EBSA (Formerly PWBA) Federal Register Notice
Grant of Individual Exemptions; Investors Savings Bank Pension Plan (the Plan) [10/08/2002]
[PDF Version]
Volume 67, Number 195, Page 62827-62832
[[Page 62827]]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2002-47; Exemption Application No. D-
10989 et al.]
Grant of Individual Exemptions; Investors Savings Bank Pension
Plan (the Plan)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
being granted solely by the Department because, effective December 31,
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
(1996), transferred the authority of the Secretary of the Treasury to
issue exemptions of the type proposed to the Secretary of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Investors Savings Bank
Pension Plan (the Plan) Located in Milburn, New Jersey
[Prohibited Transaction Exemption 2002-47; Exemption Application
No. D-10989]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the past sales by the Plan of certain securities
(the Securities) to Investors Savings Bank, a party in interest with
respect to the Plan, provided that the following conditions were
satisfied: (1) Each sale was a one-time transaction for cash; (2) the
Plan paid no commissions nor other expenses relating to the sales; (3)
for each Security that was publicly traded, the Plan received an amount
equal to the highest, as of the date of the sale, of (a) the Plan's
cost, (b) the book value, or (c) the fair market value of the Security,
as determined by an independent, third-party market source; and (4) for
each Security that was not publicly traded, the Plan received an amount
equal to its cost for the Security, which was in excess of the fair
market value of the Security on the date of the sale.
Effective Date: The exemption is effective as of January 4, 1999.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on August 9, 2002 at 67 FR
51877.
For Further Information Contact: Ms. Karin Weng of the Department,
telephone (202) 693-8540. (This is not a toll-free number.)
Deutsche Bank AG and Its Affiliates Located in Frankfurt am Main,
Germany
[Prohibited Transaction Exemption 2002-48; Exemption Application No. D-
10991]
Exemption
Section I--Transactions
The restrictions of section 406(a)(1)(A) through (D) of the Act and
the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall
not apply, as of April 24, 2001, to
(a) The lending of securities, under certain ``exclusive
borrowing'' arrangements, to
(1) Deutsche Bank AG (Deutsche Bank) (including the New York Branch
of Deutsche Bank (DBNY)); or
(2) Its affiliates Deutsche Bank Securities Inc. (DBS), Deutsche
Bank Trust Company Americas (DBT), the ``Foreign Borrowers'' (as
defined in Section III), and any branch or affiliate of Deutsche Bank
that, now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer or a U.S. bank (collectively,
with Deutsche Bank, referred to as the ``Borrowers,'' as defined in
Section III) by employee benefit plans (Plans), including commingled
investment funds holding assets of such Plans, with respect to which
the Borrowers are a party in interest; and
(b) the receipt of compensation by Deutsche Bank or its affiliates
in connection with the securities lending transactions, provided that
the conditions, set forth in Section II, are satisfied.
Section II--Conditions
(a) For each Plan, neither the Borrower nor any affiliate has or
exercises discretionary authority or control over the Plan's investment
in the securities available for loan, nor do they render investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets.
(b) The party in interest dealing with the Plan is a party in
interest with respect to the Plan (including a fiduciary) solely by
reason of providing services to the Plan, or solely by reason of a
relationship to a service provider described in section 3(14)(F), (G),
(H), or (I) of the Act.
(c) The Borrower directly negotiates an exclusive borrowing
agreement (the Borrowing Agreement) with a Plan fiduciary that is
independent of the Borrower and its affiliates.
(d) The terms of each loan of securities by a Plan to a Borrower
are at least as favorable to such Plan as those of a comparable arm's
length transaction between unrelated parties, taking into account the
exclusive arrangement.
