Proposed Exemptions Involving; D-11082 & D-11109-Deutsche Bank, AG; D-11263-Banc One Investment Advisors Corporation and J.P. Morgan Investment Management Inc.; D-11449-Pileco, Inc. Employees Profit Sharing Plan; and D-11460-Mellon Bank N.A., 39158-39180 [E8-15320]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 73, Number 131 (Tuesday, July 8, 2008)]
[Notices]
[Pages 39158-39180]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15320]



[[Page 39157]]

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Part III





Department of Labor





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Employee Benefits Security Administration



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Proposed Exemptions Involving; D-11082 & D-11109--Deutsche Bank, AG; D-
11263--Banc One Investment Advisors Corporation and J.P. Morgan 
Investment Management Inc.; D-11449--Pileco, Inc. Employees Profit 
Sharing Plan; and D-11460--Mellon Bank N.A.; Notice

Federal Register / Vol. 73, No. 131 / Tuesday July 8, 2008 / 
Notices

[[Page 39158]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Nos. D-11082 & D-11109; D-11263; D-11449; and D-11460]


Proposed Exemptions Involving; D-11082 & D-11109--Deutsche Bank, 
AG; D-11263--Banc One Investment Advisors Corporation and J.P. Morgan 
Investment Management Inc.; D-11449--Pileco, Inc. Employees Profit 
Sharing Plan; and D-11460--Mellon Bank N.A.

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of 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).

Written Comments and Hearing Requests

    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. 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.

ADDRESSES: 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 e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The application for exemption and the 
comments received will be available for 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.

Notice to Interested Persons

    Notice of the proposed exemption 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 interested persons 
of their right to comment and to request a hearing (where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemption was 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 (55 FR 32836, 32847, August 10, 1990). 
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, this notice of proposed exemption 
are issued solely by the Department.
    The application contains representations with regard to the 
proposed exemption which is summarized below. Interested persons are 
referred to the application on file with the Department for a complete 
statement of the facts and representations.

Deutsche Bank, AG (Deutsche Bank or the Applicant)

    Located in Germany, with Affiliates in New York, NY and Other 
Locations.

[Application Nos. D-11082 and D-11109]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\1 
\
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    \1\ 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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Section I. Covered Transactions

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(A) through (D) and 406(b)(1) and (b)(2) of the Act, and the 
taxes imposed by section 4975(a) and (b) of Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply to the following 
foreign exchange transactions involving less developed currencies, that 
are executed by Deutsche Bank or a current or future affiliate 
(domestic or foreign) thereof that is a bank or broker-dealer, acting 
as a local subcustodian in connection with a determination by Deutsche 
Bank or its affiliates to invest the assets of a client plan, an in-
house plan whose assets are invested in a separately managed account 
with Deutsche Bank, or a pooled fund, in foreign securities, if the 
conditions set forth in Sections II, III and IV below are met with 
respect to:
    (1) A trade-related currency conversion, or
    (2) An income item conversion.

Section II. General Conditions

    (a) At the time the foreign exchange transaction is entered into, 
the terms of the transaction are not less favorable to the client plan, 
in-house plan or pooled fund than the terms generally available in a 
comparable arm's length foreign exchange transaction between unrelated 
parties.
    (b) The exchange rate used for a particular foreign exchange 
transaction does not deviate by more than 3 percent (above or below) 
the interbank bid and asked rates for such currency at the time of the 
transaction as displayed on an independent, nationally-recognized 
service that reports rates of exchange in the foreign currency market 
for such currency.
    (c) The covered transactions are limited to those less developed 
currencies in which a transaction is executed with Deutsche Bank or its 
affiliate acting as local subcustodian at the direction of the global 
custodian because the global custodian either does not make a market in 
such currency, or otherwise determines to execute with the local 
subcustodian because of market conditions, market restrictions, 
illiquidity of the currency or similar exigencies.
    (d) Where a market is served by more than one subcustodian, 
Deutsche Bank, as asset manager, has no decision making authority or 
role, or otherwise makes no recommendations with respect to the global 
custodian's selection of the subcustodian.
    (e) The foreign exchange transaction is executed by Deutsche Bank 
or its

[[Page 39159]]

affiliate thereof acting as subcustodian at the direction of the global 
custodian in the ordinary course of its business as global custodian.
    (f) The decision to select Deutsche Bank or its affiliate as the 
subcustodian is made by a global custodian which is unrelated to 
Deutsche Bank or any affiliate thereof.
    (g) The selection of Deutsche Bank or its affiliate as subcustodian 
and any foreign exchange transactions executed by Deutsche Bank or its 
affiliate at the direction of the global custodian are not part of any 
agreement, arrangement or understanding, written or otherwise, designed 
to benefit Deutsche Bank, its affiliate or any other party in interest.
    (h) Deutsche Bank or its affiliate appoints an independent 
fiduciary to represent the interests of (1) an in-house plan, or (2) 
plans investing in a large pooled fund.
    (i) The decision to invest in a market and to select Deutsche Bank 
or its affiliate as asset manager is part of an investment strategy 
that is adopted by an independent fiduciary of a client plan, the 
independent fiduciary of an in-house plan, the independent fiduciary of 
a large pooled fund, or the independent fiduciary of an unrelated 
pooled fund.
    (j) On an annual basis, the percentage of assets of in-house plans 
and pooled funds for which Deutsche Bank and/or its affiliates select 
the global custodian represent less than 20 percent of the total assets 
under custody by any such global custodian.
    (k) Foreign affiliates of Deutsche Bank who engage in the covered 
transactions--
    (1) Agree to submit to the jurisdiction of the United States;
    (2) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (3) Consent to service of process on the Process Agent;
    (4) Agree that they may be sued in the United
    States Courts in connection with the covered transactions described 
in this proposed exemption;
    (5) Agree that any judgment on behalf of a plan or pooled fund may 
be collected in the United States from Deutsche Bank; and
    (6) Agree to comply with, and be subject to, all relevant 
provisions of the Act.
    (l) With respect to the covered transactions--
    (1) Deutsche Bank or its affiliate designates an individual 
responsible for periodically (but no less frequently than on an annual 
basis) reviewing a sample of such foreign exchange transactions to 
determine whether the covered transactions have been executed in 
accordance with the terms of this exemption. Such sample must include a 
sufficient number of transactions to ensure that each affected currency 
is tested.
    (2) Deutsche Bank or its affiliate provides such individual with 
the records (which may be provided electronically) described in Section 
IV(a)(1)-(7), on an annual basis.
    (3) Such individual notifies Deutsche Bank or its affiliate, the 
independent fiduciary of a client plan, the independent fiduciary of an 
in-house plan, the independent fiduciary of a large pooled fund, the 
independent fiduciary of an unrelated pooled fund, or the receiving 
fiduciary of a small pooled fund, of its findings in a written report 
within 90 days after the period to which the periodic review relates. 
Such report describes the steps performed by such individual during the 
course of the review, the level of compliance by Deutsche Bank or its 
affiliate with the terms and conditions of the exemption, and any 
specific instances of non-compliance by Deutsche Bank or its affiliate 
with the terms and conditions of the exemption.

