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Notice of Proposed Amendment; Prohibited Transaction Exemption (PTE) 99-34 Involving the Chase Manhattan Bank/JPMorgan Chase Bank, National Association   [10/23/2008]
[PDF]
FR Doc E8-25235
[Federal Register: October 23, 2008 (Volume 73, Number 206)]
[Notices]               
[Page 63200-63209]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc08-101]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11471]

 
Notice of Proposed Amendment; Prohibited Transaction Exemption 
(PTE) 99-34 Involving the Chase Manhattan Bank/JPMorgan Chase Bank, 
National Association

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed amendment to individual exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed individual 
exemption, which, if granted, would amend PTE 99-34 (64 FR 46419, 
August 25, 1999), an exemption granted to The Chase Manhattan Bank 
(CMB). PTE 99-34 permits the lending of securities to affiliates of The 
Chase Manhattan Corporation (CMC) by employee benefit plans, including 
commingled investment funds holding plan assets for which CMC 
affiliates act as directed trustee or custodian and securities lending 
agent or subagent, and the receipt of compensation in connection with 
the transactions. The amendment, if granted, would apply to JPMorgan 
Chase Bank, National Association (JPMCB), a successor organization to 
CMB, and would extend the provisions of PTE 99-34 to certain 
transactions with affiliates of the Bear Stearns Companies Inc. (Bear 
Stearns). If granted, the proposed amendment would affect participants 
and beneficiaries and fiduciaries of employee benefit plans to which 
affiliates of JPMCB act as securities lending agent or sub-agent and 
may also act as custodian or directed trustee.

DATES: Effective Date: Except as otherwise specified herein, the 
amendment, if granted, will be effective as of August 25, 1999.

DATES: Written comments and requests for a public hearing on the 
proposed exemption should be submitted to the Department December 8, 
2008.

[[Page 63201]]


ADDRESSES: All written comments and requests for a public hearing 
concerning the proposed exemption should be sent to the Office of 
Exemptions Determinations, Employee Benefits Security Administration, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attention: Application No. D-11471. 
Alternatively, interested persons are invited to submit comments or 
hearing requests to the Department by e-mail to moffitt.betty@dol.gov 
or by facsimile at (202) 219-0204.

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed exemption that would amend PTE 99-
34, originally granted to CMB. CMB merged in November 2001 with Morgan 
Guaranty Trust Company of New York to form JPMCB (together with its 
affiliates, the Applicant). This followed the December 31, 2000 merger 
of CMB's parent company, CMC, with JPMorgan & Co. Incorporated, to form 
JPMorgan Chase & Co. (JPMCC).
    This amendment, if granted, will be granted to JPMCB, as successor 
organization to CMB. As part of the amendment, the names of other 
related corporate entities that were changed due to the merger will be 
updated. For the sake of simplicity, the current names of those 
entities will be used in the textual discussion of the existing 
provisions of PTE 99-34.
    PTE 99-34 conditionally permits (1) the lending of securities to 
affiliates of JPMCC which are engaged in JPMCC's capital markets line 
of business (referred to herein as Global Capital Markets), by employee 
benefit plans, including commingled investment funds holding Client 
Plan assets, for which JPMCC, through its Investor Services line of 
business, as operated through JPMCB and its affiliates (Investor 
Services), acts as directed trustee or custodian, and for which JPMCC 
through its Financing & Market Products or any other similar division 
of JPMCB or a U.S. affiliate of JPMCB (collectively, FMP) acts as 
securities lending agent or sub-agent and (2) the receipt of 
compensation by FMP in connection with the proposed transactions.
    The Department is proposing this amendment to PTE 99-34 pursuant to 
section 408(a) of the Act and section 4975(c)(2) of the Code, and in 
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B 
(55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978 (5 U.S.C. 
App. at 214 [2000 ed.]) generally transferred the authority of the 
Secretary of the Treasury to issue exemptions under section 
4975(c)(2) of the Code to the Secretary of Labor.

FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, Washington, DC 20210 at (202) 693-8554. This is 
not a toll-free number.
    Summary of Facts and Representations:
    1. JPMCB is a national banking association with its principal place 
of business in Columbus, Ohio, that is regulated by the Office of the 
Comptroller of the Currency. Among its other business activities, JPMCB 
acts as trustee and custodian of employee benefit plans that are 
subject to ERISA, and of collective investment funds that serve as 
investment vehicles for ERISA plan assets. JPMCB is a wholly-owned 
subsidiary of JPMCC, a financial holding company incorporated under 
Delaware law and headquartered in New York, New York. JPMCC is one of 
the largest banking institutions in the United States, with $1.6 
trillion in assets, $123 billion in stockholders' equity and operations 
worldwide as of December 31, 2007.
    2. On March 16, 2008, JPMCC and Bear Stearns entered into an 
Agreement and Plan of Merger, which was subsequently amended as of 
March 24, 2008 (the Merger Agreement). The Merger Agreement provided 
that, upon the terms and subject to the conditions set forth in the 
Merger Agreement, a newly-formed wholly-owned JPMCC subsidiary would 
merge with and into Bear Stearns, with Bear Stearns continuing as the 
surviving corporation and as a wholly-owned subsidiary of JPMCC (the 
Merger). The holders of Bear Stearns common stock approved and adopted 
the Merger Agreement at a special meeting of stockholders held on May 
29, 2008. Following the satisfaction or waiver of the other conditions 
in the Merger Agreement, the Merger became effective on May 30, 2008.
    3. Pursuant to Section 5.1 of the Merger Agreement, prior to the 
effective time of the Merger, each of JPMCC and Bear Stearns were 
required, among other things, to use commercially reasonable efforts to 
maintain and preserve intact its business organization and advantageous 
business relationships. In furtherance of the foregoing, Bear Stearns 
agreed to operate within its existing credit, principal, market and 
other risk limits and comply with existing risk-related policies and 
procedures. JPMCC had the right to oversee Bear Stearns in the setting 
of such limits in any and all respects, and in connection with changes 
in any of the foregoing policies and procedures. During such period, 
JPMCC had custody of and the immediate right to manage the collateral 
pool (valued at $30 billion as of March 14, 2008) that was being 
pledged as security for $29 billion in term financing from the Federal 
Reserve Bank of New York to facilitate the Merger, and related hedges. 
Subject to the continued effectiveness of the Guaranty (as defined 
below) and JPMCC's compliance with the terms thereof, JPMCC was 
entitled to oversee the business, operations and management of Bear 
Stearns in its reasonable discretion. Bear Stearns also agreed to 
refrain from taking certain actions without JPMCC's consent.
    4. On March 24, 2008, JPMCC, in connection with the amendment to 
the Merger Agreement, entered into an amended and restated guaranty 
agreement (the Guaranty), effective retroactively from March 16, 2008, 
which replaced the guaranty agreement entered into on March 16, 2008, 
in connection with the Merger Agreement. Pursuant to the Guaranty, 
JPMCC agreed to guarantee certain credit and trading liabilities of 
Bear Stearns and certain of its operating subsidiaries to the extent 
such liabilities arise prior to the end of the specified ``Guaranty 
Period'' which terminates 120 days after the closing of the Merger on 
May 30, 2008.
    5. In addition, on March 24, 2008, Bear Stearns and JPMCC, in 
connection with entering into the amendment to the Merger Agreement, 
entered into a share exchange agreement, under which JPMCC agreed to 
purchase 95 million newly issued shares of Bear Stearns' common stock, 
or 39.5% of the outstanding shares of Bear Stearns' common stock after 
giving effect to the issuance, in exchange for the issuance of 
20,665,350 shares of JPMCC common stock to Bear Stearns and the entry 
by JPMCC into the amendment to the Merger Agreement described above, an 
amended and restated Guaranty as described above and a guaranty in 
favor of the New York Federal Reserve. The share exchange was completed 
on April 8, 2008, following which JPMCC beneficially owned 
approximately 47.41% of the outstanding shares of the common stock of 
Bear Stearns (as reported in JPMCC's Amendment No. 2 to its Schedule 
13D filed with the SEC on April 9, 2008).

