[Federal Register Volume 73, Number 2 (Thursday, January 3, 2008)]
[Notices]
[Pages 531-533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25571]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57050; File No. SR-FINRA-2007-040]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Delay
Implementation of Certain FINRA Rule Changes Approved in SR-NASD-2004-
183
December 27, 2007.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 21, 2007, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by FINRA.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to delay the effective date of certain FINRA
rule changes approved in SR-NASD-2004-183 until August 4, 2008.
There are no new changes proposed to the text of the FINRA rules.
Paragraphs (a), (b), (d), and (e) of Rule 2821, approved pursuant to
SR-NASD-2004-183, will become effective on May 5, 2008.\3\ FINRA is
proposing to delay the effective date of paragraph (c) of Rule 2821,
also approved pursuant to SR-NASD-2004-183,\4\ until August 4, 2008.
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\3\ See Order Approving FINRA's NASD Rule 2821 Regarding
Members' Responsibilities for Deferred Variable Annuities (Approval
Order), Securities Exchange Act Release No. 56375 (September 7,
2007), 72 FR 52403 (September 13, 2007) (SR-NASD-2004-183);
Corrective Order, Securities Exchange Act Release No. 56375A
(September 14, 2007), 72 FR 53612 (September 19, 2007) (SR-NASD-
2004-183) (correcting the rule's effective date).
\4\ Id.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On September 7, 2007, the Commission noticed the filing of
Amendment Nos. 3 and 4 and granted accelerated approval of SR-NASD-
2004-183, FINRA's new NASD Rule 2821, regarding broker-dealers'
compliance and supervisory responsibilities for deferred variable
annuities.\5\ On November 6, 2007, FINRA published Regulatory Notice
07-53, which announced the Commission's approval of Rule 2821 (SR-NASD-
2004-183) and established May 5, 2008 as the rule's effective date.
Following Commission approval of the rule and publication of the
Regulatory Notice, several firms requested that the effective
[[Page 532]]
date of the approved rule be delayed to allow firms additional time to
make necessary systems changes. In addition, some firms raised various
concerns regarding paragraph (c) of Rule 2821 (Principal Review and
Approval), which had been substantially changed by Amendment No. 4.
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\5\ Id.
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Rule 2821(c), in part, requires principal review and approval
``[p]rior to transmitting a customer's application for a deferred
variable annuity to the issuing insurance company for processing, but
no later than seven business days after the customer signs the
application.'' A number of firms asserted that seven business days
beginning from the time when the customer signs the application may not
allow for a thorough principal review in all cases. These firms have
asked that a different timing mechanism be used.
Rule 2821(c) also states that a principal must treat ``all
transactions as if they have been recommended for purposes of this
principal review,'' and may only approve the transaction if he or she
determines ``that there is a reasonable basis to believe that the
transaction would be suitable based on the factors delineated in
paragraph (b) of this Rule.'' A principal who determines that the
transaction is unsuitable nonetheless may authorize the processing of
the transaction if the principal determines that the transaction was
not recommended and that the customer, after being informed of the
reason why the principal found it to be unsuitable, affirms that he or
she wants to proceed with the purchase or exchange of the deferred
variable annuity. Some firms questioned whether broker-dealers that do
not make any recommendations to customers (and generally do not employ
principals to perform suitability reviews) should be subject to this
provision.
Finally, in Regulatory Notice 07-53, FINRA stated that Rule 2821(c)
does not permit the depositing of a customer's funds in an account at
the insurance company prior to completion of principal review. In
response to the Regulatory Notice, a number of firms explained that
insurers' financial controls regarding the receipt of money from
customers often include holding such funds in a general ``suspense''
account at the insurer. According to these firms, insurers use an
identifier to track money held in the suspense account and, if a
contract is not issued, the funds are promptly returned to the
customers. The firms further stated that this process has been used for
many years without complications, makes processing much more efficient
and effective, and receives significant scrutiny by examiners from the
Commission and state insurance departments. Accordingly, these firms
asked that insurers be allowed to deposit customer funds in suspense
accounts under certain circumstances.
In light of these concerns, among others, FINRA staff believes it
is prudent to give further consideration to paragraph (c) of Rule 2821
and the interpretation addressed in the Regulatory Notice to determine
whether certain unintended and harmful consequences might ensue upon
the currently scheduled effective date of May 5, 2008. If, based on
this review, FINRA concludes that further rulemaking is warranted,
FINRA will file a separate rule change with the Commission.
To provide adequate time for firms to make systems changes and for
FINRA to consider and potentially act upon the concerns discussed
above, FINRA is proposing that the effective date of paragraph (c) of
Rule 2821, approved in SR-NASD-2004-183, be delayed until August 4,
2008. All other parts of Rule 2821 approved in SR-NASD-2004-183 will
become effective as scheduled on May 5, 2008.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of section 15A(b)(6) of the Act,\6\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The rule change will promote investor protection
because it will allow firms to better prepare procedures and systems to
implement Rule 2821(c) and will allow FINRA to more fully consider the
new comments discussed above.
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\6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2007-040 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2007-040. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days
[[Page 533]]
between the hours of 10 a.m. and 3 p.m. Copies of such filing also will
be available for inspection and copying at the principal office of
FINRA. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
FINRA-2007-040 and should be submitted on or before January 24, 2008.
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\7\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
Nancy M. Morris,
Secretary.
[FR Doc. E7-25571 Filed 1-2-08; 8:45 am]
BILLING CODE 8011-01-P