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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
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recordkeeping system.56 The exception would be a case where alteration is suspected. In that case, the staff would request records from the WORMcompliant electronic recordkeeping system.
For these reasons, the Commission is proposing to amend Rule 17a4f to provide an audit-trail alternative to the WORM requirement. In addition, the Commission is proposing to require nonbank SBS Entities to use electronic recordkeeping systems that meet either the audit-trail or WORM requirement.
Under the audit-trail alternative, the electronic recordkeeping system would need to preserve the records for the duration of their applicable retention periods in a manner that maintains a complete time-stamped audit trail that includes: 1 All modifications to and deletions of a record or any part thereof;
2 the date and time of operator entries and actions that create, modify, or delete the record; 3 the individuals creating, modifying, or deleting the record; and 4 any other information needed to maintain an audit trail of each distinct record in a way that maintains security, signatures, and data to ensure the authenticity and reliability of the record and will permit re-creation of the original record and interim iterations of the record.57 The objective of the proposed audit-trail alternative is to require the electronic recordkeeping system to be configured so that an original record that is altered, overwritten, or erased can be re-created for the retention period applicable to the original record. This would be an alternative to the WORM requirement, which prevents an original record from being altered, over-written, or erased for its required retention period.
It is the Commissions understanding that electronic recordkeeping systems used by certain broker-dealers and nonbank SBS Entities for business purposes can be configured to meet the audit-trail requirement. Therefore, this 56 See also Rule 17a4f Rulemaking Petition at 5 Our members report that regulators including SEC and FINRA examiners and enforcement staff do not typically ask for production of records from WORM storage because the information or data is not readily sortable or searchable. Regulators instead request customized extracts or views of data collected from active storage systems where the record was originally created, that has not yet been transferred to a WORM system..
57 See, e.g., 21 CFR 11.10 regulation of the U.S.
Food and Drug Administration setting forth requirements for persons who used closed systems to create, modify, maintain, or transmit electronic records and requiring, among other things, the use of time-stamped audit trails to independently record the date and time of operator entries and actions that create, modify, or delete electronic records and that record changes shall not obscure previously recorded information.

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amendment along with the others proposed in the release are designed to facilitate the use of a single electronic recordkeeping system for business and regulatory purposes.
Under the proposed amendments, broker-dealers could potentially continue to use the electronic recordkeeping systems they currently employ to meet the WORM requirement.
Similarly, nonbank SBS Entities would have the option to use electronic recordkeeping systems that meet the WORM requirement as an alternative to the audit-trail requirement.58 For example, WORM-compliant electronic recordkeeping systems may be appropriate for storing certain types of records such as emails as compared to transaction and ledger account data that is updated continuously.59 Moreover, some broker-dealers may choose to use their existing WORM-compliant electronic recordkeeping systems rather than adopt a new technology. Further, some broker-dealers may choose to retain existing electronic records on a legacy WORM-compliant electronic recordkeeping system, including software-based systems that are designed to follow the Rule 17a4f Interpretation rather than transfer them to an electronic recordkeeping system that would meet the proposed audit-trail requirement. However, these firms could decide to preserve new records on an electronic recordkeeping system that would meet the proposed audit-trail requirement.
Paragraph f2iiB of Rule 17a4
requires electronic storage media used by a broker-dealer to verify automatically the quality and accuracy of the storage media recording process.
Similarly, paragraph e2i of Rule 18a6 requires an electronic storage system used by an SBS Entity to verify automatically the quality and accuracy of the electronic storage system recording process. The Commission is proposing to amend the requirements set forth in these two paragraphs. The 58 The Commission would interpret the WORM
requirement as set forth in the text of paragraph e2iB of Rule 18a6, as proposed to be amended, consistently with how the WORM
requirement as set forth in the text of paragraph f2iiA of Rule 17a4 was interpreted by the Commission in 2019 and 2003. See SBSD/MSBSP
Recordkeeping Adopting Release, 84 FR at 68568;
Rule 17a4f Interpretation, 68 FR 25281.
59 See Rule 17a4f Rulemaking Petition at 4
Although storing electronic communications datalike email and instant messaging, or common unstructured file types such as PDFin WORM
format has become standardized, dynamic content generated by complex trading and risk systems, emerging communications platforms, as well as records created by aggregating information from various systems, cannot be easily stored in WORM
format..

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amendments would require that the electronic recordkeeping system used by a broker-dealer or nonbank SBS Entity must verify automatically the completeness and accuracy of the processes for storing and retaining records electronically.60 The proposed new text is intended to specify that the requirement is designed to ensure that when an original record is added to the electronic recordkeeping system it is completely and accurately captured in the system.61
Paragraph f2iiC of Rule 17a4
requires electronic storage media used by a broker-dealer to serialize the original and, if applicable, duplicate units of storage media, and time-date for the required period of retention the information placed on such electronic storage media. Paragraph e2ii of Rule 18a6 requires an electronic storage system used by an SBS Entity, if applicable, to serialize the original and duplicate units of the storage media, and time-date for the required period of retention the information placed in such electronic storage system. Consequently, Rule 18a6e imposes the requirement on an SBS
Entity only if serializing and time-dating storage media is applicable. The Commission explained this difference between Rule 17a4f and Rule 18a 6e by stating that serialization and time-dating is required when a firm uses optical disks to meet the WORM
requirement.62 As discussed above, the Commission is proposing amendments to Rules 17a4f and 18a6e that would provide firms with the option of using electronic recordkeeping systems that meet either the audit-trail requirement or the WORM requirement.
Moreover, as discussed above, the Rule 17a4f Interpretation, which is extant, clarifies that Rule 17a4f does not mandate the use of optical disk to meet the WORM requirement.63 Under the proposed amendments to Rules 17a4f 60 See paragraph f2ii of Rule 17a4 and paragraph e2ii of Rule 18a6, as proposed to be amended.
61 In this regard, the proposed text would replace the text in Rules 17a4f and 18a6e that reads Verify automatically the quality and accuracy of the electronic storage system recording process with the phrase Verify automatically the completeness and accuracy of the processes for storing and retaining records electronically. See paragraph f2ii of Rule 17a4 and paragraph e2ii of Rule 18a6, as proposed to be amended.
62 See SBSD/MSBSP Recordkeeping Adopting Release, 84 FR at 68568.
63 See Rule 17a4f Interpretation. The Commission would interpret the rule text in Rule 18a6e, as proposed to be amended, consistently with the Rule 17a4f Interpretation of the WORM
requirement and the 2019 interpretation of the WORM requirement. See Rule 17a4f Interpretation, 68 FR 25281; SBSD/MSBSP
Recordkeeping Adopting Release, 84 FR at 68568.

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