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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [11/16/2012]
[PDF]
Federal Register, Volume 77 Issue 222 (Friday, November 16, 2012)
[Federal Register Volume 77, Number 222 (Friday, November 16, 2012)]
[Notices]
[Pages 68834-68849]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27849]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11610, UBS Financial Services, Inc. D-
11666, Central Pacific Bank 401(k) Retirement and Savings Plan (the 
Plan); D-11672, Studley, Inc. Section 401(k) Plan Profit Sharing Plan 
(the Plan); and D-11724, EquiLend Holdings LLC (EquiLend).

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing. All written comments and requests for a 
hearing (at least three copies) should be sent to the Employee Benefits 
Security Administration (EBSA), Office of Exemption Determinations, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210. Attention: Application No.------, stated in each 
Notice of Proposed Exemption. Interested persons are also invited to 
submit comments and/or hearing requests to EBSA via email or FAX. Any 
such comments or requests should be sent either by email to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public 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.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform

[[Page 68835]]

interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR Part 2570, 
Subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 
10, 1990).
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    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

UBS Financial Services Inc., Located in Weehawken, New Jersey

[Application No. D-11610]

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 Code section 4975(c)(2), and in 
accordance with the procedures set forth in 29 CFR Part 2570, subpart B 
(76 FR 66637, October 27, 2011), as follows:
Section I: Covered Transactions
    If the proposed exemption is granted, the sanctions resulting from 
the application of Code section 4975, by reason of Code section 
4975(c)(1)(A) and (D)-(E), shall not apply, effective January 4, 2002, 
until December 9, 2005, to (1) principal trades by UBS Financial 
Services Inc. (the Applicant) with certain plans, subject to Code 
section 4975, but not subject to Title I of ERISA (the IRAs), which 
resulted in the IRAs purchasing or selling securities from the 
Applicant (collectively, the Transactions); and (2) compensation paid 
by the IRAs to the Applicant in connection with the Transactions (the 
Transaction Compensation).
    This proposed exemption is subject to the conditions set forth 
below in Sections II and III.
Section II: Specific Conditions
    (a) The Transactions and the Transaction Compensation were 
corrected (1) pursuant to the requirements set forth in the 
Department's Voluntary Fiduciary Correction Program (the VFC Program) 
\2\ and (2) in a manner consistent with those transactions described in 
the Applicant's VFC Program application, dated March 5, 2010 (the VFC 
Program Application), that were substantially similar to the 
Transactions but that involved plans described in Code section 
4975(e)(1) and subject to Title I of ERISA (the Qualified Plan 
Transactions).
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    \2\ 71 FR 20262 (April 19, 2006).
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    (b) The Applicant received a ``no-action letter'' from the 
Department in connection with the Qualified Plan Transactions described 
in the VFC Program Application.
    (c) An independent fiduciary confirmed that the methods utilized to 
correct the Transactions and Transaction Compensation were sufficient 
to return each affected IRA to at least the position that it would have 
been in had the Transactions and Transaction Compensation not occurred, 
and that the correction methods were properly applied to the 
Transactions and Transaction Compensation based on a review of a 
representative sample of the corrections, selected at random by the 
independent fiduciary.
    For purposes of this exemption, a fiduciary is ``independent'' if 
it is independent of and unrelated to Applicant and its affiliates. In 
this regard, a fiduciary will not be deemed independent of Applicant 
and its affiliates if: (1) Such fiduciary directly or indirectly 
controls, is controlled by, or is under common control with Applicant 
or its affiliates, (2) such fiduciary directly or indirectly receives 
any compensation or other consideration in connection with any 
transaction described in this exemption, except that it may receive 
compensation for acting as an independent fiduciary from Applicant in 
connection with the transactions described herein, if the amount or 
payment of such compensation is not contingent upon, or in any way 
affected by such fiduciary's decision; or (3) the annual gross revenue 
received by the fiduciary, in any fiscal year, from Applicant or its 
affiliates exceeds one percent (1%) of the fiduciary's annual gross 
revenue from all sources (for federal income tax purposes) for its 
prior tax year.
    (d) The terms of the Transactions and the Transaction Compensation 
were at least as favorable to the IRAs as the terms generally available 
in arm's-length transactions between unrelated parties.
    (e) The Transactions and Transaction Compensation were not part of 
an agreement, arrangement or understanding designed to benefit a 
disqualified person, as defined in Code section 4975(e)(2).
    (f) The Applicant did not take advantage of the relief provided by 
the VFC Program and Prohibited Transaction Exemption 2002-51 \3\ (PTE 
2002-51) for three (3) years prior to the date of the Applicant's 
submission of the VFC Program Application.
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    \3\ 67 FR 70623 (Nov. 25, 2002), as amended, 71 FR 20135 (April 
19, 2006).
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Section III: General Conditions
    (a) The Applicant maintains, or causes to be maintained, for a 
period of six (6) years from the date of any Transaction such records 
as are necessary to enable the persons described in Section III(b)(1) 
to determine whether the conditions of this exemption have been met, 
except that:
    (1) A separate prohibited transaction shall not be considered to 
have occurred if, due to circumstances beyond the control of Applicant, 
the records are lost or destroyed prior to the end of the six-year 
period; and
    (2) No disqualified person with respect to an IRA, other than 
Applicant, shall be subject to excise taxes imposed by Code section 
4975, if such records are not maintained, or are not available for 
examination, as required by Section III(b)(1).
    (b)(1) Except as provided in Section III(b)(2), the records 
referred to in Section III(a) are unconditionally available at their 
customary location for examination during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of any IRA that engaged in a Transaction, or any 
duly authorized employee or representative of such fiduciary; or
    (C) Any owner or beneficiary of an IRA that engaged in a 
Transaction or a representative of such owner or beneficiary.
    (2) None of the persons described in Sections III(b)(1)(B) and (C) 
shall be authorized to examine trade secrets of Applicant, or 
commercial or financial information which is privileged or 
confidential.

[[Page 68836]]

    (3) Should Applicant refuse to disclose information on the basis 
that such information is exempt from disclosure, Applicant 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.
    Effective Date: If granted, this proposed exemption will be 
effective from January 4, 2002, until December 9, 2005.

Summary of Facts and Representations

    1. The Applicant is UBS Financial Services Inc., a wholly owned 
subsidiary of UBS AG. The Applicant is a large financial institution 
headquartered in Basel and Zurich, Switzerland. As of December 31, 
2011, UBS AG had invested assets of 2,167 billion CHF.
    2. From January 4, 2002, to December 9, 2005, contrary to the 
Applicant's policies, certain of Applicant's financial advisors (the 
FAs) caused Applicant to engage in a number of principal transactions 
involving IRAs for which the Applicant or the FA acted as an ERISA 
fiduciary. These principal transactions included: (a) 711 principal 
purchases of bonds from the Applicant, with an aggregate purchase price 
of $18,359,746 in 88 IRAs (the Bond Purchase Transactions) (b) 110 
principal sales of bonds to the Applicant, with an aggregate sales 
price of $4,257,643 in 45 IRAs (the Bond Sale Transactions); (c) 128 
principal purchases of stock from the Applicant, for an aggregate 
purchase price of $1,882,230 in 37 IRAs (the Stock Purchase 
Transactions); and (d) 1 principal sale of stock to the Applicant, for 
a sales price of less than $1 (the Stock Sale Transaction) 
(collectively, the Bond Purchase Transactions, the Bond Sale 
Transactions, the Stock Purchase Transactions and Stock Sale 
Transaction are referred to as the Transactions). A total of 105 IRAs 
were involved in the Transactions. (Some of the IRAs were involved in 
more than one type of transaction.)
    3. The Transactions caused the payment of compensation to the 
Applicant (Transaction Compensation). With respect to Bond Purchase 
Transactions and Bond Sale Transactions, the Applicant was compensated 
through a ``mark-up'' of the bond price; the aggregate amount of such 
mark-ups was $115,363. With respect to the Stock Purchase Transactions 
and the Stock Sale Transaction, the Applicant was compensated through 
commissions totaling $44,964.
    4. Upon discovering that certain of the FAs caused the Applicant to 
engage in the Transactions, the Applicant implemented changes to its 
policies and procedures to prohibit the opening of any brokerage 
accounts that would permit FAs to exercise discretion. The Applicant 
represents that the FAs can now only open accounts that would permit 
the exercise of discretion under a discretionary advisory program where 
principal trades are blocked.
    5. The Applicant seeks relief with respect to the Transactions and 
with respect to the payment of the Transaction Compensation. 
Specifically, the Applicant believes that: (a) The purchase and sale of 
securities, both bonds and stocks, between the IRAs and the Applicant 
was prohibited by Code section 4975(c)(1)(A); (b) both the Transactions 
and the payment of Transaction Compensation were prohibited by Code 
section 4975(c)(1)(D); and (c) the Transactions and the receipt of 
Transaction Compensation were prohibited by Code section 4975(c)(1)(E). 
The Applicant believes that, if the proposed exemption is not granted, 
the IRAs would be subject to hardship resulting from the uncertainty of 
not having the prohibited transactions outlined herein resolved. 
Further, if the proposed exemption is not granted, the IRAs would be 
subject to additional hardship as a result of the resultant uncertainty 
regarding the correction methodology applied by the Applicant.
    6. The Applicant represents that as soon as the Transactions and 
the Qualified Plan Transactions were discovered it began an 
investigation that led to the correction process. The Applicant 
corrected the Qualified Plan Transactions pursuant to the requirements 
set forth in the VFC Program. The Applicant filed a VFC Program 
Application, dated March 5, 2010, with respect to the Qualified Plan 
Transactions, and it received a no-action letter from the Department, 
dated February 4, 2011, with respect to the Qualified Plan 
Transactions.
    7. While the Qualified Plan Transactions were properly corrected 
under the VFC Program, the Applicant was not able to similarly correct 
the Transactions and the Transaction Compensation. Despite being 
substantially similar to the Qualified Plan Transactions, the 
Transactions and the Transaction Compensation are ineligible for relief 
under the VFC Program and PTE 2002-51 because they involved IRAs which 
are not covered under Title I of ERISA. The Applicant, however, 
believes that granting relief pursuant to the proposed exemption is 
consistent with the Department's statement that ``[the VFC Program] 
does not foreclose its future consideration of individual exemption 
requests for transactions involving IRAs that are outside the scope of 
relief provided by both the VFC Program and the class exemption under 
circumstance when, for example, a financial institution received a no 
action letter applicable only to plans subject to [the VFC Program] for 
a transaction(s) that involved both plans and * * * IRAs.'' 71 FR 
20135, 20137 (April 19, 2006).
    8. The Applicant represents that the Transactions were corrected 
pursuant to the requirements set forth in the VFC Program and in a 
manner consistent with the Applicant's VFC Program Application, with 
such representation made in the Applicant's exemption application, 
dated March 5, 2010, under penalty of perjury. In this regard, the 
Applicant corrected the Transactions in the manner described below:
    (a) With respect to the Bond Purchase Transactions, since bonds are 
debt instruments, the Applicant corrected the Bond Purchase 
Transactions, based on economic similarity to a loan transaction 
correction, under the procedures for loans made at a fair market 
interest rate in Section 7.2(a) of the VFC Program. The correction 
method for a loan, which is set forth in Section 7.2(a)(2) of the VFC 
program, is for the party in interest to pay back the loan in full, 
including any prepayment penalties. The Applicant represents that the 
Bond Purchase Transactions were conducted at fair market values (FMVs) 
because, among other things, the transactions were conducted using 
trading systems and procedures designed to result in trades being 
conducted at prices that are as favorable as possible to the IRAs under 
prevailing market conditions and were in fact conducted at prices not 
less favorable to the IRAs than the prices the FAs could have obtained 
for the IRAs by conducting the trades in arm's-length transactions with 
third-party market participants.
    (b) With respect to the Bond Sale Transactions and the Stock Sale 
Transaction, the Applicant corrected these Transactions under the 
procedures for sale of an asset by a plan to a party in interest under 
Section 7.4(b) of the VFC Program. Section 7.4(b)(2)(i) of the VFC 
Program generally requires that the asset be repurchased from the party 
in interest at the lower of the price for which it originally sold the 
property or the FMV of the property at the time of correction. As an 
alternative, Section 7.4(b)(2)(ii) of the VFC Program provides that a 
plan may receive a cash

