23(a) of the Exchange Act requires the

Commission, in adopting rules under the Exchange Act, to consider the

anti-competitive effects of such rules, if any, and to balance any

impact against regulatory benefits gained in terms of furthering the

purposes of the Exchange Act.5 The Commission preliminarily has

considered the proposed amendments to Rules 17a-3 and 17a-4 in light of

the standards cited in section 23(a)(2) and believes preliminarily

that, if adopted, they would not likely impose any significant burden

on competition not necessary or appropriate in furtherance of the

Exchange Act, in that any burden imposed would be less than that

imposed by individual, and possibly divergent, state regulations. The

Commission solicits commenters' views regarding the effects of the

proposed rules on competition.

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\5\ See 15 U.S.C. 78w(a)(2).

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V. Summary of Initial Regulatory Flexibility Analysis

In accordance with 5 U.S.C. 603, the Commission has prepared an

Initial Regulatory Flexibility Analysis (``IRFA'') concerning the

proposed amendments. The IRFA notes that the purpose of the proposed

amendments is to facilitate the efforts of federal and state agencies

in protecting investors and indicates that the Commission believes that

the proposed amendments are necessary to ensure that registered broker-

dealers keep books and records that are sufficient to permit state and

federal regulators to undertake complete operational examinations. The

IRFA further indicates that the proposed amendments would affect all

broker-dealers, including the approximately 5,250 small broker-dealers,

but notes that the requirements of the proposed amendments were

designed to minimize additional burdens. The IRFA indicates that the

proposed amendments would require broker-dealers to adjust their

recordkeeping and reporting practices, to update certain customer

information records on an annual basis, and to modify their record

storage systems. The IRFA adds that no federal securities laws

duplicate, overlap, or conflict with the proposed amendments and states

that the Commission does not believe that any less burdensome

alternatives are available to accomplish the objectives of the proposed

amendments.

The Commission encourages the submission of written comments with

respect to any aspect of the IRFA. Written comments will be considered

in preparation of the Final Regulatory Flexibility Analysis, if the

proposed amendments are adopted. Such comments will be placed in the

same public file as that designated for the proposed amendments

themselves. A copy of the IRFA may be obtained by contacting Matthew G.

McGuire, Division of Market Regulation, Securities and Exchange

Commission, 450 Fifth Street, NW., Washington, DC 20549, (202) 942-

7103.

VI. Paperwork Reduction Act

Certain provisions of the proposed amendments contain ``collection

of information'' requirements within the meaning of the Paperwork

Reduction Act of 1995,6 and the Commission has submitted them to

the Office of Management and Budget for review in accordance with 44

U.S.C. 3507(d) and 5 CFR 1320.11. The title for the collection of

information is: ``Proposed Books and Records Amendments.''

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\6\ 44 U.S.C. 3501 et seq.

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A. Collection of Information Under Proposed Books and Records

Amendments

The Proposed Books and Records Amendments would require registered

broker-dealers to maintain information with respect to purchase and

sale documents, customer information, associated person information,

customer complaints, and certain other matters.

B. Proposed Use of Information

The information collected pursuant to the Proposed Books and

Records Amendments would be used by the Commission, self-regulatory

organizations, and representatives of state securities regulatory

authorities. No governmental agency or third party would regularly

receive any of the information described above. The Commission, self-

regulatory organizations, and state securities regulatory authorities

would use the records required by the Proposed Books and Records

Amendments in examinations and investigations of broker-dealers.

C. Respondents

The Proposed Books and Records Amendments would apply with respect

to all of the approximately 8,500 broker-dealers that are currently

registered with the Commission. However, most of the provisions of the

Proposed Books and Records Amendments would apply only with respect to

the approximately 5,300 broker-dealers who do business with the general

public.

D. Total Annual Reporting and Recordkeeping Burden

The hour burden of the Proposed Books and Records Amendments would

vary widely because of differences in the levels of activities of the

respondents and because of differences in the current recordkeeping

systems of the respondents. Most of the requirements of the Proposed

Books and Records Amendments involve collections of information that

typical broker-dealers already maintain as customary and usual business

practices or in compliance with existing regulations. Accordingly, the

additional annual burden created by most of the new requirements of the

Proposed Books and Records Amendments will not be substantial.

