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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
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and 18a6e, the serialization and timestamping requirements would apply only if the firm uses optical disks as the storage media to meet the WORM
requirement. For this reason, the Commission is proposing to amend Rule 17a4f to provide that the requirement is triggered if applicable.64
Paragraph f2iiD of Rule 17a4
requires electronic storage media used by a broker-dealer to have the capacity to readily download indexes and records preserved on the electronic storage media to any medium acceptable under Rule 17a4 as required by the Commission or the self-regulatory organizations SROs of which the broker-dealer is a member. Paragraph e2iii of Rule 18a6 requires an electronic storage system used by an SBS Entity to have the capacity to readily download into a readable format indexes and records preserved in the electronic storage system. Indexes organize records and are a means for locating specific records within a recordkeeping system. However, electronic recordkeeping systems may use other means to organize and locate records.
The Commission is proposing to amend the text of these two requirements to incorporate the information that would be stored under the proposed audit-trail requirement and to specify that the electronic recordkeeping system must have the capacity to readily download and transfer copies of a record and its audit trail if applicable in both a human readable format and in a reasonably usable electronic format.65 A human readable format would be a format that can be naturally read by an individual.
A reasonably usable electronic format would be a format that is common and compatible with commonly used systems for accessing and reading electronic records. This proposed requirement is designed to address an electronic recordkeeping system that stores records in a proprietary file format that cannot be accessed or read by commonly used systems. In this case, producing the records in their native file 64 See paragraph f2iii of Rule 17a4 f as proposed to be amended. The Commission is proposing amendments to the serialization and time-stamping requirement of paragraph e2 of Rule 18a6 to further clarify that it is tied to the use of optical disks to meet the WORM
requirement. In particular, the phrase placed in such electronic storage system would be replaced with the phrase placed on such electronic storage media. See paragraph e2iii of Rule 18a6, as proposed to be amended.
65 As discussed in section II.G. of this release, the Commission also is proposing to amend paragraph j of Rule 17a4 and paragraph g of Rule 18a6
to require that an electronic record be produced in a reasonably usable electronic format.

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format would be meaningless since they could not be accessed or read by securities regulators.66 Moreover, depending on the nature and volume of the requested records, producing them in a human readable format may hinder or delay an examination or investigation because it would take more time to search the records for relevant information; whereas electronic records can be searched and sorted using a computer. Conversely, in some cases, it may be more efficient to produce a record in a human readable format; for example, if an examiner is on site and requests a specific record. For these reasons, the proposed amendments would require that the electronic recordkeeping system have the capacity to readily download and transfer copies of a record and its audit trail if applicable in both a human readable format and in a reasonably usable electronic format.
Further, rather than refer to the capacity to download indexes, the proposed requirements would require the capacity to download and transfer information needed to locate specific electronic records. In particular, the proposed amendments would require the electronic recordkeeping system to have the capacity to readily download and transfer copies of a record and its audit trail if applicable in both a human readable format and in a reasonably usable electronic format and to download and transfer the information needed to locate the electronic record.67 The requirement to 66 If the native file format used by the firm is compatible with commonly used systems for accessing and reading electronic records, it could be produced in that format.
67 See paragraph f2iv of Rule 17a4 and paragraph e2iv of Rule 18a6, as proposed to be amended. The current text of Rule 17a4f sometimes prescribes requirements that refer to the staffs of Commission and SROs of which the brokerdealer is a member. See paragraphs f2iiD, f3i, f3ivA, f3vA, and f3vi of Rule 17a4. In other cases, the current text refers to the staffs of Commission, SROs of which the broker-dealer is a member, and state securities regulators having jurisdiction over the brokerdealer. See paragraphs f3ii and vii of Rule 17a4. The Commission is proposing to consistently reference the staffs of the Commission, SROs of which the broker-dealer is a member, and state securities regulators having jurisdiction over the broker-dealer. See paragraphs f2iv, f3i, f3ii, f3vB, f3vi, f3vii, f4i, f4ii, and fivA of Rule 17a4, as proposed to be amended. The current text of Rule 18a6e sometimes prescribes requirements that refer to the staff of the Commission. See paragraphs e3i, e3ivA, e3vA, and e3vi of Rule 18a 6. The rule does not refer to the staffs of SROs of which the SBS Entity is a member because SBS
Entities will not be members of an SRO. However, SBS Entities may be subject to the jurisdiction of state securities regulators. Consequently, the Commission is proposing to add references to the staffs of state securities regulators having
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download and transfer audit trails would apply only if the firms electronic recordkeeping system uses the audittrail alternative. The more general reference to information needed to locate the electronic record would be designed to incorporate whatever means a particular electronic recordkeeping systems uses to organize the records and locate a specific record e.g., indexes or data fields.
E. Requirements for Broker-Dealers and SBS Entities Using Electronic Recordkeeping Systems Paragraph f3 of Rule 17a4 and paragraph e3 of Rule 18a6 impose obligations on broker-dealers and SBS
Entities, respectively, related to their use of electronic recordkeeping systems.
In general, these requirements are designed to ensure that the staffs of the Commission and other relevant securities regulators can access and examine the records. As discussed below, the Commission is proposing amendments to these requirements.
Under the proposed amendments, prudentially regulated SBS Entities would no longer be subject to the requirements of paragraph e2 of Rule 18a6. Prudentially regulated SBS
Entities would, however, continue to be subject to the requirements of paragraph e3 of the rule. Paragraph e3 of Rule 18a6 does not impose technical requirements on the electronic recordkeeping system. Instead, it specifies the requirements for the SBS
Entity in connection with its use of an electronic recordkeeping system. As noted above, these requirements generally are designed to ensure that the staffs of the Commission and other relevant regulators can access and examine the records. For these reasons, the Commission preliminarily believes they should continue to apply to bank SBS Entities.
The introductory text of paragraph f3 of Rule 17a4 provides that if the broker-dealer uses micrographic media or electronic storage media, it must comply with requirements set forth in the paragraph, which are discussed below. Similarly, the introductory text of paragraph e3 of Rule 18a6
provides that, if an SBS Entity uses an electronic storage system, it must comply with the requirements set forth in the paragraph, which are also discussed below. The Commission is jurisdiction over the SBS Entity when there is a reference to the staff of the Commission. See paragraphs e2iv, e3i, e3ii, e3vB, e3vi, and e3vii of Rule 18a6, as proposed to be amended.

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