NASD Notice to Members 01-38 - June 2001

NASD Regulation Requests Comment on Proposed Amendments to the Taping Rule; Comment Period Expires July 25, 2001

Executive Summary

NASD Regulation, Inc. (NASD Regulation) requests comment on proposed amendments to Rule 3010(b)(2), commonly referred to as the Taping Rule.

 

In 1998, NASD Regulation adopted the Taping Rule in response to the findings of the "Joint Regulatory Sales Practice Sweep Report" (the "Report"), which found sales practice abuses at selected firms. Based upon the staff's experience applying the Taping Rule over the past two and one-half years, and input from the National Adjudicatory Council (NAC) and National Association of Securities Dealers, Inc. (NASD®) Committees, NASD Regulation believes that it is appropriate to amend the Taping Rule in certain respects. Generally, the proposed amendments are intended to refine the application of the Taping Rule and provide some additional flexibility to firms that trigger application of the Rule.

 

Specifically, NASD Regulation seeks comment on five proposed amendments to the Taping Rule that would: 1) add a provision to permit firms that become subject to the Rule 30 days to make a one-time downward adjustment to their roster of registered persons in order to fall below the prescribed Taping Rule threshold levels and thus avoid application of the Rule; 2) revise the criteria by which firms become subject to the Taping Rule by excluding short-term employees of disciplined firms from a firm's calculation of the threshold levels triggering application of the Rule; 3) expand the time period for implementation of the special supervisory procedures, including the installation of taping systems, required by the Rule from 30 days to 60 days; 4) narrow the NASD's authority to grant exemptions from the Rule pursuant to the Rule 9600 Series; and 5) extend the duration of special supervisory procedures, including taping requirements, from two years to three years.

 

In addition, NASD Regulation requests comment on whether the identity of firms subject to the Taping Rule should be publicly available.

 

Questions regarding this Notice may be directed to Greg Dean, Assistant General Counsel, Office of General Counsel, NASD Regulation, Inc., at (202) 728-8159.