BlackRock, Inc.; Notice of Application, 1421-1425 [2010-196]
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Federal Register / Vol. 75, No. 6 / Monday, January 11, 2010 / Notices
The following areas have been
determined to be adversely affected by
the disaster:
2.562 Primary Counties: Angelina.
Contiguous Counties:
6.000
Texas: Cherokee, Houston, Jasper,
Nacogdoches, Polk, San Augustine,
4.000
Trinity, Tyler.
The Interest Rates are:
3.625
Percent
Homeowners
Without
Credit
Available Elsewhere: .................
Businesses With Credit Available
Elsewhere: ................................
Businesses Without Credit Available Elsewhere: ........................
Non-Profit Organizations With
Credit Available Elsewhere: ......
Non-Profit Organizations Without
Credit Available Elsewhere: ......
For Economic Injury:
Businesses & Small Agricultural
Cooperatives Without Credit
Available Elsewhere: .................
Non-Profit Organizations Without
Credit Available Elsewhere: ......
4.000
3.000
The number assigned to this disaster
for physical damage is 11986 6 and for
economic injury is 11987 0.
The States which received an EIDL
Declaration # are Alabama, Florida.
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
Dated: December 29, 2009.
Karen G. Mills,
Administrator.
[FR Doc. 2010–249 Filed 1–8–10; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #12000 and #12001]
Texas Disaster # TX–00354
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SUMMARY: This is a notice of an
Administrative declaration of a disaster
for the State of Texas dated 01/04/2010.
Incident: Severe Storms and Tornado.
Incident Period: 12/23/2009.
Effective Date: 01/04/2010.
Physical Loan Application Deadline
Date: 03/05/2010.
Economic Injury (EIDL) Loan
Application Deadline Date: 10/04/2010.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing And
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street, SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
Administrator’s disaster declaration,
applications for disaster loans may be
filed at the address listed above or other
locally announced locations.
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For Physical Damage:
Homeowners With Credit
Available Elsewhere ..........
Homeowners Without Credit
Available Elsewhere ..........
Businesses With Credit Available Elsewhere ..................
Businesses Without Credit
Available Elsewhere ..........
Non-Profit Organizations With
Credit Available Elsewhere
Non-Profit
Organizations
Without Credit Available
Elsewhere ..........................
For Economic Injury:
Businesses & Small Agricultural Cooperatives Without
Credit Available Elsewhere
Non-Profit
Organizations
Without Credit Available
Elsewhere ..........................
5.125
2.562
6.000
4.000
3.625
3.000
4.000
3.000
The number assigned to this disaster
for physical damage is 12000 B and for
economic injury is 12001 0.
The States which received an EIDL
Declaration # are Texas.
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
VerDate Nov<24>2008
Percent
3.000
Dated: January 4, 2009.
Karen G. Mills,
Administrator.
[FR Doc. 2010–251 Filed 1–8–10; 8:45 am]
BILLING CODE 8025–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–2971/803–200]
BlackRock, Inc.; Notice of Application
January 4, 2010.
AGENCY: Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of application for an
exemptive order under Section 206A of
the Investment Advisers Act of 1940
(the ‘‘Advisers Act’’).
BlackRock, Inc. (‘‘Applicant’’
or ‘‘BlackRock’’).
RELEVANT ADVISERS ACT SECTIONS:
Exemption requested under section
206A of the Advisers Act from
subsections (a)(2)(iii)(A)(3) and
(a)(2)(iii)(B) of Advisers Act rule 206(4)–
3.
APPLICANT:
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SUMMARY OF APPLICATION: Applicant
requests that the Commission issue an
order under section 206A of the
Advisers Act exempting it and its
investment advisory subsidiaries from
Advisers Act rule 206(4)–
3(a)(2)(iii)(A)(3), which requires any
cash solicitor for an investment adviser
to provide a prospective client with a
separate solicitor’s disclosure document
at the time of the solicitation, and from
Advisers Act rule 206(4)–3(a)(2)(iii)(B),
which requires an investment adviser to
receive a prospective client’s written
acknowledgement of receipt of the
separate solicitor’s document prior to
entering into any advisory contract with
that client.
FILING DATES: The application was filed
on April 27, 2009, and an amended and
restated application was filed on
October 30, 2009.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
Applicant with a copy of the request,
personally or by mail. Hearing requests
should be received by the SEC by 5:30
p.m. on February 10, 2010 and should
be accompanied by proof of service on
Applicant, in the form of an affidavit or,
for lawyers, a certificate of service.
Hearing requests should state the nature
of the writer’s interest, the reason for the
request, and the issues contested.
Persons may request notification of a
hearing by writing to the Commission’s
Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
Applicant, BlackRock, Inc., c/o Howard
B. Surloff, 40 East 52nd Street, New
York, New York 10022.
FOR FURTHER INFORMATION CONTACT:
Sarah G. ten Siethoff, Senior Counsel, or
Daniel S. Kahl, Branch Chief, at (202)
551–6787 (Office of Investment Adviser
Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the SEC’s
Public Reference Branch, 100 F Street,
NE., Washington, DC 20549–0102
(telephone (202) 551–5850)).
Applicant’s Representations
1. Applicant is a publicly traded
holding company conducting
investment management and ancillary
businesses primarily through a variety
of directly or indirectly wholly owned
registered investment advisory
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subsidiaries (the ‘‘BlackRock Advisory
Subsidiaries’’). A substantial portion of
the BlackRock Advisory Subsidiaries’
business involves advising high net
worth clients through a ‘‘wrap fee’’
program (‘‘Private Investors’’) and
advising institutional clients generally
through traditional separate account
arrangements (‘‘Institutional Separate
Accounts’’ or ‘‘ISA’’). Broker-dealer
subsidiaries controlled by Merrill Lynch
& Co., Inc. (‘‘Merrill Lynch’’) solicit
clients for the Private Investors and ISA
businesses.
2. On September 29, 2006, BlackRock
acquired substantially all of Merrill
Lynch’s global investment management
business (the ‘‘MLIM Business’’) from
Merrill Lynch in exchange for issuing a
substantial equity interest in itself to
Merrill Lynch (the ‘‘Transaction’’). That
equity interest, as of January 1, 2009,
represented a 48.2% economic interest
in BlackRock and a 44.2% voting
interest in BlackRock. A substantial
portion of BlackRock’s current Private
Investors and ISA businesses, including
the investment advisory clients serviced
by these businesses, were acquired in
the Transaction and formerly were
important parts of the MLIM Business.
