17 C.F.R. §§ 240.18a-5–240.18a-9

5 sections in range

§240.18a-5. Records to be made by certain security-based swap dealers and major security-based swap participants.

17 C.F.R. § 240.18a-5

This section applies to the following types of entities: A security-based swap dealer registered pursuant to section 15F of the Act (15 U.S.C. 78o-10) that is not also a broker or dealer, including an OTC derivatives dealer as that term is defined in § 240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o); and a major security-based swap participant registered pursuant to section 15F of the Act that is not also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act. Section 240.17a-3 (rather than this section) applies to the following types of entities: A member of a national securities exchange who transacts a business in securities directly with others than members of a national securities exchange; a broker or dealer who transacts a business in securities through the medium of a member of a national securities exchange; a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; a security-based swap dealer registered pursuant to section 15F of the Act that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; and a major security-based swap participant registered pursuant to section 15F of the Act that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act.

(a)

This paragraph (a) applies only to security-based swap dealers and major security-based swap participants registered under section 15F of the Act for which there is no prudential regulator. Each security-based swap dealer and major security-based swap participant subject to this paragraph (a) must make and keep current the following books and records:

(1)

Blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities (including security-based swaps), all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits. Such records must show the account for which each such purchase or sale was effected, the name and amount of securities, the unit and aggregate purchase or sale price, if any (including the financial terms for security-based swaps), the trade date, and the name or other designation of the person from whom such securities were purchased or received or to whom sold or delivered. For security-based swaps, such records must also show, for each transaction, the type of security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code.

(2)

Ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts.

(3)

Ledger accounts (or other records) itemizing separately as to each account for every customer or non-customer of such security-based swap dealer or major security-based swap participant, all purchases and sales, receipts and deliveries of securities (including security-based swaps) and commodities for such account and all other debits and credits to such account; and in addition, for a security-based swap, the type of security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code.

(4)

A securities record or ledger reflecting separately for each—

(i)

Security, other than a security-based swap, as of the clearance dates all “long” or “short” positions (including securities in safekeeping and securities that are the subjects of repurchase or reverse repurchase agreements) carried by such security-based swap dealer or major security-based swap participant for its account or for the account of its customers and showing the location of all securities long and the offsetting position to all securities short, including long security count differences and short security count differences classified by the date of the physical count and verification in which they were discovered, and, in all cases the name or designation of the account in which each position is carried.

(ii)

Security-based swap, the reference security, index, or obligor, the unique transaction identifier, the counterparty's unique identification code, whether it is a “bought” or “sold” position in the security-based swap, whether the security-based swap is cleared or not cleared, and if cleared, identification of the clearing agency where the security-based swap is cleared.

(5)

A memorandum of each purchase or sale of a security-based swap for the account of the security-based swap dealer or major security-based swap participant showing the price. The memorandum must also include the type of security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code. An order entered pursuant to the exercise of discretionary authority must be so designated.

(6)

With respect to a security other than a security-based swap, copies of confirmations of all purchases and sales of securities. With respect to a security-based swap, copies of the security-based swap trade acknowledgment and verification made in compliance with § 240.15Fi-2.

(7)

For each security-based swap account, a record of the unique identification code of such counterparty, the name and address of such counterparty, and a record of the authorization of each person the counterparty has granted authority to transact business in the security-based swap account.

(8)

A record of all puts, calls, spreads, straddles and other options in which such security-based swap dealer or major security-based swap participant has any direct or indirect interest or which such security-based swap dealer or major security-based swap participant has granted or guaranteed, containing, at least, an identification of the security, and the number of units involved.

(9)

A record of the proof of money balances of all ledger accounts in the form of trial balances, and a record of the computation of net capital or tangible net worth, as applicable, as of the trial balance date, pursuant to § 240.18a-1 or § 240.18a-2, respectively. Such trial balances and computations must be prepared currently at least once per month.

(10)

(i)

A questionnaire or application for employment executed by each “associated person” (as defined in paragraph (d) of this section) of the security-based swap dealer or major security-based swap participant who effects or is involved in effecting security-based swaps on the security-based swap dealer's or major security-based swap participant's behalf, which questionnaire or application must be approved in writing by an authorized representative of the security-based swap dealer or major security-based swap participant and must contain at least the following information with respect to the associated person:

(A)

The associated person's name, address, social security number, and the starting date of the associated person's employment or other association with the security-based swap dealer or major security-based swap participant;

(B)

The associated person's date of birth;

(C)

A complete, consecutive statement of all the associated person's business connections for at least the preceding ten years, including whether the employment was part-time or full-time;

(D)

A record of any denial of membership or registration, and of any disciplinary action taken, or sanction imposed, upon the associated person by any Federal or state agency, or by any national securities exchange or national securities association, including any finding that the associated person was a cause of any disciplinary action or had violated any law;

(E)

A record of any denial, suspension, expulsion or revocation of membership or registration of any broker, dealer, security-based swap dealer or major security-based swap participant with which the associated person was associated in any capacity at the time such action was taken;

(F)

A record of any permanent or temporary injunction entered against the associated person, or any broker, dealer, security-based swap dealer or major security-based swap participant with which the associated person was associated in any capacity at the time such injunction was entered;

(G)

A record of any arrest or indictment for any felony, or any misdemeanor pertaining to securities, commodities, banking, insurance or real estate (including, but not limited to, acting or being associated with a broker or dealer, security-based swap dealer, major security-based swap participant, investment company, investment adviser, futures sponsor, bank, or savings and loan association), fraud, false statements or omissions, wrongful taking of property or bribery, forgery, counterfeiting or extortion, and the disposition of the foregoing; and

(H)

A record of any other name or names by which the associated person has been known or which the associated person has used.

(ii)

A record listing every associated person of the security-based swap dealer or major security-based swap participant which shows, for each associated person, every office of the security-based swap dealer or major security-based swap participant where the associated person regularly conducts the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, for the security-based swap dealer or major security-based swap participant and the Central Registration Depository number, if any, and every internal identification number or code assigned to that person by the security-based swap dealer or major security-based swap participant.

(iii)

Notwithstanding paragraph (a)(10)(i) of this section—

(A)

A security-based swap dealer or major security-based swap participant is not required to make and keep current a questionnaire or application for employment executed by an associated person if the security-based swap dealer or major security-based swap participant is excluded from the prohibition in section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-10(b)(6)) with respect to such associated person; and

(B)

A questionnaire or application for employment executed by an associated person who is not a U.S. person (as that term is defined in § 240.3a71-3(a)(4)(i)(A)) need not include the information described in paragraphs (a)(10)(i)(A) through (H) of this section, unless the security-based swap dealer or major security-based swap participant is required to obtain such information under applicable law in the jurisdiction in which the associated person is employed or located or obtains such information in conducting a background check that is customary for such firms in that jurisdiction and the creation or maintenance of records reflecting that information, would not result in a violation of applicable law in the jurisdiction in which the associated person is employed or located; provided, however, the security-based swap dealer or major security-based swap participant must comply with section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-10(b)(6)).

(11)

[Reserved]

(12)

A record of the daily calculation of the current exposure and, if applicable, the initial margin amount for each account of a counterparty required under § 240.18a-3(c).

(13)

A record of compliance with possession or control requirements under § 240.18a-4(b).

(14)

A record of the reserve computation required under § 240.18a-4(c).

(15)

A record of each security-based swap transaction that is not verified under § 240.15Fi-2 within five business days of execution that includes, at a minimum, the unique transaction identifier and the counterparty's unique identification code.

(16)

A record documenting that the security-based swap dealer has complied with the business conduct standards as required under § 240.15Fh-6.

(17)

A record documenting that the security-based swap dealer or major security-based swap participant has complied with the business conduct standards as required under §§ 240.15Fh-1 through 240.15Fh-5 and 240.15Fk-1.

(18)

(i)

A record of each security-based swap portfolio reconciliation, whether conducted pursuant to § 240.15Fi-3 or otherwise, including the dates of the security-based swap portfolio reconciliation, the number of portfolio reconciliation discrepancies, the number of security-based swap valuation disputes (including the time-to-resolution of each valuation dispute and the age of outstanding valuation disputes, categorized by transaction and counterparty), and the name of the third-party entity performing the security-based swap portfolio reconciliation, if any.

(ii)

A copy of each notification required to be provided to the Commission pursuant to § 240.15Fi-3(c).

(iii)

A record of each bilateral offset and each bilateral portfolio compression exercise or multilateral portfolio compression exercise in which it participates, whether conducted pursuant to § 240.15Fi-4 or otherwise, including the dates of the offset or compression, the security-based swaps included in the offset or compression, the identity of the counterparties participating in the offset or compression, the results of the compression, and the name of the third-party entity performing the offset or compression, if any.

(b)

This paragraph (b) applies only to security-based swap dealers and major security-based swap participants registered under section 15F of the Act for which there is a prudential regulator. Each security-based swap dealer and major security-based swap participant subject to this paragraph (b) must make and keep current the following books and records:

(1)

For security-based swaps and any other positions related to the firm's business as such, blotters (or other records of original entry) containing an itemized daily record of all purchases and sales of securities (including security-based swaps), all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits. Such records must show, the account for which each such purchase and sale was effected, the name and amount of securities, the unit and aggregate purchase or sale price (if any, including the financial terms for security-based swaps), the trade date, and the name or other designation of the person from whom such securities were purchased or received or to whom sold or delivered. For security-based swaps, such records must also show, for each transaction, the type of security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code.

(2)

Ledger accounts (or other records) itemizing separately as to each account for every security-based swap customer or non-customer of such security-based swap dealer or major security-based swap participant, all purchases, sales, receipts and deliveries of securities (including security-based swaps) and commodities for such account and all other debits and credits to such account; and in addition, for a security-based swap, the type of security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code.

(3)

For security-based swaps and any securities positions related to the firm's business as a security-based swap dealer or a major security-based swap participant, a securities record or ledger reflecting separately for each:

(i)

Security, other than a security-based swap, as of the clearance dates all “long” or “short” positions (including securities in safekeeping and securities that are the subjects of repurchase or reverse repurchase agreements) carried by such security-based swap dealer or major security-based swap participant for its account or for the account of its customers and showing the location of all securities long and the offsetting position to all securities short, including long security count differences and short security count differences classified by the date of the physical count and verification in which they were discovered, and in all cases the name or designation of the account in which each position is carried.

