Interpretive Letter to Fiona Kaufman, Esq., SVB Securities, Inc.
July 24, 2000
Fiona Kaufman, Esq.
Legal and Regulatory Officer
SVB Securities, Inc.
3003 Tasman Drive
Santa Clara, CA 95054
Re: Broker/Dealer Record Retention Rule
Dear Ms. Kaufman:
I am responding to your letter of June 13, 2000 on behalf of SVB Securities, Inc. ("SVB Securities") requesting clarification of NASD Notice to Members 97-43 ("NtM 97-43") discussing Securities and Exchange Commission ("SEC") record retention requirements, and in particular, SEC Rule 17a-4(f)(3)(vii).
NASD Rule 3110(a) requires that each member comply with the record keeping format, medium, and retention period of SEC Rule 17a-4. SEC Rule 17a-4(f)(3)(vii) provides "[f]or every member, broker, or dealer exclusively using electronic storage media for some or all of its record preservation under this section, at least one third party . . . who has access to and the ability to download information from the member’s, broker’s, or dealer’s electronic storage media to any acceptable medium under this section, shall file with the designated examining authority for the member, broker, or dealer the following undertakings with respect to such records . . ." NtM 97-43 states that this provision "[r]equires broker/dealers that use [optical storage technology] exclusively to have arrangements with at least one third party that has the ability to download information from the broker/dealer’s electronic storage system to another acceptable medium."
You have indicated that SVB Securities is proposing to use optical storage technology ("OST") exclusively for the retention of its electronic correspondence records. You have asked, because of the language in NtM 97-43 quoted above, whether SVB Securities’ use of OST requires it to comply with the third party download provider requirement of SEC Rule 17a-4(f)(3)(vii). Pursuant to the language in SEC Rule 17a-4(f)(3)(iii), a member using OST exclusively for only one category of records required to be preserved under SEC Rule 17a-4 is subject to the third party download provider requirement of the rule. The language in NtM 97-43, stating that the requirement applies to broker/dealers "that use OST exclusively," was not intended to imply that a broker/dealer would only need to have arrangements with a third party if it were using OST exclusively for all records.
You have also indicated that if SVB Securities is subject to the rule, it intends to use its parent company, Silicon Valley Bank, as its third party download provider. We recommend that you seek guidance directly from the SEC on selecting your third party download provider. You should direct your inquiry on this subject to the SEC’s Office of Chief Counsel in the Division of Market Regulation.
I hope that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds only to the issues you have raised based on the facts as you have described them in your letter, and does not address any other rule or interpretation of the NASD, or all the possible regulatory and legal issues involved.
Sarah J. Williams
Assistant General Counsel
|cc:||Elizabeth Owens, District Director
NASD Regulation, District 1