Securities Lending Transactions

    6. JPMCB represents that it is a provider of securities lending 
services to pension plans and other institutional investors, performing 
this service as an adjunct to its directed trustee and

[[Page 63202]]

custody services or under a separate relationship unrelated to its 
custody business. The purpose of securities lending is to obtain an 
additional return on a plan's investments by lending out the securities 
held by the plan to broker-dealers that require them, for example, to 
cover short sales or trade settlements. JPMCB offers a limited 
``indemnified'' program, whereby if the borrower defaults with 
insufficient collateral, JPMCB is obligated to make good the 
deficiency, thereby limiting customer risk. Borrowers provide 
collateral for the securities loan in the form of securities or cash.
    7. Affiliates of Bear Stearns are major borrowers in JPMCB's 
securities lending program, with approximately $10 billion in 
securities loans outstanding as of the last business day before the 
Merger Agreement was signed (as applicable to both ERISA and non-ERISA 
accounts). The specific Bear Stearns affiliates with which JPMCB 
entered into securities loan arrangements are Bear Stearns Securities 
Corp. (as assignee under an agreement with Bear Stearns & Company 
Inc.), Bear Stearns International Limited (UK) and Bear Stearns 
International Trading Limited (UK). They are collectively referred to 
herein as the ``Bear Stearns Borrowers.''
    8. JPMCB's securities lending agreements with its client employee 
benefit plans authorize JPMCB, as securities lending agent for the 
plan, to loan securities to various borrowers on behalf of the plans. A 
list of approved borrowers is appended to the securities lending 
agreements, and may be updated by JPMCB to add new borrowers upon 
notice to the plan, subject to the plan's right to object within five 
business days to a potential borrower. Therefore, under the terms of 
their securities lending agreements, the plans that currently have 
securities loans outstanding to Bear Stearns Borrowers, and that would 
therefore be subject to the relief requested by Applicants, have 
previously approved such Bear Stearns Borrowers as borrowers. Prior to 
March 16, 2008, any such loans to the Bear Stearns Borrowers were 
typically made in reliance on Prohibited Transaction Exemption 2006-16 
(PTE 2006-16), 71 FR 63786 (Oct. 31, 2006), because Bear Stearns, as a 
leading brokerage firm, is likely to be a party in interest to any 
large pension plan.
    9. The execution of the Merger Agreement and related documents on 
March 16, 2008, raised potential prohibited transaction issues in the 
Applicants' view. As soon as it became evident that the merger 
transaction was to proceed and JPMCC realized that prohibited 
transaction issues would be raised as a result, JPMCC contacted the 
Department and worked with the Department to determine how best to 
address these issues.
    While the Merger did not become effective until May 30, 2008, the 
Applicant is concerned that JPMCC may be viewed as having 
``controlled'' Bear Stearns prior to that date by reason of the control 
JPMCC was able to exercise over Bear Stearns under the provisions of 
the Merger Agreement and the Guaranty Agreement, which may have caused 
its subsidiary JPMCB and the Bear Stearns Borrowers to be treated as 
``affiliates'' of each other.
    10. PTE 2006-16 does not provide relief for securities lending 
transactions from the prohibitions of section 406(b) of ERISA, which, 
in the Applicants' view could be violated where the securities lending 
agent, acting as a fiduciary on behalf of the plan in making securities 
loans, is affiliated with the securities borrower. One of JPMCB's 
predecessor entities, CMB, applied for exemptive relief to be able to 
enter into securities loans with its affiliated broker-dealers, which 
was granted as PTE 99-34. Among the conditions of the exemption are 
that (i) JPMCC and its affiliates may not have or exercise 
discretionary or control or render investment advice with respect to 
the investment of the assets involved in the transaction; (ii) the 
securities lending arrangement be approved in advance by an independent 
fiduciary; (iii) the securities loan be at market rates and on terms at 
least as favorable as arm's-length terms; (iv) the most recent 
available audited and unaudited statements of financial condition of 
the client plans' borrowers be received by JPMCB and provided to the 
plans before entering into the loan agreements with those borrowers; 
(v) minimum collateral requirements be met; (vi) the client plan be 
indemnified against loss; and (vii) certain indicia of ownership in the 
United States be maintained. Only client plans with at least $50 
million in assets are permitted to participate, with a special rule 
applicable to master trusts and commingled funds.
    11. Given the unexpected timing of the Merger Agreement, JPMCB was 
not able to meet all the requirements of PTE 99-34 necessary to cover 
loans to the Bear Stearns Borrowers prior to the Merger Agreement date. 
Specifically, it had not provided advance disclosure of the most recent 
available audited and unaudited statements of financial condition for 
the Bear Stearns Borrowers to Client Plans, nor was it able to satisfy 
PTE 99-34's advance approval condition. Therefore, JPMCB is seeking to 
amend PTE 99-34 to permit these conditions to be met retroactively for 
securities loans to the Bear Stearns Borrowers. The Applicants 
represent that, if the existing securities loans between JPMCB as 
securities lending agent for ERISA plans and Bear Stearns Borrowers 
were terminated, the result would be disruptive to the plans and to the 
securities lending market.
    12. Upon consideration of the facts and representations, the 
Department proposes to amend PTE 99-34 effective March 16, 2008, to 
permit securities lending by client plans to Bear Stearns Borrowers by 
JPMCC's Financing & Market Products line of business (FMP) as 
securities lending agent or sub-agent, and the receipt by FMP of 
compensation in connection therewith for the period from March 16, 
2008, through April 15, 2008, provided that no later than April 15, 
2008: (1) FMP provided the most recently available audited and 
unaudited financial statements of Bear Stearns Borrowers' parent 
company to client plans, and (2) FMP furnished a description of the 
general terms of the securities loan agreements between such client 
plans and the Bear Stearns Borrowers in the form of copies of the 
standard forms of those agreements (FMP negotiates the specific terms 
of such agreements). The cover letter accompanying this disclosure 
package notified the independent fiduciaries of the client plans of 
their right to object to the extension of securities loans to the Bear 
Stearns Borrowers, and that if the client plan objected, FMP (1) would 
cease making new loans to the Bear Stearns Borrowers immediately, and 
(2) would work with the client plan to determine how to unwind existing 
loans to Bear Stearns Borrowers expeditiously. Absent an objection 
within ten days of the notice, FMP would treat the client plan as 
consenting to the continuation of securities loans to Bear Stearns 
Borrowers. In the event of an objection, loans on behalf of the 
objecting client plan that are continuing or new loans entered into 
after March 16, 2008 but prior to the objection, up to the date the 
loans are unwound in a manner approved by the client plan, will still 
be treated as covered by PTE 99-34, as amended.
    13. Additionally, Applicants state that neither PTE 2006-16 nor PTE 
99-34 permits the lending of securities of a plan to an affiliate of 
the manager of the plan's portfolio of which those securities are a 
part. Prior to the date of the Merger Agreement, this condition would 
not have prevented JPMCB from lending securities managed by a JPMCB

