Series 24 Books and Records Practice Questions
Question 1
Under SEC Rules 17a-3 and 17a-4, for how long must a broker-dealer retain a customer's account records after the account is closed?
- A. 3 years after closing
- B. 5 years after closing
- C. 6 years after closing
- D. For the life of the firm, with no fixed end date
Show answer and explanation
Correct answer: C. 6 years after closing
Customer account records, including the information obtained to open and maintain the account, must be preserved for six years after the account is closed under Rule 17a-3(a)(17) as retained per Rule 17a-4. This is one of the enumerated categories subject to the longer six-year period rather than the general three-year default.
- A. 3 years is shorter than the retention period SEC Rules 17a-3/17a-4 require for customer account records after account closure.
- B. 5 years understates the required retention period for customer account records following account closure under Rules 17a-3/17a-4.
- C. Correct. Under SEC Rules 17a-3 and 17a-4, a broker-dealer must retain a customer's account records for 6 years after the account is closed.
- D. The retention obligation has a defined end point (6 years after closing) — it isn't an indefinite, lifetime-of-the-firm requirement.
Question 2
A broker-dealer hires a vendor to prepare and maintain some of its required records. What must the firm obtain from the vendor under SEC Rule 17a-4?
- A. A written undertaking that the records remain the firm's property and will be promptly produced to regulators on request
- B. Approval from the SEC for the vendor to hold the records
- C. Confirmation that the vendor is registered as a broker-dealer with FINRA
- D. An agreement transferring ownership of the records to the vendor after three years, with the firm keeping a copy available for regulators
Show answer and explanation
Correct answer: A. A written undertaking that the records remain the firm's property and will be promptly produced to regulators on request
Rule 17a-4 allows a firm to use an outside entity to prepare or maintain records only if the entity undertakes in writing that the records are the firm's property and that it will promptly make them available to regulators. The firm remains responsible for compliance with the recordkeeping rules.
- A. Correct: a written undertaking on ownership and regulator access is required.
- B. The SEC does not pre-approve vendors for recordkeeping.
- C. A vendor need not be a registered broker-dealer to hold records.
- D. Records must remain the firm's property; transferring ownership to the vendor would violate the rule even if a copy is kept.
Question 3
A broker-dealer wants to maintain its required books and records exclusively in electronic form through a third-party vendor's system. Beyond storing the records in a non-rewriteable, non-erasable format, what must the firm do to satisfy SEC Rule 17a-4(f)?
- A. Obtain FINRA's written pre-approval of the specific vendor's software and file the vendor's technical specifications with the SEC's Division of Trading and Markets
- B. Rely on the vendor's SOC 2 report as the compliance documentation for the system, without a separate notice to its examining authority or a third-party undertaking letter, since the vendor's attestation covers third-party access
- C. Convert newly created records to the electronic system while leaving existing paper records unconverted, and obtain a written opinion from outside counsel that the system meets the rule
- D. File a notice with its designated examining authority (DEA) and secure an undertaking letter from a third party with independent access, able to download and produce the records to regulators
Show answer and explanation
Correct answer: D. File a notice with its designated examining authority (DEA) and secure an undertaking letter from a third party with independent access, able to download and produce the records to regulators
Rule 17a-4(f) conditions electronic-only storage on the firm notifying its designated examining authority of its intent to use such a system and obtaining an undertaking from a third party who has access to the records independent of the broker-dealer and who agrees to provide, and if requested download, those records to the SEC or the firm's DEA upon request. This third-party access requirement exists precisely so that regulators are not dependent on a firm's cooperation (or a vendor under the firm's control) to obtain records during an examination or enforcement action.
- A. FINRA pre-approval of a specific vendor's software and a filing of its specifications with the SEC are not requirements under Rule 17a-4(f); the rule focuses on the storage medium's characteristics, DEA notice, and third-party access.
- B. A vendor's SOC 2 report or attestation does not substitute for the DEA notice and the undertaking letter from a third party with independent access that Rule 17a-4(f) specifically requires.
- C. Converting selectively and obtaining an outside counsel opinion does not satisfy the rule; it does not replace the DEA notice and independent third-party undertaking, and required records on the system must meet its requirements.
- D. Rule 17a-4(f) requires the firm to notify its designated examining authority and obtain an undertaking letter from a third party with independent access who can download and produce the records to regulators, in addition to the non-rewriteable, non-erasable format requirement.
Considering a career as an advisor?
Explore careers at ParsonexQuestion 4
Which information must appear on a firm's memorandum of a customer brokerage order under SEC Rule 17a-3(a)(6)?
- A. The customer's annual income and net worth
- B. The representative's payout rate on the transaction
- C. The clearing firm's fee schedule for the trade
- D. The time the order was received and the time it was entered
Show answer and explanation
Correct answer: D. The time the order was received and the time it was entered
Rule 17a-3(a)(6) requires an order memorandum showing the terms and conditions of the order, the account, the time the order was received, the time of entry, the execution price, and the persons involved, including whether the order was discretionary. Time stamps allow reviewers to detect trading ahead and best execution issues.
- A. Income and net worth belong in the customer account record, not on each order ticket.
- B. Compensation arrangements are recorded elsewhere and are not part of the order memorandum.
- C. Clearing fees are not an element of the order memorandum.
- D. Correct: the time of receipt and time of entry are required order ticket details.