How To Master Supervision of the Firm
All broker dealers are required to prepare and maintain reports and records according to industry regulations. The content and timing of the reports depends on the nature of the report. SEC Rules 17 a-3 and 17 a-4 set forth the requirements for broker dealer reporting, timing, content, and retention. Records subject to these rules must be maintained anywhere from three years to the life of the firm.
Under SEC Rule 17a-3 a significant number of records must be filed and maintained by broker dealers. The following is a list of those records and their definitions:
Blotters are records of original entry and must reflect transactions as of the trade date. Blotters must be prepared no later than the following business day, or T + 1. This would include a historical account of all the daily transactions, such as:
- Purchases and sales of securities
- Receipts and disbursements of cash
- Receipts and deliveries of securities
The general ledger reflects the firm’s assets and liabilities, income, and expense and capital accounts. The firm’s trial balance and other financial reports can be prepared from this to show the broker dealer’s financial condition. It must be prepared monthly.
Customer accounts are itemized records of each cash and margin account for each customer. This reflects all purchases and sales, receipts, and deliveries of cash and securities for each customer as well as the new account form and margin agreement, if applicable.
Subsidiary (Secondary) Records
These are records prepared from the blotter, including:
- Securities in transfer – Securities in the process of being transferred into a customer’s name.
- Dividends and interest received – A record of all dividends and interest due to the customer (long), or payable by the customer (short).
- Securities borrowed and loaned – Records of the broker dealer’s borrowing or loaning of securities to complete their transactions.
- Monies borrowed, monies loaned – This also includes any collateral used in connection with the loan.
- Securities failed to receive or deliver – These records must show the date due as well as the date received or delivered.
Securities Position Book (Ledger) Stock Record
A securities position book stock record is a record of the long and short position in each security, whether carried for the account of the broker dealer or for the account of a customer. The location of these securities must also be maintained.
An order ticket is a record detailing the terms and conditions of an order to purchase or sell a security. Records must be maintained whether or not the order is executed.
Confirmations and Notices
Copies of all confirmations and notices of other debits and credits must be maintained.
Monthly Trial Balances and Net Capital Computations
Monthly trial balances and net capital computations serve as a check on the current status and accuracy of the firm’s ledger account and financial condition. Firms are required to file their net capital computations with regulators via the FOCUS form.
A copy of the registration application or U4 form will suffice as an employment application. Applications must be approved in writing by an authorized representative of the member.
Records Required to Be Maintained for Three Years
The following is a list or records that must be maintained by the firm for three years:
- Order tickets
- Customer confirmations
- FOCUS reports
- Monthly trial balances
- Written customer complaints
- Subsidiary ledgers
- Compliance and policy and procedure manuals (kept after changes)
- U4, U5, fingerprints, and employment applications for terminated employees
Records Required to Be Maintained for Six Years
The following is a list or records that must be maintained by the firm for six years:
- General ledgers
- Customer ledgers
- Customer account records
- Stock records
Records Required to Be Maintained for the Life of the Firm
The following records must be maintained for the life of the firm:
- Articles of incorporation
- Corporate stock certificate books
- Minute books from meetings of the board of directors
- Partnership records
- Form BD