Lessons from SEC Rule 17a-13 Violations: What a Bad Count Costs a Broker-Dealer
Updated October 2026, with verified cases in place of unsourced examples. First published November 2025.
The SEC adopted Rule 17a-13 in 1971. In an April 1971 release, quoted in a January 2026 SEC staff letter, the Commission said the movement and location of securities had been checked only once a year, in the annual audit, and that "some firms have failed to research and resolve promptly stock record differences." Its answer was a count every quarter, with a hard deadline for putting anything unresolved on the books.
That deadline is also where a violation starts to cost money. Before a bad count ever reaches an enforcement case, other rules have already turned the unresolved difference into a capital charge, a reserve formula item, and a forced buy-in. This post covers those costs first, then two FINRA cases where the count itself went wrong, and one 2024 case about the same aged positions.
What the Rule Requires
At least once each calendar quarter, Rule 17a-13 requires a broker-dealer to:
- Physically examine and count the securities it holds, including those subject to repurchase or reverse repurchase agreements.
- Account for securities it controls but doesn't hold, such as those in transfer, pledged, loaned, borrowed, or failed to receive or deliver, by comparing the detail records with the ledger control accounts.
- Verify those securities where they've been in that status for longer than 30 days.
- Compare the results of the count and verification with its records.
- Record every unresolved difference in a security count difference account no later than 7 business days after the count.
No count may fall within 2 months of, or more than 4 months after, the prior one. The count has to be made or supervised by people whose regular duties don't give them direct responsibility for the securities or the records under review. The site's Rule 17a-13 reference page summarizes the rule, and our guide to the (b)(3) verification step covers who to ask and what records to keep.
What an Unresolved Difference Costs
Paragraph (b)(5) gives you 7 business days to clear a difference before it has to go on the books. After that, other rules take over, and their clocks don't all start on the same day: the net capital schedule runs from discovery, and the buy-in runs from the count.
| When | What happens | Rule |
|---|---|---|
| 7 business days after the count | Unresolved differences go into the security count difference account | 17a-13(b)(5) |
| 7, 14, 21, and 28 business days after discovery | Net capital deduction of 25%, 50%, 75%, and then 100% of the market value of unresolved short differences | 15c3-1(c)(2)(v)(A) |
| More than 30 calendar days old | Short count differences enter the customer reserve formula as a credit item | 15c3-3a, Item 7 |
| 45 calendar days after the count | Short differences still unresolved must be bought in | 15c3-3(h) |
Two details make the schedule reach further than it first looks. The net capital rule counts as a short difference any position on the securities record "not susceptible to either count or confirmation." A (b)(3) confirmation that never comes back can land there. For securities in transfer, SEC staff said so in a 1987 letter collected in FINRA's Rule 15c3-3 interpretations: failure to obtain the confirmation "requires that the item be treated as a short security difference." Long differences carry a cost too. If you sell long-difference securities before you've resolved them, you deduct their market value, less any reserve you set up for them.
The annual audit is the other place a weak count process shows up. If your firm doesn't claim an exemption from Rule 15c3-3, it files a compliance report under Rule 17a-5, and the internal control that report covers includes compliance with Rules 15c3-1, 15c3-3, and 17a-13. Your independent accountant examines the report under PCAOB standards. If you find a material weakness, or your accountant tells you about one, Rule 17a-11(d) requires notice to the SEC and your designated examining authority within 24 hours, and a report on the fix within 48 hours after that.
Two FINRA Cases Built on a Bad Count
FINRA's published summaries of these two cases describe the count failures in plain words and don't cite Rule 17a-13 by number. In both, the count was one finding among several.
North American Clearing, March 2009
FINRA expelled North American Clearing, Inc., a Longwood, Florida clearing firm. Among the findings, the firm "failed to conduct an accurate box count": its box held certificates for positions that weren't on its stock record, and the share amounts in the box didn't match the stock record. The same case found inaccurate customer reserve computations, required deposits to the special reserve account that weren't made, a FOCUS report that overstated net capital, and no steps to get possession or control of securities it had failed to receive. FINRA also found that the firm hadn't reasonably supervised its operations system conversion, including its box counts. (FINRA Case #E072005017201)
Goldman, Lass Securities, May 2013
The Yonkers, New York firm and its principal, Barry Sheldon Lass, settled with FINRA through a Letter of Acceptance, Waiver and Consent. The firm was censured, fined $10,000, and required to hire an independent consultant to review its procedures, with a follow-up review a year later. FINRA set the fine lower after considering the firm's revenues and financial resources. Lass was fined $7,500 and suspended for 30 days in any principal capacity.
FINRA found that the firm had no procedures, written or otherwise, for a quarterly count of the securities in its office vault, and that it didn't reconcile the vault with its stock record. For one year it prepared no reconciliation of its money and security positions, so it couldn't identify short security differences of $8,349 or a favorable difference of $25,831 against its clearing firm's records. Its customer reserve computations were also wrong, and for two years its reserve bank account held too little. (FINRA Case #2009019859801)
In both cases the count failure came with reserve formula and books-and-records failures. That fits the way the rules connect. If the stock record is wrong, the reserve computation and the net capital figure built on it are wrong as well.
A 2024 Case About the Same Positions
FINRA's April 2024 report includes a case brought under a different rule that involves the same aged fails (b)(3) covers. FINRA fined Morgan Stanley Smith Barney $1.6 million and allocated $1.2 million of it to the MSRB. From January 2016 through August 2021, the firm didn't take the prompt steps Rule 15c3-3(d)(2) requires to get possession or control of 247 municipal securities, worth about $9.4 million, that it had failed to receive for an average of about 177 days. It also didn't close out 239 inter-dealer municipal fails, worth about $9 million, within the 20 calendar days MSRB Rule G-12(h) allows. FINRA called it the first disciplinary action charging a violation of the G-12(h) close-out requirement. (FINRA, April 2024)
Questions to Ask Before the Next Count
- When a (b)(3) confirmation goes unanswered, who decides that it's a short difference, and on what day?
- Does finance see unresolved short differences in time to take the 25% deduction at 7 business days?
- Does your reserve computation pick up short count differences more than 30 calendar days old?
- Is the 45-day buy-in date for each short difference on someone's calendar, with a name next to it?
Quarterly Broker Statement (QBS) surfaces count discrepancies, tracks each against the 7-business-day recording deadline, and posts unresolved differences to the security count difference account. It also flags (b)(3) non-responses for alternative verification. For the full quarter, phase by phase, see Exam Prep for the 17a-13 Quarterly Securities Count.
This post is for informational purposes only and does not constitute legal advice. For guidance on specific regulatory obligations, consult your counsel or compliance advisor.