A customer complaint can surface years after a trade. Whether the firm can answer it depends on the records it kept, the notices it sent and the standard that governed the recommendation.
Regulators supervise broker-dealers largely by reading their files. Exchange Act Rule 17a-3, adopted by the Securities and Exchange Commission (SEC), lists the books and records a firm must create, such as blotters, ledgers, order tickets and account records. Rule 17a-4 sets how long they must be kept, and for the first two years they must be in an easily accessible place.
Sort the retention periods by length:
- Six years: Blotters (daily trade records), the general ledger and customer ledgers. Records of the terms for opening and maintaining an account are kept six years after the account closes.
- Four years: Written customer complaints, under Financial Industry Regulatory Authority (FINRA) Rule 4513, and confirmations of municipal securities trades.
- Three years: Order tickets, trade confirmations, trial balances, net capital computations, and communications sent and received. Powers of attorney and other evidence of discretionary authority belong here too.
Common mistakes
- Monthly statements: Rule 2231 requires account statements at least quarterly. "Monthly" is the tempting wrong answer.
- Pre-approving correspondence: Only retail communications need a principal's approval before use. For municipal advertising, G-21's form-letter window is 90 days, not FINRA's 30.
- One emergency contact: Rule 4370 requires two emergency contact persons, not a single senior executive.
Bottom line
- Retention: 6 years for blotters, ledgers and account-terms records (account records from closing); 4 for complaints and municipal confirmations; 3 for confirmations, order tickets, trial balances, communications and discretionary authority records.
- Organizational records last for the life of the firm, separate Rule 4514 check authorizations are kept 3 years after they expire, and the FINRA Rule 4511 default is 6.
- Confirmations go out at or before completion and show agent capacity (commission) or principal capacity (markup or markdown); G-47 disclosure comes at or before the trade; Rule 2231 statements come at least quarterly.
- Mail holds need written instructions, and holds beyond three consecutive months need a reason other than convenience.
Exam shortcut
Ask who and when before what. On a records question, name the record first. FINRA complaint records and municipal confirmations point to four years. On a communication, count retail recipients across 30 days before thinking about approval. On a cold call, convert to the called party's clock. Then look for a do-not-call request before relying on the 18-month relationship.
The full lesson (about 3,832 words, 26 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C17
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