On June 25, 2008, the Securities and Exchange Commission (SEC) issued a rule proposal to exclude equity-indexed annuities from exemption from Federal securities laws. By requiring registration of equity-indexed annuities under Federal securities laws, the rule gives investors of equity-indexed annuities the same protection as it gives to investors of other securities similar to equity-indexed annuities.
Recently, the finance industry witnessed the bailout of two Bears Sterns hedge funds and the collapse of Brookstreet Securities. Both had portfolio holdings of collateralized mortgage obligations (CMOs) and suffered huge losses thereof. We have seen such CMO losses before, when in 1994 interest rates rose, CMOs fell in value and bond mutual funds suffered unexpected losses.