Section III. Notice Requirements

    (a) At the time Deutsche Bank or its affiliate is retained as asset 
manager, or prior to the initial investment of the plan's assets or 
pooled fund's assets in any foreign investments that may require the 
execution of a foreign exchange transaction by Deutsche Bank or its 
affiliate as subcustodian, Deutsche Bank or its affiliate provides the 
independent fiduciary of a client plan, the independent fiduciary of an 
in-house plan, the independent fiduciary of a large pooled fund, the 
independent fiduciary of an unrelated pooled fund, or the receiving 
fiduciary of a small pooled fund, a written notice (which may be 
effected electronically) that includes the following:
    (1) The reasons why Deutsche Bank or its affiliate may consider a 
particular market to be an appropriate investment for the plan or 
pooled fund.
    (2) The factors considered by Deutsche Bank or its affiliate in its 
selection of global custodian (if applicable) including: (i) the 
identity of the global custodian; and (ii) a summary of the global 
custodian's policies and procedures regarding the handling of foreign 
exchange transactions for plans or pooled funds with respect to which 
Deutsche Bank or its affiliate is a fiduciary and the factors that the 
global custodian considers in its selection of a subcustodian.
    (3) Notice that such foreign exchange transaction may be executed 
by Deutsche Bank or its affiliate as subcustodian, at the direction of 
a global custodian.
    (4) A list of the markets in which plans or pooled funds may invest 
where Deutsche Bank or its affiliate serves as a subcustodian.
    (5) A list of the markets where currency transactions are executed 
by a subcustodian, to the extent known.
    (6) Notice that Deutsche Bank or its affiliate maintains records 
(described in Section IV), and such records are reasonably available at 
their customary location for examination in the U.S., during normal 
business hours, by the responsible reviewing individual, the 
independent fiduciary of a client plan, the independent fiduciary of an 
in-house plan, the independent fiduciary of a large pooled fund, the 
independent fiduciary of an unrelated pooled fund, or the receiving 
fiduciary of a small pooled fund, any participant or beneficiary of 
such plan or pooled fund, or any duly authorized employee or 
representative of such participant or beneficiary.
    (7) Copies of the notice of proposed exemption and the grant of 
final exemption with respect to the subject transactions.
    (b) If the independent fiduciary fails to object in writing to 
Deutsche Bank or its affiliate within 30 days following receipt of the 
information described in section III(a) by such fiduciary, then such 
fiduciary's authorization of the arrangement contemplated under this 
exemption shall be presumed.
    (c) Deutsche Bank or its affiliate shall provide notification of 
any changes to the information required by Section III, including, but 
not limited to, the situation where Deutsche Bank or its affiliate 
replaces the global custodian with another independent entity or where 
there are changes in the markets in which currency transactions are 
executed by the subcustodian. If the independent fiduciary fails to 
object in writing to Deutsche Bank or its affiliate within 30 days 
following disclosure of such changes, such fiduciary's approval of 
these changes shall be presumed.

Section IV. Recordkeeping Requirements

    (a) Deutsche Bank or its affiliate maintains, or causes to be 
maintained, for a period of six years from the date of the covered 
transactions, the following records, as well as any records necessary 
to enable the persons described in paragraph (c) of this

[[Page 39160]]

Section IV, to determine whether the conditions of this exemption have 
been met:
    (1) The account name,
    (2) The foreign exchange transaction execution date,
    (3) The exchange rate,
    (4) The high and low on Reuters or similar independent service on 
the date of the transaction,
    (5) The identity of the foreign currency sold or purchased,
    (6) The amount of foreign currency sold or purchased,
    (7) The amount of U.S. dollars exchanged, where the exchange is 
between foreign currencies and U.S. dollars or the amount of foreign 
currency exchanged, where the exchange is between two foreign 
currencies, and
    (8) The annual report described in Section II(l).
    (b) The following are exceptions to paragraph (a) of this Section 
IV:
    (1) If the records necessary to enable the persons described in 
paragraph (c) to determine whether the conditions of the exemption have 
been met are lost or destroyed, due to circumstances beyond the control 
of Deutsche Bank, then no prohibited transaction will be considered to 
have occurred solely on the basis of the unavailability of those 
records; and
    (2) No party in interest, other than Deutsche Bank, 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 by paragraph (c) below.
    (c)(1) Except as provided in paragraph (c)(2) of this Section IV 
and notwithstanding the provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to above in paragraph (a) 
of this Section IV are unconditionally available for examination during 
normal business hours at their customary location to the following 
persons or an authorized representative thereof:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service (the Service);
    (ii) The independent fiduciary of a client plan, the independent 
fiduciary of an in-house plan, the independent fiduciary of a large 
pooled fund, the independent fiduciary of an unrelated pooled fund, or 
the receiving fiduciary of a small pooled fund, or
    (iii) Any participant or beneficiary of such plans or pooled funds 
or any duly authorized employee or representative of such participant 
or beneficiary.
    (2) None of the persons described above in paragraphs (ii) and 
(iii) of this paragraph (c)(1) of this Section IV shall be authorized 
to examine trade secrets of Deutsche Bank, or any commercial or 
financial information, which is privileged or confidential.

