EBSA
Notices
Notice of Proposed Exemption; BlackRock, Inc. and Its Investment Advisory, Investment Management and Broker-Dealer Affiliates and Their Successors (Applicants): Located in New York, NY
[ 1/19/2012]
[ PDF]
Federal Register, Volume 77 Issue 12 (Thursday, January 19, 2012)
[Federal Register Volume 77, Number 12 (Thursday, January 19, 2012)]
[Notices]
[Pages 2798-2828]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-788]
[[Page 2797]]
Vol. 77
Thursday,
No. 12
January 19, 2012
Part II
Department of Labor
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Employee Benefits Security Administration
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Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants): Located in New York, NY; Notice
Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 /
Notices
[[Page 2798]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11687]
Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants): Located in New York, NY
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed 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
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), the Federal
Employees' Retirement System Act of 1986, as amended (FERSA), and the
Internal Revenue Code of 1986, as amended (the Code). The proposed
transactions involve BlackRock, Inc. and its investment advisory,
investment management and broker-dealer affiliates and their
successors. The proposed exemption, if granted, would affect plans for
which BlackRock, Inc. and its investment advisory, investment
management and broker-dealer affiliates and their successors serve as
fiduciaries, and the participants and beneficiaries of such plans.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of March 31, 2012, except that, with respect to Covered
Transactions described in Section III.K. and S., the proposed exemption
will be effective as of October 1, 2011.
Written Comments and Hearing Requests: All interested persons are
invited to submit written comments and/or requests for a hearing on the
proposed exemption within forty five (45) days from the date of the
publication of this Federal Register Notice. Comments and requests for
a hearing should state: (1) The name, address and telephone number of
the person making the comment or the request for a hearing and (2) the
nature of the person's interest in the proposed exemption and the
manner in which the person would be adversely affected by the proposed
exemption. A request for a hearing must also state the issues to be
addressed at the requested hearing and include a general description of
the evidence to be presented at the requested hearing.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attention: Application No. D-11687. Interested
persons are also invited to submit comments and/or hearing requests to
the Employee Benefits Security Administration by email or FAX. Any such
comments or requests should be sent either to: moffitt.betty@dol.gov,
or by Fax to (202) 219-0204 by the end of the scheduled comment period.
The application for exemption and the comments received will be
available for inspection in the Public Documents Room of the Employee
Benefits Security Administration, U.S. Department of Labor, Room N-
1513, 200 Constitution Avenue NW., Washington, DC 20210.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
FOR FURTHER INFORMATION CONTACT: Brian L. Shiker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8552. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of ERISA section 406(a)(1)
and 406(b), FERSA section 8477(c)(1) and (c)(2) and the sanctions
resulting from the application of Code section 4975, by reason of Code
section 4975(c)(1). The proposed exemption has been requested by
BlackRock, Inc. and its investment advisory, investment management and
broker-dealer affiliates and their successors pursuant to ERISA section
408(a), Code section 4975(c)(2) and FERSA section 8477(c)(3), and in
accordance with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978,
section 102 of the Reorganization Plan No. 4 of 1978, (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Accordingly, this notice of proposed exemption is being issued
solely by the Department.
Summary of Facts and Representations \1\
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\1\ Capitalized terms used but not defined in the Summary of
Facts and Representations have the meaning set forth in Section VI
of the proposed exemption.
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1. BlackRock, Inc. (BlackRock), based in New York, NY, is the
largest publicly traded investment management firm. BlackRock, through
its investment advisory and investment management subsidiaries,
currently manages assets for institutional and individual investors
worldwide through a variety of equity, fixed income, cash management
and alternative investment products. As of September 30, 2011,
BlackRock, through its advisor subsidiaries, had approximately $3.345
trillion in assets under management, including assets managed by
BlackRock Institutional Trust Company, N.A. (BTC) (formerly known as
Barclays Global Investors, N.A. (BGI)) and its affiliates. The
Applicants \2\ together with any other entity presently or subsequently
under the direct or indirect control, through one or more
intermediaries, of BlackRock and successors of any of the foregoing are
referred to herein as the ``BlackRock Entities.''
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\2\ For purposes of this application, references to the
``Applicants'' include each of the banks, investment advisors and
investment managers directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and any other bank,
investment advisor or investment manager which subsequently becomes
directly or indirectly, through one or more intermediaries, under
the control of BlackRock, and successors of the foregoing. As of the
date hereof, banks, investment advisors and investment managers
under the control of BlackRock include, but are not limited to,
BlackRock Advisors, LLC, BlackRock Financial Management, Inc.,
BlackRock Capital Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International, Ltd., BlackRock
Realty Advisors, Inc., BlackRock Investment Management, LLC,
BlackRock Fund Advisors, and BTC (collectively, the BlackRock
Managers). ``Applicants'' also includes broker-dealers presently or
subsequently under the direct or indirect control, through one or
more intermediaries, of BlackRock.
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2. BTC is a national banking association headquartered in San
Francisco, California. Prior to its acquisition by BlackRock on
December 1, 2009 (the Acquisition), BTC (then BGI) was the largest
asset manager in the U.S. A significant amount of BTC's assets under
management in the U.S. consists of assets of employee benefit plans
subject to ERISA, FERSA and/or the Code. BTC is a market leader in
index and model-driven investment products. Until its sale to
BlackRock, BGI was an indirect subsidiary of
[[Page 2799]]
Barclays PLC, a public limited company organized under the laws of
England and Wales (Barclays). BTC, as of the date of the Acquisition,
is a wholly owned subsidiary of BlackRock.
3. The Applicants represent that they are regulated by various
Federal government agencies such as the Securities and Exchange
Commission (SEC) and the Office of the Comptroller of the Currency, as
well as state government agencies and industry self-regulatory
organizations (e.g., the Financial Industry Regulatory Authority or, in
the case of some broker-dealers and banks, corresponding foreign
regulatory authorities). As with the Applicants, each of (a) Barclays,
(b) The PNC Financial Services Group, Inc. (PNC), and (c) each entity
directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with one or more of
Barclays or PNC,\3\ has previously made representations to the
Department regarding the significant extent to which they are
regulated.\4\
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\3\ Each of Barclays and PNC is a ``Minority Passive
Shareholder'' or ``MPS,'' but, for avoidance of doubt, an MPS does
not include any BlackRock Entity.
\4\ See applications associated with PTE 2009-25, 74 FR 45300
(September 1, 2009) (Barclays); and PTE 2009-22, 74 FR 45284
(September 1, 2009) (PNC).
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The Acquisition
4. There have recently occurred extraordinary circumstances in both
the U.S. financial services industry and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the recent
trend of industry consolidation amongst significant banks, broker-
dealers and other providers of financial services has accelerated. For
example, in September 2008, Barclays Bank PLC (Barclays Bank), a
subsidiary of Barclays, acquired most of the U.S. broker-dealer
business of Lehman Brothers Holdings Inc.; and, in May 2008, Bear
Stearns Companies Inc. was acquired by JPMorgan Chase & Co.
5. In this context, BlackRock, in June 2009, made a binding offer
to Barclays pursuant to an Amended and Restated Stock Purchase
Agreement by and among BlackRock, Barclays Bank and (for limited
purposes) Barclays, which ultimately resulted in the Acquisition.
BlackRock completed the Acquisition on December 1, 2009, in exchange
for an aggregate of 37,566,771 shares of BlackRock common stock and
participating preferred stock and approximately $6.6 billion in cash.
Barclays' decision to enter into the Acquisition was based upon a
variety of factors that Barclays stated would be beneficial to its
shareholders, including the creation of material economic exposure to a
highly competitive global asset manager.
6. Prior to the Acquisition, PNC, indirectly through its subsidiary
PNC Bancorp, Inc. (PNC Bancorp), held an approximately 31.9% economic
interest and an approximately 43.2% voting interest in BlackRock. Bank
of America Corporation (BOA), through its (indirect) wholly owned
subsidiary the Merrill Lynch Group, Inc. (the Merrill Group), held an
approximately 48.3% economic interest and approximately 4.6% voting
interest in BlackRock. Immediately following the Acquisition, (1)
Barclays, (2) BOA, and (3) PNC (each of Barclays and PNC, a Minority
Passive Shareholder, or MPS) controlled the following interests in
BlackRock:
BOA. BOA owned approximately 3.7% of BlackRock voting common stock
and approximately 34.2% of BlackRock equity by value;
PNC. PNC owned approximately 35.2% of BlackRock voting common stock
and approximately 24.5% of BlackRock equity by value; and
Barclays. Barclays owned approximately 4.8% of BlackRock voting
common stock and approximately 19.8% of BlackRock equity by value.
7. Post-Acquisition, a secondary offering of BlackRock common stock
was completed on November 15, 2010 (the Secondary Offering).
BlackRock's ownership structure following the Secondary Offering was as
follows: (a) BOA controlled 0% of BlackRock's voting common stock and
approximately 7.1% of BlackRock's equity by value; (b) PNC controlled
approximately 25.3% of BlackRock's voting common stock and
approximately 20.3% of BlackRock's equity by value; and (c) Barclays
controlled approximately 2.3% of BlackRock's voting common stock and
approximately 19.6% of BlackRock's equity by value.
8. On June 1, 2011, BlackRock repurchased from a subsidiary of BOA
its remaining ownership interest in BlackRock (the BOA Repurchase).
These shares were retired. As a result of the BOA Repurchase, BOA's
economic stake in BlackRock was reduced to 0.0%. Concurrently with the
BOA Repurchase, Barclays sold a portion of its BlackRock Series B Non-
Voting Preferred Stock, which automatically converted into common stock
in the hands of the purchaser. As a result of these events on June 1,
2011, Barclays' and PNC's holdings by economic value increased to
approximately 19.7% and 21.7%, respectively, and Barclays' and PNC's
voting ownership interests were reduced to approximately 2.2% and
24.6%, respectively.
9. All BlackRock stock beneficially owned from time to time by each
MPS (other than stock held in certain fiduciary capacities and customer
or market making accounts) is subject to a stockholders agreement
entered into by and between that MPS and BlackRock (collectively, the
Stockholders Agreements). Pursuant to each respective Stockholders
Agreement, each MPS has the right to identify to BlackRock two (2)
prospective directors, and, if such nominees are reasonably acceptable
to the BlackRock Board of Directors (the Board), BlackRock and each
respective MPS agree to use best efforts to cause the election of such
nominees to the Board.\5\ However, at least nine (9) of the current
directors \6\ must be ``independent'' (within the meaning of New York
Stock Exchange (NYSE) rules) \7\ of the MPSs and BlackRock management.
Furthermore, subject to limited exceptions, each Stockholders Agreement
provides that the relevant MPS must vote its BlackRock voting common
stock in accordance with recommendations of the Board. In addition, the
Audit Committee, the Management Development and Compensation Committee,
and the Nominating and Governance Committee of the Board must consist
entirely of independent directors, and a majority of each other
committee (if any) of the Board, with the exception of the Executive
Committee,\8\ must consist of independent directors. The Stockholders
Agreements provide, with limited exceptions, that all decisions of any
committee of the Board require the presence of a majority of the
[[Page 2800]]
directors at a meeting then serving on such committee. In fact, as of
the date hereof, none of the directors identified to the Board by an
MPS serve on any committee of the Board, except that one director
identified to the Board by PNC serves on the Executive Committee. While
each MPS monitors its investment in BlackRock through Board members it
identified to the Board and each MPS has certain limited governance
rights, no MPS has or will have, through the Board members it
identified, any involvement in the day-to-day management of BlackRock,
any BlackRock Manager or other BlackRock Entity.
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\5\ The Stockholders Agreements also contemplate a reduction in
the number of Board seats which an MPS is entitled to designate to
one upon falling below a 10% equity interest for 90 consecutive
days, and to zero upon falling below a 5% equity interest for 90
consecutive days.
\6\ There are currently 17 directors on the Board. The maximum
permitted number of directors on the Board pursuant to the
Stockholders Agreements is 19.
\7\ Section 303A.01 of the NYSE Listed Company Manual requires
listed companies to have a majority of independent directors.
Although an exception is made for companies controlled by a group of
shareholders, the Stockholders Agreements among BlackRock and the
MPSs preclude the MPSs from becoming part of any such group.
BlackRock represents that, based on current equity ownership levels,
the Board must include a minimum of 13 directors total (except for
temporary vacancies arising by reason of, for example, poor health,
retirement or resignation).
\8\ The Executive Committee of the Board has not met for over
five (5) years.
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10. In addition, the Stockholders Agreements provide for additional
restrictions on the ability of an MPS to control BlackRock or any
BlackRock Manager. These restrictions include standstill arrangements
establishing caps on voting interests,\9\ transfer restrictions, and
restrictions relating to arm's length business relationships between an
MPS (or its affiliates) and BlackRock (or its affiliates) in each case
as set forth in the applicable Stockholders Agreement.
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\9\ The following are the caps on voting interests contained in
the Stockholder Agreements: PNC = 49.9%; and Barclays = 4.9%. The
following are the caps on economic interest: PNC = 38%; and Barclays
= 19.9%.
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Interim Prohibited Transaction Relief
11. The Applicants previously applied for (Application No. D-11588)
and the Department issued Prohibited Transaction Exemption 2011-17, 76
Fed. Reg. 50632 (August 15, 2011)(the Interim Exemption) that covers
certain transactions entered into by BlackRock Managers with, or
involving, certain direct or indirect minority passive shareholders in
BlackRock, and certain entities related thereto, on behalf of Client
Plans or Pooled Funds subject to ERISA, the Code and/or FERSA. Since
the Acquisition Date, the Applicants represent that they have expended
a significant amount of time, money and other resources to establish
and maintain the necessary infrastructure to ensure compliance with the
conditions for relief set forth in the Interim Exemption. The
Applicants have, among other things, put together a legal and
compliance staff that is devoted to assuring compliance with the
Interim Exemption, dedicated significant technology resources to
developing trading systems and compliance solutions designed to address
the requirements of the Interim Exemption, engaged in extensive
training of BlackRock personnel (covering individuals serving in legal,
compliance and business roles) regarding compliance with the Interim
Exemption, and implemented robust post-trade reporting and record-
keeping to monitor compliance with the Interim Exemption.
The Interim Exemption expires on the earlier of (a) the effective
date of this proposed exemption, if granted, or (b) March 31, 2012.
Requested Relief
12. Given the unique nature of the BlackRock ownership structure
following the Acquisition and subsequent Secondary Offering and BOA
Repurchase, the Applicants believe that neither MPS should be regarded
for ERISA purposes as an ``affiliate'' of BlackRock or any BlackRock
Manager, because the Applicants believe that no MPS, alone or with the
other MPS, is or will be in a position to ``control'' BlackRock. In
addition to the BlackRock ownership structure itself preventing MPS
control of BlackRock, the Applicants believe that the Stockholders
Agreements provide several important safeguards to mitigate the
possibility of an MPS exerting any form of control that might otherwise
raise concerns under ERISA. In particular, the standstill agreements,
transfer restrictions and arm's length business relationship provisions
are designed to ensure that BlackRock maintains its independence. Even
if the MPSs wished to act together to control BlackRock, BlackRock
believes that the MPSs would not be able to control BlackRock because
the Stockholders Agreements mandate that each MPS vote its shares in
accordance with the recommendations of the Board, which is dominated by
persons other than nominees identified by MPSs. Lastly, the MPSs are
competitors in the financial services industry, and as such, concerted
action among the MPSs is extremely unlikely.
13. Nevertheless, the Applicants represent that when a BlackRock
Manager is a fiduciary with investment discretion with respect to a
Client Plan,\10\ and the BlackRock Manager is deciding whether to enter
into a Covered Transaction \11\ with or involving an MPS, the ownership
interest of the MPS in BlackRock could affect the BlackRock Manager's
best judgment as a fiduciary, raising issues under ERISA section
406(b). The Applicants note that the Department's regulation at 29 CFR
2550.408b-2(e)(1) provides that ``[a] person in which a fiduciary has
an interest which may affect the exercise of such fiduciary's best
judgment as a fiduciary includes, for example, a person who is a party
in interest by reason of a relationship to such fiduciary described in
section 3(14)(E), (F), (G), (H), or (I)'' of ERISA. ERISA section
3(14)(H) provides that a 10% or more shareholder of a service provider
(which may include a plan fiduciary) is a party in interest to the plan
in question by reason of that relationship to the service provider.
Accordingly, the Applicants seek relief from the prohibitions of ERISA
section 406(b) for the Covered Transactions.
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\10\ ``Client Plan'' is defined in Section VI.T. of the proposed
exemption and means any plan subject to ERISA section 406, Code
section 4975 or FERSA section 8477(c) for which a BlackRock Manager
is a fiduciary as described in ERISA section 3(21), including, but
not limited to, any Pooled Fund, MPS Plan, Index Account or Fund,
Model-Driven Account or Fund, Other Account or Fund, or In-House
Plan, as defined in Section VI of the proposed exemption, except
where specified to the contrary.
\11\ ``Covered Transaction'' is defined in Section VI.X. of the
proposed exemption and means each transaction set forth in Section
III of the proposed exemption entered into by a BlackRock Manager
for a Client Plan with or involving, directly or indirectly, an MPS
and/or a BlackRock Entity.
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14. Further, if BlackRock Entities and one or more MPS are deemed
affiliates, and because each MPS and its affiliates are very likely
parties in interest within the meaning of ERISA section 3(14) with
respect to many Client Plans, the Applicants also seek relief from the
prohibitions of ERISA section 406(a) with respect to the Covered
Transactions. Specifically, many prohibited transaction class
exemptions from ERISA section 406(a) require as a condition for relief
that the plan fiduciary and the party in interest not be
``affiliates.'' Although the Applicants believe that no MPS should be
regarded for ERISA purposes as an ``affiliate'' of BlackRock, the
Applicants desire the certainty of relief which the proposed exemption
would provide if Covered Transactions are entered into in conformance
therewith.
15. As discussed above, there have recently occurred extraordinary
circumstances in both the U.S. and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the trend of
industry consolidation amongst significant banks, broker-dealers and
other providers of financial services has accelerated. It is the
Applicants' belief that each MPS' involvement in financial services has
expanded at the same time as the number of participants in the capital
markets has declined. As a result, the Applicants believe that the
failure to obtain exemptive relief proposed herein would deny Client
[[Page 2801]]
Plans access to a significant portion of the financial markets and that
such denial would unduly harm Client Plans and their participants and
beneficiaries.
16. The Applicants request that the Department continue relief
similar to that provided in the Interim Exemption on the terms set
forth herein. The exemption proposed herein would provide relief for
certain Covered Transactions that, except as outlined below, are
similar in all material respects to the Covered Transactions for which
relief is provided in the Interim Exemption.
Structure of Relief
17. The structure of the Applicants' requested relief is founded
upon compliance with five sets of general conditions. The five sets of
general conditions are: (a) Modified conditions derived from Prohibited
Transaction Exemption (PTE) 84-14, as amended (sometimes referred to as
the QPAM Exemption); \12\ (b) restrictions on the compensation of
BlackRock Managers and their employees; (c) the establishment and
implementation of certain policies and procedures (the Exemption
Polices and Procedures or EPPs); (d) the appointment by BlackRock of an
Exemption Compliance Officer (ECO); and (e) the retention by BlackRock
of an Independent Monitor (IM). The purpose of these general conditions
is, when coupled with the restrictions of the Stockholders Agreements
and the BlackRock ownership structure, to foster independence of action
by the BlackRock Managers notwithstanding the equity interests in
BlackRock held by the MPSs. This unique overarching structure includes
a comprehensive compliance function and an independent monitor, each of
which work together for the benefit of Client Plans and their
participants and beneficiaries by allowing Covered Transactions with or
involving an MPS only if the Covered Transaction is, as best as can be
determined, as favorable to the Client Plans as arm's length
transactions with third parties.
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\12\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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18. In addition to the general conditions, each Covered Transaction
has its own set of specific conditions deemed suitable for it in light
of the nature of the transaction. Many of the conditions for individual
Covered Transactions are derived from statutory exemptions,
administrative class exemptions or administrative individual exemptions
frequently relied upon by fiduciaries and parties in interest
(sometimes affiliated and sometimes not) to exempt similar
transactions. The general and transaction-specific conditions for
relief attempt to strike a balance that takes into account both the
MPSs' unique equity interests in BlackRock and the ability of BlackRock
Managers acting on behalf of Client Plans to engage in arm's length
Covered Transactions with or involving institutions as significant in
their markets as are the MPSs.
General Conditions
19. The structure of the relief proposed herein is very similar to
that granted in the Interim Exemption, and is founded upon compliance
with general conditions that are essentially the same as the general
conditions set forth in the Interim Exemption. Accordingly, Section II
of the proposed exemption provides general conditions as follows:
20. Compliance with the QPAM Exemption (Section II.A.). With
certain exceptions, the conditions for relief under Part I of PTE 84-14
(the QPAM Exemption) must be satisfied with respect to each Covered
Transaction.\13\ These exceptions are substantially similar to those
set forth in the Interim Exemption.\14\ Each BlackRock Manager
utilizing the requested relief must meet the definition of a
``qualified professional asset manager'' (QPAM) as described in Section
VI(a) of the QPAM Exemption, and each Covered Transaction must satisfy
the general conditions relating to the QPAM Exemption as set forth in
the proposal, which are essentially the same as the Interim Exemption's
general conditions relating to the QPAM Exemption.
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\13\ The QPAM Exemption may not be relied upon for securities
lending. See Part I(b)(1) of the QPAM Exemption. However, for
purposes of the exemption proposed herein, securities lending
constituting Covered Transactions involving an MPS must comply with
the terms of Section II.A. of the proposed exemption as well as the
specific conditions set forth in Section III.L. of the proposed
exemption.
\14\ 76 FR at 50637.
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21. The Applicants, however, believe that the Interim Exemption's
conditions should be modified in order to more accurately reflect
BlackRock's ability to monitor the entities that provide investment
advice to Client Plans' assets under its management. As a result of
changes made in this regard, a new Section II.A.3.(b) has been added to
the proposed exemption. A discussion of Section II.A.3.(b) is set forth
below under Covered Transactions.
22. Compensation Restrictions (Section II.B). The Applicants
recognize that an unrestricted ability for employees of BlackRock to
receive compensation in connection with the Covered Transactions could
give rise to potential ERISA conflicts. In order to address this
potential for conflicts, Section II.B. of the proposed exemption
provides for the same compensation restrictions set forth in the
Interim Exemption.\15\
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\15\ 76 FR at 50638.
