A U.S. appeals court ordered the Securities and Exchange Commission (SEC) to reconsider Rule 151A, which classified indexed annuities as a securities product, thus subjecting them to federal oversight.

The U.S. Court of Appeals for the D.C. Circuit said in its July 21 ruling that the SEC “failed to properly consider the effect of the rule upon efficiency, competition, and capital formation.”

The SEC had defined indexed annuities as securities so it could better police the fast-growing market. Rule 151A applies to indexed annuities issued on or after Jan. 12, 2011.

The court said that the SEC had not thoroughly analyzed the impact of 151A as required by law. However, the court did acknowledge the SEC’s argument that federal oversight would be better than the current hodgepodge of state laws.

“After a more thorough review of the existing state law regime, the Commission may decide ultimately that Rule 151A will promote competition, efficiency, and capital formation,” the court said in its decision.

SEC spokesman Kevin Callahan said, “We will continue to consider the procedural issue identified in the opinion.”

Rule 151A developed when the SEC and state securities regulators worried that the products were being sold to elderly investors, despite long accumulation periods that mean an annuity may not mature until after an elderly investor has died. Indexed annuities also have higher surrender charges, making it difficult for investors to pull out when they need the money.

For ongoing coverage of 151A, please visit the 151A Resource Page 151A Resource Page

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