Section V. Definitions

    For purposes of this proposed exemption,
    (a) The term ``Deutsche Bank'' means Deutsche Bank AG.
    (b) An ``affiliate'' of Deutsche Bank means any domestic or foreign 
bank or broker-dealer directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Deutsche Bank;
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``bank'' means a bank as defined in section 202(a)(2) 
of the Investment Advisers Act of 1940 (the Investment Advisers Act), 
or an institution that has substantially similar powers to a bank 
defined in section 202(a) of the Investment Advisers Act, and is --
    (i) Supervised by the United States or a State;
    (ii) Supervised and examined by the German banking authorities, or 
monitored and controlled pursuant to the statutory and regulatory 
standards of German law; or
    (iii) Subject to regulation and oversight by governmental entities 
that are substantially similar to the regulatory oversight of banks 
present in the United States.
    (e) The term ``broker-dealer'' means a broker-dealer registered 
under the Securities Exchange Act of 1934, or is engaged in the 
business of effecting transactions in securities for the account of 
others, and is --
    (i) Registered and regulated under the relevant securities laws of 
the United States;
    (ii) Registered and regulated under the relevant securities laws of 
Germany; or
    (iii) Registered and regulated under the relevant securities laws 
of a country with securities laws that are substantially similar to the 
securities laws governing broker-dealers in the United States.
    (f) The term ``global custodian'' means a bank or broker-dealer 
that is unrelated to Deutsche Bank or its affiliate, which is selected 
by (1) The named fiduciary of a client plan; (2) the sponsor (other 
than Deutsche Bank or its affiliate) of an unrelated pooled fund; (3) 
Deutsche Bank or its affiliate in the case of an in-house plan; or (4) 
Deutsche Bank or its affiliate in the case of a pooled fund established 
by Deutsche Bank or an affiliate, for the purpose of holding and 
safeguarding all assets of the client plan, in-house plan, or pooled 
fund, physically or through a depository, through its branches or 
through its subcustodian network.
    (g) The term ``subcustodian'' means a bank or broker-dealer, 
selected by a global custodian, to hold and safekeep designated assets 
of the plan or pooled fund at securities depositories, foreign clearing 
agencies or other entities which act as securities depositories, and to 
execute foreign exchange transactions and income item conversions. A 
subcustodian has no contractual relationship with the global 
custodian's clients, but only with the global custodian.
    (h) The term ``responsible reviewing individual'' means a senior 
official appointed by Deutsche Bank who has at least 10 years 
experience with the fiduciary responsibility provisions of the Act, and 
appropriate compliance training. Such person is appointed by Deutsche 
Bank to review a sample of the covered transactions periodically, but 
no less frequently than on an annual basis, in order to ensure 
compliance with the terms of the exemption on behalf of a client plan 
an in-house plan, or a pooled fund.
    (i) The term ``in-house plan'' means a plan sponsored by Deutsche 
Bank or any person that directly or indirectly, through one or more 
intermediaries, controls or is controlled by, or is under common 
control with, Deutsche Bank.
    (j) The term ``client plan'' means an employee benefit plan, other 
than a plan sponsored by Deutsche Bank, as described in section 3(3) of 
the Act or section 4975(e)(1) of the Code with respect to which 
Deutsche Bank or its affiliate acts as a fiduciary having full 
investment discretion.
    (k) The term ``pooled fund'' means a collective investment fund or 
a pooled arrangement established for investment on behalf of two or 
more unrelated employee benefit plans by Deutsche Bank or an affiliate 
or by a fund sponsor other than Deutsche Bank or an affiliate for which 
Deutsche Bank or its affiliate acts as fiduciary with full investment 
discretion. The assets of a pooled fund may include the assets of (i) 
Client plans, (ii) in-house plans of Deutsche Bank or an affiliate, 
(iii) other pooled funds in which Deutsche Bank or an affiliate is not 
the fund sponsor, and (iv) other pooled funds in which Deutsche Bank or 
an affiliate is the fund sponsor.
    (l) The term ``large pooled fund'' refers to a pooled fund that is 
sponsored

[[Page 39161]]

