Blotter

Ambrose has just joined the operations desk at Halvorsen Securities and is told his first assignment is reviewing yesterday's blotters. A blotter is best described as:

1. A.A daily record of original entry showing all securities purchases and sales and all receipts and disbursements of cash and securitiesCorrect. That is exactly what a blotter is, and it is the source from which the firm's ledgers are posted.
2. B.The file of order memoranda showing the terms and time of each customer orderOrder tickets are a separate three-year record capturing individual instructions. The blotter aggregates the day's completed activity rather than the instructions that produced it.
3. C.The firm's general ledger, showing asset, liability, income and expense accountsThe general ledger is a real and important six-year record, but it is posted FROM the blotters. It summarises accounts rather than recording each day's transactions as they occur.
4. D.The periodic statement of positions and activity sent to each customerThat is the customer account statement required by FINRA Rule 2231. It is organised by customer, not by trading day, and it is a communication rather than a record of original entry.

Why: Blotters are the firm's records of original entry. They show, day by day, all purchases and sales of securities, all receipts and deliveries of securities, and all receipts and disbursements of cash. Because everything else in the firm's books is built from them, they sit at the top of the recordkeeping hierarchy and carry a six-year retention period.

On his second week in operations at Halvorsen Securities, Ambrose is handed a report listing, for every security the firm handles, the total long and short positions and where each position sits - in customer accounts, in the firm own account, in transit, or at the depository. This record is the firm:

1. A.BlotterA blotter records the day transactions - purchases, sales, receipts and deliveries - not standing positions and their locations.
2. B.General ledgerThe general ledger records the firm assets, liabilities, income and expense in dollars. It does not track securities positions by location.
3. C.Securities record, commonly called the stock recordCorrect. The stock record shows every position the firm handles and the location of each, in a double-entry format required by Rule 17a-3.
4. D.Trial balanceA trial balance is a periodic proof that the ledger accounts balance, prepared alongside the net capital computation.

Why: The securities record, usually called the stock record, is the double-entry inventory of every security position the firm handles: what it holds and who owns it, matched against where it is physically or electronically located. It is one of the core records required by SEC Rule 17a-3.

Ambrose is learning the firm's core records at Halvorsen Securities. He needs the record that shows, separately for each individual customer, every purchase, sale, receipt and delivery of securities in that customer's account together with all other debits and credits. He should look at:

1. A.The blotter, which lists the firm's transactions in chronological order.The blotter is organised by day across all customers, not by individual customer.
2. B.The general ledger, which records the firm's assets, liabilities, income and expenses.The general ledger concerns the firm's own finances, not any individual customer's activity.
3. C.The customer ledger, which itemises activity separately for each customer's account.Correct. The customer ledger records each customer's purchases, sales, receipts, deliveries, debits and credits.
4. D.The stock record, which shows the long and short position in each security and where it is held.The stock record is organised by security and location, not by customer.

Why: The customer ledger itemises activity account by account, so it answers questions about one customer's history. This is distinct from the blotter, which is a daily record of all transactions the firm executed on a given day, from the general ledger, which records the firm's own assets, liabilities, income and expenses, and from the stock record, which shows the total long and short position in each security and where it is held.

Ashgrove Securities was organised as a corporation in 1994. Reviewing its retention schedule, the compliance officer asks how long the firm must keep its articles of incorporation, its by-laws and its minute books. Under SEC Rule 17a-4, those records must be preserved:

1. A.for the life of the enterprise and of any successor enterprise.Correct. Organisational records carry life-of-the-enterprise retention.
2. B.for three years, the first two in an easily accessible place.That is the pattern for many communication and transaction records.
3. C.for six years from the date the firm was organised.Six years is the default for unspecified records, not the standard for organisational documents.
4. D.until three years after the firm ceases doing business.The standard runs to the life of the enterprise and its successors, not a trailing period after closure.

Why: Rule 17a-4 sets a special standard for the documents that establish and govern the enterprise: articles of incorporation or partnership articles, by-laws, minute books and stock certificate books must be preserved for the life of the enterprise and of any successor enterprise. These are not transaction records with a rolling clock; they are the organisational history of the firm and are kept as long as the firm exists.