[[Page 63203]]

affiliate to a Bear Stearns Borrower. Following the Merger Agreement, 
however, the JPMCB asset managers may be considered affiliated with the 
Bear Stearns Borrowers. As a result, Applicants are concerned that 
relief under the exemptions would cease to be available for loans of 
such securities to those borrowers.
    14. In response, the Department has determined to propose an 
amendment to PTE 99-34 under which the condition in section II(b) of 
PTE 99-34, that the securities loaned to a borrower not be subject to 
the discretionary authority or control of an affiliate of the borrower, 
will not be imposed with respect to the lending of securities by a 
client plan to a Bear Stearns Borrower for the 90-day period from March 
16, 2008, through June 14, 2008.
    15. This temporary relief would be subject to the condition that 
information as to whether a particular security is on loan to a Bear 
Stearns Borrower will not be available to a JPMCB-affiliated manager. 
FMP has assured compliance with this condition by blocking the 
reporting of securities lending transactions for client plans of 
JPMCB's asset management affiliate through VIEWS, an electronic 
reporting facility, so that JPMCB's affiliate will not have access to 
information regarding the identity of the borrowers of securities that 
are out on loan. Similarly, the Client Service and Operations teams 
will not be permitted to provide such information through other media 
or orally to the JPMCB affiliate.
    16. Additionally, JPMCB has agreed to retain an Independent 
Fiduciary to review loans of securities that would otherwise not be 
permitted by section II(b) of PTE 99-34. The term ``Independent 
Fiduciary'' will be defined in section IV(f) of the exemption. The 
Independent Fiduciary will conduct a Review (as defined in section 
IV(f) of the exemption) of a representative sample of transactions for 
compliance with the following: (1) Whether allocation of the 
opportunity to lend securities by the applicable client plan account 
was in accordance with JPMCB's internal securities loan allocation 
procedures; (2) Whether the loan of securities by the client plan to 
Global Capital Markets was at market rates and terms which were at 
least as favorable to such client plan as if made at the same time and 
under the same circumstances to an unrelated party (as required by 
section II(d) of the exemption); (3) Whether with respect to each 
successive two-week period, on average, at least 50 percent or more of 
the outstanding dollar value of securities loans negotiated on behalf 
of Client Plans by FMP, in the aggregate, were to unrelated borrowers 
(as required by section II(q) of the exemption); and (4) Whether 
investment by the applicable client plan in the underlying securities 
that were loaned was consistent with the investment guidelines for the 
particular client plan account. The Independent Fiduciary will issue a 
written report presenting its specific findings within 180 days of the 
date of publication of this proposed amendment in the Federal Register.
    17. The relief under the amendment would be limited to securities 
loans to ``Bear Stearns Affiliates,'' defined as The Bear Stearns 
Companies Inc. and its affiliates as constituted on March 15, 2008, the 
day before the Merger Agreement was entered into. This definition will 
prevent the special relief from being available for securities loans to 
JPMCB affiliates other than those that may be treated as affiliated as 
a result of the Merger Agreement with Bear Stearns.

Investment of Cash Collateral

    18. As an additional service to employee benefit plans, JPMCB will 
invest cash collateral received from borrowing broker dealers. 
Collateral for securities loans generally can take the form of either 
securities or cash. If the collateral is in the form of securities, the 
borrower pays the lending plan a fee for the loan. If the collateral is 
in the form of cash, then the securities lending agreement authorizes 
JPMCB to invest and reinvest the cash collateral in accordance with 
investment guidelines appended to the agreement, and the compensation 
to the plan for the loan is based on the return that JPMCB is able to 
obtain on the investment of the cash.
    19. The return on cash collateral is typically divided into three 
parts. A certain target return (a fixed rate such as 5% or a variable 
rate such as the Fed Funds rate, as negotiated between the securities 
lending agent and the borrower) is paid over to the borrower, and then 
the lending plan and JPMCB divide the remainder in an agreed-upon 
ratio, such as 80% to the plan and 20% to JPMCB. JPMCB's share serves 
as its compensation for providing the securities lending services. 
JPMCB also may invest cash collateral through collective investment 
funds, to achieve the benefit of increased diversification.
    20. The permitted investments for securities lending cash 
collateral depend on what is approved by the client as part of the 
collateral investment guidelines. Some more conservative clients limit 
the permitted investments to U.S. Government securities. Others, 
seeking a higher return, permit investments such as commercial paper 
and repurchase agreements. A more aggressive approach would permit 
medium term notes and corporate bonds. A factor in this decision is 
whether the investor will have a frequent need to pull back securities 
from loans, in which case the associated collateral must be returned to 
the borrower unless it can be used to collateralize another loan. Those 
investors with higher need for liquidity or higher turnover would 
authorize shorter-term and less risky investments, while those with a 
longer time horizon and less turnover--often the case for employee 
benefit pension plans--would authorize longer-term and higher-risk 
investments.
    21. As of March 14, 2008, the last business day before the JPMCC-
Bear Stearns merger agreement, approximately $1.1 billion of the cash 
collateral holdings for JPMCB ERISA securities lending accounts was 
invested in secured and unsecured notes of Bear Stearns subsidiaries, 
as well as repurchase agreements with those firms. Many of these 
investments were issued under a master note that permitted JPMCB to 
exercise a put right to require Bear Stearns to redeem the note. JPMCB 
exercised that put right prior to the date of the Merger Agreement, so 
that the investments under the master note matured and were redeemed on 
June 13, 2008. The medium term notes will mature in July and December 
of 2008, and March and July of 2009 (collectively, Medium Term Notes). 
The repurchase agreements were generally overnight and have by now 
matured.
    22. JPMCB requests relief for investment of client plan assets in a 
$750 million advance paid to certain subsidiaries of The Bear Stearns 
Companies, Inc. The advance was made pursuant to the Master Note 
Agreement dated February 9, 2007 by and between JPMCB as agent for a 
group of lending entities and The Bearn Stearns Companies Inc. 
subsidiaries (Master Note), which matured on June 13, 2008. The 
obligation was jointly held by several securities lending accounts, 
including both ERISA plans and commingled funds and non-ERISA 
investors. Of the $750 million total, 10.13% was allocated to ERISA 
investors. As a condition of the exemption, JPMCB agreed to 
unconditionally guarantee repayment of the advance.
    The Department proposes to amend PTE 99-34 to temporarily permit 
the investment of client plan assets in the Master Note. A new Section 
III will be inserted and will replace the existing