and managed by Deutsche Bank or an affiliate. A large pooled fund may 
include the assets of (i) Client plans, (ii) in-house plans of Deutsche 
Bank or an affiliate, (iii) other pooled funds in which Deutsche Bank 
or an affiliate is not the fund sponsor, and (iv) other pooled funds in 
which Deutsche Bank or an affiliate is the fund sponsor. In a large 
pooled fund, the total invested assets of an in-house plan (or in-house 
plans), if aggregated (whether invested directly or indirectly through 
another pooled fund), represent more than 20% of the total invested 
assets of such fund. Also, in a large pooled fund, Deutsche Bank will 
appoint an independent fiduciary, as described in Section V(o) below, 
to represent the interests of all plans investing in such fund.
    (m) The term ``small pooled fund'' refers to a pooled fund that is 
sponsored and managed by Deutsche Bank or an affiliate. A small pooled 
fund may include the assets of (i) Client plans, (ii) in-house plans of 
Deutsche Bank or an affiliate, (iii) other pooled funds in which 
Deutsche Bank or an affiliate is not the fund sponsor, and (iv) other 
pooled funds in which Deutsche Bank or an affiliate is the fund 
sponsor. In a small pooled fund, the total invested assets of an in-
house plan (or in-house plans), if aggregated (whether invested 
directly or through another pooled fund), represent less than 20% of 
the total invested assets of such fund.
    (n) The term ``unrelated pooled fund'' refers to a pooled fund that 
is not sponsored by Deutsche Bank or an affiliate, but is managed by 
either of these entities.
    (o) The term ``independent fiduciary'' means --
    (1) In the case of a client plan or an unrelated pooled fund, a 
plan fiduciary or the named fiduciary of a pooled fund that is 
unrelated to, and independent of, Deutsche Bank and it affiliates. For 
purposes of this exemption, a plan fiduciary will be deemed to be 
unrelated to, and independent of, Deutsche Bank if such fiduciary 
represents that neither such fiduciary, nor any individual responsible 
for the decision to authorize or terminate authorization for the 
transactions described in Section I, is an officer, director, or highly 
compensated employee (within the meaning of section 4975(e)(2)(H) of 
the Code) of Deutsche Bank and represents that such fiduciary must 
advise Deutsche Bank or its affiliate if those facts change, or
    (2) In the case of an in-house plan or a large pooled fund, an 
individual or company is unrelated and independent of Deutsche Bank and 
its affiliates if such individual or company has at least 10 years 
experience in the financial services business and significant 
experience in foreign currency trading and pricing who certifies that 
the gross income received from Deutsche Bank and its affiliates for the 
current year does not exceed 5% of such fiduciary's gross income from 
all services for the prior fiscal year. The independent fiduciary 
represents that such fiduciary is aware of its ERISA duties and 
responsibilities in acting as a fiduciary with respect to an in-house 
plan and the covered transactions.
    (3) Notwithstanding anything to the contrary in this Section V(o), 
a plan fiduciary is not independent if--
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with Deutsche Bank, other than described 
herein;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from Deutsche Bank for his own 
personal account in connection with any transaction described in this 
exemption in excess of the 5 percent gross income limitation set forth 
in Section V(o)(2) above;
    (iii) Any officer, director or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of Deutsche Bank or 
an affiliate responsible for the transactions described in Section I is 
an officer, director or highly compensated employee (within the meaning 
of section 4975(e)(2)(H) of the Code) of the client plan sponsor, the 
sponsor of an unrelated pooled fund, or of the fiduciary responsible 
for the decision to authorize or terminate authorization for 
transactions described in Section I. However, if such individual is a 
director of the client plan sponsor, the sponsor of an unrelated pooled 
fund, or of the responsible fiduciary, and if he or she abstains from 
participation in (A) the choice of Deutsche Bank or an affiliate as the 
investment manager/adviser for the client plan or unrelated pooled fund 
and (B) the decision to authorize or terminate authorization for 
transactions described in Section I, then Section V(o)(3)(iii) shall 
not apply.
    (p) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    (q) The term ``receiving fiduciary'' means a person or entity in a 
small pooled fund who is designated to receive the disclosures 
described in Sections III and IV above, for dissemination to the 
fiduciaries of plans or other pooled funds participating in such small 
pooled fund.
    (r) The term ``foreign exchange'' transaction means the exchange of 
the currency of one nation for the currency of another nation.
    (s) The term ``less developed currencies'' means those currencies 
in which the global custodian does not make a market at the time of the 
transaction and in which the global custodian determines to purchase 
from or sell to the plan's or pooled fund's local subcustodian on 
behalf of a plan or pooled fund because the currency is difficult to 
trade, undeveloped or the subject of local government restrictions, or 
because of the volatility or lack of liquidity in the market at the 
time of the transaction. The term ``less developed currencies'' does 
not include the following currencies: the Euro; the British pound; the 
Swiss franc, the Canadian dollar; or the Japanese yen.
    (t) The term ``trade-related currency conversion'' means the 
conversion of trade-related items (i.e., amounts necessary for 
purchases or proceeds from sales) into foreign currency or into U.S. 
dollars in order to permit purchase transactions to settle, and to 
permit proceeds of sales to be deployed in other investments or to be 
used to make distributions.
    (u) The term ``income item conversions'' means the conversion of 
income items (e.g., interest, dividends, tax reclaims or other 
distributions) denominated in a foreign currency into U.S. dollars or 
another foreign currency.
    Effective Date: If granted, this proposed exemption will be 
effective as of the date the proposed exemption is published in the 
Federal Register.

Summary of Facts and Representations

Deutsche Bank

    1. Deutsche Bank is a German banking corporation and commercial 
bank, which provides a wide range of services to various types of 
entities worldwide. Deutsche Bank is a financial institution that in 
2006 managed approximately $716 billion in assets either through 
collective trusts, separately managed accounts or mutual funds. 
Deutsche Bank's asset management clients include a number of employee 
benefit plans covered by the Act, either in:
    (a) Separately managed accounts, where the plan sponsor, and not 
the Applicant selects the global custodian, (b) pooled funds, where the 
fund sponsor, and not the Applicant selects the global custodian, and 
(c) pooled funds where the Applicant selects the global custodian, or 
(d) for its own plans, where the Applicant selects the global 
custodian.

[[Page 39162]]

Regulatory Authority

    2. The Applicant states that it is subject to a comprehensive 
system of regulatory oversight and a mandatory insurance program. With 
respect to the regulatory and supervisory requirements applicable to 
Deutsche Bank, the Applicant states that Deutsche Bank, its branches, 
and its subsidiary banks worldwide are subject to regulatory 
requirements and protections that are, qualitatively, at least equal to 
those imposed on U.S.-domiciled banks.\2\ Within the United States, the 
New York branch of Deutsche Bank and Deutsche Bank Trust Company 
Americas are regulated and supervised by the New York State Banking 
Department. In addition, certain activities of Deutsche Bank's New York 
branch and Deutsche Bank Trust Company Americas (the trustee of ERISA-
covered bank collective trusts) are regulated and supervised by the 
Federal Reserve Bank of New York. Deutsche Asset Management Inc. and 
Deutsche Investment Management Americas Inc. are investment advisers 
registered under the Investment Advisers Act of 1940 and supervised by 
the Securities and Exchange Commission. With respect to Deutsche Bank 
itself, globally, the bank is regulated and supervised by the 
Bundesanstalt f[uuml]r Finanzdienstleistungsaufsicht (the BAFin), in 
cooperation with the Bundesbank. The BAFin is a federal institution 
with ultimate responsibility to the German Ministry of Finance. The 
Bundesbank, in turn, is the central bank of the Federal Republic of 
Germany and a part of the European Central Banks.
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    \2\ In support of this, the Applicant notes that the U.S. 
Department of Treasury has accorded national treatment to German 
bank branches, and the German Ministry of Finance has granted relief 
to branches of U.S. banks in Germany, in particular with respect to 
``dotation'' or endowment capital requirements and capital adequacy 
standards.
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    3. The Applicant states that the BAFin requires that it have 
procedures for monitoring and controlling its worldwide activities 
through the implementation of various statutory and regulatory 
standards. Among those standards are requirements for adequate internal 
controls, oversight, administration, and financial resources. The BAFin 
reviews compliance with these operational and internal control 
standards through an annual audit performed by the year-end auditor and 
through special audits ordered by the BAFin. In addition to the 
regulatory and supervisory arrangements described above, the Applicant 
states that Deutsche Bank and its foreign branches are covered under a 
mandatory deposit insurance program.\3\ According to the Applicant, 
this insurance program is maintained by an institution separate from 
Deutsche Bank and is supervised by the BAFin. The program insures 
deposits denominated in the currency of a European Economic Area member 
state up to the lesser of 90 percent of the deposit amount or 20,000 
Euros.
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    \3\ The Applicant states that, in addition, Deutsche Bank and 
its foreign branches are covered by a voluntary deposit protection 
program called the Deposit Protection Fund that safeguards 
liabilities in excess of the thresholds guaranteed by the European 
Union Program discussed above.
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Request for Exemptive Relief