[[Page 68837]]

settlement of the ``Principal Amount,'' defined as the amount by which 
the FMV of the asset at the time of original sale exceeds the original 
sales price, plus the greater of ``Lost Earnings,'' which is generally 
defined as the approximate amount that would have been earned by a plan 
on the Principal Amount but for the prohibited transaction, or the 
``Restoration of Profits,'' as described in Section 5(b) of the VFC 
Program, provided, that, an independent fiduciary determines that the 
applicable Plan would receive a greater benefit with such correction 
than by repurchase. The Applicant represents that ``Restoration of 
Profits,'' as defined under the VFC Program, did not apply with respect 
to the Transactions because no amounts were used for a specific purpose 
such that a profit was determinable. The Principal Amount for each of 
the Bond Sale Transactions and the Stock Sale Transaction was zero 
because the bond or the stock was sold at FMV.
    It was impractical or impossible for the IRAs to repurchase most of 
the bonds in the Bond Sale Transactions because most of the bonds had 
been called, matured, were thinly traded or not in the inventory of the 
Applicant or its affiliates. For the remaining bonds in the Bond Sale 
Transactions, none of the IRAs elected to repurchase the bond from the 
Applicant despite the Applicant's offer to sell the bond back to the 
IRA at the lower of the price for which the IRA originally sold the 
bond or the FMV of the bond at the time of correction. Therefore, the 
Applicant corrected all of the Bond Sale Transactions by paying the 
IRAs the Transaction Compensation, if any, plus Lost Earnings on the 
Transaction Compensation from the time of the Transaction.
    For the Stock Sale Transaction, it was impossible to repurchase the 
stock because the company had dissolved. Further, because no 
commissions were charged by the Applicant for the Stock Sale 
Transaction, no payment to the IRA with respect to compensation was 
necessary to correct the Stock Sale Transaction. Finally, since the 
Principal Amount with respect to the Stock Sale Transaction was zero, 
there were no Lost Earnings on the Principal Amount to pay to the IRA.
    (c) With respect to the Stock Purchase Transactions, the Applicant 
corrected the Stock Purchase Transactions under the procedures for the 
purchase by a plan of an asset from a party in interest pursuant to 
Section 7.4(a) of the VFC Program. Section 7.4(a) generally requires 
that the asset be sold back to the party in interest who originally 
sold the asset to the plan or to a person who is not a party in 
interest for a price equal to the greater of (1) the FMV of the asset 
at the time of resale, without reduction for the costs of sale, plus 
restoration to the plan of the party in interest's investment return 
from the proceeds of the sale, to the extent they exceed the plan's net 
profits from owning the property, or (2) the plan's original purchase 
price, plus the greater of Lost Earnings on the plan's original 
purchase price or the Restoration of Profits, if any. As an 
alternative, the plan may retain the asset and receive (1) the greater 
of the Lost Earnings or the Restoration of Profits, if any, on the 
original purchase price, but only to the extent that such Lost Earnings 
or Restoration of Profits exceeds the difference between the FMV of the 
asset as of correction and the original purchase price and (2) the 
amount by which the original purchase price exceeded the FMV of the 
asset (at the time of the original purchase), plus the greater of Lost 
Earnings or Restoration of Profits, if any, on such excess; provided, 
an independent fiduciary determined that the plan will realize a 
greater benefit from this correction than it would from the resale 
described in section 7.4(a)(2)(i) of the VFC Program. The Applicant 
corrected the Stock Purchase Transactions under the alternative 
correction methodology, taking into account any prior disposition of 
the stock by an IRA subsequent to the original purchase.
    9. With respect to the Applicant's correction of the Transactions, 
(a) the Applicant took into account all transaction costs (e.g., 
Transaction Compensation), if any, paid by the IRAs in calculating the 
corrective payments; and (b) the Applicant engaged an independent 
fiduciary, Evercore Trust Company. Evercore Trust Company stated that 
(x) the methods utilized to correct the Transactions were sufficient to 
return each affected IRA to at least the position that it would have 
been in had the Transactions not occurred, (y) the alternative 
correction method utilized for the Stock Purchase Transactions did not 
result in the affected IRAs being returned to more unfavorable 
financial positions than if the general correction method described in 
7.4(a) of the VFC Program been used instead, and (z) the correction 
methods were properly applied to the Transactions based on a review of 
a representative sample of the corrections.
    10. Evercore Trust Company confirmed to the Applicant that (a) 
during the period beginning with the date on which the earliest 
Transaction occurred and ending with the date Evercore Trust Company 
completed its engagement as an independent fiduciary with respect to 
the Transactions and the Transaction Compensation, it was not an entity 
that was directly or indirectly controlling, controlled by, or under 
common control with, the Applicant or its affiliates, (b) the 
compensation received by Evercore Trust Company from the Applicant for 
its services as an independent fiduciary with respect to the 
Transactions and the Transaction Compensation was not contingent upon, 
or in any way affected by, Evercore Trust Company's determination, and 
Evercore Trust Company did not, and will not, directly or indirectly 
receive any other compensation or consideration from the Applicant in 
connection with the Transactions or Transaction Compensation, and (c) 
for any fiscal year of Evercore Trust Company, during which, or during 
part of which, it acted as an independent fiduciary with respect to the 
Transactions or Transaction Compensation, or received any compensation 
from the Applicant for its services as an independent fiduciary with 
respect to the Transactions or Transaction Compensation (Subject Fiscal 
Year), the annual gross revenue received by Evercore Trust Company and 
its affiliates from the Applicant or its affiliates for the Subject 
Fiscal Year did not exceed one percent (1%) of the annual gross revenue 
received by Evercore Trust Company and its affiliates from all sources 
(for federal income tax purposes) for their most recent fiscal years 
that ended prior to the Subject Fiscal Year.
    11. The Applicant represents that it credited, or issued a check 
to, each IRA to which a corrective payment was due.
    12. The Applicant believes that the Transactions were inadvertent 
and resulted in the IRAs paying no more than the market price with 
respect to the Bond Purchase Transactions and the Stock Purchase 
Transactions, and receiving at least the market price with respect to 
the Bond Sale Transactions and the Stock Sale Transaction, because the 
Transactions were conducted using trading systems and procedures 
designed to result in trades being conducted at prices that are as 
favorable as possible to the IRAs under prevailing market conditions 
and were in fact conducted at prices not less favorable to the IRAs 
than the prices the FAs could have obtained for the IRAs by conducting 
the trades in arm's-length transactions with third-party market 
participants.
    13. The Applicant represents that it has not taken advantage of the 
relief provided by the VFC Program and PTE 2002-51 for the three (3) 
years prior to

[[Page 68838]]

the date of the Applicant's submission of the VFC Program Application, 
and that the Transactions were not part of an agreement, arrangement or 
understanding designed to benefit a disqualified person.
    14. The Applicant represents that the proposed exemption is: (a) 
Administratively feasible because the Applicant has corrected the 
Transactions pursuant to the requirements set forth in the VFC Program; 
has obtained relief under the VFC Program for the Qualified Plan 
Transactions; has put procedures in place to ensure that no similar 
Transactions occur in the future; and has obtained an opinion from an 
independent fiduciary, Evercore Trust Company, confirming that the 
methods utilized to correct the Transactions and Transaction 
Compensation were sufficient to return each affected IRA to at least 
the position that it would have been in had the Transactions and 
Transaction Compensation not occurred, and that the correction methods 
were properly applied to the Transactions and Transaction Compensation 
based on a review of a representative sample of the corrections, 
selected at random by the independent fiduciary; (b) in the interests 
of the affected IRAs and their owners and beneficiaries because the 
Transactions have been corrected pursuant to the procedures set forth 
in the VFC Program, which are designed to ensure that the corrections 
are made in a manner that is in the interests of the IRAs and their 
owners and beneficiaries; and (c) protective of the rights of the 
owners and beneficiaries of the IRAs because the requested relief is 
only with respect to past transactions, which the Applicant believes 
were conducted at prices no less favorable to the IRAs than prices the 
IRAs could have paid or received in arm's-length transactions with 
third party market participants, that have already been effectively 
unwound pursuant to the requirements set forth in the VFC Program.
    15. In summary, the Applicant represents that the Transactions and 
the Transaction Compensation satisfy the statutory criteria for an 
administrative exemption contained in Code section 4975(c)(2) because, 
among other things: (a) The Transactions and Transaction Compensation 
were substantially similar to the Qualified Plan Transactions; (b) the 
Transactions and Transaction Compensation were corrected pursuant to 
the requirements set forth in the VFC Program and in a manner similar 
to those described in the Applicant's VFC Program Application; (c) the 
Applicant received a ``no-action letter'' from the Department in 
connection with Applicant's VFC Program Application; (d) the Applicant 
obtained an opinion from an independent fiduciary, Evercore Trust 
Company, confirming that the methods utilized to correct the 
Transactions and Transaction Compensation were sufficient to return 
each affected IRA to at least the position that it would have been in 
had the Transactions and Transaction Compensation not occurred, and 
that the correction methods were properly applied to the Transactions 
and Transaction Compensation based on a review of a representative 
sample of the corrections, selected at random by the independent 
fiduciary; (e) the terms of the Transactions and the Transaction 
Compensation were at least as favorable to the IRAs as the terms 
generally available in arm's-length transactions between unrelated 
parties; (f) the Transactions and Transaction Compensation were not 
part of an agreement, arrangement or understanding designed to benefit 
a disqualified person; and (g) the Applicant did not take advantage of 
the relief provided by the VFC Program and PTE 2002-51 for three (3) 
years prior to the date of the Applicant's submission of the VFC 
Program Application.