[[Page 63204]]

Section III. The Definitions section will be redesignated as Section 
IV.
    23. With respect to the Medium Term Notes, the Applicants represent 
that there are four sets of notes, as follows: (1) Notes in the amount 
of $279.5 million with a maturity date of July 14, 2008; (2) notes in 
the amount of $534 million with a maturity date of December 4, 2008; 
(3) notes in the amount of $720 million with a maturity date of March 
23, 2009; and (4) notes in the amount of $100 million with a maturity 
date of July 16, 2009. Applicants state that the amounts represent the 
totals of each particular bond issue held by JPMCB for securities 
lending cash collateral accounts, and the amounts specifically 
allocable to ERISA plans are less than the entire amounts.
    24. Applicants represent that the Medium Term Notes are publicly-
traded Series B medium-term notes issued by The Bear Stearns Companies 
Inc. in 2006 and 2007. All are floating rate notes, with the floating 
rate based either on the Federal Funds Open Rate (in the case of the 
first three) or LIBOR (in the case of the last one). None of the Medium 
Term Notes provide an option for early redemption by the holder or an 
option for the holder to extend the maturity date. The principal terms 
of the notes can be changed only by the issuer, and then only with the 
consent of two-thirds of the holders, or in some instances, only with 
the consent of all the holders. The applicant represents that while 
there currently is a market for the Medium Term Notes, they are trading 
at a discount.
    25. The investment by plans in the Medium Term Notes may represent 
transactions with a party in interest, as Bear Stearns entities are 
service providers to many plans through their brokerage activities. 
Prior to the Merger Agreement, Applicants relied on PTE 84-14 \2\ and 
PTE 91-38 \3\ for relief from section 406(a) of ERISA with respect to 
these transactions. PTE 84-14 and PTE 91-38 are class exemptions that 
provide relief for a range of transactions between plans and parties in 
interest, provided that the assets are managed, respectively, by a 
``qualified professional asset manager,'' or as part of a bank 
collective investment fund. Due to the Merger, however, Applicants are 
not currently able to meet a condition present in each of the 
exemptions, that the transactions not occur with a party ``related to'' 
the QPAM or an ``affiliate'' of the sponsoring bank. The Applicants' 
view is that regardless of their current inability to meet a condition 
of the class exemptions, relief for any prohibited transaction that 
would arise under section 406(a) of ERISA should continue to be 
available, pursuant to section V(i) of PTE 84-14 and section IV(h) of 
PTE 91-38, the ``continuing transactions'' provisions of the 
exemptions. These conditions clarify the application of the exemptions 
to continuing transactions, and generally provide that if the 
requirements of the respective class exemptions are satisfied at the 
time a transaction is entered into or renewed, or would have become 
prohibited but for that exemption, they will continue to be satisfied 
thereafter with respect to the transaction. The Department concurs with 
Applicants' analysis that relief under section 406(a) of ERISA would 
continue to be available under the exemptions with respect to the 
public-traded Medium Term Notes.
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    \2\ 70 FR 49305 (August 23, 2005).
    \3\ 56 FR 31966 (July 12, 1991).
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    26. The Department has previously cautioned with respect to section 
V(i) of PTE 84-14, ``that, although Part I may continue to be available 
for the entire term of a continuing transaction which subsequently 
fails to satisfy one or more of the conditions of that Part, no relief 
would be provided for an act of self-dealing described in section 
406(b)(1) of ERISA if the QPAM has an interest in the person which may 
affect the exercise of its best judgment as a fiduciary.'' \4\ The 
Department urged fiduciaries to take appropriate steps to avoid 
engaging in 406(b) violations should circumstances change during the 
course of a continuing transaction. In this regard, Applicants 
represent that the terms of the Medium Term Notes are fixed from the 
standpoint of the investors and do not allow for any renegotiation or 
early redemption. Accordingly, it is the Applicants' position that no 
406(b) violation will occur with respect to the Medium Term Notes 
because there is no opportunity for discretionary action on the part of 
the responsible fiduciary.
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    \4\ Preamble to Proposed Amendment to PTE 84-14, 68 FR 52423 
(September 3, 2003).
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JPMCC as Custodian or Directed Trustee

    The Applicant notes that the exempted transaction in PTE 99-34 is 
described as involving plans for which JPMCC, through one of its lines 
of business, including JPMCB, acts as directed trustee or custodian and 
for which it also operates through a division as securities lending 
agent or sub-agent. The Applicant represents that in the period since 
PTE 99-34 was granted, it has become more common for a plan to engage a 
securities lending agent that is not the plan's trustee or custodian 
(or an affiliate thereof). Accordingly, the Applicant requests that the 
language of the exemption be modified to cover relationships in which 
it (or an affiliate) serves only as securities lending agent and not 
also trustee or custodian. The Applicant requests that such language 
change be made retroactive to the original effective date of the 
exemption. The Department has proposed the suggested modification.