3. On December 26, 2008, BlackRock
and Merrill Lynch entered into an
Exchange Agreement pursuant to which
Merrill Lynch and BlackRock agreed to
exchange (i) 49,865,000 shares of
BlackRock common stock held by
Merrill Lynch for a like number of
shares of BlackRock’s Series B nonvoting convertible participating
preferred stock, and (ii) 12,604,918
shares of BlackRock’s Series A nonvoting convertible participating
preferred stock held by Merrill Lynch
for a like number of shares of Series B
Preferred Stock (the ‘‘Exchange’’), in
effect reducing Merrill Lynch’s voting
interest in BlackRock to 4.6%, while its
economic interest remains largely
unchanged at 46.3% on a fully diluted
basis.
4. Prior to the Transaction, brokerdealer subsidiaries controlled by Merrill
Lynch (‘‘ML Broker-Dealers’’), through
their registered representatives, solicited
clients for the investment adviser
subsidiaries controlled by Merrill Lynch
that conducted the Private Investors and
ISA portions of the MLIM Business, in
exchange for a cash fee and in reliance
on subsection (a)(2)(ii) of rule 206(4)–3
under the Advisers Act (the ‘‘ControlAffiliate Solicitor Provision’’). The
Control-Affiliate Solicitor Provision
allows ‘‘partner[s], officer[s], director[s]
or employee[s] of a person which
controls, is controlled by, or is under
common control with [an] investment
adviser’’ to solicit clients for the
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investment adviser in exchange for a
cash fee so long as the solicitor discloses
the identity of his employer and the
nature of the affiliation between his
employer and the recommended adviser
at the time of the solicitation or referral.
The Control-Affiliate Solicitor Provision
does not require solicitors and advisers
to follow any other particularized
requirements in making these required
disclosures. The ML Broker-Dealers
never used the independent solicitor
disclosure procedures contained in
subsection (a)(2)(iii) of rule 206(4)–3
under the Advisers Act (the
‘‘Independent Solicitor Provision’’),
which contains several specific
requirements that an independent
solicitor must follow, when referring
clients to the MLIM Business because
Merrill Lynch controlled both the MLIM
Business and the ML Broker-Dealers.
5. Notwithstanding Merrill Lynch’s
significant economic stake in
BlackRock, due to the particular and
unique facts and circumstances of the
BlackRock-Merrill Lynch relationship,
BlackRock has concluded that Merrill
Lynch does not ‘‘control’’ it for purposes
of the Advisers Act. In addition to the
absence of voting power indicative of
control, BlackRock and Merrill Lynch
have entered into a stockholder
agreement in connection with the
Transaction (the ‘‘Stockholder
Agreement’’) that contractually denies
Merrill Lynch the right to decide how to
vote its BlackRock shares on any matter
other than a very limited number of
extraordinary proposals (primarily
related to issues impacting Merrill
Lynch’s ownership interest in
BlackRock), prohibits Merrill Lynch
from otherwise attempting to influence
or control BlackRock, and imposes a
number of other limitations governing
the BlackRock voting securities Merrill
Lynch beneficially owns. The
Stockholder Agreement’s limitations on
Merrill Lynch’s rights as a holder of
BlackRock voting securities, and as an
investor in BlackRock generally, deny
Merrill Lynch the power and ability to
control BlackRock ordinarily associated
with the ownership of such a large
economic stake in a company.1
6. BlackRock represents that the
Stockholder Agreement, as well as
several other agreements entered into in
connection with the Transaction, serve
to create a long-standing close affiliation
between BlackRock and Merrill Lynch
for the purpose of achieving their
mutual business and economic
1 BlackRock has not asked the Commission to
confirm, and the Commission is not confirming,
BlackRock’s conclusion that Merrill Lynch does not
control it within the meaning of the Advisers Act.
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objectives, even though they do not
result in Merrill Lynch ‘‘controlling’’
BlackRock within the meaning of the
Advisers Act. The Stockholder
Agreement, as well as these other
agreements, are publicly available in
BlackRock’s filings with the
Commission.
7. The nature of the close, ongoing
relationship between BlackRock and
Merrill Lynch is publicly disclosed,
discussed and summarized on
BlackRock’s internet website,
BlackRock’s Form ADV Part II, in
BlackRock’s client documentation, in
BlackRock’s periodic filings under the
Securities Exchange Act of 1934, as
amended (the ‘‘Exchange Act’’), and in
other generally available public
information. BlackRock represents that
this comprehensive disclosure serves to
ensure that the exact nature and extent
of the close affiliation between
BlackRock and Merrill Lynch is readily
apparent to the public and the market at
large.
8. BlackRock represents that
BlackRock and the BlackRock Advisory
Subsidiaries will abide by the following
solicitation procedures:
a. The referral agreement between
BlackRock and Merrill Lynch (the
‘‘BLK–MER Referral Agreement’’)
requires that ML Broker-Dealers disclose
to potential clients the relationship
between Merrill Lynch and BlackRock
at the time of a referral to a BlackRock
Advisory Subsidiary. ML Broker-Dealers
will provide prominent written
disclosure to potential clients regarding
the relationship between Merrill Lynch
and BlackRock at or prior to the time of
a referral to a BlackRock Advisory
Subsidiary. This prominent written
disclosure will also address Merrill
Lynch’s resulting conflict of interest in
recommending BlackRock.
b. When a ML Broker-Dealer solicits
any prospective client for a BlackRock
Advisory Subsidiary, the prospective
client will receive the BlackRock
Advisory Subsidiary’s written
disclosure statement required by Rule
204–3 promulgated under the Advisers
Act (the ‘‘ADV Part II Disclosure
Document’’). The BlackRock Advisory
Subsidiary’s ADV Part II Disclosure
Document will be delivered by the
BlackRock Advisory Subsidiary (and not
by the solicitor) not later than the time
that a fully executed investment
advisory contract is provided to the
client, although not necessarily at the
time of the solicitation itself. The
BlackRock Advisory Subsidiary’s ADV
Part II Disclosure Document will
contain detailed disclosures about the
nature of the affiliation between Merrill
Lynch and BlackRock and specifically
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draw potential clients’ attention to the
inherent bias a ML Broker-Dealer has to
recommend a BlackRock Advisory
Subsidiary. BlackRock will ensure that
these additional disclosures conform, in
all material respects, to the disclosures
required by the Independent Solicitor
Provision.
c. If a BlackRock Advisory Subsidiary
accepts a client referred by a ML BrokerDealer, the prospective client will enter
into a written investment management
agreement with the BlackRock Advisory
Subsidiary. Clients referred through the
Private Investors channel will be
provided with and will generally
execute a form investment management
agreement that will contain further
disclosures about the nature of the
relationship between Merrill Lynch and
BlackRock in addition to those that will
be provided in the BlackRock Advisory
Subsidiary’s ADV Part II Disclosure
Document and at the time of the referral.
