Clarification of the SEC’s Rule 151A and FINRA’s Notice to Members 05-50

August 27, 2010 by Sheryl J. Moore

Since the recent demise of the Securities and Exchange Commission’s Rule 151A, I have been receiving a slew of questions about the impact of this on the Financial Industry Regulatory Authority’s Notice to Members 05-50. A quick overview:

• The National Association of Securities Dealers (now known as the Financial Industry Regulatory Authority, FINRA) issued their Notice to Members 05-50 in August of 2005. This notice suggests that Broker Dealers and member firms treat indexed annuities as if they are securities products. It further suggested that B/Ds assemble a list of “approved” indexed annuities, from which their registered reps could sell (sometimes referred to as an “approved list” or “short list”).
• The SEC adopted their Rule 151A, which declared that indexed annuities would be regulated as securities in December of 2008. This rule was later vacated by the District of Columbia U.S. Court of Appeals and ultimately overturned with Senator Tom Harkin’s amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama on July 21, 2010.

Do not be mistaken- 151A is over. However, the issue of Notice to Members 05-50 still stands today; the overturn of the SEC’s rule 151A has no impact on FINRA’s notice.

So, your B/D has no choice but to continue treating indexed annuities as securities and that “approved list” is still necessary for them to be in compliance with FINRA. However, that does not mean that FINRA’s notice will not be challenged in the future. Keep the faith and happy selling! sjm

Originally Posted on August 27, 2010 by Sheryl J. Moore.