(ii)

(4)

A memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of a security-based swap, whether executed or unexecuted. The memorandum must show the terms and conditions of the order or instructions and of any modification or cancellation thereof; the account for which entered; the time the order was received; the time of entry; the price at which executed; the identity of each associated person, if any, responsible for the account; the identity of any other person who entered or accepted the order on behalf of the customer, or, if a customer entered the order on an electronic system, a notation of that entry; and, to the extent feasible, the time of execution or cancellation. The memorandum also must include the type of the security-based swap, the reference security, index, or obligor, the date and time of execution, the effective date, the scheduled termination date, the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed, the unique transaction identifier, and the counterparty's unique identification code. An order entered pursuant to the exercise of discretionary authority by the security-based swap dealer or major security-based swap participant, or associated person thereof, must be so designated. The term instruction must include instructions between partners and employees of a security-based swap dealer or major security-based swap participant. The term time of entry means the time when the security-based swap dealer or major security-based swap participant transmits the order or instruction for execution.

(5)

(6)

With respect to a security other than a security-based swap, copies of confirmations of all purchases and sales of securities related to the business of a security-based swap dealer or major security-based swap participant. With respect to a security-based swap, copies of the security-based swap trade acknowledgment and verification made in compliance with § 240.15Fi-2.

(7)

For each security-based swap account, a record of the counterparty's unique identification code, the name and address of such counterparty, and a record of the authorization of each person the counterparty has granted authority to transact business in the security-based swap account.

(8)

(i)

A questionnaire or application for employment executed by each “associated person” (as defined in paragraph (c) of this section) of the security-based swap dealer or major security-based swap participant who effects or is involved in effecting security-based swaps on the security-based swap dealer's or major security-based swap participant's behalf, which questionnaire or application must be approved in writing by an authorized representative of the security-based swap dealer or major security-based swap participant and must contain at least the following information with respect to the associated person:

(A)

(B)

The associated person's date of birth;

(C)

A complete, consecutive statement of all the associated person's business connections for at least the preceding ten years, including whether the employment was part-time or full-time;

(D)

(E)

(F)

(G)

(H)

A record of any other name or names by which the associated person has been known or which the associated person has used.

(ii)

A record listing every associated person of the security-based swap dealer or major security-based swap participant which shows, for each associated person, every office of the security-based swap dealer or major security-based swap participant where the associated person regularly conducts the business of handling funds or securities or effecting any transactions in, or inducing or attempting to induce the purchase or sale of any security, for the security-based swap dealer or major security-based swap participant and every internal identification number or code assigned to that person by the security-based swap dealer or major security-based swap participant.

(iii)

Notwithstanding paragraph (b)(8)(i) of this section;

(A)

(B)

A questionnaire or application for employment executed by an associated person who is not a U.S. person (as that term is defined in § 240.3a71-3(a)(4)(i)(A)) need not include the information described in paragraphs (b)(8)(i)(A) through (H) of this section, unless the security-based swap dealer or major security-based swap participant is required to obtain such information under applicable law in the jurisdiction in which the associated person is employed or located or obtains such information in conducting a background check that is customary for such firms in that jurisdiction and the creation or maintenance of records reflecting that information would not result in a violation of applicable law in the jurisdiction in which the associated person is employed or located; provided, however, the security-based swap dealer or major security-based swap participant must comply with Section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-10(b)(6)).

(9)

A record of compliance with possession or control requirements under § 240.18a-4(b).

(10)

A record of the reserve computation required under § 240.18a-4(c).

(11)

(12)

A record documenting that the security-based swap dealer has complied with the business conduct standards as required under § 240.15Fh-6.

(13)

A record documenting that the security-based swap dealer or major security-based swap participant has complied with the business conduct standards as required under § 240.15Fh-1 through § 240.15Fh-5 and § 240.15Fk-1.

(14)

(i)

(ii)

A copy of each notification required to be provided to the Commission pursuant to § 240.15Fi-3(c).

(iii)

(c)

A security-based swap dealer or major security-based swap participant may comply with the recordkeeping requirements of the Commodity Exchange Act and chapter I of this title applicable to swap dealers and major swap participants in lieu of complying with paragraphs (a)(1), (3), and (4) or paragraphs (b)(1) through (3) of this section, as applicable, solely with respect to required information regarding security-based swap transactions and positions if:

(1)

The security-based swap dealer or major security-based swap participant is registered as a security-based swap dealer or major security-based swap participant pursuant to section 15F of the Act;

(2)

The security-based swap dealer or major security-based swap participant is registered as a swap dealer or major swap participant pursuant to section 4s of the Commodity Exchange Act and chapter I of this title;

(3)

The security-based swap dealer or major security-based swap participant is subject to 17 CFR 23.201, 23.202, 23.402, and 23.501 with respect to its swap-related books and records;

(4)

The security-based swap dealer or major security-based swap participant preserves all of the data elements necessary to create the records required by paragraphs (a)(1), (3), and (4) or paragraphs (b)(1) through (3) of this section, as applicable, as they pertain to security-based swap and swap transactions and positions;

(5)

The security-based swap dealer or major security-based swap participant upon request furnishes promptly to representatives of the Commission the records required by paragraphs (a)(1), (3), and (4) or paragraphs (b)(1) through (3) of this section, as applicable, as well as the records required by 17 CFR 23.201, 23.202, 23.402, and 23.501 as they pertain to security-based swap and swap transactions and positions in the format applicable to that category of record as set forth in this section; and

(6)

The security-based swap dealer or major security-based swap participant provides notice of its intent to utilize this paragraph (c) by notifying in writing the Commission, both at the principal office of the Commission in Washington, DC and at the regional office of the Commission for the region in which the registrant has its principal place of business.

(d)

(1)

The term associated person means for purposes of this section a person associated with a security-based swap dealer or major security-based swap participant as that term is defined in section 3(a)(70) of the Act (15 U.S.C. 78c(a)(70)).

(2)

The term associated person, as to an entity supervised by a prudential regulator, includes only those persons whose activities relate to its business as a security-based swap dealer or major security-based swap participant.

Notes, amendments, and revision history

Amendments

[84 FR 68656, Dec. 16, 2019, as amended at 85 FR 6353, 6416, Feb. 4, 2020]