    4. The Applicant seeks an exemption to permit plans, either 
directly or through pooled arrangements, to engage in certain trade-
related and income-related foreign exchange transactions through 
subcustodians selected by unaffiliated global custodians in connection 
with a determination by Deutsche Bank and its affiliates to invest 
assets of a client plan, an in-house plan or a pooled fund in foreign 
securities. As described below, in some cases, the subcustodians 
selected by such global custodian will be Deutsche Bank and its current 
and future affiliates. The Applicant notes that the requested exemption 
would not apply to foreign exchange transactions for reasons other than 
trade-related currency conversions, or income item conversions. If 
granted, the exemption would be effective as of the date the notice of 
proposed exemption is published in the Federal Register.

Global Strategy

    5. As noted above, Deutsche Bank acts as an investment manager to 
numerous plans, many of which are managed in a global strategy. In such 
strategies, each time a transaction is entered into, or income on held 
securities is received, a foreign exchange transaction is required. For 
example, if the investment manager decides to invest plan assets in a 
Japanese security, a trade-related currency conversion is required to 
convert the plan's U.S. dollars into the amount of Japanese yen 
required to purchase the security and settle the transaction. 
Similarly, each time a Japanese fixed income instrument pays interest 
(generally, semiannually or quarterly), that payment, which is made in 
yen, will generally be converted back to U.S. dollars.
    6. The Applicant states that in well-developed markets, such as the 
one described above, there are many banks and broker-dealers with which 
the investment manager can effect transactions involving foreign 
currency. In addition, the Applicant states there is little difficulty, 
either from a price or a settlement perspective, in doing so, with 
respect to freely traded currencies, such as the British pound, the 
Euro, and the Japanese yen. The Applicant represents that in effecting 
foreign exchange transactions in well-developed markets for an account, 
the investment manager generally has two options: (a) to send the 
transaction to the account's global custodian, in which case the 
transactions are generally effected at the global custodian's own 
proprietary desk in the U.S. or at the global custodian's London 
branch; or (b) to find a counterparty to effect the transaction, other 
than the account's global custodian.
    7. The Applicant states that the choices differ somewhat with 
respect to emerging markets, which include much of Central and South 
America, Africa, and Asia.\4\ According to the Applicant, in markets 
where currency is hard to trade, undeveloped, or subject to local 
restrictions, the investment manager still chooses between routing the 
trade to its global custodian, or locating another counterparty, if it 
can find a counterparty with adequate credit and performance. In many 
instances, an investment manager cannot locate a counterparty of its 
own, and these instances generally occur in the same less developed 
currencies where the global custodian is unable or unwilling to make a 
market in that currency and instead will usually rely on a subcustodian 
in the applicable market, which may be the Applicant's affiliate. With 
respect to the option of locating another counterparty, the Applicant 
states that the investment manager would need to locate a local bank or 
broker-dealer in the applicable market, open a trading account after 
investigating the bank or broker-dealer's credit, and would then trade 
directly with that bank or broker-dealer, while relying on the global 
custodian to settle both the securities transaction and the foreign 
exchange transaction.
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    \4\ The list of emerging market currencies may change from time 
to time, as conditions change in the world market. For example, 
during recent years, the Argentine peso has transitioned back and 
forth from being freely traded to restricted.
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    8. According to the Applicant, in markets where the currency is 
illiquid, or the penalties for transaction failure are severe, an 
investment manager generally does not attempt to locate a counterparty 
in the local market. Rather, the Applicant believes that it is very 
often the practice of investment managers to send foreign exchange 
transactions to the global custodian for execution, to obtain more 
certainty that

[[Page 39163]]

the underlying securities transaction, with its foreign exchange 
component, will settle in a timely fashion.\5\ The Applicant states 
that not doing so raises the risk that the entire transaction will fail 
because the currency transaction becomes separated from the securities 
transaction in a market that is either very manual or where the 
settlement period is very short. The Applicant represents that where 
the penalty for failure is thousands of dollars or a suspension of 
one's license to trade, it is particularly important that an asset 
manager take all steps possible to avoid settlement failure.
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    \5\ When trades are routed to the global custodian, it becomes 
responsible for ensuring that the subcustodian settles both the 
foreign exchange conversion, and the underlying transaction.
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Global Custody/Subcustody Arrangements

