Federal Register / Vol. 73, No. 25 / Wednesday, February 6, 2008 / Notices 7017 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 57050 (Dec. 27, 

2007); 73 FR 0531 (Jan. 3, 2008) (SR–FINRA–2007–

040). 

4See Order Approving FINRA’s NASD Rule 2821 

Regarding Members’ Responsibilities for Deferred 

Variable Annuities (‘‘Approval Order’’), Securities 

Exchange Act Release No. 56375 (Sept. 7, 2007), 72 

FR 52403 (Sept. 13, 2007) (SR–NASD–2004–183); 

Corrective Order, Securities Exchange Act Release 

No. 56375A (September 14, 2007), 72 FR 53612 

(Sept. 19, 2007) (SR–NASD–2004–183) (correcting 

the rule’s effective date). 

5See, e.g., Letters from Darrell Braman and Sarah 

McCafferty, T. Rowe Prince Investment Services, 

Inc. (Jan. 23, 2008) (‘‘T. Rowe Price Letter’’); 

Michael P. DeGeorge, General Counsel NAVA (Jan. 

24, 2008) (‘‘NAVA Letter’’); Cifford Kirsch and Eric 

Arnold, Partners, Sutherland Asbill & Brennan LLP 

on behalf of the Committee of Annuity Insurers 

(Jan. 24, 2008) (‘‘Comm. Annuity Insurers Letter’’); 

Stuart Kaswell, Partner, Dechert LLP on behalf of 

TIAA-CREF (Jan. 24, 2008) (‘‘Dechert Letter’’); Heidi 

Stam, Managing Director and General Counsel, 

Vanguard (Jan. 24, 2008) (‘‘Vanguard Letter’’); David 

E. Stone, Vice President and Associate General 

Counsel, Charles Schwab & Co., Inc. (Jan. 24, 2008) 

(‘‘Schwab Letter’’); Heather Traeger, Assistant 

Counsel, Investment Company Institute (Jan. 24, 

2008) (‘‘ICI Letter’’); Dale E. Brown, President and 

Chief Executive Officer, Financial Services Institute 

(Jan. 25, 2008) (‘‘FSI Letter’’); Carl B. Wilkerson, 

Vice President, American Council of Life Insurers 

(Jan. 28, 2008) (‘‘ACLI Letter’’); Amal Aly, Managing 

Director and Associate General Counsel, Securities 

Industry and Financial Markets Association (Jan. 

29, 2008) (‘‘SIFMA Letter’’). 

One commenter stated, however, that waiting 

until August to determine the principal review and 

approval standard could cost the industry millions 

of dollars in unnecessary expenditures if FINRA 

revises the rule. See Letter from Douglas A. Wright, 

CCO, The Investment Center, Inc. (Jan. 14, 2008). 

This commenter believed a delay in enacting Rule 

2821(c) would be welcomed by most firms to allow 

for systems upgrades, but firms do not want to 

begin paying for one system only to have FINRA 

alter the rule. Id. Another commenter addressed his 

broker-dealer’s individual situation regarding net 

capital obligations. See Letter from Jeremiah 

O’Connell (Jan. 4, 2008). 

6See, e.g., Comm. Annuity Insurers Letter; 

Dechert Letter; FSI Letter; SIFMA Letter; Vanguard 

Letter. 

7See ACLI Letter; Dechert Letter; ICI Letter; 

NAVA Letter; SIFMA Letter; Vanguard Letter. 

8See Dechert Letter; ICI Letter; NAVA Letter; T. 

Rowe Price Letter; Vanguard Letter. 

9See Dechert Letter; ICI Letter; NAVA Letter; 

Vanguard Letter. Some commenters emphasized 

that under these types of business models, firms do 

not pay commissions. See Dechert Letter; Vanguard 

Letter. One commenter also noted that its policies 

and procedures prohibit registered representatives 

from recommending any transactions. Vanguard 

Letter. 

10See Dechert Letter 

11 Id. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57228; File No. SR–FINRA–

2007–040] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change to 

Delay Implementation of Certain FINRA 

Rule Changes Approved in SR–NASD–

2004–183 

January 29, 2008. 

I. Introduction 

On December 21, 2007, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) pursuant 

to section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to delay the effective date of 

paragraph (c) of NASD Rule 2821 until 

August 4, 2008. The Commission 

published the proposed rule change for 

comment in the Federal Register on 

January 3, 2008.3 The Commission 

received fourteen comments on the 

proposed rule change. This order 

approves the proposed rule change. 