(e) In exchange for granting the Borrower the exclusive right to
borrow certain securities, the Plan receives from the Borrower either
(i) a flat fee (which may be equal to a percentage of the value of the
total securities subject to the Borrowing Agreement from time to time),
(ii) a periodic payment that is equal to a percentage of the value of
the total balance of the outstanding borrowed securities, or (iii) any
combination of (i) and (ii) (collectively,
[[Page 62828]]
the Exclusive Fee). If the Borrower deposits cash collateral, all the
earnings generated by such cash collateral shall be returned to the
Borrower--provided that the Borrower may, but shall not be obligated
to, agree with the independent fiduciary of the Plan that a percentage
of the earnings on the collateral may be retained by the Plan, or the
Plan may agree to pay the Borrower a rebate fee and retain the earnings
on the collateral (the Shared Earnings Compensation). If the Borrower
deposits non-cash collateral, all earnings on the non-cash collateral
shall be returned to the Borrower--provided that the Borrower may, but
shall not be obligated to, agree to pay the Plan a lending fee (the
Lending Fee) (the Lending Fee and the Shared Earnings Compensation are
collectively referred to as the ``Transaction Lending Fee''). The
Transaction Lending Fee, if any, shall be either in addition to the
Exclusive Fee or an offset against such Exclusive Fee. The Exclusive
Fee and the Transaction Lending Fee may be determined in advance or
pursuant to an objective formula, and may be different for different
securities or different groups of securities subject to the Borrowing
Agreement. Any change in the Exclusive Fee or the Transaction Lending
Fee that the Borrower pays to the Plan with respect to any securities
loan requires the prior written consent of the independent fiduciary of
the Plan, except that consent is presumed where the Exclusive Fee or
the Transaction Lending Fee changes pursuant to an objective formula.
Where the Exclusive Fee or the Transaction Lending Fee changes pursuant
to an objective formula, the independent fiduciary of the Plan must be
notified at least 24 hours in advance of such change and such
independent Plan fiduciary must not object in writing to such change,
prior to the effective time of such change.
(f) The Borrower may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to the
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage, or other percentage determined pursuant to
an objective formula.
(g) By the close of business on or before the day the loaned
securities are delivered to the Borrower, the Plan receives from the
Borrower (by physical delivery, book entry in a securities depository
located in the United States, wire transfer, or similar means)
collateral consisting of U.S. currency, securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by a U.S. bank other than
Deutsche Bank or any affiliate thereof, or any combination thereof, or
other collateral permitted under Prohibited Transaction Exemption (PTE)
81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754, May 19,
1987) (and as further amended or superseded).\1\ Such collateral will
be deposited and maintained in an account which is separate from the
Borrower's accounts and will be maintained with an institution other
than the Borrower. For this purpose, the collateral may be held with a
third party, an affiliate of the Borrower, or a branch of Deutsche Bank
other than the Borrower that is a trustee or custodian of the Plan. If
maintained by an affiliate of the Borrower or a branch of Deutsche Bank
other than the Borrower, the collateral will be segregated from the
assets of such affiliate or branch.
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\1\ PTE 81-6 provides an exemption under certain conditions from
section 406(a)(1)(A) through (D) of the Act and the corresponding
provisions of section 4975(c) of the Code for the lending of
securities that are assets of an employee benefit plan to a U.S.
broker-dealer registered under the Securities Exchange Act of 1934
(the 1934 Act) (or exempted from registration under the 1934 Act as
a dealer in exempt Government securities, as defined therein) or to
a U.S. bank, that is a party in interest with respect to such plan.
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(h) The market value (or in the case of a letter of credit, the
stated amount) of the collateral initially equals at least 102 percent
of the market value of the loaned securities on the close of business
on the day preceding the date of the loan and, if the market value of
the collateral at any time falls below 100 percent (or such higher
percentage as the Borrower and the independent fiduciary of the Plan
may agree upon) of the market value of the loaned securities, the
Borrower delivers additional collateral on the following day to bring
the level of the collateral back to at least 102 percent. The level of
the collateral is monitored daily by the Plan or its designee, which
may be Deutsche Bank or any of its branches or affiliates, including
DBT, which provides custodial or directed trustee services in respect
of the securities covered by the Borrowing Agreement for the Plan. The
Borrowing Agreement will provide the Plan with a continuing security
interest in, and a lien on, the collateral, or will provide for the
transfer of title to the collateral to the Plan.
(i) Before entering into a Borrowing Agreement, the Borrower
furnishes to the Plan the most recent publicly available audited and
unaudited statements of its financial condition, as well as any
publicly available information which it believes is necessary for the
independent fiduciary to determine whether the Plan should enter into
or renew the Borrowing Agreement--provided, however, that in the case
of a Borrower that is a branch of Deutsche Bank, the Borrower will
furnish to the Plan the most recent publicly available audited and
unaudited statement of Deutsche Bank's financial condition.
(j) The Borrowing Agreement contains a representation by the
Borrower that, as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished statements of financial condition.