Authority

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78 l, 78m, 78n, 78n-1, 78 o, 78 o -4, 78 o -10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78 ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 1681w(a)(1), 6801-6809, 6825, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. Section 240.3a4-1 also issued under secs. 3 and 15, 89 Stat. 97, as amended, 89 Stat. 121 as amended; Section 240.3a12-8 also issued under 15 U.S.C. 78a et seq., particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), and 23(a), 15 U.S.C. 78w(a); Section 240.3a12-10 also issued under 15 U.S.C. 78b and c; Section 240.3a12-9 also issued under secs. 3(a)(12), 7(c), 11(d)(1), 15 U.S.C. 78c(a)(12), 78g(c), 78k(d)(1)); Sections 240.3a43-1 and 240.3a44-1 also issued under sec. 3; 15 U.S.C. 78c; Sections 3a67-1 through 3a67-9 and 3a71-1 and 3a71-2 are also issued under Pub. L. 111-203, §§ 712, 761(b), 124 Stat. 1841 (2010). Sections 240.3a67-10, 240.3a71-3, 240.3a71-4, and 240.3a71-5 are also issued under Pub. L. 111-203, section 761(b), 124 Stat. 1754 (2010), and 15 U.S.C. 78dd(c). Sections 240.3a71-3 and 240.3a71-5 are also issued under Pub. L. 111-203, sec. 761(b), 124 Stat. 1754 (2010), and 15 U.S.C. 78dd(c). Section 240.3b-6 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a). Section 240.3b-9 also issued under secs. 2, 3 and 15, 89 Stat. 97, as amended, 89 Stat. 121, as amended (15 U.S.C. 78b, 78c, 78o); Section 240.9b-1 is also issued under sec. 2, 7, 10, 19(a), 48 Stat. 74, 78, 81, 85; secs. 201, 205, 209, 120, 48 Stat. 905, 906, 908; secs. 1-4, 8, 68 Stat. 683, 685; sec. 12(a), 73 Stat. 143; sec. 7(a), 74 Stat. 412; sec. 27(a), 84 Stat. 1433; sec. 308(a)(2), 90 Stat. 57; sec. 505, 94 Stat. 2292; secs. 9, 15, 23(a), 48 Stat. 889, 895, 901; sec. 230(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377, 1379; sec. 2, 52 Stat. 1075; secs. 6, 10, 78 Stat. 570-574, 580; sec. 11(d), 84 Stat. 121; sec. 18, 89 Stat. 155; sec. 204, 91 Stat. 1500; 15 U.S.C. 77b, 77g, 77j, 77s(a), 78i, 78o, 78w(a); Section 240.10b-10 is also issued under secs. 2, 3, 9, 10, 11, 11A, 15, 17, 23, 48 Stat. 891, 89 Stat. 97, 121, 137, 156, (15 U.S.C. 78b, 78c, 78i, 78j, 78k, 78k-1, 78o, 78q). Section 240.12a-7 also issued under 15 U.S.C. 78a et seq., particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), 6, 15 U.S.C. 78(f), 11A, 15 U.S.C. 78k, 12, 15 U.S.C. 78(l), and 23(a)(1), 15 U.S.C. 78(w)(a)(1). Sections 240.12b-1 to 240.12b-36 also issued under secs. 3, 12, 13, 15, 48 Stat. 892, as amended, 894, 895, as amended; 15 U.S.C. 78c, 78l, 78m, 78o; Section 240.12b-15 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.12b-25 is also issued under 15 U.S.C. 80a-8, 80a-24(a), 80a-29, and 80a-37. Section 240.12g-3 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a). Section 240.12g3-2 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a). Section 240.13a-10 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.13a-11 is also issued under secs. 3(a) and 306(a), Pub. L. 107-204, 116 Stat. 745. Section 240.13a-14 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.13a-15 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.13d-3 is also issued under Public Law 111-203 § 766, 124 Stat. 1799 (2010). Sections 240.13e-4, 240.14d-7, 240.14d-10 and 240.14e-1 also issued under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(d) and 14(e), 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(d) and 78n(e) and sec. 23(c) of the Investment Company Act of 1940, 15 U.S.C 80a-23(c); Sections 240.13e-4 to 240.13e-101 also issued under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(e), 15(c)(1), 48 Stat. 882, 889, 891, 894, 895, 901, sec. 8, 49 Stat. 1379, sec. 5, 78 Stat. 569, 570, secs. 2, 3, 82 Stat. 454, 455, secs. 1, 2, 3-5, 84 Stat. 1497, secs. 3, 18, 89 Stat. 97, 155; 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e), 78o(c); sec. 23(c) of the Investment Company Act of 1940; 54 Stat. 825; 15 U.S.C. 80a-23(c); Section 240.13p-1 is also issued under sec. 1502, Pub. L. 111-203, 124 Stat. 1376. Section 240.13q-1 is also issued under sec. 1504, Pub. L. 111-203, 124 Stat. 2220. Sections 240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 240.14c-1, and 240.14c-7 also issued under secs. 12, 15 U.S.C. 781, and 14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n; Sections 240.14a-3, 240.14a-13, 240.14b-1 and 240.14c-7 also issued under secs. 12, 14 and 17, 15 U.S.C. 781, 78n and 78g; Sections 240.14c-1 to 240.14c-101 also issued under sec. 14, 48 Stat. 895; 15 U.S.C. 78n; Section 240.14d-1 is also issued under 15 U.S.C. 77g, 77j, 77s(a), 77ttt(a), 80a-37. Section 240.14e-2 is also issued under 15 U.S.C. 77g, 77h, 77s(a), 77sss, 80a-37(a). Section 240.14e-4 also issued under the Exchange Act, 15 U.S.C. 78a et seq., and particularly sections 3(b), 10(a), 10(b), 14(e), 15(c), and 23(a) of the Exchange Act (15 U.S.C. 78c(b), 78j(a), 78j(b), 78n(e), 78 o (c), and 78w(a)). Section 240.15a-6, also issued under secs. 3, 10, 15, and 17, 15 U.S.C. 78c, 78j, 78 o, and 78q; Section 240.15b1-3 also issued under sec. 15, 17; 15 U.S.C. 78 o 78q; Sections 240.15b1-3 and 240.15b2-1 also issued under 15 U.S.C. 78 o, 78 q ; Section 240.15b2-2 also issued under secs. 3, 15; 15 U.S.C. 78c, 78 o ; Sections 240.15b10-1 to 240.15b10-9 also issued under secs. 15, 17, 48 Stat. 895, 897, sec. 203, 49 Stat. 704, secs. 4, 8, 49 Stat. 1379, sec. 5, 52 Stat. 1076, sec. 6, 78 Stat. 570; 15 U.S.C. 78o, 78q, 12 U.S.C. 241 nt.; Section 240.15c2-6, also issued under secs. 3, 10, and 15, 15 U.S.C. 78c, 78j, and 78o. Section 240.15c2-11 also issued under 15 U.S.C. 78j(b), 78 o (c), 78q(a), and 78w(a). Section 240.15c2-12 also issued under 15 U.S.C. 78b, 78c, 78j, 78 o, 78 o -4 and 78q. Section 240.15c3-1 is also issued under 15 U.S.C. 78o(c)(3), 78o-10(d), and 78o-10(e). Sections 240.15c3-1a, 240.15c3-1e, 240.15c3-1f, 240.15c3-1g are also issued under Pub. L. 111-203, secs. 939, 939A, 124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78 o -7 note). Section 240.15c3-3 is also issued under 15 U.S.C. 78c-5, 78o(c)(2), 78(c)(3), 78q(a), 78w(a); sec. 6(c), 84 Stat. 1652; 15 U.S.C. 78fff. Section 240.15c3-3(o) is also issued under Pub. L. 106-554, 114 Stat. 2763, section 203. Section 240.15c3-3a is also issued under Pub. L. 111-203, § 939, 939A, 124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78 o -7 note). Section 240.15d-5 is also issued under 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a). Section 240.15d-10 is also issued under 15 U.S.C. 80a-20(a) and 80a-37(a), and secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.15d-11 is also issued under secs. 3(a) and 306(a), Pub. L. 107-204, 116 Stat. 745. Section 240.15d-14 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.15d-15 is also issued under secs. 3(a) and 302, Pub. L. No. 107-204, 116 Stat. 745. Section 240.15 l -1 is also issued under Pub. L. 111-203, sec. 913, 124 Stat. 1376, 1827 (2010). Sections 240.15Ba1-1 through 240.15Ba1-8 are also issued under sec. 975, Public Law 111-203, 124 Stat. 1376 (2010). Section 240.15Bc4-1 is also issued under sec. 975, Public Law 111-203, 124 Stat. 1376 (2010). Sections 240.15Ca1-1, 240.15Ca2-1, 240.15Ca2-2, 240.15Ca2-3, 240.15Ca2-4, 240.15Ca2-5, 240.15Cc1-1 also issued under secs. 3, 15C; 15 U.S.C. 78c, 78 o -5; Sections 240.15Fh-1 through 240.15Fh-6 and 240.15fk-1 are also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376. Section 240.15Ga-1 is also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376. Section 240.15Ga-2 is also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376. Section 240.16a-1(a) is also issued under Public Law 111-203 § 766, 124 Stat. 1799 (2010). Sections 240.15fh-1 through 240.15Fh-6 and 240.15Fk-1 are also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376. Section 240.17a-3 also issued under secs. 2, 17, 23a, 48 Stat. 897, as amended; 15 U.S.C. 78d-1, 78d-2, 78q; secs. 12, 14, 17, 23(a), 48 Stat. 892, 895, 897, 901; secs. 1, 4, 8, 49 Stat. 1375, 1379; sec. 203(a), 49 Stat. 704; sec. 5, 52 Stat. 1076; sec. 202, 68 Stat. 686; secs. 3, 5, 10, 78 Stat. 565-568, 569, 570, 580; secs. 1, 3, 82 Stat. 454, 455; secs. 28(c), 3-5, 84 Stat. 1435, 1497; sec. 105(b), 88 Stat. 1503; secs. 8, 9, 14, 18, 89 Stat. 117, 118, 137, 155; 15 U.S.C. 78l, 78n, 78q, 78w(a); Section 240.17a-4 also issued under secs. 2, 17, 23(a), 48 Stat. 897, as amended; 15 U.S.C. 78a, 78d-1, 78d-2; sec. 14, Pub. L. 94-29, 89 Stat. 137 (15 U.S.C. 78a); sec. 18, Pub. L. 94-29, 89 Stat. 155 (15 U.S.C. 78w); Section 240.17a-14 is also issued under Public Law 111-203, sec. 913, 124 Stat. 1376 (2010). Section 240.17a-23 also issued under 15 U.S.C. 78b, 78c, 78o, 78q, and 78w(a). Section 240.17f-1 is also authorized under sections 2, 17 and 17A, 48 Stat. 891, 89 Stat. 137, 141 (15 U.S.C. 78b, 78q, 78q-1); Section 240.17g-7 is also issued under sec. 943, Pub. L. 111-203, 124 Stat. 1376. Section 240.17g-8 is also issued under sec. 938, Pub. L. 111-203, 124 Stat. 1376. Section 240.17g-9 is also issued under sec. 936, Pub. L. 111-203, 124 Stat. 1376. Section 240.17h-1T also issued under 15 U.S.C. 78q. Sections 240.17Ac2-1(c) and 240.17Ac2-2 also issued under secs. 17, 17A and 23(a); 48 Stat. 897, as amended, 89 Stat. 137, 141 and 48 Stat. 901 (15 U.S.C. 78q, 78q-1, 78w(a)); Section 240.17Ad-1 is also issued under secs. 2, 17, 17A and 23(a); 48 Stat. 841 as amended, 48 Stat. 897, as amended, 89 Stat. 137, 141, and 48 Stat. 901 (15 U.S.C. 78b, 78q, 78q-1, 78w); Sections 240.17Ad-5 and 240.17Ad-10 are also issued under secs. 3 and 17A; 48 Stat. 882, as amended, and 89 Stat. (15 U.S.C. 78c and 78q-1); Section 240.17ad-7 is also issued under 15 U.S.C. 78b, 78q, and 78q-1. Section 240.17Ad-17 is also issued under Pub. L. 111-203, section 929W, 124 Stat. 1869 (2010). Section 240.17ad-22 is also issued under 12 U.S.C. 5461 et seq. Sections 240.18a-1, 240.18a-1a, 240.18a-1b, 240.18a-1c, 240.18a-1d, 240.18a-2, 240.18a-3, and 240.18a-10 are also issued under 15 U.S.C. 78o-10(d) and 78o-10(e). Section 240.18a-4 is also issued under 15 U.S.C. 78c-5(f). Section 240.19b-4 is also issued under 12 U.S.C. 5465(e). Sections 240.19c-4 also issued under secs. 6, 11A, 14, 15A, 19 and 23 of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3, and 78s); Section 240.19c-5 also issued under Sections 6, 11A, and 19 of the Securities Exchange Act of 1934, 48 Stat. 885, as amended, 89 Stat. 111, as amended, and 48 Stat. 898, as amended, 15 U.S.C. 78f, 78k-1, and 78s. Section 240.21F is also issued under Pub. L. 111-203, § 922(a), 124 Stat. 1841 (2010). Section 240.31-1 is also issued under sec. 31, 48 Stat. 904, as amended (15 U.S.C. 78ee).

Amendments

[84 FR 68656, Dec. 16, 2019, as amended at 85 FR 6353, 6416, Feb. 4, 2020]

§240.18a-6. Records to be preserved by certain security-based swap dealers and major security-based swap participants.

17 C.F.R. § 240.18a-6

This section applies to the following types of entities: A security-based swap dealer registered pursuant to section 15F of the Act (15 U.S.C. 78o-10) that is not also a broker or dealer, including an OTC derivatives dealer as that term is defined in § 240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o); and a major security-based swap participant registered pursuant to section 15F of the Act that is not also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act. Section 240.17a-4 (rather than this section) applies to the following types of entities: A member of a national securities exchange who transacts a business in securities directly with others than members of a national securities exchange; a broker or dealer who transacts a business in securities through the medium of a member of a national securities exchange; a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; a security-based swap dealer registered pursuant to section 15F of the Act that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; and a major security-based swap participant registered pursuant to section 15F of the Act that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act.

(a)

(1)

Every security-based swap dealer and major security-based swap participant for which there is no prudential regulator must preserve for a period not less than six years, the first two years in an easily accessible place, all records required to be made pursuant to § 240.18a-5(a)(1) through (4).

(2)

Every security-based swap dealer and major security-based swap participant for which there is a prudential regulator must preserve for a period not less than six years, the first two years in an easily accessible place, all records required to be made pursuant to § 240.18a-5(b)(1) through (3).