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23. Exemption Policies and Procedures (Section II.C.). The
Applicants recognize that, in order for BlackRock to successfully
manage and monitor Covered Transactions, the establishment and use of
systematic policies and procedures is essential. Section II.C. of the
proposed exemption requires that BlackRock utilize (and update as
necessary) the ``Exemption Policies and Procedures'', or ``EPPs'', that
were developed and used in connection with the Interim Exemption and
which address each of the Covered Transactions. Consistent with the
Interim Exemption, the Exemption Policies and Procedures will be
developed and/or updated with the cooperation of both the ECO and the
IM, and such EPPs will remain subject to the approval of the IM. The
EPPs need not address transactions which are not within the definition
of the term Covered Transactions.
24. Exemption Compliance Officer (II.D.). The Applicants recognize
that in order to ensure compliance with the EPPs and the terms of the
proposed exemption an internal compliance officer is necessary.
Consistent with the Interim Exemption, Section II.D. of the proposed
exemption requires that BlackRock employ an internal ``Exemption
Compliance Officer'', or ``ECO'', as well as an ``ECO Function''.\16\
The ECO and the ECO Function will be maintained by BlackRock in order
to monitor the Covered Transactions for compliance with the Code,
ERISA, FERSA, the EPPs and the exemption. The responsibilities and
requirements of the ECO and the ECO Function are set forth in Section
II.D. of the proposed exemption.
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\16\ For purposes hereof, ``ECO Function'' is defined in Section
VI.Z. of the proposed exemption and means the ECO and such other
BlackRock employees in legal and compliance roles working under the
supervision of the ECO in connection with the Covered Transactions.
The list of BlackRock employees shall be shared with the IM from
time to time, not less than quarterly, and such employees will be
made available to discuss the relevant Covered Transactions with the
IM to the extent the IM or the ECO deem it reasonably prudent.
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25. Independent Monitor (II.E.). The Applicants believe that the
ECO and the ECO Function alone may not be sufficient to completely
avoid potential
[[Page 2802]]
conflicts of interests or the appearance thereof. Conversely, the
Applicants also believe that a wholly independent third party alone
would not be able to efficiently or effectively monitor and oversee all
of the relevant BlackRock activities. Consistent with the Interim
Exemption, Section II.E. of the proposed exemption requires that
BlackRock appoint an ``Independent Monitor'', or ``IM''. The IM will
monitor the ECO and the Covered Transactions for compliance with the
Code, ERISA, FERSA, the EPPs and the exemption. The responsibilities
and requirements of the IM are set forth in Section II.E. of the
proposed exemption.
26. Notice (II.F.). Client Plans will receive notice regarding the
proposed exemption through publication in the Federal Register. The
Applicants believe that such notice is sufficient and that additional
mailings to the Client Plans would be confusing and burdensome to the
Client Plans given the substantial similarity between the Interim
Exemption and this proposed exemption.
Covered Transactions
27. As discussed above, the structure of the requested relief is
founded upon compliance with five sets of general conditions. These
five sets of general conditions are then modified by specific
conditions deemed suitable for each Covered Transaction. Many of the
conditions for individual Covered Transactions are derived from
statutory exemptions, administrative class exemptions or administrative
individual exemptions frequently relied upon by fiduciaries and parties
in interest (sometimes affiliated and sometimes not) to exempt similar
transactions. Section III of the proposed exemption sets forth the
Covered Transactions for which the Applicants are seeking exemptive
relief and the conditions which must be satisfied in respect of such
Covered Transactions in order to be accorded such relief.
28. Except as described below, the Covered Transactions for which
relief is proposed herein are substantially similar to the
corresponding ``Covered Transactions'' in the Interim Exemption, and
each such Covered Transaction is subject to substantially the same
conditions as set forth in the Interim Exemption.\17\ The Applicants
are not requesting relief with respect to the Covered Transactions
described in Section III.A. (Continuing Covered Transactions), T. (The
Provision of Custodial, Administrative and Similar Ministerial Services
by an MPS for a Client Plan as a Consequence of a BlackRock Manager
Exercising Investment Discretion on Behalf of the Client Plan or
Rendering Investment Advice to the Client Plan) or W. (Investment of
Assets of MPS Plans in a BlackRock Bank-Maintained Common or Collective
Trust as of the Date of the Acquisition--Fees Paid Outside the Trust)
of the Interim Exemption. However, the Applicants are seeking exemptive
relief with respect to a new Covered Transaction described in Section
III.W. of the proposed exemption.
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\17\ 76 FR at 50640.
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29. The Applicants further request, with respect to a small number
of the Covered Transactions identified herein, certain changes from the
relief provided in the Interim Exemption and to the applicable
conditions. Set forth below is a discussion of (a) three broad changes
that impact multiple Covered Transactions and (b) modifications with
respect to specific Covered Transactions.
30. MPS Investment Advice. The Interim Exemption imposed conditions
with respect to several Covered Transactions that restricted BlackRock
Managers from engaging in transactions with MPSs that possess
discretionary authority or control with respect to the investment of
the Client Plan assets involved in the transaction, or render
investment advice within the meaning of 29 CFR 2510.3-21(c) with
respect to such assets. This condition was set forth in Section III.I.
(Repurchase Agreements), L. (Bank Deposits and Commercial Paper), M.
(Securities Lending) and U. (ABCP Conduit) of the Interim Exemption. In
this proposed exemption, the relevant sections are re-designated
Section III.H. (Repurchase Agreements), K. (Bank Deposits and
Commercial Paper), L. (Securities Lending) and S. (ABCP Conduit).
The Applicants represent that BlackRock Managers are often unable
to make a determination as to which parties provide investment advice
with respect to Client Plan assets. The inability to make these
determinations created uncertainty as to which parties were subject to
the restriction of these conditions, resulting in the relief provided
in the Interim Exemption for those sections being unworkable in some
situations from a practical perspective. The Applicants, therefore,
requested deletion of that portion of the condition that would limit
transactions with MPSs that provide investment advice within the
meaning of 29 CFR 2510.3-21(c).
The Department understands the Applicants' concerns regarding the
practical implication of the restriction on transactions with
investment advice providers and, for purposes of the exemption proposed
herein, has revised the conditions at issue so that the restriction
only apply to transactions with MPSs that possess discretionary
authority or control with respect to the investment of the Client Plan
assets involved in the transaction. The Department additionally made
several related changes to the affected sections. First, the Department
added a condition to Section III.H. and K. to clarify that the Client
Plan involved in the transaction may not be an MPS Plan of the MPS with
whom the transaction takes place, or an MPS Plan of another member of
the same MPS Group as such MPS. Second, at the Applicants' request, the
Department revised Section II.A.3. to include a new Section II.A.3.(b),
which provides that the conditions described above in this paragraph
shall be deemed satisfied if, with respect to the Covered Transaction
in question, section II.A.3.(a) is satisfied. Section II.A.3.(a)
provides that, in the case of an investment fund in which two or more
unrelated Client Plans have an interest, a Covered Transaction with an
MPS will be deemed to satisfy the requirements of Section II.A.2. of
the proposed exemption if the assets of a Client Plan on behalf of
which the MPS or its affiliate possesses the authority and which are
managed by the BlackRock Manager in the investment fund, when combined
with the assets of other Client Plans established or maintained by the
same employer (or an affiliate thereof) or by the same employee
organization, on behalf of which the same MPS possesses such authority
and which are managed in the same investment fund, represent less than
ten percent (10%) of the assets of the investment fund. Finally, with
respect to relief for Securities lending by a BlackRock Manager to an
MPS, the Department included two additional conditions in Section
III.L. similar to those contained in subsections (p) and (q) of PTE
2002-46.\18\ It is the Department's view that the general conditions of
the proposed exemption, including the modified conditions derived from
the QPAM exemption, with the specific conditions of these Sections as
modified, provide sufficient safeguards for the affected Client Plans,
participants and beneficiaries, even without the restriction on
transactions with investment advice providers.
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\18\ 67 FR 59569 (September 23, 2002), as corrected, 67 FR 69046
(November 14, 2002).
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31. Directed Brokerage Accounts/Wrap Agreements. Section III.P.,
R., S. and V. of the Interim Exemption
[[Page 2803]]
provided relief that included a provision that permitted BlackRock
Managers to use an MPS as a Securities broker pursuant to either
directed brokerage and/or wrap fee arrangements in effect on the date
of the Acquisition.\19\ The Applicants represent that relief for such
directed brokerage and/or wrap fee arrangements is no longer necessary.
In the absence of such necessity, the Department has eliminated the
directed brokerage and/or wrap fee agreement provisions in the
corresponding sections (Section III.O., Q., R. and T.) of the proposed
exemption.
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\19\ 76 FR at 50647-50650.
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32. Primary/Secondary Markets and Agency/Principal. Section III.L
and U. of the Interim Exemption provided relief with respect to (a)
investments in bank deposits and commercial paper, and (b) purchases,
sales and holdings by BlackRock Managers for Client Plans of commercial
paper issued by ABCP conduits, when an MPS has one or more roles.\20\
The Applicants request changes from the conditions with respect to both
Covered Transactions in the Interim Exemption. Purchases, sales and
placements of bank deposits and commercial paper commonly occur without
reference to primary or secondary markets and without distinction as to
whether they are on a principal or agency basis. As a result, such
distinctions are simply not relevant to the short term instruments
described in the Covered Transactions (which is in contrast to trading
of longer term Fixed Income Obligations or equity Securities). To
address this issue, the Department has modified the language of Section
II.K. and S. of the proposed exemption to more accurately reflect the
nomenclature of bank deposits and commercial paper.
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\20\ 76 FR at 50643 and 50649.
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33. Repurchase Agreements when an MPS is the Seller (Section
III.H.). With respect to Covered Transactions involving investments in
repurchase agreements when an MPS is the seller, the Interim Exemption
provided relief with respect to certain repurchase agreements that were
in effect as of the date of the Acquisition that otherwise would not
have complied with the conditions of the Interim Exemption.\21\
Applicants represent that such repurchase agreements are no longer in
place. As a result, the Applicants are no longer requesting relief with
respect to repurchase agreements that were in effect as of the date of
the Acquisition. The Department has made this change to the proposed
exemption.
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\21\ 76 FR at 50642.
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34. Bank Deposits and Commercial Paper (Section III.K.). With
respect to Covered Transactions involving investments in bank deposits
and commercial paper, the Applicants request changes from the
conditions in the Interim Exemption. The Applicants represent that,
with respect to commercial paper, an MPS may often act in a continuing
capacity, such as a placement agent or an administrator. To address
this concern, the language of the proposed exemption has been modified
to reflect the fact that an MPS may act in a continuing capacity. In
addition, in order to provide additional protections for participants
and beneficiaries, the proposed exemption provides that all purchases
and sales of commercial paper to or from an MPS be made pursuant to the
Three Quote Process.
35. Securities Lending to an MPS (Section III.L.). The Interim
Exemption provided relief for the lending of securities by BlackRock
Managers to an MPS. Such relief was extended to both (a) Index Accounts
or Funds and Model-Driven Accounts or Funds and (b) Other Accounts or
Funds. For purposes of this proposed exemption, the Applicants limited
their request to relief for Index Accounts or Funds and Model-Driven
Accounts or Funds. The Department has revised Section III.L. of the
proposed exemption accordingly.
36. To-Be-Announced Trades (TBAs) of GNMA, FHLMC, FarmerMac or FNMA
Mortgage-Backed Securities with an MPS Counterparty (Section III.M.).
With respect to To-Be-Announced Trades (TBAs), Section III.N. of the
Interim Exemption provided relief for TBAs of GNMA, FHLMC, or FNMA
Mortgage-Backed Securities with an MPS counterparty.\22\ The Applicants
request that the Department add FarmerMac mortgage-backed Securities to
the relief provided for TBAs. Such additional relief is necessary
because the Applicants have found that, in practice, BlackRock Managers
may engage in principal trades on a TBA basis with FarmerMac mortgage-
backed Securities. Not allowing such TBAs, according to the Applicants,
would deprive Client Plans of a substantial pool of TBAs.
---------------------------------------------------------------------------
\22\ 76 FR at 50647.
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The Applicants represent that the addition of relief for TBAs of
FarmerMac mortgage-backed Securities is consistent with the relief
provided in the Interim Exemption with respect to both FHLMC and FNMA
mortgage-backed Securities. All three entities are the recipients of
indirect government guarantees, and each entity has historically been
treated similarly by the Department.\23\ The Department agrees with the
Applicants, and it has added FarmerMac mortgage-backed Securities to
the relief proposed for TBAs herein.
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\23\ See ERISA Advisory Opinion 99-05A (February 22, 1999).
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37. Purchase of a Portion or All of a Loan to an Entity Which is
not an MPS and is not a BlackRock Entity from an MPS or Other Arranger
and the Holding thereof by BlackRock Managers Where an MPS is an
Arranger, and/or an MPS has an Ongoing Function Regarding Such Loan
(Section III.W.). The Applicants request exemptive relief with respect
to a new Covered Transaction. The Applicants represent that there is a
significant market in Loans (and participations in such Loans) made to
commercial borrowers to finance either their current and ongoing
operations, or a specific transaction. The terms governing the Loans
and the lenders' commitment to fund them are generally negotiated
between the borrower and the sole Arranger or Lead Arranger,\24\ as
applicable. The sole Arranger, or Lead Arranger with the assistance of
the other Arrangers, undertakes to effectively sell portions of the
Loan in a Loan Offering \25\ by finding one or more sophisticated
financial institutions such as commercial banks, insurance companies or
other companies or funds regularly engaged in making, investing in,
purchasing or selling commercial loans with sufficient capital to
either take an assignment of, or a participation interest in, all or a
portion of the Loan, on either a firm commitment or best efforts basis
(in each case, as described below). The Arrangers assume a portion of
the commitment to the borrower to fund the Loans initially. The
Applicants represent that conceptually, these types of lending
transactions are similar to the purchase and holding by BlackRock
Managers on behalf of Client Plans of Fixed Income Obligations issued
by
[[Page 2804]]
third parties where an MPS may act as the underwriter.\26\
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\24\ ``Arranger'' is defined in Section VI.I. of the proposed
exemption and the term means a sophisticated financial institution,
such as a commercial or investment bank, regularly engaged in
structuring commercial loans, and ``Lead Arranger'' is defined in
Section VI.ZZ. of the proposed exemption and the term means, with
respect to any Loan Offering involving more than one Arranger, the
Arranger designated as such by all of such Arrangers.
\25\ ``Loan Offering'' is defined in Section VI.BBB. of the
proposed exemption and the term means, with respect to the aggregate
principal amount of any Loan extended to a commercial borrower in
any single transaction, the process of structuring, marketing and
offering to banks, insurance companies, investment funds and other
institutional investors the opportunity to purchase interests in
such Loan.
\26\ Solely for purposes of Section III.W. of the proposed
exemption, ``Loan'' is defined in Section VI.AAA. of the proposed
exemption and the term does not include any Fixed Income Obligations
which are covered separately under Section IV.A. of the proposed
exemption.
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The Applicants further represent that in a firm commitment Loan
Offering, the Arrangers are obligated to make the Loan in the full
amount of their commitment, even if they have not found other investors
to participate in or take an assignment of all or a portion of the
Loan. If the transaction is conducted on a best efforts basis, the
Arrangers are not obligated to make the Loan in the full amount
requested by the borrower if there is not sufficient interest in the
market. Selling efforts with respect to a particular Loan Offering do
not begin before a decision is made regarding whether such Loan
Offering will be made on a firm commitment or best efforts basis. The
Applicants are only requesting relief under the proposed exemption for
Loans that are made on a firm commitment basis.
The Applicants represent that potential purchasers of a portion or
all of a Loan are able to review relevant information about the Loan in
advance, and indicate whether they are interested in taking an
assignment or participation in such Loan. In an assignment, the lender
of record of the portion of the Loan which is assigned is changed, and
the title, voting rights and all other rights are transferred to the
assignee. In a participation, the lender of record remains the original
lender, and such lender typically retains voting rights, except for
certain extraordinary actions primarily relating to the economic terms
of the Loan. The Applicants are only requesting relief under the
proposed exemption for transactions involving the assignment of Loans.
The Applicants represent that the sole Arranger or Lead Arranger,
as applicable, is typically responsible for negotiating the terms of
the Loan, including the Loan Offering, commitment or other similar
underwriting fee to be paid by the borrower, and building a book of
investors to hold the Loan. Where there is more than one Arranger,
other Arrangers may participate in the sales effort in coordination
with the Lead Arranger. The material terms of the Loan are typically
negotiated and agreed with the borrower before commencement of the Loan
Offering effort. When the sole Arranger or Lead Arranger, as
applicable, has negotiated the material terms of the Loan, they are
posted to one or more web-based sites (e.g., Intralinks) for potential
investors and lenders to review. These sites provide detailed
information regarding the borrower and draft Loan documents (e.g.,
credit agreement, confidential information statement). The covenants in
the applicable credit agreement are often more highly structured than
in a high yield fixed income underwritten offering and thereby would
typically provide enhanced protection for investors.
The Applicants represent that the fee received by an Arranger
depends upon whether the offering is on a firm commitment or a best
efforts basis and is generally calculated as a percentage of the
principal amount of the Loan. The fee is generally higher for a firm
commitment transaction than a best efforts transaction. In a firm
commitment transaction, each Arranger will receive a specified
percentage of the fee which is determined on the basis of the size of
the Loan commitment before the sales effort commences and the amount of
such fee does not vary depending on a particular member's success in
the sales effort. Thus, if an MPS is an Arranger, its compensation in
the form of the fee will not increase if a BlackRock Manager on behalf
of a Client Plan purchases from such MPS, rather than another Arranger.
The Applicants represent that in some Loan transactions, the sole
Arranger or Lead Arranger, as applicable, has no ongoing role after the
sale with respect to the Loans. In other transactions, the sole
Arranger or Lead Arranger, as applicable, does serve an ongoing
function such as an administrative agent or a collateral agent. Most
commonly, the collateral agent and the administrative agent are the
same entity. The Applicants further represent that generally: (a) The
administrative agent acts as an agent between the lenders and the
borrower; the role of an administrative agent is administrative and
ministerial and involves relaying information, tallying votes and
organizing calls; there is no fiduciary relationship between the
lenders and the administrative agent; and there is generally a flat fee
(currently in the range of $100,000 to $200,000 per annum) for acting
as an administrative agent and this fee is paid by the borrower; and
(b) the collateral agent holds the collateral on behalf of all of the
lenders.
The Applicants represent that, according to their research, the
Barclays MPSs are ranked in the top ten Arrangers for Loans. They acted
in 92 deals in 2010, representing 6% market share and in 70 deals in
the first half of 2011, representing a 7.6% market share. The same
research indicates that the shares of PNC MPSs are smaller, but the PNC
MPSs still rank in the top 25 Arrangers for Loans.
The Applicants represent that investments in these types of firm
commitment assigned Loans represent an attractive investment
opportunity for Client Plans. Such Loans are typically senior secured
and typically have the highest or second highest priority of claim on a
borrower's assets and cash flow. Such Loans also provide an opportunity
to generate a return based upon a floating interest rate (resulting in
Client Plans receiving more when interest rates rise). The Applicants
believe that a failure to obtain relief for this type of Covered
Transaction would materially inhibit Client Plan access to this
significant asset class.
In response, the Department is proposing relief for the purchase
and holding of all or a portion of a Loan by a BlackRock Manager on
behalf of a Client Plan, where such purchase may be from an MPS or
other Arranger, and/or an MPS may be an Arranger and/or have an ongoing
function regarding such Loan. Conditions applicable to this type of
transaction would be: (a) The BlackRock Manager on behalf of the Client
Plan obtains an assigned interest in the Loan or a portion thereof, as
opposed to a participation interest, (b) the borrower under the Loan
must not be an MPS or BlackRock Entity, (c) the Loan must be offered on
a firm commitment basis, (d) conditions similar to Subsections IV.A.4-
12., as applicable, and (e) if an MPS has an ongoing function in
respect of such Loan, such as an administrative agent or collateral
agent, the taking of or refraining from taking of any action by the
responsible BlackRock Manager which could have a material positive or
negative effect upon the MPS must be decided upon by the IM.
Affiliated Underwritings and Affiliated Servicing (Section IV)
38. Covered Transactions for which relief is proposed herein,
including Sections III.B., D., E. and F., include in their conditions
requirements regarding affiliated underwriting and affiliated servicing
that are set forth in Section IV of the proposed exemption. The
Department notes that these conditions are substantially similar to
those under the Interim Exemption.\27\
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\27\ 76 FR at 50651.
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Correction Procedures (Section V)
39. The Applicants request confirmation that isolated
transgressions of the EPPs, or isolated failures to
[[Page 2805]]
comply with the conditions associated with a Covered Transaction
constituting a non-exempt prohibited transaction (the latter, a
Violation) should not cause the entire exemption, if granted, to cease
to be available. Only a persistent pattern or practice of violations of
the EPPs or the conditions of the exemption should potentially cause
the exemption to be revoked. The Department notes that the correction
procedures under the proposed exemption are substantially similar to
those under the Interim Exemption, and the Department concurs with the
Applicants' analysis on this issue.\28\
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\28\ 76 FR at 50654.
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Effective Date
40. If granted, the proposed exemption will be effective March 31,
2012. However, Applicants represent that they substantially complied
with the conditions applicable to Covered Transactions described in
Section III.K. and S. effective October 1, 2011. As a result, the
proposed exemption will be effective with respect to Covered
Transactions described in Section III.K. and S. as of October 1, 2011.
41. In summary, the Applicants represent that the exemption
proposed herein will satisfy the statutory criteria of ERISA section
408(a) and Code section 4975(c)(2) because:
(a) Administratively feasible. The Applicants believe that the
proposed exemption is administratively feasible. Most of the Covered
Transactions are the subject of existing statutory and/or
administrative exemptions. The conditions for relief for the Covered
Transactions have been modified to reflect, on the one hand, the
possible negative implication of the equity investments of the MPSs in
BlackRock, and on the other hand, the circumscribed ability of the MPSs
to exercise rights normally associated with such equity investments. In
addition, EPPs have been developed with the cooperation and approval of
the IM; an ECO has been appointed to report on compliance with the
terms of the exemption and the EPPs; and the IM will review compliance
reports, pass upon corrections of Violations, and if necessary, contact
the Department. Granting the proposed exemption requires no additional
monitoring by the Department.
