Unconfirmed Positions: What a 17a-13 Quarterly Verification Can Reveal

Updated October 2026.

Once a quarter, SEC Rule 17a-13 makes a broker-dealer test its stock record against something outside the firm. Paragraph (b)(3) covers securities the firm doesn't physically hold: those in transfer or transit, pledged, loaned, borrowed, deposited, failed to receive or deliver, or subject to a repo or reverse repo. If a position has been in that status for longer than 30 days, the firm must verify it. The rule doesn't say how. FINRA's interpretation 17a-13(b)/03 adds one detail for loans and borrows: statements from the LOANET service don't satisfy the requirement "unless verified and signed by the counterparty." In other words, the verification comes from the other side of the position.

A difference that comes back can be a simple break, such as a late booking, a wrong quantity, or a return the other side hasn't processed. This page is about the other kind. A position on the firm's books that no third party will confirm is also what a hidden loss or a misappropriation looks like from the outside, and that's when an operations exception becomes a fraud or AML question. For how the quarterly verification itself runs, see our guide to Rule 17a-13(b)(3).

Why the Rule Asks Someone Else

The stock record is the firm's own account of what it has and where. Anyone who can post entries to it can make it say something false, and a false entry reconciles perfectly with itself. Rule 17a-13 answers that in two places. Paragraph (b)(3) sends the question outside the firm. Paragraph (d) says the examination, count, verification, and comparison "shall be made or supervised by persons whose regular duties do not require them to have direct responsibility for the proper care and protection of the securities or the making or preservation of the subject records."

The net capital rule takes the same view of a position nobody can check. Rule 15c3-1(c)(2)(v) counts "securities positions reflected on the securities record which are not susceptible to either count or confirmation" as short securities differences. It deducts the market value of an unresolved short difference on a schedule that runs from discovery: 25% after 7 business days, 50% after 14, 75% after 21, and 100% after 28. For capital purposes, a position the firm can neither count nor confirm is treated as missing.

Two Cases

IFS Securities: Fake Trades the Other Broker Never Saw

The SEC's September 2021 complaint against Keith Wakefield, former head of fixed income trading at IFS Securities in Atlanta, alleges that he hid unauthorized Treasury trading in mid-2019 with fake trades. He made real short sales through one clearing broker. Then he entered fake offsetting trades into that broker's order system. The purported counterparty on each was an IFS customer omnibus account at a second clearing broker. According to the complaint, the second broker "was given no instructions for this fake trade." The fake prices produced paper profits of about $4.18 million across 15 occasions, against about $48,000 of real profit on those trades.

Each fake trade started to fail, because the second broker had nothing to match it against. The complaint says Wakefield then entered a second fake trade on the same terms, and the first broker paired the two off. Because the terms matched, "neither trade would remain on Broker-Dealer 1's failed trade list." In August 2019, counterparties contacted IFS about trades it couldn't honor. IFS spent about $5.3 million of capital trying to cover more than $24 million in losses and filed for bankruptcy on April 24, 2020. A judgment was entered against Wakefield by consent on October 15, 2021, and the SEC barred him from the industry in its November 1, 2021 order.

The lesson for a (b)(3) process is about reach. In the complaint's example, a fake trade lived six days, from June 20 to June 26, 2019. Each one named an account at a broker that had no instructions for it. The 30-day verification finds positions that sit, and a position that's opened and closed inside a month never reaches it. In this case, the evidence was in the pair-offs and the replacement trades.

Peregrine Financial: A Confirmation Sent to the Fraudster

This is a futures case, outside Rule 17a-13, but it shows what a confirmation is worth when the firm controls where it goes. Russell Wasendorf, owner and CEO of Peregrine Financial Group, misappropriated more than $215 million in customer funds. According to the CFTC's August 26, 2013 order against Peregrine's auditor, he falsified bank statements for at least ten years. The statements gave U.S. Bank's address as a post office box in Cedar Falls, Iowa, which he controlled. The auditor mailed her confirmation requests there, and Wasendorf forged bank employees' signatures and sent them back. The order found that she "relied on Peregrine's accounting staff to prepare the confirmation request, identify the proper recipient, and obtain Wasendorf's authorization." At the end of 2011, the account his statements showed holding hundreds of millions of dollars held about $6 million. Peregrine filed for bankruptcy on July 9, 2012.

Paragraph (d)'s separation of duties applies to the mail as much as to the vault. Take each counterparty's contact details from a source the desk and the stock record staff can't edit, and send the responses to someone outside both.

What the Firm Does With an Unresolved Difference

Record it. Under paragraph (b)(5), the firm records every unresolved difference, with the security and the date of comparison, in a security count difference account no later than 7 business days after the quarterly examination.
Take the capital charge. The 15c3-1 schedule above applies to short differences. The firm's designated examining authority can extend those periods by up to 10 business days if it finds exceptional circumstances.
Find out why, and decide who else needs to know. A break goes back to operations. An explanation that points to an employee, a customer, or a counterparty using the firm to hide a loss or move securities goes to the AML compliance person as well.

When a Difference Becomes an AML Question

The SAR rule isn't limited to laundering customer money. 31 CFR 1023.320 requires a report on a transaction of at least $5,000 conducted or attempted through the firm when the firm "knows, suspects, or has reason to suspect" that it "involves use of the broker-dealer to facilitate criminal activity" or "has no business or apparent lawful purpose," among other grounds. A fictitious position booked to hide a trading loss can meet that test. So can a loan or a fail entered to cover securities that have left the firm. The report is due 30 calendar days after initial detection, or up to 60 if no suspect has been identified. The AML team should hear about a suspicious explanation while operations is still investigating it.

FINRA Rule 3310 requires AML policies that "can be reasonably expected to detect" suspicious transactions and cause them to be reported. If your count difference account has no written route to the AML compliance person, add one: which explanations go there, who sends them, and how fast.

Where QBS Fits

Quarterly Broker Statement (QBS) generates and tracks the (b)(3) confirmations for positions open 30 days or more, flags non-responses, and tracks count differences against the 7-business-day deadline. It posts unresolved differences to the security count difference account and keeps every confirmation, response, and resolution with a time-stamped audit trail for eight years. QBS doesn't judge whether a difference is suspicious or look for patterns. That review belongs to the firm's operations and AML staff, and the QBS record is what they work from.

This page is for informational purposes only and does not constitute legal advice. For guidance on specific regulatory obligations, consult your counsel or compliance advisor.