Clients referred through the ISA channel
will often be provided with a form
investment management agreement with
similar disclosures, but many prefer to
use their own form investment
management agreement and
consequently these disclosures may not
appear in the investment management
agreement. BlackRock Advisory
Subsidiaries will not separately charge
any client any explicit amount, in
addition to the advisory fee, for the cost
of obtaining that client’s account, and
no differential with respect to the
amount or level of advisory fees charged
by a BlackRock Advisory Subsidiary
will be attributable to the solicitation
arrangements with ML Broker-Dealers
described in the Application.
d. BlackRock Advisory Subsidiaries
and ML Broker-Dealers will engage in
this solicitation arrangement pursuant
to the BLK–MER Referral Agreement.
BlackRock represents that the BLK–MER
Referral Agreement complies with
subsections (A)(1) and (A)(2) of the
Independent Solicitor Provision.
Applicant’s Legal Analysis
1. Section 206A of the Advisers Act
grants the Commission the authority to
‘‘conditionally or unconditionally
exempt any person or transaction * * *
from any provision or provisions of [the
Advisers Act] or of any rule or
regulation thereunder, if and to the
extent that such exemption is necessary
or appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
[the Advisers Act].’’
2. Section 206 of the Advisers Act is
a general anti-fraud provision applicable
to investment advisers. Rule 206(4)–3
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(‘‘the Cash Solicitation Rule’’) was
adopted under section 206(4) of the
Advisers Act because the Commission
determined that the nature of the
conflict of interest mandated disclosure
to clients of cash compensation
arrangements between solicitors and
recommended investment advisers,
which alerts clients to the personal
incentive the solicitor has to
recommend one particular adviser over
another.
3. The Control-Affiliate Solicitor
Provision (subsection (a)(2)(ii) of the
Cash Solicitation Rule) applies to
anyone who is ‘‘(A) a partner, officer,
director or employee of [the] investment
adviser, or (B) a partner, officer, director
or employee of a person which controls,
is controlled by, or is under common
control with [the] investment adviser.’’
All investment advisers and solicitors
must meet certain threshold
requirements to rely on the Cash
Solicitation Rule regardless of any
affiliation between the investment
adviser and the solicitor. However,
where the Control-Affiliate Solicitor
Provision applies, the Cash Solicitation
Rule requires only that either (1) the
solicitor’s status as a partner, officer,
director or employee of the adviser be
disclosed to the prospective client; or
(2) the solicitor’s status as a partner,
officer, director or employee of a
company affiliated with the adviser,
along with the nature of the affiliation
between the solicitor’s employer and the
investment adviser, be disclosed to the
prospective client at the time of the
solicitation or referral.
4. The Independent Solicitor
Provision (subsection (a)(2)(iii) of the
Cash Solicitation Rule) contains several
specific requirements: (A) The written
solicitation agreement between the
adviser and solicitor must contain
specific terms; (B) the solicitor must
deliver to the prospective client, at the
time of solicitation, the adviser’s ADV
Part II Disclosure Document and a
separate written disclosure document
described in subsection (b) of the Cash
Solicitation Rule (the ‘‘Independent
Solicitor Disclosure Document’’ and the
required delivery of both the adviser’s
ADV Part II Disclosure Document and
the Independent Solicitor Disclosure
Document being the ‘‘Part II and
Independent Solicitor Disclosure
Document Delivery Requirement’’); (C)
the adviser must receive a signed and
dated acknowledgement of the client’s
receipt of the ADV Part II Disclosure
Document and the Independent
Solicitor Disclosure Document prior to,
or at the time of, entering into any
written or oral investment advisory
contract (the ‘‘Signed Acknowledgement
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1423
Requirement’’); and (D) the adviser must
make a bona fide effort to ascertain
whether the solicitor has complied with
the terms of the written solicitation
agreement and must have a reasonable
basis for believing that the solicitor has
so complied.
5. The Independent Solicitor
Disclosure Document must contain the
following information: (i) The names of
the solicitor and investment adviser; (ii)
the nature of the relationship, including
any affiliation, between the solicitor and
the investment adviser; (iii) a statement
that the solicitor will be compensated
for his solicitation services by the
investment adviser; (iv) the terms of
such compensation arrangement,
including a description of the
compensation paid or to be paid to the
solicitor; and (v) the amount, if any, for
the cost of obtaining his account the
client will be charged in addition to the
advisory fee, and the differential, if any,
among clients with respect to the
amount or level of advisory fees charged
by the investment adviser if such
differential is attributable to the
existence of any arrangement pursuant
to which the investment adviser has
agreed to compensate the solicitor for
soliciting clients for, or referring clients
to, the investment adviser.
6. BlackRock asserts that, as
articulated in the adopting release for
the Cash Solicitation Rule, the key
policy rationale underlying the limited
disclosure regime of the ControlAffiliate Solicitor Provision is that ‘‘[a]s
long as a client is aware that the
recommended adviser is the solicitor’s
employer or a close affiliate of the
solicitor’s employer, there appears to be
little need to require the imposition of
additional disclosure and recordkeeping
requirements.’’ BlackRock further asserts
that the Control-Affiliate Solicitor
Provision reflects the argument
advanced by commenters considering
the Cash Solicitation Rule that ‘‘there is
little basis for assuming that potential
clients will be any less aware of the
inherent bias when an employee
recommends an adviser who is a person
associated with his employer than when
he recommends the advisory services of
his own employer.’’ Thus, BlackRock
submits, one rationale for expanding the
scope of the Control-Affiliate Solicitor
Provision to include persons part of an
organization that is closely affiliated
with the recommended adviser is that it
should be readily apparent to the public
that the close affiliation between the
solicitor and adviser creates an inherent
bias to recommend the affiliated
adviser.
7. Pursuant to the Exchange, Merrill
Lynch beneficially owns approximately
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a 46.3% economic interest in BlackRock
on a fully diluted basis; however, its
ownership of BlackRock’s outstanding
voting securities is reduced to
approximately 4.9%. Although
BlackRock asserts that this relationship
is not a ‘‘control’’ relationship as defined
under the Advisers Act, the disclosure
of Merrill Lynch’s ownership of such a
large block of BlackRock’s capital stock,
combined with the economic stake
represented thereby, is sufficient to
provide the same alert to the investing
public and potential clients as to a ML
Broker-Dealer’s ‘‘inherent bias’’ in
recommending a BlackRock Advisory
Subsidiary and is, in effect, a ‘‘close
affiliation’’ for the purposes of satisfying
the concerns underlying the Cash
Solicitation Rule and the rationale for
the less onerous disclosure elements of
the Control-Affiliate Solicitor Provision.