(b)

(1)

Every security-based swap dealer and major security-based swap participant for which there is no prudential regulator must preserve for a period of not less than three years, the first two years in an easily accessible place:

(i)

All records required to be made pursuant to § 240.18a-5(a)(5) through (9) and (12) through (18).

(ii)

All check books, bank statements, cancelled checks, and cash reconciliations.

(iii)

All bills receivable or payable (or copies thereof), paid or unpaid, relating to the business of such security-based swap dealer or major security-based swap participant, as such.

(iv)

Originals of all communications received and copies of all communications sent (and any approvals thereof) by the security-based swap dealer or major security-based swap participant (including inter-office memoranda and communications) relating to its business as such. As used in this paragraph (b)(1)(iv), the term “communications” includes sales scripts and recordings of telephone calls required to be maintained pursuant to section 15F(g)(1) of the Act (15 U.S.C. 78o-10(g)(1)).

(v)

All trial balances and computations of net capital or tangible net worth requirements (and working papers in connection therewith), as applicable, financial statements, branch office reconciliations, and internal audit working papers, relating to the business of such security-based swap dealer or major security-based swap participant as such.

(vi)

All guarantees of security-based swap accounts and all powers of attorney and other evidence of the granting of any discretionary authority given in respect of any security-based swap account, and copies of resolutions empowering an agent to act on behalf of a corporation.

(vii)

All written agreements (or copies thereof) entered into by such security-based swap dealer or major security-based swap participant relating to its business as such, including agreements with respect to any account. Written agreements with respect to a security-based swap customer or non-customer, including governing documents or any document establishing the terms and conditions of the customer's or non-customer's security-based swaps must be maintained with the customer's or non-customer's account records.

(viii)

Records which contain the following information in support of amounts included in the report prepared as of the audit date on Part II of Form X-17A-5 (§ 249.617 of this chapter) and in annual financial statements required by § 240.18a-7(d):

(A)

Money balance and position, long or short, including description, quantity, price, and valuation of each security, including contractual commitments, in security-based swap customers' accounts, in fully secured accounts, partly secured accounts, unsecured accounts, and in securities accounts payable to security-based swap customers;

(B)

Money balance and position, long or short, including description, quantity, price, and valuation of each security, including contractual commitments, in security-based swap non-customers' accounts, in fully secured accounts, partly secured accounts, unsecured accounts, and in security-based swap accounts payable to non-security-based swap customers;

(C)

Position, long or short, including description, quantity, price, and valuation of each security, including contractual commitments, included in the Computation of Net Capital as commitments, securities owned, securities owned not readily marketable, and other investments owned not readily marketable;

(D)

Description of futures commodity contracts or swaps, contract value on trade date, market value, gain or loss, and liquidating equity or deficit in customers' and non-customers' accounts;

(E)

Description of futures commodity contracts or swaps, contract value on trade date, market value, gain or loss and liquidating equity or deficit in trading and investment accounts;

(F)

Description, money balance, quantity, price, and valuation of each spot commodity and swap position or commitments in customers' and non-customers' accounts;

(G)

Description, money balance, quantity, price, and valuation of each spot commodity and swap position or commitments in trading and investment accounts;

(H)

Number of shares, description of security, exercise price, cost, and market value of put and call options, including short out of the money options having no market or exercise value, showing listed and unlisted put and call options separately;

(I)

Quantity, price, and valuation of each security underlying the haircut for undue concentration made in the Computation of Net Capital pursuant to § 240.18a-1;

(J)

Description, quantity, price, and valuation of each security and commodity position or contractual commitment, long or short, in each joint account in which the security-based swap dealer or major security-based swap participant has an interest, including each participant's interest and margin deposit;

(K)

Description, settlement date, contract amount, quantity, market price, and valuation for each aged failed to deliver requiring a charge in the Computation of Net Capital pursuant to § 240.18a-1;

(L)

Detail relating to information for possession or control requirements under § 240.18a-4 and reported on Part II of Form X-17A-5 (§ 249.617 of this chapter);

(M)

Detail of all items, not otherwise substantiated, which are charged or credited in the Computation of Net Capital pursuant to §§ 240.18a-1 and 240.18a-2, such as cash margin deficiencies, deductions related to securities values and undue concentration, aged securities differences, and insurance claims receivable;

(N)

Detail relating to the calculation of the risk margin amount pursuant to § 240.18a-1(c)(6); and

(O)

Other schedules which are specifically prescribed by the Commission as necessary to support information reported as required by § 240.18a-7.

(ix)

The records required to be made pursuant to § 240.15c3-4 and the results of the periodic reviews conducted pursuant to § 240.15c3-4(d).

(x)

The records required to be made pursuant to § 240.18a-1(e)(2)(iii)(F)(1) and (2).

(xi)

A copy of information required to be reported under §§ 242.901 through 242.909 of this chapter (Regulation SBSR).

(xii)

Copies of documents, communications, disclosures, and notices related to business conduct standards as required under §§ 240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1.

(xiii)

Copies of documents used to make a reasonable determination with respect to special entities, including information relating to the financial status, the tax status, and the investment or financing objectives of the special entity as required under sections 15F(h)(4)(C) and (5)(A) of the Act (15 U.S.C. 78o-10(h)(4)(C) and (5)(A)).

(2)

Every security-based swap dealer and major security-based swap participant for which there is a prudential regulator must preserve for a period of not less than three years, the first two years in an easily accessible place:

(i)

All records required to be made pursuant to § 240.18a-5(b)(4) through (7) and (9) through (14).

(ii)

Originals of all communications received and copies of all communications sent (and any approvals thereof) by the security-based swap dealer or major security-based swap participant (including inter-office memoranda and communications) relating to its business as a security-based swap dealer or major security-based swap participant. As used in this paragraph (b)(2)(ii), the term “communications” includes sales scripts and recordings of telephone calls required to be maintained pursuant to section 15F(g)(1) of the Act (15 U.S.C. 78o-10(g)(1)).

(iii)

(iv)

All written agreements (or copies thereof) entered into by such security-based swap dealer or major security-based swap participant relating to its business as a security-based swap dealer or major security-based swap participant, including agreements with respect to any account. Written agreements with respect to a security-based swap customer or non-customer, including governing documents or any document establishing the terms and conditions of the customer's or non-customer's security-based swaps, must be maintained with the customer's or non-customer's account records.

(v)

Detail relating to information for possession or control requirements under § 240.18a-4 and reported on Part IIC of Form X-17A-5 (§ 249.617 of this chapter) that is in support of amounts included in the report prepared as of the audit date on Part IIC of Form X-17A-5 (§ 249.617 of this chapter) and in the registrant's annual reports required by § 240.18a-7(c).

(vi)

A copy of information required to be reported under Regulation SBSR (§§ 242.901 through 242.909 of this chapter).

(vii)

Copies of documents, communications, disclosures, and notices related to business conduct standards as required under §§ 240.15Fh-1 through 240.15Fh-6 and 240.15Fk-1.

(viii)

(c)

Every security-based swap dealer and major security-based swap participant subject to this section must preserve during the life of the enterprise and of any successor enterprise all partnership articles or, in the case of a corporation, all articles of incorporation or charter, minute books, and stock certificate books (or, in the case of any other form of legal entity, all records such as articles of organization or formation and minute books used for a purpose similar to those records required for corporations or partnerships), all Forms SBSE (§ 249.1600 of this chapter), all Forms SBSE-A (§ 249.1600a of this chapter), all Forms SBSE-C (§ 249.1600c of this chapter), all Forms SBSE-W (§ 249.1601 of this chapter), all amendments to these forms, and all licenses or other documentation showing the registration of the security-based swap dealer or major security-based swap participant with any securities regulatory authority or the Commodity Futures Trading Commission.

(d)

Every security-based swap dealer and major security-based swap participant subject to this section must maintain and preserve in an easily accessible place:

(1)

All records required under § 240.18a-5(a)(10) or (b)(8) until at least three years after the associated person's employment and any other connection with the security-based swap dealer or major security-based swap participant has terminated.

(2)

(i)

For security-based swap dealers and major security-based swap participants for which there is not a prudential regulator, each report which a securities regulatory authority or the Commodity Futures Trading Commission has requested or required the security-based swap dealer or major security-based swap participant to make and furnish to it pursuant to an order or settlement, and each securities regulatory authority or Commodity Futures Trading Commission examination report until three years after the date of the report.

(ii)

For security-based swap dealers and major security-based swap participants for which there is a prudential regulator, each report related to security-based swap activities which a securities regulatory authority, the Commodity Futures Trading Commission, or a prudential regulator has requested or required the security-based swap dealer or major security-based swap participant to make and furnish to it pursuant to an order or settlement, and each securities regulatory authority, Commodity Futures Trading Commission, or prudential regulator examination report until three years after the date of the report.

(3)

(i)

For security-based swap dealers and major security-based swap participants for which there is not a prudential regulator, each compliance, supervisory, and procedures manual, including any updates, modifications, and revisions to the manual, describing the policies and practices of the security-based swap dealer or major security-based swap participant with respect to compliance with applicable laws and rules, and supervision of the activities of each natural person associated with the security-based swap dealer or major security-based swap participant until three years after the termination of the use of the manual.

(ii)

For security-based swap dealers and major security-based swap participants for which there is a prudential regulator, each compliance, supervisory, and procedures manual, including any updates, modifications, and revisions to the manual, describing the policies and practices of the security-based swap dealer or major security-based swap participant with respect to compliance with applicable laws and rules relating to security-based swap activities, and supervision of the activities of each natural person associated with the security-based swap dealer or major security-based swap participant until three years after the termination of the use of the manual.

(4)

The written policies and procedures required pursuant to §§ 240.15Fi-3, 240.15Fi-4, and 240.15Fi-5 until three years after termination of the use of the policies and procedures.

(5)

(i)

Each written agreement with counterparties on the terms of portfolio reconciliation with those counterparties as required to be created under § 240.15Fi-3(a)(1) and (b)(1) until three years after the termination of the agreement and all transactions governed thereby.

(ii)

Security-based swap trading relationship documentation with counterparties required to be created under § 240.15Fi-5 until three years after the termination of such documentation and all transactions governed thereby.

(iii)

A record of the results of each audit required to be performed pursuant to § 240.15Fi-5(c) until three years after the conclusion of the audit.

