JURIST - Paper Chase: DC Circuit orders SEC to review indexed annuities rule

[JURIST] The US Court of Appeals for the District of Columbia Circuit [official website] on Tuesday remanded for reconsideration [opinion, PDF] a Securities and Exchange Commission (SEC) [official website] rule [Rule 151] stating that fixed indexed annuities (FIAs) are not annuity contracts within the meaning of the Securities Act of 1933 [text, PDF; Cornell LII backgrounder]. The court granted the petition for review based on the argument that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation. The court explained:

It is obvious that the SEC believes imposing a federal framework on FIAs would be superior to the existing patchwork of state insurance laws. Indeed, after a more thorough review of the existing state law regime, the Commission may decide ultimately that [the rule] will promote competition, efficiency, and capital formation. Nevertheless, the Commission must either complete an analysis sufficient to satisfy its obligations ... or explain why that section does not govern this rulemaking.

Last week, Chicago Board Options Exchange [corporate website] CEO William Brodsky appeared before the US House of Representatives Committee on Financial Services to call for the merger [testimony, PDF; JURIST report] of the SEC and the Commodity Futures Trading Commission (CFTC) [official website]. The Obama administration has proposed financial regulatory reforms, and Brodsky agreed with its recommendation that a single authority should be assigned to supervise firms that potentially pose a risk to financial stability. He asserted that failing to modernize the current regulatory system has resulted in unregulated gaps, market congestion, and a lack of regulatory perspective. Last year, then-Treasury Secretary Henry Paulson Jr. unveiled a plan [JURIST report] to merge the SEC and CFTC to overhaul the nation's financial regulatory system. Earlier this month, SEC Chairwoman Mary Schapiro testified before the House Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises that partly due to the troubled economy, the commission is engaging in more vigorous enforcement [testimony; JURIST report] of its rules and policies.