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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
probability of the same account landing in the top third of accounts in terms of single-name CDS notional volume is approximately 61 percent; by contrast, the probability of the same account landing in the bottom third of accounts in terms of single-name CDS notional volume is only 11 percent.
Of the 25 SBSDs subject to Rule 18a 6e, 24 are dually registered with the CFTC as swap dealers and are therefore subject to CFTC requirements for entities registered with the CFTC as swap.136 Additionally, there are six SBSDs that are already or will be subject to Rule 17a4. Further, of 41 entities registered as SBSDs, 26 have a prudential regulator.
3. Recordkeeping Practices of Market Participants
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Notwithstanding the Commissions 2003 and 2019 interpretations of the WORM requirement i.e., that it can be met with software solutions described above,137 the Commission understands that some affected broker-dealers maintain electronic recordkeeping systems used daily for business purposes and separate electronic recordkeeping systems used to meet the WORM requirement. The Commission does not have data regarding the number of affected broker-dealers that maintain separate electronic recordkeeping systems for these purposes or data sufficient for the Commission to evaluate the likelihood that affected broker-dealers maintain separate electronic recordkeeping systems for business purposes that do or do not satisfy the WORM requirement.
As a result, the Commission cannot estimate the frequency with which separate electronic recordkeeping systems are maintained for these purposes.
The Commission understands that third-party vendors developed softwarebased solutions designed to meet the WORM requirement of Rule 17a4f.138
136 See section VI.F. of this release discussing the CFTCs electronic recordkeeping rules. See also section V.C. of this release discussing the number of SBSDs that would be subject to the proposed rules.
137 See sections I.B.1. and II.D. of this release discussing the interpretations and broker-dealers response to them.
138 See, e.g., Global Relay, Global Relay Archive, available at: https www.globalrelay.com/grservices/archive; Amazon, Protecting data with Amazon S3 Object lock, available at: https
aws.amazon.com/blogs/storage/protecting-datawith-amazon-s3-object-lock/; Cohasset Associates, Compliance Assessment: Amazon Web Services AWS Simple Storage Service S3, available at:
https d1.awsstatic.com/r2018/b/S3-Object-Lock/
Amazon-S3-Compliance-Assessment.pdf; Microsoft, Securities and Exchange Commission SEC Rule 17a4f United States, available at: https

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However, affected broker-dealers do not commonly use such record systems for business purposes: Broker-dealers have explained to Commission staff that the electronic recordkeeping systems used for business purposes are dynamic, updated constantly e.g., with each new transaction or position, and easily accessible for retrieving records, whereas WORM databases are more akin to static snapshots of the records at a point in time and are less accessible for business purposes. As discussed in more detail above, the Commission preliminarily believes that affected broker-dealers generally deploy an electronic recordkeeping system that serves no purpose other than to hold records in a manner that meets the Commissions regulatory requirements for electronic recordkeeping systems.139
The Commission also believes that some affected SBS Entities currently have systems complying with the electronic recordkeeping requirements under Rule 18a6 as it presently stands, which does not include a WORM or audit-trail requirement.140
As discussed above, a number of affected entities are dually registered with the CFTC as swap dealers. Under the CFTCs electronic recordkeeping rule, affected entities must configure their recordkeeping systems and have policies and procedures governing those systems that are designed to prevent records from being altered or erased.
B. Benefits of the Proposed Amendments The proposed amendments are intended to modernize the SBS Entity and broker-dealer recordkeeping rules given technological changes over the last two decades. The Commission preliminarily believes that by specifying that nonbank SBS Entities 141 and docs.microsoft.com/en-us/compliance/regulatory/
offering-sec-17a-4.
139 See section II.D of this release discussing broker-dealers use of WORM compliant electronic recordkeeping systems.
140 As noted above in section II.D. of this release, it is the Commissions understanding that electronic recordkeeping systems used by nonbank SBS
Entities as well as by broker-dealers for business purposes can be configured to meet the audit-trail requirement.
141 With respect to SBS Entities, the proposal would limit the electronic recordkeeping requirements to SBS Entities that do not have a prudential regulator in order to avoid subjecting bank SBS Entities to potentially differing requirements with respect to electronic record preservation. As discussed above, 26 SBS Entities have a prudential regulator i.e., are bank SBS
Entities. The exclusion of bank SBS Entities from the scope of the proposed electronic recordkeeping system requirements would reduce aggregate benefits and costs related to modifying electronic recordkeeping systems to conform to the proposed amendment to paragraph e2 of Rule 18a6.

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broker-dealers may satisfy their electronic recordkeeping obligations through the WORM requirement or an audit-trail alternative, the proposed amendments may result in nonbank SBS
Entities or broker-dealers updating electronic recordkeeping systems in ways that would lower compliance costs. For example, nonbank SBS
Entities or broker-dealers may, among other things, reduce or eliminate duplicative compliance systems in circumstances where they currently maintain separate electronic recordkeeping systems primarily due to, as applicable, the WORM requirement or Rule 18a6es electronic storage system requirements. The Commission expects that these reductions would primarily be realized by broker-dealers that may, for example, choose to adopt a single recordkeeping system that complies with the audit-trail requirementfor business and regulatory purposes. Below, the Commission estimates the reduction in initial and ongoing costs and burdens related to these proposals.142
These aggregate cost savings may be reduced by three factors. First, some affected entities may have already streamlined their regulatory electronic recordkeeping systems with systems used for business records consistent with the Commission interpretations described above. Second, some affected entities may elect to upgrade existing business recordkeeping systems to accommodate the proposed audit-trail alternative. The affected entities that choose to undertake such upgrades may do so if aggregate savings from eliminating redundant electronic recordkeeping systems outweigh the costs of buildout for existing systems.
The Commission expects that these costs would primarily be realized by broker-dealers. However, potential buildout costs may decrease the cost savings from the proposal. Third, because the proposal would not require broker-dealers to make changes to recordkeeping systems that are currently compliant with the WORM requirement, they may choose not to make any changes to recordkeeping systems. Such broker-dealers may, for example, choose to continue maintaining separate recordkeeping systems for business purposes and for regulatory purposes.
The proposal may also benefit customers and counterparties of brokerdealers and nonbank SBS Entities.
Specifically, to the extent that broker142 See section V.D. of this release discussing increases and decreases in costs and burdens relating to proposals for purposes of the Paperwork Reduction Act.

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