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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules on small broker-dealers because they will be able to use an internal resource at no marginal cost rather than an external source to comply with the requirement.
The proposed amendments to Rule 17a4j that would require a brokerdealer to furnish a record and its audit trail if applicable preserved on an electronic recordkeeping system pursuant Rule 17a4f in a reasonably usable electronic format, if requested by a representative of the Commission, should not impose a burden on small entities.
E. Duplicative, Overlapping, or Conflicting Federal Rules The Commission does not believe that the proposed amendments impacting smaller entities that are broker-dealers would duplicate, overlap, or conflict with other Federal Rules.

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F. Significant Alternatives The RFA directs the Commission to consider significant alternatives that would accomplish its stated objective, while minimizing any significant economic impact on small entities. The Commission considered the following alternatives for small entities in relation to our proposal: 1 Exempting brokerdealers that are small entities from the proposed requirements, to account for resources available to small entities; 2
establishing different requirements, including frequency, to account for resources available to small entities; 3
clarifying, consolidating, or simplifying the compliance requirements under the proposal for small entities; and 4 using performance rather than design standards.
The Commission considered exempting broker-dealers that are small entities from the proposal and considered establishing different requirements for these firms.197
However, the Commission elected not to do so for a number of reasons, including: 1 The option for small entities to keep their records in paper or micrographic media, rather than electronically; 2 the importance of establishing requirements for reliable and secure electronic recordkeeping systems for broker-dealers; 3 the availability of multiple third-party vendors to provide the electronic recordkeeping services; and 4 the ability of small entities to continue to use existing WORM-compliant electronic recordkeeping systems.
197 As stated above, the Commission does not believe any SBS Entities qualify as small entities for the purposes of the RFA.

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In this vein, the Commission considered proposing the elimination of the WORM alternative and requiring all broker-dealers and nonbank SBS
Entities to comply with an audit-trail requirement. This alternative would require all affected entities to modernize their recordkeeping systems to meet the audit-trail requirement. While this alternative could produce long-term compliance efficiencies for a greater number of affected participants, it would also require all affected entities with WORM-compliant systems to upgrade their electronic recordkeeping systems. The Commission elected not to propose this alternative given its preliminary belief that the accompanying compliance costs could be particularly burdensome for smaller entities and that the alternative could have a disproportionate effect on smaller and medium-sized brokerdealers.198
1. The Commission also considered simplifying compliance by proposing performance rather than design standards similar to the approach taken by the CFTC. The CFTC amended the electronic recordkeeping requirements by replacing prescriptive requirements for electronic recordkeeping systems with a principles-based approach.199
The Commission believes that its proposed rule amendments, establishing electronic recordkeeping requirements for broker-dealers should provide greater protection to the original records created and preserved by broker-dealers, thereby giving regulators more reliable and secure access to those records.
Unlike the CFTCs rules, the Commissions proposal retains the WORM standard, which requires electronic records to be maintained exclusively in a non-rewriteable, nonerasable format. The audit-trail alternative would require that the electronic records be preserved in a manner that permits the recreation of an original record if it is altered, overwritten, or erased. Moreover, the Commission believes that its proposal addresses the same concerns addressed in the CFTC proposal, namely the security and authenticity of and access to records.200 For these reasons, the Commission determined not to propose principles-based rules.
198 See section IV.D. of this release analyzing the potential costs of alternatives to the rule amendments the Commission is proposing.
199 See CFTC Electronic Recordkeeping Release, 82 FR at 24480.
200 Compare Rule 17a4f, as proposed to be amended, and Rule 18a6e, as proposed to be amended, with CFTC Section 1.31d2.

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G. Request for Comment The Commission encourages the submission of comments with respect to any aspect of this initial RFA analysis.
In particular, the Commission requests comment regarding:
1. Whether there are more efficient or less burdensome ways for the Commission to modernize the electronic recordkeeping requirements for registrants compared to what the Commission has proposed;
2. The number of small entities that may be affected by the proposed rule amendments; and 3. Whether there are any Federal rules that duplicate, overlap, or conflict with the proposed amendments.
VII. Small Business Regulatory Enforcement Fairness Act For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 SBREFA, 201 the Commission must advise the OMB as to whether the proposed regulation constitutes a major rule. Under SBREFA, a rule is considered major where, if adopted, it results or is likely to result in:
An annual effect on the economy of $100 million or more either in the form of an increase or a decrease;
A major increase in costs or prices for consumers or individual industries;
or Significant adverse effect on competition, investment or innovation.
If a rule is major, its effectiveness will generally be delayed for 60 days pending Congressional review.
The Commission requests comment on the potential impact of the amendments to Rules 17a5f and j and Rules 18a6e and g on:
1. The U.S. economy on an annual basis, 2. Any potential increase in costs or prices for consumers or individual industries, and 3. Any potential effect on competition, investment, or innovation.
Commenters are requested to provide empirical data and other factual support for their view to the extent possible.
VIII. Statutory Authority The Commission is revising Rules 17a4 and 18a6 under the Exchange Act 17 CFR 240.17a4 and 17 CFR
240.18a6 pursuant to the authority conferred by the Exchange Act, including Sections 15F and 17.
201 Public Law 104121, Title II, 110 Stat. 857
1996 codified in various sections of 5 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601.

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