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lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules all times for examination by the staff of the Commission. Paragraph e3ivB
requires that each index be duplicated and the duplicate copies be stored separately from the original copy of the index. Finally, paragraph e3ivC
requires that the original and duplicate indexes be preserved for the time required for the indexed record.
As discussed above, some electronic recordkeeping systems may use means other than indexes to organize and locate records stored on the systems.
Further, the references to indexes in Rule 17a4f, in part, reflect the widespread use of optical disks to store records electronically when the rule was adopted in 1997. Consequently, the Commission is proposing to amend these paragraphs of Rules 17a4f and 18a6e to impose obligations on broker-dealers and SBS Entities to organize and maintain information necessary to locate records stored on their electronic recordkeeping systems without mandating the use of indexes.
Under the amendments, a broker-dealer or SBS Entity using an electronic recordkeeping system would need to organize and maintain information necessary to locate records maintained by the electronic recordkeeping system.75
Rule 17a4f3v requires that the broker-dealer have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved pursuant to Rules 17a3 and 17a4 to electronic storage media and inputting of any changes made to every original and duplicate record maintained and preserved on electronic storage media.
Paragraph f3vA requires a brokerdealer to have the results of the audit system available at all times for examination by the staffs of the Commission or an SRO. Finally, paragraph f3vB requires that the results of the audit be preserved for the time required for the audited records.
Similarly, Rule 18a6e3v requires that the SBS Entity have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved pursuant to Rules 18a5 and 18a6 to the electronic storage system and inputting of any changes made to every original and duplicate record maintained and preserved on the electronic storage system. Paragraph e3vA requires an SBS Entity to have the results of the audit system available at all times for examination by 75 See paragraph f3iv of Rule 17a4 and paragraph e3iv of Rule 18a6, as proposed to be amended.

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the staff of the Commission. Finally, Paragraph e3vB requires that the results of the audit be preserved for the time required for the audited records.
The Commission is proposing amendments to these paragraphs of Rules 17a4 and 18a6 that are designed to better clarify the obligations of the broker-dealer or SBS Entity. In particular, the current rules require an audit system that provides accountability regarding the inputting of records and changes to records to the electronic storage media in the case of Rule 17a4 or electronic storage system in the case of Rule 18a6.76 The proposed amendments would establish specific elements of information relating to electronic records for which the broker-dealer would be required to establish an auditable system of controls. In particular, the Commission is proposing to replace the existing requirement with a requirement that the broker-dealer or SBS Entity have in place an auditable system of controls that records, among other things: 1
Each input, alteration, or deletion of a record; 2 the names of individuals inputting, altering, or deleting a record;
and 3 the date and time such individuals input, altered, or deleted the record.77 As used in the proposed text, the phrase auditable system of controls would mean a system of controls that is documented and can be audited by internal or external examiners to determine whether the controls are operating as would be required by the rule. The objective of these proposed requirements is to identify a uniform set of information relating to electronic records for which the broker-dealer or SBS Entity would have responsibility and that could be used to examine whether the system is operating in conformance with the requirements of the proposed rule e.g., if the electronic recordkeeping system is using the audit-trail requirement, that it is preserving records in a manner that allows the original record to be recreated if overwritten, erased, or otherwise altered.
The remaining amendments to these paragraphs would be designed to incorporate the concept of a system of controls that tracks this information. In this regard, the broker-dealer or SBS
Entity would need to be able to produce a record of the results of the audit of the system of controls for examination by the staffs of the Commission, SROs, and 76 See
paragraph f3v of Rule 17a4 and paragraph e3v of Rule 18a6.
77 See paragraph f3vA of Rule 17a4 and paragraph e3vA of Rule 18a6, as proposed to be amended.

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state securities regulators, as applicable.78 This would mean the firm would need to be able to produce a record of: 1 Each input, alteration, or deletion of a record; 2 the names of individuals inputting, altering, or deleting a record; and 3 the date and time such individuals input, altered, or deleted the record. In addition, the broker-dealer or SBS Entity would need to preserve the record of the results of the audit of the system of controls for the retention period required for the associated records.79 This would mean the firm would need to preserve the information discussed above for the required retention period of the record.
Paragraph f3vi of Rule 17a4
requires a broker-dealer to maintain, keep current, and provide promptly upon request by the staffs of the Commission or an SRO all information necessary to access records and indexes stored on the electronic storage media;
or place in escrow and keep current a copy of the physical and logical file format of the electronic storage media, the field format of all different information types written on the electronic storage media and the source code, together with the appropriate documentation and information necessary to access records and indexes.
Similarly, paragraph e3vi of Rule 18a6 requires an SBS Entity to maintain, keep current, and provide promptly upon request by the staff of the Commission all information necessary to access records and indexes stored in the electronic storage system;
or place in escrow and keep current a copy of the physical and logical file format of the electronic storage system, the field format of all different information types written on the electronic storage system and the source code, together with the appropriate documentation and information necessary to access records and indexes.
The Commission is proposing to eliminate the escrow account option from these paragraphs for two reasons.
First, this option is premised upon the use of electronic storage media such as optical disk technology. Second, it could pose cybersecurity risk to have this information held by a third party in escrow. The Commission is proposing to retain the requirement that the brokerdealer or SBS Entity maintain, keep current, and provide promptly upon request by the Commission, SROs, and state securities regulators, as applicable, 78 See paragraph f3vB of Rule 17a4 and paragraph e3vB of Rule 18a6, as proposed to be amended.
79 See paragraph f3vC of Rule 17a4 and paragraph e3vC of Rule 18a6, as proposed to be amended.

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