Record retention

There are many records that must be kept, and those records have to be kept for different amounts of time. For all of these, the first 2 years the record must be kept in an “easily accessible location”. These records can be kept in any format that is “accessible, but not editable”. This obviously includes data drives, but also micro film and micro fiche, slightly older technology than the computers we have today.

Four year records

Complaints. Customer complaints are held for 4 years. If the question specifically asks for MSRB complaints, MSRB complaints are held for 6 years, but if it doesn’t specifically say MSRB, then the answer is the complaint is held for 4 years.

Five year records

These are primarily verification documents. Verifying the money, and verifying the client.

All FINCEN documents, CTRs, SARs, are held for 5 years. These can be thought of as verifying that the money is clean.

Customer identification documents, pictures of their drivers license, etc, are also held for 5 years. These can be thought of as verifying that the person is clean, and not some person on the Specially Designated Nationals (SDNs) or some other blocked person.

Six year records

These are the “seriously important documents”. Basically there are 3 words you are looking for; Blotters, ledgers, and records. Blotters are the original book of entry containing an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities, and all receipts and disbursements of cash. Ledgers are an accounting book, and another original book of entry. Record we are talking about stock records, and customer account records.

Lifetime records

These are the birth certificate documents. These are the documents that without, the company basically doesn’t exist.

The easiest of these is the corporate charter or partnership agreement. Over 150 years ago, a guy named Marcus Goldman, his son and law named Samuel Sachs, and apparently another guy named “and company”, formed the company Goldman Sachs and Company. The Goldman Sachs Group, Inc is still around today, and without that corporate charter they wouldn’t exist. Sure, it’s changed over the years, they dropped the “and company” and added the “Group Inc”, but throughout all those years, they have had their charter, a lifetime document. This would be the same logic to partnership agreements and articles of incorporation beyond the corporate charter.

All amendments to filing documents must also be kept for the lifetime of the firm.

All board meeting minutes are also kept for the lifetime of the firm. That means, somewhere deep in the vaults, there is some written document, explaining what the board of directors of Goldman Sachs were doing in their board meeting, 100 years ago.

Three-year records

Most records are actually kept for three years. The reason they are the last on the list, is because it is generally a lot easier to memorize the 4, 5, 6, and lifetime records, and then think “if it isn’t one of them, go with 3 years”.

Most brokerage records, as stated, are 3 years. Listing all the different ones, would itself, fill most of a book, which is why you should memorize the others, and if it isn’t one of them, go with 3 years.

The most common 3-year documents would include;

Trade confirmations, communications, U-4 and U-5, order tickets, notices, monthly trial balances, net capital computations, fingerprint cards, records of lost/stolen/missing/counterfeit securities, compensation records, among many others.

To be clear, the U-4 can be a little tricky, as it is actually kept for as long as the associated person is at the firm, and then 3 years after departure. The U-5, being created only at departure, would therefore only be kept for 3 years, but the U-4, if you work for the same company for 10 years and then move to another one, or retire, that company would have kept your U-4 for a total of 13 years, the 10 you worked for them, and then the 3 years required after you left.

Lost/Stolen/SIC

We always have to be careful of lost and stolen securities. Although it doesn’t happen as much as it looks like it does in TV and movies, but it has and could happen. The Securities Information Center (SIC) was established to help identify, intercept, and prevent serious problems with lost and/or stolen securities.

Every reporting institution, which would be every national securities exchange, any member of a national securities exchange, registered securities association, broker, dealer, registered transfer agent, member of the Federal Reserve System, and more. As you can tell by rule 17f-1, basically, anyone involved in the industry must check and report to SIC.

It may seem obvious what the difference between something that is “lost” and something that is “stolen”, and in reality, it clearly is, but in test world, they can be less obvious. Effectively, if you’ve reorganized the office, had a new filing system, something like that and can’t find a certificate, that is implying lost. If the office was broken into, and you can’t find a certificate, that implies it was stolen.

• If the institution believes theft or criminal activity was involved, they must report that within 1 business day of the discovery to SIC and the FBI.
• If the institution finds that securities are missing, lost, or some other way can’t be found, but no criminal activity is suspected, the firm has 2 business days to try to locate the securities. If they can’t be found in 2 days, they have 1 business day to report it to SIC and the transfer agent of the issuer of the security.
• If securities are lost in transit from the delivering institution to a receiving institution, and the delivering firm doesn’t get confirmation of receipt or non-receipt, they start to investigate. In the event of non-delivery where securities are not recovered in a reasonable time, a report must be made within 20 days of shipment.
• Securities lost or missing as a result of counting or verifying securities counts must be reported by either 10 business days after the count or as soon as such count/verification as the certificate numbers can be ascertained, whichever is later.
• Every institution must report the discovery of counterfeit securities to SIC and FBI within 1 business day.
• If a previously reported lost/missing/stolen security is recovered, must report it to the SIC, and the transfer agent of the issuer. If it was originally reported stolen, the firm must also notify the FBI the securities have been recovered.

Inquiries to SIC

There are times when we need to actually check securities, as part of the interception of the lost/missing/stolen securities; maybe someone stole them, and are trying to give them to us to sell. Firms must inquire to the SIC, about every security that comes into their possession, with the exception of the following

• The certificates are received directly from the issuer or issuing agent at issuance
• The certificates are received from another reporting institution or from a Federal Reserve Bank or Branch
• The certificates are received from the customer, and are registered in the name of the customer or were previously sold to the customer as verified by internal records of the firm.
• The certificates are part of a transaction with an aggregate face amount of $10k or less for bonds, or $10k or less market value for stocks, or
• The certificates are received directly from a drop with is affiliated with the reporting institution for purposes of receiving/delivering certificates on behalf of the reporting institution

That is a lot of effective negatives, the most common examples where they may try and trick you up, would be if the certificates are delivered by a customer, but are registered in street name, not in the customer’s name. SIC would need to be inquired. Similarly, if securities are delivered by someone who is not currently a customer of the firm, the firm again my inquire to SIC.