(b) In the interest of plans and participants and beneficiaries.
The Applicants believe that the proposed exemption is in the interest
of plans and participants and beneficiaries because the proposed
exemption would allow BlackRock Managers to continue to engage in
Covered Transactions with major participants in the financial markets
which are necessary and beneficial to plans and their participants and
beneficiaries. While many Covered Transactions (although perhaps not
all) could be engaged in with parties other than MPSs, in numerous
cases such transactions would be quantitatively or qualitatively
inferior to the same transactions with an MPS.
(c) Protective of the rights of participants and beneficiaries of
such plans. Each of the Covered Transactions is protective of the
rights of participants and beneficiaries because specific conditions
have been tailored to their respective natures. More broadly, the
rights of participants and beneficiaries are protected by the general
conditions, modeled on the QPAM Exemption, that are applicable to all
Covered Transactions. The general protective conditions include
compensation restrictions, development of EPPs, and implementation of
EPPs with the cooperation and approval of the IM. Further, the ECO will
report on compliance with the exemption and the EPPs, and the IM will
review compliance reports, pass upon corrections of Violations, and if
necessary, contact the Department.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the following
exemption under the authority of ERISA section 408(a), Code section
4975(c)(2) and FERSA section 8477(c)(3), and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990), as follows:
Section I: Covered Transactions Generally
If the proposed exemption is granted, effective as of March 31,
2012 (or, in the case of Covered Transactions described in Section
III.K or Section III.S. of this exemption, October 1, 2011), the
restrictions of ERISA sections 406(a)(1) and 406(b), FERSA section
8477(c)(1) and (2), and the sanctions resulting from the application of
Code section 4975, by reason of Code section 4975(c)(1),\29\ shall not
apply to the Covered Transactions set forth in Section III and entered
into on behalf of or with the assets of a Client Plan; provided, that
(x) the generally applicable conditions of Section II of this exemption
are satisfied, and, as applicable, the transaction-specific conditions
set forth below in Sections III and IV of this exemption are satisfied,
or (y) the Special Correction Procedure set forth in Section V of this
exemption is satisfied.
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\29\ For purposes of this proposed exemption, references to
ERISA section 406 should be read to refer as well to the
corresponding provisions of Code section 4975 and FERSA section
8477(c).
---------------------------------------------------------------------------
Section II: Generally Applicable Conditions
A. Compliance with the QPAM Exemption. The following conditions of
Part I of Prohibited Transaction Exemption 84-14, as amended (PTE 84-14
or the QPAM Exemption),\30\ must be satisfied with respect to each
Covered Transaction:
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\30\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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1. The BlackRock Manager engaging in the Covered Transaction is a
Qualified Professional Asset Manager;
2. Except as set forth in Section III of this exemption, at the
time of the Covered Transaction (as determined under Section VI(i) of
the QPAM Exemption) with or involving an MPS, such MPS, or its
affiliate (within the meaning of Section VI(c) of the QPAM
Exemption),\31\ does not have the authority to:
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\31\ Solely for purposes of Section II.A.2. and Section II.A.3.
of this exemption, no BlackRock Entity will be deemed to be an
affiliate of an MPS. The Department is not making herein a
determination as to whether any BlackRock Entity is an affiliate of
an MPS under ERISA.
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(a) Appoint or terminate the BlackRock Manager as a manager of the
Client Plan assets involved in the Covered Transaction, or
(b) Negotiate on behalf of the Client Plan the terms of the
management agreement with the BlackRock Manager (including renewals or
modifications thereof) with respect to the Client Plan assets involved
in the Covered Transaction;
3. (a) Notwithstanding the foregoing, in the case of an investment
fund (as defined in Section VI(b) of the QPAM Exemption) in which two
or more unrelated Client Plans have an interest, and which is a Pooled
Fund, a Covered Transaction with an MPS will be deemed to satisfy the
requirements of Section II.A.2. of this exemption if the assets of a
Client Plan on behalf of which the MPS or its affiliate possesses the
authority set forth in Section II.A.2.(a) and/or (b) above, and which
are managed by the BlackRock Manager in the investment fund, when
combined with the assets of other Client Plans established or
maintained by the same employer (or an affiliate thereof described in
Section VI(c)(1) of the QPAM Exemption) or by the same employee
organization, on behalf of
[[Page 2806]]
which the same MPS and/or its affiliates possess such authority and
which are managed by the BlackRock Manager in the same investment fund,
represent less than ten percent (10%) of the assets of the investment
fund; and
(b) the conditions set forth in Subsections 14. and 15. of Section
III.H., Subsections 2(e) and 3. of Section III.K., Section III.L.2.(b)
and Subsections 1. and 2. of Section III.S. of this exemption shall be
deemed satisfied if, with respect to the Covered Transaction in
question, Section II.A.2. of this exemption is satisfied by reason of
Section II.A.3.(a) of this exemption.
4. The terms of the Covered Transaction are negotiated on behalf of
the investment fund by, or under the authority and general direction
of, the BlackRock Manager and either the BlackRock Manager or (so long
as the BlackRock Manager retains full fiduciary responsibility with
respect to the Covered Transaction) a property manager acting in
accordance with written guidelines established and administered by the
BlackRock Manager, makes the decision on behalf of the investment fund
to enter into the Covered Transaction, provided that the Covered
Transaction is not part of an agreement, arrangement or understanding
designed to benefit the MPS;
5. The Covered Transaction is not entered into with an MPS which is
a party in interest or disqualified person with respect to any Client
Plan whose assets managed by the BlackRock Manager, when combined with
the assets of other Client Plans established or maintained by the same
employer (or affiliate thereof described in Section VI(c)(1) of the
QPAM Exemption) or by the same employee organization, and managed by
the BlackRock Manager, represent more than twenty percent (20%) of the
total client assets managed by the BlackRock Manager at the time of the
Covered Transaction;
6. At the time the Covered Transaction is entered into, and at the
time of any subsequent renewal or modification thereof that requires
the consent of the BlackRock Manager, the terms of the Covered
Transaction are at least as favorable to the investment fund as the
terms generally available in arm's length transactions between
unrelated parties; and
7. Neither the BlackRock Manager nor any affiliate thereof (as
defined in Section VI(d) of the QPAM Exemption),\32\ nor any owner,
direct or indirect, of a five percent (5%) or more interest in the
BlackRock Manager \33\ is a person who within the ten (10) years
immediately preceding the Covered Transaction has been either convicted
or released from imprisonment, whichever is later, as a result of: Any
felony involving abuse or misuse of such person's employee benefit plan
position or employment, or position or employment with a labor
organization; any felony arising out of the conduct of the business of
a broker, dealer, investment adviser, bank, insurance company or
fiduciary; income tax evasion; any felony involving the larceny, theft,
robbery, extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of funds or
securities; conspiracy or attempt to commit any such crimes or a crime
in which any of the foregoing crimes is an element; or any other crime
described in ERISA section 411. For purposes of this section, a person
shall be deemed to have been ``convicted'' from the date of the
judgment of the trial court, regardless of whether that judgment
remains under appeal.
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\32\ For the avoidance of doubt, all MPSs are excluded from the
term ``affiliate'' for these purposes.
\33\ For the avoidance of doubt, all MPSs are excluded from the
term ``owner'' for these purposes.
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B. Compensation. None of the employees of a BlackRock Manager
receives any compensation that is based on any Covered Transaction
having taken place between Client Plans and any of the MPSs (as opposed
to with another institution that is not an MPS). The fact that a
specific Covered Transaction occurred with an MPS as opposed to a non-
MPS counterparty is ignored by BlackRock and BlackRock Managers for
compensation purposes. None of the employees of BlackRock or a
BlackRock Manager receive any compensation from BlackRock or a
BlackRock Manager which consists of equity Securities issued by an MPS,
which fluctuates in value based on changes in the value of equity
Securities issued by an MPS, or which is otherwise based on the
financial performance of an MPS independent of BlackRock's performance,
provided that this condition shall not fail to be met because the
compensation of an employee of a BlackRock Manager fluctuates with the
value of a broadly-based index which includes equity Securities issued
by an MPS.
C. Exemption Policies and Procedures. BlackRock adopts and
implements Exemption Policies and Procedures (EPPs) which address each
of the types of Covered Transactions and which are designed to achieve
the goals of: (1) Compliance with the terms of the exemption, (2)
ensuring BlackRock's decision-making with respect to the Covered
Transactions on behalf of Client Plans with MPSs or BlackRock Entities
is done in the interests of the Client Plans and their participants and
beneficiaries, and (3) to the extent possible, verifying that the terms
of such Covered Transactions are at least as favorable to the Client
Plans as the terms generally available in arm's length transactions
with unrelated parties. The EPPs are developed with the cooperation of
both the Exemption Compliance Officer (ECO) and the Independent Monitor
(IM), and such EPPs are subject to the approval of the IM. The EPPs
need not address transactions which are not within the definition of
the term Covered Transactions.
Transgressions of the EPPs which do not result in Violations
require correction only if the amount involved in the transgression and
the extent of deviation from the EPPs is material, taking into account
the amount of Client Plan assets affected by such transgressions (EPP
Corrections). The ECO will make a written determination as to whether
such transgressions require EPP Correction, and, if the ECO determines
an EPP Correction is required, the ECO will provide written notice to
the IM of the EPP Correction. The ECO will provide summaries for the IM
of any such EPP Corrections as part of the quarterly report referenced
in Section II.D.11.
D. Exemption Compliance Officer. BlackRock appoints an Exemption
Compliance Officer (ECO) with respect to the Covered Transactions. If
the ECO resigns or is removed, BlackRock shall appoint a successor ECO
within a reasonable period of time, not to exceed thirty (30) days,
which successor shall be subject to the affirmative written approval of
the IM. With respect to the ECO, the following conditions shall be met:
1. The ECO is a legal professional with at least ten years of
experience and extensive knowledge of the regulation of financial
services and products, including under ERISA and FERSA;
2. A committee made up exclusively of members of the BlackRock
Board of Directors (the Board) who are independent of BlackRock and the
MPSs determines the ECO's compensation package, with input from the
general counsel of BlackRock; the ECO's compensation is not set by
BlackRock business unit heads, and there is no direct or indirect input
regarding the identity or compensation of the ECO from any MPS;
[[Page 2807]]
3. The ECO's compensation is not based on performance of any
BlackRock Entity or MPS, although a portion of the ECO's compensation
may be provided in the form of BlackRock stock or stock equivalents;
4. The ECO can be terminated by BlackRock only with the approval of
the IM;
5. The EPPs prohibit any officer, director or employee of BlackRock
or any MPS or any person acting under such person's direction from
directly or indirectly taking any action to coerce, manipulate,
mislead, or fraudulently influence the ECO or any member of the ECO
Function in the performance of his or her duties;
6. The ECO is responsible for monitoring Covered Transactions and
shall determine whether Violations have occurred, and the appropriate
correction thereof, consistent with the requirements of Section V of
this exemption;
7. If the ECO determines a Violation has occurred, the ECO must
determine why it occurred and what steps should be taken to avoid such
a Violation in the future (e.g., additional training, additional
procedures, additional monitoring, or additional and/or changed
processes or systems);
8. The ECO is responsible for monitoring and overseeing the
implementation of the EPPs and carrying out such other responsibilities
stipulated or described in Section III of this exemption. The ECO may
delegate such responsibilities to the ECO Function, but the ECO will
remain responsible for monitoring and overseeing the ECO Function's
implementation of the EPPs. When appropriate, the ECO will recommend
changes to the EPPs to BlackRock and the IM. The ECO will consult with
the IM regarding the need for, timing, and form of EPP Corrections;
9. The ECO, with the assistance of the ECO Function, carries out
the responsibilities required of the ECO described in: (a) The
definition of ``Index'' in this exemption and (b) with respect to loans
of Securities to an MPS in Section III.L. of this exemption;
10. The ECO, with the assistance of the ECO Function, monitors
Covered Transactions and situations resulting from Covered Transactions
with or involving an MPS with respect to which, because of the
investment of the MPS in BlackRock, an action or inaction on the part
of a BlackRock Manager might be thought to be motivated by an interest
which may affect the exercise of such BlackRock Manager's best judgment
as a fiduciary. If a situation is identified by the ECO which poses the
potential for a conflict, as specified in Section III of this
exemption, the ECO shall consult with the IM, or refer decision-making
to the discretion of the IM;
11. The ECO provides a quarterly report to the IM summarizing the
material activities of the ECO for the preceding quarter and setting
forth any Violations discovered during the quarter and actions taken to
correct such Violations. With respect to Violations, the ECO report
details changes to process put in place to guard against a
substantially similar Violation occurring again, and recommendations
for additional training, additional procedures, additional monitoring,
or additional and/or changed processes or systems or training changes
and BlackRock management's actions on such recommendations. In
connection with providing the quarterly report for the second quarter
and fourth quarter of each year, upon the request of the IM, the ECO
and the IM shall meet in person to review the content of the report.
Other members of the ECO Function may attend such meetings at the
request of either the ECO or the IM;
12. In each quarterly report, the ECO certifies in writing to his
or her knowledge that (a) the quarterly report is accurate; (b)
BlackRock's compliance program is working in a manner which is
reasonably designed to prevent Violations; (c) any Violations
discovered during the quarter and the related corrections taken to date
have been identified in the report; and (d) BlackRock has complied with
the EPPs in all material respects;
13. No less frequently than annually, the ECO certifies to the IM
as to whether BlackRock has provided the ECO with adequate resources,
including, but not limited to, adequate staffing of the ECO Function,
and, in connection with the quarterly report for the fourth quarter of
each year, the ECO shall identify to the IM those BlackRock Managers
that relied upon this exemption during the prior year and those that
the ECO reasonably anticipates relying on this exemption during the
current year; and
14. The ECO or ECO Function provides any further information
regarding Covered Transactions that is reasonably requested by the IM.
E. Independent Monitor. BlackRock retains an Independent Monitor
(IM) with respect to the Covered Transactions. If the IM resigns or is
removed, BlackRock shall appoint a successor IM within a reasonable
period of time, not to exceed thirty (30) days. The IM:
1. Agrees in writing to serve as IM, and he or she is independent
within meaning of Section VI.TT.;
2. Approves the ECO selected by BlackRock, and as part of the
approval process and annually thereafter approves in general terms the
reasonableness of the ECO's compensation, taking into account such
information as the IM may request of BlackRock and which BlackRock must
supply, and approves any termination of the ECO by BlackRock;
3. Assists in the development of, and the granting of written
approval of, the EPPs and any material alterations of the EPPs by
determining that they are reasonably designed to achieve the goals of
(a) compliance with the terms of the exemption, (b) ensuring
BlackRock's decision-making with respect to Covered Transactions on
behalf of Client Plans with MPSs or BlackRock Entities is done in the
interests of the Client Plans and their respective participants and
beneficiaries and, (c) requiring, to the extent possible, verification
that the terms of such Covered Transactions are at least as favorable
to the Client Plans as the terms generally available in comparable
arm's length transactions with unrelated parties;
4. Consults with the ECO regarding the need for, timing and form of
any EPP Corrections. The IM has the responsibilities with respect to
corrections of Violations, as set forth in Section V of this exemption.
In response to EPP Corrections or Violations, the IM considers whether,
and must have the authority, to require further sampling, testing or
corrective action if necessary;
5. Exercises discretion for Client Plans in situations specified in
Section III of this exemption where BlackRock Managers may be thought
to have conflicts;
6. Performs certain monitoring functions described in Section III,
and carries out the responsibilities required of the IM, as set forth
in the definition of ``Index'' in this exemption, and with respect to
loans of Securities to an MPS as set forth in Section III.L. of this
exemption, and carries out such other responsibilities stipulated in
Section III of this exemption;
7. Reviews the quarterly reports of the ECO, obtains and reviews
representative samples of the data underlying the quarterly reports of
the ECO, and, if the IM deems it appropriate, obtains additional
factual information on either an ad hoc basis or on a systematic basis;
8. Reviews the certifications of the ECO as to whether (a) the
quarterly report is accurate; (b) BlackRock's compliance program is
working in a
[[Page 2808]]
manner which is reasonably designed to prevent Violations; (c) any
Violations discovered during the quarter and the related corrections
taken to date have been identified in the report; (d) BlackRock has
complied with the EPPs in all material respects; and (e) BlackRock has
provided the ECO with adequate resources, including, but not limited
to, adequate staffing of the ECO Function;
9. Determines, on the basis of the information supplied to the IM
by BlackRock and the ECO or the ECO Function, whether there has
occurred a pattern or practice of insufficient diligence in adhering to
the EPPs and/or the conditions of the exemption, and if such a
determination is made, reports the same to the Department, and informs
BlackRock and the ECO of any such report;
10. Determines whether the purchases of equity Securities issued by
an MPS on behalf of Client Plans that are Other Accounts or Funds by a
BlackRock Manager has had a positive material impact on the market
price for such Securities, notwithstanding any volume limitations
imposed by Section III.R. of the exemption and/or imposed by the IM
with respect to such equity Securities. The IM makes this determination
based upon its review of the relevant monthly reports required by the
exemption with respect to such Covered Transactions provided by the ECO
and publicly available information materially related to the trading of
the Securities of an MPS on its primary listing exchange (or market);
11. Issues an annual compliance report, to be timely delivered to
(i) the Chairman of the Board, (ii) the Chief Executive Officer of
BlackRock and (iii) the General Counsel of BlackRock. The annual
compliance report shall be based on a review of the EPPs, the quarterly
reports provided by the ECO, any transactions reviewed by the IM as
well as any additional information the IM requests from BlackRock, and
certifying to each of the following (or describing any exceptions
thereto) that:
(a) The EPPs are reasonably designed to achieve the goals of (i)
compliance with the terms of the exemption, (ii) ensuring BlackRock's
decision-making with respect to Covered Transactions on behalf of
Client Plans with MPSs or BlackRock Entities is done in the interests
of the Client Plans and the respective participants and beneficiaries,
and (iii) requiring to the extent possible, verification that the terms
of any Covered Transaction are at least as favorable to Client Plans as
the terms generally available in comparable arm's length transactions
with unrelated parties;
(b) The EPPs and the other terms of the exemption were complied
with, with any material exceptions duly noted;
(c) The IM has made the determination referred to in Section
II.E.9. and the results of that determination;
(d) BlackRock has provided the ECO with adequate resources,
including but not limited to adequate staffing of the ECO Function; and
(e) The compensation package for the ECO for the prior year is
reasonable;
12. The annual compliance report of the IM, as described in Section
II.E.11., shall contain a summary of Violations and a summary of any
corrections of Violations required by the IM and/or the ECO at any time
during the prior year. In addition, the IM further certifies that
BlackRock correctly implemented the prescribed corrections, based in
part on certification from the ECO; and
13. The annual compliance report of the IM shall also be timely
delivered by the IM to the chief executive officer, the general counsel
and the members of the board of directors of each of the BlackRock
Managers identified to the IM by the ECO or ECO Function as having
relied upon this exemption during the prior year and those that the ECO
reasonably anticipates will be relying on this exemption during the
current year. The copies of the compliance report described in this
Section II.E.13. shall be accompanied by a cover letter from the IM
calling the attention of the recipients to any Violations, material
exceptions to compliance with the EPPs, or other shortfalls in
compliance with the exemption to assist such officers and directors in
carrying out their respective responsibilities.
Section III: Covered Transactions
A. Purchases and Holdings by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Index Account or Fund, or in a Model-Driven
Account or Fund. Relief under Section I of this exemption is available
for a purchase and holding by BlackRock Managers of Fixed Income
Obligations issued by an MPS in an underwriting on behalf of Client
Plans for an Index Account or Fund, or a Model-Driven Account or Fund,
provided that:
1. Such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds; and such purchase is reasonably calculated not to
exceed the purchase amount necessary for such Model or quantitative
conformity by more than a de minimis amount;
2. Such purchase is not made from any MPS;
3. No BlackRock Entity is in the selling syndicate;
4. After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with decisions of the ECO regarding the taking,
or the refraining from taking, of actions in such circumstances; and
5. After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM.
B. Purchase and Holding by BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an Underwriting on Behalf of Client
Plans Invested in an Other Account or Fund. Relief under Section I of
this exemption is available for a purchase and holding by BlackRock
Managers of Fixed Income Obligations issued by an MPS in an
underwriting on behalf of Client Plans invested in an Other Account or
Fund provided that:
1. The conditions of Section IV.A. of this exemption are satisfied,
except that for purposes of Section IV.A.4.(a) and Section IV.A.5.(c),
the MPS-issued Fixed Income Obligations at the time of purchase must be
rated in one of the three highest rating categories by a Rating
Organization and none of the Rating Organizations may rate the Fixed
Income Obligations lower than in the third highest rating category;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate;
4. After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with decisions of the ECO regarding the taking,
or the refraining from taking, of actions in such circumstances; and
[[Page 2809]]
5. After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM.
C. Certain Transactions in the Secondary Market by BlackRock
Managers of Fixed Income Obligations including Fixed Income Obligations
Issued by and/or Traded with an MPS, and/or Under Which an MPS has
Either an Ongoing Function or Can Potentially Incur Liability. Relief
under Section I of this exemption is available for a purchase or sale
in the secondary market or the holding by BlackRock Managers on behalf
of Client Plans of (i) Fixed Income Obligations issued by an MPS, (ii)
Fixed Income Obligations issued by a third party or an MPS and
purchased from or sold to an MPS, and/or (iii) Fixed Income Obligations
under which an MPS has either an ongoing function or can potentially
incur liability, provided that:
1. If the Fixed Income Obligations are purchased from or sold to an
MPS, it is as a result of the Three Quote Process.
2. With respect to Fixed Income Obligations that are issued by an
MPS and are purchased and held by a BlackRock Manager for a Client Plan
-
(a) After purchase, the responsible BlackRock Manager notifies the
ECO if circumstances arise in which an action or inaction on the part
of the BlackRock Manager regarding an MPS Fixed Income Obligation so
acquired might be thought to be motivated by an interest which may
affect the exercise of such BlackRock Manager's best judgment as a
fiduciary, and complies with the decisions of the ECO regarding the
taking, or the refraining from taking, of actions in such
circumstances;
(b) After purchase, any decision regarding conversion of an MPS
Fixed Income Obligation into equity in the MPS is made by the IM; and
(c) If purchased for an Index Account or Fund, or a Model-Driven
Account or Fund, such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds and such purchase is reasonably calculated not to
exceed the purchase amount necessary for such Model or quantitative
conformity by more than a de minimis amount.