The Commission believes that the only provision of the Proposed

Books and Records Amendments that will present a significant new burden

to broker-dealers is the annual account form updating requirement of

proposed Rule 17a-3(a)(16). Broker-dealers currently maintain

approximately 46,000,000 customer accounts. The Commission estimates

that approximately 10% of the customer accounts of a typical broker-

dealer will require updating each year and that it

[[Page 55598]]

will require approximately five minutes for a typical broker-dealer to

update each such customer account. Thus, the Commission estimates that

approximately 383,333 hours (five minutes times 4,600,000 updated

customer accounts) would be required by the account form updating

requirement of proposed Rule 17a-3(a)(16) in each year.

Other than the account form updating requirement, the provisions of

the Proposed Books and Records Amendments should create only minimal

annual compliance burdens. Variables relating to the recordkeeping

practices and levels of customer business of broker-dealers make it

difficult to estimate the precise burden of the Proposed Books and

Records Amendments. However, based on conversations with members of the

securities industry and based on the Commission's experience in this

area, the Commission estimates that, in addition to the requirement of

updating account forms pursuant to the provisions of proposed Rule 17a-

3(a)(16), the Proposed Books and Records Amendments should result in an

increase of approximately 2% of the time that a typical broker-dealer

spends making records required by Rule 17a-3 and an increase of

approximately 2% of the time that a typical broker-dealer spends making

records required by Rule 17a-4.

The current estimate of the time required to comply with the

existing provisions of Rule 17a-3 is one hour per broker per working

day. Thus, the Commission estimates that complying with the proposed

amendments to Rule 17a-3 (other than updating account forms pursuant to

proposed Rule 17a-3(a)(16)) should require an additional 42,330 hours

per year (1.2 minutes per working day times 249 working days times

8,500 broker-dealers). The current estimate of the time required to

comply with the existing provisions of Rule 17a-4 is also one hour per

broker per working day. Thus, the Commission also estimates that

complying with the proposed amendments to Rule 17a-4 should require an

additional 42,330 hours per year (1.2 minutes per working day times 249

working days times 8,500 broker-dealers).

In addition to the time necessary to make the required records, the

Proposed Books and Records Amendments would also impose burdens on

respondents in connection with storing the new types of records and in

connection with complying with new record access requirements.

Variations in the current record storage systems of respondents make it

difficult for the Commission to provide any meaningful estimate of the

costs of these burdens to a typical respondent. To the extent that the

additional records required by the Proposed Books and Records

Amendments can be stored and produced for inspection by electronic

means, the additional costs should not be substantial.

Finally, the Proposed Books and Records Amendments will impose

burdens on respondents in connection with necessary modifications to

their record storage systems. Variations in the current record storage

systems of respondents make it difficult for the Commission to provide

any meaningful estimate of the costs of these burdens to a typical

respondent. However, the Commission notes that such burdens would be

one-time expenses rather than recurring costs.

E. General Information about the Collection of Information

The collection of information under the Proposed Books and Records

Amendments would be mandatory. The information collected pursuant to

Rules 17a-3(a) (17), (19), and (21) would be retained for six years.

The information collected pursuant to Rules 17a-3(a)(18), 17a-4(b)(4),

(7), (10), and (11), and 17a-4(e)(5) would be retained for three years.

The information collected pursuant to Rule 17a-4(a)(16) would be

retained for six years following the closing of the related customer's

account. The information collected pursuant to Rule 17a-4(d) would be

retained for the life of the enterprise or any successor enterprise.

The information collected pursuant to Rule 17a-3(a)(20) would be

retained for three years following the termination of employment or

other connection with the broker-dealer of the related associated

person. The information collected pursuant to Rule 17a-4(e)(6) would be

retained for three years after the date of the termination of use of

such information. In general, the information collected pursuant to the

Proposed Books and Records Amendments would be held by the respondent.