Application of Statutory Criteria

    The Applicant represents that the requested amendment to PTE 99-34 
meets the statutory criteria under ERISA section 408(a) as follows:
    The requested exemption is administratively feasible because it 
would not impose any administrative burdens on the Applicant or the 
Department beyond those described in JPMCB's existing exemption, PTE 
99-34. With respect to existing securities loans, each of PTE 99-34's 
current conditions has been satisfied, except for two conditions as to 
which the Applicant proposes to comply on a retroactive basis. In 
addition, the requested temporary relief for securities loans from 
managed assets will be subject to conditions that are self-executing. 
The advance under the Master Note for which relief was requested has 
matured and was fully repaid as of Friday, June 13, 2008; accordingly, 
Applicant states that the Department will not have to monitor the 
implementation or enforcement of the relief.
    Applicants represent that the exemption for securities loans is in 
the interests of the plan and its participants and beneficiaries, as, 
if the existing securities loans between JPMCB as securities lending 
agent for ERISA plans and Bear Stearns Borrowers were terminated, the 
result would be disruptive to the plans and to the securities lending 
market for the following reasons. First, the Bear Stearns Borrowers may 
not be able to return the securities immediately because of, among 
other things, the inability of third parties to redeliver those 
securities to the applicable Bear Stearns Borrower or a scarcity of 
borrowing sources. Second, it may be difficult in the current market to 
immediately find borrowers for all the recalled securities, resulting 
in lost income opportunities for the affected plans. Third, JPMCB may 
need to liquidate the investments in which it has placed the cash 
collateral for the loans so that it can return the cash to the

[[Page 63205]]

Bear Stearns Borrowers. Since the cash collateral is invested mainly in 
short-term fixed-income securities and obligations that JPMCB had 
planned to hold to maturity, but whose market value may be depressed 
because of current market conditions, liquidating the collateral at 
this time could result in losses to the affected plans.
    The Master Note was a privately negotiated lending arrangement 
between JPMCB as manager of securities lending cash collateral for 
various investors, including ERISA plans, and certain Bear Stearns 
entities. While the individual notes under the Master Note could, under 
their terms, be sold or transferred with the consent of the Bear 
Stearns borrowers, there was no market for the notes following the 
publicized problems with Bear Stearns' financial solvency that led to 
the merger agreement with JPMCC on March 16, 2008. Even if a sale might 
have been possible, it would likely have been at a substantial discount 
due to Bear Stearns' circumstances, resulting in a loss to the 
investing plans. Holding the Master Note advance to maturity was in the 
interests of the affected plans because it permitted them to realize 
the full value of the advance, including both principal and interest, 
without loss. Furthermore, even while they continued to hold interests 
in the Master Note advance, they were not exposed to the risk of 
default by Bear Stearns' financial difficulties because, under the 
terms of the proposed relief, repayment of the Master Note advance was 
unconditionally guaranteed by JPMCB, which continued to have a high 
credit rating.
    The requested amendment to PTE 99-34 would be protective of the 
rights of the participants and beneficiaries of the affected plans 
because PTE 99-34, as amended, would incorporate the safeguards that 
the Department has previously found to be protective. JPMCB would 
continue to be subject to the requirements of PTE 99-34, which in turn, 
incorporates the procedural requirements of PTE 2006-16 and its 
predecessors Prohibited Transaction Exemption 81-6, 46 Fed. Reg. 7527 
(Jan. 23, 1981) and Prohibited Transaction Exemption 82-63, 47 Fed. 
Reg. 14804 (April 6, 1982). The only exception would be the timing of 
when the information required to be provided by PTE 99-34 is furnished 
regarding the Bear Stearns Borrowers--the plan fiduciaries will still 
receive the information. Furthermore, as described above, the requested 
temporary relief for securities loans from managed assets will be 
subject to an automated system block to assure that JPMCB-affiliated 
asset managers will not have information regarding which outstanding 
securities loans are to Bear Stearns Borrowers. Finally, the requested 
exemption for investment of plan assets in the Master Note advance 
would be protective of the rights of participants and beneficiaries of 
the affected plans because JPMCB, a large financial institution with a 
high credit rating, has unconditionally guaranteed the repayment of the 
advance under the Master Note. Furthermore, the advance has, as of June 
13, 2008, been repaid in full.
    In summary, the Applicants represent that the requested exemption 
will satisfy the statutory criteria of section 408(a) of ERISA and 
section 4975(c)(2) of the Code for the following reasons:
    (A) The Applicant's securities loans to Bear Stearns Borrowers have 
met the conditions of PTE 99-34, except certain disclosure and approval 
requirements under circumstances where it was not feasible to obtain 
advance disclosures and approvals due to the unexpected timing of the 
Merger Agreement's execution.
    (B) Where disclosures were not provided in advance of a loan 
transaction, the Applicant will furnish such disclosures as soon after 
the Merger Agreement's execution as it was administratively feasible to 
do so.
    (C) While some loans would not comply with a condition of PTE 99-34 
because the underlying assets were managed by a JPMCB affiliate, JPMCB 
intends to terminate those loans within 90 days and in the interim to 
prevent the affiliated manager from obtaining information regarding 
which securities are on loan to Bear Stearns Borrowers, thereby 
preventing any potential conflict of interest.
    (D) Permitting the securities loans to Bear Stearns Borrowers to 
continue in this fashion will avoid the need to terminate the loans at 
a time of high market volatility, which could result in investment 
losses and lost income opportunities for the affected plans.

Notice to Interested Persons

    The applicant will distribute notice of the proposed amendment by 
U.S. Postal Service to an independent plan fiduciary for each plan 
currently utilizing Applicant's securities lending services that 
previously approved making securities loans to Bear Stearns Borrowers. 
Notification will be mailed within 15 days after publication of this 
proposed amendment in the Federal Register. Any written comments and/or 
requests for a hearing must be received by the Department from 
interested persons within 45 days of the publication of this proposed 
amendment in the Federal Register.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
granted under section 408(a) of the Act and/or 4975(c)(2) of the 
Internal Revenue Code of 1986 (the Code) does not relieve a fiduciary 
or other party in interest with respect to a plan to which the 
exemption is applicable from certain other provisions of the Act and/or 
the Code. These provisions include any prohibited transaction 
provisions to which the exemption does not apply and the general 
fiduciary provisions of section 404 of the Act which, among other 
things, requires a fiduciary to discharge his or her duties respecting 
the plan solely in the interests 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) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or Code, 
including statutory or administrative exemptions and transitional 
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;
    (3) The availability of this exemption, if granted, is subject to 
the express condition that the material facts and representations 
contained in the application are true and complete and accurately 
describe all material terms of the transaction which is the subject of 
this exemption. In the case of continuing transactions, if any of the 
material facts or representations described in the application change, 
the exemption will cease to apply as of the date of such change. In the 
event of any such change, an application for a new exemption must be 
made to the Department; and
    (4) Before an exemption may be granted under section 408(a) of 
ERISA and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of the 
plan and of its beneficiaries and protective of the rights or 
participants and beneficiaries of the plan.

