Grant of Individual Exemptions; American Express Financial
Corporation (AEFC) [Notices] [02/14/2001]
Grant of Individual Exemptions; American Express Financial
Corporation (AEFC) [02/14/2001]
Volume 66, Number 31, Page 10323-10330
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2001-07; Exemption Application No. D-
10855, et al.]
Grant of Individual Exemptions; American Express Financial
Corporation (AEFC)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
American Express Financial Corporation (AEFC) Located in
Minneapolis, MN; Exemption
[Prohibited Transaction Exemption 2001-07; Exemption Application No. D-
10855]
Section I. Exemption for the Acquisition, Holding and Disposition of
American Express Company Stock
The restrictions of sections 406(a)(1)(D), 406(b)(1) and section
406(b)(2) of the Act, section 8477(c)(2)(A) and (B) of the Federal
Employees Retirement System Act, and the sanctions resulting from the
application of section 4975 of the Code by reason of section
4975(c)(1)(D) and (E) of the Code, shall not apply to the acquisition,
holding and disposition of the common stock of American Express Company
or its current and future affiliates (AE Stock) by Index and Model-
Driven Funds (collectively, the Funds) that are managed by AEFC and its
affiliates [as defined in Section III(g)(1)], provided that the
following conditions and the General Conditions of Section II are met:
(a) The acquisition or disposition of AE Stock is for the sole
purpose of maintaining strict quantitative conformity with the relevant
index upon which the Index or Model-Driven Fund is based, and does not
involve any agreement, arrangement or understanding regarding the
design or operation of the Fund acquiring the AE Stock which is
intended to benefit AEFC or any party in which AEFC may have an
interest.
(b) Whenever AE Stock is initially added to an index on which an
Index or Model-Driven Fund is based, or initially added to the
portfolio of an Index or Model-Driven Fund, all acquisitions of AE
Stock necessary to bring the Fund's holdings of such Stock either to
its capitalization-weighted or other specified composition in the
relevant index, as determined by the independent organization
maintaining such index, or to its correct weighting as determined by
the model which has been used to transform the index, occur in the
following manner:
(1) Purchases are from, or through, only one broker or dealer on a
single trading day;
(2) Based on the best available information, purchases are not the
opening transaction for the trading day;
[[Page 10324]]
(3) Purchases are not effected in the last half hour before the
scheduled close of the trading day;
(4) Purchases are at a price that is not higher than the lowest
current independent offer quotation, determined on the basis of
reasonable inquiry from non-affiliated brokers;
(5) Aggregate daily purchases do not exceed 15 percent of the
average daily trading volume for the security, as determined by the
greater of either (i) the trading volume for the security occurring on
the applicable exchange and automated trading system on the date of the
transaction, or (ii) an aggregate average daily trading volume for the
security occurring on the applicable exchange and automated trading
system for the previous five (5) business days, both based on the best
information reasonably available at the time of the transaction;
(6) All purchases and sales of AE Stock occur either (i) on a
recognized U.S. securities exchange (as defined in Section III(j)
below), (ii) through an automated trading system (as defined in Section
III(i) below) operated by a broker-dealer independent of AEFC that is
registered under the Securities Exchange Act of 1934 (the '34 Act), and
thereby subject to regulation by the Securities and Exchange Commission
(SEC), which provides a mechanism for customer orders to be matched on
an anonymous basis without the participation of a broker-dealer, or
(iii) through an automated trading system (as defined in Section III(i)
below) that is operated by a recognized U.S. securities exchange (as
defined in Section III(j) below), pursuant to the applicable securities
laws, and provides a mechanism for customer orders to be matched on an
anonymous basis without the participation of a broker-dealer; and
(7) If the necessary number of shares of AE Stock cannot be
acquired within 10 business days from the date of the event which
causes the particular Fund to require AE Stock, AEFC appoints a
fiduciary which is independent of AEFC to design acquisition procedures
and monitor compliance with such procedures.
(c) Subsequent to acquisitions necessary to bring a Fund's holdings
of AE Stock to its specified weighting in the index or model pursuant
to the restrictions described in paragraph (b) above, all aggregate
daily purchases of AE Stock by the Funds do not exceed on any
particular day the greater of:
(1) 15 percent of the average daily trading volume for the AE Stock
occurring on the applicable exchange and automated trading system (as
defined below) for the previous five (5) business days, or
(2) 15 percent of the trading volume for AE Stock occurring on the
applicable exchange and automated trading system (as defined below) on
the date of the transaction, as determined by the best available
information for the trades that occurred on such date.