The Commission, self-regulatory organizations, and state securities

regulatory authorities would only gain possession of the information

upon request. Any information received by the Commission pursuant to

the Proposed Books and Records Amendments would be kept confidential,

subject to the provisions of the Freedom of Information Act, 5 U.S.C.

552.

F. Request for Comment

Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits

comments to:

(i) Evaluate whether the proposed collection of information is

necessary for the proposed performance of the functions of the agency,

including whether the information shall have practical utility;

(ii) Evaluate the accuracy of the Commission's estimate of the

burden of the proposed collection of information;

(iii) Enhance the quality, utility, and clarity of the information

to be collected; and

(iv) minimize the burden of collection of information on those who

are to respond, including through the use of automated collection

techniques or other forms of information technology.

Persons desiring to submit comments on the collection of

information requirements should direct them to the Office of Management

and Budget, Attention: Desk Officer for the Securities and Exchange

Commission, Office of Information and Regulatory Affairs, Washington,

DC 20503, and should also send a copy of their comments to Jonathan G.

Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549, and refer to File No. S7-27-96. OMB is

required to make a decision concerning the collections of information

between 30 and 60 days after publication of this release in the Federal

Register, so a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of this publication.

VII. Statutory Analysis

The amendments are proposed pursuant to the authority conferred on

the Commission by section 17(a)(1) of the Exchange Act.

List of Subjects in 17 CFR Part 240

Brokers; Reporting and recordkeeping requirements; Securities.

For the reasons set forth in the preamble, Title 17 Chapter II of

the Code of Federal Regulation is proposed to be amended as follows:

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

1934

1. The authority citation for part 240 continues to read in part as

follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,

77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78l, 78m, 78n,

78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23,

80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.

* * * * *

2. Section 240.17a-3 is amended by adding a sentence at the end of

paragraph (a)(1), revising paragraph

[[Page 55599]]

(a)(6), adding paragraphs (a)(16), (a)(17), (a)(18), (a)(19), (a)(20),

and (a)(21), and (f) to read as follows, and removing and reserving

paragraph (a)(12)(ii):

Sec. 240.17a-3 Records to be made by certain exchange members, brokers

and dealers.

(a) * * *

(1) * * * The blotters (or other records of original entry)

containing an itemized daily record of all purchases and sales of

securities for accounts of customers of such member, broker or dealer

shall be maintained so that such records are accessible with respect to

the activities of each local office of such member, broker or dealer.

* * * * *

(6) A memorandum of each brokerage order, and of any other

instruction, given or received for the purchase or sale of securities,

whether executed or unexecuted. Such memorandum shall show: The terms

and conditions of the order or instructions and of any modification or

cancellation thereof; the account for which entered; the time of entry;

the price at which executed, if any; information identifying the

associated person who entered the order on behalf of the customer;

information identifying whether the transaction was solicited or

unsolicited; and, to the extent feasible, the time of execution or

cancellation. Orders entered pursuant to the exercise of discretionary

authority by such member, broker or dealer, or any associated person

thereof, shall be so designated. The term instruction shall be deemed

to include instructions between partners and employees of a member,

broker or dealer. The term time of entry shall be deemed to mean the

time when such member, broker or dealer transmits the order or

instruction for execution or, if it is not so transmitted, the time

when it is received.

* * * * *

(12) * * *

(ii) [Reserved]

* * * * *

(16) An ``account form'' for every customer account:

(i) Each account form shall be approved by the associated person

responsible for such account (who, in the case of a new account, shall

be the associated person who opened such account) and a principal of

the member, broker or dealer. Approval by the associated person and

principal shall be indicated by signature or individual initials and

date of signature or initialing on each account form. A member, broker

or dealer shall send to each customer, no later than 30 calendar days

after the date of the first transaction execution for the account of

such customer, a copy of such customer's account form or an alternate

document containing all required information set forth on such account

form. The account form or alternate document shall include or be

accompanied by a prominent statement advising the customer that, if any

information on the account form or alternate document is incorrect, the

customer should mark any corrections and return the account form or

alternate document to the member, broker or dealer. Within 30 days of

receipt from a customer of any corrections or changes to the contents

of an account form or alternate document, a member, broker or dealer

shall send a copy of the revised account form or alternate document to

such customer and to the associated person who is responsible for such

customer's account.