FOR FURTHER INFORMATION CONTACT:  Mr. Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

Central Pacific Bank 401(k) Retirement and Savings Plan (the Plan), 
Located in Honolulu, HI

[Application No. D-11666]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I: Transactions
    If the proposed exemption is granted, effective for the period 
beginning April 11, 2011 and ending May 6, 2011, the restrictions of 
sections 406(a)(1)(A), 406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), 
and 407(a)(1)(A) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) and 4975(c)(1)(E) of the Code,\4\ shall not apply:
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    \4\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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    (a) To the acquisition of certain subscription right(s) (the Right 
or Rights) by the individually-directed account(s) (the Account or 
Accounts) of certain participant(s) in the Plan in connection with an 
offering (the Offering) of shares of common stock (the Stock) of 
Central Pacific Financial Corporation (CPFC) by CPFC, a party in 
interest with respect to the Plan; and
    (b) To the holding of the Rights received by the Accounts during 
the subscription period of the Offering; provided that the conditions, 
as set forth in Section II of this proposed exemption were satisfied 
for the duration of the acquisition and holding.
Section II: Conditions
    The relief provided in this proposed exemption is conditioned upon 
adherence to the material facts and representations described, herein, 
and as set forth in the application file, and upon compliance with the 
conditions, as set forth in this proposed exemption.
    (a) The receipt of the Rights by the Accounts occurred in 
connection with the Offering, and the Rights were made available by 
CPFC to all shareholders of the Stock of CPFC, including the Accounts;
    (b) The acquisition of the Rights by the Accounts resulted from an 
independent corporate act of CPFC;
    (c) Each shareholder of the Stock, including each of the Accounts, 
received the same proportionate number of Rights, and this 
proportionate number of Rights was based on the number of shares of 
Stock held by each such shareholder;
    (d) The Rights were acquired pursuant to, and in accordance with, 
provisions under the Plan for individually-directed investment of the 
Accounts by the individual participants in the Plan, all or a portion 
of whose Accounts in the Plan held the Stock (the Invested 
Participant(s));
    (e) The decision with regard to the holding and disposition of the 
Rights by an Account was made by the Invested Participant whose Account 
received the Rights;
    (f) If any of the Invested Participants failed to give instructions 
as to the exercise of the Rights received in the Offering, such Rights 
were sold in blind transactions on the New York Stock Exchange (NYSE) 
and the proceeds from such sales were distributed pro-rata to the 
Accounts in the Plan of such Invested Participants;
    (g) No brokerage fees, no commissions, and no fees or expenses

[[Page 68839]]

were paid by the Plan or by the Accounts to any related broker in 
connection with the sale of any of the Rights or in connection with the 
exercise of any of the Rights, and no brokerage fees, no commissions, 
no subscription fees, and no other charges were paid by the Plan or by 
the Accounts with respect to the acquisition and holding of the Stock; 
and
    (h) Based on the difference ($1.13) between the average proceeds 
per Right ($6.05) received by other holders who sold Rights during the 
Offering and the average proceeds per Right ($4.92) received by 
Invested Participants whose Accounts sold Rights, between April 26, 
2011 and May 3, 2011, CPFC will make a corrective payment to the Plan 
in the amount of $30,618.48 ($1.13 x 27,096 Rights sold), plus a lost 
earnings component on such amount, calculated at a 2.83% annual rate of 
interest for the period from May 6, 2011 to the date of the grant of 
this proposed exemption, and will distribute such corrective payment, 
and the lost earnings component, pro rata to the Accounts of each of 
the 186 Invested Participants whose Accounts in the Plan sold the 
27,096 Rights.
    Effective Date: This proposed exemption, if granted, will be 
effective for the period beginning on April 11, 2011, the commencement 
date of the Offering, and ending on May 6, 2011, the close of the 
Offering.

Summary of Facts and Representations

    1. The Plan is a defined contribution 401(k) retirement saving plan 
which provides for a cash and deferred arrangement. The Plan was 
adopted, effective as of November 1, 1985.\5\ The Plan obtained its 
latest determination letter from the Internal Revenue Service (the IRS) 
in 2002. Although the Plan has been amended since receiving the 
determination letter from the IRS, the administrator of the Plan and 
the tax counsel for the Plan believe that the Plan is designed and is 
currently being operated in compliance with the applicable requirements 
of the Code.
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    \5\ Effective July 1, 2003, December 31, 2004, December 31, 
2006, and July 26, 2007, respectively, the Central Pacific Bank 
Employee Stock Ownership Plan, the CB Bancshares, Inc. Profit 
Sharing Retirement Saving Plan, the CB Bancshares, Inc. ESOP, and 
the Hawaii HomeLoans, Inc. 401(k) Retirement Savings Plan were 
merged into the Plan.
---------------------------------------------------------------------------

    As of April 11, 2011, there were 1,115 participants in the Plan. 
The Plan is a participant directed account plan designed and operated 
to comply with the requirements of section 404(c) of the Act.
    The Plan is funded by elective employee contributions, as well as 
employer matching contributions, and discretionary employer profit 
sharing contributions in cash to the ESOP. It is represented that no 
discretionary contributions were made in 2008, 2009, and 2010. The fair 
market value of the total assets of the Plan, as of April 11, 2011, was 
$85,827,254. As of August 30, 2012, the fair market value of the Plan's 
assets was $90,594,733. 2. CPFC is the sponsor of the Plan. CPFC is a 
bank holding company, incorporated in the State of Hawaii on February 
1, 1982, as ``CPB Inc.'' CPFC's principal place of business is 
Honolulu, Hawaii.
    CPFC, a parent company, through its subsidiaries, offers full-
service commercial banking throughout the State of Hawaii and offers 
limited commercial banking services in certain areas of California. 
CPFC does not employ any persons other than the officers of the Central 
Pacific Bank (the Bank) and from time to time the support staff of the 
Bank. It is represented that substantially all of the activities of 
CPFC are conducted through the Bank.
    According to the Form 10-Q, as of March 3, 2012, on a consolidated 
basis, CPFC and its subsidiaries had total assets of $4,158,288,000, 
total liabilities of $3,680,848,000, and total stockholders' equity of 
$477,440,000.
    3. The Bank is a wholly-owned subsidiary of CPFC. The Bank is a 
full-service commercial bank incorporated in the State of Hawaii on 
March 16, 1982, with 34 branches and 120 ATMs located throughout the 
State of Hawaii. The Bank also has an office in California. The Bank 
offers a broad range of products and services, including accepting time 
and demand deposits, and originating commercial, construction, and 
consumer loans, and commercial and residential mortgages. All employees 
of the Bank, its subsidiaries, and certain other affiliated companies 
are covered by the Plan.
    4. Vanguard Fiduciary Trust Company (Vanguard) is the third party 
administrator, the trustee, and the custodian of the Plan. Vanguard, as 
trustee, has the responsibility of investing, holding, collecting, 
distributing, and accounting for the assets of the Plan in the trust.
    5. The Plan is administered by a committee (the Committee), which 
is composed of certain appointed employees of the Bank. The Committee 
has the responsibility of selecting the investment options of the trust 
into which the participants of the Plan can direct their contributions.
    6. Participants in the Plan are permitted to self-direct the 
investments in their Accounts based on certain options held under the 
Plan. Among the investment options offered to participants are various 
types of securities, including shares of the Stock held in the CPFC 
stock fund (the Stock Fund). Investment in the Stock Fund by the 
Accounts of participants in the Plan is entirely voluntary. It is 
represented that neither CPFC nor its subsidiaries contribute any 
capital Stock to the Plan. Instead all employer contributions are made 
in cash, and the Stock is acquired by the Accounts in the Plan only as 
a result of participant-directed investment decisions.
    The Plan provides that participants are entitled to direct the 
voting of the Stock held in their Accounts in the Plan. Vanguard, as 
trustee, has the responsibility of carrying out such directions. As of 
December 31, 2009, and December 31, 2010, respectively, the Plan 
investments included 938,180 shares and 893,122 shares of the Stock 
held in the Stock Fund.
    7. The Stock of CPFC is publicly-traded on the NYSE under the 
symbol ``CPF.'' The Stock has no par value. It is represented that the 
Stock is the same class of shares available to other investors. The 
Stock is a ``qualifying employer security,'' as defined under section 
407(d)(5) of the Act and 4975(e) of the Code.

Background

    8. On February 2, 2011, CPFC effected a one-for-twenty reverse 
stock split (the Reverse Stock Split) of the outstanding shares of 
Stock. As a result of the Reverse Stock Split, the outstanding shares 
of Stock decreased from 30,539,999 shares to 1,528,935 shares.
    As part of its recapitalization plan to raise $325 million from 
accredited investors in a private placement (the Private Placement), 
CPFC, on February 18, 2011, entered into subscription agreements with 
affiliates of the Carlyle Group and the Anchorage Capital Group, LLC 
and with various other investors. In this regard, CPFC sold 32,500,000 
shares of Stock at a price of $10 per share.
    On the same day, February 18, 2011, CPFC entered into an exchange 
agreement (the Exchange Agreement) with the United States Department of 
the Treasury (Treasury), pursuant to which the Treasury agreed, subject 
to the terms and conditions in the Exchange Agreement, to exchange 
135,000 shares of CPFC's preferred stock designated as Fixed Rate 
Cumulative Preferred Stock, having a liquidation amount of $1,000 per 
share, held by the Treasury and accrued and unpaid dividends thereon 
for 5,620,117 shares of CPFC's Stock, and amended a warrant held by the 
Treasury to reduce the

[[Page 68840]]

