A lot of industry people are asking: Why did the Securities and Exchange Commission issue its June 25, 2008, proposal to regulate fixed index annuities as securities?
After all, the SEC did nothing about the subject for a full decade after it issued its 1997 “concept release,” which invited public comment on whether index annuities should be considered securities. It did not even respond in 2005 when the Financial Industry Regulatory Authority (then NASD) issued its controversial Notice 05-50 requiring broker-dealers to treat index annuities as securities.
Because of this absolute silence, the subject became a proverbial sleeping dog. Probably most index annuity professionals thought the dog had gone to sleep for good.
Hence, the industry’s puzzlement over the SEC’s action now. Here’s my take:
Simply put, the SEC is in the hot seat. Not only must it regulate securities in a very rough market; it must also tangle with investor complaints about how it, along with other official bodies, “let” the equity markets plummet in the wake of the subprime mortgage crisis. People howl that until the subprime chickens came home to roost; the various federal bodies did little to protect investors from harm.
So now, the SEC is making moves to signal that it is, in fact, taking action to protect investors and keep markets viable. The index annuity proposal is probably one of several initiatives the SEC will take on in this new burn-and-learn era.
Here is another: The SEC just announced that it and other securities regulators will conduct examinations aimed at preventing intentional spread of false information that aims to manipulate securities pricing. Examiners will, it says, “double check that broker-dealers and investment advisers have appropriate training for their employees and sturdy controls in place to prevent intentionally false information from harming investors.”
That’s laudable. Rumor-mongering helps no one. But one has to wonder: Are there not existing regulations and supervision that could be prevailed upon for this? Could it be that this new initiative is more spin that spunk?
Another sign of the times: a bill (H. R. 6482) was just introduced in the House that, among other things, would require the SEC to approve certain new structured-finance products, effectively barring bond-rating agencies from just putting top ratings on the products. (Incredibly, some of these products have reportedly received top ratings, even though brand new.) The bill, if enacted, should strengthen the SEC’s powers here, which is good. But, again, one has to wonder: Has the SEC used its existing powers to curb potential structured product problems? Or has it just let it slide, pending the new legislation? In any case, the bill is a sure sign of growing sentiment–that the SEC needs to do more.