(ii) Each account form shall contain the following information:

(A) For natural persons, the customer's name, Social Security

number (or other identifying tax number), address and telephone number,

age, marital status and number of dependents, educational level,

employment status including occupation and employer's name, annual

income, and net worth (excluding value of primary residence). In the

case of a joint account, such information shall be included for each

individual on the joint account.

(B) For customers other than natural persons, the name of the

entity, its address, telephone number, Internal Revenue Service

employer identification number, and the name and telephone number of

the individual or individuals at that entity authorized to effect

securities transactions in that account.

(C) A designation of the customer's investment objective(s), from a

list of objectives that shall include a definition of each category of

objective in simple language. If speculation or a similar high-risk

objective is among the alternatives presented, such objective must be

presented as an independent category on the list of objectives and may

not be presented on the list in combination with any other category of

objective. Any definition of speculation or a similar high-risk

objective shall state that such investments involve a high risk of loss

that may exceed the losses in general market averages on any specific

day or over a longer period of time. Where a customer designates

multiple investment objectives, and one of the objectives is

speculation or similar high-risk objective, the approximate percentage

or range of percentages of investment capital dedicated to speculation

or such similar high-risk objective shall be specified. No investment

objective shall be marked or otherwise indicated on an account form

unless specified or expressly authorized by the customer. The

investment objectives on customer account forms shall be designated

upon opening a new account and updated, if required, on an annual basis

thereafter.

(iii) The neglect, refusal, or inability of a customer to provide

the required information for such customer's account form shall excuse

a member, broker or dealer from obtaining such required information,

provided that the member, broker or dealer maintains a written

memorandum of such customer's neglect, refusal, or inability to provide

the required information.

(17)(i) Customer complaint files containing all correspondence,

memoranda, and other documents received or generated in connection with

any complaint by or on behalf of a customer. Customer complaint files

shall also include a record showing what action, if any, has been taken

by the member, broker or dealer in response to each complaint. Customer

complaint files must be accessible by associated person name and local

office location. Each local office shall maintain a customer complaint

file that can be sorted by associated person name for all complaints

involving that office. Local office customer complaint files shall

include, at a minimum, the complaint and the response or resolution, if

any.

(ii) Any oral complaint from a customer received by an employee of

a member, broker or dealer alleging facts that, if true, would

constitute theft, conversion of funds or securities, unauthorized

trading, churning, misrepresentation or lack of material disclosure,

lack of suitability, or falsification of records, must be noted in a

memorandum containing the name and address of the complainant, the

customer account number, and the date of the complaint. The memorandum

shall be prepared by a branch manager, principal, or compliance

department employee of the member, broker or dealer. For purposes of

Form U-4 and other reporting requirements, the preparation of such a

memorandum shall not convert an oral complaint into a reportable event.

It shall not be necessary to prepare a memorandum of an oral complaint

in instances where:

(A) The oral complaint is clearly the result of a misunderstanding

or misinterpretation by the customer;

(B) The nature of the misunderstanding or misinterpretation

[[Page 55600]]

is fully explained to the customer by an employee of the member, broker

or dealer; and

(C) The employee who explains the misunderstanding or

misinterpretation also advises the customer that, if the customer is

not satisfied with the explanation or has further concerns regarding

the matter, the customer should send a written complaint to the broker-

dealer, and provides the customer with the appropriate address to send

such written complaint.

(iii) Every member, broker or dealer shall routinely notify its

customers in a prominent notice on its customer account statements that

customers should put their complaints in writing in order to establish

an independent record of the complaint. Such notice shall also advise

customers of the address and telephone number of the office or

department of the member, broker or dealer where complaints should be

directed.

(iv) Customer complaint files need not include copies of litigation

and arbitration documents if these documents are referenced in the

customer complaint files and such documents are readily available to

representatives of a securities regulatory authority.

