SEC Rule 17a-13 — Quarterly Security Counts

Overview

SEC Rule 17a-13 requires broker-dealers to conduct a physical count or verification of all securities in their possession or control at least once per calendar quarter. This rule serves as a critical safeguard to ensure that firms' records accurately reflect the securities they actually hold, helping to detect discrepancies, theft, or operational errors before they escalate.

Subsection (b)(3) specifically addresses aged positions and requires written inquiry for securities that have not been verified or received within specified timeframes.

Official citation: 17 CFR § 240.17a-13

Who It Applies To

Rule 17a-13 applies to all broker-dealers registered with the SEC that physically hold or have control over securities. Firms that do not carry customer securities or hold proprietary positions may qualify for limited exemptions, but most active broker-dealers are subject to the rule.

Key Requirements

Quarterly physical examination: All securities held by the firm must be physically counted or verified at least once every calendar quarter.
Comparison to records: The physical count must be compared against the firm's books and records to identify any discrepancies.
Discrepancy resolution: Any differences between the count and the records must be recorded within 7 business days and investigated for resolution.
Subsection (b)(3) — aged positions: For securities in transfer, in transit, or otherwise not in the firm's physical possession for more than 30 calendar days, the firm must make a written inquiry to determine their status and location.
Verification of positions held elsewhere: Securities held at depositories, banks, or other locations must be verified by confirmation or statement from the holding institution.
Supervisory review: The quarterly count process and its results must be reviewed by a supervisor or principal who was not directly involved in the count.

How Loffa Helps You Comply

Freefunds Verified Direct (FVD)

Electronic verification: FVD enables electronic verification of securities positions, reducing reliance on paper-based processes and improving accuracy.
Aged position tracking: Automated tracking of verification timelines helps firms identify positions approaching the 30-day threshold under subsection (b)(3), triggering timely written inquiries.
Discrepancy management: FVD's workflow tools help firms document, track, and resolve discrepancies within the required 7-business-day timeframe.
Supervisory review tools: Built-in review and approval workflows support the supervisory oversight requirement for the quarterly count process.

Recent Updates

Electronic verification acceptance: The SEC has increasingly accepted electronic verification methods as equivalent to physical counts, provided adequate controls and audit trails are in place.
Integration with T+1: The move to T+1 settlement (May 2024) has increased the pace of securities movement, making timely and accurate quarterly counts more critical than ever.