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FINRA Manual
Corporate Organization Notices
2005
05-85 SEC Approves a Proposed Rule Change to Revise the Mediation Rules of the NASD Code of Arbitration Procedure; Effective January 30, 2006
05-82 SEC Approves Amendments to Arbitration Fees Applicable to Certain Statutory Employment Discrimination Claims; Effective Date: January 17, 2006
05-80 SEC Approves Amendments to IM-8310-2 Regarding the Publication of Decisions Issued by the National Adjudicatory Council (NAC) Pursuant to NASD Rule 1015; Effective Date: January 12, 2006
05-79 Amendments to Section 4 of Schedule A to the NASD By-Laws Governing Continuing Education Regulatory Element and Qualification Examination Fees; Implementation Date: January 1, 2006
05-77 Transactions in TRACE-Eligible Securities That Occur in Connection with Options, Credit Default Swaps, Other Swaps or Similar Instruments Must Be Reported to TRACE
05-73 Broker-Dealer, Investment Adviser Firm, Agent and Investment Adviser Representative Renewals for 2006; Payment Deadline: December 14, 2005
05-72 SEC Approves Amendments to NASD Rule 3150, Regarding Reporting Requirements for Clearing Firms, and NASD Rule 3230, Regarding Requirements for Clearing Agreements
05-69 SEC Approves New Rule 2111 Prohibiting Members from Trading Ahead of Customer Market Orders Under Certain Circumstances
05-66 SEC Approves Uniform Branch Office Registration Form (Form BR) and Conforming and Technical Changes to Forms U4 and U5
05-64 SEC Approves Amendments to IM-2110-2 to Require Members to Provide Price Improvement to Customer Limit Orders in Certain Circumstances and to Expand IM-2110-2 to Exchange-Listed Securities
05-63 NASD Seeks Comment on Increasing the Frequency of Short Interest Reporting; Comment Period Expired November 29, 2005
05-61 NASD Solicits Member Comment on Possible Realignment of the Trading Activity Fee; Comment Period Expired October 31, 2005
05-60 Important Information Regarding the Suspension of Trading in the Securities of Bancorp International Group, Inc. (BCIT.PK)
05-58 Intermarket Surveillance Group (ISG)1 Requires Validation of Electronic Blue Sheet Submissions
05-55 SEC Approves Amendments to IM-10104 to Provide Payment to Arbitrators for Deciding Discovery-Related Motions
05-54 NASD Announces Nominee for Regional Industry Member Vacancy on the National Adjudicatory Council
05-52 SEC Approves Amendments to TRACE Fee Structure Establishing an Enterprise Fee and Lowering Fee for Receipt of Real-Time TRACE Transaction Data via Web Browser
05-43 NASD Announces Nomination Procedures for Regional Industry Member Vacancies on the National Adjudicatory Council
05-42 NASD Informs Members of Upcoming District Committee and District Nominating Committee Elections
05-40 NASD Requests Comment on Proposal to Prohibit All Product-Specific Sales Contests and to Apply Non-Cash Compensation Rules to Sales of All Securities Comment Period Expired August 5, 2005
05-38 NASD Reminds Broker-Dealers of Their Responsibilities Regarding Deficits in Introduced Accounts; Immediate Action May Be Required to Ensure Compliance
05-37 NASD Restructures Certain TRACE Fees for Market Data and Amends the Definition of "Non-Professional" in Connection with TRACE Market Data
05-36 SEC Approves New Interpretive Material to Rule 10308 Regarding Arbitrators Who Also Serve as Mediators
05-35 SEC Approves Amendments to IM-10104 and Rule 10315 to Permit Arbitrations in Foreign Hearing Locations
05-34 SEC Approves Amendments to Rule 2711 to Prohibit Research Analysts from Participating in a Road Show and from Communicating with Customers in the Presence of Investment Banking Personnel or Company Management about an Investment Banking Services Transaction
05-32 SEC Approves Amendments to NASD Rule Governing Predispute Arbitration Agreements with Customers
05-31 Pilot Program to Increase Position and Exercise Limits for Equity Options and New Reverse Collar Strategy Added to Equity Option Hedge Exemptions
05-30 SEC Approves New Alternative Display Facility (ADF) Pilot Rule Giving NASD Authority to Receive and Review Complaints Alleging Denial of Access to an ADF Market Participant Quote
05-29 Guidance Regarding Rule 3012(a)(1) Requirement to Test and Verify a Member's Supervisory Policies and Procedures
05-28 NASD Reminds Members that the TRACE Reporting Period Will Be Reduced to 15 Minutes on July 1, 2005, and Rescinds Interpretive Guidance Regarding Rejected TRACE Transaction Reports