(18) Records of all commissions, overrides, and other compensation

(including any bonus) identified by each transaction to the extent

earned or accrued specifically for that transaction, the person or

persons receiving the compensation, the customer account number, the

date the transaction occurred, the amount of compensation, and the name

of the security involved. To the extent that compensation is based on

factors other than remuneration per trade, such as a total production

system or bonus system, the member, broker or dealer must be able to

demonstrate and to document, upon request, the method by which the

compensation paid was earned.

(19) Activity reports to identify exceptional numerical

occurrences, such as frequent trading in customer accounts, unusually

high commissions, or an unusually high number of trade corrections or

cancelled transactions, for management's attention and information. For

the purpose of this paragraph (a)(19), the systems and criteria used to

generate such activity reports shall be determined by each member,

broker or dealer, as long as the system and its parameters are

reasonably designed to monitor levels of activity in accounts that may

warrant further review and analysis by management. Actual copies of

activity reports need not be retained by a member, broker or dealer if

the member, broker or dealer maintains through electronic storage the

data necessary to create or recreate promptly the required activity

reports upon request by representatives of a securities regulatory

authority.

(20) The following records with respect to each associated person

of such member, broker or dealer:

(i) All registration application forms (Form U-4), termination

forms (Form U-5), and amendments, which forms and amendments shall be

manually executed, including complete documentation as to any ``yes''

answer pertaining to disciplinary history on Form U-4 (including items

reported on a Disclosure Reporting Page).

(ii) All licenses or other documentation showing registration with

state securities jurisdictions or self-regulatory organizations.

(iii) All contracts and other records pertaining to the

relationship between each associated person and the member, broker or

dealer.

(iv) A summary of each associated person's compensation agreement

with the member, broker or dealer, including commission schedules and

details of any commission overrides.

(v) Copies of all written inquiries and customer complaints

concerning each associated person (for purposes of this paragraph

(a)(20)(v), a member, broker or dealer shall not be required to include

copies of litigation and arbitration documents among the required

records so long as such documents are referenced in the records and are

readily available for inspection by representatives of a securities

regulatory authority).

(vi) Records showing that upon every change in licensing affecting

an associated person, such associated person has been notified of such

change, including any restrictions or other provisions affecting the

associated person's license.

(vii) A client trading record listing all trades in chronological

order for all customers of each associated person, including the items

specified in paragraph (a)(1) of this section and the total dollar

amount of remuneration per trade (if applicable) to the associated

person (if remuneration is on other than a per-trade basis, such as on

a total production system or a bonus system for each office, the

records required by paragraph (a)(18) of this section shall apply in

lieu of the requirement to maintain remuneration records on a per trade

basis).

(21) A current list identifying any internally assigned number for

each associated person and a designation of the local office of the

member, broker or dealer where each associated person conducts the

greatest percentage of such associated person's business for such

member, broker or dealer.

* * * * *

(f) When used in this section:

(1) The term associated person shall mean a partner, officer,

director, salesman, trader, manager, or any employee handling funds or

securities or effecting any transactions in, or inducing or attempting

to induce the purchase or sale of any security, or otherwise soliciting

transactions or accounts for such member, broker or dealer.

(2) The term local office means any location where an associated

person regularly conducts the business of handling funds or securities

or effecting any transactions in, or inducing or attempting to induce

the purchase or sale of any security, or otherwise soliciting

transactions or accounts for a member, broker or dealer.

(3) The term principal shall mean an individual registered with the

National Association of Securities Dealers, Inc. as a principal or

branch manager of a member, broker or dealer.

(4) The term securities regulatory authority shall mean the

Commission, a state securities regulatory agency, or a self-regulatory

organization.

3. Section 240.17a-4 is amended by revising paragraphs (a), (b)(1),

(b)(4), (b)(7), (c), (d), (e)(1), (j), and the introductory text to

paragraph (b)(8), and adding paragraphs (b)(10), (b)(11), (e)(5),

(e)(6), (k), (l), and (m) and to read as follows:

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

brokers and dealers.