II. Description of the Proposal 

The Commission approved NASD 

Rule 2821 on September 7, 2007.4 Rule 

2821 created recommendation 

requirements (including a suitability 

obligation), principal review and 

approval requirements, and supervisory 

and training requirements tailored 

specifically to transactions in deferred 

variable annuities. 

On November 6, 2007, FINRA 

published Regulatory Notice 07–52, 

which announced the Commission’s 

approval of Rule 2821 and established 

May 5, 2008 as the effective date of the 

rule. FINRA is proposing to delay the 

effective date of paragraph (c), which 

addresses principal review and 

approval, until August 4, 2008. 

According to FINRA, several firms 

requested that the effective date of the 

rule be delayed to allow firms 

additional time to make necessary 

systems changes. Firms also raised 

various concerns regarding paragraph 

(c) of the rule. With respect to the 

timing of principal review, firms stated 

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. Firms also 

questioned whether broker-dealers that 

do not make any recommendations to 

customers should be subject to 

paragraph (c) of the Rule. And finally, 

firms asked FINRA to reconsider its 

statement in Regulatory Notice 07–53 

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. 

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, it stated that it 

will file a separate rule change with the 

Commission. 

III. Summary of Comments 

The Commission received fourteen 

comments on the proposed rule change. 

All commenters supported FINRA’s 

proposal to extend the effective date of 

the principal review and approval 

requirements contained in paragraph (c) 

of Rule 2821 until August 4, 2008.5

Commenters agreed that additional time 

is needed to consider the impact those 

requirements will have on member 

firms and for FINRA to consider 

suggested alternatives.6

In addition to supporting the 

extended effective date of paragraph (c), 

commenters also expressed concerns 

and proposed alternatives with respect 

to three aspects of the principal review 

and approval requirements of paragraph 

(c). Some commenters suggested that 

FINRA eliminate the principal review 

requirement for non-recommended 

transactions.7 According to commenters, 

some broker-dealers do not solicit 

purchases of deferred variable annuities 

and do not recommend any 

transactions.8 For broker-dealers with 

this type of business model, 

commenters believed principal review 

and approval is unnecessary and does 

not further the purposes of the rule.9

One commenter stated that an 

exemption from the principal review 

requirements only for those brokerdealers that do not make any 

recommendations to customers would 

disadvantage broker-dealers who have 

various business models, some models 

allowing recommendations and others 

that do not.10 This commenter suggested 

that FINRA require a broker-dealer that 

offers recommendations to some 

customers and not to others to institute 

policies and procedures ensuring that 

the broker-dealer perform a principal 

review for recommended transactions.11

Six commenters also believed that 

FINRA should allow broker-dealers to 

forward customer checks to the issuing 

insurance company and allow the 

issuing insurance company to deposit 

customer funds into a suspense account 

prior to the completion of principal 


pwalker on PROD1PC71 with NOTICES
7018 Federal Register / Vol. 73, No. 25 / Wednesday, February 6, 2008 / Notices 

12See Letter from MaryAnn Lamendola, Chief 

Compliance Officer, Chase Investment Services 

Corporation (Jan. 24, 2008) (‘‘Chase Letter’’); ACLI 

Letter; Comm. of Annuity Insurers Letter; Dechert 

Letter; NAVA Letter; SIFMA Letter. One of these 

commenters believes that both the broker-dealer 

and the issuing insurance company should be 

allowed to negotiate checks upon receipt. See 

Dechert Letter. This commenter noted that 

customers may send back an application and one 

check to cover a variable annuity and other 

investment options, including mutual funds. Id. In 

this situation, the commenter stated there is a 

conflict between NASD Rule 2830(m), which 

requires the prompt purchase of mutual fund 

shares, and Rule 2821(c), which requires the brokerdealer to hold the customer’s check pending 

principal review. Id. 

13See ACLI Letter; Comm. of Annuity Insurers 

Letter; Dechert Letter. One commenter noted this 

could be accomplished by the broker-dealer 

developing controls to ensure that a variable 

annuity is not issued until after the completion of 

principal review. Chase Letter. 

14 Id. 

15See Letter from Barbara Gill, Deputy Director of 

Regulatory Affairs, Stifel, Nicolaus & Company, Inc. 

(Jan. 22, 2008) (‘‘Stifel Letter’’); Comm. of Annuity 

Insurers Letter; Dechert Letter; FSI Letter; ICI Letter; 

NAVA Letter; SIFMA Letter; Schwab Letter. 

16See NASD Rule 2821(c). 

17See, e.g., Comm. of Annuity Insurers Letter; 

Dechert Letter; SIFMA Letter; Stifel Letter. 