(k) The Plan receives the equivalent of all distributions made
during the loan period, including, but not limited to, cash dividends,
interest payments, shares of stock as a result of stock splits, and
rights to purchase additional securities, that the Plan would have
received (net of tax withholdings) \2\ had it remained the record owner
of the securities.
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\2\ The Department notes the Borrowers' representation that
dividends and other distributions on foreign securities payable to a
lending Plan are subject to foreign tax withholdings and that the
Borrower will always put the Plan back in at least as good a
position as it would have been had it not loaned securities.
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(l) The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty (except
for, if the Plan has terminated its Borrowing Agreement, the return to
the Borrower of a pro-rata portion of the Exclusive Fee paid by the
Borrower to the Plan) whereupon the Borrower delivers securities
identical to the borrowed securities (or the equivalent thereof in the
event of reorganization, recapitalization, or merger of the issuer of
the borrowed securities) to the Plan within the lesser of five business
days of written notice of termination or the customary settlement
period for such securities.
(m) In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement, the Plan or its agent will
have the right under the Borrowing Agreement to purchase securities
identical to the borrowed securities and apply the collateral to
payment of the purchase price. If the collateral is insufficient to
satisfy the Borrower's obligation to return the Plan's securities, the
Borrower will indemnify the Plan in the United States with respect to
the difference between the replacement cost of securities and the
market value of the collateral on the
[[Page 62829]]
date the loan is declared in default, together with expenses incurred
by the Plan plus applicable interest at a reasonable rate, including
reasonable attorneys' fees incurred by the Plan for legal action
arising out of default on the loans, or failure by the Borrower to
properly indemnify the Plan.
(n) Except as otherwise provided herein, all procedures regarding
the securities lending activities, at a minimum, conform to the
applicable provisions of PTE 81-6 (as amended or superseded), as well
as to applicable securities laws of the United States, Germany, the
United Kingdom, Japan, Canada, and/or Australia, as appropriate.
(o) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to lend securities to the
Borrowers--provided, however, that
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations, or employee
organization, whose assets are commingled for investment purposes in a
single master trust or any other entity the assets of which are ``plan
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which
entity is engaged in securities lending arrangements with the
Borrowers, the foregoing $50 million requirement shall be deemed
satisfied if such trust or other entity has aggregate assets which are
in excess of $50 million--provided that if the fiduciary responsible
for making the investment decision on behalf of such master trust or
other entity is not the employer or an affiliate of the employer, such
fiduciary has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million.
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations, or employee
organization, whose assets are commingled for investment purposes in a
group trust or any other form of entity the assets of which are ``plan
assets'' under the Plan Asset Regulation, which entity is engaged in
securities lending arrangements with the Borrowers, the foregoing $50
million requirement is satisfied if such trust or other entity has
aggregate assets which are in excess of $50 million (excluding the
assets of any Plan with respect to which the fiduciary responsible for
making the investment decision on behalf of such group trust or other
entity or any member of the controlled group of corporations including
such fiduciary is the employer maintaining such Plan or an employee
organization whose members are covered by such Plan). However, the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity.
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above is formed for the sole
purpose of making loans of securities.)
(p) Prior to any Plan's approval of the lending of its securities
to the Borrowers, a copy of this exemption (and the notice of pendency)
is provided to the Plan, and the Borrower informs the independent
fiduciary that the Borrower is not acting as a fiduciary of the Plan in
connection with its borrowing securities from the Plan.\3\
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\3\ The Department notes the Borrowers' representation that,
under the exclusive borrowing arrangements, neither the Borrower nor
any of its affiliates will perform the essential functions of a
securities lending agent, i.e., the Borrowers will not be the
fiduciary who negotiates the terms of the Borrowing Agreement on
behalf of the Plan, the fiduciary who identifies the appropriate
borrowers of the securities, or the fiduciary who decides to lend
securities pursuant to an exclusive arrangement. However, the
Borrowers or their affiliates may monitor the level of collateral
and the value of the loaned securities.
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(q) The independent fiduciary of the Plan receives monthly reports
with respect to the securities lending transactions, including, but not
limited to, the information set forth in the following sentence, so
that an independent Plan fiduciary may monitor such transactions with
the Borrowers. The monthly report will list for a specified period all
outstanding or closed securities lending transactions. The report will
identify for each open loan position, the securities involved, the
value of the security for collateralization purposes, the current value
of the collateral, the rebate or premium (if applicable) at which the
security is loaned, and the number of days the security has been on
loan. At the request of the Plan, such a report will be provided on a
daily or weekly basis, rather than a monthly basis. Also, upon request
of the Plan, the Borrower will provide the Plan with daily
notifications of securities lending transactions.