number of shares of Stock issuable upon exercise of the warrant from 
1,585,748 to 79,288 (the TARP Exchange).
    Following the closing of the Private Placement and the TARP 
Exchange, CPFC had 39,649,052 shares of Stock outstanding, as of April 
11, 2011. CPFC commenced the Offering whereby shareholders of record, 
as of 5 p.m. EST on the February 17, 2011 (the Record Date), would 
receive the Rights. CPFC represents that it conducted the Offering, 
because it wanted to provide existing shareholders and other investors, 
including the Accounts of Invested Participants in the Plan, who could 
not participate in the Private Placement, with the opportunity to 
purchase the Stock at the same price per share paid by the investors in 
the Private Placement.
    9. The Offering commenced on April 11, 2011, and closed on May 6, 
2011. It is represented that 2,000,000 shares of Stock were subscribed 
for by all shareholders. In this regard, the Offering was fully 
subscribed. There were valid exercises to purchase an aggregate of 
1,325,230 shares, pursuant to directions from holders of the basic 
Rights. The remaining 674,770 shares available to be issued in the 
Offering were allocated pro rata among the holders entitled to exercise 
the over-subscription privilege. It is represented that the exercise of 
the Rights resulted in gross proceeds for CPFC of $20,000,000.
    10. At the close of business on April 11, 2011, the date of the 
Offering, the Stock was trading on the NYSE at $19.43 per share. The 
closing price of the Stock on the ending date of the Offering on May 6, 
2011, was $13.70.
    11. Under the terms of the Offering, all shareholders of the Stock, 
including the Accounts of Invested Participants in the Plan, 
automatically received the Rights, at no charge. Each of the Rights 
entitled the shareholders of the Stock, including the Accounts of 
Invested Participants in the Plan, to purchase, through the exercise of 
such Rights, the Stock issued by CPFC in connection with the Offering. 
With respect to the Rights, under the terms of the Offering, one (1) 
Right was issued for each whole share of the Stock held by each 
shareholder, including the Accounts of Invested Participants in the 
Plan, on the Record Date.
    12. The Rights entitled the holders thereof to a basic right to 
subscribe for their pro rata share of $20 million dollars' worth of 
Stock issued by CPFC, as well as an over-subscription privilege to 
subscribe for additional shares of Stock, subject to certain 
limitations and allocation procedures, up to the number of shares of 
Stock that were not subscribed for by the other holders of the Rights, 
pursuant to their basic Rights.
    However, the over-subscription privilege was conditioned on each 
shareholder first exercising their basic Rights in full. Because the 
Accounts of Invested Participants in the Plan did not exercise all of 
their basic Rights in full and, because, as a practical matter it was 
unlikely that all of the Accounts of Invested Participants in the Plan 
would do so, given the number of Invested Participants in the Plan 
whose Accounts held the Stock, the over-subscription privilege was not 
available to Rights attributable to the Accounts of Invested 
Participants in the Plan.
    13. All shareholders of the Stock, including the Accounts of 
Invested Participants in the Plan, held the Rights until such Rights 
were exercised, or such Rights were sold. With regard to the exercise 
of the Rights, it is represented that the Rights could only be 
exercised in whole numbers. Upon exercise, each of the Rights permitted 
a shareholder of the Stock, including each of the Accounts of Invested 
Participants in the Plan, to purchase 1.3081 shares of Stock at a 
subscription price of $10.00 per share (such amount is represented to 
take into account the Reverse Stock Split that occurred on February 2, 
2011). Fractional shares of Stock resulting from the exercise of basic 
Rights on an aggregate basis as to any holder of such Rights, including 
the Accounts of Invested Participants in the Plan, were rounded down to 
the nearest whole number.
    A shareholder, including each of the Accounts of Invested 
Participants in the Plan, had the right to choose to exercise some, 
all, or none of its Rights. The election to exercise, some, all or none 
of its Rights had to be received by 5 p.m. EST on April 29, 2011, by 
the tabulation agent, Wells Fargo Bank, NA Shareowner Services (WFSS), 
in order to allow sufficient processing time. The election to exercise 
any of the Rights was irrevocable.
    14. With regard to the sale of the Rights, it is represented that 
the Rights were transferable. Further, it is represented that the 
Rights were traded on the NYSE. Any Rights that were not exercised 
either as a result of a partial exercise or as a result of insufficient 
assets in an Account to cover an exercise (excluding the assets in the 
Stock Fund), or as a result of a failure to timely return the election 
form were automatically sold on the NYSE to unrelated third parties by 
Vanguard, as trustee, acting on behalf of each such Account. The 
proceeds from such sale were credited pro rata to the Plan Accounts of 
Invested Participants.
    15. The Invested Participants were notified of the issuance of the 
Rights in a news release, in a posting on the CPFC's Web site, and in 
various letters and email communications from CPFC during the month of 
April 2011. In addition, each of the Invested Participants was also 
provided detailed information regarding the Rights Offering, including 
a copy of the prospectus which described the Offering, a document 
providing frequently asked questions and answers regarding the 
Offering, an election form, a return envelope addressed to WFSS, the 
tabulating agent, and a statement indicating the number of shares of 
Stock each such Invested Participant held in his/her Account in the 
Plan, as of the Record Date.
    16. In order to exercise some or all of the Rights, an Invested 
Participant \6\ had to complete an election form and to submit such 
election form to WFSS by the close of business on the fifth (5th) 
business day (April 29, 2011, at 5 p.m. EST), prior to the expiration 
of the Offering on May 6, 2011.\7\
---------------------------------------------------------------------------

    \6\ It is represented that the Accounts of the Invested 
Participants in the Plan rely on the relief provide by the statutory 
exemption, pursuant to section 408(e) of the Act for the exercise of 
the Rights.
    The Department is offering no view, as to whether the 
requirements of the statutory exemption provided in section 408(e) 
of the Act have been satisfied. Further, the Department, herein, is 
not providing any relief with respect to the exercise of the Rights.
    \7\ It is represented that the extra five (5) business days were 
required to provide sufficient time to process all such elections by 
the Accounts of Invested Participants in the Plan to exercise their 
Rights, tabulate and confirm the results, liquidate each such 
Invested Participant's funds, confirm the orders and the 
availability of such funds, and remit payment to purchase the 
shares. It is represented that non-Plan shareholders were also 
required to submit their election forms five (5) days prior to the 
expiration of the Offering.
---------------------------------------------------------------------------

    Each Invested Participant who submitted an election form was 
required to indicate on such election form a sufficient amount of 
current investments in the Account of such Invested Participant in the 
Plan (other than the assets in the Stock Fund) to be liquidated on a 
pro-rated basis to cover the purchase of Stock in connection with the 
exercise of the Rights. The pro-rated funds were segregated from the 
other investments within the Invested Participant's Account into a 
separate holding fund (the Rights Fund) at Vanguard which was 
established in anticipation of the Offering. Vanguard placed the order 
to purchase the Stock with the subscription agent, Wells Fargo Bank, 
N.A. (Wells Fargo Bank), a registered broker-dealer that is unrelated

[[Page 68841]]

to CPFC and the Plan. It is represented that the Rights Fund was 
liquidated, and cash equal to the necessary subscription payment was 
transferred to the Wells Fargo Bank. Following the closing of the 
Offering, the purchased shares of Stock were then converted back to the 
equivalent number of units of the Plan's Stock Fund and credited to the 
Account of the Invested Participant.
    17. As of the Record Date, February 17, 2011, 287 Accounts of 
Invested Participants in the Plan held the Stock. As of the Record 
Date, the approximate percentage of the fair market value of the total 
assets of the Plan invested in the Stock was two percent (2%). Also, as 
of the Record Date, the shares of Stock held in the Accounts of 
Invested Participants in the Plan constituted approximately three 
percent (3%) of the shares of Stock outstanding.
    18. It is represented that based on the ratio of one (1) Right for 
each share of Stock held by the Accounts of Invested Participants, the 
Plan acquired 46,327 Rights as a result of the Offering. Of the Rights 
received by the Plan on behalf of Accounts of the Invested 
Participants, all such Rights were either exercised or sold. None of 
the Rights expired.
    Of the 46,327 Rights received by the Accounts of Invested 
Participants as a result of the Offering, it is represented that 19,231 
Rights held by 102 Accounts of Invested Participants in the Plan were 
exercised for Stock. It is represented that on May 19, 2011, the 
Accounts of the Invested Participants in the Plan received the Stock 
purchased as a result of the exercise of the Rights. It is further 
represented that the Stock purchased in connection with the Offering 
was eligible for trading on NYSE by the Accounts of the Invested 
Participants in the Plan on May 19, 2011.
    Unlike the other holders of the Rights, the Invested Participants 
whose Accounts in the Plan received the Rights were not permitted to 
sell the Rights throughout the period April 11-25, 2012, due to Plan 
administrative constraints. However, of the 46,327 Rights received by 
the Accounts of Invested Participants as a result of the Offering, it 
is represented that over the period from April 26, 2011 to May 3, 2011, 
the Invested Participants of 186 Accounts sold 27,096 Rights on the 
NYSE. On May 9, 2011, the Accounts of those Invested Participants 
received the proceeds from the sales of such Rights totaling 
$133,339.44.
    Based on the difference ($1.13) between the average proceeds per 
Right ($6.05) received by other holders who sold Rights during the 
Offering and the average proceeds per Right ($4.92) received by 
Invested Participants whose Accounts sold Rights, between April 26, 
2011 and May 3, 2011, CPFC will make a corrective payment to the Plan 
in the amount of $30,618.48 ($1.13 x 27,096 Rights sold). Further, CPFC 
proposes to include a lost earnings component on the amount of the 
corrective payment calculated at a 2.83% annual rate of interest for 
the period from May 6, 2011, to the date of the grant of this proposed 
exemption. It is represented that the interest rate on the lost 
earnings component was calculated taking the greater of the weighted 
average return for all investment funds available under the Plan and 
the average return for the Retirement Savings Trust (the stable value 
fund under the Plan in which the proceeds from the sale of the Rights 
were distributed). CPFC will distribute such corrective contribution, 
plus the lost earnings component, pro rata to each of the 186 Invested 
Participants whose Accounts in the Plan sold Rights.
    19. No brokerage fees, no commissions, no subscription fees, and no 
other charges were paid by the Plan or by any of the Accounts of 
Invested Participants in the Plan with respect to the acquisition and 
holding of the Stock and no brokerage fees, no commissions, and no fees 
or expenses were paid by the Plan or by any of the Accounts of Invested 
Participants in the Plan to any related broker in connection with the 
sale of the Rights or in connection with the exercise of the Rights.

Requested Relief

    20. The application was filed on behalf of CPFC. In this regard, 
CPFC has requested an exemption: (a) For the acquisition of the Rights 
by the Accounts of the Invested Participants in the Plan in connection 
with the Offering of Rights by CPFC; and (b) for the holding of the 
Rights by the Accounts of the Invested Participants in the Plan during 
the subscription period of the Offering.
    It is represented that the Rights acquired by the Accounts of 
Invested Participants in the Plan satisfy the definition of ``employer 
securities,'' pursuant to section 407(d)(1) of the Act. However, as the 
Rights were not stock or a marketable obligation, such Rights do not 
meet the definition of ``qualifying employer securities,'' as set forth 
in section 407(d)(5) of the Act. Accordingly, the subject transactions 
constitute an acquisition and holding on behalf of the Accounts of 
Invested Participants in the Plan, of employer securities which are not 
qualifying employer securities, in violation of section 407(a) of the 
Act, for which CPFC has requested relief from sections 406(a)(1)(A), 
406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) of the Act. CPFC has also 
requested relief from the prohibitions of section 406(b)(1) and 
406(b)(2) of the Act.
    21. It is represented that the subject transactions have already 
been consummated. In this regard, the Accounts of Invested Participants 
in the Plan acquired the Rights pursuant to the Offering on April 11, 
2011, and held such Rights pending the closing of the Offering on May 
6, 2011, when such Rights either were exercised or sold. As there was 
insufficient time between the dates when the Accounts of Invested 
Participants in the Plan acquired the Rights and when such Rights were 
exercised or sold, to apply for and be granted an exemption, CPFC is 
seeking a retroactive exemption to be granted, effective from April 11, 
2011, the date that the Accounts of Invested Participants in the Plan 
acquired the Rights, to May 6, 2011, the closing date of the Offering.
    22. CPFC represents that the proposed exemption is administratively 
feasible. In this regard, the acquisition and holding of the Rights by 
the Accounts of Invested Participants in the Plan were one-time 
transactions that involved an automatic distribution of the Rights to 
all shareholders. It is represented that it is customary for 
corporations to make a rights offering available to all shareholders.
    23. CPFC represents that the transactions which are the subject of 
this proposed exemption are in the interest of the Accounts of Invested 
Participants in the Plan, because the subject transactions represented 
a valuable opportunity to such Accounts to buy the Stock at a discount 
or to sell the Rights. It is represented that this discount could be 
realized by the Accounts of Invested Participants in the Plan by 
selling the Stock immediately after the exercise of the Rights and 
investing the proceeds from such sale of the Stock in other investment 
options under the Plan.
    24. CPFC represents that the proposed exemption provides sufficient 
safeguards for the protection of the Accounts of Invested Participants 
in the Plan and the beneficiaries of such Accounts. In this regard, 
participation in the Offering protected the Accounts of the Invested 
Participants in the Plan from having their interests in CPFC diluted as 
a result of the Offering.
    It is further represented that the interests of the Accounts of 
Invested Participants in the Plan were adequately protected in that 
such Accounts acquired and held the Rights automatically as a result of 
the Offering. In addition, CPFC made the Rights