(d) All transactions in AE Stock not otherwise described in
paragraph (b) above are either: (i) Entered into on a principal basis
in a direct, arms-length transaction with a broker-dealer, in the
ordinary course of its business, where such broker-dealer is
independent of AEFC and is registered under the '34 Act, and thereby
subject to regulation by the SEC, (ii) effected on an automated trading
system (as defined in Section III(i) below) operated by a broker-dealer
independent of AEFC that is subject to regulation by either the SEC or
another applicable regulatory authority, or an automated trading system
operated by a recognized U.S. securities exchange (as defined in
Section III(j) below) which, in either case, provides a mechanism for
customer orders to be matched on an anonymous basis without the
participation of a broker-dealer, or (iii) effected through a
recognized U.S. securities exchange (as defined in Section III(j)
below) so long as the broker is acting on an agency basis.
(e) No transactions by a Fund involve purchases from, or sales to,
AEFC (including officers, directors, or employees thereof), or any
party in interest that is a fiduciary with discretion to invest plan
assets into the Fund (unless the transaction by the Fund with such
party in interest would otherwise be subject to an exemption).
(f) No more than five (5) percent of the total amount of AE Stock,
that is issued and outstanding at any time, is held in the aggregate by
Index and Model-Driven Funds managed by AEFC.
(g) AE Stock constitutes no more than five (5) percent of any
independent third party index on which the investments of an Index or
Model-Driven Fund are based.
(h) A plan fiduciary independent of AEFC authorizes the investment
of such plan's assets in an Index or Model-Driven Fund which purchases
and/or holds AE Stock, other than in the case of an employee benefit
plan sponsored or maintained by AEFC for its own employees (an AEFC
Plan), pursuant to the procedures described herein.
(i) A fiduciary independent of the AEFC directs the voting of the
AE Stock held by an Index or Model-Driven Fund on any matter in which
shareholders of AE Stock are required or permitted to vote.
(j) No more than ten (10) percent of the assets of any Fund that
acquires and holds AE Stock is comprised of any AEFC Plan(s) for which
AEFC exercises investment discretion.
Section II. General Conditions
(a) AEFC maintains or causes to be maintained for a period of six
years from the date of the transaction the records necessary to enable
the persons described in paragraph (b) of this Section to determine
whether the conditions of this exemption have been met, except that (1)
a prohibited transaction will not be considered to have occurred if,
due to circumstances beyond the control of AEFC, the records are lost
or destroyed prior to the end of the six year period, and (2) no party
in interest other than AEFC shall be subject to the civil penalty that
may be assessed under section 502(i) of the Act or to the taxes imposed
by section 4975(a) and (b) of the Code if the records are not
maintained or are not available for examination as required by
paragraph (b) below.
(b)(1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in paragraph (a) of this Section are unconditionally
available at their customary location for examination during normal
business hours by --
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer to any plan participating in an Index
or Model-Driven Fund or any duly authorized employee or representative
of such employer, and
(D) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or a representative of such participant or
beneficiary.
(2) None of the persons described in subparagraphs (B) through (D)
of this paragraph II(b) shall be authorized to examine trade secrets of
AEFC or commercial or financial information which is considered
confidential.
Section III. Definitions
(a) The term ``Index Fund'' means any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by AEFC, in which
one or more investors invest, and --
(1) Which is designed to track the rate of return, risk profile and
other
[[Page 10325]]
characteristics of an independently maintained securities Index, as
described in Section III(c) below, by either (i) replicating the same
combination of securities which compose such Index or (ii) sampling the
securities which compose such Index based on objective criteria and
data;
(2) For which AEFC does not use its discretion, or data within its
control, to affect the identity or amount of securities to be purchased
or sold;
(3) That contains ``plan assets'' subject to the Act, pursuant to
the Department's regulations (see 29 CFR 2510.3-101, Definition of
``plan assets''--plan investments); and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund which is intended to
benefit AEFC or any party in which AEFC may have an interest.
(b) The term ``Model-Driven Fund'' means any investment fund,
account or portfolio sponsored, maintained, trusteed, or managed by
AEFC, in which one or more investors invest, and --
(1) Which is composed of securities the identity of which and the
amount of which are selected by a computer model that is based on
prescribed objective criteria using independent third party data, not
within the control of AEFC, to transform an independently maintained
Index, as described in Section III(c) below;
(2) Which contains ``plan assets'' subject to the Act, pursuant to
the Department's regulations (see 29 CFR 2510.3-101, Definition of
``plan assets''--plan investments); and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund or the utilization of any
specific objective criteria which is intended to benefit AEFC or any
party in which AEFC may have an interest.
(c) The term ``Index'' means a securities index that represents the
investment performance of a specific segment of the public market for
equity or debt securities in the United States, but only if --
(1) The organization creating and maintaining the index is--
(A) Engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients,
(B) A publisher of financial news or information, or
(C) A public stock exchange or association of securities dealers;
and,
(2) The index is created and maintained by an organization
independent of AEFC; and,
(3) The index is a generally accepted standardized index of
securities which is not specifically tailored for the use of AEFC.