(r) In addition to the above conditions, all loans involving
Foreign Borrowers must satisfy the following supplemental requirements:
(1) Such Foreign Borrower is subject to regulation by (i) the
Bundesanstalt fuer Finanzdienstleistungsaufsicht (the BAFin) in
Germany, (ii) the Financial Services Authority and the Securities and
Futures Authority in the United Kingdom, (iii) the Ministry of Finance
or the Financial Services Agency and the Tokyo Stock Exchange or the
Osaka Stock Exchange in Japan, (iv) the Office of the Superintendent of
Financial Institutions Canada, Ontario Securities Commission, and the
Investment Dealers Association in Canada, or (v) the Australian
Prudential Regulation Authority, Australian Securities and Investments
Commission, and the Australian Stock Exchange Limited in Australia, or
any governmental regulatory authority that is a successor in interest
to any such regulator.
(2) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a-6 (17 C.F.R. 240.15a-6) under the Securities
Exchange Act of 1934 (the 1934 Act) that provides foreign broker-
dealers a limited exception from U.S. registration requirements;
(3) All collateral is maintained in U.S. dollars or in U.S. dollar-
denominated securities or letters of credit, or other collateral
permitted under PTE 81-6 (as amended or superseded);
(4) All collateral is held in the United States and the situs of
the Borrowing Agreement is maintained in the United States under an
arrangement that complies with the indicia of ownership requirements
under section 404(b) of the Act and the regulations promulgated under
29 C.F.R. 2550.404(b)-1; and
(5) Prior to entering into a transaction involving a Foreign
Borrower, the Foreign Borrower must:
(i) Agree to submit to the jurisdiction of the United States;
(ii) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(iii) Consent to the service of process on the Process Agent; and
(iv) Agree that enforcement by a Plan of the indemnity provided by
the Foreign Borrower will occur in the U.S. courts.
(s) The Borrower maintains, or causes to be maintained, within the
United States for a period of six years from the date of such
transaction, in a manner that is convenient and accessible for audit
and examination, such records as are necessary to enable the persons
described in paragraph (t)(1) to determine whether the conditions of
the exemption have been met, except that
(1) A prohibited transaction will not be considered to have
occurred if, due
[[Page 62830]]
to circumstances beyond the control of Deutsche Bank and/or its
affiliates, the records are lost or destroyed prior to the end of the
six-year period; and
(2) No party in interest other than the Borrower shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
the records are not maintained, or are not available for examination as
required below by paragraph (t)(1).
(t)(1) Except as provided in subparagraph (t)(2) of this paragraph
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (s) are
unconditionally available at their customary location for examination
during normal business hours by
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission (SEC);
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan or
any duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs
(t)(1)(ii)-(t)(1)(iv) are authorized to examine the trade secrets of
Deutsche Bank or its affiliates or commercial or financial information
which is privileged or confidential.
Section III--Definitions
(a) An affiliate of a person means:
(i) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with, the person. (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);
(ii) Any officer, director, employee, or relative (as defined in
section 3(15) of the Act) of any such other person or any partner in
any such person; and
(iii) Any corporation or partnership of which such person is an
officer, director, or employee, or in which such person is a partner.
(b) The term Foreign Borrower or Foreign Borrowers means Deutsche
Bank or any broker-dealer or bank that, now or in the future, is a
branch or an affiliate of Deutsche Bank that is subject to regulation
by (i) the BAFin in Germany, (ii) the Financial Services Authority and
the Securities and Futures Authority in the United Kingdom, (iii) the
Ministry of Finance or the Financial Services Agency and the Tokyo
Stock Exchange or the Osaka Stock Exchange in Japan, (iv) the Office of
the Superintendent of Financial Institutions Canada, Ontario Securities
Commission, and the Investment Dealers Association in Canada, or (v)
the Australian Prudential Regulation Authority, Australian Securities
and Investments Commission, and the Australian Stock Exchange Limited
in Australia, or any governmental regulatory authority that is a
successor in interest to any such regulator.
(c) The term ``Borrower'' or ``Borrowers'' means DBS, DBNY, DBT,
and the Foreign Borrowers, or any branch or affiliate of Deutsche Bank
that, now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer or a U.S. bank.