    9. The Applicant states that each plan generally appoints a 
``global custodian'' other than Deutsche Bank or its affiliate to hold 
and safekeep plan assets. A global custodian is typically a bank or 
trust company, selected by an independent plan fiduciary for a client 
plan, a sponsor of an unrelated pooled, or Deutsche Bank as asset 
manager for an in-house plan or a pooled fund. The Applicant further 
explains that assets are held either by the global custodian itself, or 
through a nominee, physically, or through a depository, in the United 
States or outside of the United States, through its branches or through 
its subcustody network, which generally consists of foreign banks or 
branches of U.S. banks, including its own branches. Accordingly, the 
Applicant states that even though Deutsche Bank or its affiliates, as 
trustee, may choose the global custodian in the case of a collective 
investment fund or other pooled fund it sponsors (rather than an 
independent fiduciary of a client plan, in the case of a separately 
managed account), the reasons for preferring conversion through one's 
global custodian are precisely the same for both types of accounts.\6\
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    \6\ Deutsche Bank represents that since 2003, it has not acted 
as global custodian for plans.
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    10. The Applicant explains that a subcustodian is generally a bank 
or trust company, foreign or domestic, which is selected by a global 
custodian, to hold and safekeep designated assets of the plan, 
including in its own name, at securities depositories, or at foreign 
clearing agencies or other entities which act as securities 
depositories. The Applicant states that a subcustodian has no 
contractual relationship with the global custodian's clients (i.e., 
plans or other accounts), but only with the global custodian.
    11. According to the Applicant, one of the most important functions 
of a global custodian is to provide a foreign exchange facility for its 
customers, either through a central global trading desk, for readily 
tradable currencies, or through its subcustody network, for less 
developed currencies. The Applicant represents that, in all cases where 
it acts as investment manager for plan assets, a global custodian is 
solely in charge of selecting its subcustody network. The Applicant 
further represents that it is the responsibility of the global 
custodian to monitor its subcustodians on all performance and credit 
issues. Generally, the asset manager for an account (or the trustee for 
a collective investment fund) has no direct contact at all with the 
subcustodian.
    12. With respect to selection of subcustodians, the Applicant 
states that a global custodian may have more than one option to choose 
from, and may, in fact, use more than one subcustodian in a market, 
depending on its business needs, but a particular account is only 
subcustodied with one subcustodian (i.e., all the assets of the plan in 
that market are held with one subcustodian). The Applicant represents 
that generally, if the global custodian uses more than one subcustodian 
(i.e., puts some clients with one and some with another, because of 
size, diversification of risk, price competition or credit concerns), 
the choice of which clients are assigned to which subcustodian is made 
by the global custodian, not by the client. However, the Applicant 
notes that it is far more common for a global custodian to have one 
subcustodian. The Applicant states that an account is held at that 
subcustodian, and the investment manager knows its identity, because 
all transactions are settled by the subcustodian, and information 
regarding the subcustodian is required when giving counterparties 
settlement instructions.
    The Applicant explains that a subcustodian is not hired on a 
transaction by transaction basis, but remains the subcustodian for an 
account until the global custodian replaces the subcustodian for that 
entire account.
    The Applicant represents that a subcustodian's relationship with 
the global custodian is generally governed by a standard contract which 
the global custodian presents to all of its subcustodians. Client 
accounts are not parties to the contract.
    13. The Applicant represents that it has no control or input with 
respect to the subcustodians selected by a global custodian or the 
procedures the global custodian uses in making such selections. 
Therefore, the decision to select Deutsche Bank or its affiliate as 
subcustodian by the global custodian, and any foreign exchange 
transactions executed by Deutsche Bank or its affiliate at the 
direction of the global custodian, are not part of an understanding, 
arrangement, agreement, written or otherwise, designed to benefit 
Deutsche Bank, its affiliates or another party in interest.\7\ 
Furthermore, the decision to invest in a market and to select Deutsche 
Bank or its affiliates as asset manager is part of an investment 
strategy that is adopted by an independent fiduciary of a client plan, 
an independent fiduciary of an in-house plan, an independent fiduciary 
of a large pooled fund, or an independent fiduciary of an unrelated 
pooled fund.
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    \7\ The Applicant notes that Deutsche Bank asset management 
division is separate from the Deutsche Bank's custody division, and 
this condition does not preclude the custody division from marketing 
its services to the global custodian.
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    For example, the Applicant states that even in a market where more 
than one subcustodian is available, assume that the global custodian 
has a choice between using the Applicant's affiliate, Large 
International Bank X, and several local banks. The Applicant explains 
that if the global custodian preferred to select the Applicant's 
affiliate due to past experience with the other banks, transaction 
costs, each bank's credit rating, or other factors, the global 
custodian may select the Applicant's affiliate. The Applicant states 
that the global custodians use their own internal procedures and 
safeguards to select subcustodians for their clients, including any 
plans for which Deutsche Bank or its affiliate may serve as a trustee, 
investment manager, fiduciary or other party in interest. The Applicant 
represents that, in selecting a global custodian, the trustee would 
generally look at such factors as price (including the cost of 
transactions inside and outside of the network, reputation, the size of 
the global custodian's subcustody network, the number of markets in 
which the global custodian has subcustodians, the number of markets 
where interest is credited overnight, the global custodian's error rate 
and responsiveness, the number and performance of cash sweep vehicles 
offered by the global custodian, the global custodian's securities 
lending program, and the technology used by the global custodian and 
its subcustodians, among many other considerations.

[[Page 39164]]