[[Page 63206]]

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments and/
or requests for a public hearing on the pending exemption to the 
address, as set forth below, within the time frame, as set forth below. 
All comments and requests for a public hearing will be made a part of 
the record. Comments and hearing requests should state the reasons for 
the writer's interest in the proposed exemption. A request for a public 
hearing must also state the issues to be addressed and include a 
general description of the evidence to be presented at the hearing. 
Comments and hearing requests received will also be available for 
public inspection with the referenced application at the address, as 
set forth below.

Proposed Exemption

    Based on the facts set forth in the application, and under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, August 10, 1990), the Department proposes 
to modify PTE 99-34 as set forth below:

JPMorgan Chase Bank, National Association, located in Columbus, Ohio

Section I. Covered Transactions

    The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1) 
and (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, shall not apply to the lending of securities to 
affiliates of JPMorgan Chase & Co. Inc. (JPMCC), which are engaged in 
JPMCC's capital markets line of business (referred to herein as Global 
Capital Markets), by employee benefit plans (the Client Plans), 
including commingled investment funds holding Client Plan assets, for 
which JPMCC through its Financing & Market Products or any other 
similar division of JPMCB or a U.S. affiliate of JPMCC (collectively, 
FMP) acts as securities lending agent or sub-agent, and for which 
JPMCC, through its Investor Services line of Business, as operated 
through JPMCB and its affiliates (Investor Services), may also act as 
directed trustee or custodian, and (2) to the receipt of compensation 
by FMP in connection with the proposed transactions, provided the 
general conditions set forth below in section II are met.

Section II. General Conditions

    (a) This exemption applies to loans of securities to Global Capital 
Markets, as operated in the United States (J. P. Morgan Securities 
Inc., or the U.S. Affiliated Borrower) and in the following foreign 
countries: the United Kingdom (J. P. Morgan Securities Ltd.), Canada 
(J. P. Morgan Securities Canada Inc.), Australia (J. P. Morgan 
Securities Australia Limited), Japan (J. P. Morgan Securities Japan Co. 
Ltd) (collectively, the Foreign Affiliated Borrowers). Global Capital 
Markets will also include other companies or their successors which are 
affiliated with either JPMCB or JPMCC within these countries.\5\
---------------------------------------------------------------------------

    \5\ Unless otherwise noted, Global Capital Markets will consist 
collectively of the above referenced entities.
---------------------------------------------------------------------------

    (b) For each Client Plan, neither Investor Services, Global Capital 
Markets, FMP, nor any other division or affiliate of JPMCC has or 
exercises discretionary authority or control with respect to the 
investment of the assets of Client Plans involved in the transaction 
(other than with respect to the lending of securities designated by an 
independent fiduciary of a Client Plan as being available to lend and 
the investment of cash collateral after 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 
decisions concerning a Client Plan's acquisition and disposition of 
securities available for loan.
    (i) Notwithstanding the foregoing, for the period from March 16, 
2008, through June 14, 2008, section II(b) shall not apply to the 
lending of securities by a Client Plan to Bear Stearns Affiliates, 
provided that (i) no division or affiliate of JPMCC that has 
discretionary authority or control with respect to the investment of 
the assets of the Client Plan involved in the transaction, or renders 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to those assets, has access to information regarding whether 
the particular securities have been loaned to a Bear Stearns Affiliate, 
and (ii) an Independent Fiduciary (as defined in section IV(f)) 
conducts a Review (as defined in section IV(g)) of Client Plan 
securities loans to Bear Stearns Affiliates and within 180 days of the 
date of publication of this proposed amendment in the Federal Register, 
issues a written report presenting its specific findings.
    (c) Before a Client Plan participates in a securities lending 
program and before any loan of securities to Global Capital Markets is 
effected, a Client Plan fiduciary which is independent of Global 
Capital Markets must have--
    (1) Authorized and approved a securities lending authorization 
agreement with FMP, where FMP is acting as the securities lending 
agent;
    (2) Authorized and approved the primary securities lending 
authorization agreement with the primary lending agent where FMP is 
lending securities under a sub-agency agreement with the primary 
lending agent; \6\ and
---------------------------------------------------------------------------

    \6\ The Department, herein, is not providing exemptive relief 
for securities lending transactions engaged in by primary lending 
agents, other than FMP, beyond that provided pursuant to PTE 2006-
16.
---------------------------------------------------------------------------

    (3) Approved the general terms of the securities loan agreement 
(the Loan Agreement) between such Client Plan and Global Capital 
Markets, the specific terms of which are negotiated and entered into by 
FMP.
    Notwithstanding the foregoing, section II(c)(3) shall be deemed 
satisfied with respect to the lending of securities by Client Plans to 
Bear Stearns Affiliates by FMP as securities lending agent or sub-agent 
for the period between March 16, 2008, and April 15, 2008, provided (i) 
FMP provided to such Client Plans no later than April 15, 2008, a 
description of the general terms of the securities loan agreements 
between such Client Plans and the Bear Stearns Affiliates and (ii) at 
the time of providing such information, FMP notified each Client Plan 
of the following: that it had 10 days to object in writing to the 
continued lending of securities to the Bear Stearns Affiliates; if a 
written objection was received from a Client Plan within the 10-day 
period, FMP would cease to make any new securities loans for that 
Client Plan to Bear Stearns Affiliates; any securities loans made on 
behalf of that Client Plan to Bear Stearns Affiliates prior to the date 
the objection is received shall be covered by this exemption, and FMP 
shall seek to expeditiously terminate such securities loan in a manner 
approved by the Client Plan.
    (d) Each loan of securities by a Client Plan to Global Capital 
Markets is at market rates and terms which are at least as favorable to 
such Client Plan as if made at the same time and under the same 
circumstances to an unrelated party.
    (e) The Client Plan may terminate the agency or sub-agency 
arrangement at any time without penalty to such Client Plan on five 
business days notice whereupon Global Capital Markets delivers 
securities identical to the borrowed securities (or the equivalent in 
the event of reorganization,

[[Page 63207]]