Effective Date:The exemption is effective as of April 24, 2001.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on July 3, 2002 at 67 FR
44625.
Written Comments
The Department received one written comment with respect to the
notice of proposed exemption (the Proposal). The comment was submitted
by the applicant, who requested certain clarifying modifications and
additions to the operative language in the final exemption, as well as
to the Summary of Facts and Representations (the Summary) in the
Proposal (see 67 FR 44625). The requested modifications and additions
to both the operative language and the Summary, are discussed below.
1. The applicant wished to clarify that the term ``Deutsche Bank''
includes its branches, such as Deutsche Bank AG, New York Branch
(DBNY), and to add Deutsche Bank Trust Company Americas (DBT) to the
list of covered Borrowers.
Thus, Section I(a) of the Proposal (67 FR 44625, column 3) has been
revised to read as follows (note deleted and italicized language):
(1) Deutsche Bank AG (Deutsche Bank) (including the New York
Branch of Deutsche Bank (DBNY)); or
(2) its affiliates Deutsche Bank Securities Inc. (DBS), Deutsche
Bank [delete ``AG, New York Branch (DBNY)''] Trust Company Americas
(DBT), [delete ``and''] the ``Foreign Borrowers'' (as defined in
Section III), and any branch or affiliate of Deutsche Bank that, now
or in the future, is a U.S. registered broker-dealer or a government
securities broker or dealer or a U.S. bank (collectively, with
Deutsche Bank, referred to as the ``Borrowers,'' as defined in
Section III)
2. Similarly, Section III(b) of the Proposal (67 FR 44628, center
column) defining ``Foreign Borrowers'' has been revised to read as
follows (note deleted and italicized language):
The term ``Foreign Borrower'' or ``Foreign Borrowers'' means
Deutsche Bank or any broker-dealer or bank that, now or in the
future, is a branch or an affiliate of Deutsche Bank that is subject
to regulation by (i) the BAFin [delete ``BAK and the Deutsche
Bundesbank''] in Germany,* * *, or (v) the Australian Prudential
Regulation Authority, Australian Securities and Investments
Commission, and the Australian Stock Exchange Limited in Australia,
or any governmental regulatory authority that is a successor in
interest to any such regulator.
For an explanation regarding the ``BAFin'' and the italicized
language added to the end of clause (v), above, see Comment 8, below.
3. Further, Section III(c) of the Proposal (67 FR 44628, center
column) defining ``Borrowers'' has been revised to read as follows
(note deleted and italicized language):
The term ``Borrower'' or ``Borrowers'' means [delete ``Deutsche
Bank''] DBS, DBNY, DBT, and the Foreign Borrowers, [delete ``and'']
or any [delete ``other''] branch or affiliate of Deutsche Bank that,
now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer or a U.S. bank.
4. The revisions in Comment 2, above, should also be made to the
corresponding paragraph in Item 1 of the Summary (67 FR 44629, column
1) (note deleted and italicized language):
Deutsche Bank requests an individual exemption to cover DBNY, DBS,
DBT, the Foreign Borrowers identified above, as well as any [delete
``broker-dealer or bank''] other branch or affilate of Deutsche Bank
that, now or in the future, is [delete ``an affiliate of Deutsche Bank
that is''] (i) a U.S. registered broker-dealer or government securities
broker or dealer or a U.S. bank, or (ii) that is subject to regulation
by (a) the BAFin [delete ``BAK, and the Deutsche Bundesbank''] in
Germany, (b) the Financial Services Authority and the Securities and
Futures Authority in the United Kingdom, (c) the Ministry of Finance or
the Financial Services Agency and the Tokyo Stock Exchange or the Osaka
Stock Exchange in Japan, (d) the Office of the Superintendent of
Financial Institutions Canada, Ontario
[[Page 62831]]
Securities Commission, and the Investment Dealers Association in
Canada, or (e) the Australian Prudential Regulation Authority,
Australian Securities and Investments Commission, and the Australian
Stock Exchange Limited in Australia, or any governmental regulatory
authority that is a successor in interest to any such regulator.
5. The second sentence of Section II(h) of the Proposal (67 FR
44626, center column) regarding monitoring of the collateral has been
revised to read as follows (note deleted and italicized language):
The level of the collateral is monitored daily by the Plan or
its designee, which may be Deutsche Bank or any of its branches or
affiliates, including [delete Deutsche Bank Trust Company Americas]
DBT, which provides custodial or directed trustee services in
respect of the securities covered by the Borrowing Agreement for the
Plan.