8. The unique affiliation relationship
between BlackRock and Merrill Lynch is
consistently discussed, summarized and
disclosed on BlackRock’s Internet Web
site, BlackRock’s Form ADV Part II, in
BlackRock’s client documentation, in
BlackRock’s filings under the Exchange
Act, in registration statements for
BlackRock’s funds registered under the
Investment Company Act of 1940 and in
other generally available public
information. BlackRock submits that
these multiple avenues of disclosure
serve to ensure that the exact nature and
extent of the close affiliation between
BlackRock and Merrill Lynch is readily
apparent to the public and market at
large. In addition, ML Broker-Dealers
would provide prominent written
disclosure to potential clients regarding
the relationship between Merrill Lynch
and BlackRock at or prior to the time of
a referral to a BlackRock Advisory
Subsidiary. This prominent written
disclosure would also address Merrill
Lynch’s resulting conflict of interest in
recommending BlackRock.
9. BlackRock seeks only exemptions
from subsections (a)(2)(iii)(A)(3) and
(a)(2)(iii)(B) of the Cash Solicitation
Rule—the Part II and Independent
Solicitor Disclosure Document Delivery
Requirement and the Signed
Acknowledgement Requirement.
BlackRock submits that the BLK–MER
Referral Agreement contains terms that
satisfy subsections (a)(2)(iii)(A)(1)–(2) of
the Cash Solicitation Rule. BlackRock
proposes to adhere to subsection
(a)(2)(iii)(C) of the Cash Solicitation
Rule, which requires that the
recommended investment adviser make
a bona fide effort to ascertain whether
the solicitor has complied with the
referral agreement, and have a
reasonable basis for so believing.
BlackRock has represented that
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BlackRock Advisory Subsidiaries’ ADV
Part II Disclosure Documents would
contain, in all material respects, the
disclosures required by the Independent
Solicitor Disclosure Document.
Subsection (b)(5) of the Cash
Solicitation Rule requires that the
Independent Solicitor Disclosure
Document disclose the terms of the
compensation arrangement between the
solicitor and the recommended adviser.
BlackRock Advisory Subsidiaries’ ADV
Part II Disclosure Documents would
disclose in general terms the fact that
ML Broker-Dealers are compensated by
the BlackRock Advisory Subsidiaries for
their solicitation activities, but the
details regarding the amount of
compensation and the methods by
which such amounts are determined
would not be disclosed. BlackRock
argues that this information would not
be informative in this context because
particularized disclosure as to the
solicitation fee paid to ML BrokerDealers would not help draw a potential
client’s focus to the significant
economic benefit that ML BrokerDealers derive due to Merrill Lynch’s
approximately 46.3% economic interest
in BlackRock.
10. BlackRock submits that the
purpose of the detailed requirements of
the Independent Solicitor Provision is to
ensure that the fact of a solicitor’s bias
in favor of a recommended adviser is
presented in a clear and unmistakable
manner that ensures that potential
clients become aware of this bias.
BlackRock argues that the inherent bias
on a ML Broker-Dealer’s part to
recommend a BlackRock Advisory
Subsidiary is clearly disclosed and
unmistakable as a result of the close
affiliation between Merrill Lynch (the
solicitor’s parent entity) and BlackRock
(the recommended adviser’s parent
entity) such that, within the policy
framework of the Cash Solicitation Rule,
these additional disclosures need not be
expressly made in a separate
Independent Solicitor Disclosure
Document.
11. BlackRock asserts that the
Commission granting the order
requested by its application would be
appropriate in the public interest
because (i) it would preserve for current
and future Merrill Lynch brokerage
clients the significant investment
experience and resources of BlackRock
currently available to such clients,
while at the same time ensuring that
such clients will continue to receive the
protections intended by the Cash
Solicitation Rule, (ii) requiring strict
compliance with the Independent
Solicitor Provision would create risks
that client investment options might be
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reduced as a result of ML Broker-Dealers
being discouraged from recommending
BlackRock Advisory Subsidiaries, (iii)
clients might find a change in procedure
and documentation confusing and
burdensome, and (iv) additional costs
associated with such strict compliance
might ultimately result in greater
expenses for clients.
Applicant’s Conditions
1. The Applicant will rely on the
Order only for so long as the Cash
Solicitation Rule in effect as of the date
of the Order is operative. If the
Commission, subsequent to the date of
the Order, adopts a new rule governing
the payment of cash fees by registered
investment advisers to persons
soliciting clients on their behalf (a ‘‘New
Cash Solicitation Rule’’), the Applicant
agrees to rely on the Order only until
the compliance date for such New Cash
Solicitation Rule.
2. The Applicant will rely on the
Order only for so long as Merrill Lynch
beneficially owns 25% or more of the
Applicant’s outstanding capital stock. If
Merrill Lynch ever ceases to beneficially
own at least 25% of the Applicant’s
outstanding capital stock, the Applicant
represents that it will not rely on the
relief granted by the Order.
3. The Applicant will require that the
BlackRock Advisory Subsidiaries and
the ML Broker-Dealers provide clear
disclosure of the Applicant’s
relationship with Merrill Lynch to
potential clients referred to BlackRock
Advisory Subsidiaries by ML BrokerDealers in exchange for a cash fee. This
disclosure will be provided by ML
Broker-Dealers’ disclosure to potential
clients of the relationship between
Merrill Lynch and BlackRock at the time
of a referral to a BlackRock Advisory
Subsidiary pursuant to the BLK–MER
Referral Agreement, and via delivery of
(i) a BlackRock Advisory Subsidiary’s
ADV Part II Disclosure Document; and
(ii) a form investment management
agreement provided to each client
referred to a BlackRock Advisory
Subsidiary through the Private Investors
channel and often provided to clients
referred through the ISA channel. The
Applicant will require that all such
disclosures be substantially similar to
the disclosures described in the
Application and be provided pursuant
to procedures substantially similar to
those described in the Application.
Additionally, the ML Broker-Dealers
will provide prominent written
disclosure to potential clients regarding
the relationship between Merrill Lynch
and BlackRock at or prior to the time of
a referral to a BlackRock Advisory
Subsidiary. This prominent written
E:\FR\FM\11JAN1.SGM
11JAN1
Federal Register / Vol. 75, No. 6 / Monday, January 11, 2010 / Notices
disclosure will also address Merrill
Lynch’s resulting conflict of interest in
recommending BlackRock.