05-27 NASD Requests Comment on Proposal to Require Principal Pre-Use Approval of Member Correspondence to 25 or More Existing Retail Customers within a 30-Calendar-Day Period (Comment Period Expired May 27, 2005)
05-25 NASD Requests Comment on Proposal to Require Pre-Use Filing of Advertisements and Sales Literature for New Types of Securities and of Television, Video and Radio Advertisements (Comment Period Expired May 20, 2005)
05-24 NASD Announces Exemption from the Research Analyst Qualification Requirements (Series 86 and 87) for Certain Employees of Foreign Affiliates Who Contribute to Member Research Reports
05-22 New Electronic Reporting Requirements for Large Options Positions Reports for Filing of Reportable Conventional Options Positions
05-21 NASD Requests Comment on Proposed Rule Requiring Members to Provide Additional Disclosures for Transactions in Debt Securities
05-20 NASD Announces Effective Date of April 4, 2005 for Amendments to Rule 1120 to Eliminate Exemptions from the Continuing Education Regulatory Element Requirements
05-18 NASD Issues Guidance on Section 1031 Tax-Deferred Exchanges of Real Property for Certain Tenants-in-Common Interests in Real Property Offerings
05-14 NASD Announces Exemption from the Analysis Portion of the Research Analyst Qualification Examination (Series 86) for Certain Applicants Who Prepare Only "Technical Research Reports"
05-13 NASD Reminds Firms of April 4, 2005, Expiration Date of Grace Period to Meet NASD Research Analyst Qualification and Examination Requirements (Series 86/87)
05-12 SEC Approves Amendments to Rule 9522 Regarding Applications of Statutorily Disqualified Persons Who Will Be Engaged Solely in Clerical and/or Ministerial Activities
05-11 NASD Issues Further Guidance Regarding Members' Obligations under Section 3 of Schedule A to the NASD By-Laws; NASD Also Seeks Member Comment on Related Automation Issues; (Comment Period Expired March 30, 2005)
05-09 NASD Amends Rule Governing Predispute Arbitration with Customers (The compliance date of new Rule 3110(f)(1) requirements has been extended to June 1, 2005.)
05-08 Guidance Regarding the Application of the Supervisory Control Amendments to Members' Securities Activities, Including Members' Institutional Securities Activities
05-07 SEC Approves Amendments to Rule 2212 Concerning Frequency of Updates From the National Do-Not-Call Registry
05-05 NASD Eliminates the TRACE Bond Transaction Data Service (BTDS) Non-Professional Real-Time Data Display Fee and the BTDS Professional Delayed-Time Data Display Fee Pilot Program
05-04 SEC Approves Amendments to NASD Rule 2830(k) to Strengthen Prohibitions on Investment Company Directed Brokerage Arrangements
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05-46 SEC Approves Amendments Relating to Taping Rule "Opt Out" and Exemption Provisions
GUIDANCE
Taping Rule
Effective Date: August 1, 2005
| SUGGESTED ROUTING |
KEY TOPICS |
| Executive Representatives Legal & Compliance Senior Management |
Rule 3010 Taping Rule |
Executive Summary
On May 5, 2005, the Securities and Exchange Commission approved amendments to paragraph (L) of Rule 3010(b)(2) (Taping Rule or Rule). The amendments require member firms that are seeking an exemption from the Rule to submit their exemption requests to NASD within 30 days of receiving notice from NASD or obtaining actual knowledge that they are subject to the provisions of the Rule. The amendments also clarify that firms that trigger application of the Taping Rule for the first time can elect to either avail themselves of the one-time "opt out provision" or seek an exemption from the Rule, but they may not seek both options.1
The Rule, as amended, is set forth in Attachment A. The amendments become effective on August 1, 2005.
Questions/Further Information
Questions concerning this Notice may be directed to Afshin Atabaki, Counsel, Office of General Counsel, Regulatory Policy and Oversight, at (202) 728-8902; or Courtney A. Dinsmore, Senior Attorney, Department of Member Regulation, at (202) 728-8402.
Background and Discussion
The Taping Rule, which has been in effect since 1998, is designed to ensure that members with a significant number of registered persons that previously were employed by firms that have been expelled from membership or have had their registrations revoked for sales practice violations (Disciplined Firms) have proper supervisory procedures in place relating to telemarketing activities to prevent fraudulent and improper sales practices or other customer harm.
