Chapter 9.5

Question 1

Taping Rules

Answer 1

Apply to member firms that have been disciplined or hire a certain percentage of registered persons who have been employed by “Disciplined Firms” meaning the firm has at least 20 RRs where 20% or more of the RRs are from disciplined firms in the last 3 years. These maintain and enforce special written supervisory procedure relating to the telemarketing activities of their registered persons

Question 2

Taping Rules Specifics

Answer 2

• Member firms must tape record all telephone conversations between the member firms registered persons and both existing and potential customers
• A disciplined firm is defined as a firm that has been expelled from membership or had their registration revoked for sales practice violations
• Member firms that become subject to the rule for the 1st time have the opportunity to avoid being subject to the taping rule by reducing their staff levels from disciplined firms if that reduction occurs within 30 days after receiving notice that they are subject to the rule. Persons who were registered with a disciplined firm for 90 days or less within the last 3 years and have no disciplinary history are excluded from the count
• After becoming subject to the taping rules, a member firm has 60 days to install a taping system. The taping procedures must be maintainted for a period of 3 years from the date that the member establishes the procedures
• All tape recordings must be maintained for 3 years from the date that the tape was created, the first 2 years in a readily accessible location. The tapes must be cataloged by a registered person and dated
• By the 30th day of the month following the end of each calendar quarter, member firms must file a report with FINRA with regard to the supervision of their telemarketing activities of registered persons
• FINRA will make available to the public a listing of all firms subject to the taping rules through it’s public disclosure toll free telephone number and on it’s website

Question 3

Reporting requirements for Member-Firms

Answer 3

Each member must promptly report to FINRA whenever the member or any person associated with a member:

• Has been found to have violated any provision of any securities, insurance, or commodities law
• Is subject of any written customer involving allegations of theft or misappropriation of funds or securities or forgery
• Is named as defendant or respondent in any proceeding brought by a regulatory organization
• Is denied registration or is expelled, enjoined, or directed to cease and desist
• Is indicted or convicted of any felony; or misdemeanor that involves securities, false oaths, bribery, perjury, theft, counterfeiting, embezzlement, or misappropriation of funds or securities
• Is a director, controlling stockholder, partner, officer, or sole proprietor of a B/D, investment company, investment advisor, underwriter, or insurance company which was suspended, expelled or had its registration denied or revoked
• Is a defendant or respondent in any securities or commodities related civil litigation or arbitration which has received a judgment, award or settlement exceeding $15,000($25,000 if it is the firm, not a person).
• Is the subject of any claim for damages by a customer or a B/D which is settled for an amount exceeding $15,000($25,000 for a firm)
• Is associated in any business or financial activity with any person who is subject to a “Statutory disqualification”. RR’s convicted of a felony involving the sale of a security will be subject to statutory disqualification for a period of 10 years
• Is the subject of any disciplinary action taken by the member against any person associated with the member involving suspension, termination, or the withholding of commission nor imposition of fines in excess of $2,500.

Question 4

When reporting internal conclusions of violations, at a minimum, a firms procedures should:

Answer 4

• Clearly identify the person responsible for determining whether a violation has occurred and whether it is of a nature that requires reporting
• Provide the protocol for escalating violations, and potential violations, to such persons
• Provide a protocol regarding the reporting of internal conclusions of violations within 30 days after the firm has concluded that a violation has occurred.