Notice of Proposed Exemption; BlackRock, Inc. and Its Investment Advisory, Investment Management and Broker-Dealer Affiliates and Their Successors (Applicants): Located in New York, NY, 2798-2828 [2012-788]
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Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices
Employee Benefits Security
Administration
[Application No. D–11687]
Notice of Proposed Exemption;
BlackRock, Inc. and Its Investment
Advisory, Investment Management and
Broker-Dealer Affiliates and Their
Successors (Applicants): Located in
New York, NY
Employee Benefits Security
Administration, U.S. Department of
Labor.
ACTION: Notice of proposed exemption.
AGENCY:
This document contains a
notice of pendency before the
Department of Labor (the Department) of
a proposed individual exemption from
certain prohibited transaction
restrictions of the Employee Retirement
Income Security Act of 1974, as
amended (ERISA), the Federal
Employees’ Retirement System Act of
1986, as amended (FERSA), and the
Internal Revenue Code of 1986, as
amended (the Code). The proposed
transactions involve BlackRock, Inc. and
its investment advisory, investment
management and broker-dealer affiliates
and their successors. The proposed
exemption, if granted, would affect
plans for which BlackRock, Inc. and its
investment advisory, investment
management and broker-dealer affiliates
and their successors serve as fiduciaries,
and the participants and beneficiaries of
such plans.
DATES: Effective Date: If granted, this
proposed exemption will be effective as
of March 31, 2012, except that, with
respect to Covered Transactions
described in Section III.K. and S., the
proposed exemption will be effective as
of October 1, 2011.
Written Comments and Hearing
Requests: All interested persons are
invited to submit written comments
and/or requests for a hearing on the
proposed exemption within forty five
(45) days from the date of the
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 the
request for a hearing and (2) the nature
of the person’s interest in the proposed
exemption and the manner in which the
person would be adversely affected by
the proposed exemption. A request for
a hearing must also state the issues to
be addressed at the requested hearing
and include a general description of the
evidence to be presented at the
requested hearing.
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SUMMARY:
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All written comments and
requests for a public hearing concerning
the proposed exemption should be sent
to the Office of Exemption
Determinations, Employee Benefits
Security Administration, Room N–5700,
U.S. Department of Labor, 200
Constitution Avenue NW., Washington,
DC 20210, Attention: Application No.
D–11687. Interested persons are also
invited to submit comments and/or
hearing requests to the Employee
Benefits Security Administration by
email or FAX. Any such comments or
requests should be sent either 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 inspection in the
Public Documents Room of the
Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1513, 200 Constitution
Avenue NW., Washington, DC 20210.
Warning: If you submit written
comments or hearing requests, do not
include any personally-identifiable or
confidential business information that
you do not want to be publiclydisclosed. All comments and hearing
requests are posted on the Internet
exactly as they are received, and they
can be retrieved by most Internet search
engines. The Department will make no
deletions, modifications or redactions to
the comments or hearing requests
received, as they are public records.
FOR FURTHER INFORMATION CONTACT:
Brian L. Shiker, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor, telephone (202)
693–8552. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: This
document contains a notice of proposed
individual exemption from the
restrictions of ERISA section 406(a)(1)
and 406(b), FERSA section 8477(c)(1)
and (c)(2) and the sanctions resulting
from the application of Code section
4975, by reason of Code section
4975(c)(1). The proposed exemption has
been requested by BlackRock, Inc. and
its investment advisory, investment
management and broker-dealer affiliates
and their successors pursuant to ERISA
section 408(a), Code section 4975(c)(2)
and FERSA section 8477(c)(3), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (55
FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section
102 of the Reorganization Plan No. 4 of
1978, (43 FR 47713, October 17, 1978)
transferred the authority of the Secretary
of the Treasury to issue exemptions of
ADDRESSES:
DEPARTMENT OF LABOR
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the type requested to the Secretary of
Labor. Accordingly, this notice of
proposed exemption is being issued
solely by the Department.
Summary of Facts and
Representations 1
1. BlackRock, Inc. (BlackRock), based
in New York, NY, is the largest publicly
traded investment management firm.
BlackRock, through its investment
advisory and investment management
subsidiaries, currently manages assets
for institutional and individual
investors worldwide through a variety
of equity, fixed income, cash
management and alternative investment
products. As of September 30, 2011,
BlackRock, through its advisor
subsidiaries, had approximately $3.345
trillion in assets under management,
including assets managed by BlackRock
Institutional Trust Company, N.A. (BTC)
(formerly known as Barclays Global
Investors, N.A. (BGI)) and its affiliates.