(e)

Subject to the conditions set forth in this paragraph (e), the records required to be maintained and preserved pursuant to § 240.18a-5 and this section may be immediately produced or reproduced by means of an electronic recordkeeping system and be maintained and preserved for the required time in that form.

(1)

For purposes of this paragraph (e)—

(i)

The term electronic recordkeeping system means a system that preserves records in a digital format in a manner that permits the records to be viewed and downloaded;

(ii)

The term designated executive officer means a member of senior management of the security-based swap dealer or major security-based swap participant who has access to and the ability to provide records maintained and preserved on the electronic recordkeeping system either directly or through a designated specialist who reports directly or indirectly to the designated executive officer;

(iii)

The term designated officer means an employee of the security-based swap dealer or major security-based swap participant who reports directly or indirectly to the designated executive officer and who has access to and the ability to provide records maintained and preserved on the electronic recordkeeping system either directly or through a designated specialist who reports directly or indirectly to the designated officer;

(iv)

The term designated specialist means an employee of the security-based swap dealer or major security-based swap participant who has access to, and the ability to provide records maintained and preserved on, the electronic recordkeeping system; and

(v)

The term designated third party means a person that is not affiliated with the security-based swap dealer or major security-based swap participant who has access to and the ability to provide records maintained and preserved on the electronic recordkeeping system.

(2)

An electronic recordkeeping system of a security-based swap dealer or major security-based swap participant without a prudential regulator must:

(i)

(A)

Preserve a record for the duration of its applicable retention period in a manner that maintains a complete time-stamped audit trail that includes:

(1) All modifications to and deletions of the record or any part thereof;

(2) The date and time of actions that create, modify, or delete the record;

(3) If applicable, the identity of the individual creating, modifying, or deleting the record; and

(4) Any other information needed to maintain an audit trail of the record in a way that maintains security, signatures, and data to ensure the authenticity and reliability of the record and will permit re-creation of the original record if it is modified or deleted; or

(B)

Preserve the records exclusively in a non-rewriteable, non-erasable format;

(ii)

Verify automatically the completeness and accuracy of the processes for storing and retaining records electronically;

(iii)

If applicable, serialize the original and duplicate units of the storage media, and time-date the required period of retention for the information placed on such electronic storage media;

(iv)

Have the capacity to readily download and transfer copies of a record and its audit trail (if applicable) in both a human readable format and in a reasonably usable electronic format and to readily download and transfer the information needed to locate the electronic record, as required by the staffs of the Commission, or any State regulator having jurisdiction over the security-based swap dealer or major security-based swap participant; and

(v)

(A)

Include a backup electronic recordkeeping system that meets the other requirements of this paragraph (e) and that retains the records required to be maintained and preserved pursuant to § 240.18a-5 and in accordance with this section in a manner that will serve as a redundant set of records if the original electronic recordkeeping system is temporarily or permanently inaccessible; or

(B)

Have other redundancy capabilities that are designed to ensure access to the records required to be maintained and preserved pursuant to § 240.18a-5 and this section.

(3)

A security-based swap dealer or major security-based swap participant using an electronic recordkeeping system must:

(i)

At all times have available, for examination by the staffs of the Commission or any State regulator having jurisdiction over the security-based swap dealer or major security-based swap participant, facilities for immediately producing the records preserved by means of the electronic recordkeeping system and for producing copies of those records.

(ii)

Be ready at all times to provide, and immediately provide, any record stored by means of the electronic recordkeeping system that the staffs of the Commission or any State regulator having jurisdiction over the security-based swap dealer or major security-based swap participant may request.

(iii)

For a security-based swap dealer or major security-based swap participant operating pursuant to paragraph (e)(2)(i)(B) of this section, the security-based swap dealer or major security-based swap participant must have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved pursuant to § 240.18a-5 and this section to the electronic recordkeeping system and inputting of any changes made to every original and duplicate record maintained and preserved thereby.

(A)

At all times a security-based swap dealer and major security-based swap participant must be able to have the results of such audit system available for examination by the staff of the Commission.

(B)

The audit results must be preserved for the time required for the audited records.

(iv)

Organize, maintain, keep current, and provide promptly upon request by the staffs of the Commission or any State regulator having jurisdiction over the security-based swap dealer or major security-based swap participant all information necessary to access and locate records preserved by means of the electronic recordkeeping system.

(v)

(A)

Have at all times filed with the Commission the following undertakings with respect to such records signed by either a designated executive officer or designated third party (hereinafter, the “undersigned”):

(B)

A designated executive officer who signs the undertaking required pursuant to paragraph (e)(3)(v)(A) of this section may:

(1) Appoint in writing up to two designated officers who will take the steps necessary to fulfill the obligations of the designated executive officer set forth in the undertakings in the event the designated executive officer is unable to fulfill those obligations; and

(2) Appoint in writing up to three designated specialists.

(C)

The appointment of, or reliance on, a designated officer or designated specialist does not relieve the designated executive officer of the obligations set forth in the undertaking.

(f)

(1)

(i)

If the records required to be maintained and preserved pursuant to the provisions of § 240.18a-5 and this section are prepared or maintained by a third party, including by a third party that owns and operates the servers or other storage devices on which the records are preserved or maintained, on behalf of the security-based swap dealer or major security-based swap participant, the third party must file with the Commission a written undertaking in a form acceptable to the Commission, signed by a duly authorized person, to the effect that such records are the property of the security-based swap dealer or major security-based swap participant and will be surrendered promptly on request of the security-based swap dealer or major security-based swap participant and including the following provision:

(ii)

(A)

If the records required to be maintained and preserved pursuant to the provisions of § 240.18a-5 and this section are maintained and preserved by means of an electronic recordkeeping system as defined in paragraph (e) of this section utilizing servers or other storage devices that are owned or operated by a third party (including an affiliate) and the security-based swap dealer or major security-based swap participant has independent access to the records as defined in paragraph (f)(1)(ii)(B) of this section, the third party may file with the Commission the following undertaking signed by a duly authorized person in lieu of the undertaking required under paragraph (f)(1)(i) of this section:

(B)

A security-based swap dealer or major security-based swap participant utilizing servers or other storage devices that are owned or operated by a third party has independent access to records with respect to such third party if it can regularly access the records without the need of any intervention of the third party and through such access:

(1) Permit examination of the records at any time or from time to time during business hours by representatives or designees of the Commission; and

(2) Promptly furnish to the Commission or its designee a true, correct, complete and current hard copy of any or all or any part of such records.

(2)

Agreement with a third party will not relieve such security-based swap dealer or major security-based swap participant from the responsibility to prepare and maintain records as specified in this section or in § 240.18a-5.

(g)

Every security-based swap dealer and major security-based swap participant subject to this section must furnish promptly to a representative of the Commission legible, true, complete, and current copies of those records of the security-based swap dealer or major security-based swap participant that are required to be preserved under this section, or any other records of the security-based swap dealer or major security-based swap participant subject to examination or required to be made or maintained pursuant to section 15F of the Act that are requested by a representative of the Commission. The security-based swap dealer and major security-based swap participant must furnish a record and its audit trail (if applicable) preserved on an electronic recordkeeping system pursuant to paragraph (e) of this section in a reasonably usable electronic format, if requested by a representative of the Commission.

(h)

When used in this section—

(1)

The term securities regulatory authority means the Commission, any self-regulatory organization, or any securities commission (or any agency or office performing like functions) of the States.

(2)

The term associated person has the meaning set forth in § 240.18a-5(d).

Notes, amendments, and revision history

Amendments

[84 FR 68659, Dec. 16, 2019, as amended at 85 FR 6416, Feb. 4, 2020; 85 FR 33021, June 1, 2020; 87 FR 66450, Nov. 3, 2022]

Authority

Amendments

[84 FR 68659, Dec. 16, 2019, as amended at 85 FR 6416, Feb. 4, 2020; 85 FR 33021, June 1, 2020; 87 FR 66450, Nov. 3, 2022]

§240.18a-7. Reports to be made by certain security-based swap dealers and major security-based swap participants.

17 C.F.R. § 240.18a-7

This section applies to the following types of entities: A security-based swap dealer registered pursuant to section 15F of the Act (15 U.S.C. 78o-10) that is not also a broker or dealer, other than an OTC derivatives dealer as that term is defined in § 240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o); a security-based swap dealer registered pursuant to section 15F of the Act that is also an OTC derivatives dealer registered pursuant to section 15 of the Act; and a major security-based swap participant registered pursuant to section 15F of the Act that is not also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act. Section 240.17a-5 (rather than this section) applies to the following types of entities: Except as provided above, a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; a broker or dealer, other than an OTC derivatives dealer, registered pursuant to section 15 of the Act that is also a security-based swap dealer registered pursuant to section 15F of the Act; and a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act that is also a major-security-based swap participant registered pursuant to section 15F of the Act.

(a)

Filing of reports.

(1)

Every security-based swap dealer or major security-based swap participant for which there is no prudential regulator must file with the Commission or its designee Part II of Form X-17A-5 (§ 249.617 of this chapter) within 17 business days after the end of each month.

(2)

Every security-based swap dealer or major security-based swap participant for which there is a prudential regulator must file with the Commission or its designee Part IIC of Form X-17A-5 (§ 249.617 of this chapter) within 30 calendar days after the end of each calendar quarter.

(3)

Security-based swap dealers that have been authorized by the Commission to compute net capital pursuant to § 240.18a-1(d), must file the following additional reports with the Commission:

(i)

For each product for which the security-based swap dealer calculates a deduction for market risk other than in accordance with § 240.18a-1(e)(1)(i) and (iii), the product category and the amount of the deduction for market risk within 17 business days after the end of the month;

(ii)

A graph reflecting, for each business line, the daily intra-month value at risk within 17 business days after the end of the month;

(iii)

The aggregate value at risk for the security-based swap dealer within 17 business days after end of the month;

(iv)

For each product for which the security-based swap dealer uses scenario analysis, the product category and the deduction for market risk within 17 business days after the end of the month;

(v)

Credit risk information on security-based swap, mixed swap and swap exposures, within 17 business days after the end of the month, including:

(A)

Overall current exposure;

(B)

Current exposure (including commitments) listed by counterparty for the 15 largest exposures;

(C)

The ten largest commitments listed by counterparty;

(D)

The broker's or dealer's maximum potential exposure listed by counterparty for the 15 largest exposures;

(E)

The broker's or dealer's aggregate maximum potential exposure;

(F)

A summary report reflecting the broker's or dealer's current and maximum potential exposures by credit rating category; and

(G)

A summary report reflecting the broker's or dealer's current exposure for each of the top ten countries to which the broker or dealer is exposed (by residence of the main operating group of the counterparty);

(vi)

Regular risk reports supplied to the security-based swap dealer's senior management in the format described in the application, within 17 business days after the end of the month;

(vii)

[Reserved]

(viii)

A report identifying the number of business days for which the actual daily net trading loss exceeded the corresponding daily VaR within 17 business days after the end of each calendar quarter; and

(ix)

The results of backtesting of all internal models used to compute allowable capital, including VaR and credit risk models, indicating the number of backtesting exceptions within 17 business days after the end of each calendar quarter.