Trade-Related Currency Conversions

    14. The Applicant seeks relief with respect to certain trade-
related foreign exchange transactions in markets with less developed 
currencies or in restricted markets. Specifically, Deutsche Bank is 
requesting that the proposed exemption apply to situations where 
Deutsche Bank (or its current or future affiliates) act as an 
investment manager to a plan or pooled fund, and the plan or pooled 
fund engages in certain trade-related currency conversions with the 
Applicant (or its affiliate), acting as a subcustodian with respect to 
the assets involved in the transaction. The Applicant notes that the 
requested relief would only apply to those currencies where the global 
custodian does not itself make a principal market in the currency and 
where the global custodian has selected a Deutsche Bank affiliate as 
subcustodian and sends client trades to that subcustodian.
    15. According to the Applicant, trade-related currency conversions 
may be necessary in several situations. For example, the Applicant 
states that where plan assets managed by the Applicant or its affiliate 
are subcustodied with its affiliate, exemptive relief is necessary for 
such transactions to take place, because Prohibited Transaction 
Exemption (PTE) 98-54 (63 FR 63503, November 13, 1998) does not provide 
relief for managed accounts, or for the Applicant's foreign affiliates. 
PTE 98-54 requires that, in a purchase or sale transaction between a 
bank and a plan, the bank (or any domestic affiliate thereof) must be 
``supervised by the United States or a State thereof.'' The Applicant 
further notes that, when operating outside the United States, Deutsche 
Bank is not supervised by a State or by the United States.
    The Applicant represents that trade-related currency conversions 
are necessary with respect to both well-developed and less developed 
currencies. However, in the absence of the requested relief, asset 
management in emerging markets is nearly impossible to undertake where 
the global custodian has selected a Deutsche Bank affiliate as 
subcustodian. As the Applicant describes above, in order for a plan to 
purchase a foreign security or other investment, it is often necessary 
to make a trade-related currency conversion in order to facilitate the 
purchase transaction. In addition, the Applicant states that such 
currency conversions may be necessary for purposes of investing sales 
proceeds in other investments, or for making distributions of such 
proceeds. According to the Applicant, in cases where the manager wants 
to avoid currency risk, or to convert funds to a different currency to 
experience higher returns (such as a conversion from foreign currency 
to U.S. dollars, in order to experience higher returns available on a 
U.S. investment), it is important that the investment manager be able 
to convert available funds quickly.
    16. The Applicant states that there are generally no additional 
fees added to transactions executed within a global custodian's 
subcustody network, while additional charges are often incurred for 
transactions done outside that network. The Applicant represents that 
those additional fees may make the currency conversion transaction 
disadvantageous to the plan for still another reason--price. In 
addition, the Applicant represents that, because the subcustodian 
generally receives significant transaction flow from the global 
custodian, which is also monitoring rates and performance, it is more 
likely that the rates provided by the subcustodian will be at least as 
good as might be available from a local bank or broker-dealer outside 
the global custodian's network. While the Applicant is not a global 
custodian and cannot describe each global custodian's practices, the 
Applicant believes that it is customary for all custody client trades 
to be forwarded to a subcustodian at the same time, and for the trades 
to be executed at the same rate as other trades received by the 
subcustodian at approximately the same time. The Applicant notes that 
confirmations of the transactions do not always reflect where the 
foreign exchange trade was executed. The investment manager generally 
does not know the rate before a foreign exchange trade is executed, and 
the manager may know the range in which it will fall and will approve 
that range. The Applicant states that the investment manager is advised 
of the rate late in the day for western hemisphere trades, and the next 
morning for the eastern hemisphere. The Applicant further represents 
that these rates can be verified using Reuters or a similar service.
    17. According to the Applicant, in effecting foreign exchange 
transactions, the investment manager would generally rely on PTE 84-14 
(49 FR 9494, March 13, 1984), or PTE 91-38 (67 FR 9483, March 1, 2002). 
However, the Applicant states that neither exemption is available where 
the trade is routed to a subcustodian who is an affiliate of the 
Applicant. Thus, the Applicant seeks relief for foreign exchange 
transactions where its affiliate is selected by a global custodian. The 
Applicant states that not only does the investment manager have no 
control over the global custodian's selection of subcustodians, but it 
also cannot control which currencies a global custodian chooses to deal 
in, which impacts whether the global custodian has to send the foreign 
exchange transactions to its subcustodian in a particular market. The 
Applicant further states that the investment manager is not necessarily 
advised when a currency is added to the global custodian's dealing 
desk, or deleted from it.

Income-Related Transactions

    18. The Applicant also seeks relief, with respect to certain 
income-related foreign exchange transactions. The covered transactions 
for which the Applicant requests relief also involve the Applicant or 
its affiliate, as investment manager for a plan or pooled fund, causing 
such plan or pooled fund to engage in foreign exchange transactions 
with the Applicant's affiliates, who may be acting as subcustodian for 
the assets involved in the transaction. Specifically, the Applicant is 
requesting an exemption that would apply to income item conversions in 
all currencies, which would not be covered by PTE 98-54, for the same 
reasons that the exemption does not apply to trade-related foreign 
exchange transactions. The Applicant explains that as with trade-
related transactions, an income-related transaction is not itself an 
investment, but is an integral component of a plan's or pooled fund's 
foreign investment activities.
    19. The Applicant states that the purpose of income-related 
transactions is to convert income items, such as interest, dividends, 
tax reclaims, and other distributions, either from foreign currency 
into U.S. dollars, or into another foreign currency. For example, the 
Applicant states that the manager may wish to convert dividend income 
to U.S. dollars to permit reinvestment, to enhance the plan's 
liquidity, or because the earnings on U.S. dollar cash equivalents are 
higher than the potential earnings on foreign cash equivalents. As with 
trade-related foreign exchange transactions, conversion may also be 
desirable to avoid currency risk with respect to income items.
    20. According to the Applicant, global banks typically repatriate 
income through a process called ``auto-repatriation,'' which minimizes 
the time that income receipts are held in foreign currency. The 
Applicant states that an account owner (such as a plan sponsor) would 
choose to use this process at the

[[Page 39165]]

inception of its relationship with a global custodian, or its 
investment manager would select auto-repatriation instead, at the time 
that it commences its investment management responsibilities for the 
account. The Applicant notes that disclosure regarding the auto-
repatriation process is generally found in the service level agreements 
provided to customers by a global custodian.
    Deutsche Bank further describes the typical auto-repatriation 
process as follows:

    A global custodian using the auto-repatriation process contracts 
with a third-party vendor that electronically alerts the global 
custodian to expected income payments in all global fixed income and 
equity securities. Generally, that notice is received in advance of 
the expected income payment date. The global custodian's 
recordkeeping system, which is linked to the information feed, 
creates an ``income map,'' or list of all the accounts (whether plan 
accounts or not) that hold the security with respect to which an 
income payment is expected, and the amount of the expected payment 
in the foreign currency for each account. A ``pending transaction'' 
for the income receipt is created, and the income map aggregates all 
accounts expecting that income payment and the total income expected 
for the entire custody client base of the global custodian. The 
aggregate amount of expected foreign income is sent either to the 
global custodian's own foreign exchange desk (in the case of 
developed currencies) or to the subcustodian (in the case of 
emerging markets or less-developed currencies). In addition, 
unexpected income items, such as tax reclaims, are also aggregated 
by currency, bundled with income trades involving non-plan clients 
of Deutsche Bank, and promptly executed and each aggregated account 
receives the same foreign exchange prices as all other accounts.

