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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
lotter on DSK11XQN23PROD with PROPOSALS2

B. Definition of Electronic Recordkeeping System Paragraphs f1i and ii of Rule 17a4 currently define the terms micrographic media and electronic storage media, respectively. Paragraph e1 of Rule 18a6 defines the term electronic storage system. Paragraph f1ii of Rule 17a4 defines the term electronic storage media as, in pertinent part, any digital storage medium or system that meets the requirements of the rule. Paragraph e1 of Rule 18a6 defines the term electronic storage system as, in pertinent part, any digital storage system that meets the requirements of the rule. As discussed above, the Commission is proposing to use the term electronic recordkeeping system in Rules 17a4f and 18a6e.
Consequently, the Commission is proposing to define the term electronic recordkeeping system in both rules as a system that preserves records in a digital format and that requires a computer to access the records. 43 The Commission preliminarily believes this definition better describes a system that produces and preserves records electronically.44 For these reasons, the proposed amendments to Rules 17a4f and 18a6e would replace the definitions of electronic storage media and electronic storage system in those rules, respectively, with this media as defined in this section that meet the conditions set forth in this section and be maintained and preserved for the required time in that form with text that reads f The records required to be maintained and preserved pursuant to 240.17a3 and 240.17a4 may be immediately produced or reproduced by means of an electronic recordkeeping system or by means of micrographic media subject to the conditions set forth in this paragraph and be maintained and preserved for the required time in that form. The proposed amendments to Rule 18a6e would replace the current introductory text that reads e The records required to be maintained and preserved pursuant to 240.18a5 and 240.18a6 may be immediately produced or reproduced by means of an electronic storage system as defined in this paragraph e that meets the conditions set forth in this paragraph e and be maintained and preserved for the required time in that form with text that reads e The records required to be maintained and preserved pursuant to 240.18a5 and 240.18a6 may be immediately produced or reproduced by means of an electronic recordkeeping system subject to the conditions set forth in this paragraph and be maintained and preserved for the required time in that form.
43 See paragraph f1ii of Rule 17a4 and paragraph e1 of Rule 18a6, as proposed to be amended.
44 See 36 CFR 1220.18 regulation of the U.S.
National Archives and Records Administration defining electronic record, in pertinent part, as any information that is recorded in a form that only a computer can process and defining recordkeeping system as a a manual or electronic system that captures, organizes, and categorizes records to facilitate their preservation, retrieval, use, and disposition.

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definition of electronic recordkeeping system.
C. Elimination of Notice and Representation Requirements From Rule 17a4f Paragraph f2i of Rule 17a4
requires a broker-dealer to notify its DEA prior to employing electronic storage media, including a 90-day notice if the broker-dealer intends to employ electronic storage media other than optical disk technology. Paragraph f2i also requires a representation from the broker-dealer or the storage medium vendor or another third party with appropriate expertise that the selected electronic storage medium meets the conditions set forth in paragraph f2ii, which are discussed below.
The Commission is proposing to eliminate these notification and representation requirements from Rule 17a4f. The Commission preliminarily believes they are no longer necessary.
They were adopted at a time when the use of electronic recordkeeping systems by broker-dealers to meet the record preservation requirements of Rule 17a 4 was a relatively new phenomenon.45
The requirements alerted the brokerdealers DEA of the firms intent to use electronic storage media to meet the record preservation requirements of Rule 17a4. Given that the Commission and broker-dealer DEAs now have over 25 years of experience with brokerdealers using electronic recordkeeping systems, these requirements may no longer serve a useful purpose. As noted above, the Commission did not include analogous requirements in Rule 18a 6e.
D. Requirements for Electronic Recordkeeping Systems Paragraphs f2iiA through D of Rule 17a4 set forth technical requirements for electronic storage media if used by a broker-dealer to meet the record preservation requirements of Rule 17a4. Similarly, paragraphs e2i through iii of Rule 18a6 set forth technical requirements for an electronic storage system if used by an SBS Entity to meet the record preservation requirements of Rule 18a 6. As discussed below, the Commission is proposing amendments to these requirements.46
45 As discussed above, Rule 17a4f was adopted in 1997.
46 In addition to the proposed amendments discussed below, the Commission is proposing to simplify the introductory text of paragraphs f2
and e2 of Rules 17a4 and 18a6, respectively.
In particular, the introductory text of paragraph f2 of Rule 17a4 which provides that If
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As a preliminary matter, the requirements for electronic recordkeeping systems in Rule 17a4f would apply to all broker-dealers.
However, the Commission is proposing to limit the application of the requirements for electronic recordkeeping systems in paragraph e2 of Rule 18a6 to nonbank SBS
Entities, that is, SBS Entities without a prudential regulator. SBS Entities with a prudential regulator bank SBS
Entities would therefore not be subject to the requirements of paragraph e2
of Rule 18a6, as proposed to be amended.47 Unlike nonbank SBS
Entities, bank SBS Entities are subject to oversight and supervision by the banking agencies with respect to record preservation. This oversight and supervision may now or in the future include regulations or guidance with respect to requirements for electronic recordkeeping systems that differ from the proposed requirements for electronic recordkeeping systems electronic storage media is used by a member, broker, or dealer, it must comply with the following requirements: and paragraph f2ii of Rule 17a 4 which provides that The electronic storage media must: would be simplified to a single introductory text for paragraph f2 providing that An electronic recordkeeping system must:. The introductory text of paragraph e2 of Rule 18a 6 providing that If an electronic storage system is used by a security-based swap dealer or major security-based swap participant, it must: would be modified to provide that An electronic recordkeeping system of a security-based swap dealer or major security-based swap participant without a prudential regulator must:. The amendments to paragraph f2 of Rule 17a4
would result in the following numbering changes:
1 The new audit-trail requirement would be set forth in paragraph f2iA of Rule 17a4, as proposed to be amended; 2 the existing WORM
requirement of paragraph f2iiA of Rule 17a 4 would be set forth in paragraph f2iB of Rule 17a4, as proposed to be amended; 3 the amended requirement of paragraph f2iiB of Rule 17a 4 would be set forth in paragraph f2ii of Rule 17a4, as proposed to be amended; 4 the amended requirement of paragraph f2iiC of Rule 17a 4 would be set forth in paragraph f2iii of Rule 17a4, as proposed to be amended; and 5 the amended requirement of paragraph f2iiD of Rule 17a4 would be set forth in paragraph f2iv of Rule 17a4, as proposed to be amended. The amendments to paragraph e2 of Rule 18a6
would result in the following numbering changes:
1 The new audit-trail and WORM alternative requirements would be set forth in paragraphs e2iA and B, respectively, of Rule 18a6, as proposed to be amended; 2 the amended requirement of paragraph e2i of Rule 18a6
would be set forth in paragraph e2ii of Rule 18a6, as proposed to be amended; 3 the amended requirement of paragraph e2ii of Rule 18a6
would be set forth in paragraph e2iii of Rule 18a6, as proposed to be amended; and 4 the amended requirement of paragraph e2iii of Rule 18a6 would be set forth in paragraph e2iv of Rule 18a6, as proposed to be amended.
47 See the introductory text to paragraph e2 of Rule 18a6, as proposed to be amended limiting the paragraphs requirements to an SBS Entity without a prudential regulator.

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