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 business days; or
    (3) The time negotiated for such delivery by the Client Plan and 
Global Capital Markets, whichever is less.
    (f) The Client Plan receives from Global Capital Markets (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 
Global Capital Markets, collateral consisting of cash, securities 
issued or guaranteed by the United States Government or its agencies or 
instrumentalities, or irrevocable United States bank letters of credit 
issued by a U.S. bank, which is a person other than Global Capital 
Markets or an affiliate thereof, or any combination thereof, or other 
collateral permitted under PTE 2006-16 (as amended from time to time 
or, alternatively, any additional or superseding class exemption that 
may be issued to cover securities lending by employee benefit plans), 
having, as of the close of business on the preceding business day, a 
market value (or, in the case of a letter of credit, a stated amount) 
initially equal to at least the percentage required in PTE 2006-16 (as 
amended from time to time) but in no case less than 102 percent of the 
market value of the loaned securities.
    (g) If the market value of the collateral on the close of trading 
on a business day is less than 100 percent of the market value of the 
borrowed securities at the close of business on that day, Global 
Capital Markets delivers additional collateral on the following day 
such that the market value of the collateral again equals 102 percent 
or the percentage otherwise required by 2006-16.
    (h) The Loan Agreement gives the Client Plan a continuing security 
interest in, title to, or the rights of a secured creditor with respect 
to the collateral and a lien on the collateral and FMP monitors the 
level of the collateral daily.
    (i) Before entering into a Loan Agreement, Global Capital Markets 
furnishes FMP the most recently available audited and unaudited 
statements of the financial condition of the applicable borrower within 
Global Capital Markets. Such statements are, in turn, provided by FMP 
to the Client Plan. At the time of the loan, Global Capital Markets 
gives prompt notice to the Client Plan fiduciary of any material 
adverse change in the borrower's financial condition since the date of 
the most recent financial statement furnished to the Client Plan. In 
the event of any such changes, FMP requests approval of the Client Plan 
to continue lending to Global Capital Markets before making any such 
additional loans. No new securities loans will be made until approval 
is received and each loan constitutes a representation by Global 
Capital Markets that there has been no such material adverse change.
    Notwithstanding the foregoing, section II(i) shall be deemed 
satisfied with respect to the lending of securities by Client Plans to 
Bear Stearns Affiliates by FMP as securities lending agent or sub-agent 
for the period between March 16, 2008, and April 15, 2008, provided (i) 
FMP provided to such Client Plans no later than April 15, 2008, the 
most recently available audited and unaudited consolidated statements 
of the financial condition of the parent company of the applicable Bear 
Stearns Affiliates and the parent company's subsidiaries, and notice of 
any material adverse change in financial condition since the date of 
the most recent financial statement being furnished to the Client 
Plans, and (ii) at the time of providing such information, FMP notified 
each Client Plan of the following: That it had 10 days to object in 
writing to the continued lending of securities to the Bear Stearns 
Affiliates; if a written objection was received from a Client Plan 
within the 10-day period, FMP would cease to make any new securities 
loans for that Client Plan to Bear Stearns Affiliates; any securities 
loans made on behalf of that Client Plan to Bear Stearns Affiliates 
prior to the date the objection is received shall be covered by this 
exemption, and FMP shall seek to expeditiously terminate such 
securities loan in a manner approved by the Client Plan.
    (j) 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. (In the case of cash collateral, the 
Client Plan may pay a loan rebate or similar fee to Global Capital 
Markets if such fee is not greater than the fee the Client Plan would 
pay an unrelated party in a comparable arm's length transaction.)
    (k) All procedures regarding the securities lending activities 
conform to the applicable provisions of PTE 2006-16 (as amended from 
time, or alternatively, any additional or superseding class exemption 
that may be issued to cover securities lending by employee benefit 
plans).
    (l) If Global Capital Markets defaults on the securities loan or 
enters bankruptcy, the collateral will not be available to Global 
Capital Markets or its creditors, but will be used to make the Client 
Plan whole. In this regard,
    (1) In the event a Foreign Affiliated Borrower defaults on a loan, 
JPMCB will liquidate the loan collateral to purchase identical 
securities for the Client Plan. If the collateral is insufficient to 
accomplish such purchase, JPMCB 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 the loans or 
failure to indemnify properly under this provision). Alternatively, if 
such identical securities are not available on the market, FMP will pay 
the Client Plan cash equal to--
    (i) The market value of the borrowed securities as of the date they 
should have been returned to the Client Plan, plus
    (ii) All the accrued financial benefits derived from the beneficial 
ownership of such loaned securities as of such date, plus
    (iii) Interest from such date to the date of payment.
    The lending Client Plans will be indemnified in the United States 
for any loans to the Foreign Affiliated Borrowers.
    (2) In the event the U.S. Affiliated Borrower defaults on a loan, 
JPMCB will liquidate the loan collateral to purchase identical 
securities for the Client Plan. If the collateral is insufficient to 
accomplish such purchase, either JPMCB or the U.S. Affiliated Borrower 
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 the loans or failure to indemnify property under this 
provision).
    (m) The Client Plan receives the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
including all interest, dividends and distributions on the loaned 
securities during the loan period.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to Global Capital Markets, copies of the notice of proposed 
exemption and the final exemption are provided to the Client Plan.
    (o) Each Client Plan receives a monthly report with respect to its

[[Page 63208]]