3. With respect to Fixed Income Obligations (whether or not issued
by an MPS) held by a BlackRock Manager for a Client Plan under which an
MPS has an ongoing function, such as servicing of collateral for asset-
backed debt, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for such asset-backed debt which the MPS originated, the taking of or
refraining from taking any action by the responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS is
decided upon by the ECO.
4. With respect to any Fixed Income Obligation acquired under this
Section III.C. which is a guaranteed governmental mortgage pool
certificate within the meaning of 29 CFR 2510.3-101(i) which is
accompanied by an implicit U.S. Government guarantee as opposed to an
explicit U.S. Government guarantee, (a) the BlackRock Manager
initiating a purchase of such Securities makes a determination that
such Securities are of substantially similar credit quality as
guaranteed governmental mortgage pool certificates accompanied by an
explicit U.S. Government guarantee, (b) the ECO (in regular
consultation with and under the supervision of the IM) monitors the
credit spread between such implicitly and explicitly guaranteed
certificates, and (c) each of the ECO and the IM (independently) has
the authority and responsibility to determine whether purchases of
implicitly guaranteed certificates should not be permitted due to such
credit spread, and such authority and responsibility is reflected in
the EPPs.
5. For purposes of this Section III.C., Asset-Backed Securities are
not Fixed Income Obligations.
D. Purchase in an Underwriting and Holding by BlackRock Managers of
Fixed Income Obligations Issued by a Third Party when an MPS is
Underwriter, in Either a Manager or a Member Capacity, and/or Under
Which an MPS has Either an Ongoing Function or Can Potentially Incur
Liability. Relief under Section I of this exemption is available for
the purchase and holding by BlackRock Managers of Fixed Income
Obligations issued by third parties in an underwriting when an MPS is
an underwriter, in either a manager or a member capacity, and/or Fixed
Income Obligations under which an MPS has either an ongoing function or
can potentially incur liability, provided that:
1. The conditions of Section IV.A. are satisfied.
2. Such purchase is not made from an MPS.
3. No BlackRock Entity is in the selling syndicate.
4. With respect to Fixed Income Obligations under which an MPS has
either an ongoing function, such as debt trustee, servicer of
collateral for asset-backed debt, or the potential for liability, such
as under representations or warranties made by an MPS with respect to
collateral for such asset-backed debt which the MPS originated, the
taking of or refraining from taking any action by the responsible
BlackRock Manager which could have a material positive or negative
effect upon the MPS is decided upon by the ECO.
5. With respect to any Fixed Income Obligation acquired under this
Section III.D. which is a guaranteed governmental mortgage pool
certificate within the meaning of 29 CFR 2510.3-101(i) which is
accompanied by an implicit U.S. Government guarantee as opposed to an
explicit U.S. Government guarantee, (a) the BlackRock Manager
initiating a purchase of such Securities makes a determination that
such Securities are of substantially similar credit quality as
guaranteed governmental mortgage pool certificates accompanied by an
explicit U.S. Government guarantee, (b) the ECO (in regular
consultation with and under the supervision of the IM) monitors the
credit spread between such implicitly and explicitly guaranteed
certificates, and (c) each of the ECO and the IM (independently) has
the authority and responsibility to determine whether purchases of
implicitly guaranteed certificates should not be permitted due to such
credit spread, and such authority and responsibility is reflected in
the EPPs.
6. For purposes of this Section III.D., Asset-Backed Securities are
not Fixed Income Obligations.
E. Purchase in an Underwriting and Holding by BlackRock Managers of
Asset-Backed Securities, when an MPS is an Underwriter, in the Capacity
as Either a Manager or a Member of the Selling Syndicate, Trustee, or,
in the Case of Asset-Backed Securities Which are CMBS, Servicer. Relief
under Section I of this exemption is available for the purchase and
holding by BlackRock Managers of Asset-Backed Securities issued in an
underwriting where an MPS is (i) An underwriter, in the capacity as
either a manager or a member of the selling syndicate, (ii) trustee, or
(iii) solely in the case of Asset-Backed Securities which are CMBS,
serves as servicer of a trust that issued such CMBS, provided that:
1. The conditions of Section IV.A. are satisfied, except that (a)
for purposes of Section IV.A.4.(a), the Asset-Backed Securities at the
time of purchase must be rated in one of the three highest rating
categories by a Rating Organization and none of the Rating
Organizations may rate the Asset-Backed Securities lower than the third
highest rating category, (b) in the case of
[[Page 2810]]
Asset-Backed Securities which are CMBS and for which the MPS is
servicer, the conditions of Section IV.B. are satisfied instead of the
conditions of Section IV.A., and (c) if an MPS is an underwriter and an
MPS is a servicer as described in clause (b), the conditions of both
Section IV.A., as modified by Section III.E.1.(a), and Section IV.B.
must be satisfied;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate;
4. In the case of Asset-Backed Securities with respect to which an
MPS has either an ongoing function, such as trustee, servicer of
collateral for CMBS, or the potential for liability, such as under
representations or warranties made by an MPS with respect to collateral
for CMBS which collateral the MPS originated, the taking of or
refraining from taking of any action by a responsible BlackRock Manager
which could have a material positive or negative effect upon the MPS is
decided upon by the ECO; and
5. The purchase meets the conditions of an applicable Underwriter
Exemption.
F. Purchase and Holding by BlackRock Managers of Equity Securities
Issued by an Entity which is not an MPS and is Not a BlackRock Entity,
in an Underwriting when an MPS is an Underwriter, in either a Manager
or a Member Capacity. Relief under Section I of this exemption is
available for the purchase and holding by BlackRock Managers of equity
Securities issued by an entity which is not an MPS and which is not a
BlackRock Entity in an underwriting when an MPS is an underwriter, in
either a manager or a member capacity, provided that:
1. The conditions of Section IV.A. are satisfied;
2. Such purchase is not made from an MPS;
3. No BlackRock Entity is in the selling syndicate; and
4. The Securities are not Asset-Backed Securities.
G. Purchase and Sale by BlackRock Managers of Asset-Backed
Securities in the Secondary Market, from or to an MPS, and/or when an
MPS is Sponsor, Servicer, Originator, Swap Counterparty, Liquidity
Provider, Trustee or Insurer, and the Holding Thereof. Relief under
Section I of this exemption is available for a sale of Asset-Backed
Securities by a BlackRock Manager to an MPS, or the purchase of Asset-
Backed Securities by BlackRock Managers from an MPS and the holding
thereof, and/or any such purchase or sale in the secondary market or
holding when an MPS is a sponsor, a servicer, an originator, a swap
counterparty, a liquidity provider, a trustee or an insurer, provided
that:
1. If the Asset-Backed Securities are purchased from or sold to an
MPS, the purchase or sale is as a result of the Three Quote Process.
2. Regardless of from whom the BlackRock Manager purchases the
Asset-Backed Securities, the purchase and holding of the Asset-Backed
Security otherwise meets the conditions of an applicable Underwriter
Exemption.
3. Regardless of from whom the BlackRock Manager purchased the
Asset-Backed Securities, if an MPS is, with respect to such Asset-
Backed Securities, a sponsor, servicer, originator, swap counterparty,
liquidity provider, insurer or trustee, as those terms are utilized or
defined in the Underwriter Exemptions, and circumstances arise in which
the taking of or refraining from taking of any action by the
responsible BlackRock Manager could have a material positive or
negative effect upon the MPS, the taking of or refraining from taking
of any such action is decided upon by the ECO.
H. Repurchase Agreements when an MPS is the Seller. Section I of
this exemption applies to an investment by a BlackRock Manager of
Client Plan assets which involves the purchase or other acquisition,
holding, sale, exchange or redemption by or on behalf of a Client Plan
of a repurchase agreement (or Securities or other instruments under
cover of a repurchase agreement) in which the seller of the underlying
Securities or other instruments is an MPS which is a bank supervised by
the United States or a State, a broker-dealer registered under the 1934
Act, or a dealer who makes primary markets in Securities of the United
States government or any agency thereof, or in banker's acceptances,
and reports daily to the Federal Reserve Bank of New York its positions
with respect to these obligations, provided that each of the following
conditions are satisfied:
1. The repurchase agreement is embodied in, or is entered into
pursuant to a written agreement, and such written agreement is a
standardized industry form;
2. The repurchase agreement has a term of one year or less;
3. The Client Plan receives interest no less than that which it
would receive in a comparable arm's length transaction with an
unrelated party;
4. The Client Plan receives Securities, banker's acceptances,
commercial paper or certificates of deposit having a market value equal
to not less than one hundred percent (100%) of the purchase price paid
by the Client Plan;
5. Upon expiration of the repurchase agreement and return of the
Securities or other instruments to the seller, the seller transfers to
the Client Plan an amount equal to the purchase price plus the
appropriate interest;
6. The Securities, banker's acceptances, commercial paper or
certificates of deposit received by the Client Plan:
(a) Could be acquired directly by the Client Plan in a transaction
not covered by this Section III.H. without violating ERISA sections
406(a)(1)(E), 406(a)(2) or 407(a); and,
(b) If the Securities are subject to the provisions of the 1933
Act, they are obligations that are not ``restricted securities'' within
the meaning of Rule 144 under the 1933 Act.
7. If the market value of the underlying Securities or other
instruments falls below the purchase price at any time during the term
of the agreement, the Client Plan may, under the written agreement
required by Section III.H.1., require the MPS seller to deliver, by the
close of business on the following business day (as such term is
defined for purposes of the relevant written agreement), additional
Securities or other instruments the market value of which, together
with the market value of Securities or other instruments previously
delivered or sold to the Client Plan under the repurchase agreement,
equals at least one hundred percent (100%) of the purchase price paid
by the Client Plan.
8. If the MPS seller does not deliver additional Securities or
other instruments as required above, the Client Plan may terminate the
agreement, and, if upon termination or expiration of the agreement, the
amount owing is not paid to the Client Plan, the Client Plan may sell
the Securities or other instruments and apply the proceeds against the
obligations of the MPS seller under the agreement, and against any
expenses associated with the sale.
9. The MPS seller agrees to furnish the Client Plan with the most
recent available audited statement of its financial condition as well
as its most recent available unaudited statement, agrees to furnish
additional audited and unaudited statements of its financial condition
as they are issued and either: (a) Agrees that each repurchase
agreement transaction pursuant to the agreement shall constitute a
representation by the MPS seller that there has been no material
adverse change in its financial condition since
[[Page 2811]]
the date of the last statement furnished that has not been disclosed to
the Client Plan with whom such written agreement is made; or (b) prior
to each repurchase agreement transaction, the MPS seller represents
that, as of the time the transaction is negotiated, there has been no
material adverse change in its financial condition since the date of
the last statement furnished that has not been disclosed to the Client
Plan with whom such written agreement is made.
10. In the event of termination and sale as described in Section
III.H.9., the MPS seller pays to the Client Plan the amount of any
remaining obligations and expenses not covered by the sale of the
Securities or other instruments, plus interest at a reasonable rate.
11. If an MPS seller involved in a repurchase agreement covered by
this exemption fails to comply with any condition of this exemption in
the course of engaging in the repurchase agreement, the BlackRock
Manager who caused the plan to engage in such repurchase agreement
shall not be deemed to have caused the plan to engage in a transaction
prohibited by ERISA sections 406(a)(1)(A) through (D) or ERISA section
406(b), Code section 4975, or FERSA section 8477(c) solely by reason of
the MPS seller's failure to comply with the conditions of the
exemption.
12. In the event of any dispute between a BlackRock Manager and an
MPS seller involving a Covered Transaction under this Section III.H.,
the IM has the responsibility to decide whether, and if so how,
BlackRock is to pursue relief on behalf of the Client Plan(s) against
the MPS seller.
13. At time of entry into or renewal of each Covered Transaction
under this Section III.H., including both term repurchase transactions
and daily renewals for ``open'' or ``overnight'' transactions, either
(a) each Covered Transaction under this Section III.H., is as a result
of the Three Quote Process, or, (b) the BlackRock Manager determines
that the yield on the proposed transaction, or the renewal thereof, is
at least as favorable to the Client Plans as the yield of the Client
Plan on two (2) other available transactions which are comparable in
terms of size, collateral type, credit quality of the counterparty,
term and rate. The methodology employed for purposes of the comparison
in (b) above must (c) be approved in advance by the ECO Function and
(d), to the extent possible, refer to objective external data points,
such as the Eurodollar overnight time deposit bid rate, the rate for
repurchase agreements with U.S. government Securities, or rates for
commercial paper issuances or agency discount note issuances sourced
from Bloomberg, or another third party pricing service or market data
provider (which providers may use different terminology to refer to
these same external data points). The applicable BlackRock Manager must
record a description of the comparable transactions, if reliance is
placed upon same, and such data must be periodically reviewed by the
ECO Function. The procedures described in this Section III.H.13. must
be designed to ensure that BlackRock Managers determine to only enter
into Covered Transactions with MPS sellers which are in the interests
of Plan Clients, and such procedures must be reviewed and may be
commented on by the IM.
14. Neither the MPS Seller nor a member of the same MPS Group as
the MPS Seller has discretionary authority or control with respect to
the investment of Client Plan assets involved in a Covered Transaction
under this Section III.H; provided that, this condition will be deemed
met if a Client Plan meets the condition of Section II.A.2. by reason
of Section II.A.3. of this exemption.
15. The Client Plan is not an MPS Plan of the MPS with whom the
purchase or sale takes place, or an MPS Plan of another MPS member of
the same MPS Group as such MPS; provided that, this condition will be
deemed met if a Client Plan meets the condition of Section II.A.2. by
reason of Section II.A.3. of this exemption.
I. Responding to Tender Offers and Exchange Offers Solicited by an
MPS. Relief under Section I of this exemption is available for
participation by BlackRock Managers on behalf of Client Plans in tender
offers or exchange offers or similar transactions where an MPS acts as
agent for the entity (which entity may not be an MPS) making the offer,
provided that:
1. The Client Plan pays no fees to the MPS in connection with this
Covered Transaction;
2. The BlackRock Manager submits to the ECO in advance of
participation a written explanation of the reasons for such
participation; and
3. The ECO Function determines that the reasons for participation
by the BlackRock Manager in the Covered Transaction are appropriate
from the vantage point of the Client Plans, with such determination
affirmatively made in writing prior to the BlackRock Manager
participating in the Covered Transactions under this Section III.I.
J. Purchase in Underwritings of Securities Issued by an Entity
Which Is Not an MPS When the Proceeds Are Used To Repay a Debt to an
MPS. Relief under Section I of this exemption is available for the
purchase by BlackRock Managers of Securities in underwritings issued by
an entity which is not an MPS, but where the proceeds of the offering
are used to repay a debt owed to an MPS, and the payment of such
proceeds to the MPS, provided that the BlackRock Manager does not know
that the proceeds will be applied to the repayment of debt owed to an
MPS. If the BlackRock Manager does know that proceeds of the offering
will be applied to the repayment of debt owed to an MPS, the purchase
of the Securities and the payment of the proceeds to the MPS are exempt
under Section I of this exemption provided that no more than twenty
percent (20%) of the offering is purchased by BlackRock Managers for
Client Plans, and no more than fifty percent (50%) of the offering in
the aggregate is purchased by BlackRock, BlackRock Managers and other
BlackRock Entities for Client Plans, other clients of BlackRock
Managers, or as proprietary investments.
K. Bank Deposits and Commercial Paper. Relief under Section I of
this exemption is available for an investment by a BlackRock Manager of
Client Plan assets which involves the purchase or other acquisition,
holding, sale, exchange or redemption by or on behalf of a Client Plan
of certificates of deposit, time deposits or other bank deposits at an
MPS and/or placed by an MPS and/or sold to or purchased from an MPS, or
in commercial paper issued by an MPS or with respect to which an MPS
acts in some continuing capacity such as placement agent or
administrator and/or which is sold to or purchased from an MPS,
provided that:
1. With respect to bank deposits, either:
(a)(i) The bank is supervised by the United States or a State, and
at the outset of the Covered Transaction or renewal thereof of, such
bank has a credit rating in one of the top two (2) categories by at
least one of the Rating Organizations; and (ii) such deposit bears a
reasonable interest rate, or--
(b) The BlackRock Manager and the MPS comply with ERISA section
408(b)(4).
2. With respect to commercial paper:
(a) The Client Plan is not an MPS Plan of the MPS issuing the
commercial paper, provided that, this condition will be deemed to be
met if such a Client Plan meets the conditions of Section II.A.2. and
II.A.3. of this exemption;
(b) The commercial paper has a stated maturity date of nine (9)
months or less from the date of issue, exclusive of days of grace, or
is a renewal of an issue of
[[Page 2812]]
commercial paper the maturity of which is likewise limited;
(c) At the time it is acquired, the commercial paper is ranked in
one of the two (2) highest rating categories by at least one of the
Rating Organizations;
(d) If the seller or purchaser of the commercial paper is an MPS,
purchases and sales are made pursuant to the Three Quote Process,
provided that for purposes of this Section III.K.2., firm quotes on
comparable short-term money market instruments rated in the same
category may be used for purposes of the Three Quote Process; and
(e)(i) The Client Plan is not an MPS Plan of the MPS with whom the
purchase or sale takes place, or an MPS Plan of another MPS member of
the same MPS Group as such MPS; and (ii) the Client Plan is not an MPS
Plan of an MPS which is acting in a continuing capacity, or an MPS Plan
of another member of the same MPS Group as such MPS, provided that, the
conditions set forth in clauses (i) and (ii) of this Section
III.K.2.(e) will be deemed met if a Client Plan meets the condition of
Section II.A.2. by reason of Section II.A.3. of this exemption.
3. Neither the MPS involved in the Covered Transaction nor any
member of the same MPS Group as the MPS involved in the Covered
Transaction has discretionary authority or control with respect to the
investment of Client Plan assets involved in the Covered Transaction
under this Section III.K.; provided that, this condition will be deemed
met if a Client Plan meets the condition of Section II.A.2. by reason
of Section II.A.3. of this exemption.
4. For purposes of the Covered Transactions set forth in this
Section III.K. no BlackRock Entity shall be regarded as an affiliate of
an MPS bank at which a deposit is made of Client Plan assets, nor of an
MPS issuer of commercial paper in which a BlackRock Manager invests
Client Plan assets.
L. Securities Lending to an MPS.
1. Relief under Section I of this exemption is available for:
(a) The lending of Securities by a BlackRock Manager that are
assets of an Index Account or Fund or a Model-Driven Account or Fund to
an MPS which is a U.S. Broker-Dealer or a U.S. Bank provided that the
conditions set forth in Section III.L.2. are met;
(b) The lending of Securities by a BlackRock Manager that are
assets of an Index Account or Fund or a Model-Driven Account or Fund to
an MPS which is a Foreign Broker-Dealer or Foreign Bank; provided that,
the conditions set forth in Section III.L.2. and Section III.L.3. below
are met; and
(c) The payment to a BlackRock Manager of compensation for services
rendered in connection with loans of assets of an Index Account or Fund
or a Model-Driven Account or Fund that are Securities to an MPS;
provided that, the conditions set forth in Section III.L.4. below are
met.
2. General Conditions for Covered Transactions Described in
Sections III.L.1.(a) and (b).
(a) The length of a Securities loan to an MPS does not exceed one
year in term.
(b) Neither the MPS borrower nor any MPS which is a member of the
same MPS Group as the MPS borrower has or exercises discretionary
authority or control with respect to the investment of the Client Plan
assets involved in the transaction. This Section III.L.2.(b) shall be
deemed satisfied notwithstanding the investment of the assets of an MPS
Plan of the MPS which is the borrower under such Securities lending
transaction in a Pooled Fund as of the date of the Acquisition, which
Pooled Fund is a bank-maintained common or collective trust, provided
that such assets when aggregated with the assets of all other MPS Plans
of the same MPS Group as that of the MPS borrower and invested in such
Pooled Fund, at all times since the date of the Acquisition, constitute
less than ten percent (10%) of the assets of such Pooled Fund; provided
that, this Subsection III.L.2.(b) will be deemed met if a Client Plan
meets the condition of Section II.A.2. by reason of Section II.A.3. of
this exemption.\34\
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\34\ For this purpose, MPS plans of Barclays MPSs and PNC MPSs
are separately aggregated.
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(c) The Client Plan receives from the MPS borrower by the close of
the BlackRock Manager's business on the day in which the Securities
lent are delivered to the MPS,
(i) U.S. Collateral having, as of the close of business on the
preceding business day, a market value, or, in the case of bank letters
of credit, a stated amount, equal to not less than one hundred percent
(100%) of the then market value of the Securities lent; or
(ii) Foreign Collateral having as of the close of business on the
preceding business day, a market value, or, in the case of bank letters
of credit, a stated amount, equal to not less than:
(x) One hundred two percent (102%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in the same currency as the
Securities lent, or
(y) One hundred five percent (105%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in a different currency than
the Securities lent.
(d) Notwithstanding the foregoing, if the BlackRock Manager is a
U.S. Bank, a Registered Investment Advisor, or a U.S. Broker-Dealer,
and such BlackRock Manager indemnifies the Client Plan with respect to
the difference, if any, between the replacement cost of the borrowed
Securities and the market value of the collateral on the date of a
borrower default, the Client Plan receives from the MPS borrower by the
close of the BlackRock Manager's business on the day in which the
Securities lent are delivered to the borrower, Foreign Collateral
having as of the close of business on the preceding business day, a
market value, or, in the case of bank letters of credit, a stated
amount, equal to not less than:
(i) One hundred percent (100%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in the same currency as the
Securities lent; or
(ii) One hundred one percent (101%) of the then market value of the
Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System on which the Securities are primarily traded
if the collateral posted is denominated in a different currency than
the Securities lent and such currency is denominated in Euros, British
pounds, Japanese yen, Swiss francs or Canadian dollars; or
(iii) One hundred five percent (105%) of the then market value of
the Securities lent as valued on a Recognized Securities Exchange or an
Automated Trading System if the collateral posted is denominated in a
different currency than the Securities lent and such currency is other
than those specified above.