(d) The term ``opening date'' means the date on which investments
in or withdrawals from an Index or Model-Driven Fund may be made.
(e) The term ``Buy-up'' means an acquisition of AE Stock by an
Index or Model-Driven Fund in connection with the initial addition of
such Stock to an independently maintained index upon which the Fund is
based or the initial investment of a Fund in such Stock.
(f) The term ``AEFC'' refers to American Express Financial
Corporation and its affiliates, as defined below in paragraph (g).
(g) An ``affiliate'' of AEFC includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the person;
(2) Any officer, director, employee or relative of such person, or
partner of any such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(h) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(i) The term ``automated trading system'' means an electronic
trading system that functions in a manner intended to simulate a
securities exchange by electronically matching orders on an agency
basis from multiple buyers and sellers, such as an ``alternative
trading system'' within the meaning of the SEC's Reg. ATS [17 CFR part
242.300], as such definition may be amended from time to time, or an
``automated quotation system'' as described in section 3(a)(51)(A)(ii)
of the '34 Act [15 USC 8c(a)(51)(A)(ii)].
(j) The term ``recognized U.S. securities exchange'' means a U.S.
securities exchange that is registered as a ``national securities
exchange'' under Section 6 of the '34 Act (15 USC 78f), as such
definition may be amended from time to time, which performs with
respect to securities the functions commonly performed by a stock
exchange within the meaning of definitions under the applicable
securities laws (e.g., 17 CFR part 240.3b-16).
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Notice) published on September
19, 2000 at 65 FR 56715.
Written Comments
The Department received one written comment with respect to the
Notice and no requests for a public hearing. The comment, which was
submitted by the applicant, AEFC, requests certain modifications to the
conditional language and the Summary of Facts and Representations (the
Summary) of the Notice. AEFC has requested these changes for purposes
of clarification or to correct several typographical errors.
Following is a discussion of AEFC's comment and the Department's
responses to the areas of concern raised by AEFC.
1. Investment by the AEFC plans in the funds. On page 56716 of the
Notice, Section I(j) provides that ``[n]o more than ten (10) percent of
the assets of any Fund that acquires and holds AE Stock is comprised of
any AEFC Plan(s) for which AEFC exercises investment discretion.'' AEFC
assumes that this condition relates to the aggregate interest of all
Plans that are sponsored by AEFC and its affiliates. AEFC also assumes
that this condition does not restrict Fund investments by any AEFC Plan
that is a participant-directed, defined contribution plan, even though
AEFC or its affiliates may have used their authority to make such Fund
available as a permissible investment under such Plan.
In consideration of AEFC's comment, the Department hereby confirms
that the 10 percent investment limitation refers to the aggregate
interest that all AEFC Plans may have in a Fund. The Department also
wishes to confirm that this limitation does not restrict Fund
investments by any AEFC Plan, which is a defined contribution,
participant-directed plan, even though AEFC or its affiliates may have
used their authority to make such Fund available to an AEFC Plan
participant as a Plan investment option.
In addition to the above, AEFC has requested the Department to
clarify that the 10 percent investment limitation would be met if a
collective investment fund (in which an AEFC Plan has more than a 10
percent interest) invests in an Index or Model-Driven Fund that holds
AE Stock. On a ``look-through'' basis, AEFC represents that the AEFC
Plan would not hold more than a 10 percent interest in the second Fund.
In response to this comment, the Department wishes to emphasize
that this principle would apply as long as the AEFC Plan's interest in
the second Fund does not exceed, on a ``look-through'' basis, 10
percent of the second Fund. For purposes of illustration, the
[[Page 10326]]
Department is providing the following example.
Assume that Plan A, an AEFC Plan, has invested $30 million in
Collective Investment Fund #1 and that Collective Investment Fund #1
has total assets of $100 million. On the basis of the foregoing,
Plan A has a 30 percent undivided ownership interest in Collective
Investment Fund #1.
Assume that Collective Investment Fund #1 invests all of its
assets in Index Fund #2 which has $500 million in total assets and
invests in AE Stock.
Plan A's ownership interest in Index Fund #2 would be determined
as follows: $30 million/$100 million + $500 million = 5 percent.
Thus, on a ``look-through'' basis, Plan A would not hold more
than a 10 percent interest in Index Fund #2.
2. Fund transactions. On page 56716 of the Notice, in Section I(e),
and on page 56720 of the Summary, in Representation 14(f), it states
that ``[n]o transactions by a Fund involve purchases from or sales to,
AEFC (including officers, directors, or employees thereof), or any
party in interest that is a fiduciary with discretion to invest plan
assets into the Fund (unless the transaction by the Fund with such
party in interest would be otherwise subject to an exemption).'' AEFC
has requested that the Department clarify that the foregoing language
is meant to cover only transactions that are subject to this exemption.
Accordingly, the Department concurs with AEFC's interpretation of
the subject language.
