Electronic Filing of Broker-Dealer Annual Reports

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Electronic Filing of Broker-Dealer Annual Reports

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As a result of recent actions by the Securities and Exchange Commission (SEC) and its staff, registered broker-dealers, including over-the-counter (OTC) derivatives dealers, are now permitted to electronically file their annual and supplemental reports with the SEC through its Electronic Data Gathering, Analysis and Retrieval  (EDGAR) system in lieu of filing the reports with the SEC in paper form.  

Section 17(e) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-5(d) thereunder generally require all broker-dealers to file an annual report containing audited financial statements and certain additional financial and operational reports.[1]  These reports must be filed not more than sixty calendar days after the end of the broker-dealer’s fiscal year.  The report must be filed with the SEC’s regional office for the region in which the broker-dealer has its principal place of business, the SEC’s principal office in Washington, DC, the principal office of the broker-dealer’s designated examining authority (e.g., the Financial Industry Regulatory Authority or FINRA), and the Securities Investor Protection Corporation (SIPC) if the broker-dealer is a SIPC member.[2]  OTC derivatives dealers are required to file annual reports only with the SEC’s principal office in Washington, DC pursuant to Rule 17a-12(b) under the Exchange Act.[3]

On December 11, 2015, the SEC adopted revisions to the EDGAR Filer Manual and related rules to enable broker-dealers to submit their annual reports to the SEC through EDGAR.[4]  On December 21, 2015, staff in the SEC’s Division of Trading and Markets issued a no-action letter to FINRA stating that the SEC staff will not recommend enforcement action to the SEC under Rule 17a-5 or Rule 17a-12 under the Exchange Act if a broker-dealer or OTC derivatives dealer files the annual and supplemental reports required under those rules electronically through the EDGAR system in accordance with the instructions and conditions contained in the Appendix to the letter in lieu of filing them with the SEC in paper form.[5]  A web page also was created on the SEC’s website to provide broker-dealers with detailed information on how to make electronic filings using EDGAR, including how to obtain log-in credentials, access the EDGAR system, and on how to request confidential treatment of information that is not required to be made public.  The link to the SEC web page is: http://www.sec.gov/divisions/marketreg/electronic-filing-broker-dealer-annual-reports.htm.

The actions taken by the SEC and its staff to permit broker-dealers, including OTC derivatives dealers, to electronically file their annual and supplemental reports with the SEC through EDGAR will benefit broker-dealers, market participants, and customers, among others.  As noted by the SEC staff in its no-action letter, by filing electronically, broker-dealers will avoid the uncertainties, delay, possible processing errors and expense related to the physical delivery of multiple paper copies of the annual reports and, upon filing, will receive an instantaneous confirmation that the filings were received by the SEC.  In addition, customers and others will have more timely access to the public portions of broker-dealer annual reports,  which will be available on EDGAR immediately upon filing.  Further, SEC staff will no longer need to manually receive and process approximately 4,000 broker-dealer annual reports each year.   

Broker-dealers intending to electronically file annual reports with the SEC through EDGAR for the December 31, 2015 fiscal year end should become familiar with the filing process as soon as possible to avoid last minute issues as the filing due date approaches.  Firms may find it particularly challenging toward the end of February to reach appropriate SEC staff during this initial period of electronic filing, as December 31 is the fiscal year-end for most broker-dealers and it is likely that SEC staff will be receiving many filing-related questions in the late-February time frame.  Broker-dealers that file annual and supplemental reports electronically also should make sure to retain the original paper copy of the notarized oath or affirmation from Form X-17A-5 Part III for a period of not less than six years, the first two years in an easily accessible place.[6]

 

[1] See 15 U.S.C. 78q(e) and 17 CFR 240.17a-5(d).

[2]See 17 CFR 240.17a-5(d)(6).  Broker-dealers also are required to provide copies of the reports to all self-regulatory organizations of which the broker-dealer is a member, unless the self-regulatory organization by rule waives this requirement.  For information on filing annual reports with FINRA, see http://www.finra.org/industry/annual-audit, and with SIPC, see http://sipc.org/for-members/member-faqs#auditors-report.

[3] See 17 CFR 240.17a-12(b).

[4] See Adoption of Updated EDGAR Filer Manual, Exchange Act Release No. 76619 (Dec. 11, 2015), 81 FR 3 (Jan. 4, 2016), available at https://www.sec.gov/rules/final/2015/33-9987.pdf.  The documents can be filed in one of the following formats: HyperText Markup Language (“HTML”), American Standard Code for Information Interchange (“ASCII”), or Portable Document Format (“PDF”).

[5] See Letter from Michael A. Macchiaroli, Associate Director, Division of Trading and Markets, SEC, to Kris Dailey, Vice President, Risk Oversight & Operational Regulation, FINRA (Dec. 21, 2015), available at http://www.sec.gov/divisions/marketreg/mr-noaction/2015/finra-122115-electronic-filing-annual-reports.pdf.

[6] The SEC staff identified this six year record retention requirement in Item 3 of the Appendix to the SEC staff’s no-action letter.