[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Notices]
[Pages 5744-5745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2205]
[[Page 5744]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35266; File No. SR-NASD-94-61]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating to
the Filing Requirements Under Article III, Section 44 of the NASD Rules
Regarding Modified Guaranteed Annuity Contracts and Modified Guaranteed
Life Insurance Contracts
January 23, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on January
12, 1995 the National Association of Securities Dealers, Inc. (``NASD''
or ``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
NASD.\1\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
\1\The NASD originally submitted the proposed rule change on
November 21, 1994. On December 1, 1994 and January 12, 1995, the
NASD filed letter amendments to its filing correcting errors in its
November 21, 1994 submission. This notice reflects those amendments.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend Subsection 44(b)(8) to Article III
of the NASD Rules of Fair Practice (``Corporate Financing Rule'') to
exempt modified guaranteed annuity contracts and modified guaranteed
life insurance contracts from the filing requirements under Subsection
44(b).
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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. The NASD 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
The Corporate Financing Rule requires members to file with the NASD
documents and information relating to a public offering of securities
for review of the fairness of underwriting compensation and
arrangements. The filing requirements in the Corporate Financing Rule
also apply to Schedule E of the NASD By-Laws and Article III, Section
34 of the NASD Rules of Fair Practice. The Corporate Financing Rule
filing requirements apply to public offerings of debt, equity and
public limited partnership securities, and provide that certain
offerings of securities shall be exempt from the filing requirement
under Subsection (b)(8) of the Rule. The exemptions in Subsection
(b)(8) include, among others, open-end investment company securities
registered under the Investment Company Act of 1940 (except closed-end
investment company securities) and variable contracts. In addition, the
exemptions include securities defined as ``exempt securities'' under
Section 3(a)(12) of the Act and securities exempt from registration
with the SEC pursuant to Sections 4(1), 4(2) and 4(6) of the Securities
Act of 1933 (``1933 Act'') and Rules 504 (unless considered a public
offering), 505 and 506 adopted under the 1933 Act.
The NASD recently considered the status of ``Modified Guaranteed
Annuity Contracts'' and ``Modified Guaranteed Life Insurance Policies''
(collectively, ``Contracts'') under the filing requirements of the
Corporate Financing Rule. The Contracts are similar to variable annuity
contracts in that they are issued by an insurance company, offered on a
continuous basis, subject to the registration requirements and
regulatory scheme of state insurance law, and, shift investment risk to
the contract owner by offering variable, non-guaranteed rates of return
under certain circumstances. That is, the Contracts are subject to a
market value adjustment upon a Contract surrender or partial withdrawal
prior to the end of a guarantee period. However, unlike variable
annuities, the individual account values of the Contracts do not
reflect the investment experience of one or more separate accounts
registered under the Investment Company Act of 1940. Instead, like
traditional fixed annuities, the Contracts are backed by the general
account assets of the insurance issuer and are registered only as
insurance contracts under state insurance law.
The Contracts are priced individually and issued on a continuous,
open-ended basis directly by the issuer, and are sold by state-licensed
insurance agents that are also registered with a member to sell such
securities based on the Series 6 examination--the Limited
Representative for Investment Company and Variable Contract Products.
Thus, the sale of the Contracts does not resemble the traditional types
of underwritings of debt, equity, closed-end investment company and
public limited partnership securities with which the Corporate
Financing Rule is concerned.
The Contracts do not fall within any of the current exemptions
contained within the Corporate Financing Rule Filing Requirements. As a
result, the Contracts are subject to the filing requirements of the
Corporate Financing Rule unless the NASD amends its rules to adopt a
specific exemption for such instruments. The review of the fairness and
reasonableness of underwriting terms and arrangements is the central
requirement of the Corporate Financing Rule. The issuance and sale of
the Contracts on an open-ended basis does not raise the kinds of
underwriting issues with which the Corporate Financing Rule is
primarily and traditionally concerned. The structure of the instrument
is that of an insurance product which has traditionally been regulated
under state insurance law and the terms of the Corporate Financing Rule
were not developed to address such products. The NASD is, therefore,
proposing to amend the Corporate Financing Rule by adopting as new
Subsection (b)(8)(E) an exemption from the filing and other
requirements of the Corporate Financing Rule for ``Modified Guaranteed
Annuity Contracts'' and ``Modified Guaranteed Life Insurance Policies''
and to reletter the remaining sections accordingly. The proposed rule
would thus exempt such Contracts from the filing and review
requirements of the Corporate Financing Rule.\2\
\2\In addition, Article III, Sections 26 and 29 of the NASD
Rules of Fair Practice are not applicable, since the Contracts are
not within the definition of ``variable contract'' and do not
include a separate account registered under the Investment Company
Act of 1940. However, as securities, sales of the Contracts are
subject to other applicable Rules of Fair Practice when sold by
associated persons of a member and the rules and regulations of the
Commission, particularly the antifraud provisions thereof.
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The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\3\ which requires that
the rules of the Association promote just and equitable principles of
trade and protect investors and the public interest in that the
proposed rule change amends the filing requirements of Article III,
Section 44 to the NASD Rules of Fair Practice to exempt Modified
Guaranteed Annuity Contracts and Modified Guaranteed Life
[[Page 5745]] Insurance Policies from NASD review, since the issuance
and sale of the Contracts on an open-ended basis does not raise the
kinds of underwriting issues with which the Corporate Financing Rule is
primarily and traditionally concerned; the structure of the instrument
is that of an insurance product which has traditionally been regulated
under state insurance law; and the terms of the Corporate Financing
Rule were not developed to address such products.
\3\15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD 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, as amended.
(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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, D.C. 20549.
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. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by February 21, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
\4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2205 Filed 1-27-95; 8:45 am]
BILLING CODE 8010-01-M