18 Id. 

19See, e.g., ACLI Letter; ICI Letter; T. Rowe Price 

Letter. 

20See Comm. of Annuity Insurers Letter; Dechert 

Letter; FSI Letter; NAVA Letter; Schwab Letter. 

Three commenters also specified that the seven 

days should not begin to run until a complete 

application is specifically received by the brokerdealer’s Office of Supervisory Jurisdiction. See 

Comm. of Annuity Insurers Letter; Dechert Letter; 

SIFMA Letter. 

21See ACLI Letter; Dechert Letter. 

22 Id. 

23See Dechert Letter. 

24 Id. 

25 15 U.S.C. 78o–3(b)(6). 

26 15 U.S.C. 78s(b)(2). 

27 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 4 17 CFR 240.19b–4(f)(6). 

5FINRA has asked the Commission to waive the 

30-day operative delay provided in Rule 19b–

4(f)(6)(iii). 17 CFR 240.19b–4(f)(6)(iii). 

review.12 Commenters stated customer 

funds could be held in these accounts 

and would not result in the issuance of 

a contract until principal review has 

been completed.13 Some commenters 

also stated that customer funds could be 

refunded in the event a contract is not 

issued.14

Eight commenters suggested that 

FINRA revise the timing of principal 

review requirement.15 Paragraph (c) 

requires a registered principal to review 

a transaction and determine whether he 

or she approves of it prior to 

transmitting the customer’s application 

to the issuing insurance company for 

processing, but no later than seven 

business days after the customer signs 

the application.16 Commenters stated 

that beginning the seven business day 

review period from the time when the 

customer signs the application is 

problematic because often the customer 

signs and mails the application, leaving 

the broker-dealer no control over the 

timing.17 Commenters also stated that 

they have no control over which means 

a customer uses to mail an application 

and how long it takes for that 

application to arrive at the brokerdealer.18 Some commenters suggested 

that the principal review process be 

required to be completed seven business 

days after the broker-dealer has received 

an application ‘‘in good order.’’ 19 Other 

commenters suggested that the sevenday period should begin when the 

broker-dealer receives the application 

and the broker-dealer reasonably deems 

the application is complete.20

Two commenters requested that 

FINRA propose a single implementation 

date for the entire rule.21 These 

commenters stated that establishing two 

different compliance dates would create 

confusion when implementing the 

proposed rule as well unnecessary and 

redundant system design costs.22

Paragraph (d) requires members to 

establish supervisory procedures 

reasonably designed to achieve 

compliance with the rule and paragraph 

(e) require members to develop training 

policies and programs to ensure 

compliance with the rule. One of these 

commenters believed imposing two 

separate compliance dates would 

require broker-dealers to provide 

duplicate sets of supervisory procedures 

to account for what the rule requires on 

May 5, 2008 and for what it requires on 

August 4, 2008.23 It also stated brokerdealers would have to implement one 

training program for the part of rule 

becoming effective on May 5, 2008 and 

another training program for principal 

review starting on August 4, 2008.24

IV. Discussion and Commission 

Findings 

The Commission has reviewed 

carefully the proposed rule change and 

the comments, and finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association. In particular, the 

Commission finds that the proposed 

rule change is consistent with section 

15A(b)(6) of the Act, which requires, 

among other things, that the rules of a 

national securities association 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.25

The proposed rule change does not 

change any of the substantive provisions 

of Rule 2821. It allows broker-dealers 

additional time to comply with one 

portion of the rule and provides FINRA 

with additional time to further consider 

its members’ concerns. It is consistent 

with the requirements of the Act for 

FINRA to further consider paragraph (c) 

of Rule 2821 and its related Regulatory 

Notice to determine whether any 

unintended or harmful consequences 

might ensue upon the current effective 

date. 

V. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,26 that the 

proposed rule change (SR–FINRA 2007–

040) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2074 Filed 2–5–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57247; File No. SR–FINRA–

2008–002] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change to Reflect That the NASD/ 

NYSE Trade Reporting Facility Does 

Not Support the Three-Party Trade 

Report Functionality 

January 31, 2008. 

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 January 

28, 2008, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

(f/k/a the National Association of 

Securities Dealers, Inc. (‘‘NASD’’)) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared substantially by FINRA. 

FINRA has filed this proposal pursuant 

to section 19(b)(3)(A)(iii) of the Act 3

and Rule 19b–4(f)(6) thereunder,4 which 

renders the proposal effective upon 

filing with the Commission.5 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 


pwalker on PROD1PC71 with NOTICES