[[Page 68842]]

available on the same terms to all shareholders of the Stock, including 
the Accounts. In this regard, each shareholder of the Stock, including 
each of the Accounts, received the same proportionate number of Rights, 
and this proportionate number of Rights was based on the number of 
shares of Stock held by such shareholder.
    The Accounts of Invested Participants in the Plan were protected 
against economic loss by exercising the Rights or by selling the 
Rights. It is represented that the closing price of the Stock on May 6, 
2011, was $13.70 per share which was in excess of the strike price of 
$10.00 per share.
    25. In summary, CPFC represents that the subject transactions 
satisfy the statutory criteria of section 408(a) of the Act and section 
4975(c)(2) of the Code because:
    (a) The receipt of the Rights by the Accounts occurred in 
connection with the Offering, and the Rights were made available by 
CPFC to all shareholders of the Stock of CPFC, including the Accounts;
    (b) The acquisition of the Rights by the Accounts resulted from an 
independent corporate act of CPFC;
    (c) Each shareholder of the Stock, including each of the Accounts, 
received the same proportionate number of Rights, and this 
proportionate number of Rights was based on the number of shares of 
Stock held by such shareholder;
    (d) The Rights were acquired pursuant to, and in accordance with, 
provisions under the Plan for individually-directed investment of the 
Accounts by the Invested Participants, all or a portion of whose 
Accounts in the Plan held the Stock;
    (e) The decision with regard to the holding and disposition of the 
Rights by an Account was made by the Invested Participant whose Account 
received the Rights;
    (f) If any of the Invested Participants failed to give instructions 
as to the exercise of the Rights received in the Offering, such Rights 
were sold in blind transactions on the NYSE and the proceeds from such 
sales were distributed pro-rata to the Accounts in the Plan of such 
Invested Participants;
    (g) No brokerage fees, no commissions, and no fees or expenses were 
paid by the Plan or by the Accounts to any related broker in connection 
with the sale of any of the Rights or in connection with the exercise 
of any of the Rights, and no brokerage fees, no commissions, no 
subscription fees, and no other charges were paid by the Plan or by the 
Accounts with respect to the acquisition and holding of the Stock; and
    (h) Based on the difference ($1.13) between the average proceeds 
per Right ($6.05) received by other holders who sold Rights during the 
Offering and the average proceeds per Right ($4.92) received by 
Invested Participants whose Accounts sold Rights, between April 26, 
2011 and May 3, 2011, CPFC will make a corrective payment to the Plan 
in the amount of $30,618.48 ($1.13 x 27,096 Rights sold), plus a lost 
earnings component on such amount calculated at a 2.83% annual rate of 
interest for the period from May 6, 2011 to the date of the grant of 
this proposed exemption, and will distribute such corrective payment, 
and the lost earnings component, pro rata to the Accounts of each of 
the 186 Invested Participants whose Accounts in the Plan sold Rights.

Notice to Interested Persons

    The persons who may be interested in the publication in the Federal 
Register of the Notice of Proposed Exemption (the Notice) include all 
Invested Participants whose Accounts in the Plan were invested in the 
Stock at the time of the Offering.
    It is represented that all such interested persons will be notified 
of the publication of the Notice by first class mail, to each such 
interested person's last known address within fifteen (15) days of 
publication of the Notice in the Federal Register. Such mailing will 
contain a copy of the Notice, as it appears in the Federal Register on 
the date of publication, plus a copy of the Supplemental Statement, as 
required, pursuant to 29 CFR 2570.43(a)(2), which will advise all 
interested persons of their right to comment and to request a hearing. 
All written comments and/or requests for a hearing must be received by 
the Department from interested persons within 45 days of the 
publication of this proposed exemption in the Federal Register.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8551. (This is not a toll-free number.)

Studley, Inc. Section 401(k) Profit Sharing Plan (the Plan), Located in 
New York, NY

[Application No. D-11672]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR Part 
2570 Subpart B (55 FR 32836, 32847, August 10, 1990). If the proposed 
exemption is granted, the restrictions of section 406(a)(1)(A) and (D) 
and section 406(b) of the Act, and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A), (D), (E) and (F) of the Code, shall not apply to the 
sale (the Sale) of an 8.828121% partnership interest (the Interest) in 
the Julien J. Studley N Street Partnership, a general partnership (the 
JJS Partnership), by the Plan to Studley, Inc. (the Employer), a party 
in interest with respect to the Plan, provided that the following 
conditions are satisfied:
    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's length 
transaction with an unrelated third party;
    (c) The Interest is sold for $900,000;
    (d) The Sale is consummated within two weeks after the date a final 
exemption regarding the Sale is published in the Federal Register;
    (e) If, (1) within seven years of the date of the Sale of the 
Interest to the Employer, (i) the Employer sells the Interest, (ii) JJS 
Partnership sells its interest in N19 Associates LLC (N19 Associates), 
or (iii) N19 Associates sells its building on N Street, Washington, DC, 
and (2) the net amount realized by the Employer in respect of the 
Interest upon and by reason of such sale, exceeds the sum of (i) the 
$900,000 price paid for the Interest, and (ii) any capital contributed 
by the Employer to the JJS Partnership in respect of the Interest after 
the date of the Sale and any other funds paid or advanced by the 
Employer to, or on behalf of, the JJS Partnership in respect of the 
Interest after the date of the Sale, the Employer will contribute such 
excess amount to the Plan within two weeks of its receipt by the 
Employer;
    (f) The Plan pays no commissions, fees, or other expenses in 
connection with the Sale; and
    (g) The Plan has not waived or released and does not waive or 
release any claims, demands, and/or causes of

[[Page 68843]]

action that the Plan may have against the Employer or the Plan 
fiduciaries in connection with the acquisition and holding of the 
Interest or Sale of the Interest to the Employer.

Summary of Facts and Representations

    1. The Studley, Inc. Section 401(k) Profit Sharing Plan (the Plan) 
is sponsored by Studley, Inc. (the Employer or the Applicant), located 
in New York, New York. Julien Studley (Mr. Studley) was the founder of 
the Employer. Pursuant to a buyout, all of his shares in the Employer 
not held in an employee benefit plan were purchased on December 12, 
2002, by the Employer, at which time Mr. Studley resigned as a voting 
member from the Employer's Board of Directors. He remained a non-voting 
member until June 2004. Since then, Mr. Studley has not held any 
position with, or interest in, the Employer (other than shares held in 
employee benefit plans). The Employer is in the business of providing 
commercial real estate advisory, brokerage and related services.
    The Plan had 61 participants and beneficiaries, as of November 14, 
2011. Based on the most recently available audited financial 
statements, the total value of the Plan's assets was $26,830,211, as of 
December 31, 2010. The Plan's trustee is T. Rowe Price Trust Company. 
The trust agreement indicates that the trustee takes direction from the 
named fiduciary (the Named Fiduciary), which is the Employer. The Plan 
has a non-participant directed profit sharing component in which it 
holds real estate investments, as well as a 401(k) component which is 
participant directed.
    2. Among the assets of the Plan is an 8.828121% interest (the 
Interest) in the Julien J. Studley N Street Partnership (JJS 
Partnership), a general partnership in which the Employer and the Plan 
are both general partners. The Applicant represents that there are 
currently eight other members in the JJS Partnership in addition to the 
Employer and the Plan. No other employee benefit plans are members of 
the JJS Partnership.
    The managing partners of the JJS Partnership are Mr. Studley and 
Mr. Peter Speier, and neither the Plan nor the Employer has management 
responsibilities. The JJS Partnership was formed and capitalized on or 
about December 28, 1976. The Applicant represents that the Interest was 
acquired by the Plan in 1982 for $45,000 and is held under an ancillary 
trust agreement (the Ancillary Trust Agreement), with Mitchell Steir 
and Michael Colacino as trustees.\8\ Mr. Steir is the Chairman of the 
Board and Chief Executive Officer of the Employer while Mr. Colacino is 
the President of the Employer. Under the Ancillary Trust Agreement, the 
trustees are subject to the direction of the Employer, as Named 
Fiduciary, with respect to the investment and disposition of the trust 
fund assets.
---------------------------------------------------------------------------

    \8\ Pursuant to the Ancillary Trust Agreement, a separate trust 
was established to hold the Plan's real estate investments. As part 
of its investigation (see Representation 4, below), the Department's 
New York Regional Office (NYRO) inquired whether the Plan's 
acquisition of the Interest was a purchase or a contribution by the 
Employer. The Plan's records are incomplete on this matter.
---------------------------------------------------------------------------

    3. The Applicant represents that the JJS Partnership was formed for 
the purpose of holding an interest in an entity known as N19 
Associates. The JJS Partnership holds a 32% interest in N19 Associates, 
which owns a building on N Street in Washington, DC (the Building). The 
Plan's effective interest in the Building is 2.825%, which is 8.828121% 
of 32%.
    4. The NYRO opened an investigation of the Plan and found that the 
Plan's interest in the JJS Partnership is an illiquid and hard-to-value 
asset.\9\ The Plan has been unable, in at least two instances, to make 
requested distributions to Plan participants because of the Plan's 
investment in the Interest. In addition, certain recent annual reports 
(Forms 5500) filed for the Plan have not reflected a current valuation 
for the Interest.\10\ The NYRO and the Applicant agreed that the Plan 
should liquidate its investment in the JJS Partnership in order to be 
able to make the distributions to eligible participants. Because the 
Interest is an illiquid asset, Studley is requesting an exemption that, 
if granted, would permit Studley to purchase the Interest from the 
Plan.
---------------------------------------------------------------------------

    \9\ The reasons for these characterizations are discussed in 
Representation 5, below.
    \10\ The Internal Revenue Service (the IRS) examined the Plan 
and determined that prohibited transactions had been entered into 
involving loans to the Plan from the Employer for the years 2002 
through 2006. The prohibited transactions were corrected on December 
22, 2006 and the Employer filed Forms 5330 for the years 2002 
through 2006 and paid the resulting excise taxes.
---------------------------------------------------------------------------

    5. The Applicant represents that N19 Associates is controlled by 
Melvin and Edward Lenkin, who are not affiliated with the Employer or 
the JJS Partnership. The JJS Partnership has commenced litigation 
against the Lenkins based, in part, upon their refusal to provide 
current information regarding the Building. Due to the disagreement 
among the parties, the Applicant represents, among other things, that 
JJS Partnership has been unable to obtain and provide to the Plan the 
information that would enable the Plan to obtain a current appraisal of 
the Interest by an independent appraiser. The most recently available 
independent appraisal assigns the Interest a value of $670,000, as of 
November 3, 2006, which reflects a 25% minority discount by reason of 
the Plan's holding a minority, non-controlling interest. This was the 
value for the Interest used in the Plan's audited financial statements 
as of December 31, 2010.
    6. The Applicant represents that the most recent expression of 
interest from an unrelated party [i.e., Goldstar Real Estate Fund II, 
LP (Goldstar)] in purchasing the Building received by the JJS 
Partnership on August 2, 2010 was $45 million. However, the potential 
sale of the Building to Goldstar could not be consummated in the 
absence of a current independent appraisal of the Building, which is 
currently not obtainable due to the lack of cooperation among the 
parties, as described in Representation 5, above. Therefore, the 
Employer proposes to purchase the Interest from the Plan for $900,000 
on the following basis: After deducting N19 Associates' mortgage and 
other liabilities and expenses associated with the sale, a $45 million 
purchase price for the Building would result in $900,000 of net 
proceeds to the Plan in respect of the Interest. It is represented that 
this price is very favorable to the Plan because it does not reflect 
any discount for the fact that the JJS Partnership and the Plan hold 
only minority, non-controlling interests, and the discounting of 
minority, non-controlling interests is a recognized principle of 
valuation.\11\ Assuming a sale (the Sale) of the Interest for $900,000, 
the Applicant represents that the Plan will achieve an average annual 
rate of return of approximately 11.5% per annum, based on Plan records 
of cash amounts received or paid by the Plan during the term of this 
investment (except for two years \12\ for which no records are 
available). This calculation includes capital calls paid by the Plan.
---------------------------------------------------------------------------

