Series 14: 5.1.5.1. Taping Rule

5.1.5.1. Taping Rule

Each member firm must adopt special supervisory procedures over the telemarketing activities of all its registered personnel if the member firm is found to employ an excessive number of registered persons who have previously been associated with a disciplined firm during the past three years. A disciplined firm is one that has been expelled from membership in any self-regulatory organization or is subject to an SEC order revoking its registration as a broker-dealer or futures commission merchant.

Whether the taping rule goes into effect depends on the member firm’s size. The taping rule will be employed if the number of registered representatives that were previously employed by a disciplined firm reaches or exceeds the following thresholds: 40%, if it employs between 5 and 9 registered personnel; 4, if the firm employs between 10 and 19 registered persons; and 20%, if it employs 20 or more registered persons. A firm that employs 51 registered representatives may employ up to 10 from a disciplined firm without invoking the taping rule. A firm of 5 registered representatives may employ only one, since a second registered representative from a disciplined firm would hit the 40% cut-off.

A firm that is subject to the taping rule is given a one-time chance to lower its number of representatives from a disciplined firm to below the threshold by firing some of the reps from disciplined firms. This is often referred to as “opting out” of the requirements of the rule. If the firm chooses to opt out, it must reduce its staff within 30 days of receiving notice from FINRA or discovering that it has trigger