securities lending transactions, including but not limited to the 
information described in Representation 24 of the proposed exemption 
for PTE 99-34 (64 FR 34281, 6/25/99), so that an independent fiduciary 
of the Client Plan may monitor the securities lending transactions with 
Global Capital Markets.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to 
Global Capital Markets; 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 (i.e., 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 Global Capital Markets, 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 (i.e., 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 Global Capital Markets, 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 
Client 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--
    (i) Has full investment responsibility with respect to plan assets 
invested therein; and
    (ii) 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 are formed for 
the sole purpose of making loans of securities.)
    (q) With respect to each successive two week period, on average, at 
least 50 percent or more of the outstanding dollar value of securities 
loans negotiated on behalf of Client Plans by FMP, in the aggregate, 
will be to unrelated borrowers.
    (r) In addition to the above, all loans involving Foreign 
Affiliated Borrowers within Global Capital Markets have the following 
supplemental requirements:
    (1) Such Foreign Affiliated Borrower is registered as a bank or 
broker-dealer with--
    (i) The Financial Services Authority in the case of J.P. Morgan 
Securities Ltd.;
    (ii) The Office of the Superintendent of Financial Institutions 
(OSFI), in the case of J.P. Morgan Securities Canada Inc.;
    (iii) The Australian Securities & Investments Commission in the 
case of J.P. Morgan Securities Australia Ltd.; and
    (iv) The Financial Services Agency in the case of J.P. Morgan 
Securities Japan Ltd.
    (2) Such broker-dealer or bank is in compliance with all applicable 
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities 
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 
dollar-denominated securities or letters of credit of U.S. banks or any 
combination thereof, or other collateral permitted under PTE 2006-16 
(as amended from time to time, or alternatively, any additional or 
superseding class exemption that may be issued to cover securities 
lending by employee benefit plans);
    (4) All collateral is held in the United States;
    (5) The situs of the Loan Agreement is maintained in the United 
States;
    (6) The lending Client Plans are indemnified by JPMCB in the United 
States for any transactions covered by this exemption with the Foreign 
Affiliated Borrower so that the Client Plans do not have to litigate in 
a foreign jurisdiction nor sue the Foreign Affiliated Borrower to 
realize on the indemnification; and
    (7) Prior to the transaction, each Foreign Affiliated Borrower 
enters into a written agreement with FMP on behalf of the Client Plan 
whereby the Foreign Affiliated Borrower consents to service of process 
in the United States and to the jurisdiction of the courts of the 
United States with respect to the transactions described herein.
    (s) JPMCB or J.P. Morgan Securities Inc. (JPMSI) maintains, or 
causes to be maintained within the United States for a period of six 
years from the date of such transaction, in a manner that is convenient 
and accessible for audit and examination, such records as are necessary 
to enable the persons described in paragraph (t)(1) to determine 
whether the conditions of the 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 JPMCB or JPMSI, 
the records are lost or destroyed prior to the end of the six year 
period; and
    (2) No party in interest other than JPMCB or JPMSI 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 below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) are 
unconditionally available at their customary location during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service or the Securities and Exchange 
Commission;
    (ii) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (iii) Any contributing employer to any participating Client Plan or 
any duly authorized employee representative of such employer; and
    (iv) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs 
(t)(1)(ii)-(t)(1)(iv) of this paragraph (t)(1) are authorized to 
examine the trade secrets of JPMCB, the U.S. Affiliated Borrowers, or 
the Foreign Affiliated Borrowers or commercial or financial information 
which is privileged or confidential.

[[Page 63209]]

Section III. Temporary Exemption for Investment in Bear Stearns Master 
Note

    The restrictions of sections 406(a)(1)(A) through (D) and sections 
406(b)(1) and (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, shall not apply to the 
investment of securities lending collateral by JPMCB, as the investment 
manager of such collateral on behalf of the Client Plan or Collective 
Fund that has lent the securities, in the Bear Stearns Master Note (as 
defined in paragraph (b) below), provided that the condition set forth 
below in paragraph (a) is met.
    (a) Repayment of the Bear Stearns Master Note is unconditionally 
guaranteed by JPMCB.
    (b) For purposes of this Section III, the term ``Bear Stearns 
Master Note'' means the $750 million Evergreen Advance dated October 
23, 2007, under the Master Note Agreement dated February 9, 2007, by 
and between JPMCB as agent for a group of lending entities and certain 
subsidiaries of The Bear Stearns Companies Inc., which matured on June 
13, 2008, and was paid in full.

Section IV. Definitions

    For purposes of this exemption,
    (a) The terms ``JPMCB'' and ``JPMCC'' as referred to herein in 
Sections I, II and III, refer to JPMorgan Chase Bank, National 
Association, and its parent, JPMorgan Chase & Co., Inc.
    (b) The term ``affiliate'' means any entity now or in the future, 
directly or indirectly, controlling, controlled by, or under common 
control with JPMCC or its successors. (For purposes of this definition, 
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 ``U.S. Affiliated Borrower'' means an affiliate of 
JPMCC that is a bank supervised by the United States or a State, or a 
broker-dealer registered under the 1934 Act.
    (d) The term ``Foreign Affiliated Borrower'' means an affiliate of 
JPMCC that is a bank or a broker-dealer which is supervised by--
    (i) The Financial Services Authority in the United Kingdom;
    (ii) OSFI in Canada;
    (iii) The Australian Securities & Investments Commission in 
Australia; and
    (iv) The Financial Services Agency in Japan.
    (e) The term ``Bear Stearns Affiliate'' means The Bear Stearns 
Companies Inc. and its affiliates as constituted on March 15, 2008.
    (f) The term ``Independent Fiduciary'' means a fiduciary who is 
independent of and unrelated to JPMCB and Bear Stearns Affiliates. For 
purposes of this exemption, a fiduciary will not be deemed to be 
independent of and unrelated to JPMCB and Bear Stearns Affiliates if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with JPMCB or a Bear Stearns Affiliate;
    (ii) Such fiduciary, or any officer, director, partner, employee or 
relative of the fiduciary, is an officer, director, partner or employee 
of JPMCB or a Bear Stearns Affiliate (or is a relative of such 
persons);
    (iii) Such fiduciary directly or indirectly receives any 
compensation or other consideration for his or her own personal account 
in connection with any transaction described in this exemption, except 
that the Independent Fiduciary may receive compensation from JPMCB for 
acting as Independent Fiduciary as contemplated herein if the amount or 
payment of such compensation is not contingent upon or in any way 
affected by the Independent Fiduciary's ultimate decision; or
    (iv) The annual gross revenue received by such fiduciary, during 
any year of its engagement, from JPMCB and Bear Stearns Affiliates 
exceeds five percent (5%) of the fiduciary's annual gross revenue from 
all sources for its prior tax year.
    (g) The term ``Review'' means a test by an Independent Fiduciary of 
a representative sample of transactions falling under section II(b)(i) 
of this Exemption that is sufficient in size to afford the Independent 
Fiduciary a reasonable basis to make findings as to compliance with the 
following:
    (i) Whether allocation of the opportunity to lend securities to the 
applicable client plan account was in accordance with JPMCB's internal 
securities loan allocation procedures;
    (ii) Whether the loan of securities by the Client Plan to Global 
Capital Markets was at market rates and terms which were at least as 
favorable to such Client Plan as if made at the same time and under the 
same circumstances to an unrelated party (as required by section II(d) 
hereof);
    (iii) Whether with respect to each successive two-week period, on 
average, at least 50 percent or more of the outstanding dollar value of 
securities loans negotiated on behalf of Client Plans by FMP, in the 
aggregate, were to unrelated borrowers (as required by section II(q) of 
the exemption); and
    (iv) Whether investment by the applicable Client Plan in the 
underlying securities that were loaned was consistent with the 
investment guidelines for the particular Client Plan account.
    For a more complete statement of facts and representations 
supporting the Department's decision to grant PTE 99-34, refer to the 
proposed exemption (64 FR 34281, June 25, 1999) and the grant notice 
(64 FR 46419, August 25, 1999).

    Signed at Washington, DC, this 17th day of October, 2008.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. E8-25235 Filed 10-22-08; 8:45 am]

BILLING CODE 4510-29-P