(e) (i) If the MPS borrower is a U.S. Bank or U.S. Broker-Dealer,
the Client Plan receives such U.S. Collateral or Foreign Collateral
from the MPS borrower by the close of the BlackRock Manager's business
on the day in which the Securities are delivered to the MPS borrower.
Such collateral is received by the Client Plan either by physical
delivery, wire transfer or by book entry in a Securities depository
located in the United States, or,
[[Page 2813]]
(ii) If the MPS borrower is a Foreign Bank or Foreign Broker-
Dealer, the Client Plan receives U.S. Collateral or Foreign Collateral
from the MPS borrower by the close of the BlackRock Manager's business
on the day in which the Securities are delivered to the borrower. Such
collateral is received by the Client Plan either by physical delivery,
wire transfer or by book entry in a Securities depository located in
the United States or held on behalf of the Client Plan at an Eligible
Securities Depository. The indicia of ownership of such collateral
shall be maintained in accordance with ERISA section 404(b) and 29 CFR
2550.404b-1.
(f) Prior to making of any such loan, the MPS borrower shall have
furnished the BlackRock Manager with:
(i) The most recent available audited statement of the MPS
borrower's financial condition, as audited by a United States certified
public accounting firm or in the case of an MPS borrower that is a
Foreign Broker-Dealer or Foreign Bank, a firm which is eligible or
authorized to issue audited financial statements in conformity with
accounting principles generally accepted in the primary jurisdiction
that governs the borrowing MPS Foreign Broker-Dealer or Foreign Bank;
(ii) The most recent available unaudited statement of its financial
condition (if the unaudited statement is more recent than such audited
financial statement); and
(iii) A representation that, at the time the loan is negotiated,
there has been no material adverse change in its financial condition
since the date of the most recent financial statement furnished to the
BlackRock Manager that has not been disclosed to the BlackRock Manager.
Such representations may be made by the MPS borrower's agreement that
each loan shall constitute a representation by the MPS borrower that
there has been no such material adverse change.
(g) The loan is made pursuant to a written loan agreement, the
terms of which are at least as favorable to the Client Plan as an
arm's-length transaction with an unrelated party would be. Such loan
agreement states that the Client Plan has a continuing security
interest in, title to, or the rights of secured creditor with respect
to the collateral. Such agreement may be in the form of a master
agreement covering a series of Securities lending transactions.
(h) The written loan agreement must be a standardized industry
form; provided, that, with the approval of the ECO on or about the date
of the Acquisition, written loan agreements with an MPS borrower that
were in effect as of the date of the Acquisition may continue to be
used until there is a material modification of the same, at which time
standardized industry forms must be adopted.
(i) In return for lending Securities, the Client Plan:
(i) Receives a reasonable fee (in connection with the Securities
lending transaction), and/or
(ii) Has the opportunity to derive compensation through the
investment of the currency collateral. Where the Client Plan has that
opportunity, the Client Plan may pay a loan rebate or similar fee to
the MPS borrower, if such fee is not greater than the Client Plan would
pay in a comparable transaction with an unrelated party.
(j) All fees and other consideration received by the Client Plan in
connection with the loan of Securities are reasonable. The identity of
the currency in which the payment of fees and rebates will be made is
set forth in either the written loan agreement or the loan confirmation
as agreed to by the MPS borrower and the BlackRock Manager prior to the
making of the loan.
(i) Pricing of a loan to an MPS borrower is based on (i) rates for
comparable loans of the same Security to non-MPS borrowers and (ii)
third-party market data:
(x) For loans of liquid Securities (sometimes referred to as
general collateral loans), an automatic system may be used to price
loans so long as the resulting rate the Client Plan receives from the
MPS borrower is at least as favorable to the Client Plan as the rate
the BlackRock Managers are receiving for Client Plans or other clients
from non-MPS borrowers of the same Security;
(y) For purposes of pricing loans of less liquid Securities
(sometimes referred to as ``special loans''), and for purposes of
determining whether to terminate or continue a loan which does not have
a set term, pricing may also be based on a BlackRock trader
determination that continuing the loan is in the interest of the Client
Plan based on all relevant factors, including price (provided that
price is within the range of prices of other loans of the same Security
to comparable non-MPS borrowers by BlackRock Managers for Client Plans
or other clients) and potential adverse consequences to the Client Plan
of terminating the loan, provided that the pricing data used in making
these decisions is retained and made available for possible review by
the ECO.
(ii) Automatic pricing mechanisms and pricing decisions by traders
are subject to ongoing periodic review by the ECO Function, and the
results of such review are included in reports by the ECO to the IM.
Specifically, the quarterly reports by the ECO to the IM must address
the lending patterns of illiquid Securities to the MPS borrowers from
all Client Plans, including the percentage that loans of such
Securities to the MPSs represent of all loans of such Securities from
all Client Plans.
(k) 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, dividends, interest payments, shares of
stock as a result of stock splits and rights to purchase additional
Securities;
(l) If the market value of the collateral at the close of trading
on a business day is less than the applicable percentage of the market
value of the borrowed Securities at the close of trading on that day
(as described in this Section III.L.2.(c) of this exemption), then the
MPS borrower shall deliver, by the close of business on the following
business day, an additional amount of U.S. Collateral or Foreign
Collateral the market value of which, together with the market value of
all previously delivered collateral, equals at least the applicable
percentage of the market value of all the borrowed Securities as of
such preceding day.
Notwithstanding the foregoing, part of the U.S. Collateral or
Foreign Collateral may be returned to the MPS borrower if the market
value of the collateral exceeds the applicable percentage (described in
this Section III.L.2.(c) of this exemption) of the market value of the
borrowed Securities, as long as the market value of the remaining U.S.
Collateral or Foreign Collateral equals at least the applicable
percentage of the market value of the borrowed Securities.
(m) The loan may be terminated by the Client Plan at any time,
whereupon the MPS borrower shall deliver certificates for 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 the lesser of:
(i) The customary delivery period for such Securities,
(ii) Five business days, or
(iii) The time negotiated for such delivery by the BlackRock
Manager for the Client Plan, and the borrower.
(n) In the event that the loan is terminated, and the MPS borrower
fails to return the borrowed Securities or the equivalent thereof
within the applicable time described in Section III.M.2.(m), the
BlackRock Manager for the Client
[[Page 2814]]
Plan may, under the terms of the loan agreement:
(i) Purchase Securities identical to the borrowed Securities (or
their equivalent as described above) and may apply the collateral to
the payment of the purchase price, any other obligations of the
borrower under the agreement, and any expenses associated with the sale
and/or purchase, and
(ii) The MPS borrower is obligated, under the terms of the loan
agreement, to pay, and does pay to the Client Plan the amount of any
remaining obligations and expenses not covered by the collateral,
including reasonable attorney's fees incurred by the Client Plan for
legal action arising out of default on the loans, plus interest at a
reasonable rate.
Notwithstanding the foregoing, the MPS borrower may, in the event
the MPS borrower fails to return borrowed Securities as described
above, replace collateral, other than U.S. currency, with an amount of
U.S. currency that is not less than the then current market value of
the collateral, provided such replacement is approved by the BlackRock
Manager.
(o) If the MPS borrower fails to comply with any provision of a
loan agreement which requires compliance with this exemption, the
BlackRock Manager who caused the Client Plan to engage in such
transaction shall not be deemed to have caused the Client Plan to
engage in a transaction prohibited by ERISA sections 406(a)(1)(A)
through (D) or ERISA section 406(b) or FERSA section 8477(c) solely by
reason of the borrower's failure to comply with the conditions of the
exemption.
(p) If the Securities being loaned to an MPS borrower are managed
in an Index Account or Fund, or a Model-Driven Account or Fund where
the Index or the Model are created or maintained by the MPS borrower,
the ECO Function periodically performs a review, no less frequently
than quarterly, of the use of such MPS-sponsored Index or Model, and
the Securities loaned from such an account or fund to the MPS, which
review is designed to enable a reasonable judgment as to whether the
use of such Index or Model, or any changes thereto, were for the
purpose of benefitting BlackRock or the MPS through the Securities
lending activity described in this Section III.L. If the ECO forms a
reasonable judgment that the use of such Index or Model, or any changes
thereto, were for the purpose of benefitting BlackRock or the MPS, the
ECO shall promptly inform the IM.
(q) In the event of any dispute between the BlackRock Manager on
behalf of a Client Plan and an MPS borrower involving a Covered
Transaction under this Section III.L., the IM shall decide whether, and
if so, how the BlackRock Manager is to pursue relief on behalf of the
Client Plan(s) against the MPS borrower.
(r) Sophistication of Authorizing Fiduciary. Only Client Plans with
total assets having an aggregate market value of at least $50 million
are permitted to lend Securities to an MPS except as provided in
clauses (1)-(3) below.
(1) Master Trusts. In the case of two or more Client Plans which
are maintained by the same employer, controlled group of corporations
or employee organization, 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, which entity is
engaged in Securities lending arrangements with a BlackRock Manager,
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) Single Authorizing Fiduciary for Multiple Unaffiliated Client
Plans. In the case of two or more Client Plans which are not maintained
by the same employer, controlled group of corporations or employee
organization, 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 29 CFR 2510.3-101, which entity is engaged in Securities
lending arrangements with such BlackRock Manager as securities lending
agent, 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:
(A) Has full investment responsibility with respect to 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; and
(3) Pooled Funds. In the case of two or more Client Plans invested
in a Pooled Fund, whether or not through an entity described in
paragraphs (r)(1) or (r)(2), the $50 million requirement shall be
deemed satisfied if 50 percent or more of the units of beneficial
interest in such Pooled Fund are held by investors each having total
net assets of at least $50 million. Such investors may include Client
Plans, entities described in paragraphs (r)(1) or (r)(2), or other
investors that are not employee benefit plans covered by section 406 of
ERISA, section 4975 of the Code, or section 8477 of FERSA.
In addition, none of the entities described in this Section
III.L.2.(r) are formed for the sole purpose of making loans of
Securities.
(s) With respect to any calendar quarter, at least 50 percent or
more of the outstanding dollar value of Securities loans negotiated on
behalf of Client Plans will be to borrowers unrelated to MPSs.
3. Specific Conditions for Transactions Described in Section
III.L.1.(b).
(a) The BlackRock Manager maintains the written documentation for
the loan agreement at a site within the jurisdiction of the courts of
the United States.
(b) Prior to entering into a transaction involving an MPS Foreign
Broker-Dealer that is described in Section VI.PP.(1) or (2) or an MPS
Foreign Bank that is described in Section VI.OO.(1) either:
(i) The MPS Foreign Broker-Dealer or Foreign Bank agrees to submit
to the jurisdiction of the United States; agrees to appoint an agent
for service of process in the United States, which may be an affiliate
(a Process Agent); consents to service of process on the Process Agent;
and agrees that any enforcement by a Client Plan of its rights under
the Securities lending agreement will, as the option of the Client
Plan, occur exclusively in the United States courts; or
(ii) The BlackRock Manager, if a U.S. Bank, a Registered Investment
Advisor, or U.S. Broker-Dealer, agrees to indemnify the Client Plan
with respect to the difference, if any, between the replacement cost of
the borrowed Securities and the market value of the collateral on the
date of an MPS
[[Page 2815]]
borrower default plus interest and any transaction costs incurred
(including attorney's fees of such Client Plan arising out of the
default on the loans or the failure to indemnify properly under this
provision) which the Client Plan may incur or suffer directly arising
out of a borrower default by the MPS Foreign Broker-Dealer or Foreign
Bank.
(c) In the case of a Securities lending transaction involving an
MPS Foreign Broker-Dealer that is described in Section VI.PP.(3) or an
MPS Foreign Bank that is described in Section VI.OO.(2), the BlackRock
Manager must be a U.S. Bank, a Registered Investment Advisor, or U.S.
Broker-Dealer, and prior to entering into the loan transaction, such
BlackRock Manager must agree to indemnify the Client Plan with respect
to the difference, if any, between the replacement cost of the borrowed
Securities and the market value of the collateral on the date of an MPS
borrower default plus interest and any transaction costs incurred
(including attorney's fees of such plan arising out of the default on
the loans or the failure to indemnify properly under this provision)
which the Client Plan may incur or suffer directly arising out of a
borrower default by the MPS Foreign Broker-Dealer or Foreign Bank.
4. Specific Conditions for Covered Transactions Described in
Section III.L.1.(c):
(a) The loan of Securities is not prohibited by section 406(a) of
ERISA or otherwise satisfies the conditions of this exemption.
(b) The BlackRock Manager is authorized to engage in Securities
lending transactions on behalf of the Client Plan.
(c) The compensation, the terms of which are at least as favorable
to the Client Plan as an arm's length transaction with an unrelated
party, is reasonable and is paid in accordance with the terms of a
written instrument, which may be in the form of a master agreement
covering a series of Securities lending transactions.
(d) Except as otherwise provided in Section III.L.4.(f), the
arrangement under which the compensation is paid:
(i) Is subject to the prior written authorization of a fiduciary of
a Client Plan (the authorizing fiduciary), who is (other than in the
case of an In-House Plan) independent of the BlackRock Manager,
provided that for purposes of this Section III.M.4.(d) a fiduciary of
an MPS Plan acting as the authorizing fiduciary shall be deemed
independent of the BlackRock Manager so long as such fiduciary, as of
the date of the authorization, is not a BlackRock Entity, and
(ii) May be terminated by the authorizing fiduciary within:
(x) The time negotiated for such notice of termination by the
Client Plan and the BlackRock Manager, or
(y) Five business days, whichever is less, in either case without
penalty to the Client Plan.
(e) No such authorization is made or renewed unless the BlackRock
Manager shall have furnished the authorizing fiduciary with any
reasonably available information which the BlackRock Manager reasonably
believes to be necessary to determine whether such authorization should
be made or renewed, and any other reasonably available information
regarding the matter that the authorizing fiduciary may reasonably
request.
(f) Special Rule for Commingled Investment Funds. In the case of a
pooled separate account maintained by an insurance company qualified to
do business in a State or a common or collective trust fund maintained
by a bank or trust company supervised by a State or Federal agency, the
requirements of Section III.L.4.(d) of this exemption shall not apply,
provided that:
(i) The information described in Section III.L.4.(e) (including
information with respect to any material change in the arrangement)
shall be furnished by the BlackRock Manager to the authorizing
fiduciary described in Section III.L.4.(d) with respect to each Client
Plan whose assets are invested in the account or fund, not less than 30
days prior to implementation of the arrangement or material change
thereto, and, where requested, upon the reasonable request of the
authorizing fiduciary;
(ii) In the event any such authorizing fiduciary submits a notice
in writing to the BlackRock Manager objecting to the implementation of,
material change in, or continuation of the arrangement, the Client Plan
on whose behalf the objection was tendered is given the opportunity to
terminate its investment in the account or fund, without penalty to the
Client Plan, within such time as may be necessary to effect such
withdrawal in an orderly manner that is equitable to all withdrawing
plans and to the non-withdrawing plans. In the case of a Client Plan
that elects to withdraw pursuant to the foregoing, such withdrawal
shall be effected prior to the implementation of, or material change
in, the arrangement; but an existing arrangement need not be
discontinued by reason of a Client Plan electing to withdraw; and
(iii) In the case of a Client Plan whose assets are proposed to be
invested in the account or fund subsequent to the implementation of the
compensation arrangement and which has not authorized the arrangement
in the manner described in Sections III.L.4.(f)(i) and (ii), the Client
Plan's investment in the account or fund shall be authorized in the
manner described in Section III.L.4.(d)(i).
M. To-Be-Announced Trades (TBAs) of GNMA, FHLMC, FarmerMac or FNMA
Mortgage-Backed Securities with an MPS Counterparty. Relief under
Section I of this exemption is available for trades (purchases and
sales) on a principal basis of mortgage-backed Securities issued by
FHLMC, FNMA, FarmerMac or guaranteed by GNMA and meeting the definition
of ``guaranteed governmental mortgage pool certificate'' in 29 CFR
2510.3-101(i) with an MPS on a TBA basis, including, when applicable,
delivery of the underlying Securities to a Client Plan, provided that:
1. The Covered Transactions under this Section III.M. are a result
of the Three Quote Process; provided that, solely for purposes of this
Section III.M.1., firm quotes under the Three Quote Process may be
obtained on ``comparable Securities,'' as described below, when firm
quotes with respect to the applicable TBA transactions are not
reasonably obtainable;
2. With regard to purchases of FHLMC, FarmerMac and FNMA mortgage-
backed Securities on a TBA basis, (i) the BlackRock Manager makes a
determination that such Securities are of substantially similar credit
quality as GNMA guaranteed governmental mortgage pool certificates,
(ii) the ECO (in regular consultation with and under the supervision of
the IM) monitors the credit spread between GNMA and FHLMC/FNMA/
FarmerMac mortgage-backed Securities, and (iii) each of the ECO and the
IM (independently) has the authority and responsibility to determine
whether purchases of FHLMC, FarmerMac and/or FNMA mortgage-backed
Securities on a TBA basis should not be permitted due to such credit
spread, and such authority and responsibility is reflected in the EPPs;
and
3. With regard to possible delivery of underlying Securities to
Client Plans, as opposed to cash settlement, the ECO Function approves
any such delivery in advance.
For purposes of Section III.M.1., ``comparable Securities'' are
Securities that: (a) Are issued and/or guaranteed by the same agency,
(b) have the same coupon, (c) have a principal amount at least equal to
but no more than two percent (2%) greater than the Security
[[Page 2816]]
purchased or sold, (d) are of the same program or class, and (e) either
(i) have an aggregate weighted average monthly maturity within a 12-
month variance of the Security purchased or sold, but in no case can
the variance be more than ten percent (10%) of such aggregate weighted
average maturity of the Securities purchased or sold, or (ii) meet some
other comparable objective standard containing a range of variance that
is no greater than that described in (i) above and that assures that
the aging of the Securities is properly taken into account.
N. Foreign Exchange Transactions with an MPS Counterparty. Relief
under Section I of this exemption is available for a Foreign Exchange
Transaction by a BlackRock Manager on behalf of Client Plans with an
MPS as counterparty provided that:
1. (a) The Foreign Exchange Transaction is as a result of the Three
Quote Process; or (b) if the total net amount of the Foreign Exchange
Transaction on behalf of Client Plans by BlackRock Managers is greater
than $1 million, the exchange rate is within 0.5% above or below the
Interbank Rate as represented to the BlackRock Managers by the MPS;
2. The Foreign Exchange Transactions with an MPS counterparty only
involve currencies of countries that are classified as ``developed'' or
``emerging'' markets by a third party Index provider that divides
national economies into ``developed,'' ``emerging'' and ``frontier''
markets. The Index provider shall be selected by BlackRock, provided,
however, the IM shall have the right to reject the Index provider in
its sole discretion at any time; and
3. Each Foreign Exchange Transaction complying with Section
III.N.1.(b) must be set forth in the applicable quarterly reports of
the ECO to the IM.
O. Agency Execution of Equity and Fixed Income Securities Trades
and Related Clearing as Described in PTE 86-128, Including Agency Cross
Trades, When the Broker is an MPS. Relief under Section I of this
exemption is available for transactions in Securities described in
Section II of Prohibited Transaction Exemption 86-128, as amended \35\
(PTE 86-128), as if BlackRock Managers and MPS broker-dealers were
``affiliates'' as defined in Section I.(b) of PTE 86-128, provided the
following conditions are satisfied:
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\35\ 51 FR 41686 (Nov. 18, 1986), as amended, 67 FR 64137 (Oct.
17, 2002).
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1. The MPS is selected to perform Securities brokerage services for
Client Plans pursuant to the normal brokerage placement practices,
policies and procedures of the BlackRock Manager designed to ensure
best execution.
2. The conditions of PTE 86-128 set forth in the following sections
of that exemption must be complied with: Section III(e); Section
III(f); Section III(g)(2); and Section III(h); provided, however, that,
for purposes of Section III(e), Section III(f) and Section III(g)(2) of
PTE 86-128, the ECO Function is the ``authorizing fiduciary'' referred
to therein; and the ECO has the authority to terminate the use of the
MPS as broker-dealer without penalty to Client Plans at any time; and
provided further that the first sentence of Section III(h) of PTE 86-
128 is amended for purposes of this Section III.O.2. to provide as
follows: ``A trustee (other than a nondiscretionary trustee) may only
engage in a covered transaction with a plan that has total net assets
with a value of at least $50 million and in the case of a Pooled Fund,
the $50 million requirement will be met if fifty percent (50%) or more
of the units of beneficial interest in such Pooled Fund are held by
investors having total net assets with a value of at least $50
million.''
3. With respect to agency cross transactions described in Section
III(g) of PTE 86-128 that are being effected or executed by an MPS
broker, (i) neither the MPS broker effecting or executing the agency
cross transaction nor any member of the same MPS Group as the MPS
broker effecting or executing the agency cross transaction may have
discretionary authority to act on behalf of, and/or provide investment
advice to another party to the agency cross transaction which is a
seller when the Client Plan is a buyer, or which is a buyer, when the
Client Plan is a seller (Another Party), and (ii), neither the
BlackRock Manager nor the trader for the BlackRock Manager instituting
the transaction for the Client Plan may have knowledge that a BlackRock
Entity has discretionary authority and/or provides investment advice to
Another Party to the agency cross transaction.
4. The exceptions in Sections IV(a), (b), and (c) of PTE 86-128 are
applicable to this exemption.
P. Use by BlackRock Managers of Exchanges and Automated Trading
Systems on Behalf of Client Plans. Relief under Section I of this
exemption is available for the direct or indirect use by, or directing
of trades to, U.S. and non-U.S. exchanges or U.S. Automated Trading
Systems (ATS) in which one or more MPSs have an ownership interest by
BlackRock Managers for Client Plans, if either:
1. No one MPS (together with other members of the same MPS Group)
has (i) a greater than ten percent (10%) ownership interest in the
exchange or ATS or (ii) the BlackRock Managers do not know the level of
such ownership interest; or
2. If a BlackRock Manager knows that an MPS (together with other
members of the same MPS Group) has an ownership interest that is
greater than ten percent (10%) but not greater than twenty percent
(20%) in the exchange or ATS,
(a) The ECO makes a determination, summarized in the ECO quarterly
report, that there is no reason for a BlackRock Manager or all
BlackRock Managers to discontinue such direct or indirect use of or the
directing of trades to any such exchange or ATS on the basis that the
amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries,
and does not make a determination that a BlackRock Manager or all
BlackRock Managers must discontinue such direct or indirect use of or
the directing of trades to any such exchange or ATS on the basis that
the amount of use or the volume of trades is unwarranted or not in the
interests of the Client Plans and their participants and beneficiaries.
