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12:51 PM
Cristina McEachern
Cristina McEachern
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In its latest comment letter to the Securities and Exchange Commission, dated February 21, the SIA is asking the Commission for more work in "modernizing" the commission's Electronic Storage Rule (Rule 17a-4(f)).

In its latest comment letter to the Securities and Exchange Commission, dated February 21, the SIA is asking the Commission for more work in "modernizing" the commission's Electronic Storage Rule (Rule 17a-4(f)).

More specifically, the SIA is asking the committee to move away from the mandated Write Once Read Many (WORM) storage technology for broker/dealers. This rule requires broker/dealers to store electronic communications in WORM-compliant optical-disk systems, which the SIA letter describes as inefficient in terms of archiving speed, searchability and retrivability.

The SIA letter cites one member firm estimating that the time it takes to archive 2.5 gigabytes of e-mail to a WORM optical disk is 25 minutes, while the estimated time it takes to archive the same amount to an alternative storage system using Direct Access Storage Device (DASD) tape is one second.

Instead the SIA suggests moving away from a technology-focused rule to a "document integrity rule to be applied to broker/dealer storage." The letter states, "...SIA still believes that the inherent flaws of WORM-compliant systems should compel the SEC to amend its broker/dealer record storage rule. By altering rule 17a-4(f), the Commission could permit broker/dealers to store electronic documents more effectively at substantially lower costs."

In replacement of the WORM rule, the SIA letter envisions a document-integrity rule applied across the board. "We would like to see a document-integrity standard applied to the overall storage processes rather than having the rule dictate the technology format of the ultimate destination where the documents are going to reside," says Scott Kursman, vice president and associate-general counsel of the SIA. He suggests these document integrity rules could cover controls and stipulations around the document storage process, including restricted access, internal handling procedures, etc.

Kursman says that the timing for renewing this dialogue with the SEC was key. "The industry feels strongly about record-keeping responsibilities right now," he says. "The importance has been magnified in the last couple of years with the e-mail retention fines for the firms, the SEC's new Books and Records Rules and the overall growth in the volume of electronic communication."

One of the main factors for the suggested changes stems from the fact that the WORM rule is applied solely to broker/dealers, not to investment advisors, mutual funds and banks, making a unified approach to record storage difficult. "If a member firm is involved in banking, mutual funds and broker/dealing it doesn't make sense that they have to have a separate storage system for the broker/dealer area that isn't compatible with the overall storage methods," he says.

Kursman says the SIA has had a constructive dialogue with the SEC on this matter for the past several years, and thought this would be an appropriate time to bring up this particular issue again as the Commission's administration changes. "We think they recognize the inherent flaws of the WORM approach and we're optimistic that our talks with them will result in a better rule for the industry," says Kursman.

The SIA's letter sums up the recommendations saying, "SIA respectfully suggests that the only way for the Commission to harmonize its broker/dealer rules with its other rules and with current legal trends is for the SEC to adopt a document-integrity rule, as opposed to a storage-technology rule."

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