    \11\ This representation was made by the Applicant to both the 
Department's Office of Exemption Determinations and the NYRO.
    \12\ Although no records are available for the years 1982 and 
2001, the NYRO reviewed the available pertinent records and 
concluded that the Sale, based upon the terms described herein, 
would enable the NYRO to close its investigation.
---------------------------------------------------------------------------

    The Applicant represents that according to its available records, 
the Plan has received approximately $167,690 in cash distributions from 
the JJS Partnership during the time it has

[[Page 68844]]

held the Interest.\13\ Specifically, according to the Applicant, the 
Plan has historically received a portion of the rental income generated 
by the Building. However, this source of revenue has been retained 
pending completion of the litigation described above. The Applicant 
requests that the scope of relief contained in this proposed exemption 
include relief from section 406(b)(3) of ERISA (as well as section 
406(a)(1)(A) and (D) and section 406(b)(1) and (2) of ERISA) since the 
Employer may receive from the Partnership, subsequent to the Sale, the 
Plan's current share of the undistributed revenue. According to the 
Applicant, such amount is not currently quantifiable due to the 
litigation and other factors that are outside of the control of 
Studley. The Applicant stresses that it is in the best interests of the 
Plan to consummate the Sale as soon as possible in order to provide 
liquidity to the Plan, rather than to delay the date of the Sale until 
after the litigation is resolved. The Applicant reiterates that the 
amount of the Sale represents the best price the Plan may be expected 
to receive for the Interest.
---------------------------------------------------------------------------

    \13\ The Applicant also represents that the Plan has paid 
approximately $18,645 in capital calls. Thus, based on the available 
figures, the Plan has received a net distribution of $149,045.
---------------------------------------------------------------------------

    7. In addition, the Employer has included in the terms of the 
proposed Sale a ``true-up'' provision that the Employer will contribute 
an additional amount to the Plan if (a) within seven years of the date 
of the Sale of the Interest to the Employer, (i) the Employer sells the 
Interest, (ii) JJS Partnership sells its interest in N19 Associates, or 
(iii) N19 Associates sells the Building, and (b) the net amount 
realized by the Employer in respect of the Interest upon and by reason 
of such Sale, exceeds the sum of (i) the $900,000 price paid for the 
Interest, and (ii) any capital contributed by the Employer to the JJS 
Partnership in respect of the Interest after the date of the Sale and 
any other funds paid or advanced by the Employer to, or on behalf of, 
the JJS Partnership in respect of the Interest after the date of the 
Sale. The Employer will contribute such excess amount to the Plan 
within two weeks of its receipt by the Employer. Such contribution will 
be allocated to the Plan accounts of participants who were invested in 
the Interest at the time of the Sale.\14\ The Applicant also represents 
that if, within seven years of the date of the Sale of the Interest by 
the Plan to the Employer, the Employer, in its sole discretion, elects 
to fund any capital call in respect of its own interest (that it owned 
prior to the subject Sale) in the JJS Partnership, then, and only then, 
will the Employer be obligated to the Plan to fund such capital call in 
respect of the Interest.
---------------------------------------------------------------------------

    \14\ It is represented that the Plan's recordkeeper T. Rowe 
Price will determine the affected Plan accounts in connection with 
both the Sale of the Interest to the Employer and any future 
additional contribution by the Employer per the true-up provision of 
the Purchase and Sale Agreement.
---------------------------------------------------------------------------

    8. The Applicant represents that the requested exemption for the 
Sale of the Plan's Interest to the Employer is in the interest of the 
Plan because it will enable the participants and beneficiaries to 
realize the value of the Interest and receive requested distributions 
in respect of their investment therein. The Applicant also represents 
that the requested exemption is also protective of the rights of the 
participants and beneficiaries of the Plan because the Sale price 
reflects the best information available to the Employer of the 
Interest's current fair market value, with no discount taken for a 
minority, non-controlling interest. Moreover, according to the 
Applicant, the ``true-up'' provision gives the participants and 
beneficiaries of the Plan protection against a down market and allows 
their full participation in any up market for the next seven years.
    The Applicant also represents that the Sale of the Interest will be 
a one-time transaction for cash, and the Plan will incur no fees, 
commissions, or other expenses in connection with the Sale. Further, 
the Employer will bear the costs of the exemption application and 
notification of interested persons.
    9. In consideration of the following conditions, the Department has 
tentatively determined that the Sale will satisfy the statutory 
criteria for an exemption under section 408(a) of the Act: (a) The Sale 
will be a one-time transaction for cash; (b) the terms and conditions 
of the Sale will be at least as favorable to the Plan as those that the 
Plan could obtain in an arm's length transaction with an unrelated 
third party; (c) the Interest will be sold for $900,000; (d) the Sale 
will be consummated within two weeks after the date a final exemption 
regarding the Sale is published in the Federal Register; (e) If, (1) 
within seven years of the date of the Sale of the Interest to the 
Employer, (i) the Employer sells the Interest, (ii) JJS Partnership 
sells its interest in N19 Associates LLC (N19 Associates), or (iii) N19 
Associates sells its building on N Street, Washington, DC, and (2) the 
net amount realized by the Employer in respect of the Interest upon and 
by reason of such sale, exceeds the sum of (i) the $900,000 price paid 
for the Interest, and (ii) any capital contributed by the Employer to 
the JJS Partnership in respect of the Interest after the date of the 
Sale and any other funds paid or advanced by the Employer to, or on 
behalf of, the JJS Partnership in respect of the Interest after the 
date of the Sale, the Employer will contribute such excess amount to 
the Plan within two weeks of its receipt by the Employer; (f) the Plan 
will pay no commissions, fees, or other expenses in connection with the 
Sale; and (g) the Plan has not waived or released and does not waive or 
release any claims, demands, and/or causes of action that the Plan may 
have against the Employer or the Plan fiduciaries in connection with 
the acquisition and holding of the Interest or Sale of the Interest to 
the Employer.

Notice to Interested Persons

    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Mr. Eric A. Raps of the Department, 
telephone (202) 693-8532. (This is not a toll-free number.)

EquiLend Holdings LLC (EquiLend), Located in New York, New York

    [Application No. D-11724]

Proposed Amendment to Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting the following 
amendment to Prohibited Transaction Exemption 2002-30 (67 FR 39069) 
under the authority of ERISA section 408(a), section 8477(c)(3) of the 
Federal Employees' Retirement System Act of 1986 (FERSA) and Code 
section 4975(c)(2), and in accordance with the procedures set forth in 
29 CFR Part 2570, Subpart B (76 FR 66637, 66644, October 27, 2011), as 
follows:
Section I. Sale of Equilend Products to Plans
    If the proposed exemption is granted, the restrictions of ERISA 
section 406(a)(1)(A) and (D) and the sanctions resulting from the 
application of Code section 4975(a) and (b), by reason of Code section 
4975(c)(1)(A) and (D), shall not apply, effective October 1, 2012, to 
the sale or licensing of certain data and/or analytical tools to a plan 
by EquiLend, a party in interest with respect to such plan.

[[Page 68845]]

    This exemption, if granted, would be subject to the following 
conditions:
    (a) The terms of any such sale or licensing are at least as 
favorable to the plan as the terms generally available in an arm's-
length transaction involving an unrelated party;
    (b) Any data sold/licensed to the plan will be limited to:
    (1) Current and historical data related to transactions, whether or 
not proposed or occurring on EquiLend's electronic securities lending 
platform (the Platform) or,
    (2) Data derived from current and historical data using statistical 
or computational techniques; and
    (c) Each analytical tool sold/licensed to the plan will be an 
objective statistical or computational tool designed to permit the 
evaluation of securities lending activities.
Section II. Use of Platform by Owner Lending Agent/Sale of Equilend 
Products to Plans Represented by Owner Lending Agent/Provision of 
Securities Lending Data Involving Plans to Equilend by Owner Lending 
Agent
    If the proposed exemption is granted, the restrictions of ERISA 
sections 406(a)(1)(A) and (D) and 406(b), FERSA section 8477(c)(2), and 
the sanctions resulting from the application of Code section 4975(a) 
and (b), by reason of Code section 4975(c)(1)(A) and (D) through (F), 
shall not apply, effective October 1, 2012, to: (1) The participation 
in the Platform by an equity owner of EquiLend (an Equity Owner), in 
its capacity as a securities lending agent for a plan (an Owner Lending 
Agent); (2) the sale or licensing of certain data and/or analytical 
tools by EquiLend to a plan for which an Equity Owner acts as a 
securities lending agent; and (3) the provision by an Owner Lending 
Agent to EquiLend of securities lending data based on off-Platform 
securities lending transactions conducted by an Owner Lending Agent on 
behalf of a plan.
    This proposed exemption, if granted, would be subject to the 
following conditions:
    (a) In the case of participation in the Platform on behalf of a 
plan, to the extent an applicable exemption is required, the securities 
lending transactions conform to the provisions of Prohibited 
Transaction Class Exemption (PTE) 2006-16 (71 FR 63786 (Oct. 31, 2006)) 
(or its successor), and/or any applicable individual exemption;
    (b) None of the fees imposed by EquiLend for securities lending 
transactions conducted through the use of the Platform at the direction 
of an Owner Lending Agent will be charged to a plan;
    (c) Each securities lender and securities borrower participating in 
a securities lending transaction through EquiLend will be notified by 
EquiLend as to its responsibilities with respect to compliance, as 
applicable, with ERISA, the Code, and FERSA. This requirement may be 
met by including such notification in the participation, subscription 
or other user agreement required to be executed by each participant in 
EquiLend;
    (d) EquiLend will not act as a principal in any securities lending 
transaction involving plan assets;
    (e) Each Owner Lending Agent will provide prior written notice to 
its plan clients of its intention to participate in EquiLend;
    (f)(1) Except as otherwise provided in paragraph (i), the 
arrangement pursuant to which the Owner Lending Agent utilizes the 
services of EquiLend on behalf of a plan for securities lending:
    (A) Is subject to the prior written authorization of an independent 
fiduciary (an authorizing fiduciary) as defined in paragraph (b) of 
Section III). For purposes of subparagraph (f)(1), the requirement that 
the authorizing fiduciary be independent shall not apply in the case of 
an Equity Owner Plan;
    (B) May be terminated by the authorizing fiduciary, without penalty 
to the plan, within the lesser of: (i) The time negotiated for such 
notice of termination by the plan and the Owner Lending Agent, or (ii) 
five business days. Notwithstanding the foregoing, the requirement for 
prior written authorization will be deemed satisfied in the case of any 
plan for which the authorizing fiduciary has previously provided 
written authorization to the Owner Lending Agent pursuant to PTE 2006-
16 (or any predecessor or successor thereto), unless such authorizing 
fiduciary objects to participation in the Platform in writing to the 
Owner Lending Agent within 30 days following disclosure of the 
information described in paragraphs (e) and (g) of this Section to such 
authorizing fiduciary;
    (2) Except as otherwise provided in paragraph (i), each purchase or 
license of a securities lending-related product from EquiLend on behalf 
of a plan by an Owner Lending Agent:
    (A) Is subject to the prior written authorization of an authorizing 
fiduciary. For purposes of subparagraph (f)(2), the requirement for 
prior written authorization shall not apply to any purchase or 
licensing of an EquiLend securities lending-related product by an 
Equity Owner Plan if the fee or cost associated with such purchase or 
licensing is not paid by the Equity Owner Plan; and
    (B) May be terminated by the authorizing fiduciary within: (i) The 
time negotiated for such notice of termination by the plan and the 
Owner Lending Agent; or (ii) five business days, whichever is lesser, 
in either case without penalty to the plan, provided that, such 
authorizing fiduciary shall be deemed to have given the necessary 
authorization in satisfaction of this subparagraph (f)(2) with respect 
to each specific product purchased or licensed pursuant thereto unless 
such authorizing fiduciary objects to the Owner Lending Agent within 15 
days after the delivery of information regarding such specific product 
to the authorizing fiduciary in accordance with paragraph (g) of this 
exemption; and
    (3) Except as otherwise provided in paragraph (i), provision by an 
Owner Lending Agent to EquiLend of securities lending data based on 
off-Platform securities lending transactions conducted on behalf of a 
plan:
    (A) Is subject to the prior written authorization of an authorizing 
fiduciary; and
    (B) May be terminated by the authorizing fiduciary with respect to 
the future provision of data within the lesser of (i) the time 
negotiated for such notice of termination by the plan and the Owner 
Lending Agent or (ii) five business days, in either case without 
penalty to the plan. Notwithstanding the foregoing, the requirement for 
prior written authorization will be deemed satisfied unless such 
authorizing fiduciary objects to provision by the Owner Lending Agent 
to EquiLend of such data in writing to the Owner Lending Agent within 
30 days following disclosure of the information described in paragraph 
(g) of this Section to such authorizing fiduciary.
    (g) The authorization(s) described in paragraph (f) of this Section 
shall not be deemed to have been made unless the Owner Lending Agent 
has furnished the authorizing fiduciary with any reasonably available 
information that the Owner Lending Agent reasonably believes to be 
necessary for the authorizing fiduciary to determine whether such 
authorization should be made, and any other reasonably available 
information regarding the matter that the authorizing fiduciary may 
reasonably request. This includes, but is not limited to: (1) a 
statement that the Equity Owner, as securities lending agent, has a 
financial interest in the successful operation of EquiLend, (2) a