The IM may request any additional information relating to any such
determination summarized in the ECO quarterly report and may, after
consultation with the ECO, make a determination that a BlackRock
Manager or all BlackRock Managers must discontinue such direct or
indirect use of or the directing of trades to any such exchange or ATS
on the basis that the amount of use or the volume of trades is
unwarranted or not in the interests of the Client Plans and their
participants and beneficiaries;
(b) The price and compensation associated with any purchases or
sales utilizing such exchange or ATS are not greater than the price and
compensation associated with an arm's length transaction with an
unrelated party; and
(c) All such exchanges and ATSs shall be situated within the
jurisdiction of the U.S. District Courts and regulated by a U.S.
Federal regulatory body or a U.S. federally approved self-regulatory
body, provided that this condition shall not apply to the direct or
indirect use of or the directing of trades to an exchange in a country
other than the United States which is regulated by a government
regulator or a government approved self-regulatory body in such country
and which involves trading in Securities (including the lending of
Securities) or futures contracts.
Q. Purchases in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Index
[[Page 2817]]
Account or Fund, or a Model-Driven Account or Fund. Relief under
Section I of this exemption is available for the purchase in the
secondary market of common or preferred stock issued by an MPS by
BlackRock Managers for Client Plans invested in an Index Account or
Fund, or a Model-Driven Account or Fund provided that:
1. Such purchase is for the sole purpose of maintaining
quantitative conformity with the weight of such Securities prescribed
by the relevant Index, for Index Accounts or Funds, or the weight of
such Securities prescribed by the relevant Model, for Model-Driven
Accounts or Funds, and such purchase is reasonably calculated not to
exceed the purchase amount necessary for such Model or quantitative
conformity by more than a de minimis amount.
2. Such purchase is not made from the issuing MPS.
3. Notwithstanding Section III.Q.2., BlackRock Managers may rely on
other exemptive relief when acquiring stock of an MPS for Client Plans
through an MPS broker, including the issuing MPS.
R. Purchase in the Secondary Market of Common and Preferred Stock
Issued by an MPS by BlackRock Managers for Client Plans Invested in an
Other Account or Fund. Relief under Section I of this exemption is
available for the purchase in the secondary market of common or
preferred stock issued by an MPS by BlackRock Managers for Client Plans
invested in an Other Account or Fund provided that:
1. Such purchase is not made from the issuing MPS.
2. Notwithstanding Section III.R.1., BlackRock Managers may rely on
other exemptive relief when acquiring stock of an MPS for Client Plans
under this Section III.R. through an MPS broker, including the issuing
MPS.
3. As a consequence of a purchase of MPS stock, the class of stock
purchased does not constitute more than five percent (5%) of the Other
Account or Fund. In the case of a Pooled Fund, the class of stock
purchased and attributed to each Client Plan does not exceed five
percent (5%) of such Client Plan's proportionate interest in the Pooled
Fund.
4. Aggregate daily purchases of a class of MPS stock for Client
Plans do not exceed the greater of (i) fifteen percent (15%) of the
aggregate average daily trading volume (ADTV) for the previous ten (10)
trading days, or (ii) fifteen percent (15%) of trading volume on the
date of the purchase. These volume limitations must be met on a
portfolio manager by portfolio manager basis unless purchases are
coordinated among portfolio managers, in which case the limitations are
applied to the coordinated purchase.\36\ Any coordinated purchases of
the same class of MPS stock in the secondary market for Index Accounts
or Funds or for Model-Driven Accounts or Funds must be taken into
account when applying these ADTV limitations on purchases for an Other
Account or Fund; provided, however, if coordinated purchases for Index
Accounts or Funds, or for Model-Driven Accounts or Funds, would cause
the fifteen percent (15%) limitation to be exceeded, BlackRock Managers
can nonetheless acquire for Other Accounts or Funds up to the greater
of five percent (5%) of ADTV for the previous ten (10) trading days or
five percent (5%) of trading volume on the day of the Covered
Transaction. For purposes of this Section III.R.4., cross trades of MPS
equity Securities which comply with an applicable statutory or
administrative prohibited transaction exemption are not taken into
account.
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\36\ For example, if two or more portfolio managers send their
purchase orders to the same trading desk and the traders on that
trading desk coordinate the purchases of the same MPS equity
Securities, the limitations apply to the trading desk; if two or
more portfolio managers or two or more trading desks are
coordinating purchases of MPS equity Securities, the limitations are
applied across the group of portfolio managers or traders who are
coordinating the purchase orders.
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5. The ECO Function monitors the volume limits on purchases of MPS
stock described in Section III.R.4. and provides a monthly report to
the IM with respect to such purchases and limits. The IM shall impose
lower volume limitations and take other appropriate action with respect
to such purchases if the IM determines on the basis of these reports by
the ECO and publicly available information materially related to the
trading of the Securities of an MPS on its primary listing exchange (or
market) that the purchases described have a material positive impact on
the market price for such Securities.
S. Purchases, Sales and Holdings by BlackRock Managers for Client
Plans of Commercial Paper Issued by ABCP Conduits, When an MPS Has One
or More Roles. Relief under Section I of this exemption is available
for the purchase and sale, including purchases from or sales to an MPS,
and the holding by BlackRock Managers acting on behalf of Client Plans
of commercial paper issued by an ABCP Conduit with respect to which an
MPS acts as seller, placement agent, and/or in some continuing capacity
such as program administrator, provider of liquidity or provider of
credit support, provided that:
1. (a) The Client Plan is not an MPS Plan of the MPS with whom the
purchase or sale takes place, or an MPS Plan of another MPS member of
the same MPS Group as such MPS; and (b) the Client Plan is not an MPS
Plan of an MPS which is acting in a continuing capacity, or an MPS Plan
of another MPS member of the same MPS Group as such MPS; provided that,
the conditions set forth in clauses (a) and (b) of this Section
III.S.1. will be deemed met if a Client Plan meets the condition of
Section II.A.2. by reason of Section II.A.3. of this exemption;
2. Neither the MPS involved in the Covered Transaction nor any
member of the same MPS Group as the MPS involved in such Covered
Transaction has discretionary authority or control with respect to
Client Plan assets involved in the Covered Transaction under this
Section III.S.; provided that, this condition will be deemed met if a
Client Plan meets the condition of Section II.A.2. by reason of Section
II.A.3. of this exemption;
3. The commercial paper has a stated maturity date of nine months
or less from the date of issue, exclusive of days of grace, or is a
renewal of an issue of commercial paper the maturity of which is
likewise limited;
4. At the time it is acquired, the commercial paper is ranked in
the highest rating category by at least one of the Rating
Organizations;
5. If the seller or purchaser of the ABCP commercial paper is an
MPS, purchases and sales are made pursuant to the Three Quote Process,
provided that, for purposes of this Section III.S.5., firm quotes on
comparable short-term money market instruments rated in the same
category may be used for purposes of the Three Quote Process; and
6. If an MPS performs a continuing role and there is a default, the
taking or refraining from taking of any action by the responsible
BlackRock Manager which could have a material positive or negative
effect upon the MPS is decided upon by the IM.
No BlackRock Entity is to be regarded as an affiliate of any MPS
for purposes of the Covered Transactions set forth in this Section
III.S.
T. Purchase, Holding and Disposition by BlackRock Managers for
Client Plans of Shares of Exchange-Traded Open-End Investment Companies
Registered Under the 1940 Act (ETF) Managed by BlackRock Managers.
Relief under Section I of this exemption is available for the purchase,
holding and disposition by BlackRock Managers for Client Plans of
shares of an ETF managed by a BlackRock Manager provided that:
[[Page 2818]]
1. The BlackRock Manager purchases such ETF shares from or through
a person other than an MPS or a BlackRock Entity; and
2. No purchase is exempt under Section I of this exemption if the
BlackRock Manager portfolio manager acting for the Client Plan knows or
should know that the shares to be acquired for Client Plans are
Creation Shares, or that the purchase for Client Plans will result in
new Creation Shares.
U. Purchase, Holding and/or Disposition of BlackRock Equity
Securities in the Secondary Market by BlackRock Managers for an Index
Account or Fund, or a Model-Driven Account or Fund, Including Buy-
Ups.\37\ Relief under Section I of this exemption is available for the
purchase, holding and disposition of common or preferred stock issued
by BlackRock in the secondary market by BlackRock Managers for Client
Plans in an Index Account or Fund, or in a Model-Driven Account or Fund
provided that:
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\37\ BlackRock requested such relief for the avoidance of any
issue about the necessity for such relief in particular
circumstances; the Department is not opining on the need for such
relief herein.
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1. The acquisition, holding and disposition of the BlackRock
Securities is for the sole purpose of maintaining quantitative
conformity with the weight of such Securities prescribed by the
relevant Index, for Index Accounts or Funds, or the weight of such
Securities prescribed by the relevant Model, for Model-Driven Accounts
or Funds, and such purchase is reasonably calculated not to exceed the
purchase amount necessary for such Model or quantitative conformity by
more than a de minimis amount.
2. Any acquisition of BlackRock Securities does not involve any
agreement, arrangement or understanding regarding the design or
operation of the account or fund acquiring the BlackRock Securities
which is intended to benefit BlackRock or any party in which BlackRock
may have an interest.
3. With respect to an acquisition of BlackRock Securities by such
an account or fund which constitutes a Buy-Up.
(a) The acquisition is made on a single trading day from or through
one broker-dealer, which broker-dealer is not an MPS or a BlackRock
Entity; provided, however, that if the volume limitation in Section
III.U.3.(d) below cannot be satisfied in a single trading day, the
acquisition will be completed in as few trading days as possible in
compliance with such volume limitation and such trades will be reviewed
by the ECO and reported to the IM;
(b) Based upon the best available information, the acquisition is
not the opening transaction of a trading day and is not made in the
last half hour before the close of the trading day;
(c) The price paid by the BlackRock Manager is not higher than the
lowest current independent offer quotation, determined on the basis of
reasonable inquiry from broker-dealers who are not MPSs or BlackRock
Entities;
(d) Aggregate daily purchases do not exceed fifteen percent (15%)
of aggregate average daily trading volume for the Security, as
determined by the greater of (i) the trading volume for the Security
occurring on the applicable Recognized Securities Exchange and/or
Automated Trading System on the date of the transactions, or (ii) the
aggregate average daily trading volume for the Security occurring on
the applicable Recognized Securities Exchange and/or Automated Trading
System for the previous ten (10) trading days, both based on the best
information reasonably available at the time of the transaction. These
volume limitations are applied on a portfolio manager by portfolio
manager basis unless purchases of BlackRock Securities are coordinated
by the portfolio managers or trading desks, in which case the
limitations are aggregated for the coordinating portfolio managers or
trading desks. Provided further, if BlackRock, without Client Plan
direction or consent, initiates a new Index Account or Fund or Model-
Driven Account or Fund on its own accord, with BlackRock Securities
included therein, the volume restrictions for such new account or fund
shall be determined by aggregating all portfolio managers purchasing
for such new account of fund. Cross trades of BlackRock Securities
which comply with an applicable statutory or administrative prohibited
transaction exemption are not included in the amount of aggregate daily
purchases to which the limitations of this Section III.U. apply;
(e) All purchases and sales of BlackRock Securities occur either
(i) on a Recognized Securities Exchange, (ii) through an Automated
Trading System operated by a broker-dealer that is not a BlackRock
Entity and is either registered under the 1934 Act, and thereby subject
to regulation by the Securities and Exchange Commission, or subject to
regulation and supervision by the Securities and Futures Authority of
the UK or another applicable regulatory authority, 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 that is operated by a Recognized Securities
Exchange, 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
(f) The ECO designs acquisition procedures for BlackRock Managers
to follow in Buy-Ups, which the IM approves in advance of the
commencement of any Buy-Up, and the ECO Function monitors BlackRock
Manager's compliance with such procedures.
V. Acquisition by BlackRock Managers of Financial Guarantees,
Indemnities and Similar Protections for Client Plans from MPSs. Relief
under Section I of this exemption is available for the provision by an
MPS of a financial guarantee, indemnification arrangement or similar
instrument or arrangement providing protection to a Client Plan against
possible losses or risks provided that:
1. The terms of the arrangement (including the identity of the
provider) are approved by a fiduciary of the Client Plan which is
independent of the MPS providing such protection and of BlackRock;
2. The compensation owed the MPS under the arrangement is paid by a
BlackRock Entity and not paid out of the assets of the Client Plan;
3. In the event a Client Plan or the ECO concludes an event has
occurred which should trigger the obligations of the MPS under the
arrangement, and the MPS disagrees to any material extent, the IM
determines the steps the BlackRock Manager must take to protect the
interests of the Client Plan; and
4. The MPS providing the arrangement is capable of being sued in
United States courts, has contractually agreed to be subject to
litigation in the United States with respect to any matter relating to
this Section III.V., and has sufficient assets in the United States to
honor its commitments under the arrangement.
W. Purchase of a Portion or All of a Loan to an Entity Which is not
an MPS and is not a BlackRock Entity from an MPS or Other Arranger and
the Holding thereof by BlackRock Managers Where an MPS is an Arranger,
and/or an MPS has an Ongoing Function Regarding Such Loan. Relief under
Section I of this exemption is available for the purchase from an MPS
or other Arranger by BlackRock Managers on behalf of Client Plans of
all or a portion of a Loan and the holding thereof, where an MPS is an
[[Page 2819]]
Arranger and/or an MPS has an ongoing function in relation to the Loan,
provided that:
1. The BlackRock Manager obtains an assignment of the Loan or
portion thereof on behalf of the Client Plan, which assignment provides
for the Client Plan to become the lender of record, and the transfer of
title, voting rights and all other applicable rights to such Client
Plan (the Loan or the portion thereof, an ``Assigned Loan'');
2. The borrower under the Assigned Loan is not an MPS or a
BlackRock Entity; \38\
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\38\ Proceeds of the Assigned Loan may be used by the relevant
borrower to repay a debt owed to an MPS, provided that the
conditions set forth in Section III.J. of this exemption are
satisfied (for these purposes and for purposes of such conditions
the Assigned Loan shall be deemed to be a Security).
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3. The Assigned Loan is purchased prior to the end of the first day
on which any sales are made pursuant to that offering, at a price that
is not more than the price paid by each other purchaser of Assigned
Loans in that offering or in any concurrent offering of the Assigned
Loans, except that Assigned Loans may be purchased at a price that is
not more than the price paid by each other purchaser of the Assigned
Loans in that offering or in any concurrent offering of the Assigned
Loans and may be purchased on a day subsequent to the end of the first
day on which any sales are made, pursuant to that offering, provided
that the interest rates, as of the date of such purchase, on comparable
Assigned Loans offered subsequent to the end of the first day on which
any sales are made and prior to the purchase date are less than the
interest rate of the Assigned Loans being purchased;
4. The Assigned Loan is offered pursuant to a selling agreement or
arrangement under which the Arrangers are committed to make the full
amount of the loan commitment to the borrower;
5. The borrower under the Assigned Loan to be purchased pursuant to
this exemption must have been in continuous operation for not less than
three (3) years, including the operation of any predecessors, unless:
(a) The Assigned Loan has a Facility Rating in one of the four
highest rating categories by a Rating Organization; provided that none
of the Rating Organizations provides a Facility Rating in a category
lower than the fourth highest rating category with respect to the
Assigned Loan; provided further that if the Assigned Loan lacks a
Facility Rating, the Assigned Loan shall have a Borrower Rating that
meets the ratings standards set forth in this subsection; or
(b) The Assigned Loan is fully guaranteed by a guarantor that has
been in continuous operation for not less than three (3) years,
including the operation of any predecessors, provided that such
guarantor has issued Securities registered under the 1933 Act; or if
such guarantor has issued Securities which are exempt from such
registration requirement, such guarantor has been in continuous
operation for not less than three (3) years, including the operation of
any predecessors, and such guarantor is:
(i) A bank,
(ii) An issuer of Securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(iii) An issuer of Securities that are the subject of a
distribution and are of a class which is required to be registered
under Section 12 of the 1934 Act, and are issued by an issuer that has
been subject to the reporting requirements of Section 13 of the 1934
Act for a period of at least ninety (90) days immediately preceding the
sale of such Loans and that has filed all reports required to be filed
hereunder with the SEC during the preceding twelve (12) months.
6. The aggregate amount of an Assigned Loan being purchased in a
Loan Offering pursuant to this exemption by the BlackRock Manager with:
(i) The assets of all Client Plans; and (ii) the assets, calculated on
a pro rata basis, of all Client Plans investing in Pooled Funds managed
by the BlackRock Manager; and (iii) the assets of plans to which the
BlackRock Manager renders investment advice within the meaning of 29
CFR 2510.3-21(c) does not exceed:
(a) Thirty five percent (35%) of the total amount of the Assigned
Loan being purchased in the Loan Offering, if the Facility Rating of
such Assigned Loan is, or, if such Assigned Loan does not have a
Facility Rating, the borrower thereunder has a Borrower Rating, in one
of the four highest rating categories by at least one of the Rating
Organizations; provided that none of the Rating Organizations provides
a Facility Rating for such Assigned Loan or, if such Assigned Loan does
not have a Facility Rating, a Borrower Rating, in a category lower than
the fourth highest rating category; or
(b) Twenty five percent (25%) of the total amount of the Assigned
Loan being purchased in the Loan Offering, if the Facility Rating of
such Assigned Loan is, or, if such Assigned Loan does not have a
Facility Rating, the borrower thereunder has a Borrower Rating, in the
fifth or sixth highest rating categories by at least one of the Rating
Organizations; provided that none of the Rating Organizations provides
a Facility Rating for such Assigned Loan or, if such Assigned Loan does
not have a Facility Rating, a Borrower Rating, in a category lower than
the sixth highest rating category; and provided that
(c) The assets of any single Client Plan (and the assets of any
Client Plans investing in Pooled Funds) may not be used to purchase any
Assigned Loan if the Facility Rating of such Assigned Loan is, or, if
such Assigned Loan does not have a Facility Rating, the borrower
thereunder has a Borrower Rating that is lower than the sixth highest
rating category by any of the Rating Organizations.
7. Notwithstanding the percentage of a Loan Offering permitted to
be acquired, as set forth in Subsections 6(a) or (b) of this Section
III.W., the amount of Assigned Loans in a Loan Offering purchased
pursuant to this exemption by the BlackRock Manager on behalf of any
single Client Plan, either individually or through investment,
calculated on a pro rata basis, in a Pooled Fund may not exceed three
percent (3%) of the total amount of such Assigned Loans being offered
in such Loan Offering, provided that a Sub-Advised Pooled Fund as a
whole may purchase up to three percent (3%) of a Loan Offering.
8. The aggregate amount to be paid by any single Client Plan in
purchasing any Assigned Loans which are the subject of this exemption,
including any amounts paid by any Client Plan in purchasing such
Assigned Loans through a Pooled Fund, calculated on a pro rata basis,
does not exceed three percent (3%) of the fair market value of the net
assets of such Client Plan, as of the last day of the most recent
fiscal quarter of such Client Plan prior to such transaction, provided
that a Sub-Advised Pooled Fund as a whole may pay up to one percent
(1%) of fair market value of its net assets in purchasing such Assigned
Loans.
9. The BlackRock Manager has an opportunity to review the material
terms of the Assigned Loan prior to agreeing to acquire the Assigned
Loan, as well as review information which information may be obtained
from one or more web-based sites (e.g., Intralinks) maintained for
potential investors and lenders for this purpose. Information available
to be reviewed shall include information regarding the borrower and
draft loan documents (e.g., credit agreement, confidential information
statement).
10. The Covered Transactions in this Section III.W. are not part of
an agreement, arrangement, or understanding designed to benefit any
BlackRock Entity or MPS.
[[Page 2820]]
11. Each Client Plan engaging in Covered Transactions pursuant to
this Section III.W. shall have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan (the $100 Million Net Asset Requirement).
For purposes of a Pooled Fund engaging in the purchase of an
Assigned Loan which is the subject of this exemption, each Client Plan
in such Pooled Fund other than a Sub-Advised Pooled Fund shall have
total net assets of at least $100 million in Securities of issuers that
are not affiliated with such Client Plan. Notwithstanding the
foregoing, if each Client Plan in such Pooled Fund other than a Sub-
Advised Pooled Fund does not have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan, the $100 Million Net Asset Requirement will be met if 50
percent (50%) or more of the units of beneficial interest in such
Pooled Fund are held by investors, each of which have total net assets
of at least $100 million in Securities of issuers that are not
affiliated with such investor, and the Pooled Fund itself qualifies as
a QIB.
For purposes of the net asset requirements described in this
Section III.W., where a group of Client Plans is maintained by a single
employer or controlled group of employers, as defined in ERISA section
407(d)(7), the $100 Million Net Asset Requirement may be met by
aggregating the assets of such Client Plans, if the assets of such
Client Plans are pooled for investment purposes in a single master
trust.
12. No more than twenty percent (20%) of the assets of a Pooled
Fund, at the time of a Covered Transaction, are comprised of assets of
In-House Plans for which the BlackRock Manager, or a BlackRock Entity
exercises investment discretion.
13. The BlackRock Manager must be a QPAM, and, in addition to
satisfying the requirements for a QPAM under section VI(a) of PTE 84-
14, the BlackRock Manager must also have total client assets under its
management and control in excess of $5 billion, as of the last day of
its most recent fiscal year and shareholders' or partners' equity in
excess of $1 million.
14. The conditions of Subsections IV.A.11. and 12. are satisfied
with respect to the Covered Transactions described in this Section
III.W.
15. With respect to any Assigned Loan under which an MPS has an
ongoing function, such as an administrative agent or collateral agent,
the taking of or refraining from taking of any action by the
responsible BlackRock Manager which could have a material positive or
negative effect upon the MPS is decided upon by the IM.