(b)

Customer disclosures.

(1)

Every security-based swap dealer or major security-based swap participant for which there is no prudential regulator must make publicly available on its website within 10 business days after the date the firm is required to file with the Commission the annual reports pursuant to paragraph (c) of this section:

(i)

A Statement of Financial Condition with appropriate notes prepared in accordance with U.S. generally accepted accounting principles which must be audited;

(ii)

A statement of the amount of the security-based swap dealer's net capital and its required net capital, computed in accordance with § 240.18a-1. Such statement must include summary financial statements of subsidiaries consolidated pursuant to § 240.18a-1c (appendix C to § 240.18a-1 (Rule 18a-1)), where material, and the effect thereof on the net capital and required net capital of the security-based swap dealer; and

(iii)

If, in connection with the most recent annual reports required under paragraph (c) of this section, the report of the independent public accountant required under paragraph (c)(1)(i)(C) of this section covering the report of the security-based swap dealer required under paragraph (c)(1)(i)(B)(1) of this section identifies one or more material weaknesses, a copy of the report.

(2)

Every security-based swap dealer or major security-based swap participant for which there is no prudential regulator must make publicly available on its website unaudited statements as of the date that is 6 months after the date of the most recent audited statements filed with the Commission under paragraph (c)(1) of this section. These reports must be made publicly available within 30 calendar days of the date of the statements.

(3)

The information that is made publicly available pursuant to paragraphs (b)(1) and (2) of this section must also be made available in writing, upon request, to any person that has a security-based swap account. The security-based swap dealer or major security-based swap participant must maintain a toll-free telephone number to receive such requests.

(c)

Annual reports—

(1)

Reports required to be filed.

(i)

Except as provided in paragraph (c)(1)(iii) of this section, every security-based swap dealer or major security-based swap participant registered pursuant to section 15F of the Act for which there is no prudential regulator must file annually, as applicable:

(A)

A financial report as described in paragraph (c)(2) of this section;

(B)

(1) If the security-based swap dealer did not claim it was exempt from § 240.18a-4 throughout the most recent fiscal year, a compliance report as described in paragraph (c)(3) of this section executed by the person who makes the oath or affirmation under paragraph (d)(1) of this section; or

(2) If the security-based swap dealer did claim it was exempt from § 240.18a-4 throughout the most recent fiscal year, an exemption report as described in paragraph (c)(4) of this section executed by the person who makes the oath or affirmation under paragraph (d)(1) of this section; and

(C)

A report prepared by an independent public accountant, under the engagement provisions in paragraph (e) of this section, covering each report required to be filed under paragraphs (c)(1)(i)(A) and (B) of this section, as applicable.

(ii)

The reports required to be filed under this paragraph (c) must be as of the same fiscal year end each year, unless a change is approved in writing by the Commission. The original request for a change must be filed at the Commission's principal office in Washington, DC. A copy of the written approval must be sent to the regional office of the Commission for the region in which the security-based swap dealer or major security-based swap participant has its principal place of business.

(iii)

A security-based swap dealer or major security-based swap participant succeeding to and continuing the business of another security-based swap dealer or major security-based swap participant need not file reports under this paragraph (c) as of a date in the fiscal year in which the succession occurs if the predecessor security-based swap dealer or major security-based swap participant has filed the reports in compliance with this paragraph (c) as of a date in such fiscal year.

(2)

Financial report. The financial report must contain:

(i)

(A)

A Statement of Financial Condition, a Statement of Income, a Statement of Cash Flows, a Statement of Changes in Stockholders' or Partners' or Sole Proprietor's Equity, and Statement of Changes in Liabilities Subordinated to Claims of General Creditors. The statements must be prepared in accordance with U.S. generally accepted accounting principles and must be in a format that is consistent with the statements contained in Part II of Form X-17A-5 (§ 249.617 of this chapter).

(B)

If there is other comprehensive income in the period(s) presented, the financial report must contain a Statement of Comprehensive Income (as defined in § 210.1-02 of this chapter) in place of a Statement of Income.

(ii)

Supporting schedules that include, from Part II of Form X-17A-5 (§ 249.617 of this chapter), a Computation of Net Capital under § 240.18a-1, a Computation of Tangible Net Worth under § 240.18a-2, a Computation for Determination of Security-Based Swap Customer Reserve Requirements under § 240.18a-4a (Exhibit A of § 240.18a-4), and Information Relating to the Possession or Control Requirements for Security-Based Swap Customers under § 240.18a-4, as applicable.

(iii)

If any of the Computation of Net Capital under § 240.18a-1, the Computation of Tangible Net Worth under § 240.18a-2, or the Computation for Determination of Security-Based Swap Customer Reserve Requirements under Exhibit A of § 240.18a-4 in the financial report is materially different from the corresponding computation in the most recent Part II of Form X-17A-5 (§ 249.617 of this chapter) filed by the registrant pursuant to paragraph (a) of this section, a reconciliation, including appropriate explanations, between the computation in the financial report and the computation in the most recent Part II of Form X-17A-5 filed by the registrant. If no material differences exist, a statement so indicating must be included in the financial report.

(3)

Compliance report.

(i)

The compliance report must contain:

(A)

Statements as to whether— (1) The security-based swap dealer has established and maintained Internal Control Over Compliance as that term is defined in paragraph (c)(3)(ii) of this section;

(2) The Internal Control Over Compliance of the security-based swap dealer was effective during the most recent fiscal year;

(3) The Internal Control Over Compliance of the security-based swap dealer was effective as of the end of the most recent fiscal year;

(4) The security-based swap dealer was in compliance with §§ 240.18a-1 and 240.18a-4(c) as of the end of the most recent fiscal year; and

(5) The information the security-based swap dealer used to state whether it was in compliance with §§ 240.18a-1 and 240.18a-4(c) was derived from the books and records of the security-based swap dealer.

(B)

If applicable, a description of each identified material weakness in the Internal Control Over Compliance of the security-based swap dealer during the most recent fiscal year.

(C)

If applicable, a description of an instance of non-compliance with § 240.18a-1 or § 240.18a-4(c) as of the end of the most recent fiscal year.

(ii)

The term Internal Control Over Compliance means internal controls that have the objective of providing the security-based swap dealer with reasonable assurance that non-compliance with § 240.18a-1, § 240.18a-4(c), § 240.18a-9, or § 240.17a-13, as applicable, will be prevented or detected on a timely basis.

(iii)

The security-based swap dealer is not permitted to conclude that its Internal Control Over Compliance was effective during the most recent fiscal year if there were one or more material weaknesses in its Internal Control Over Compliance during the most recent fiscal year. The security-based swap dealer is not permitted to conclude that its Internal Control Over Compliance was effective as of the end of the most recent fiscal year if there were one or more material weaknesses in its internal control as of the end of the most recent fiscal year. A material weakness is a deficiency, or a combination of deficiencies, in Internal Control Over Compliance such that there is a reasonable possibility that non-compliance with § 240.18a-1 or § 240.18a-4(c) will not be prevented, or detected on a timely basis or that non-compliance to a material extent with § 240.18a-4, except for paragraph (c), or § 240.18a-9 or § 240.17a-13, as applicable, will not be prevented or detected on a timely basis. A deficiency in Internal Control Over Compliance exists when the design or operation of a control does not allow the management or employees of the security-based swap dealer in the normal course of performing their assigned functions, to prevent or detect on a timely basis non-compliance with § 240.18a-1, § 240.18a-4, § 240.18a-9, or § 240.17a-13, as applicable.

(4)

Exemption report. The exemption report must contain the following statements made to the best knowledge and belief of the security-based swap dealer:

(i)

A statement that the security-based swap dealer met the exemption provisions in § 240.18a-4(f) throughout the most recent fiscal year without exception or that it met the exemption provisions in § 240.18a-4(f) throughout the most recent fiscal year except as described under paragraph (c)(4)(ii) of this section; and

(ii)

If applicable, a statement that identifies each exception during the most recent fiscal year in meeting the exemption provisions in § 240.18a-4(f) and that briefly describes the nature of each exception and the approximate date(s) on which the exception existed.

(5)

Timing of filing. The annual reports must be filed not more than sixty (60) calendar days after the end of the fiscal year of the security-based swap dealer or major security-based swap participant.

(6)

Filing with the Commission. The annual reports must be filed with the Commission electronically on EDGAR in accordance with the EDGAR Filer Manual, as defined in 17 CFR 232.11 (Rule 11 of Regulation S-T), and must be filed in accordance with the requirements of 17 CFR part 232 (Regulation S-T). The annual reports must be provided as an Interactive Data File in accordance with 17 CFR 232.405 (Rule 405 of Regulation S-T).

(d)

Nature and form of reports. The annual reports filed pursuant to paragraph (c) of this section must be prepared and filed in accordance with the following requirements:

(1)

(i)

Oath or affirmation. The security-based swap dealer or major security-based swap participant must attach to the annual reports an oath or affirmation that, to the best knowledge and belief of the person making the oath or affirmation:

(A)

The financial report is true and correct; and

(B)

Neither the registrant, nor any partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely as that of a customer.

(ii)

The oath or affirmation must be made before a person duly authorized to administer such oaths or affirmations. If the security-based swap dealer or major security-based swap participant is a sole proprietorship, the oath or affirmation must be made by the proprietor; if a partnership, by a general partner; if a corporation, by a duly authorized officer; or if a limited liability company or limited liability partnership, by the chief executive officer, chief financial officer, manager, managing member, or those members vested with management authority for the limited liability company or limited liability partnership.

(iii)

The security-based swap dealer or major security-based swap participant must keep the original oath or affirmation for a period of not less than six years, the first two years in an easily accessible place in accordance with the requirements of § 240.18a-6 of this chapter (Rule 18a-6 under the Exchange Act).

