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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
use an electronic recordkeeping system that meets the WORM requirement or that could meet the proposed audit-trail requirement. Indeed, the Commission believes that some broker-dealers and nonbank SBSDs are using a modern, audit-trail compliant electronic recordkeeping system for their own business purposes while simultaneously maintaining a WORM-compliant system solely for the purpose of complying with the requirements of Rule 17a4f.
A broker-dealer that does not preserve records electronically would incur initial costs to build an electronic recordkeeping system that meets either the WORM requirement or the audittrail requirement or would have the initial burden of hiring a vendor to provide the service. A broker-dealer that preserves records electronically using a WORM-compliant electronic recordkeeping system would have an initial burden to build an electronic recordkeeping system that meets the audit-trail requirement, if it elects to use that alternative. An SBSD would have an initial burden build an electronic recordkeeping system that meets either the WORM requirement or the audittrail requirement or would have the initial burden of hiring a vendor to provide the service. Similarly, on an ongoing basis, the broker-dealer or SBSD would be required to expend financial or human resources to maintain their recordkeeping systems to comply with the proposed audit-trail or WORM requirements.
Based upon information provided to the Commission by the securities industry, the Commission estimates that the initial cost to build and implement a WORM-compliant electronic recordkeeping system for a large brokerdealer is $10 million, with an additional cost of $1.2 million annually to maintain the system.182 Based on feedback from the securities industry, the Commission believes that the initial cost to build and implement an electronic recordkeeping system that meets the audit-trail requirements and the ongoing cost to maintain the system would be substantially lower than the analogous costs that would be incurred with respect to a WORM-compliant system.183 Consequently, the Commission estimates that the initial cost to build and implement an electronic recordkeeping system that meets the audit-trail requirement for a large broker-dealer is $1,000,000, with an additional cost of $120,000 annually 182 See Rule 17a4f Rulemaking Petition Addendum at 45.
183 See e.g. Rule 17a4f Rulemaking Petition at 67.

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to maintain the system. There are 802
broker-dealers with assets greater than $10 million and there are four SBSDs that would be subject to paragraph e2
of Rule 18a6. The Commission does not believe any of these firms will elect to build a WORM-compliant electronic recordkeeping system. Moreover, the Commission estimates that most of these firms have electronic recordkeeping systems that could meet the audit-trail requirement or that could be configured to meet that requirement without the need to build a new system. The Commission estimates that 20 of these firms would elect to build a new electronic recordkeeping system to meet the audit-trail requirement for an initial one-time industry cost burden of $20,000,000 and an annual cost burden of $2,400,000.
The Commission estimates that the cost for the 2,749 broker-dealers with $10,000,000 or less in total assets to build and maintain an electronic recordkeeping system that meets the proposed audit-trail requirement would be significantly less than the $1,000,000
initial and $120,000 annual costs estimated for the 802 larger brokerdealers and the four SBSDs that would be subject to paragraph e2 of Rule 18a6. Consequently, the Commission estimates that the initial cost to build and implement an electronic recordkeeping system that meets the audit-trail requirement for these smaller broker-dealers is $100,000, with an additional cost of $12,000 annually to maintain the system. The Commission estimates that most of the 2,749 brokerdealers with $10,000,000 or less in total assets will continue to preserve records in the manner they do today: Using a WORM-compliant system, using micrographic media, or maintaining paper records. The Commission estimates that 80 of these firms would elect to build a new electronic recordkeeping system to meet the audittrail requirement for an initial one-time industry cost burden of $8,000,000 and an annual cost burden of $960,000.
The Commission believes that brokerdealers and SBSDs would incur an initial burden and ongoing annual burden in establishing a backup electronic recordkeeping system. The Commission believes these burdens and costs would be substantially less than the burdens and costs of the primary electronic recordkeeping systems because of the benefit of economies of scale for the backup system whereby common technology and personnel could be used for both systems. The Commission estimates that the costs and burdens for the 802 larger broker-dealers and the four SBSDs that would be
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subject to paragraph e2 of Rule 18a 6 would be $250,000 in initial burdens and costs and $30,000 in annual burdens and costs. Further, the Commission expects that the brokerdealers and SBSDs that have electronic recordkeeping systems that could meet the audit-trail requirement or that could be configured to meet that requirement without the need to build a new system also maintain backup recordkeeping systems for business continuity purposes. Therefore, the initial and annual costs would be incurred by the 20 firms that elect to build a new electronic recordkeeping system that meets that proposed audit-trail requirement. Consequently, the Commission estimates that the industrywide costs and burdens for these firms would be $5,000,000 in initial costs and burdens and $600,000 in annual costs and burdens.
The Commission estimates that the costs and burdens incurred by the 80
smaller broker-dealers that would build electronic recordkeeping systems to meet the audit-trail requirement and, therefore, need to build a backup recordkeeping system, would be substantially less than the costs and burdens incurred by the larger brokerdealers. The Commission estimates that these firms would incur an initial costs and burdens of $25,000 and ongoing annual costs and burdens of $3,000.
Therefore, the Commission estimates that the industry-wide costs and burdens for these firms would be $2,000,000 in initial costs and burdens and $240,000 in ongoing annual costs and burdens.
The proposed amendments to Rule 17a4f would eliminate the third-party access and undertakings requirements and replace them with a requirement that a senior officer of the broker-dealer have the access and provide the necessary undertakings. Based on the Commissions most recent information submitted to the OMB in connection with the renewal of Rule 17a4, this would result in an estimated elimination of an annual cost of less than $5,000 that the broker-dealer must incur in paying a third party to agree to perform this service. Rule 18a6e does not contain a third-party undertakings requirement; however, the proposed amendments to the rule would add senior officer access and undertakings requirements analogous to that of Rule 17a4f, as proposed to be amended.184
184 As noted above, paragraph f of Rule 18a6
currently includes a requirement that if the records required to be maintained and preserved by the SBS
Entity whether electronic or otherwise are prepared or maintained by a third party on behalf of the SBS Entity, the third party must file
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