Under the Rule, member firms that hire a specified number of registered persons from Disciplined Firms must establish, maintain, and enforce special written procedures for supervising the telemarketing activities of all their registered persons. Such procedures must include tape-recording all telephone conversations between such firms' registered persons and both existing and potential customers. The Rule provides firms up to 60 days from the date they receive notice from NASD or obtain actual knowledge that they are subject to the provisions of the Rule to establish and implement the required supervisory procedures, including installing taping systems. Such firms also are required to review the tape recordings, maintain appropriate records, and file quarterly reports with NASD.
The Taping Rule permits member firms that become subject to the Rule for the first time a one-time opportunity to adjust their staffing levels to fall below the prescribed threshold levels and thus avoid application of the Rule (often referred to as the "opt out provision"). A firm that elects this one-time option must reduce its staffing levels to fall below the applicable threshold levels within 30 days after receiving notice from NASD or obtaining actual knowledge that it is subject to the provisions of the Rule. Once a firm has made the reductions, the firm is not permitted to rehire the terminated individuals for at least 180 days.
NASD also has the authority to grant exemptions from the Rule in "exceptional circumstances." In reviewing exemption requests, NASD generally has required a firm to establish that it has alternative procedures to assure supervision at a level functionally equivalent to a taping system. Prior to these amendments to Rule 3010(b)(2)(L), the Rule was silent on the time frame for submitting an exemption request. However, because the Rule provides a firm a total of 60 days from the date it receives notice from NASD or obtains actual knowledge that it is subject to the provisions of the Rule to implement the required supervisory procedures, a firm implicitly had that 60-day period to submit an exemption request.
A firm that submits an exemption request is not required to establish and implement the required supervisory procedures, including the taping system (i.e., such requirements are "tolled") while the staff is reviewing the request and during the course of any subsequent appeals to NASD's National Adjudicatory Council (NAC). NASD tolls the Taping Rule's requirements during the exemption appeal process primarily due to the significant costs involved with installing a taping system and the possibility that the staff or NAC will grant the exemption. At the same time, firms often waited until the 60th day (or shortly before) to request the exemption, which, assuming the exemption was not granted, only further prolonged the establishment and implementation of the required supervisory procedures.
To reduce these possible delays in implementation of the Taping Rule requirements, NASD has amended Rule 3010(b)(2)(L) to require firms that are seeking an exemption from the provisions of the Rule to submit their exemption requests to NASD within 30 days of receiving notice from NASD or obtaining actual knowledge that they are subject to the provisions of the Rule. Specifying a time frame for submitting an exemption request is consistent with the investor protection concerns that the Rule is intended to address, especially given that the requirement to establish and implement the appropriate supervisory procedures is tolled upon the submission of an exemption request. Moreover, based on NASD's experience, 30 days will provide ample time for firms to decide whether to seek an exemption and to submit their requests to NASD.
NASD also received inquiries from some firms as to whether they could elect to use the "opt out" while simultaneously seeking an exemption, with the goal being that the firm would be granted an exemption and be able to immediately rehire the persons whose employment was terminated as part of the "opt out" (rather than waiting the requisite 180 days). However, firms may not pursue these two alternatives simultaneously. A core purpose of the "opt out provision" is to provide relief to those firms that may have inadvertently or unintentionally become subject to the Taping Rule for the first time due, for example, to sudden turnover among registered persons or other events beyond the firm's control. In contrast, exemptions, which are granted only in "exceptional circumstances," are for those situations where the firm has demonstrated that it has supervisory procedures that are equivalent to a taping system or is otherwise in a truly unique situation. It would be inconsistent with the purposes of these two provisions to permit a firm to pursue both options with NASD, either simultaneously or one after the other.
Accordingly, NASD has amended Rule 3010(b)(2)(L) to clarify that firms that trigger application of the Taping Rule for the first time must elect to either avail themselves of the one-time "opt out provision" (i.e., make the staff adjustment to fall below the thresholds of the Rule) or seek an exemption from the Rule, but they may not elect to do both. Pursuant to the amended Rule, firms that become subject to the Taping Rule for the first time have 30 days to decide between the above options.
1 See Securities Exchange Act Release No. 51658 (May 5, 2005), 70 FR 24848 (May 11, 2005) (Order Granting Approval of Proposed Rule Change Relating to Taping Rule "Opt Out" and Exemption Provisions; File No. SR-NASD-2005-033).
ATTACHMENT A
New language is underlined; deleted language is in brackets.
3010. Supervision
