Books And Records Rule

Fenwick Securities must preserve copies of the retail communications, correspondence and institutional communications it uses, along with the names of the principals who approved them. Under FINRA and SEC recordkeeping rules, the retention period for these communications is:

1. A.The life of the firm plus three years.Wrong. Lifetime retention applies to organizational documents such as articles of incorporation, partnership agreements and minute books.
2. B.Three years from the date of last use, with the records readily accessible for the first two years.Correct. Three years total, first two in an easily accessible place, together with the approval and source records.
3. C.One year from the date of last use.Wrong. One year is too short for any category of broker-dealer communications records.
4. D.Six years from the date of last use.Wrong. Six years applies to certain blotters and customer account records, not to communications with the public.

Why: Communications with the public are retained for three years from the date of last use, and for the first two of those years they must be kept in an easily accessible place. The record must also show the name of the person who prepared the communication, the name of the principal who approved it and the date of approval (or, where the piece was filed, the filing details), plus the source of any statistical information used. Three years is the standard period for most broker-dealer records; a few categories - notably the firm's articles, partnership agreements and minute books - run for the life of the firm.

Under the SEC books and records preservation rule, records that must be preserved for six years must be kept:

1. A.In an easily accessible place for the first two years and preserved for the remaining four.Correct. The rule imposes a two-year accessibility requirement inside the six-year retention period.
2. B.In an easily accessible place for the entire six years.Immediate accessibility is required only for the first two years, after which records may be moved to storage.
3. C.In an easily accessible place for the first four years and preserved for the remaining two.The accessibility window is two years, not four.
4. D.Anywhere the firm chooses, provided they can be produced within thirty days of a request.The rule specifies where records must be kept during the first two years and requires prompt production, not a thirty-day window.

Why: The preservation rule pairs a total retention period with an accessibility requirement. For records with a six-year retention period, the first two years must be in an easily accessible place, after which the records may be moved to less immediate storage for the remaining four years. The same two-year accessibility concept applies to the three-year records as well.

During an examination, an SEC representative asks Alderney Securities to produce several categories of required records. With respect to that request, the firm's obligation is to:

1. A.Furnish the records promptly and in a legible, usable form, including records stored electronically or with an outside vendor.Correct. Prompt production in usable form is required, and outsourcing storage does not relieve the member.
2. B.Produce the records within ninety days, which is the standard period allowed for examination requests.No ninety-day standard applies. Records must be furnished promptly.
3. C.Produce only the records the firm agrees are within the proper scope of the examination.A member may not unilaterally narrow the request. Failure to produce is itself a violation.
4. D.Direct the examiner to its outside storage vendor, which then becomes responsible for production.The member remains responsible for producing records held by a third-party vendor.

Why: Required books and records must be furnished promptly to representatives of the SEC on request, and the same expectation applies to FINRA examination and information requests. Records must be produced in a legible and usable form, including for records kept electronically, and delay or refusal is itself a rule violation independent of whatever the records show.

A FINRA member creates a category of internal record for which neither the FINRA rules nor the Exchange Act rules state any retention period. What does FINRA's general books and records rule require?

1. A.Nothing; a retention obligation attaches only to records that a rule specifically enumerates.Wrong. The rulebook closes exactly this gap instead of leaving unenumerated records unprotected.
2. B.The record is still preserved, for the default period the general recordkeeping rule fixes where no period is stated.Correct. The catch-all exists so that silence elsewhere in the rulebook does not become permission to discard.
3. C.The record must be kept permanently, since no rule has authorized its destruction.Wrong. This overstates the obligation; the rulebook supplies a finite default rather than an indefinite one.
4. D.The firm selects its own period in its written supervisory procedures and is then held to that selection.Wrong. Procedures implement a retention requirement; they do not originate one where a rule already answers the question.

Why: FINRA's general books and records rule does two things beyond restating the SEC requirements. It requires members to make and preserve books and records in conformity with the Exchange Act, the applicable Exchange Act rules and the FINRA rules, and it supplies a default retention period for books and records for which no period is specified anywhere. Without that catch-all a firm could argue that any record not expressly named could be discarded at will, which would make the whole recordkeeping regime turn on drafting gaps. The default also keeps the analysis for a novel record short: look for a specified period, and where there is none, the general rule answers the question.