3. Affiliate definition. On page 56717 of the Notice, Section
III(g) of the Definitions provides, in part, that the term
``affiliate'' means, with respect to AEFC, ``an entity which directly
or indirectly, through one or more intermediaries, is controlled by
AEFC.'' AEFC believes that this definition is confusing and duplicative
because it implies that only those entities controlled by AEFC are
affiliates rather than those which AEFC directly or indirectly
controls, is controlled by or is under common control with. Therefore,
AEFC suggests that Section III(g) be deleted and that Section III(h),
which also defines the term ``affiliate,'' be redesignated as Section
III(g).
In response, the Department concurs with AEFC's clarification and
has modified Section III(g) of the Notice, accordingly. In addition,
the Department has redesignated paragraphs (i) through (k) of Section
III as paragraphs (h) through (j) in the final exemption.
4. Miscellaneous revisions. On page 56717 of the Notice,
Representation 1 of the Summary provides a description of AEFC
``together with its subsidiaries.'' AEFC has requested that the
Department modify this phrase to read ``together with its affiliates.''
In addition, on page 56718 of the Notice, Representation 2 of the
Summary states, in part, that ``AEFC acts as investment manager of
institutional accounts, including employee benefit plans, with assets
totaling approximately $38.3 million.'' However, AEFC points out that
the ``$38.3 million'' figure should be revised to read ``$38.3
billion.''
In response to the foregoing comments, the Department has noted
these revisions to the Summary.
For further information regarding AEFC's comment letter or other
matters discussed herein, interested persons are encouraged to obtain
copies of the exemption application file (Exemption Application No. D-
10855) the Department is maintaining in this case. The complete
application file, as well as all supplemental submissions received by
the Department, are made available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration, Room
N-1513, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Accordingly, after giving full consideration to the entire record,
including the written comment provided by AEFC, the Department has made
the aforementioned changes to the Notice and has decided to grant the
exemption subject to the modifications and clarifications described
above.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
ING Barings LLC, ING Institutional Trust Company and Affiliates,
Located in New York, New York, Exemption
[Prohibited Transaction Exemption 2001-08 Exemption Application No.: D-
10908].
Section I--Transactions
Effective as of December 6, 2000, the date of the publication of
the proposed exemption in the Federal Register, the restrictions of
sections 406(a), 406(b)(1) and (b)(2) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) through (E) of the Code,\1\ shall not apply
to:
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\1\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
to the corresponding provisions of the Code.
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(a) the lending of securities to:
(1) ING Barings LLC (ING);
(2) the London branch (ING Bank London) of ING Bank N.V. or any
successor in interest bank which is subject to the laws of the United
Kingdom and the Netherlands;
(3) ING Barings Limited (ING London);
(4) ING Baring Securities (Japan) Limited (ING Japan); and
(5) any broker-dealer that, now or in the future, is an affiliate
of ING which is subject to regulation under the laws of the United
States or the United Kingdom or Japan;\2\ by employee benefit plans,
including commingled investment funds holding assets of such plans (the
Client Plan(s)), for which in connection with securities lending
activities, an affiliate of the ING Borrowers, the ING Institutional
Trust Company (ING Institutional), its corporate successors, or any
foreign or domestic affiliate of ING,\3\ acts as a securities lending
agent (or sub-agent) or as a directed trustee or custodian for such
Client Plans under either of two securities lending arrangements
referred to herein as Plan A and Plan B; and
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\2\ ING, ING Bank London or any successor in interest bank which
is subject to the laws of the United Kingdom and the Netherlands,
ING London, ING Japan, and any broker-dealer that, now or in the
future, is an affiliate of ING which is subject to regulation under
the laws of the United States or the United Kingdom or Japan are
referred to herein collectively as ING Borrowers or individually as
ING Borrower.
\3\ ING Institutional, its corporate successors, or any foreign
or domestic affiliate of ING are referred to herein collectively as
ING Trust.
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(b) the receipt of compensation by ING Trust in connection with
securities lending transactions, provided that for all transactions
described above the conditions, as set forth in Section II, below, are
satisfied.
Section II--Conditions
(a) For each Client Plan, neither the ING Borrowers nor ING Trust
has or exercises discretionary authority or control with respect to the
investment of the assets of such Client Plan involved in the
transaction (other than with respect to the investment of cash
collateral after the securities have been loaned and collateral
received), or renders investment advice (within the meaning of 29 CFR
2510.3-21(c)) with respect to those assets, including any decisions
concerning such Client Plan's acquisition or disposition of securities
available for securities lending transactions;
(b) With regard to:
(1) Plan A, under which ING Trust lends securities of a Client Plan
to an ING Borrower in either an agency or sub-agency capacity, such
arrangement is approved in advance by a fiduciary of the Client Plan
(the Client Plan Fiduciary) that is independent of ING
[[Page 10327]]
Trust and the ING Borrower and is negotiated by ING Trust, which acts
as a liaison between the lender and the borrower to facilitate the
securities lending transaction.\4\
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\4\ The Department, herein, is not providing exemptive relief
for securities lending transactions engaged in by primary lending
agents, other than ING Trust, beyond that provided pursuant to
Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) (46 FR 7527,
January 23, 1981, as amended at 52 FR 18754, May 19, 1987), and
Prohibited Transaction Class Exemption 82-63 (PTCE 82-63) (47 FR
14804, April 6, 1982).