4. The Applicant will require the
BlackRock Advisory Subsidiaries to
comply with subsection (a)(2)(iii)(C) of
the Cash Solicitation Rule. Further, the
Applicant represents that it will require
the BlackRock Advisory Subsidiaries to
continue to comply with subsection
(A)(2) of the Independent Solicitor
Provision. To comply with subsection
(a)(2)(iii)(C) of the Cash Solicitation
Rule, the Applicant agrees to require the
BlackRock Advisory Subsidiaries to
make a bona fide effort to ascertain
whether ML Broker-Dealers have
complied with the terms of the BLK–
MER Referral Agreement, any
amendment thereof, or any
subsequently executed referral
agreement with ML Broker-Dealers, and
have a reasonable basis for believing
that ML Broker-Dealers have so
complied.
administrative proceedings; consideration
of amicus participation; and
Other matters relating to enforcement
proceedings.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
Self-Regulatory Organizations; the
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Revise Fee
Schedule
[FR Doc. 2010–196 Filed 1–8–10; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
srobinson on DSKHWCL6B1PROD with NOTICES
Sunshine Act Meeting Notice
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, January 14, 2010 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Paredes, as duty
officer, voted to consider the items
listed for the Closed Meeting in a closed
session.
The subject matter of the Closed
Meeting scheduled for Thursday,
January 14, 2010 will be:
VerDate Nov<24>2008
16:06 Jan 08, 2010
Jkt 220001
Dated: January 7, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–391 Filed 1–7–10; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61263; File No. SR–DTC–
2009–19]
December 30, 2009.
BILLING CODE 8011–11–P
[I]nstitution and settlement of injunctive
actions; institution and settlement of
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
December 24, 2009, the Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by DTC. DTC filed
the proposal pursuant to Section
19(b)(3)(A)(iii) of the Act 2 and Rule
19b–4(f)(4) 3 thereunder so that the
proposal was effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed rule
change is to revise fees for certain DTC
services.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
DTC included statements concerning
the purpose of and basis for the
1 15
U.S.C. 78s(b)(1).
U.S.C. 78s(b)(3)(A)(iii).
3 17 CFR 240.19b–4(f)(4).
2 15
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
1425
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. DTC has prepared
summaries, set forth in sections (A), (B)
and (C) below, of the most significant
aspects of such statements.4
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
DTC proposes increasing certain
existing service fees and introducing
fees associated with new service
capabilities. Increased fees are proposed
for existing services related to Deposits,
Custody and Asset Servicing,
Underwriting and Dividends, BookEntry Delivery, and Money Market
Instruments. These changes are
intended to realign the fees with DTC’s
corresponding service costs, scale the
fees to reflect processing complexity,
and create fee simplification and
transparency.
In addition, DTC will increase and
implement certain disincentive fees to
discourage activities that increase
industry inefficiencies. This includes
fee increases for reject processing
services and for exception processing
related to Deposit and Withdrawal
activities and Custody. It also includes
a new password reset fee.5
New fees are proposed for recentlydeveloped services related to
Underwriting, Deposits, and
Reorganization. The new fees include an
Underwriting fee for Incomplete
Eligibility Information and Older Issue
Eligibility, a Reorganization fee
structure for Survivor Options, and a
new Long Position fee for issues with a
large number of shares but low market
value.
These proposed fee revisions are
consistent with DTC’s overall pricing
philosophy of aligning service fees with
underlying costs, discouraging manual
and exception processing, and
encouraging immobilization and
dematerialization of securities. The
effective date for these fee adjustments
is January 4, 2010. The changes to DTC’s
Fee Schedule can be found in Exhibit 5
to proposed rule change SR–DTC–2009–
19 at https://www.dtcc.com/downloads/
legal/rule_filings/2009/dtc/2009–19.pdf.
DTC believes that the proposed rule
change is consistent with the
requirements of Section 17A of the Act 6
4 The Commission has modified the text of the
summaries prepared by DTC.
5 The password reset fee would apply after an
initial allowance of two password resets at no cost.
6 15 U.S.C. 78q–1.
E:\FR\FM\11JAN1.SGM
11JAN1
]]>Agencies
[Federal Register Volume 75, Number 6 (Monday, January 11, 2010)]
[Notices]
[Pages 1421-1425]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-196]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IA-2971/803-200]
BlackRock, Inc.; Notice of Application
January 4, 2010.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an exemptive order under Section 206A
of the Investment Advisers Act of 1940 (the ``Advisers Act'').
-----------------------------------------------------------------------
Applicant: BlackRock, Inc. (``Applicant'' or ``BlackRock'').
Relevant Advisers Act Sections: Exemption requested under section 206A
of the Advisers Act from subsections (a)(2)(iii)(A)(3) and
(a)(2)(iii)(B) of Advisers Act rule 206(4)-3.
Summary of Application: Applicant requests that the Commission issue an
order under section 206A of the Advisers Act exempting it and its
investment advisory subsidiaries from Advisers Act rule 206(4)-
3(a)(2)(iii)(A)(3), which requires any cash solicitor for an investment
adviser to provide a prospective client with a separate solicitor's
disclosure document at the time of the solicitation, and from Advisers
Act rule 206(4)-3(a)(2)(iii)(B), which requires an investment adviser
to receive a prospective client's written acknowledgement of receipt of
the separate solicitor's document prior to entering into any advisory
contract with that client.
Filing Dates: The application was filed on April 27, 2009, and an
amended and restated application was filed on October 30, 2009.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving Applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the SEC by 5:30 p.m. on
February 10, 2010 and should be accompanied by proof of service on
Applicant, in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
may request notification of a hearing by writing to the Commission's
Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicant, BlackRock, Inc., c/o Howard
B. Surloff, 40 East 52nd Street, New York, New York 10022.
FOR FURTHER INFORMATION CONTACT: Sarah G. ten Siethoff, Senior Counsel,
or Daniel S. Kahl, Branch Chief, at (202) 551-6787 (Office of
Investment Adviser Regulation, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 20549-
0102 (telephone (202) 551-5850)).
Applicant's Representations
1. Applicant is a publicly traded holding company conducting
investment management and ancillary businesses primarily through a
variety of directly or indirectly wholly owned registered investment
advisory
[[Page 1422]]
subsidiaries (the ``BlackRock Advisory Subsidiaries''). A substantial
portion of the BlackRock Advisory Subsidiaries' business involves
advising high net worth clients through a ``wrap fee'' program
(``Private Investors'') and advising institutional clients generally
through traditional separate account arrangements (``Institutional
Separate Accounts'' or ``ISA''). Broker-dealer subsidiaries controlled
by Merrill Lynch & Co., Inc. (``Merrill Lynch'') solicit clients for
the Private Investors and ISA businesses.