(a) Every member, broker and dealer subject to Sec. 240.17a-3 shall

preserve for a period of not less than six years in an easily

accessible place all records required to be made pursuant to

Sec. 240.17a-3(a)(1), (2), (3), (5), (17), (19) and (21).

(b) Every such member, broker and dealer shall preserve for a

period of not less than three years in an easily accessible place:

(1) All records required to be made pursuant to Sec. 240.17a-

3(a)(4), (6), (7), (8), (9), (10), and (18).

* * * * *

(4) Originals of all communications received and copies of all

communications sent by such member, broker or dealer (including inter-

office memoranda and communications) relating to its business, and a

record that all outgoing communications have been approved by a

principal of the member,

[[Page 55601]]

broker or dealer. Communications files shall be maintained in each

local office with respect to communications sent from or received by

that office, but communications sent from or received at a central

location of a member, broker or dealer may be maintained at such

central location. Records of principal approval of the outgoing

communications of a member, broker or dealer may be kept at a central

record storage location rather than at each local office.

Correspondence sent with identical text, including any handwritten

notes, to two or more customers may be recorded by one copy and a list

of recipients. All communications pertaining to a specific customer

account that are sent from or received at any local office of a member,

broker or dealer shall be preserved with all other communications

pertaining to that customer account that have been sent from or

received at the same local office.

* * * * *

(7) All written agreements (or copies thereof) entered into by such

member, broker or dealer relating to his business as such, including

agreements with respect to any account. Written agreements for purposes

of this paragraph (b)(7) shall include all written contracts, options

agreements, margin agreements, and discretionary trading agreements

between the customer and the member, broker or dealer. The customer

shall receive a copy of every written contract or agreement between the

customer and the member, broker or dealer.

(8) Records which contain the following information in support of

amounts included in the report prepared as of the audit date on Form X-

17A-5 (Sec. 249.617 of this chapter) Part II or Part IIA and in annual

audited financial statements required by Sec. 240.17a-5(d).

* * * * *

(10) All advertisements, marketing materials, sales scripts, and

other paper or electronic records, including audio and video tapes,

used by the member, broker or dealer or any associated person to offer

or sell any security. This provision includes documents and other

records that are intended exclusively for internal use. All documents

and other records used by the member, broker or dealer or any

associated person to offer or sell any security shall be approved by a

principal, a record of whose approval must be maintained.

(11) Any information relating to the basis for any recommendation

of a security by the member, broker or dealer with respect to each

security that is underwritten by the member, broker or dealer and each

security that the member, broker or dealer trades as principal and

recommends to its customers. The requirement of this paragraph (b)(11)

shall not be deemed to supersede the requirements of Sec. 240.15c2-11

with respect to any securities for which a member, broker or dealer

publishes quotations or submits such quotations for publication.

(c) Every such member, broker and dealer shall preserve for a

period of not less than six years after the closing of any customer's

account any account cards or records that relate to the terms and

conditions with respect to the opening and maintenance of such account

and any account forms required by Sec. 240.17a-3(a)(16).

(d) Every such member, broker and dealer shall preserve during the

life of the enterprise and of any successor enterprise all Forms BD

(Sec. 249.501 of this chapter), all Forms BDW (Sec. 249.501a of this

chapter), and amendments to such Forms, which Forms and amendments

shall be manually executed, all licenses or other documentation showing

registration with state securities jurisdictions and self-regulatory

organizations, and all organizational documents of the member, broker

or dealer.

(e) * * *

(1) All records required under paragraphs (a)(12) and (a)(20) of

Sec. 240.17a-3 until at least three years after the ``associated

person'' has terminated his employment and any other connection with

the member, broker or dealer.

* * * * *

(5) All audit or examination reports that are required by law or

that are completed by a party other than the member, broker or dealer

for at least three years after the date of each such audit or

examination report.

(6) Compliance, supervisory, and procedures manuals describing the

policies and practices of the member, broker or dealer with respect to

operations, compliance with all applicable securities laws and

regulations, and supervision of the activities of each natural person

associated with the member, broker or dealer until at least three years

after the termination of use of each such manual. Such manuals that

pertain to the operation of a local office shall be kept at that

office.