    21. Deutsche Bank believes that many cash management programs 
automatically sweep idle U.S. dollar balances to their designated sweep 
vehicle at the end of each day. Therefore, the Applicant represents 
that automatic repatriation allows the account to experience no delay 
or gap in earning income on the U.S. dollar equivalent of their income 
payments. The Applicant opines that this is particularly beneficial in 
countries where either no interest is credited on foreign balances or 
where the interest credited on the foreign currency balance is 
relatively low compared to the rate of interest credited on U.S. dollar 
balances.
    The Applicant further represents that auto-repatriation also 
minimizes the delays inherent in executing income transactions on a 
piecemeal basis, so that plans are able to realize investment returns 
on income more quickly. The Applicant states that generally, foreign 
income trades do not settle until 2 days after the trade date. Thus, if 
auto-repatriation is not used, the investment manager must wait for 
foreign income to be received into a plan account, where the manager 
will actually see the income appear on the next day. According to the 
Applicant, before acting, the investment manager must first determine 
whether the amount of the foreign income payment is large enough to 
trade. If so, the trade will be executed, but not settled until 2 days 
after the trade date. Therefore, the Applicant states that the account 
would receive lower interest (or no interest) on foreign income for up 
to 3 days after the foreign income payment is made. A longer delay may 
result where the income payment is not large enough to trade (e.g., 
because, due to the amount of income involved, the transaction costs 
would exceed the amount of the income receipt).
    In contrast, the Applicant represents that when auto-repatriation 
is used, the expected amount of income is sent to the global custodian 
or subcustodian before settlement and is aggregated with other income 
payments. As a result, the Applicant explains that income-related 
trades are completed quickly and the account (including plan accounts) 
begins to earn interest on funds as soon as possible.
    22. As with trade-related foreign exchange transactions, the 
Applicant states that participation in auto-repatriation may cause plan 
assets which are managed by Deutsche Bank or its affiliate to be routed 
to an affiliate of Deutsche Bank which acts as a subcustodian for the 
plan. Thus, the Applicant represents that if a plan holds an investment 
in an emerging market, and the investment produces an income item in 
that market's currency, auto-repatriation of the income item to U.S. 
dollars may result in the conversion trade being directed to an 
affiliate of Deutsche Bank, through the global custodian's auto-
repatriation system.
    23. The Applicant explains that the direction of trades to an 
affiliate through auto-repatriation is not something that Deutsche Bank 
can control, nor would Deutsche Bank necessarily know about it in 
advance of the trade. Therefore, the Applicant states that the only way 
to prevent these transactions is for the plan not to repatriate income 
items using this process. The Applicant represents that, as a result, 
income items would have to be converted separately, most likely at a 
significant added cost to plans.
    24. According to the Applicant, the inability to be part of the 
automatic income processing system may also have an unintended effect 
on the global cash management system. The Applicant represents that 
most plans rely on their global custodian's deposits or its 
subcustodian deposits for overnight interest in a particular currency. 
To the extent that the economics and the inefficiencies of doing small 
income trades are reasons to leave foreign currency amounts 
unconverted, the Applicant notes that the transactions which are the 
subject of the exemption would result in more managed money being held 
in deposits of the global custodian or the subcustodian.

Summary of Exemption Request

    25. The Applicant states that the proposed exemption would apply 
solely in the context of a global custodian which selects the 
Applicant's local branch as a subcustodian, in a market where the 
global custodian does not make a market in the local currency and, 
thus, the currency can be deemed to be ``less developed'' based on the 
trading perspective of the global custodian.
    The Applicant represents that the proposed exemption would apply 
only when: (a) A client plan's independent fiduciary or the independent 
trustee of a pooled fund (other than Deutsche Bank or its affiliate) 
has chosen a global custodian which, in turn, selects a Deutsche Bank 
affiliate to act as a subcustodian, or (b) Deutsche Bank or its 
affiliate, as trustee of a pooled fund or for its in-house plans, 
chooses a global custodian which selects a Deutsche Bank affiliate to 
act as a subcustodian. In either case, Deutsche Bank believes that 
exemptive relief under section 406(b) of the Act may be necessary for 
both trade-related and income-related foreign exchange transactions 
effected with its affiliate, if that affiliate is the subcustodian for 
a plan or a pooled fund in an emerging market, and the Applicant is 
aware that transactions for foreign exchange in connection with 
securities or other investment transactions that are sent to the global 
custodian will be effected through the subcustodian.
    With respect to a client plan, the Applicant states that Deutsche 
Bank or its affiliate has no control over the selection of a global 
custodian by the independent fiduciary. Furthermore, the Applicant 
states that Deutsche Bank or its affiliate has no control over: The 
subcustodian chosen by such global custodian; the global custodian's 
arrangements with subcustodians; or the global custodian's processes 
and procedures. Where Deutsche Bank or its affiliate acts as a trustee 
of a pooled fund or where it acts as a fiduciary for

[[Page 39166]]

an in-house plan, the Applicant notes that Deutsche Bank or its 
affiliate selects the global custodian, but has no control over that 
global custodian's subcustody network or arrangements with the 
subcustodians.
    26. The Applicant states that the proposed exemption is beneficial 
to plans because under current law, the only option which the Applicant 
is able to exercise is not to invest plan assets in certain emerging 
markets that have less developed currencies. As a result, the Applicant 
states that the investment opportunities and flexibility available to 
plans or pooled funds clients are severely limited. The Applicant 
represents that it needs to be able to trade in emerging markets for 
plan, or pooled funds, regardless of whom the subcustodian is, so long 
as it is chosen by someone other than the Applicant or its affiliates.
    The Applicant states that the proposed exemption is also beneficial 
to plans or pooled funds because even in markets where another 
subcustodian is available, plans may be faced with higher transaction 
costs. Therefore, using the Applicant's subcustodian may not be an 
option, even if it offers the same rates as other subcustodians. The 
Applicant opines that it is not practical or commercially reasonable to 
require a client plan's global custodian to refrain from using the 
Applicant's affiliates as subcustodians. In addition, the Applicant 
again emphasizes that it does not have the ability to control a global 
custodian from including the Applicant's affiliates in its subcustody 
networks.
    27. The Applicant represents that under the proposed exemption, at 
the time a foreign exchange transaction is entered into, the terms of 
the transaction must be no less favorable to the plan or pooled fund 
than the terms generally available in a comparable arm's length foreign 
exchange transaction between unrelated parties. In addition, the 
exchange rate used for a particular foreign exchange transaction must 
not deviate by more than 3 percent (above or below) the interbank bid 
and asked rates for such currency at the time of the transaction as 
displayed on an independent, nationally-recognized service that reports 
rates of exchange in the foreign currency market for such currency. 
Further, the Applicant states that the transactions must be executed 
with the Applicant or its affiliate through the global custodian, in 
the course of the global custodian's normal transaction processing as 
global custodian. The Applicant states that these conditions are 
intended to ensure that the benefits of and costs to the plan are the 
same as the benefits and costs experien