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(2) Plan B, under which an ING Borrower directly negotiates an
agreement with the Client Plan Fiduciary, including a Client Plan for
which ING Trust provides services with respect to the portfolio of
securities to be loaned, pursuant to an exclusive borrowing arrangement
(an Exclusive Borrowing Arrangement), such Client Plan Fiduciary is
independent of both the ING Borrower and ING Trust, and ING Trust does
not participate in any such negotiations.
(c) Before a Client Plan participates in a securities lending
program with respect to Plan A and before any loan of securities to an
ING Borrower pursuant to Plan A is affected, a Client Plan Fiduciary
that is independent of ING Trust and the ING Borrower must have:
(1) Authorized and approved a securities lending authorization
agreement with ING Trust (the Agency Agreement), where ING Trust is
acting as the direct securities lending agent;
(2) Authorized and approved the primary securities lending
authorization agreement (the Primary Lending Agreement) with the
primary lending agent, where ING Trust is lending securities under a
sub-agency arrangement with a primary lending agent; and
(3) Approved the general terms of the securities loan agreement
(the Basic Loan Agreement) between such Client Plan and the ING
Borrower, the specific terms of which are negotiated and entered into
by ING Trust.
(d) The terms of each loan of securities by a Client Plan to an ING
Borrower are at least as favorable to such Plan as those of a
comparable arm's-length transaction between unrelated parties;
(e) A Client Plan may terminate a securities lending agency (or
sub-agency) agreement under Plan A or an Exclusive Borrowing
Arrangement under Plan B at any time without penalty on five (5)
business days notice, whereupon the ING Borrower shall deliver
securities identical to the borrowed securities (or the equivalent
thereof in the event of reorganization, recapitalization, or merger of
the issuer of the borrowed securities) to the Client Plan within:
(1) The customary delivery period for such securities;
(2) Five (5) business days; or
(3) The time negotiated for such delivery by the Client Plan and
the ING Borrower, whichever is less.
(f) ING Institutional (or another custodian designated to act on
behalf of the Client Plan) as agent for the Client Plan receives from
the ING Borrower (either by physical delivery or by book entry in a
securities depository located in the United States, wire transfer or
similar means) by the close of business on or before the day the loaned
securities are delivered to such ING Borrower, collateral consisting of
U.S. currency, securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, irrevocable letters of credit
issued by a United States Bank, other than ING Trust or the ING
Borrowers, or any combination thereof, or other collateral permitted
under PTCE 81-6 (as it may be amended or superseded);
(g) The market value (or in the case of a letter of credit, a
stated amount) of the collateral on the close of business on the day
preceding the day of the loan is initially at least 102 percent (102%)
of the market value of the loaned securities. The applicable Basic Loan
Agreement gives the Client Plan a continuing security interest in and
an lien on the collateral. The level of collateral is monitored daily
either by ING Trust under Plan A or ING Trust or other designee of the
Client Plan under Plan B. If the market value of the collateral, on the
close of trading on a business day, is less than 100 percent (100%) of
the market value of the loaned securities at the close of business on
that day, the ING Borrower is required to deliver by the close of
business on the next day, sufficient additional collateral such that
the market value of the collateral will again equal 102 percent (102%).
(h) With regard to:
(1) Plan A, prior to a Client Plan entering into a Basic Loan
Agreement, the ING Borrower will furnish its most recent available
audited and unaudited statements to ING Trust, which, in turn, will
provide such statements to the Client Plan before such Client Plan
approves of the terms of the Basic Loan Agreement. The Basic Loan
Agreement contains a requirement that the applicable ING Borrower must
give prompt notice at the time of a loan of any material adverse
changes in its financial condition since the date of the most recently
furnished financial statements. If any such changes have taken place,
ING Trust will not make any further loans to the ING Borrower, unless
an independent Client Plan Fiduciary is provided notice of any material
change and approves the loan in view of the changed financial
condition;
(2) Plan B, prior to a Client Plan entering into an Exclusive
Borrowing Arrangement, the ING Borrower will furnish its most recent
available audited and unaudited statements to the Client Plan before
the Client Plan elects to enter into such agreement. The Exclusive
Borrowing Arrangement contains a requirement that the ING Borrower must
give prompt notice at the time of the loan of any material adverse
changes in its financial condition since the date of the most recently
furnished financial statements;
(i) In return for lending securities, the Client Plan either:
(1) receives a reasonable fee which is related to the value of the
borrowed securities and the duration of the loan; or
(2) has the opportunity to derive compensation through the
investment of cash collateral. (Under such circumstances, the Client
Plan may pay a loan rebate or similar fee to the ING Borrower, if such
fee is not greater than the fee the Client Plan would pay in a
comparable arm's length transaction with an unrelated party.)