* * * * *

(j)(1) Every member, broker or dealer subject to this section shall

furnish promptly to representatives of a securities regulatory

authority such authentic, accurate, legible, complete, and current

(where a record requires updating) copies of those records of the

member, broker or dealer that are required to be preserved under this

section, as are requested by such representative of a securities

regulatory authority. Records shall be organized in a systematic and

easily recognizable order, such as chronologically or alphabetically.

Each member, broker or dealer shall without delay make available to

representatives of a securities regulatory authority an individual who

is familiar with the records (or type of records) and qualified to

explain them.

(2) For purposes of this section, the term promptly shall mean

immediately when the requested records are located in the office of the

member, broker or dealer where the request for such records is made. In

the case of requested records that are not located in the office of the

member, broker or dealer where the request for such records is made,

the term promptly shall mean within three business days.

(k) Every member, broker or dealer shall designate a principal to

ensure compliance with the provisions of this section and Sec. 240.17a-

3 that require approval of a record by a principal. Copies of documents

provided to customers pursuant to the requirements of this section and

Sec. 240.17a-3 need not show the approval of a principal.

(l)(1) Records required to be preserved by the provisions of this

section must be maintained at the headquarters office of a member,

broker or dealer. The following records must be maintained for a period

of at least three years also at each local office of a member, broker

or dealer for such local office's activity: the blotters (or other

records of original entry) containing an itemized daily record of all

purchases and sales of securities for any accounts of customers

required by Sec. 240.17a-3(a)(1); the memoranda required by

Sec. 240.17a-3(a)(6); with respect to each associated person who

conducts the greatest percentage of such associated person's business

for such member, broker or dealer at such local office, all of the

records required by Secs. 240.17a-3(a)(12) and 240.17a-3(a)(20) (except

that records reflecting the amount of remuneration per trade required

by Sec. 240.17a-3(a)(20)(vii) may be kept at a central location with

the other records of the member, broker or dealer instead of at each

local office); a copy of the list required by Sec. 240.17a-3(a)(21);

all account forms, including any updated versions, required by

Sec. 240.17a-3(a)(16); all local office customer complaint files

required by Sec. 240.17a-3(a)(17) and all

[[Page 55602]]

local office communications required by paragraph (b)(4) of this

section; and all local office compliance, supervisory, and procedures

manuals required by paragraph (e)(6) of this section.

(2) The capability of electronically displaying and immediately

producing printed copies of the local office records described herein

in a local office will be deemed to comply with the local office record

maintenance requirements of this section. This capability shall not be

deemed to supersede paragraph (f) of this section.

(3) With respect to a single-agent office of a member, broker or

dealer, local office records may be aggregated with the records of one

or more other such offices in a regional record depository if the

following requirements are met:

(i) The regional record depository, which may be another office of

the member, broker or dealer, is located within the same state as the

single-agent office.

(ii) The records stored in the regional record depository can be

easily disaggregated and accessed for the single-agent office to the

same extent as if the single-agent office kept separate records in

compliance with the local office record-keeping requirements of this

section.

(m) When used in this section:

(1) The term associated person shall have the meaning set forth in

Sec. 240.17a-3(f)(1).

(2) The term local office shall have the meaning set forth in

Sec. 240.17a-3(f)(2).

(3) The term principal shall have the meaning set forth in

Sec. 240.17a-3(f)(3).

(4) The term securities regulatory authority shall have the meaning

set forth in Sec. 240.17a-3(f)(4).

Dated: October 22, 1996.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

Exhibit A

(Note: This Exhibit will not appear in the Code of Federal

Regulations)

Model State Regulation Governing Access to Records Required To Be

Kept By Broker-Dealers (Prepared by NASAA)

I. Required Books and Records.

Every broker-dealer registered in this State shall comply with

the record-keeping requirements of 17 CFR 240.17a-3 (hereinafter

``Rule 17a-3'') and 17 CFR 240.17a-4 (hereinafter ``Rule 17a-4''),

promulgated under the Securities Exchange Act of 1934.

II. Access to Records.

(a) Duty to produce.

