The National Association of Securities Dealers has come out with a third attempt to set sales practice standards and supervisory requirements for transactions involving deferred variable annuities.

The U.S. Securities and Exchange Commission, the agency that must approve efforts by the NASD, Washington, to implement the rule, has published the new draft today in the Federal Register.

The new draft, “Amendment Number 2″ to an original proposed rule released in December 2004, would create NASD Rule 2821, which would require deferred VA sellers to make sure that the products sold are suitable for the buyers, that the buyers understand the products, and that a company principal review the suitability of all sales.

The third version incorporates NASD responses to public comments on the original draft and a second draft that was exposed for public comment in July 2005.

The proposed rule has attracted about 1,500 comments, although the SEC notes that 1,300 of the comments are “virtually identical.”

Many commenters have questioned the need for any new VA sales regulations, but “a recent joint review with the [SEC], NASD examinations and NASD enforcement actions indicate NASD’s prior efforts have not been sufficiently effective at curbing problems in this area,” SEC officials write in a discussion of the NASD proposed rule.

The proposed rule excludes immediate variable annuities. One commenter said the NASD ought to apply the proposed rule to immediate VA products as well as deferred VA products.

But “NASD stated that the majority of variable annuity transactions are in deferred variable annuities, and that most of the problems NASD has uncovered have been associated with the purchase or exchange of deferred variable annuities,” SEC officials write. “However, NASD also stated that it will continue to monitor sales practices relating to immediate variable annuities.”

Here are some of the changes in the new draft:

- The NASD has responded to the public comments by eliminating a requirement that consumers receive detailed disclosures about the specific products that they are buying. Instead, sellers can give general disclosures about the features of deferred variable annuities. But the NASD notes that a member firm and associated persons must include specific product features in analyses of the suitability of specific transactions.

- The NASD has eliminated a hard-and-fast rule that deferred VA products should be sold only to young investors with long-term investment objectives. But VA sellers had better be prepared to explain why a deferred variable annuity is the right product for any purchaser who does not have a long-term investment objective, the NASD says.

- The NASD has eliminated a requirement that member firms develop numerical standards for the age, liquidity needs and transaction dollar amounts for deferred VA transactions. Instead, member firms can include these factors in their “facts and circumstances” review of deferred VA transactions, the NASD says.

- The NASD has delayed the effective date of the proposed rule to 180 days after the rule takes effect, from 120 days.

A copy of the third draft of the proposed VA sales rule is on the Web at Document Link