[[Page 68846]]

statement, provided on an annual basis, that the authorizing fiduciary 
may terminate the arrangement(s) described in (f) above at any time, 
and (3) a statement that the Owner Lending Agent intends to provide to 
EquiLend securities lending data based on off-Platform securities 
lending transactions conducted by the Owner Lending Agent on behalf of 
the plan;
    (h) Any purchase or licensing of data and/or analytical tools with 
respect to securities lending activities by a plan pursuant to this 
Section complies with the relevant conditions of Section I and will be 
authorized in advance by an authorizing fiduciary in accordance with 
the applicable procedures of paragraphs (f), (g) and (i);
    (i) 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 (Commingled Investment Fund), the 
requirements of paragraph (f) of this Section shall not apply, provided 
that--
    (1) The information described in paragraph (g) (including 
information with respect to any material change in the arrangement) of 
this Section and a description of the operation of the Platform 
(including a description of the fee structure paid by securities 
lenders and borrowers), shall be furnished by the Owner Lending Agent 
to the authorizing fiduciary (described in paragraph (b) of Section 
III) with respect to each plan whose assets are invested in the account 
or fund, not less than 30 days prior to implementation of any such 
arrangement or material change thereto, or, not less than 15 days prior 
to the purchase or license of any specific securities lending-related 
product, and, where requested, upon the reasonable request of the 
authorizing fiduciary. For purposes of this subparagraph, the 
requirement that the authorizing fiduciary be independent shall not 
apply in the case of an Equity Owner Plan;
    (2) In the event any such authorizing fiduciary notifies the Owner 
Lending Agent that it objects to participation in the Platform, or to 
the purchase or license of any EquiLend securities lending-related tool 
or product, or to the further provision by an Owner Lending Agent to 
EquiLend of securities lending data based on off-Platform securities 
lending transactions conducted on behalf of the plan, the 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 plan, 
within such time as may be necessary to effect the withdrawal in an 
orderly manner that is equitable to all withdrawing plans and to the 
non-withdrawing plans. In the case of a 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 or 
purchase or license, but any existing arrangement need not be 
discontinued by reason of a plan electing to withdraw; and
    (3) In the case of a plan whose assets are proposed to be invested 
in the pooled account or fund subsequent to the implementation of the 
arrangements and which has not authorized the arrangements in the 
manner described in paragraphs (i)(1) and (i)(2), the plan's investment 
in the account or fund shall be authorized in the manner described in 
paragraph (f)(1)(A), (f)(2)(A), and (f)(3)(A);
    (j) The Equity Owner, together with its affiliates (as defined in 
Section III(a)), does not own at the time of the execution of a 
securities lending transaction on behalf of a plan by the Equity Owner 
(i.e., in its capacity as Owner Lending Agent) through EquiLend or at 
the time of the purchase, or commencement of licensing, of data and/or 
analytical tools by the plan, more than 20% of:
    (1) If EquiLend is a corporation, including a limited liability 
company taxable as a corporation, the combined voting power of all 
classes of stock entitled to vote or the total value of shares of all 
classes of stock of EquiLend, or
    (2) If EquiLend is a partnership, including a limited liability 
company taxable as a partnership, the capital interest or the profits 
interest of EquiLend;
    (k) Any information, authorization, or termination of authorization 
may be provided by mail or electronically; and
    (l) No Equity Owner Plan, as defined in Section III(e), will 
participate in the Platform, other than through a Commingled Investment 
Fund in which the aggregate investment of all Equity Owner Plans at the 
time of the transaction constitutes less than 20% of the total assets 
of such fund. Notwithstanding the foregoing, this prohibition shall not 
apply to the participation by an Equity Owner Plan as of the date that 
the aggregate loan balance of all securities lending transactions 
entered into through EquiLend by all participants outstanding on such 
date (excluding transactions entered into on behalf of Equity Owner 
Plans) is equal to or greater than $10 billion; provided that if such 
aggregate loan balance is later determined to be less than $10 billion, 
no additional participation by an Equity Owner Plan (other than through 
a Commingled Investment Fund) shall occur until such time as the $10 
billion threshold amount is again met.
Section III. Definitions
    For purposes of this proposed exemption:
    (a) An ``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 other person;
    (2) Any officer, director, partner, employee, relative (as defined 
in ERISA section 3(15)) of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner.
    For purposes of this paragraph, the term ``control'' means the 
power to exercise a controlling influence over the management or 
policies of a person other than an individual.
    (b) The term ``authorizing fiduciary'' means, with respect to an 
Owner Lending Agent, a plan fiduciary who is independent of such Owner 
Lending Agent. In this regard, an authorizing fiduciary will not be 
considered independent of an Owner Lending Agent if:
    (1) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with the Owner Lending Agent; or
    (2) Such fiduciary directly or indirectly receives any compensation 
or other consideration from the Owner Lending Agent or an affiliate for 
his or her own personal account in connection with any securities 
lending transaction described herein; provided that Commingled 
Investment Funds and Equity Owner Plans maintained by such Owner 
Lending Agent or an affiliate will not be deemed affiliates of such 
Owner Lending Agent for purposes of this subparagraph (2).
    For purposes of Section II, no Equity Owner or any affiliate may be 
an authorizing fiduciary except in the case of an Equity Owner Plan. 
Notwithstanding the foregoing, the requirements for consent by an 
authorizing fiduciary with respect to participation in the Platform, 
and the annual right of such fiduciary to terminate such participation, 
shall be deemed met to the extent that the Owner Lending Agent's 
proposed utilization of the services of EquiLend on behalf of a plan 
for securities lending has been approved by an order of a United States 
district court.

[[Page 68847]]

    (c) The term ``Owner Lending Agent'' means an Equity Owner in its 
capacity as a fiduciary of a plan acting as securities lending agent in 
connection with the loan of plan assets that are securities.
    (d) The term ``Equity Owner'' means an entity that either directly 
or through an affiliate owns an equity ownership interest in EquiLend.
    (e) The term ``Equity Owner Plan'' means a plan which is 
established or maintained by an Equity Owner of EquiLend as an employer 
of employees covered by such plan, or by its affiliate.
    (f) The terms ``plan'' means:
    (1) An ``employee benefit plan'' within the meaning of ERISA 
section 3(3), subject to Part 4 of Subtitle B of Title I of ERISA,
    (2) A ``plan'' that is within the meaning of Code section 
4975(e)(1) and subject to Code section 4975, or
    (3) The Federal Thrift Savings Fund.
    Effective Date: The proposed exemption would be effective October 
1, 2012 with respect to arrangements entered into on or after that 
date. The provisions of PTE 2002-30 shall continue to apply to 
arrangements entered into before October 1, 2012.

Summary of Facts and Representations

    1. The applicant is EquiLend, a Delaware limited liability company 
established on May 16, 2001. As of March 15, 2012, the equity owners of 
EquiLend were as follows: BlackRock, Credit Suisse, JP Morgan Clearing 
Corp., JP Morgan Chase, Merrill Lynch, Morgan Stanley, State Street, 
Goldman Sachs, Northern Trust and UBS, or affiliates of the foregoing 
entities. The applicant represents that, as of March 15, 2012, each 
equity owner owned 10 percent of EquiLend.
    2. The applicant submitted a request that Prohibited Transaction 
Exemption 2002-30 (67 FR 39069) (PTE 2002-30) be amended. PTE 2002-30 
was originally promulgated on June 6, 2002, and it permits: (1) The 
sale or licensing of certain data and/or analytical tools to an 
employee benefit plan by EquiLend; (2) participation in the Platform by 
an equity owner of EquiLend (an Equity Owner), in its capacity as a 
securities lending agent for the plan (an Owner Lending Agent); and (3) 
the sale or licensing of certain data and/or analytical tools by 
EquiLend to a plan for which an Equity Owner acts as an Owner Lending 
Agent. Unless otherwise noted, the facts and representations of PTE 
2002-30, are integrated herein.\15\
---------------------------------------------------------------------------

    \15\ The applicant represents that, to the best of its 
knowledge, EquiLend has complied with all applicable conditions set 
forth in PTE 2002-30.
---------------------------------------------------------------------------

    3. The applicant represents that, as permitted under Section I of 
PTE 2002-30, EquiLend currently sells and/or licenses certain data to 
plans. Consistent with the terms of the individual exemption, this data 
is: (A) Historical in nature and relates to transactions proposed or 
occurring on the system; or (B) derived from current and historical 
data utilizing statistical or computational techniques. In this regard, 
the applicant notes that Section I(b) of PTE 2002-30 requires that, 
with respect to the sale or licensing of certain data and/or analytical 
tools to an employee benefit plan by EquiLend:

    (b) Any data sold/licensed to the plan will be limited to: (1) 
current and historical data related to transactions proposed or 
occurring on the Platform or, (2) data derived from current and 
historical data using statistical or computational techniques.