Section IV: Affiliated Underwritings and Affilliated Servicing
A. Affiliated Underwritings
1. The Securities to be purchased are either:
(a) Part of an issue registered under the 1933 Act, or, if
Securities to be purchased are part of an issue that is exempt from
such registration requirement, such Securities:
(i) Are issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(ii) Are issued by a bank,
(iii) Are exempt from such registration requirement pursuant to a
Federal statute other than the 1933 Act, or
(iv) Are the subject of a distribution and are of a class which is
required to be registered under section 12 of the 1934 Act, and are
issued by an issuer that has been subject to the reporting requirements
of section 13 of the 1934 Act for a period of at least ninety (90) days
immediately preceding the sale of such Securities and that has filed
all reports required to be filed thereunder with the SEC during the
preceding twelve (12) months; or
(b) Part of an issue that is an Eligible Rule 144A Offering. Where
the Eligible Rule 144A Offering of the Securities is of equity
Securities, the offering syndicate shall obtain a legal opinion
regarding the adequacy of the disclosure in the offering memorandum; or
(c) Municipal bonds taxable by the United States, including Build
America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Build America Bonds which
provide a tax credit to investors.
2. The Securities to be purchased are purchased prior to the end of
the first day on which any sales are made, pursuant to that offering,
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities, except that:
(a) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(b) If such Securities are debt Securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt Securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased; and
3. The Securities to be purchased are offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if:
(a) Such Securities are purchased by others pursuant to a rights
offering; or
(b) Such Securities are offered pursuant to an over-allotment
option.
4. The issuer of the Securities to be purchased pursuant to this
exemption must have been in continuous operation for not less than
three (3) years, including the operation of any predecessors, unless
the Securities to be purchased:
(a) Are non-convertible debt Securities rated in one of the four
highest rating categories by a Rating Organization; provided that none
of the Rating Organizations rates such Securities in a category lower
than the fourth highest rating category; or
(b)(i) Are debt Securities issued or fully guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States; or
(ii) Are municipal bonds taxable by the United States, including
Build America Bonds created under section 54AA of the Code or successor
thereto, under which the United States pays a subsidy to the state or
local government issuer, but not including Build America Bonds which
provide a tax credit to investors; or
(c) Are debt Securities which are fully guaranteed by a guarantor
that has been in continuous operation for not less than three (3)
years, including the operation of any predecessors, provided that such
guarantor has issued other Securities registered under the 1933 Act; or
if such guarantor has issued other Securities which are exempt from
such registration requirement, such guarantor has been in continuous
operation for not less than three (3) years, including the operation of
any predecessors, and such guarantor is:
(i) A bank;
[[Page 2821]]
(ii) An issuer of Securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(iii) An issuer of Securities that are the subject of a
distribution and are of a class which is required to be registered
under section 12 of the 1934 Act, and are issued by an issuer that has
been subject to the reporting requirements of section 13 of the 1934
Act for a period of at least ninety (90) days immediately preceding the
sale of such Securities and that has filed all reports required to be
filed hereunder with the SEC during the preceding twelve (12) months.
5. The aggregate amount of Securities of an issue purchased,
pursuant to this exemption, by the BlackRock Manager with: (i) The
assets of all Client Plans; and (ii) the assets, calculated on a pro
rata basis, of all Client Plans investing in Pooled Funds managed by
the BlackRock Manager; and (iii) the assets of plans to which the
BlackRock Manager renders investment advice within the meaning of 29
CFR 2510.3 21(c) does not exceed:
(a) Ten percent (10%) of the total amount of the Securities being
offered in an issue, if such Securities are equity Securities;
(b) Thirty five percent (35%) of the total amount of the Securities
being offered in an issue, if such Securities are Asset-Backed
Securities rated in one of the three highest rating categories by at
least one of the Rating Organizations; provided that none of the Rating
Organizations rates such Securities in a category lower than the third
highest rating category;
(c) Thirty five percent (35%) of the total amount of the Securities
being offered in an issue, if such Securities are debt Securities rated
in one of the four highest rating categories by at least one of the
Rating Organizations; provided that none of the Rating Organizations
rates such Securities in a category lower than the fourth highest
rating category; or
(d) Twenty five percent (25%) of the total amount of the Securities
being offered in an issue, if such Securities are debt Securities
(excluding Asset-Backed Securities) rated in the fifth or sixth highest
rating categories by at least one of the Rating Organizations; provided
that none of the Rating Organizations rates such Securities in a
category lower than the sixth highest rating category; and
(e) The assets of any single Client Plan (and the assets of any
Client Plans investing in Pooled Funds) may not be used to purchase any
Securities being offered, if such Securities are debt Securities rated
lower than the sixth highest rating category by any of the Rating
Organizations;
(f) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Subsections A.5.(a)-(d) of
this Section IV., the amount of Securities in any issue (whether equity
or debt Securities or Asset-Backed Securities) purchased, pursuant to
this exemption, by the BlackRock Manager on behalf of any single Client
Plan, either individually or through investment, calculated on a pro
rata basis, in a Pooled Fund may not exceed three percent (3%) of the
total amount of such Securities being offered in such issue, provided
that a Sub-Advised Pooled Fund as a whole may purchase up to three
percent (3%) of an issue; and
(g) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described, above, in Section IV.A.5.(a)-(d) and (f), is
the total of:
(i) The principal amount of the offering of such class of
Securities sold by underwriters or members of the selling syndicate to
QIBs; plus
(ii) The principal amount of the offering of such class of
Securities in any concurrent public offering.
6. The aggregate amount to be paid by any single Client Plan in
purchasing any Securities which are the subject of this exemption,
including any amounts paid by any Client Plan in purchasing such
Securities through a Pooled Fund, calculated on a pro rata basis, does
not exceed three percent (3%) of the fair market value of the net
assets of such Client Plan, as of the last day of the most recent
fiscal quarter of such Client Plan prior to such transaction, provided
that a Sub-Advised Pooled Fund as a whole may pay up to one percent
(1%) of fair market value of its net assets in purchasing such
Securities.
7. The Covered Transactions are not part of an agreement,
arrangement, or understanding designed to benefit any BlackRock Entity
or MPS.
8. Each Client Plan shall have total net assets with a value of at
least $50 million (the $50 Million Net Asset Requirement). For purposes
of engaging in Covered Transactions involving an Eligible Rule 144A
Offering, each Client Plan shall have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan (the $100 Million Net Asset Requirement).
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting, each Client Plan in such Pooled Fund other than a Sub-
Advised Pooled Fund shall have total net assets with a value of at
least $50 million. Notwithstanding the foregoing, if each such Client
Plan in a Pooled Fund other than a Sub-Advised Pooled Fund does not
have total net assets with a value of at least $50 million, the $50
Million Net Asset Requirement will be met, if fifty percent (50%) or
more of the units of beneficial interest in such Pooled Fund are held
by investors, each of which has total net assets with a value of at
least $50 million.
For purposes of a Pooled Fund engaging in an Affiliated
Underwriting involving an Eligible Rule 144A Offering, each Client Plan
in such Pooled Fund other than a Sub-Advised Pooled Fund shall have
total net assets of at least $100 million in Securities of issuers that
are not affiliated with such Client Plan. Notwithstanding the
foregoing, if each such Client Plan in such Pooled Fund other than a
Sub-Advised Pooled Fund does not have total net assets of at least $100
million in Securities of issuers that are not affiliated with such
Client Plan, the $100 Million Net Asset Requirement will be met if
fifty percent (50%) or more of the units of beneficial interest in such
Pooled Fund are held by investors, each of which have total net assets
of at least $100 million in Securities of issuers that are not
affiliated with such investor, and the Pooled Fund itself qualifies as
a QIB.
For purposes of the net asset requirements described above in
Section IV.A.8., where a group of Client Plans is maintained by a
single employer or controlled group of employers, as defined in ERISA
section 407(d)(7), the $50 Million Net Asset Requirement (or in the
case of an Eligible Rule 144A Offering, the $100 Million Net Asset
Requirement) may be met by aggregating the assets of such Client Plans,
if the assets of such Client Plans are pooled for investment purposes
in a single master trust.
9. No more than twenty percent (20%) of the assets of a Pooled
Fund, at the time of a Covered Transaction, are comprised of assets of
In-House Plans for which the BlackRock Manager, or a BlackRock Entity
exercises investment discretion.
10. The BlackRock Manager must be a QPAM, and, in addition to
satisfying the requirements for a QPAM under section VI(a) of PTE 84-
14, the BlackRock Manager must also have total client assets under its
management and control in excess of $5 billion, as of the last day of
its most recent fiscal year and shareholders' or partners' equity in
excess of $1 million.
11. The BlackRock Manager maintains, or causes to be maintained,
[[Page 2822]]
for a period of six (6) years from the date of any Covered Transaction
such records as are necessary to enable the persons described below in
Section IV.A.12.(a) to determine whether the conditions of this
exemption have been met, except that:
(a) No party in interest with respect to a plan which engages in
the Covered Transactions, other than the BlackRock Manager, shall be
subject to a civil penalty under ERISA section 502(i) or the taxes
imposed by Code sections 4975(a) and (b), if such records are not
maintained, or not available for examination as required below by
Section IV.A.12.(a); and
(b) A separate prohibited transaction shall not be considered to
have occurred if, due to circumstances beyond the control of the
BlackRock Manager, such records are lost or destroyed prior to the end
of the six-year period.
12. (a) Except as provided below, in Section IV.A.12.(b), and
notwithstanding the provisions of subsections (a)(2) and (b) of ERISA
section 504, the records referred to above, in Section IV.A.11. are
unconditionally available at their customary location for examination
during normal business hours by:
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC;
(ii) Any fiduciary of any Client Plan that engages in the Covered
Transactions, or any duly authorized employee or representative of such
fiduciary;
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a Client Plan that
engages in the Covered Transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a Client Plan that engages
in the Covered Transactions, or duly authorized employee or
representative of such participant or beneficiary;
(b) None of the persons described in Section IV.A.12.(a)(ii)
through (iv) shall be authorized to examine trade secrets of the
BlackRock Manager, or commercial or financial information which is
privileged or confidential; and
(c) Should the BlackRock Manager refuse to disclose information on
the basis that such information is exempt from disclosure, pursuant to
Section IV.A.12.(b), the BlackRock Manager shall, by the close of the
thirtieth (30th) day following the request, provide a written notice
advising that person of the reasons for the refusal and that the
Department may request such information.
B. Affiliated Servicing
1. The Securities are CMBS that are rated in one of the three
highest rating categories by a Rating Organization; provided that none
of the Rating Organizations rates such Securities in a category lower
than the third highest rating category.
2. The purchase of the CMBS meets the conditions of an applicable
Underwriter Exemption.
3. (a) The aggregate amount of CMBS of an issue purchased, pursuant
to this exemption, by the BlackRock Manager with:
(i) The assets of all Client Plans; and
(ii) The assets, calculated on a pro rata basis, of all Client
Plans and In-House Plans investing in Pooled Funds managed by the
BlackRock Manager; and
(iii) The assets of plans to which the BlackRock Manager renders
investment advice, within the meaning of 29 CFR 2510.3-21(c), does not
exceed thirty five percent (35%) of the total amount of the CMBS being
offered in an issue.
(b) Notwithstanding the percentage of CMBS of an issue permitted to
be acquired, as set forth in Section IV.B.3.(a) of this exemption, the
amount of CMBS in any issue purchased, pursuant to this exemption, by
the BlackRock Manager on behalf of any single Client Plan, either
individually or through investment, calculated on a pro rata basis, in
a Pooled Fund may not exceed three percent (3%) of the total amount of
such CMBS being offered in such issue, and;
(c) If purchased in an Eligible Rule 144A Offering, the total
amount of the CMBS being offered for purposes of determining the
percentages described in Section IV.B.3.(a), is the total of:
(i) The principal amount of the offering of such class of CMBS sold
by underwriters or members of the selling syndicate to QIBs; plus
(ii) The principal amount of the offering of such class of CMBS in
any concurrent public offering.
4. The aggregate amount to be paid by any single Client Plan in
purchasing any CMBS which are the subject of this exemption, including
any amounts paid by any Client Plan in purchasing such CMBS through a
Pooled Fund, calculated on a pro rata basis, does not exceed three
percent (3%) of the fair market value of the net assets of such Client
Plan, as of the last day of the most recent fiscal quarter of such
Client Plan prior to such transaction.
5. The Covered Transactions under this Section IV.B. are not part
of an agreement, arrangement, or understanding designed to benefit any
MPS.
6. The requirements of Sections IV.A.8. through 12. are met.
Section V: Correction Procedures
A. 1. The ECO shall monitor Covered Transactions and shall
determine whether a particular Covered Transaction constitutes a
Violation. The ECO shall notify the IM within five (5) business days
following the discovery of any Violation.
2. The ECO shall make an initial determination as to how to correct
a Violation and place the conclusion of such determination in writing,
with such conclusion disclosed to the IM within five (5) business days
of the placing of the conclusion of such determination in writing.
Following the initial determination, the ECO must keep the IM apprised
on a current basis of the process of correction and must consult with
the IM regarding each Violation and the appropriate form of correction.
The ECO shall report the correction of the Violation to the IM within
five (5) business days following completion of the correction. For
purposes of this Section V.A.2., ``correction'' must be consistent with
ERISA section 502(i) and Code section 4975(f)(5).
3. The IM shall determinate whether it agrees that the correction
of a Violation by the ECO is adequate and shall place the conclusion of
such determination in writing, and, if the IM does not agree with the
adequacy of the correction, the IM shall have the authority to require
additional corrective actions by BlackRock.
4. A summary of Violations and corrections of Violations will be in
the IM's annual compliance report as described in Section II.E.12.
B. Special Correction Procedure
1. If a Covered Transaction which would otherwise constitute a
Violation is corrected under this ``Special Correction Procedure,''
such Covered Transaction shall continue to be exempt under Section I of
this exemption.
2. (a) The Special Correction Procedure is a complete correction of
the Violation no later than fourteen (14) business days following the
date on which the ECO submits the quarterly report to the IM for the
quarter in which the Covered Transaction first would become a non-
exempt prohibited transaction by reason of constituting a Violation if
not for this Section V.B.
(b) Solely for purposes of the Special Correction Procedure,
``correction'' of a Covered Transaction which would otherwise be a
Violation means either:
(i) Restoring the Client Plan to the position it would have been in
had the
[[Page 2823]]
conditions of the exemption been complied with;
(ii) Correction consistent with ERISA section 502(i) and Code
section 4975(f)(5); or
(iii) Correction consistent with the Voluntary Fiduciary Correction
Program.\39\
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\39\ PTE 2002-51, 67 FR 70623 (November 25, 2002), as amended,
71 FR 20135 (April 19, 2006).
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(c) Other than with respect to the definition of ``correction''
specified above, when utilizing the Special Correction Procedure the
ECO and the IM shall comply with Section V.A.
Section VI: Definitions \40\
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\40\ The definition of terms herein shall apply equally to the
singular and plural forms of the terms defined. Section headings are
for convenience only.
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A. ``1933 Act'' means the Securities Act of 1933, as amended.
B. ``1934 Act'' or ``Exchange Act'' means the Securities Exchange
Act of 1934, as amended.
C. ``1940 Act'' means the Investment Company Act of 1940, as
amended.
D. ``$50 Million Net Asset Requirement'' shall have the meaning set
forth in Section IV.A.8. of this exemption.
E. ``$100 Million Net Asset Requirement'' shall have the meaning
set forth in Section IV.A.8. of this exemption.
F. ``ABCP Conduit'' means a special purpose vehicle that acquires
assets from one or more originators and issues commercial paper to
provide funding to the originator(s). Such vehicles are typically
administered by a bank, but is not required to be administered by a
bank, which provides liquidity support (standing ready to purchase the
conduit's commercial paper if it cannot be rolled over) and/or credit
support (committing to cover losses in the event of default). The
program administrator also typically acts as placement agent for the
commercial paper, sometimes together with one or more other placement
agents. Commercial paper issued by such a conduit may be purchased
directly from the program administrator or other placement agent, or
traded on the secondary market with another broker-dealer making a
market in the Securities.
G. ``Acquisition'' means the acquisition by BlackRock of Barclays
Global Investors UK Holdings, Ltd. and its subsidiaries on December 1,
2009.
H. ``Affiliate'' of another person means:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such person;
(2) Any officer, director, partner, employee, or relative (as
defined in section 3(15) of ERISA) of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director, partner or employee.
I. ``Arranger'' means a sophisticated financial institution, such
as a commercial or investment bank, regularly engaged in structuring
commercial loans.
J. ``Asset-Backed Securities'' means Securities which are pass-
through certificates or trust certificates characterized as equity
pursuant to 29 CFR 2510.3-101 that represent a beneficial ownership
interest in the assets of an issuer which is a trust, with any such
trust limited to (1) a single or multi-family residential or commercial
mortgage investment trust, or (2) a motor vehicle receivable investment
trust, and which entitles the holder to payments of principal, interest
and/or other payments made with respect to the assets of the trust, the
corpus or assets of which consist solely or primarily of secured
obligations that bear interest or are purchased at a discount. For
purposes of Section IV.A. of this exemption, excluding Section IV.A.5.,
Asset-Backed Securities are treated as debt Securities.
K. ``Assigned Loan'' has the meaning set forth in Section III.W.1.
of this exemption.
L. ``Authorizing fiduciary'' has the meaning set forth in Section
III.M.4(d)(i) of this exemption.
M. ``Automated Trading System'' or ``ATS'' means an electronic
trading system, ECN or electronic clearing network or similar venue
that functions in a manner intended to simulate a Securities exchange
by electronically matching orders from multiple buyers and sellers,
such as an ``alternative trading system'' within the meaning of the
SEC's Reg. ATS (17 CFR 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 1934 Act.
N. ``BlackRock'' means BlackRock, Inc. and any successors thereof.
O. ``BlackRock Entity'' means BlackRock and any entity directly or
indirectly, through one or more intermediaries, under the control of
BlackRock, and any other entity which subsequently becomes directly or
indirectly, through one or more intermediaries, under the control of
BlackRock, and successors of the foregoing.
P. ``BlackRock Manager'' means any bank, investment advisor,
investment manager directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and any other bank,
investment advisor, or investment manager which subsequently becomes
directly or indirectly, through one or more intermediaries, under the
control of BlackRock, and successors of the foregoing, including but
not limited to BlackRock Advisors, LLC, BlackRock Financial Management,
Inc., BlackRock Capital Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International, Ltd., BlackRock Realty
Advisors, Inc., BlackRock Investment Management, LLC, BlackRock Fund
Advisors, and BlackRock Institutional Trust Company, N.A. and any of
the investment advisors and investment manager it controls.
Q. ``Board'' means the Board of Directors of BlackRock.
R. ``Borrower Rating'' means, solely for purposes of Section III.W.
of this exemption, a rating assigned by a Rating Organization to a
borrowing entity reflecting such borrower's overall capacity and
willingness to meet its financial obligations. More specifically, a
Borrower's Rating generally refers to the borrower's ability and
willingness to meet senior, unsecured obligations.
S. ``Buy-Up'' means an initial acquisition of Securities issued by
BlackRock by a BlackRock Manager, if such acquisition exceeds one
percent (1%) of the aggregate daily trading volume for such Security,
for an Index Account or Fund, or a Model-Driven Account or Fund which
is necessary to bring the fund's or account's holdings of such
Securities either to its capitalization-weighted or other specified
composition in the relevant Index, as determined by the organization
maintaining such Index, or to its correct weighting as determined by
the Model.
T. ``Client Plan'' means any plan subject to ERISA section 406,
Code section 4975 or FERSA section 8477(c) for which a BlackRock
Manager is a fiduciary as described in ERISA section 3(21), including,
but not limited to, any Pooled Fund, MPS Plan, Index Account or Fund,
Model-Driven Account or Fund, Other Account or Fund, or In-House Plan,
except where specified to the contrary.
U. ``CMBS'' means an Asset-Backed Security with respect to which
the assets or corpus of the issuer consist solely or primarily of
obligations secured by commercial real property (including obligations
secured by leasehold interests on commercial real property).
V. ``Code'' means the Internal Revenue Code of 1986, as amended.
[[Page 2824]]
W. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
X. ``Covered Transaction'' means each transaction set forth in
Section III by a BlackRock Manager for a Client Plan with, affecting or
involving, directly or indirectly, an MPS and/or a BlackRock Entity.
Y. ``Creation Shares'' means new shares in an ETF created by an
exchange of a specified basket of Securities and/or cash to the ETF for
such new shares of the ETF.
Z. ``ECO Function'' means the ECO and such other BlackRock Entity
employees in legal and compliance roles working under the supervision
of the ECO in connection with the Covered Transactions. The list of
BlackRock Entity employees shall be shared with the IM from time to
time, not less than quarterly, and such employees will be made
available to discuss the relevant Covered Transactions with the IM to
the extent the IM or the ECO deem it reasonably prudent.
AA. ``Electronic Communications Network'' or ``ECN'' means an
electronic system described in Rule 600(b)(23) of Regulation NMS under
the 1934 Act.
BB. ``Eligible Rule 144A Offering'' shall have the same meaning as
defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4)) under the 1940
Act.
CC. ``Eligible Securities Depository'' means an eligible securities
depository as that term is defined under Rule 17f-7 of the 1940 Act, as
such definition may be amended from time to time.
DD. ``EPP Correction'' has the meaning set forth in Section II.C.
of this exemption.
EE. ``ERISA'' means the Employee Retirement Income Security Act of
1974, as amended.
FF. ``ETF'' means an exchange-traded open-end investment company
registered under the 1940 Act.
GG. ``Exemption Compliance Officer'' or ``ECO'' means an officer of
BlackRock or of a BlackRock Entity appointed by BlackRock or such
BlackRock Entity, subject to the approval of the IM, who is responsible
for compliance with the exemption. The ECO, unless otherwise stated in
this exemption, will be responsible for: Monitoring all Covered
Transactions and reviewing compliance with all of the conditions of the
exemption applicable thereto; approving certain Covered Transactions in
advance as required by the terms of the exemption; reviewing reports of
Covered Transactions and the results of sampling of Covered
Transactions; and determining when Covered Transactions transgress the
EPPs and/or constitute a Violation.
HH. ``Exemption Polices and Procedures'' or ``EPPs'' means the
written policy adopted and implemented by BlackRock for BlackRock
Entities that is reasonably designed to ensure compliance with the
terms of the exemption. The EPPs must reflect the specific requirements
of the exemption, but must also be designed to ensure that the
decisions to enter into Covered Transactions on behalf of Client Plans
with the MPSs are in the interests of Client Plans and their
participants and beneficiaries, including by ensuring to the extent
possible that the terms of each Covered Transaction are at least as
favorable to the Client Plan as the terms generally available in
comparable arm's length transactions with unrelated parties.