(2)

Confidentiality. The annual reports filed under paragraph (c) of this section may be filed as:

(i)

One public document; or

(ii)

Two documents—

(A)

A document consisting of the Statement of Financial Condition, the notes to the Statement of Financial Condition, and the report of the independent public accountant covering the Statement of Financial Condition, which is not confidential; and

(B)

A document containing the balance of the annual reports for which confidential treatment may be requested and which will be deemed confidential for the purposes of section 24(b) of the Act. However, the annual reports, including the confidential portions, will be available for official use by any official or employee of the U.S. or any State, and by any other person if the Commission authorizes disclosure of the annual reports to that person. Nothing contained in paragraph (d)(2) of this section may be construed to be in derogation of the rights of customers of a security-based-swap dealer or major security-based swap participant, upon request to the security-based swap dealer or major security-based swap participant, to obtain information relative to its financial condition.

(e)

Independent public accountant—

(1)

Qualifications of independent public accountant. The independent public accountant must be qualified and independent in accordance with § 210.2-01 of this chapter.

(2)

Statement regarding independent public accountant.

(i)

Every security-based swap dealer or major security-based swap participant that is required to file annual reports under paragraph (c) of this section must file no later than December 10 of each year (or 30 days after effective date of its registration as a security-based swap dealer or major security-based swap participant if earlier) a statement as prescribed in paragraph (e)(2)(ii) of this section with the Commission's principal office in Washington, DC and the regional office of the Commission for the region in which its principal place of business is located. The statement must be dated no later than December 1 (or 20 calendar days after the effective date of its registration as a security-based swap dealer or major security-based swap participant, if earlier). If the engagement of an independent public accountant is of a continuing nature, providing for successive engagements, no further filing is required. If the engagement is for a single year, or if the most recent engagement has been terminated or amended, a new statement must be filed by the required date.

(ii)

The statement must be headed “Statement regarding independent public accountant under Rule 18a-7(e)(2)” and must contain the following information and representations:

(A)

Name, address, telephone number and registration number of the security-based swap dealer or major security-based swap participant.

(B)

Name, address, and telephone number of the independent public accountant.

(C)

The date of the fiscal year of the annual reports of the security-based swap dealer or major security-based swap participant covered by the engagement.

(D)

Whether the engagement is for a single year or is of a continuing nature.

(E)

A representation that the independent public accountant has undertaken the items enumerated in paragraphs (f)(1) and (2) of this section.

(3)

Replacement of accountant. A security-based swap dealer or major security-based swap participant must file a notice that must be received by the Commission's principal office in Washington, DC and the regional office of the Commission for the region in which its principal place of business is located not more than 15 business days after:

(i)

The security-based swap dealer or major security-based swap participant has notified the independent public accountant that provided the reports the security-based swap dealer or major security-based swap participant filed under paragraph (c)(1)(i)(C) of this section for the most recent fiscal year that the independent public accountant's services will not be used in future engagements; or

(ii)

The security-based swap dealer or major security-based swap participant has notified an independent public accountant that was engaged to provide the reports required under paragraph (c)(1)(i)(C) of this section that the engagement has been terminated; or

(iii)

An independent public accountant has notified the security-based swap dealer or major security-based swap participant that the independent public accountant would not continue under an engagement to provide the reports required under paragraph (c)(1)(i)(C) of this section; or

(iv)

A new independent public accountant has been engaged to provide the reports required under paragraph (c)(1)(i)(C) of this section without any notice of termination having been given to or by the previously engaged independent public accountant.

(v)

The notice must include:

(A)

The date of notification of the termination of the engagement or of the engagement of the new independent public accountant, as applicable; and

(B)

The details of any issues arising during the 24 months (or the period of the engagement, if less than 24 months) preceding the termination or new engagement relating to any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, or compliance with applicable rules of the Commission, which issues, if not resolved to the satisfaction of the former independent public accountant, would have caused the independent public accountant to make reference to them in the report of the independent public accountant. The issues required to be reported include both those resolved to the former independent public accountant's satisfaction and those not resolved to the former accountant's satisfaction. Issues contemplated by this section are those which occur at the decision-making level—that is, between principal financial officers of the security-based swap dealer or major security-based swap participant and personnel of the accounting firm responsible for rendering its report. The notice must also state whether the accountant's report filed under paragraph (c)(1)(i)(C) of this section for any of the past two fiscal years contained an adverse opinion or a disclaimer of opinion or was qualified as to uncertainties, audit scope, or accounting principles, and must describe the nature of each such adverse opinion, disclaimer of opinion, or qualification. The security-based swap dealer or major security-based swap participant must also request the former independent public accountant to furnish the security-based swap dealer or .major security-based swap participant with a letter addressed to the Commission stating whether the independent public accountant agrees with the statements contained in the notice of the security-based swap dealer or major security-based swap participant and, if not, stating the respects in which the independent public accountant does not agree. The security-based swap dealer or major security-based swap participant must file three copies of the notice and the accountant's letter, one copy of which must be signed by the sole proprietor, or a general partner or a duly authorized corporate, limited liability company, or limited liability partnership officer or member, as appropriate, and by the independent public accountant, respectively.

(f)

Engagement of the independent public accountant. The independent public accountant engaged by the security-based swap dealer or major security-based swap participant to provide the reports required under paragraph (c)(1)(i)(C) of this section must, as part of the engagement, undertake the following, as applicable:

(1)

To prepare an independent public accountant's report based on an examination of the financial report required to be filed by the security-based swap dealer or major security-based swap participant under paragraph (c)(1)(i)(A) of this section in accordance with generally accepted auditing standards in the United States or the standards of the Public Company Accounting Oversight Board; and

(2)

(i)

To prepare an independent public accountant's report based on an examination of the statements required under paragraphs (c)(3)(i)(A)(2) through (5) of this section in the compliance report required to be filed by the security-based swap dealer under paragraph (c)(1)(i)(B)(1) of this section in accordance with generally accepted auditing standards in the United States or the standards of the Public Company Accounting Oversight Board; or

(ii)

To prepare an independent public accountant's report based on a review of the statements required under paragraphs (c)(4)(i) through (ii) of this section in the exemption report required to be filed by the security-based swap dealer under paragraph (c)(1)(i)(B)(2) of this section in accordance with generally accepted auditing standards in the United States or the standards of the Public Company Accounting Oversight Board.

(g)

Notification of non-compliance or material weakness. If, during the course of preparing the independent public accountant's reports required under paragraph (c)(1)(i)(C) of this section, the independent public accountant determines that:

(1)

A security-based swap dealer is not in compliance with § 240.18a-1, § 240.18a-4, § 240.18a-9, or § 240.17a-13, as applicable, or the independent public accountant determines that any material weaknesses (as defined in paragraph (c)(3)(iii) of this section) exist, the independent public accountant must immediately notify the chief financial officer of the security-based swap dealer of the nature of the non-compliance or material weakness. If the notice from the accountant concerns an instance of non-compliance that would require a security-based swap dealer to provide a notification under § 240.18a-8, or if the notice concerns a material weakness, the security-based swap dealer must provide a notification in accordance with § 240.18a-8, as applicable, and provide a copy of the notification to the independent public accountant. If the independent public accountant does not receive the notification within one business day, or if the independent public accountant does not agree with the statements in the notification, then the independent public accountant must notify the Commission within one business day. The report from the accountant must, if the security-based swap dealer failed to file a notification, describe any instances of non-compliance that required a notification under § 240.18a-8 or any material weakness. If the security-based swap dealer filed a notification, the report from the accountant must detail the aspects of the notification of the security-based swap dealer with which the accountant does not agree; or

(2)

A major security-based swap participant is not in compliance with § 240.18a-2, the independent public accountant must immediately notify the chief financial officer of the major security-based swap participant of the nature of the non-compliance. If the notice from the accountant concerns an instance of non-compliance that would require a major security-based swap participant to provide a notification under § 240.18a-8, the major security-based swap participant must provide a notification in accordance with § 240.18a-8 and provide a copy of the notification to the independent public accountant. If the independent public accountant does not receive the notification within one business day, or if the independent public accountant does not agree with the statements in the notification, then the independent public accountant must notify the Commission within one business day. The report from the accountant must, if the major security-based swap participant failed to file a notification, describe any instances of non-compliance that required a notification under § 240.18a-8. If the major security-based swap participant filed a notification, the report from the accountant must detail the aspects of the notification of the major security-based swap participant with which the accountant does not agree.

(h)

Reports of the independent public accountant required under paragraph (c)(1)(i)(C) of this section—

(1)

Technical requirements. The independent public accountant's reports must:

(i)

Be dated;

(ii)

Be signed;

(iii)

Indicate the city and state where issued; and

(iv)

Identify without detailed enumeration the items covered by the reports.

(2)

Representations. The independent public accountant's reports must:

(i)

State whether the examinations were made in accordance with generally accepted auditing standards in the United States or the standards of the Public Company Accounting Oversight Board; and

(ii)

Identify any examination procedures deemed necessary by the independent public accountant under the circumstances of the particular case which have been omitted and the reason for their omission.

(iii)

Nothing in this section may be construed to imply authority for the omission of any procedure that independent public accountants would ordinarily employ in the course of an examination for the purpose of expressing the opinions required under this section.

(3)

Opinion to be expressed. The independent public accountant's reports must state clearly:

(i)

The opinion of the independent public accountant with respect to the financial report required under paragraph (c)(1)(i)(C) of this section and the accounting principles and practices reflected in that report;

(ii)

The opinion of the independent public accountant with respect to the financial report required under paragraph (c)(1)(i)(C) of this section, as to the consistency of the application of the accounting principles, or as to any changes in those principles which have a material effect on the financial statements; and

(iii)

(A)

The opinion of the independent public accountant with respect to the statements required under paragraphs (c)(3)(i)(A)(2) through (5) of this section in the compliance report required under paragraph (c)(1)(i)(B)(1) of this section; or

(B)

The conclusion of the independent public accountant with respect to the statements required under paragraphs (c)(4)(i) and (ii) of this section in the exemption report required under paragraph (c)(1)(i)(B)(2) of this section.

(4)

Exceptions. Any matters to which the independent public accountant takes exception must be clearly identified, the exceptions must be specifically and clearly stated, and, to the extent practicable, the effect of each such exception on any related items contained in the annual reports required under paragraph (c) of this section must be given.

(i)

Notification of change of fiscal year.