(j) All the procedures regarding the securities lending activities
will at a minimum conform to the applicable provisions of PTCE 81-6 and
PTCE 82-63 as well as the applicable banking laws of the United Kingdom
and the Netherlands and securities laws of the United States or the
United Kingdom or Japan;
(k) ING Institutional agrees to indemnify and hold harmless the
Client Plans in the United States (including the sponsor and
fiduciaries of such Client Plans) for any transactions covered by this
exemption with ING Borrowers so that the Client Plans do not have to
litigate in the case of ING Borrowers in foreign jurisdictions or sue
ING Borrowers to realize on the indemnification. Such indemnification
by ING Institutional is against any and all reasonably foreseeable
damages, losses, liabilities, costs, and expenses (including attorney's
fees) which the Client Plans may incur or suffer, arising from any
impermissible use by ING Borrowers of the loaned securities or from an
event of default arising from ING Borrowers' failing to deliver loaned
securities in accordance with the applicable Basic Loan Agreement or
[[Page 10328]]
otherwise failing to comply with the terms of such agreement, except to
the extent that such losses or damages are caused by the Client Plans'
own negligence.
(1) If any event of default occurs, ING Institutional promptly and
at its own expense (subject to rights of subrogation in the collateral
and against such borrower), will purchase or cause to be purchased, for
the account of the Client Plans, securities identical to the borrowed
securities (or their equivalent as discussed above). If the collateral
is insufficient to accomplish such purchase, ING Institutional will
indemnify the Client Plan for any shortfall in the collateral plus
interest on such amount and any transaction costs incurred (including
attorney's fees of the Client Plan for legal actions arising out of the
default on loans or failure to properly indemnify under this
provision). Alternatively, if such replacement securities cannot be
obtained on the open market, ING Institutional will pay the Client Plan
the difference in U.S. dollars between the market value of the loaned
securities and the market value of the related collateral on the date
of the borrower's breach of its obligation to return the loaned
securities.
(2) If, however, the event of default is caused by the ING
Borrower's failure to return securities within a designated time, the
Client Plan has the right to purchase securities identical to the
borrowed securities and apply the collateral to payment of the purchase
price and any other expenses of the Plan associated with the sale and/
or purchase.
(l) The Client Plan receives the equivalent of all distributions
made to holders of the borrowed securities during the term of the loan,
including, but not limited to, cash dividends, and interest payments on
the loaned securities, shares of stock as a result of stock splits and
rights to purchase additional securities, or other distributions.
(m) Prior to any Client Plan's approval of the lending of its
securities to any ING Borrower, a copy of the notice of proposed
exemption and a copy of the final exemption will be provided to such
Client Plan.
(n) Each Client Plan receives monthly reports with respect to the
securities lending transactions, including but not limited to the
information described in representation number 19, as published in the
Summary of Facts and Representations in the Notice of Proposed
Exemption (the Notice), so that an independent Client Plan Fiduciary
may monitor such transactions with the ING Borrowers.
(o) Only Client Plans with total assets having an aggregate market
value of at least $50 million are permitted to lend securities to the
ING Borrowers; provided, however, that--
(1) In the case of two or more Client Plans which are maintained by
the same employer, controlled group of corporations or employee
organization (the Related Client Plans), whose assets are commingled
for investment purposes in a single master trust or any other entity
the assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the
Plan Asset Regulation), which entity is engaged in securities lending
arrangements with the ING Borrowers, the foregoing $50 million
requirement shall be deemed satisfied if such trust or other entity has
aggregate assets which are in excess of $50 million; provided that if
the fiduciary responsible for making the investment decision on behalf
of such master trust or other entity is not the employer or an
affiliate of the employer, such fiduciary has total assets under its
management and control, exclusive of the $50 million threshold amount
attributable to plan investment in the commingled entity, which are in
excess of $100 million.
(2) In the case of two or more Client Plans which are not
maintained by the same employer, controlled group of corporations, or
employee organization (the Unrelated Client Plans), whose assets are
commingled for investment purposes in a group trust or any other form
of entity the assets of which are ``plan assets'' under the Plan Asset
Regulation, which entity is engaged in securities lending arrangements
with the ING Borrowers, the foregoing $50 million requirement is
satisfied if such trust or other entity has aggregate assets which are
in excess of $50 million (excluding the assets of any plan with respect
to which the fiduciary responsible for making the investment decision
on behalf of such group trust or other entity or any member of the
controlled group of corporations including such fiduciary is the
employer maintaining such plan or an employee organization whose
members are covered by such plan). However, the fiduciary responsible
for making the investment decision on behalf of such group trust or
other entity--
(A) Has full investment responsibility with respect to Client Plan
assets invested therein; and
(B) Has total assets under its management and control, exclusive of
the $50 million threshold amount attributable to plan investment in the
commingled entity, which are in excess of $100 million. (In addition,
none of the entities described above must be formed for the sole
purpose of making loans of securities.)
