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 is a critical safeguard to ensure that firms' records accurately reflect the securities they actually hold. It helps detect discrepancies, theft, or operational errors before they escalate.

Paragraph (b)(3) covers securities the firm controls but doesn't hold, such as securities in transfer, pledged, loaned, or failed to receive. Once a position has been in that status for more than 30 days, the firm must verify it. The rule says "verify" and doesn't prescribe a method; in practice, firms send a confirmation request to the party that holds the security.

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. Paragraph (a) exempts only a narrow group: firms whose business is limited to redeemable fund shares and a few similar transactions, and that promptly forward customer funds and securities.

Key Requirements

Quarterly count, (b)(1): At least once each calendar quarter, physically examine and count all securities held, including securities subject to repurchase or reverse repurchase agreements.
Securities not in possession, (b)(2): Account for securities in transfer, in transit, pledged, loaned, borrowed, deposited, failed to receive or deliver, or otherwise under the firm's control but not in its possession, by comparing the supporting detail records with the ledger control accounts.
Aged positions, (b)(3): Verify any of those securities that have been in that status for longer than 30 days.
Comparison to records, (b)(4): Compare the results of the count and verification with the firm's records.
Unresolved differences, (b)(5): 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.
Cyclical counts, (c): The count may be made as of one date or on a cycle, but a cycle can't extend beyond one calendar quarter.
Separation of duties, (d): The count, verification, and comparison must be made or supervised by people whose regular duties don't include direct responsibility for the securities or for preparing or keeping the related records.

How Loffa Helps You Comply

Quarterly Broker Statement (QBS)

Confirmation letters: QBS generates and tracks (b)(3) confirmation letters for positions open more than 30 days, monitors counterparty responses, and flags non-responses for alternative verification.
Discrepancy management: QBS surfaces count discrepancies, tracks each against the 7-business-day recording deadline, and posts unresolved differences to the security count difference account.
Timing and separation of duties: QBS enforces the 2-to-4-month spacing between counts, and its separation-of-duties controls keep the count supervised by people independent of the securities and records.
Records: Every confirmation, counterparty response, count record, and difference resolution is archived with a time-stamped audit trail and kept for 8 years.

Recent Updates

Integration with T+1: The move to T+1 settlement (May 2024) has increased the pace of securities movement. Timely and accurate quarterly counts are more critical than ever.