Further, the words ldquo;branches or'' should be added to the
corresponding second sentence of the second paragraph in Item 10 of the
Summary (67 FR 44631, center column).
6. The applicant wished to add the italicized language, below, to
the first sentence of Section II(m) of the Proposal (67 FR 44626,
column 3) regarding default by the Borrower. Thus, Section II (m) has
been revised to read as follows:
In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement, the Plan or its agent will
have the right under the Borrowing Agreement to purchase securities
identical to the borrowed securities and apply the collateral to
payment of the purchase price.
Further, the same addition should be made to the corresponding
first sentence in Item 15 of the Summary (67 FR 44632, center column).
7. The applicant stated that the use of the term ``confirmations''
in Section II(q) of the Proposal connotes confirmation slips described
in Rule 10b-10 under the 1934 Act, which applies to securities
transactions, not to securities lending transactions. Thus, the last
sentence of Section II(q) (67 FR 44627, center column) has been revised
to read as follows (note deleted and italicized language):
Also, upon request of the Plan, the Borrower will provide the
Plan with daily [delete ``confirmations''] notifications of
securities lending transactions.
Further, the same revision should be made to the corresponding last
sentence in Item 10 of the Summary (67 FR 44631, column 3).
8. The applicant stated that there has been a change in the
identity of the governmental regulatory authority in Germany. Following
the adoption on April 22, 2002 of the Law on Integrated Financial
Services Supervision (Gesetz ueber die integrierte Finanzaufsicht--
FinDAG), the Federal Authority for Financial Services Supervision
(Bundesanstalt fuer Finanzdienstleistungsaufsicht--BAFin) was
established on May 1, 2002. The functions of the former offices for
banking supervision (Gundesaufsichtsamt fuer das Kreditwesen--BAKred),
insurance supervision (Bundesaufsichtsamt fuer das Versicherungswesen--
BAV), and securities supervision (Bundesaufsichtsamt fuer den
Wertpapierhandel--BAWe) have been combined in a single state regulator
that supervises banks, financial services institutions, and insurance
undertakings across the entire financial market and comprises all the
key functions of consumer protection and solvency supervision. The new
BAFin has been created to ensure a consistent regulation and
supervision of the financial services and markets in Germany through
one single authority. The applicant also noted generally that, in
foreign jurisdictions, the authority to regulate securities
transactions and securities lending transactions may change from agency
to agency, from time to time, or the legal name of the appropriate
regulator may change.
Thus, Section II(r)(1) of the Proposal (67 FR 44627, column 3), a
supplemental requirement for Foreign Borrowers, has been revised to
refer to the ``BAFin,'' as well as by adding the italicized language
and the end of clause (v):
(1) Such Foreign Borrower is subject to regulation by (i) the
[delete ``Bundesaufsichtsamt fuer das Kreditwesen (the BAK) and the
Deutsche Bundesbank''] Bundesanstalt fuer
Finanzdienstleistungsaufsicht (the BAFin) in Germany, * * *, or (v)
the Australian Prudential Regulation Authority, Australian
Securities and Investments Commission, and the Australian Stock
Exchange Limited in Australia, or any governmental regulatory
authority that is a successor in interest to any such regulator.
Further, consistent with the above (as well as Comments 2 & 4),
paragraph (i) in Item 17 of the Summary (67 FR 44632, column 3), should
be revised such that the Foreign Borrower may be a bank ``or a broker-
dealer'' that is subject to regulation by the various foreign
regulators listed (substituting ``BAFin'' for ``BAK and the Deutsche
Bundesbank''), as well as ``any governmental regulatory authority that
is a successor in interest to any such regulator.''
9. The applicant wished to correct duplicative references to
Deutsche Bank, already included in the revised definitions of ``Foreign
Borrower'' and ``Borrower.''
Thus, the following revisions have been made to Section II(r)(5),
(r)(5)(iv), and (s) of the Proposal (67 FR 44627, column 3) (note
deleted language):
(5) Prior to entering into a transaction involving a Foreign
Borrower, [delete ``Deutsche Bank or``] the Foreign Borrower must *
* *
(iv) Agree that enforcement by a Plan of the indemnity provided
by [delete ``Deutsche Bank or''] the Foreign Borrower will occur in
the U.S. courts.