(1)

In the event any security-based swap dealer or major security-based swap participant for which there is no prudential regulator finds it necessary to change its fiscal year, it must file, with the Commission's principal office in Washington, DC and the regional office of the Commission for the region in which the security-based swap dealer or major security-based swap participant has its principal place of business, a notice of such change.

(2)

Such notice must contain a detailed explanation of the reasons for the change. Any change in the filing period for the annual reports must be approved by the Commission.

(j)

Signatures. Any signature required by this section may be a manual or electronic signature. The signing process for an electronic signature must, at a minimum:

(1)

Require the signatory to present a physical, logical, or digital credential that authenticates the signatory's individual identity;

(2)

Reasonably provide for non-repudiation of the signature;

(3)

Provide that the signature be attached, affixed, or otherwise logically associated with the signature page or document being signed; and

(4)

Include a timestamp to record the date and time of the signature.

Notes, amendments, and revision history

Amendments

[84 FR 68662, Dec. 16, 2019, as amended at 90 FR 7370, Jan. 21, 2025]

Authority

Amendments

[84 FR 68662, Dec. 16, 2019, as amended at 90 FR 7370, Jan. 21, 2025]

§240.18a-8. Notification provisions for security-based swap dealers and major security-based swap participants.

17 C.F.R. § 240.18a-8

This section applies to the following types of entities: A security-based swap dealer registered pursuant to section 15F of the Act (15 U.S.C. 78o-10) that is not also a broker or dealer, other than an OTC derivatives dealer as that term is defined in § 240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o); a security-based swap dealer registered pursuant to section 15F of the Act that is also an OTC derivatives dealer; and a major security-based swap participant registered pursuant to section 15F of the Act that is not also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act. Section 240.17a-11 (rather than this section) applies to the following types of entities: Except as provided above, a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; a broker or dealer, other than an OTC derivatives dealer, registered pursuant to section 15 of the Act that is also a security-based swap dealer registered pursuant to section 15F of the Act; and a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act that is also a major-security-based swap participant registered pursuant to section 15F of the Act.

(a)

(1)

(i)

Every security-based swap dealer for which there is no prudential regulator whose net capital declines below the minimum amount required pursuant to § 240.18a-1 must give notice of such deficiency that same day in accordance with paragraph (h) of this section. The notice must specify the security-based swap dealer's net capital requirement and its current amount of net capital. If a security-based swap dealer is informed by the Commission that it is, or has been, in violation of § 240.18a-1 and the security-based swap dealer has not given notice of the capital deficiency under this section, the security-based swap dealer, even if it does not agree that it is, or has been, in violation of § 240.18a-1, must give notice of the claimed deficiency, which notice may specify the security-based swap dealer's reasons for its disagreement.

(ii)

Every security-based swap dealer for which there is no prudential regulator whose tentative net capital declines below the minimum amount required pursuant to § 240.18a-1 must give notice of such deficiency that same day in accordance with paragraph (h) of this section. The notice must specify the security-based swap dealer's tentative net capital requirement and its current amount of tentative net capital. If a security-based swap is informed by the Commission that it is, or has been, in violation of § 240.18a-1 and the security-based swap dealer has not given notice of the capital deficiency under this section, the security-based swap dealer, even if it does not agree that it is, or has been, in violation of § 240.18a-1, must give notice of the claimed deficiency, which notice may specify the security-based swap dealer's reasons for its disagreement.

(2)

Every major security-based swap participant for which there is no prudential regulator who fails to maintain a positive tangible net worth pursuant to § 240.18a-2 must give notice of such deficiency that same day in accordance with paragraph (h) of this section. The notice must specify the extent to which the firm has failed to maintain positive tangible net worth. If a major security-based swap participant is informed by the Commission that it is, or has been, in violation of § 240.18a-2 and the major security-based swap participant has not given notice of the capital deficiency under this section, the major security-based swap participant, even if it does not agree that it is, or has been, in violation of § 240.18a-2, must give notice of the claimed deficiency, which notice may specify the major security-based swap participant's reasons for its disagreement.

(b)

Every security-based swap dealer or major security-based swap participant for which there is no prudential regulator must send notice promptly (but within 24 hours) after the occurrence of the events specified in paragraphs (b)(1) through (3) or paragraph (b)(4) of this section, as applicable, in accordance with paragraph (h) of this section:

(1)

If a computation made by a security-based swap dealer pursuant to § 240.18a-1 shows that its total net capital is less than 120 percent of the security-based swap dealer's required minimum net capital;

(2)

If a computation made by a security-based swap dealer authorized by the Commission to compute net capital pursuant to § 240.18a-1(d) shows that its total tentative net capital is less than 120 percent of the security-based swap dealer's required minimum tentative net capital;

(3)

If the level of tangible net worth of a major security-based swap participant falls below $20 million; and

(4)

The occurrence of the fourth and each subsequent backtesting exception under § 240.18a-1(d)(9) during any 250 business day measurement period.

(c)

Every security-based swap dealer that files a notice of adjustment of its reported capital category with the Federal Reserve Board, the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation must give notice of this fact that same day by transmitting a copy notice of the adjustment of reported capital category in accordance with paragraph (h) of this section.

(d)

Every security-based swap dealer or major security-based swap participant that fails to make and keep current the books and records required by § 240.18a-5 or § 240.17a-3, as applicable, must give notice of this fact that same day in accordance with paragraph (h) of this section, specifying the books and records which have not been made or which are not current. The security-based swap dealer or major security-based swap participant must also transmit a report in accordance with paragraph (h) of this section within 48 hours of the notice stating what the security-based swap dealer or major security-based swap participant has done or is doing to correct the situation.

(e)

Whenever any security-based swap dealer for which there is no prudential regulator discovers, or is notified by an independent public accountant under § 240.18a-7(g), of the existence of any material weakness, as defined in § 240.18a-7(c)(3)(iii), the security-based swap dealer must:

(1)

Give notice, in accordance with paragraph (h) of this section, of the material weakness within 24 hours of the discovery or notification of the material weakness; and

(2)

Transmit a report in accordance with paragraph (h) of this section, within 48 hours of the notice stating what the security-based swap dealer has done or is doing to correct the situation.

(f)

[Reserved]

(g)

If a security-based swap dealer fails to make in its special reserve account for the exclusive benefit of security-based swap customers a deposit, as required by § 240.18a-4(c), the security-based swap dealer must give immediate notice in writing in accordance with paragraph (h) of this section.

(h)

Every notice or report required to be given or transmitted by this section must be given or transmitted to the principal office of the Commission in Washington, DC and the regional office of the Commission for the region in which the security-based swap dealer or major security-based swap participant has its principal place of business, or to an email address provided on the Commission's website, and to the Commodity Futures Trading Commission (CFTC) if the security-based swap dealer or major security-based swap participant is registered as a futures commission merchant with the CFTC. The report required by paragraph (d) or (e)(2) of this section may be transmitted by overnight delivery.

Notes, amendments, and revision history

Amendments

[84 FR 68667, Dec. 16, 2019]

Authority

Amendments

[84 FR 68667, Dec. 16, 2019]

§240.18a-9. Quarterly security counts to be made by certain security-based swap dealers.

17 C.F.R. § 240.18a-9

This section applies to a security-based swap dealer registered pursuant to section 15F of the Act (15 U.S.C. 78o-10) that does not have a prudential regulator and that is not also a broker or dealer, including an OTC derivatives dealer as that term is defined in § 240.3b-12, registered pursuant to section 15 of the Act (15 U.S.C. 78o). Section 240.17a-13 (rather than this section) applies to the following entities (if not exempt under the provisions of § 240.17a-13): A member of a national securities exchange who transacts a business in securities directly with others than members of a national securities exchange; a broker or dealer who transacts a business in securities through the medium of a member of a national securities exchange; a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; a security-based swap dealer registered pursuant to section 15F of the Act that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act; and a major security-based swap participant that is also a broker or dealer, including an OTC derivatives dealer, registered pursuant to section 15 of the Act.

(a)

Any security-based swap dealer that is subject to the provisions of this section must at least once in each calendar quarter-year:

(1)

Physically examine and count all securities held including securities that are the subjects of repurchase or reverse repurchase agreements;

(2)

Account for all securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive, failed to deliver, subject to repurchase or reverse repurchase agreements or otherwise subject to its control or direction but not in its physical possession by examination and comparison of the supporting detailed records with the appropriate ledger control accounts;

(3)

Verify all securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive, failed to deliver, subject to repurchase or reverse repurchase agreements or otherwise subject to its control or direction but not in its physical possession, where such securities have been in said status for longer than thirty days;

(4)

Compare the results of the count and verification with its records; and

(5)

Record on the books and records of the security-based swap dealer all unresolved differences setting forth the security involved and date of comparison in a security count difference account no later than 7 business days after the date of each required quarterly security examination, count, and verification in accordance with the requirements provided in paragraph (b) of this section. Provided, however, that no examination, count, verification, and comparison for the purpose of this section is within 2 months of or more than 4 months following a prior examination, count, verification, and comparison made under this paragraph (a)(5).

(b)

The examination, count, verification, and comparison may be made either as of a date certain or on a cyclical basis covering the entire list of securities. In either case the recordation must be effected within 7 business days subsequent to the examination, count, verification, and comparison of a particular security. In the event that an examination, count, verification, and comparison is made on a cyclical basis, it may not extend over more than 1 calendar quarter-year, and no security may be examined, counted, verified, or compared for the purpose of this section within 2 months of or more than 4 months after a prior examination, count, verification, and comparison.

(c)

The examination, count, verification, and comparison must be made or supervised by persons whose regular duties do not require them to have direct responsibility for the proper care and protection of the securities or the making or preservation of the subject records.

Notes, amendments, and revision history

Amendments

[84 FR 68668, Dec. 16, 2019]

Authority

Amendments

[84 FR 68668, Dec. 16, 2019]

17 C.F.R. §§ 240.18a-5–240.18a-9

§240.18a-5. Records to be made by certain security-based swap dealers and major security-based swap participants.

Amendments

Authority

Amendments

§240.18a-6. Records to be preserved by certain security-based swap dealers and major security-based swap participants.

Amendments

Authority

Amendments

§240.18a-7. Reports to be made by certain security-based swap dealers and major security-based swap participants.

Amendments

Authority

Amendments

§240.18a-8. Notification provisions for security-based swap dealers and major security-based swap participants.

Amendments

Authority

Amendments

§240.18a-9. Quarterly security counts to be made by certain security-based swap dealers.

Amendments

Authority

Amendments

Cite this provision

Incoming references