Federal Register/Vol. 71, No. 124/Wednesday, June

36840 Federal Register / Vol. 71, No. 124 / Wednesday, June 28, 2006 / Notices provide for the transactions described I. Self-Regulatory Organization’s ember has a reasonable basis to believe herein, the requested exemptions from Statement of the Terms of Substance of that. Sections 9(a), 13(a), 15(a), and 15(b) of the Proposed Rule (A) The customer has been informed the 1940 Act and Rules 6e–2(b)(15) and NASD is proposing a new rule, NASD of the material features of a deferred 6e–3(T)(b)(15) thereunder, in Rule 2821, that would set forth variable annuity, such as the potential accordance with the standards of recommendation requirements surrender period and surrender charge; Section 6(c) of the 1940 Act, are in the (including a suitability obligation), potential tax penalty if the customer public interest and consistent with the principal review and approval sells or redeems the deferred variable protection of investors and the purpose annuity before he or she reaches the age requirements, and supervisory and 1 fairly intended by the policy and training requirements tailored of 59 ⁄2; mortality and expense fees; provisiosn of the 1940 Act. specifically to transactions in deferred investment advisory fees; potential charges for and features of riders; the For the Commission, by the Division of variable annuities. Below is the Investment Management, pursuant to amended text of the proposed rule. insurance and investment components of a deferred variable annuity; and delegated authority. * * * * * J. Lynn Taylor, market risk; 2821. Members’ Responsibilities (B) The customer would benefit from Assistant Secretary. Regarding Deferred Variable Annuities the unique features of a deferred [FR Doc. 06–5747 Filed 6–27–06; 8:45 am] variable annuity (e.g., tax-deferred BILLING CODE 8010–01–M (a) General Considerations growth, annuitization or a death (1) Application benefit); and This Rule applies to the purchase or (C) The particular deferred variable SECURITIES AND EXCHANGE annuity as a whole, the underlying COMMISSION exchange of a deferred variable annuity and the subaccount allocations. This subaccounts to which funds are Rule does not apply to reallocations of allocated at the time of the purchase or [Release No. 34–54023; File No. SR–NASD– subaccounts made or to funds paid after exchange of the deferred variable 2004–183] the initial purchase or exchange of a annuity and riders and similar product deferred variable annuity. This Rule enhancements, if any, are suitable (and, Self-Regulatory Organizations: in the case of an exchange, the National Association of Securities also does not apply to deferred variable annuity transactions made in transaction as a whole also is suitable) Dealers, Inc.; Notice of Filing for the particular customer based ont he Amendment No. 2 to Proposed Rule connection with any tax-qualified, employer-sponsored retirement or information required by paragraph (b)(2) Relating to Sales Practice Standards of this Rule. and Supervisory Requirements for benefit plan that either is defined as a ‘‘qualified plan’’ under Section These determinations shall be Transactions in Deferred Variable documented and signed by the Annuities 3(a)(12)(C) of the Securities Exchange Act of 1934 or meets the requirements associated person recommending the June 21, 2006. of Internal Revenue Code Sections transaction. (2) Prior to recommending the Pursuant to section 19(b)(1) of the 403(b), 457(b) or 457(f), unless, in the case of any such plan, a member makes purchase or exchange of a deferred Securities Exchange Act of 1934 variable annuity, a member or person (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 recommendations to an individual plan participant regarding a deferred variable associated with a member shall make notice is hereby given that on December reasonable efforts to obtain, at a 14, 2004, NASD filed with the Securities annuity, in which case the Rule would apply as to the individual plan minimum, information concerning the and Exchange Commission (‘‘SEC’’ or customer’s age, annual income, ‘‘Commission’’), the proposed rule. participant to whom the member makes such recommendations. financial situation and needs, NASD filed amendment No. 1 on July 8, investment experience, investment 2005, which replaced and superseded (2) Creation, Storage and Transmission objectives, intended use of the deferred the text of the original rule filing. The of Documents variable annuity, investment time proposed rule, as amended by For purposes of this Rule, documents horizon, existing investment and life Amendment No. 1, was published for insurance holdings, liquidity needs, comment in the Federal Register on July may be created, stored and transmitted 3 in electronic or paper form, and liquid net worth, risk tolerance, tax 21, 2005. The Commission received status and such other information used approximately 1500 comments on the signatures may be evidenced in 4 electronic or other written form. or considered to be reasonable by the proposal. NASD filed Amendment No. member or person associated with the 2 on