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News Release

Labor Department Proposes Exemption For Plans Engaging In Securities Cross-Trades

Archived News Release — Caution: Information may be out of date.

The U. S. Department of Labor today announced a proposed class exemption to allow investment firms to cross-trade securities of employee benefit plan clients with other accounts managed by the firms.

Cross-trading is a common practice of the securities industry in which investment managers and advisors buy and sell securities between client accounts. Plans may benefit from the practice due to savings on transaction costs, such as brokerage commissions and other fees.

The Employee Retirement Income Security Act (ERISA) gives the department authority to grant administrative exemptions for transactions normally prohibited by the law if the transactions meet certain conditions. The proposed class exemption is, in part, the result of certain public comments made to the department in response to its March 20, 1998 Federal Register notice asking whether, among other things, the department should issue a class exemption on cross-trading.

The department decided to issue a proposed class exemption to allow more investment managers to use cross-trades as a means of executing securities transactions for their clients. Ten individual exemptions have been granted to date to allow cross-trades of securities by plans.

The proposed exemption would apply only to "passive" cross-trading among index or model-driven funds under the control of the same investment manager where such funds hold "plan assets" subject to ERISA. It also would apply to cross-trades of securities executed as part of a portfolio restructuring program between index/model-driven funds and large accounts -- including large plans and other institutional investors -- which hold at least $50 million in total assets.

Under the proposal, investment firms would be required, among other things, to:

-- obtain prior approval of the participating plan to engage in a cross-trading program;

-- properly disclose information about the program to plan investors;

-- ensure that there are fair-pricing procedures for securities cross-traded between the index/model-driven funds or between such funds and certain large accounts; and

-- engage in cross-trades as a result of particular events which are outside the control of the investment managers.

Written comments and requests for a public hearing on the proposed exemption should be submitted to the Office of Exemption Determinations, Pension and Welfare Benefits Administration, U. S. Department of Labor, Room N5649, 200 Constitution Avenue, N.W., Washington, D.C., Attention: "Class Exemption for Securities Cross-Traded by Index/Model-Driven Funds." All public comments will be available for public inspection in the PWBA Public Disclosure Facility in Room N5638 at the same street address.

If adopted, the proposed exemption would be effective for cross-trading transactions which occur after the date the final exemption is published in the Federal Register.

The department also will hold a public hearing on Feb. 10, and Feb. 11 if necessary, to receive testimony on the future use of cross-trading for employee benefit plan accounts which are actively managed by investment firms. The hearing will convene at 10:00 a.m. in Room N5437 of the U. S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

The proposed exemption and hearing notice are scheduled to be published in the Dec. 15 Federal Register.

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7755.

Archived News Release — Caution: Information may be out of date.

Contact Name: Gloria Della
Phone Number: 202.219.8921

Employee Benefits Security Administration
December 14, 1999
Release Number