(s) [Delete ``Deutsche Bank or''] The Borrower maintains, or
causes to be maintained, within the United States for a period of
six years * * *
Further, the same revision should be made to Footnote 8 in Item 4
of the Summary (67 FR 44630, column 1) as follows:
Under certain circumstances described in the April 9, 1997 No-
Action Letter (e.g., clearance and settlement transactions), there
may be direct transfers of funds and securities between a Plan and
[delete ``Deutsche Bank or between a Plan a the Foreign Borrower * *
*
10. The applicant wished to make the following correction to the
third paragraph in Item 1 of the Summary (67 FR 44628, column 3) (note
deleted language):
(c) Morgan Grenfell & Co., Ltd., located in London, is subject
to regulation in the United Kingdom by the Financial Services
Authority [delete ``in respect of prudential supervision''];
11. The applicant wished to add the following sentence after the
first sentence in Item 7 of the Summary (67 FR 44630, column 3):
The form of the Borrowing Agreement to be used in foreign
jurisdictions will reflect appropriate local industry or market
standards. [FN 11]
[FN 11] For example, the form of the Borrowing Agreement to be
used in the United Kingdom differs from the standard U.S. Borrowing
Agreement. Under the form Borrowing Agreement to be used in the
United Kingdom, the Plan receives title to (rather than a pledge of
or a security interest in) the collateral.
The applicant noted that the revisions, above, are consistent with the
language of a similar recent exemption [see PTE 2002-33 (67 FR 42077,
June 20, 2002)] for Morgan Stanley Dean Witter & Co. in the notice of
proposed exemption relating thereto (67 FR 15241, March 29, 2002) (see
67 FR at 15245, column 3, Item 8).
[[Page 62832]]
12. The applicant wished to add a new Item 10 to follow Item 9 of
the Summary (67 FR 44631, column 1), with the remaining items
appropriately renumbered:
10. An independent fiduciary of the Plan may provide written
instructions directing that the investment of any cash collateral,
or any portion thereof, be managed by Deutsche Bank or any branch or
affiliate thereof, or be invested in one or more mutual funds
managed by Deutsche Bank or any branch or affiliate thereof.
Deutsche Bank or such branch or affiliate, as applicable, may
receive a reasonable and customary investment management fee,
provided that the independent fiduciary of the Plan approves such
compensation arrangement, after receiving written disclosure of the
compensation arrangement to be paid to Deutsche Bank or such branch
or affiliate, as applicable, in connection with such investment
management. The independent fiduciary of the Plan may revoke such
written instructions at any time. [FN 12]
[FN 12] This transaction is outside the scope of the proposed
exemption. The Department notes that it is the responsibility of
Deutsche Bank or such branch or affiliate to determine whether the
conditions of section 408(b)(2) of the Act will be met with respect
to the transaction (i.e., the reasonable contract or arrangement
requirement and the reasonable compensation requirement).
The applicant noted that the paragraph and footnote, above, are
consistent with the language of a similar recent exemption [see PTE
2002-44 (67 FR 56597, September 4, 2002)] for Goldman, Sachs & Co. in
the notice of proposed exemption relating thereto (67 FR 44633, July 3,
2002) (see 67 FR 44640, column 1, Item 16).
13. Finally, the applicant requested that the third sentence in old
Item 10 of the Summary (67 FR 44631, center column), to be renumbered
as Item 11, be revised to be consistent with Section II(g) of this
exemption (note deleted and italicized language):
For this purpose, the collateral may be held on behalf of the
Plan [delete ``by''] with a third party, an affiliate of the
Borrower, or a branch of Deutsche Bank other than the Borrower, that
is [delete ``the''] a trustee or custodian of the Plan.
The Department has modified the language of this exemption to
reflect the applicant's clarifications to the record, as discussed
above, and acknowledges such clarifications as they relate to the
information contained in the Proposal, as published in the Federal
Register on July 3, 2002.
Accordingly, based upon the information contained in the entire
record, the Department has determined to grant the proposed exemption
as modified herein.
For Further Information Contact: Ms. Karin Weng of the Department,
telephone (202) 693-8540. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the 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) This exemption is supplemental to and not in derogation of, any
other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 3rd day of October, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 02-25599 Filed 10-7-02; 8:45 am]
BILLING CODE 4510-29-P