Summary: Rule 2821 would create recommendation requirements (including a heightened suitability
obligation), expanded principal review and approval requirements, and supervisory and training
requirements with respect to variable annuity transactions. The rule was first proposed in 2004 and has
been amended four times, most recently in March 2007.
The March 2007 amendment revises the rule’s principal approval provisions by requiring that a principal
determine whether he or she approves a transaction prior to transmitting a customer’s application to the
issuing insurance company for processing, but not later than seven business days after the customers
sign the application. In connection with these new standards, the NASD indicates that it would clarify that
a broker-dealer that is holding an application for a deferred variable annuity and a non-negotiated check
from a customer written to an insurance company for a period of seven business days or less would not
be in violation of the prompt transmittal requirements of NASD Rules 2330 and 2820. Also, the NASD
would ask the SEC for no-action relief regarding SEC Rules 15c3-1 and 15c3-3 under the Securities
Exchange Act of 1934 when the same circumstances exist.
Amendment 4 also modifies certain language in the “Recommendation Requirements” section of the
proposal. The proposed rule had provided that a member or person associated with a member
determine that a variable annuity transaction is suitable in accordance with Rule 2310. Amendment 4
replaces "determine" with a "reasonable basis to believe."
Status: The SEC previously sought comment on Proposed Rule 2821 subsequent to the NASD’