(p) With respect to any calendar quarter, at least 50 percent (50%)
or more of the outstanding dollar value of securities loans negotiated
on behalf of Client Plans will be to unrelated borrowers, unless the
Client Plan has entered into an Exclusive Borrowing Arrangement with
the ING Borrowers.
(q) In addition to the above, all loans involving Foreign
Borrowers, as defined in Section III (c), below, must satisfy the
following supplemental requirements:
(1) Such Foreign Borrower is a bank which is regulated by both the
Dutch Central Bank (De Nederlandsche Bank or DNB) and the Financial
Services Authority (FSA) of the United Kingdom or must be a registered
broker-dealer subject to regulation by either the Securities and
Futures Authority of the United Kingdom (the SFA) or the Ministry of
Finance (the MOF) and the Tokyo Stock Exchange.
(2) Such Foreign Borrower must be in compliance with all applicable
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities and
Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-
dealers a limited exemption from United States registration
requirements;
(3) All collateral is maintained in United States dollars or United
States dollar-denominated securities or letters of credit;
(4) All collateral is held in the United States and the situs of
the securities lending agreements (either the Basic Loan Agreement
under Plan A or the Exclusive Borrowing Arrangement under Plan B) is
maintained in the United States under an arrangement that complies with
the indicia of ownership requirements under section 404(b) of the Act
and the regulations promulgated under 29 CFR 2550.404(b)-1; and
(5) Prior to entering a transaction involving a Foreign Borrower,
the applicable Foreign Borrower must--
(A) Agree to submit to the jurisdiction of the United States;
(B) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(C) Consent to service of process on the Process Agent; and
(D) Agree that enforcement by a Client Plan of the indemnity
provided by ING Institutional will occur in the United States courts;
(r) ING maintains or causes to be maintained within the United
States for a period of six (6) years from the date of each securities
lending transaction, in
[[Page 10329]]
a manner that is convenient and accessible for audit and examination,
such records as are necessary to enable the persons described in
Section II (s)(1) below to determine whether the conditions of this
exemption, if granted, have been met; except that--
(1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of ING or the
other ING Borrowers, the records are lost or destroyed prior to the end
of the six year period; and
(2) no party in interest with respect to an employee benefit plan,
other than ING or the other ING Borrowers, shall be subject to the
civil penalty that may be assessed under section 502(i) of the Act, or
to the taxes imposed by section 4975(a) or (b) of the Code, if such
records are not maintained, or are not available for examination as
required by Section II(s)(1), below.
(s)(1) Except as provided in subparagraph (2) of this Section II(s)
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in Section II(r),
above, are unconditionally available at their customary location for
examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission (SEC);
(B) Any fiduciary of a participating Client Plan or any duly
authorized representative of such fiduciary;
(C) Any contributing employer to any participating Client Plan, or
any duly authorized employee or representative of such employer; and
(D) Any participant or beneficiary of any participating Client
Plan, or any duly authorized representative of such participant or
beneficiary.
(2) None of the persons described in subparagraphs (B)-(D) of
Section II(s)(1) shall be authorized to examine trade secrets of ING or
the other ING Borrowers, or commercial or financial information which
is privileged or confidential.
Section III--Definitions
For purposes of this exemption,
(a) The term ``affiliate'' of another person shall include:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, employee, or relative (as defined in
section 3(15) of the Act) of such other person or any partner in such
person; and
(3) Any corporation or partnership of which such other person is an
officer, director, employee or in which such person is a partner.
(b) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(c) The term, ``Foreign Borrower or Foreign Borrowers'' means: (1)
ING Bank London or any successor in interest bank subject to the laws
of the United Kingdom and the Netherlands; (2) ING London; (3) ING
Japan; and (4) any broker-dealer that, now or in the future, is an
affiliate of ING which is subject to regulation under the laws of the
United States or the United Kingdom or Japan.
Written Comments
In the Notice, the Department of Labor (the Department) invited all
interested persons to submit written comments and requests for a
hearing on the proposed exemption within thirty (30) days of the date
of the publication of the Notice in the Federal Register on December 6,
2000. All comments and requests for a hearing were due by January 5,
2001.
