Taping Rule (Securities) - Explained
What is the Taping Rule?
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Table of ContentsWhat is the Taping Rule?How Does the the Taping Rule Work?Example of How the Taping Rule WorksTaping Rule HistoryTaping Rule - Firm Supervision in Practice
What is the Taping Rule?
The taping rule refers to disciplinary measure, which was approved by the National Association of Securities Dealers (NASD). This was to be applied to firms that have surpassed the specified hiring percentage of their employees, from firms whose registration has been revoked for having gone against the trading regulations.
How Does the the Taping Rule Work?
Taping rule is used to address the situations as well as special oversight requirements where a large number of individuals who are disciplined and also former employees of a firm whose registration have been revoked.
Example of How the Taping Rule Works
Lets assume that a dealer who is a broker hires given number of staff whose membership has been expelled. In this case, taping of the existing as well as potential clients will be necessary. Note that the threshold required by the firm to tape-record calls is highly dependent on the overall registered reps number. For instance, lets assume that a firm has 20 or above 20 registered reps. So if 20% of the reps are from the discipline firms, then it means that the taping rule must be implemented. Also, when a firm passes the threshold, then it will take up to 60 days to begin the taping. However, the 60 days requirement can be avoided, if, within the time frame of 30 days, the disciplined reps headcount is reduced by the firm. In case the firm does not manage to do this within the 30 days, then taping within 30 days will be implemented by the firm. This is so because the out of the 60 days, 30 days were used to attempt to reduce headcount.
Lets assume that a firm passes the threshold on April 1. In this case, the firm will have 30 days from April 1, to do a headcount reduction. If it fails to do it, then the firm will have to start taping calls by May 30. This is 60 days from April 1.
Taping Rule History
The taping rule can be traced back on December 1, 2014, and was accepted into the consolidated Financial Industry Regulatory Authority (FINRA) Rulebook hence substituting NASD Rule. However, the raping rules provisions were effected in 1990 after the amendments of the NADS rule by the Securities and Exchange Commission (SEC). That which was approved by SEC is that members should enforce uphold the supervisory procedures that have been written, and this includes conversations tape recording. This is if the firm has hired more than the percentage that has been specified in the registered persons from specific firms which are under expulsion or whose brokers registrations has been revoked as a result of violating the sales practice rules
Taping Rule - Firm Supervision in Practice
The taping rule as provided under FINRA, a firm has an obligation of ensuring that it establishes, enforces, and maintains the written procedures. This involves registered persons telemarketing activities supervision such as conversations tape recording. This applies only if the hiring of the registered persons by the firm surpasses the percentage that has been specified from firms which meet FINRA Rule 3170s. A Disciplined Firms List provided by FINRA, helps firms to comply with FINRA Rule 3170 and also to be able to identify the firms that meet all the requirements that make them a disciplined firm. Also, as to whether or not the supervisory procedures require to be enacted, the percentage to be used to determine this will depend on the firms size. The percentage range for a small-sized firm is 40% while that of a large firm is 20%. The procedures for supervisory include recording of telephone conversations between registered employees and prospective/existing customers for a period of three years. Generally, it is important for the firms to do a regular tape recording of each means of telecommunication of its registered employees. This should be done whenever they are communicating with the customers using landlines as well as cellular phones. Where tape recording of cellular phone happens to be impossible, then communication with customers using cellular phones must be prohibited by the firm. Not unless their use is really necessary for other business-related reasons.