2. On September 29, 2006, BlackRock acquired substantially all of
Merrill Lynch's global investment management business (the ``MLIM
Business'') from Merrill Lynch in exchange for issuing a substantial
equity interest in itself to Merrill Lynch (the ``Transaction''). That
equity interest, as of January 1, 2009, represented a 48.2% economic
interest in BlackRock and a 44.2% voting interest in BlackRock. A
substantial portion of BlackRock's current Private Investors and ISA
businesses, including the investment advisory clients serviced by these
businesses, were acquired in the Transaction and formerly were
important parts of the MLIM Business.
3. On December 26, 2008, BlackRock and Merrill Lynch entered into
an Exchange Agreement pursuant to which Merrill Lynch and BlackRock
agreed to exchange (i) 49,865,000 shares of BlackRock common stock held
by Merrill Lynch for a like number of shares of BlackRock's Series B
non-voting convertible participating preferred stock, and (ii)
12,604,918 shares of BlackRock's Series A non-voting convertible
participating preferred stock held by Merrill Lynch for a like number
of shares of Series B Preferred Stock (the ``Exchange''), in effect
reducing Merrill Lynch's voting interest in BlackRock to 4.6%, while
its economic interest remains largely unchanged at 46.3% on a fully
diluted basis.
4. Prior to the Transaction, broker-dealer subsidiaries controlled
by Merrill Lynch (``ML Broker-Dealers''), through their registered
representatives, solicited clients for the investment adviser
subsidiaries controlled by Merrill Lynch that conducted the Private
Investors and ISA portions of the MLIM Business, in exchange for a cash
fee and in reliance on subsection (a)(2)(ii) of rule 206(4)-3 under the
Advisers Act (the ``Control-Affiliate Solicitor Provision''). The
Control-Affiliate Solicitor Provision allows ``partner[s], officer[s],
director[s] or employee[s] of a person which controls, is controlled
by, or is under common control with [an] investment adviser'' to
solicit clients for the investment adviser in exchange for a cash fee
so long as the solicitor discloses the identity of his employer and the
nature of the affiliation between his employer and the recommended
adviser at the time of the solicitation or referral. The Control-
Affiliate Solicitor Provision does not require solicitors and advisers
to follow any other particularized requirements in making these
required disclosures. The ML Broker-Dealers never used the independent
solicitor disclosure procedures contained in subsection (a)(2)(iii) of
rule 206(4)-3 under the Advisers Act (the ``Independent Solicitor
Provision''), which contains several specific requirements that an
independent solicitor must follow, when referring clients to the MLIM
Business because Merrill Lynch controlled both the MLIM Business and
the ML Broker-Dealers.
5. Notwithstanding Merrill Lynch's significant economic stake in
BlackRock, due to the particular and unique facts and circumstances of
the BlackRock-Merrill Lynch relationship, BlackRock has concluded that
Merrill Lynch does not ``control'' it for purposes of the Advisers Act.
In addition to the absence of voting power indicative of control,
BlackRock and Merrill Lynch have entered into a stockholder agreement
in connection with the Transaction (the ``Stockholder Agreement'') that
contractually denies Merrill Lynch the right to decide how to vote its
BlackRock shares on any matter other than a very limited number of
extraordinary proposals (primarily related to issues impacting Merrill
Lynch's ownership interest in BlackRock), prohibits Merrill Lynch from
otherwise attempting to influence or control BlackRock, and imposes a
number of other limitations governing the BlackRock voting securities
Merrill Lynch beneficially owns. The Stockholder Agreement's
limitations on Merrill Lynch's rights as a holder of BlackRock voting
securities, and as an investor in BlackRock generally, deny Merrill
Lynch the power and ability to control BlackRock ordinarily associated
with the ownership of such a large economic stake in a company.\1\
---------------------------------------------------------------------------
\1\ BlackRock has not asked the Commission to confirm, and the
Commission is not confirming, BlackRock's conclusion that Merrill
Lynch does not control it within the meaning of the Advisers Act.
---------------------------------------------------------------------------
6. BlackRock represents that the Stockholder Agreement, as well as
several other agreements entered into in connection with the
Transaction, serve to create a long-standing close affiliation between
BlackRock and Merrill Lynch for the purpose of achieving their mutual
business and economic objectives, even though they do not result in
Merrill Lynch ``controlling'' BlackRock within the meaning of the
Advisers Act. The Stockholder Agreement, as well as these other
agreements, are publicly available in BlackRock's filings with the
Commission.
7. The nature of the close, ongoing relationship between BlackRock
and Merrill Lynch is publicly disclosed, discussed and summarized on
BlackRock's internet website, BlackRock's Form ADV Part II, in
BlackRock's client documentation, in BlackRock's periodic filings under
the Securities Exchange Act of 1934, as amended (the ``Exchange Act''),
and in other generally available public information. BlackRock
represents that this comprehensive disclosure serves to ensure that the
exact nature and extent of the close affiliation between BlackRock and
Merrill Lynch is readily apparent to the public and the market at
large.
8. BlackRock represents that BlackRock and the BlackRock Advisory
Subsidiaries will abide by the following solicitation procedures:
a. The referral agreement between BlackRock and Merrill Lynch (the
``BLK-MER Referral Agreement'') requires that ML Broker-Dealers
disclose to potential clients the relationship between Merrill Lynch
and BlackRock at the time of a referral to a BlackRock Advisory
Subsidiary. ML Broker-Dealers will provide prominent written disclosure
to potential clients regarding the relationship between Merrill Lynch
and BlackRock at or prior to the time of a referral to a BlackRock
Advisory Subsidiary. This prominent written disclosure will also
address Merrill Lynch's resulting conflict of interest in recommending
BlackRock.
b. When a ML Broker-Dealer solicits any prospective client for a
BlackRock Advisory Subsidiary, the prospective client will receive the
BlackRock Advisory Subsidiary's written disclosure statement required
by Rule 204-3 promulgated under the Advisers Act (the ``ADV Part II
Disclosure Document''). The BlackRock Advisory Subsidiary's ADV Part II
Disclosure Document will be delivered by the BlackRock Advisory
Subsidiary (and not by the solicitor) not later than the time that a
fully executed investment advisory contract is provided to the client,
although not necessarily at the time of the solicitation itself. The
BlackRock Advisory Subsidiary's ADV Part II Disclosure Document will
contain detailed disclosures about the nature of the affiliation
between Merrill Lynch and BlackRock and specifically
[[Page 1423]]
draw potential clients' attention to the inherent bias a ML Broker-
Dealer has to recommend a BlackRock Advisory Subsidiary. BlackRock will
ensure that these additional disclosures conform, in all material
respects, to the disclosures required by the Independent Solicitor
Provision.
c. If a BlackRock Advisory Subsidiary accepts a client referred by
a ML Broker-Dealer, the prospective client will enter into a written
investment management agreement with the BlackRock Advisory Subsidiary.
