8.14.2009 The SEC issued a no-action letter addressing how investment adviser records may be maintained in response to a request by a recordkeeping vendor, Omgeo LLC (Omgeo), relating to its TradeSuite service. Rule 204-2(a)(7) under the Investment Advisers Act of 1940 (Advisers Act) requires an investment adviser to make and keep originals of all written communications received relating to the placing or execution of any order to purchase or sell any security. Such written communications include trade confirmations. This requirement applies both to advisers who maintain custody of their clients’ assets and those who do not. Rule 204-2(b)(3) under the Advisers Act requires an investment adviser that maintains custody of any of its client’s assets to make and keep copies of confirmations of all transactions effected by or for the account of any such client.
Rule 204-2(g) under the Advisers Act, in relevant part, permits an investment adviser to maintain and preserve records electronically, provided that:
- The records are arranged and indexed in a way that permits easy location, access and retrieval of any particular record;
- Legible, true and complete copies of the record in the medium and format in which it is stored, and printouts of the records and the means to access, view and print the records, can be, and are, made available to SEC examiners promptly upon request;
- A duplicate of the computer storage medium is stored separately from the original; and
- Procedures are implemented for the maintenance and preservation of, and access to, records so as to reasonably safeguard the records from loss, alteration or destruction.
Omgeo’s TradeSuite service electronically transmits trade confirmations to advisers on behalf of broker-dealers that effect transactions for advisory clients of such advisers. Omgeo proposes to offer a new recordkeeping service to advisers under which each adviser would rely on Omgeo to make and keep, on behalf of that adviser, copies of the confirmations supplied to that adviser. Currently, an adviser that receives electronically transmitted trade confirmations must download or print a copy of each TradeSuite confirmation it receives in order to comply with Rule 204-2(a)(7) or Rule 204-2(b)(3) under the Advisers Act, as applicable, and must store it consistent with the requirements for electronic storage specified in Rule 204-2(g) and for the retention times specified in Rule 204-2(e) under the Advisers Act.
Under Omgeo’s proposal, an Adviser subscribing to the Recordkeeping Service would continue to receive TradeSuite confirmations as they do now, but would not be required to download or print copies of those confirmations to comply with Rules 204-2(a)(7) and 204-2(b)(3) under the Advisers Act, and could rely on Omgeo to assist it with compliance with Rule 204-2(g) under the Advisers Act.
The SEC granted the no-action request under the following conditions:
- Omgeo will store at least two electronic copies of all confirmations sent to Adviser Participants for not less than five years from the end of the fiscal year during which the last entry was made on the confirmation. At least one copy of each document will be stored in a secure facility separate from the facility used to store the other copies;
- During the retention periods specified in the Advisers Act recordkeeping rules, Adviser Participants will be able, at any time, to access confirmations sent through TradeSuite through computers located at the Adviser Participant’s office. Former Adviser Participants may request from Omgeo in writing copies of any TradeSuite confirmation for not less than five years from the end of the fiscal year during which the last entry was made on the TradeSuite confirmation. In the event that an Adviser Participant ceases operations without making adequate provision for its continued compliance with its recordkeeping obligations in accordance with Rule 204-2(f) under the Advisers Act, Omgeo will provide the Commission within 24 hours of the time of the request, without charge to the Commission, an electronic copy of any record that the Adviser Participant received through TradeSuite for not less than five years after the end of the fiscal year during which the last entry was made on the confirmation;
- In the event that Omgeo ceases operations, it will make arrangements reasonably acceptable to the Commission or its staff to ensure the continued availability of documents for regulatory purposes during the remainder of the applicable recordkeeping period; and
- Omgeo’s internal systems for making and keeping confirmations on behalf of Adviser Participants meet all of the requirements of Rule 204-2(g) under the Advisers Act.
Click http://www.sec.gov/divisions/investment/noaction/2009/omgeo081409.htm to access the no-action letter.