    4. The applicant is seeking to amend Section I(b) of PTE 2002-30, 
effective October 1, 2012. The applicant notes that Section I(b) of PTE 
2002-30 limits the types of data that may be licensed or sold by 
EquiLend. Specifically, Section I(b) precludes the sale or licensing of 
data to a plan by Equilend where such data sold/licensed involves the 
use of current or historical data related to transactions that are 
proposed or occurring off the Platform. The applicant believes, 
however, that access to off-Platform securities lending data by plans 
will further enhance EquiLend's existing client service functionality 
via the Platform by expanding the information that is available to 
plans. The applicant states that the addition of additional data to the 
Platform enhances the ability of a plan to evaluate the performance of 
lending agents and the returns on lending portfolios.
    5. The applicant, therefore, requests that the Department revise 
Section I(b) of PTE 2002-30 in a manner that would permit, effective 
October 1, 2012, EquiLend to use, sell or license data relating to 
transactions occurring off the Platform to plans. If this proposed 
amendment is granted, Section I(b) of PTE 2002-30 will provide that:


    (b) Any data sold/licensed to the plan will be limited to:
    (1) Current and historical data related to transactions, whether 
or not proposed or occurring on EquiLend's electronic securities 
lending platform (the Platform) or,
    (2) Data derived from current and historical data using 
statistical or computational techniques.

    6. In the applicant's view, affected plans would be adequately 
protected with respect to the sale and licensing by EquiLend of this 
off-Platform data. In this regard, the applicant notes that Section 
I(b) of PTE 2002-30 limits the type of data that may be sold and 
licensed by EquiLend to current and historical data related to 
securities lending transactions, or data derived from current and 
historical data using statistical or computational techniques. Further, 
the applicant notes that the terms of any sale or licensing of data 
must be at least as favorable to the plan as the terms generally 
available in an arm's-length transaction involving an unrelated party. 
The applicant represents that these limitations/conditions are 
sufficient to ensure that plans would be adequately protected to the 
extent Section I(b) of PTE 2002-30 is revised to include any current 
and historical data related to transactions proposed occurring off the 
Platform.\16\
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    \16\ The proposed amended exemption does not provide relief 
under Section I from ERISA section 406(a)(1)(C) with respect to the 
use of the Platform on behalf of a plan by a lending fiduciary which 
is not an Equity Owner. In this regard, the applicant and the 
lending fiduciaries intend to rely on ERISA section 408(b)(2) to the 
extent any such relief is necessary.
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    7. The applicant also seeks to amend Section II of PTE 2002-30, 
effective October 1, 2012. Section II presently permits: (1) 
Participation in the Platform by an Equity Owner, in its capacity as an 
Owner Lending Agent; and (2) the sale or licensing of certain data and/
or analytical tools by EquiLend to a plan for which an Equity Owner 
acts as an Owner Lending Agent. The applicant notes that Section II of 
the individual exemption does not permit the provision by an Owner 
Lending Agent to EquiLend of securities lending data based on off-
Platform securities lending transactions conducted by an Owner Lending 
Agent on behalf of a plan.
    8. However, for the same reasons stated above, the applicant 
believes that access to off-Platform securities lending data by plans 
will further enhance EquiLend's existing client service functionality 
via the Platform by expanding the information that is available to 
plans. The applicant, therefore, requests that the Department amend PTE 
2002-30 to permit, effective October 1, 2012, the provision by an Owner 
Lending Agent to EquiLend of securities lending data based on off-
Platform securities lending transactions conducted by an Owner Lending 
Agent on behalf of a plan. The applicant notes that, if this proposed 
amendment is adopted, the three categories of transactions covered by 
Section II would be: (1) The participation in the Platform by an Equity 
Owner, in its capacity as an Owner Lending Agent; (2) the sale or 
licensing of certain data and/

[[Page 68848]]

or analytical tools by EquiLend to a plan for which an Equity Owner 
acts as a securities lending agent; and (3) the provision by an Owner 
Lending Agent to EquiLend of securities lending data based on off-
Platform securities lending transactions conducted by an Owner Lending 
Agent on behalf of a plan.
    9. The applicant believes that affected plans would be adequately 
protected with respect to the proposed amendment to Section II. In this 
regard, a new condition is proposed in Section II that would be 
applicable to the new category of transactions that would be covered 
therein. To the extent an Owner Lending Agent provides to EquiLend data 
based on off-Platform securities lending transactions conducted on 
behalf of plans, prior to such provision of data, each Owner Lending 
Agent will disclose to a plan's authorizing fiduciary who is 
independent of the Owner Lending Agent and EquiLend (other than in case 
of an Equity Owner Plan) that such Owner Lending Agent intends to 
provide to EquiLend data based on off-Platform securities lending 
transactions conducted on behalf the plan. Thereafter, the plan's 
authorizing fiduciary must consent to provision of such data by the 
Owner Lending Agent to EquiLend (such authorizing fiduciary will be 
deemed to have given the required authorization unless such authorizing 
fiduciary objects in writing to the provision to EquiLend of data based 
on off-Platform securities lending transactions conducted on behalf of 
the plan to the Owner Lending Agent within 30 days after disclosure of 
such information). This authorization may be terminated with respect to 
the future provision of data by the authorizing fiduciary without 
penalty to the plan, within the lesser of: (i) The time negotiated for 
such notice of termination by the plan and the Owner Lending Agent, or 
(ii) five business days.\17\
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    \17\ The Department notes that ERISA's general standards of 
fiduciary conduct also would apply. In this regard, ERISA section 
404 requires, among other things, a fiduciary to discharge his 
duties respecting a plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent manner. Accordingly, 
an independent plan fiduciary must act prudently with respect to: 
(1) The decision to enter into the described arrangement; and (2) 
the negotiation of the terms of such arrangement including any 
payment of compensation. The Department further emphasizes that it 
expects plan fiduciaries, prior to entering into any of the proposed 
arrangements, to fully understand the extent of the services to be 
provided, the fee structure and the risks associated with these 
types of arrangements following disclosure by the service provider 
of all relevant information. In addition, the Department notes that 
such plan fiduciaries are responsible for periodically monitoring 
the services provided.
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    10. The applicant notes that Section II of PTE 2002-30 contains 
other conditions that are designed to ensure that plans are adequately 
protected with respect to this amendment, if adopted. Specifically, 
conditions (a) through (j) of the individual exemption require that:
    (A) In the case of participation in the Platform on behalf of a 
plan, to the extent applicable the procedures regarding the securities 
lending activities conform to the provisions of PTE 2006-16 (or its 
successor), and/or any applicable individual exemption;
    (B) None of the fees imposed by EquiLend for securities lending 
transactions conducted through the use of the Platform at the direction 
of an Owner Lending Agent will be charged to a plan;
    (C) Each securities lender and securities borrower participating in 
a securities lending transaction through EquiLend will be notified by 
EquiLend as to its responsibilities with respect to compliance, as 
applicable, with ERISA, the Code, and FERSA;
    (D) Equilend will not act as a principal in any security lending 
transaction involving plan assets;
    (E) Each Equity Owner will provide prior written notice to its plan 
clients of its intention to participate in EquiLend;
    (F) The arrangement pursuant to which the Equity Owner utilizes the 
services of EquiLend on behalf of a plan:
    (1) Is subject to the prior written authorization of an authorizing 
fiduciary;
    (2) May be terminated by the authorizing fiduciary, without penalty 
to the plan, within the lesser of: (i) The time negotiated for such 
notice of termination by the plan and the Equity Owner, or (ii) five 
business days;
    (G) With certain limited exceptions, each purchase or license of a 
securities lending-related product from EquiLend is subject to the 
prior authorization of an authorizing fiduciary;
    (H) The Equity Owner will furnish each authorizing fiduciary with 
any reasonably available information which the Equity Owner reasonably 
believes to be necessary to determine whether such authorization should 
be made or renewed;
    (I) The provision by an Owner Lending Agent to EquiLend of data 
based on off-Platform securities lending transactions conducted on 
behalf of a plan:
    (1) Is subject to the prior authorization of an authorizing 
fiduciary ;
    (2) May be terminated by the authorizing fiduciary with respect to 
the future provision of data, without penalty to the plan, within the 
lesser of: (i) The time negotiated for such notice of termination by 
the plan and the Equity Owner, or (ii) five business days; and
    (J) The Equity Owner, together with its affiliates, does not own at 
the time of the execution of a securities lending transaction on behalf 
of a plan by the Equity Owner through EquiLend or at the time of the 
purchase, or commencement of licensing, of data and/or analytical tools 
by the plan, more than 20% of EquiLend.
    11. In summary, the applicant represents that this proposed 
amendment to PTE 2002-30 satisfies the statutory criteria for an 
administrative exemption contained in ERISA section 408(a) and Code 
section 4975(c)(2) because, among other things: (a) The proposed 
amendment to Section I and Section II of PTE 2002-30 will be 
administratively feasible and protective of and in the best interests 
of the plans and their participants and beneficiaries because of the 
conditions set forth originally and for the same reasons as set forth 
originally in PTE 2002-30; and (b) the proposed amendment to Section II 
of PTE 2002-30 will be additionally protective of the rights of 
participants and beneficiaries because each Owner Lending Agent will 
disclose to a plan's authorizing fiduciary who is independent of the 
Owner Lending Agent and EquiLend (other than in case of an Equity Owner 
Plan) that such Owner Lending Agent intends to provide to EquiLend data 
based on off-Platform securities lending transactions conducted on 
behalf a plan. Further, the plan's authorizing fiduciary must consent 
to the provision of such data by the Owner Lending Agent to EquiLend.

Notice to Interested Parties

    The applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified and therefore 
the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register. Comments and requests for a hearing 
must be received by the Department not later than 30 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section

[[Page 68849]]

4975(c)(2) of the Code does not relieve a fiduciary or other party in 
interest or disqualified person from certain other provisions of the 
Act and/or the Code, including any prohibited transaction provisions to 
which the exemption does not apply and the general fiduciary 
responsibility provisions of section 404 of the Act, which, among other 
things, require a fiduciary to discharge his duties respecting the plan 
solely in the interest of the participants and beneficiaries of the 
plan and in a prudent fashion in accordance with section 404(a)(1)(b) 
of the Act; nor does it affect the requirement of section 401(a) of the 
Code that the plan must operate for the exclusive benefit of the 
employees of the employer maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 9th day of November, 2012.
Lyssa E. Hall,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2012-27849 Filed 11-15-12; 8:45 am]
BILLING CODE 4510-29-P