All records required to be maintained shall be kept within the

possession and control of the broker-dealer, except as permitted in

section (e) below with respect to a broker-dealer that has ceased

transacting business in securities or that has terminated its

registration. All records within the possession or control of a

broker-dealer shall be produced to [the Administrator] or [the

Administrator's] designee upon request. Every broker-dealer shall

ensure that each office makes available to [the Administrator] or

[the Administrator's] designee all local office records required by

Rules 17a-3 and 17a-4.

(b) Time in which to produce.

It is the responsibility of each broker-dealer to make all

required records quickly and easily accessible. Whenever records are

required to be produced by this rule, the time limits set forth in

this subparagraph shall control. When requested records are present

on the premises of a broker-dealer, including paper records in a

local office and electronic records retrievable over a computer

terminal, they shall be produced immediately. When requested records

are not present on the premises, such as microfilm in a central

storage location outside this State, they shall be produced no later

than the third business day after the date of the request. For good

cause shown in writing, such as the unusually large scope of a

request requiring production of a large volume of records, [the

Administrator] may extend the time period for production.

(c) Forms of record retention; duty to organize.

Every broker-dealer shall ensure that all records required to be

maintained shall be organized and made available for examination in

one of the forms specified in Rules 17a-3 and 17a-4. Such records

shall be authentic, accurate, legible, complete, and current (where

a record requires updating). They shall be organized in a systematic

and easily recognized order, such as chronologically or

alphabetically, and they shall be easily accessible and readily

explained. Each broker-dealer shall without delay make available to

[the Administrator] or [the Administrator's] designee an individual

who is familiar with the records (or type of records) and qualified

to explain them. In the case of any records that require equipment

to allow review or copying, the broker-dealer shall immediately make

available such equipment in working order to the office that has

responsibility to maintain the records.

(d) Duty to cooperate.

Every broker-dealer and broker-dealer employee shall cooperate

with efforts by the [the Administrator] or [the Administrator's]

designee to review for compliance with this regulation. [The

Administrator] or [the Administrator's] designee may conduct

announced or unannounced examinations at any office within or

outside this State to review the business activities of the broker-

dealer. Every broker-dealer shall furnish access to all areas of its

securities operations conducted on or off the premises and otherwise

facilitate the examination. [The Administrator] or [the

Administrator's] designee may further require that any records

subject to examination by submitted [the Administrator's] agency to

determine compliance with applicable laws and regulations.

(e) Miscellaneous records.

Every broker-dealer shall make available for examination all

records in its possession or control that are in any way related to

its business or that may lead to evidence pertaining to its business

regardless of whether or not routine maintenance of such records is

required by this regulation or Rules 17a-3 and 17a-4. Such records

which are not in the immediate possession of the broker-dealer but

which the broker-dealer has the ability to obtain must be obtained

and produced [the Administrator] or [the Administrator's] designee

on request, unless such records are equally available to [the

Administrator].

(f) Privileged records.

If, in response to a request for records by [the Administrator]

or [the Administrator's] designee during an examination or

investigation, a broker-dealer refuses to produce any record on a

claim of privilege, each such document must be identified in detail

and the specific privilege identified an to each item. An assertion

of privilege does not excuse a broker-dealer from maintaining

records.

(g) Records retention time periods; control by other parties.

All records required by this rule shall be maintained for the

time periods specified in the applicable provisions of Rules 17a-3

and 17a-4. Should a broker-dealer cease transacting business in

securities to terminate its registration, the broker-dealer shall

continue to maintain the records for the time period specified in

Rules 17a-3 and 17a-4. Should a terminated broker-dealer have

another party maintain control of the broker-dealer's records,

notice shall include the reason for the arrangement and the name,

address, and telephone number of the other party.

(h) Waiver of requirements.

[The Administrator] may, for good cause as determined in [the

Administrator] discretion, waive any requirements in this regulation

with respect to any requirements in this regulation with respect any

broker-dealer or class of broker-dealers.

[FR Doc. 96-27611 Filed 10-25-96; 8:45 am]

BILLING CODE 8010-01-P