During the comment period, the Department received no requests for
a hearing. However, the Department did receive comment letters from the
applicant. In this regard, in a letter dated January 3, 2001, the
applicants requested certain modifications and clarifications to the
language of the exemption, as proposed, and requested certain
amendments to the language of the Summary of Facts and Representations
(SFR) in the Notice. Subsequently, in a letter dated January 19, 2001,
the applicants revised various portions of the previous comment letter.
A discussion of each of the applicant's comments and the Department's
responses, thereto, are set forth in the numbered paragraphs below.
1. The applicants have requested that any reference to IITC in the
final exemption be changed to ``ING Trust.'' In this regard, the
applicants believe that the use of the term, ``IITC,'' will be
confusing to potential clients when the exemption documents are
provided to such clients prior to entering into a securities lending
arrangement.
Although the Department concurs with the applicants' request and
has changed all references to ``IITC'' in the final exemption to ``ING
Trust,'' the Department notes that, throughout the proposed exemption,
the Department distinguished between the ING Institutional Trust
Company (ING Institutional), acting in its individual capacity, and
IITC, a collective term, which refers to ING Institutional, its
corporate successors, or any foreign or domestic affiliate of ING
Barings LLC. Accordingly, in compliance with the applicants' request
the words, ``ING Trust,'' in the final exemption will collectively
refer to ING Institutional, its corporate successors, or any foreign or
domestic affiliate of ING Barings LLC.
2. In its revised comment letter, dated January 19, 2001, the
applicants requested an amendment of paragraph (f) of Section II, as
published in the Notice (65 FR 76294), by replacing the phrase,
``Client Plan,'' with the words, ``ING Institutional.''
The Department concurs and has modified Section II(f) of the final
exemption. Words that have been stricken appear in the closed brackets,
and additions have been underlined in the text below, as follows:
(f) [Client Plans] ING Institutional (or another custodian
designated to act on behalf of the Client Plan) as agent for the
Client Plan receives from the ING Borrower (either by physical
delivery or by book entry in a securities depository located in the
United States, wire transfer or similar means) by the close of
business on or before the day the loaned securities are delivered to
such ING Borrower, collateral consisting of U.S. currency,
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, irrevocable letters of credit issued
by a United States Bank, other than ING Trust or the ING Borrowers,
or any combination thereof, or other collateral permitted under PTCE
81-6 (as it may be amended or superseded);
Further, the Department notes that for the sake of consistency, the
text of paragraph 17, as published in the Notice (65 FR 76299), should
have been modified by striking the words, ``IITC,'' and substituting
the phrase, ``ING Institional acting as agent.'' Accordingly, words
that should have been stricken in the first sentence of paragraph 17 in
the Notice appear in the closed brackets, and additions are underlined
in the text below, as follows:
[IITC] ING Institutional acting as agent on behalf of a Client
Plan will receive collateral from ING Borrowers by physical
delivery, book entry in a U.S. securities depository, wire transfer,
or similar means by the close of business on or before the day the
loaned securities are delivered to such ING Borrowers.
3. The applicants have suggested certain deletions and additions to
the language in the SFR, as published in the Notice, and have requested
that the Department substitute the text which is quoted below for the
language that appeared in the Notice. The Department concurs and has
made the requested deletions and additions in the language
[[Page 10330]]
in the SFR, as published in the Notice. The applicants' deletions to
the language that appeared in the SFR are noted below by the words
stricken in the closed brackets, and the applicants' additions have
been underlined in the text below.
(A) The text of subparagraph (d) of paragraph 36, as published in
the SFR in the Notice (65 FR 76303), should have read as follows:
Neither the ING Borrowers nor IITC will exercise any
discretionary authority or control with respect to the investment of
the assets of Client Plans involved in the securities lending
transactions (other than with respect to the investment of cash
collateral after the securities have been loaned and the collateral
received), or render investment advice with respect to those assets,
including any decisions concerning a Client Plan's acquisition or
disposition of securities available for lending.
(B) The applicants seek to strike the entire text of subparagraph
(h) of paragraph 36, as published in the SFR in the Notice(65 FR
76303), as set forth, below:
[The market value of the collateral which secures any loan of
securities will at all times equal at least 102 percent (102%) of
the market value of the loaned securities;]
and substitute in its entirety the following language:
The level of collateral is monitored daily either by ING Trust
under Plan A or ING Trust or other designee of the Client Plan under
Plan B. The market value of the collateral will initially equal 102
percent (102%) of the loaned securities. If the market value of the
collateral falls below 100 percent (100%), the ING Borrower will
deliver additional collateral on the following day such that the
market value of the collateral will again equal 102 percent (102%).
After giving full consideration to the entire record, including the
written comments from the applicants, the Department has decided to
grant the exemption, as described, amended, and concurred in above. In
this regard, the comment letters submitted by the applicants to the
Department have been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on December 6, 2000, at 65 FR 76293.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 8th day of February, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 01-3689 Filed 2-13-01; 8:45 am]
BILLING CODE 4510-29-P
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