Clients referred through the Private Investors channel will be provided
with and will generally execute a form investment management agreement
that will contain further disclosures about the nature of the
relationship between Merrill Lynch and BlackRock in addition to those
that will be provided in the BlackRock Advisory Subsidiary's ADV Part
II Disclosure Document and at the time of the referral. Clients
referred through the ISA channel will often be provided with a form
investment management agreement with similar disclosures, but many
prefer to use their own form investment management agreement and
consequently these disclosures may not appear in the investment
management agreement. BlackRock Advisory Subsidiaries will not
separately charge any client any explicit amount, in addition to the
advisory fee, for the cost of obtaining that client's account, and no
differential with respect to the amount or level of advisory fees
charged by a BlackRock Advisory Subsidiary will be attributable to the
solicitation arrangements with ML Broker-Dealers described in the
Application.
d. BlackRock Advisory Subsidiaries and ML Broker-Dealers will
engage in this solicitation arrangement pursuant to the BLK-MER
Referral Agreement. BlackRock represents that the BLK-MER Referral
Agreement complies with subsections (A)(1) and (A)(2) of the
Independent Solicitor Provision.
Applicant's Legal Analysis
1. Section 206A of the Advisers Act grants the Commission the
authority to ``conditionally or unconditionally exempt any person or
transaction * * * from any provision or provisions of [the Advisers
Act] or of any rule or regulation thereunder, if and to the extent that
such exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of [the Advisers Act].''
2. Section 206 of the Advisers Act is a general anti-fraud
provision applicable to investment advisers. Rule 206(4)-3 (``the Cash
Solicitation Rule'') was adopted under section 206(4) of the Advisers
Act because the Commission determined that the nature of the conflict
of interest mandated disclosure to clients of cash compensation
arrangements between solicitors and recommended investment advisers,
which alerts clients to the personal incentive the solicitor has to
recommend one particular adviser over another.
3. The Control-Affiliate Solicitor Provision (subsection (a)(2)(ii)
of the Cash Solicitation Rule) applies to anyone who is ``(A) a
partner, officer, director or employee of [the] investment adviser, or
(B) a partner, officer, director or employee of a person which
controls, is controlled by, or is under common control with [the]
investment adviser.'' All investment advisers and solicitors must meet
certain threshold requirements to rely on the Cash Solicitation Rule
regardless of any affiliation between the investment adviser and the
solicitor. However, where the Control-Affiliate Solicitor Provision
applies, the Cash Solicitation Rule requires only that either (1) the
solicitor's status as a partner, officer, director or employee of the
adviser be disclosed to the prospective client; or (2) the solicitor's
status as a partner, officer, director or employee of a company
affiliated with the adviser, along with the nature of the affiliation
between the solicitor's employer and the investment adviser, be
disclosed to the prospective client at the time of the solicitation or
referral.
4. The Independent Solicitor Provision (subsection (a)(2)(iii) of
the Cash Solicitation Rule) contains several specific requirements: (A)
The written solicitation agreement between the adviser and solicitor
must contain specific terms; (B) the solicitor must deliver to the
prospective client, at the time of solicitation, the adviser's ADV Part
II Disclosure Document and a separate written disclosure document
described in subsection (b) of the Cash Solicitation Rule (the
``Independent Solicitor Disclosure Document'' and the required delivery
of both the adviser's ADV Part II Disclosure Document and the
Independent Solicitor Disclosure Document being the ``Part II and
Independent Solicitor Disclosure Document Delivery Requirement''); (C)
the adviser must receive a signed and dated acknowledgement of the
client's receipt of the ADV Part II Disclosure Document and the
Independent Solicitor Disclosure Document prior to, or at the time of,
entering into any written or oral investment advisory contract (the
``Signed Acknowledgement Requirement''); and (D) the adviser must make
a bona fide effort to ascertain whether the solicitor has complied with
the terms of the written solicitation agreement and must have a
reasonable basis for believing that the solicitor has so complied.
5. The Independent Solicitor Disclosure Document must contain the
following information: (i) The names of the solicitor and investment
adviser; (ii) the nature of the relationship, including any
affiliation, between the solicitor and the investment adviser; (iii) a
statement that the solicitor will be compensated for his solicitation
services by the investment adviser; (iv) the terms of such compensation
arrangement, including a description of the compensation paid or to be
paid to the solicitor; and (v) the amount, if any, for the cost of
obtaining his account the client will be charged in addition to the
advisory fee, and the differential, if any, among clients with respect
to the amount or level of advisory fees charged by the investment
adviser if such differential is attributable to the existence of any
arrangement pursuant to which the investment adviser has agreed to
compensate the solicitor for soliciting clients for, or referring
clients to, the investment adviser.
6. BlackRock asserts that, as articulated in the adopting release
for the Cash Solicitation Rule, the key policy rationale underlying the
limited disclosure regime of the Control-Affiliate Solicitor Provision
is that ``[a]s long as a client is aware that the recommended adviser
is the solicitor's employer or a close affiliate of the solicitor's
employer, there appears to be little need to require the imposition of
additional disclosure and recordkeeping requirements.'' BlackRock
further asserts that the Control-Affiliate Solicitor Provision reflects
the argument advanced by commenters considering the Cash Solicitation
Rule that ``there is little basis for assuming that potential clients
will be any less aware of the inherent bias when an employee recommends
an adviser who is a person associated with his employer than when he
recommends the advisory services of his own employer.'' Thus, BlackRock
submits, one rationale for expanding the scope of the Control-Affiliate
Solicitor Provision to include persons part of an organization that is
closely affiliated with the recommended adviser is that it should be
readily apparent to the public that the close affiliation between the
solicitor and adviser creates an inherent bias to recommend the
affiliated adviser.
7. Pursuant to the Exchange, Merrill Lynch beneficially owns
approximately
[[Page 1424]]
a 46.3% economic interest in BlackRock on a fully diluted basis;
however, its ownership of BlackRock's outstanding voting securities is
reduced to approximately 4.9%. Although BlackRock asserts that this
relationship is not a ``control'' relationship as defined under the
Advisers Act, the disclosure of Merrill Lynch's ownership of such a
large block of BlackRock's capital stock, combined with the economic
stake represented thereby, is sufficient to provide the same alert to
the investing public and potential clients as to a ML Broker-Dealer's
``inherent bias'' in recommending a BlackRock Advisory Subsidiary and
is, in effect, a ``close affiliation'' for the purposes of satisfying
the concerns underlying the Cash Solicitation Rule and the rationale
for the less onerous disclosure elements of the Control-Affiliate
Solicitor Provision.