May 4, 2006, which addressed the (3) Definitions member in making recommendations to comments and proposed responsive For purposes of this Rule, the term customers. amendments. Amendment No. 2 is ‘‘registered principal’’ shall mean a (c) Principal Review and Approval described in Items I, II and III below, person registered as a General Securities which Items have been prepared by Sales Supervisor (Series 9/10), a General (1) No later than two business days NASD. The Commission is publishing Securities Principal (Series 24) or an following the date when a member or this notice to solicit comments on Investment Company Products/Variable person associated with a member Amendment No. 2 to the proposed rule Contracts Principal (Series 26), as transmits a customer’s application for a from interested persons. applicable. deferred variable annuity to the issuing insurance company for processing and 1 15 U.S.C. 78s(b)(1). (b) Recommendation Requirements irrespective of whether the transaction 2 17 CFR 240.19b–4. (1) No member or person associated has been recommended, a registered 3 See Exchange Act. Re. No. 52046A (July 19, with a member shall recommend to any principal shall review and determine 2005); 70 FR 42126 (July 21, 2005) (SR–NASD– 2004–183). customer the purchase or exchange of a whether he or she approves of the 4 Approximately 1300 of these comments were deferred variable annuity unless such purchase or exchange of the deferred virtually identical. member or person associated with a variable annuity. In reviewing the VerDate Aug<31>2005 16:52 Jun 27, 2006 Jkt 208001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 E:\FR\FM\28JNN1.SGM 28JNN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 71, No. 124 / Wednesday, June 28, 2006 / Notices 36841 purchase or exchange of a deferred principal to consider those items on members for transactions in deferred variable annuity, the registered enumerated in paragraph (c) of this variable annuities.6 In general, NASD’s principal shall consider. Rule, as well as whether the associated guidelines on deferred variable annuity (A) The extent to which the customer person effecting the transaction has a transactions, developed with substantial would benefit from the unique features particularly high rate of effecting input from industry participants and of a deferred variable annuity (e.g., tax- deferred variable annuity exchanges. published in Notice to Members 99–35, deferred growth, annunciation or a served as the basis for the proposed (e) Training death benefit); rule. (B) The extent to which the Members shall develop and document The proposed rule would apply to the customer’s age or liquidity needs make specific training policies or programs purchase or exchange of a deferred the investment inappropriate; reasonably designed to ensure that variable annuity and the initial (C) The extent to which the amount of associated persons who effect and subaccount allocations.7 The proposed money invested would result in an registered principals who review rule would not apply to reallocations of undue concentration in a deferred transactions in deferred variable subaccounts or to funds paid after the variable annuity or deferred variable annuities comply with the requirements initial purchase or exchange of a annuities in the context of the of this Rule and that they understand customer’s overall investment portfolio; the material features of deferred variable 6 A variable annuity, in general, is a cotnract and annuities, including those described in between an investor and an insurance company (D) If the transaction involves an whereby the insurance company promises to make paragraph (b)(1)(A) of this Rule. periodic payments to the contract owner or exchange of a deferred variable annuity, * * * * * beneficiary, starting immediately (an immediate the extent to which (i) the customer variable annuity) or at some future time (a deferred would incur a surrender charge, be II. Self-Regulatory Organization’s variable annuity). See Joint SEC and NASD Staff subject to the commencement of a new Statement of the Purpose of, and Report on Broker-Dealer Sales of Variable Insurance Products (June 2004) (‘‘Joint Report’’); NASD Notice surrender period, lose death or existing Statutory Basis for, the Proposed Rule to Members 99–35 (May 1999). The proposed rule benefits, or be subject to increased fees In its filing with the Commission, focuses exclusively on transactions in deferred or charges (such as mortality and NASD included statements concerning variable annuities. NASD recognizes that expense fees, investment advisory fees transactions involving immediate variable annuities the purpose of and basis for the have begun to increase recently, and NASD will and charges for riders and similar proposed rule and discussed the continue to monitor sales practices relating to these product enhancements), (ii) the comments it received on the proposed products. Currently, however, deferred variable customer would benefit from any annuities make up the majority of variable annuity rule.

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