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ESG compliance report excerpt, Part 5: Compliance in financial services

Compliance: The effect on information management and the storage industry
Published: May 2003
By Peter A. Gerr, Brian Babineau and Patrick C. Gordon, The Enterprise Storage Group


Table of Contents

Introduction

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Main research themes
Research scope and highlights
Compliance in the financial services industry
Compliance in the life sciences industry
Compliance in the healthcare industry
Compliance in the government industry
Conclusion


Compliance in the financial services industry
(The Securities and Exchange Act of 1934, Rules 17a-3 and 4)

During the 1990s, transactions in American capital markets increased at a frenetic pace. The NYSE, AMEX, and NASDAQ all went through several periods of setting new trading volume records almost daily. Technology stocks, associated initial public offerings (IPOs), day trading, and the emergence of electronic brokerage accounts all exponentially increased both demand and capacity for transactions (especially orders and balance requests). In this volatile environment, markets teetered on a precipice of chaos and confusion.

Concurrently, correspondence between trading parties was increasingly conducted through e-mail -- a disruptive messaging medium adopted at lightening speed -- before regulators could respond with clear-cut regulations and before legal departments could establish polices, procedures, and controls to protect investors.

This problem was further exacerbated by the fact that e-mail was often managed by freewheeling, e-business messaging groups as opposed to the more highly structured data center operations groups that traditionally protected critical enterprise data.

SEC-compliant record archiving and retention is now a pain point at the highest management levels in financial services firms. This pain is often compounded by a general lack of awareness of the issues that need to be addressed. This has opened a new window of opportunity for storage vendors, particularly those who get to market in 2003 with innovative SEC-compliant storage media.

If they combine that compliant storage media with newly developed partnerships with e-mail and record management vendors, they will be strongly positioned to prosper.

The volume of records that need to be retained in accordance with 17a-3 and 17a-4 are increasing in number and scope. E-mail, instant messaging and text paging are all new record generators.

From the SEC's perspective, these records are also means of evidence. The SEC wants the ability to search the information and retrieve those records or portions of records deemed relevant in a reasonable manner and timeframe.

For broker/dealers, their major impediment is to balance sources of information with the appropriate record retention procedures. They need to retain the right information for the appropriate periods of time.

In between these two constituents lies the technology vendor trying to satisfy both of these requirements.

(See chart 15 for the key market drivers and storage requirements impacting the financial services industry.)

--Return to table of contents--


The above information was excerpted by permission from the Enterprise Storage Group executive summary to the research report, "Compliance: The effect on information management and the storage industry," published in May 2003. To learn more about the full report, contact the Enterprise Storage Group.

Copyright 2003, Enterprise Storage Group

Peter Gerr is a senior research analyst at the Enterprise Storage Group. He will be speaking about the IT impact on compliance legislation at Storage Decisions 2003.

This was first published in June 2003

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