Proposed SEC changes to Electronic Record Keeping Requirements

The U.S. Securities and Exchange Commission (SEC) has published a proposal outlining changes to the rules surrounding electronic record keeping for broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs).

The SEC’s existing broker-dealer electronic record keeping rule requires firms to store electronic records in a tamperproof and secure WORM (write once, read many) format.

The proposed amendments by the SEC would introduce an audit-trail alternative, allowing records to be kept in a manner that permits the recreation of original records if they have been altered, over-written, or erased.

The changes are a move to create more flexibility for broker-dealers so they stay more up to date with modern technologies and processes. However, while this feels like a step in the right direction but it is hampered by two critical factors.

1. It will take a long time to get the audit-trail alternative adopted and trickled through to the rest of the market. The proposal is very specifically geared towards broker-dealers and is targeting security based swap dealers who are building new systems to deal with upcoming SBSR (security based swap reporting).  However, FINRA, and other regulatory agencies still require the WORM format for records. 

2. The proposal is only for new records so any existing data must continue to be stored in a WORM format. This means that firms will have to run systems in parallel for up to seven years as they run off the old and replace with the new.


As a consequence, it is likely that established firms will simply continue using the WORM compliant systems they have built rather than implement the audit-trail alternative. That said, new firms or firms building out new solutions, e.g. SBSR which is explicitly called out in the request for comment, can now look at more cost-effective and flexible alternatives to record keeping.


Read SEC's update here


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