FINRA Communication and Documentation 3 — Questions and Answers
Question 1: FINRA Rule 4511 requires member firms to preserve most broker-dealer records for a minimum of how many years?
- 2 years
- 3 years
- 6 years (Correct answer)
- 10 years
Correct answer: 6 years
FINRA Rule 4511 generally requires member firms to preserve books and records for a minimum of six years.
Question 2: Which type of record must be kept readily accessible for the first two years of the required retention period under SEC Rule 17a-4?
- Only trade confirmations
- All required records subject to the rule (Correct answer)
- Only customer account records
- Only compliance and supervisory records
Correct answer: All required records subject to the rule
SEC Rule 17a-4 requires all records subject to retention be kept in an easily accessible place for the first two years of the required retention period.
Question 3: A customer disputes a trade that occurred four years ago. The firm's records from that period were destroyed two years into retention. Which statement best describes the firm's situation?
- The firm is compliant since records older than two years may be destroyed
- The firm has violated recordkeeping rules since most records must be kept six years (Correct answer)
- The firm is protected because the dispute is past the three-year statute of limitations
- The firm can reconstruct records from customer statements without penalty
Correct answer: The firm has violated recordkeeping rules since most records must be kept six years
Destroying records after two years when the required retention period is six years constitutes a recordkeeping violation under FINRA Rule 4511 and SEC Rule 17a-4.
Question 4: Under FINRA rules, which document must be provided to a customer at or before the completion of a securities transaction?
- A prospectus for all securities
- A trade confirmation (Correct answer)
- An options disclosure document
- A suitability assessment form
Correct answer: A trade confirmation
FINRA and SEC rules require that a written trade confirmation be sent to customers at or before completion of each securities transaction.
Question 5: A registered representative sends a text message to a client discussing a recommended trade. Under FINRA recordkeeping rules, this text message:
- Is exempt from retention since it is a personal device communication
- Must be retained as a business communication record (Correct answer)
- Only requires retention if the trade is over $10,000
- Must be converted to email format before retention
Correct answer: Must be retained as a business communication record
All business communications, regardless of medium or device, must be captured and retained pursuant to FINRA and SEC recordkeeping requirements.
Question 6: FINRA Rule 4370 requires firms to maintain written business continuity plans. Which element is NOT explicitly required in these plans?
- Data backup and recovery procedures
- Alternate means of communication with customers
- Employee profit-sharing formulas (Correct answer)
- Annual review of the plan
Correct answer: Employee profit-sharing formulas
Business continuity plans must address operational recovery topics such as data backup, communications, and annual review—not internal HR matters like profit-sharing.
Question 7: Under SEC Rule 17a-4, electronic records stored by broker-dealers must be maintained in a format that is:
- Encrypted and accessible only by compliance officers
- Non-rewriteable and non-erasable (WORM format) (Correct answer)
- Updated monthly to reflect current market conditions
- Printed and stored in physical form as backup
Correct answer: Non-rewriteable and non-erasable (WORM format)
SEC Rule 17a-4(f) requires electronic records to be stored in a non-rewriteable, non-erasable (WORM) format to prevent alteration.
FINRA Communication and Documentation 3
FINRA Rule 4511 requires member firms to preserve most broker-dealer records for a minimum of how many years?