II. ``Facility Rating'' means, solely for purposes of Section
III.W. of this exemption, a rating assigned by a Rating Organization to
a specific loan, note or other financial obligation, a specific class
of financial obligations, or a specific financial program within a
borrower's capital structure. The rating on a specific loan facility or
other issue may reflect positive or negative adjustments relative to
the borrower's rating for (1) The presence of collateral, (2) explicit
subordination, or (3) any other factors that affect the payment
priority, expected recovery, or credit stability of the specific issue.
JJ. ``FarmerMac'' means the Federal Agricultural Mortgage
Corporation.
KK. ``FERSA'' means the Federal Employees' Retirement System Act of
1986, as amended.
LL. ``FHLMC'' means the Federal Home Loan Mortgage Corporation.
MM. ``Fixed Income Obligations'' means: (1) Fixed income
obligations including structured debt or other instruments
characterized as debt pursuant to 29 CFR 2510.3-101, including, but not
limited to, debt convertible into equity, certificates of deposit and
loans (other than loans described in Section III.W. with respect to
which an MPS is an Arranger) and (2) guaranteed governmental mortgage
pool certificates within the meaning of 29 CFR 2510.3-101(i). Asset-
Backed Securities are not Fixed Income Obligations for purposes of this
exemption.
NN. ``FNMA'' means the Federal National Mortgage Association.
OO. ``Foreign Bank'' means an institution that has substantially
similar powers to a bank as defined in section 202(a)(2) of the
Investment Advisers Act, as amended, has as of the last day of its most
recent fiscal year, equity capital which is the equivalent of no less
than $200 million, and is subject to:
(1) (a) Registration and regulation, as applicable, under the laws
of the United Kingdom, or (b)(i) registration and regulation by a
securities commission of a Province of Canada that is a member of the
Canadian Securities Administration, and (ii) is subject to the
oversight of a Canadian self-regulatory authority; or
(2) Regulation by the relevant governmental banking agency(ies) of
a country other than the United States and the regulation and oversight
of these banking agencies were applicable to a bank that received: (a)
An individual exemption, granted by the Department under section 408(a)
of ERISA, involving the loan of Securities by a plan to a bank or (b) a
final authorization by the Department to engage in an otherwise
prohibited transaction pursuant to PTE 96-62, as amended, involving the
loan of Securities by a plan to a bank. On the date this exemption
becomes effective, the following countries shall qualify for purposes
of this clause (2): United Kingdom, Canada, Germany, Japan, Australia,
Switzerland, France, the Netherlands and Sweden.
PP. ``Foreign Broker-Dealer'' means a broker-dealer that has, as of
the last day of its most recent fiscal year, equity capital that is the
equivalent of no less than $200 million and is:
(1) Registered and regulated under the laws of the United Kingdom;
(2) Registered and regulated by a securities commission of a
Province of Canada that is a member of the Canadian Securities
Administration, and is subject to the oversight of a Canadian self-
regulatory authority; or
(3) Registered and regulated under the relevant Securities laws of
a governmental entity of a country other than the United States and
such Securities laws and regulation were applicable to a broker-dealer
that received: (a) An individual exemption, granted by the Department
under section 408(a) of ERISA, involving the loan of Securities by a
plan to a broker-dealer or (b) a final authorization by the Department
to engage in an otherwise prohibited transaction pursuant to PTE 96-62,
as amended, involving the loan of Securities by a plan to a broker-
dealer. On the date this exemption becomes effective, the following
countries shall qualify for purposes of this clause (2): United
Kingdom, Canada, Germany, Japan, Australia, Switzerland, France, the
Netherlands and Sweden.
QQ. ``Foreign Collateral'' means:
[[Page 2825]]
(1) Securities issued by or guaranteed as to principal and interest
by the following Multilateral Development Banks, the obligations of
which are backed by the participating countries, including the United
States: The International Bank for Reconstruction and Development, the
Inter-American Development Bank, the Asian Development Bank, the
African Development Bank, the European Bank for Reconstruction and
Development and the International Finance Corporation;
(2) Foreign sovereign debt Securities provided that at least one
nationally recognized statistical rating organization has rated in one
of its two highest categories either the issue, the issuer or
guarantor;
(3) The British pound, the Canadian dollar, the Swiss franc, the
Japanese yen or the Euro;
(4) Irrevocable letters of credit issued by a Foreign Bank, other
than the borrower or an affiliate thereof, which has a counterparty
rating of investment grade or better as determined by a nationally
recognized statistical rating organization; or
(5) Any type of collateral described in Rule 15c3-3 of the 1934 Act
as amended from time to time provided that the lending fiduciary is a
U.S. Bank or U.S. Broker-Dealer and such fiduciary indemnifies the plan
with respect to the difference, if any, between the replacement cost of
the borrowed Securities and the market value of the collateral on the
date of a borrower default plus interest and any transaction costs
which a plan may incur or suffer directly arising out of a borrower
default. Notwithstanding the foregoing, collateral described in any of
the categories enumerated in section V(e) of Prohibited Transaction
Exemption 2006-16 will be considered U.S. Collateral for purposes of
the exemption.
RR. ``Foreign Exchange Transaction'' means the exchange of the
currency of one nation for the currency of another nation, or a
contract for such an exchange. The term Foreign Exchange Transaction
includes option contracts on foreign exchange transactions. Foreign
Exchange Transactions may be either ``spot'', ``forward'' or ``split''
depending on the settlement date of the transaction.
SS. ``GNMA'' means the Government National Mortgage Association.
TT. ``Independent Monitor'' or ``IM'' means an individual or entity
appointed by BlackRock to carry out certain functions set forth in
Sections II, III and V of the exemption and who (or which), given the
number of types of Covered Transactions and the number of actual
individual Covered Transactions potentially covered by the exemption,
must be knowledgeable and experienced with respect to each Covered
Transaction and able to demonstrate sophistication in relevant markets,
instruments and trading techniques relative thereto, and, in addition,
must understand and accept in writing its duties and responsibilities
under ERISA and the exemption with respect to the Client Plans. The IM
must be independent of and unrelated to BlackRock and any MPS. For
purposes of this exemption, such individual or entity will not be
deemed to be independent of and unrelated to BlackRock and the MPSs if:
(1) Such individual or entity directly or indirectly controls, is
controlled by, or is under common control with BlackRock or an MPS;
(2) Such individual or entity, or any employee thereof performing
services in connection with this exemption, or an officer, director,
partner, or highly compensated employee (as defined in Code section
4975(e)(2)(H)) thereof, is an officer, director, partner or highly
compensated employee (as defined in Code section 4975(e)(2)(H)) of
BlackRock or an MPS; or any member of the business segment performing
services in connection with this exemption is a relative of an officer,
director, partner or highly compensated employee (as defined in Code
section 4975(e)(2)(H)) of BlackRock or an MPS.
However, if an individual is a director of the IM and an officer,
director, partner or highly compensated employee (as defined in Code
section 4975(e)(2)(H)) of BlackRock or an MPS, and if he or she
abstains from participation in any of the services performed by the IM
under this exemption, then this Section VI.OO.(2) shall not apply.
For purposes of this Subsection, the term officer means a
president, any senior vice president in charge of a principal business
unit, division or function (such as sales, administration, or finance),
or any other officer who performs a policy-making function for the IM,
BlackRock, or an MPS.
(3) The IM directly or indirectly receives any compensation or
other consideration for the IM's personal account in connection with
any Covered Transaction, except that the IM may receive compensation
from BlackRock for acting as IM as contemplated herein if the amount or
payment of such compensation is reasonable and not contingent upon or
in any way affected by any decision made by the IM while acting as IM;
or
(4) The annual gross revenue received by the IM, during any year of
its engagement, from the MPSs and BlackRock Entities for all services
exceeds the greater of (a) five percent (5%) of the IM's annual gross
revenue from all sources for its prior tax year, or, (b) one percent
(1%) of the annual gross revenue of the IM and its majority shareholder
from all sources for their prior tax year.
UU. ``Index'' means an equity or debt Securities or commodities
index that represents the investment performance of a specific segment
of the market for equity or debt Securities or commodities in the
United States and/or an individual foreign country or any collection of
foreign countries, 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 Securities exchange or association of Securities
dealers; and
(2) The index is created and maintained by an organization
independent of all BlackRock Entities. For purposes of this definition
of ``Index,'' every BlackRock Entity is deemed to be independent of
every MPS.
(3) The index is a generally accepted standardized index of
Securities or commodities which is not specifically tailored for the
use of a BlackRock Manager(s).
(4) If the organization creating, providing or maintaining the
Index is an MPS:
(a) Such Index must be widely-used in the market by independent
institutional investors other than pursuant to an investment management
or advisory relationship with a BlackRock Manager, and must be prepared
or applied by such MPS in the same manner as for customers other than a
BlackRock Manager(s);
(b) BlackRock must certify to the ECO whether, in its reasonable
judgment, such Index is widely-used in the market. In making this
determination, BlackRock shall take into consideration factors such as
(i) publication of summary Index information by the MPS providing the
Index, Bloomberg, Reuters, or a similar institution involved in the
dissemination of financial information, and (ii) delivery of Index
information including but not limited to Index component information by
such MPS to clients or other subscribers
[[Page 2826]]
including by electronic means including via the internet;
(c) BlackRock must notify the ECO if it becomes aware that: (i)
Such Index is operated other than in accordance with objective rules,
in the ordinary course of business, (ii) manipulation of any such Index
has occurred for the purpose of benefiting BlackRock, or (iii) in the
event that any rule change occurred in connection with the rules
underlying such Index, such rule change was made by the MPS for the
purpose of benefiting BlackRock; provided, however, this Subsection
(c)(iii) expressly excludes instances where the rule changes were made
in response to requests from clients/prospective clients of BlackRock
even if BlackRock is ultimately hired to manage such a portfolio (e.g.,
if plan sponsor X requests a ``Global ex-Sudan Fixed Income Index'', an
MPS decides to sponsor such index and plan sponsor X approaches
BlackRock or otherwise issues a ``Request for Proposal'' for investment
managers who could manage an index portfolio benchmarked to the Global
ex-Sudan Fixed Income Index).
(d) BlackRock must certify to the ECO annually that it is not aware
of the occurrence of any of the events described in Section
VI.PP.(4)(c), and if BlackRock cannot so certify, or if BlackRock
provides the ECO with the notice described Section VI.PP.(4)(c), the
ECO shall notify the IM, and the IM must take appropriate remedial
action which may include, but need not be limited to, instructions for
relevant BlackRock Managers to cease using such Index.
VV. ``Index Account or Fund'' means any investment fund, account or
portfolio sponsored, maintained, trusteed, or managed by a BlackRock
Manager or a BlackRock Entity, in which one or more Client Plans
invest, and--
(1) Which is designed to track the rate of return, risk profile and
other characteristics of an Index by either (i) replicating the same
combination of Securities or commodities which compose such Index or
(ii) sampling the Securities or commodities which compose such Index
based on objective criteria and data;
(2) For which the BlackRock Manager does not use its discretion, or
data within its control, to affect the identity or amount of Securities
or commodities to be purchased or sold;
(3) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c); and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Index Account or Fund which is
intended to benefit a BlackRock Entity or an MPS, or any party in which
a BlackRock Entity or an MPS may have an interest.
For purposes of this definition of ``Index Account or Fund'', every
BlackRock Entity is deemed to be independent of each MPS.
WW. ``In-House Plan'' means an employee benefit plan that is
subject to ERISA section 406 and/or Code section 4975, and that is
sponsored by a BlackRock Entity for its employees.
XX. ``Interbank Rate'' means the interbank bid and asked rate for
foreign exchange transactions of comparable size and maturity at the
time of the transaction as quoted on a nationally recognized service
for facilitating foreign currency trades between large commercial banks
and Securities dealers.
YY. ``Know'' means to have actual knowledge. BlackRock Managers
will be deemed to have actual knowledge of information set forth in a
written agreement or offering document as of the date the BlackRock
Manager receives such agreement or document.
ZZ. ``Lead Arranger'' means, with respect to any Loan Offering
involving more than one Arranger, the Arranger designated as such by
all of such Arrangers.
AAA. ``Loan'' means, solely for purposes of Section III.W. of this
exemption, a delivery by a lender and receipt by a commercial borrower
of a sum of money to fund current and ongoing operations or a specific
transaction upon agreement that such borrower is to repay it upon
agreed terms. For the avoidance of doubt, this term does not include
any Fixed Income Obligations which are covered separately under Section
IV.A. of this exemption.
BBB. ``Loan Offering'' means, with respect to the aggregate
principal amount of any Loan extended to a commercial borrower in any
single transaction, the process of structuring, marketing and offering
to banks, insurance companies, investment funds and other institutional
investors the opportunity to purchase interests in such Loan.
CCC. ``Model'' means a computer model that is based on prescribed
objective criteria using independent data not within the control of a
BlackRock Entity to transform an Index.
DDD. ``Model-Driven Account or Fund'' means any investment fund,
account or portfolio sponsored, maintained, trusteed, or managed by a
BlackRock Manager or a BlackRock Entity in which one or more Client
Plans invest, and--
(1) Which is composed of Securities or commodities the identity of
which and the amount of which are selected by a Model;
(2) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c); and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Model-Driven Account or Fund
or the utilization of any specific objective criteria which is intended
to benefit a BlackRock Entity or an MPS, or any party in which a
BlackRock Entity or an MPS may have an interest.
For purposes of this definition of ``Model-Driven Account or
Fund,'' every BlackRock Entity is deemed to be independent of each MPS.
EEE. ``MPS'' or ``Minority Passive Shareholder'' means any of (1)
Barclays PLC, (2) The PNC Financial Services Group, Inc., or (3) each
entity directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with one or more of
Barclays PLC (Barclays MPSs) or The PNC Financial Services Group, Inc.,
(PNC MPSs) (each of the PNC MPSs and the Barclays MPSs, an MPS Group)
but excluding any and all BlackRock Entities.
FFF. ``MPS Group'' shall have the meaning set forth in the
definition of MPS.
GGG. ``MPS Plans'' means an employee benefit plan(s) that is
subject to ERISA section 406 and/or Code section 4975, and that is
sponsored by an MPS for its employees.
HHH. ``Other Account or Fund'' means any investment fund, account
or portfolio sponsored, maintained, trusteed, or managed by a BlackRock
Manager or a BlackRock Entity in which one or more Client Plans invest,
and--
(1) Which is not an Index Account or Fund or a Model-Driven Account
or Fund; and
(2) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c).
III. ``Pooled Fund'' means a common or collective trust fund or
other pooled investment fund:
(1) In which Client Plan(s) invest;
(2) For which a BlackRock Manager exercises discretionary authority
or discretionary control respecting the management or disposition of
the assets of such fund(s); and
(3) That contains ``plan assets'' subject to either ERISA section
406, Code section 4975 or FERSA section 8477(c).
[[Page 2827]]
Solely for purposes of Section IV of this exemption, ``Pooled
Fund(s)'' shall only include funds or trusts which otherwise meet this
definition but which also are either (i) maintained by a BlackRock
Entity or (ii) maintained by a person which is not a BlackRock Entity
but is sub-advised by a BlackRock Manager, provided that with respect
to a Pooled Fund described in (ii), (A) the fund or trust is either a
bank-maintained common or collective trust fund or an insurance company
pooled separate account that holds assets of at least $250 million, (B)
the bank or insurance company sponsoring the Pooled Fund has total
client assets under its management or control in excess of $5 billion
as of the last day of its most recent fiscal year, and shareholders' or
partners' equity in excess of $1 million, and (C) the decision to
invest the Client Plan into the bank-maintained common or collective
trust or insurance company pooled separate account and to maintain such
investment is made by a Client Plan fiduciary which is not a BlackRock
Entity. Such sub-advised Pooled Funds are sometimes referred to herein
as ``Sub-Advised Pooled Funds''.
JJJ. ``Qualified Institutional Buyer'' or ``QIB'' shall have the
same meaning as defined in SEC Rule 144A (17 CFR 230.144A(a)(1)) under
the 1933 Act.
KKK. ``QPAM Exemption'' or ``PTE 84-14'' means Prohibited
Transaction Exemption 84-14, as amended.
LLL. ``Qualified Professional Asset Manager'' or ``QPAM'' shall
have the meaning set forth in Section VI(a) of the QPAM Exemption.
MMM. ``Rating Organizations'' means Standard & Poor's Rating
Services, Moody's Investors Service, Inc., Fitch Ratings Inc., DBRS
Limited, DBRS, Inc., or any similar agency subsequently recognized by
the Department as a Rating Organization or any successors thereto.
NNN. ``Recognized Securities Exchange'' means a U.S. securities
exchange that is registered as a ``national securities exchange'' under
section 6 of the 1934 Act, or a designated offshore securities market,
as defined in Regulation S of the SEC (17 CFR 230.902(b)), 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 240.3b-16).
OOO. ``Registered Investment Advisor'' means an investment advisor
registered under the Investment Advisors Act of 1940, as amended, that
has total client assets under its management or control in excess of $5
billion as of the last day of its most recent fiscal year and
shareholders' or partners' equity in excess of $1 million, as shown in
the most recent balance sheet prepared within the two years immediately
preceding a Covered Transaction, in accordance with generally accepted
accounting principles.
PPP. ``SEC'' means the United States Securities and Exchange
Commission.
QQQ. ``Securities'' shall have the same meaning as defined in
section 2(a)(36) of the 1940 Act. For purposes of Section IV of this
exemption, except as where specifically identified, Asset-Backed
Securities are treated as debt Securities.
RRR. ``Three Quote Process'' means three bids or offers (either of
which being sometimes referred to as quotes) are received by a trader
for a BlackRock Manager each of which such quotes such trader
reasonably believes is an indication that the dealer presenting the bid
or offer is willing to transact the trade at the stipulated volume
under discussion, and all material terms (including volume) under
discussion are materially similar with respect to each other such
quote. In selecting the best of three such quotes, a BlackRock Manager
shall maintain books and records for the three firm bids/offers in a
convention that it reasonably believes is customary for the specific
asset class (such as ``price'' quotes, ``yield'' quotes or ``spread''
quotes). For example, corporate bonds are often quoted on a spread
basis and dealers customarily quote the spread above a certain
benchmark bond's yield (e.g., for a given size and direction such as a
BlackRock trader may ask for quotes to sell $1 million of a particular
bond, dealer 1 may quote 50 bps above the yield of the 10 year treasury
bond, dealer 2 might quote 52 bps above the yield of the 10 year
treasury bond and dealer 3 might quote 53 bps above the yield of the 10
year treasury bond). If only two firm bids/offers can be obtained, the
trade requires prior approval by the ECO and the ECO must inquire as to
why three firm bids/offers could not be obtained. If in the case of a
sale or purchase a trader for a BlackRock Manager reasonably believes
it would be injurious to the Client Plan to specify the size of the
intended trade to certain bidders, a bid on a portion of the intended
trade may be treated as a firm bid if the trader documents (i) why the
bid price is a realistic indication of the economic terms for the
actual amount being traded despite the difference in the size of the
actual trade and (ii) why it would be harmful to the Client Plan to
solicit multiple bids on the actual amount of the trade. If a trader
for a BlackRock Manager solicits bids from three or more dealers on a
sale or purchase of a certain volume of Securities, and receives back
three or more bids, but at least one bid is not for the full amount of
the intended sale, if the price offered by the partial bidder(s) is
less than the price offered by the full bidder(s), the trader may
assume a full bid by the partial bidder(s) would not be the best bid,
and the trader can consummate the trade, in the case of at least two
full bids, with the dealer making the better of the full bids, or in
the case of only one full bid, with the dealer making that full bid.
SSS. ``Underwriter Exemption(s)'' means a group of individual
exemptions granted by the Department to provide relief for the
origination and operation of certain asset pool investment trusts and
the acquisition, holding and disposition by plans of Asset-Backed
Securities representing undivided interests in those trusts. Such group
of individual exemptions was collectively amended by Prohibited
Transaction Exemption 2009-31, 74 FR 59001 (Nov. 16, 2009).
TTT. ``U.S. Bank'' means a bank as defined in section 202(a)(2) of
the Investment Advisers Act, as amended.
UUU. ``U.S. Broker-Dealer'' means a broker-dealer registered under
the 1934 Act or exempted from registration under section 15(a)(1) of
the 1934 Act as a dealer in exempted government Securities (as defined
in section 3(a)(12) of the 1934 Act).
VVV. ``U.S. Collateral'' means:
(1) U.S. currency;
(2) ``Government securities'' as defined in section 3(a)(42)(A) and
(B) of the 1934 Act;
(3) ``Government securities'' as defined in section 3(a)(42)(C) of
the 1934 Act issued or guaranteed as to principal or interest by the
following corporations: The Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Student Loan Marketing
Association and the Financing Corporation;
(4) Mortgage-backed Securities meeting the definition of a
``mortgage related security'' set forth in section 3(a)(41) of the 1934
Act;
(5) Negotiable certificates of deposit and bankers acceptances
issued by a ``bank'' as that term is defined in section 3(a)(6) of the
1934 Act, and which are payable in the United States and deemed to have
a ``ready market'' as that term is defined in 17 CFR 240.15c3-1; or
(6) Irrevocable letters of credit issued by a U.S. Bank other than
the borrower
[[Page 2828]]
or an affiliate thereof, or any combination, thereof.
WWW. ``Violation'' means a Covered Transaction which is a
prohibited transaction under ERISA sections 406 or 407, Code section
4975, or FERSA section 8477(c) and which is not exempt by reason of a
failure to comply with this exemption or another administrative or
statutory exemption. To the extent that the non-exempt prohibited
transaction relates to an act or omission that is separate and distinct
from a prior otherwise exempt transaction that may relate to the same
asset (e.g., a conversion of a debt instrument into an equity
instrument or a creditor's committee for a debt instrument), the
Violation occurs only at the current point in time and no Violation
shall be deemed to occur for the earlier transaction relating to the
same asset (e.g., the initial purchase of the asset) that was otherwise
in compliance with ERISA, the Code or FERSA.
Effective Date: This exemption is effective as of March 31, 2012,
except that, with respect to Covered Transactions described in Section
III.K. and S., the exemption is effective as of October 1, 2011.
Signed at Washington, DC, this 12th day of January, 2012.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2012-788 Filed 1-18-12; 8:45 am]
BILLING CODE 4510-29-P
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