8. The unique affiliation relationship between BlackRock and
Merrill Lynch is consistently discussed, summarized and disclosed on
BlackRock's Internet Web site, BlackRock's Form ADV Part II, in
BlackRock's client documentation, in BlackRock's filings under the
Exchange Act, in registration statements for BlackRock's funds
registered under the Investment Company Act of 1940 and in other
generally available public information. BlackRock submits that these
multiple avenues of disclosure serve to ensure that the exact nature
and extent of the close affiliation between BlackRock and Merrill Lynch
is readily apparent to the public and market at large. In addition, ML
Broker-Dealers would provide prominent written disclosure to potential
clients regarding the relationship between Merrill Lynch and BlackRock
at or prior to the time of a referral to a BlackRock Advisory
Subsidiary. This prominent written disclosure would also address
Merrill Lynch's resulting conflict of interest in recommending
BlackRock.
9. BlackRock seeks only exemptions from subsections
(a)(2)(iii)(A)(3) and (a)(2)(iii)(B) of the Cash Solicitation Rule--the
Part II and Independent Solicitor Disclosure Document Delivery
Requirement and the Signed Acknowledgement Requirement. BlackRock
submits that the BLK-MER Referral Agreement contains terms that satisfy
subsections (a)(2)(iii)(A)(1)-(2) of the Cash Solicitation Rule.
BlackRock proposes to adhere to subsection (a)(2)(iii)(C) of the Cash
Solicitation Rule, which requires that the recommended investment
adviser make a bona fide effort to ascertain whether the solicitor has
complied with the referral agreement, and have a reasonable basis for
so believing. BlackRock has represented that BlackRock Advisory
Subsidiaries' ADV Part II Disclosure Documents would contain, in all
material respects, the disclosures required by the Independent
Solicitor Disclosure Document. Subsection (b)(5) of the Cash
Solicitation Rule requires that the Independent Solicitor Disclosure
Document disclose the terms of the compensation arrangement between the
solicitor and the recommended adviser. BlackRock Advisory Subsidiaries'
ADV Part II Disclosure Documents would disclose in general terms the
fact that ML Broker-Dealers are compensated by the BlackRock Advisory
Subsidiaries for their solicitation activities, but the details
regarding the amount of compensation and the methods by which such
amounts are determined would not be disclosed. BlackRock argues that
this information would not be informative in this context because
particularized disclosure as to the solicitation fee paid to ML Broker-
Dealers would not help draw a potential client's focus to the
significant economic benefit that ML Broker-Dealers derive due to
Merrill Lynch's approximately 46.3% economic interest in BlackRock.
10. BlackRock submits that the purpose of the detailed requirements
of the Independent Solicitor Provision is to ensure that the fact of a
solicitor's bias in favor of a recommended adviser is presented in a
clear and unmistakable manner that ensures that potential clients
become aware of this bias. BlackRock argues that the inherent bias on a
ML Broker-Dealer's part to recommend a BlackRock Advisory Subsidiary is
clearly disclosed and unmistakable as a result of the close affiliation
between Merrill Lynch (the solicitor's parent entity) and BlackRock
(the recommended adviser's parent entity) such that, within the policy
framework of the Cash Solicitation Rule, these additional disclosures
need not be expressly made in a separate Independent Solicitor
Disclosure Document.
11. BlackRock asserts that the Commission granting the order
requested by its application would be appropriate in the public
interest because (i) it would preserve for current and future Merrill
Lynch brokerage clients the significant investment experience and
resources of BlackRock currently available to such clients, while at
the same time ensuring that such clients will continue to receive the
protections intended by the Cash Solicitation Rule, (ii) requiring
strict compliance with the Independent Solicitor Provision would create
risks that client investment options might be reduced as a result of ML
Broker-Dealers being discouraged from recommending BlackRock Advisory
Subsidiaries, (iii) clients might find a change in procedure and
documentation confusing and burdensome, and (iv) additional costs
associated with such strict compliance might ultimately result in
greater expenses for clients.
Applicant's Conditions
1. The Applicant will rely on the Order only for so long as the
Cash Solicitation Rule in effect as of the date of the Order is
operative. If the Commission, subsequent to the date of the Order,
adopts a new rule governing the payment of cash fees by registered
investment advisers to persons soliciting clients on their behalf (a
``New Cash Solicitation Rule''), the Applicant agrees to rely on the
Order only until the compliance date for such New Cash Solicitation
Rule.
2. The Applicant will rely on the Order only for so long as Merrill
Lynch beneficially owns 25% or more of the Applicant's outstanding
capital stock. If Merrill Lynch ever ceases to beneficially own at
least 25% of the Applicant's outstanding capital stock, the Applicant
represents that it will not rely on the relief granted by the Order.
3. The Applicant will require that the BlackRock Advisory
Subsidiaries and the ML Broker-Dealers provide clear disclosure of the
Applicant's relationship with Merrill Lynch to potential clients
referred to BlackRock Advisory Subsidiaries by ML Broker-Dealers in
exchange for a cash fee. This disclosure will be provided by ML Broker-
Dealers' disclosure to potential clients of the relationship between
Merrill Lynch and BlackRock at the time of a referral to a BlackRock
Advisory Subsidiary pursuant to the BLK-MER Referral Agreement, and via
delivery of (i) a BlackRock Advisory Subsidiary's ADV Part II
Disclosure Document; and (ii) a form investment management agreement
provided to each client referred to a BlackRock Advisory Subsidiary
through the Private Investors channel and often provided to clients
referred through the ISA channel. The Applicant will require that all
such disclosures be substantially similar to the disclosures described
in the Application and be provided pursuant to procedures substantially
similar to those described in the Application. Additionally, the ML
Broker-Dealers will provide prominent written disclosure to potential
clients regarding the relationship between Merrill Lynch and BlackRock
at or prior to the time of a referral to a BlackRock Advisory
Subsidiary. This prominent written
[[Page 1425]]
disclosure will also address Merrill Lynch's resulting conflict of
interest in recommending BlackRock.
4. The Applicant will require the BlackRock Advisory Subsidiaries
to comply with subsection (a)(2)(iii)(C) of the Cash Solicitation Rule.
Further, the Applicant represents that it will require the BlackRock
Advisory Subsidiaries to continue to comply with subsection (A)(2) of
the Independent Solicitor Provision. To comply with subsection
(a)(2)(iii)(C) of the Cash Solicitation Rule, the Applicant agrees to
require the BlackRock Advisory Subsidiaries to make a bona fide effort
to ascertain whether ML Broker-Dealers have complied with the terms of
the BLK-MER Referral Agreement, any amendment thereof, or any
subsequently executed referral agreement with ML Broker-Dealers, and
have a reasonable basis for believing that ML Broker-Dealers have so
complied.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-196 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-11-P