The Applicants 2 together with any
other entity presently or subsequently
under the direct or indirect control,
through one or more intermediaries, of
BlackRock and successors of any of the
foregoing are referred to herein as the
‘‘BlackRock Entities.’’
2. BTC is a national banking
association headquartered in San
Francisco, California. Prior to its
acquisition by BlackRock on December
1, 2009 (the Acquisition), BTC (then
BGI) was the largest asset manager in
the U.S. A significant amount of BTC’s
assets under management in the U.S.
consists of assets of employee benefit
plans subject to ERISA, FERSA and/or
the Code. BTC is a market leader in
index and model-driven investment
products. Until its sale to BlackRock,
BGI was an indirect subsidiary of
1 Capitalized terms used but not defined in the
Summary of Facts and Representations have the
meaning set forth in Section VI of the proposed
exemption.
2 For purposes of this application, references to
the ‘‘Applicants’’ include each of the banks,
investment advisors and investment managers
directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and
any other bank, investment advisor or investment
manager which subsequently becomes directly or
indirectly, through one or more intermediaries,
under the control of BlackRock, and successors of
the foregoing. As of the date hereof, banks,
investment advisors and investment managers
under the control of BlackRock include, but are not
limited to, BlackRock Advisors, LLC, BlackRock
Financial Management, Inc., BlackRock Capital
Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International,
Ltd., BlackRock Realty Advisors, Inc., BlackRock
Investment Management, LLC, BlackRock Fund
Advisors, and BTC (collectively, the BlackRock
Managers). ‘‘Applicants’’ also includes brokerdealers presently or subsequently under the direct
or indirect control, through one or more
intermediaries, of BlackRock.
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Barclays PLC, a public limited company
organized under the laws of England
and Wales (Barclays). BTC, as of the
date of the Acquisition, is a wholly
owned subsidiary of BlackRock.
3. The Applicants represent that they
are regulated by various Federal
government agencies such as the
Securities and Exchange Commission
(SEC) and the Office of the Comptroller
of the Currency, as well as state
government agencies and industry selfregulatory organizations (e.g., the
Financial Industry Regulatory Authority
or, in the case of some broker-dealers
and banks, corresponding foreign
regulatory authorities). As with the
Applicants, each of (a) Barclays, (b) The
PNC Financial Services Group, Inc.
(PNC), and (c) each entity directly or
indirectly, through one or more
intermediaries, controlling, controlled
by or under common control with one
or more of Barclays or PNC,3 has
previously made representations to the
Department regarding the significant
extent to which they are regulated.4
The Acquisition
4. There have recently occurred
extraordinary circumstances in both the
U.S. financial services industry and the
global financial services industry. Many
entities in the financial services
industry have faced severe economic
hardship. During this period of
upheaval, the recent trend of industry
consolidation amongst significant
banks, broker-dealers and other
providers of financial services has
accelerated. For example, in September
2008, Barclays Bank PLC (Barclays
Bank), a subsidiary of Barclays, acquired
most of the U.S. broker-dealer business
of Lehman Brothers Holdings Inc.; and,
in May 2008, Bear Stearns Companies
Inc. was acquired by JPMorgan Chase &
Co.
5. In this context, BlackRock, in June
2009, made a binding offer to Barclays
pursuant to an Amended and Restated
Stock Purchase Agreement by and
among BlackRock, Barclays Bank and
(for limited purposes) Barclays, which
ultimately resulted in the Acquisition.
BlackRock completed the Acquisition
on December 1, 2009, in exchange for an
aggregate of 37,566,771 shares of
BlackRock common stock and
participating preferred stock and
approximately $6.6 billion in cash.
3 Each of Barclays and PNC is a ‘‘Minority Passive
Shareholder’’ or ‘‘MPS,’’ but, for avoidance of
doubt, an MPS does not include any BlackRock
Entity.
4 See applications associated with PTE 2009–25,
74 FR 45300 (September 1, 2009) (Barclays); and
PTE 2009–22, 74 FR 45284 (September 1, 2009)
(PNC).
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Barclays’ decision to enter into the
Acquisition was based upon a variety of
factors that Barclays stated would be
beneficial to its shareholders, including
the creation of material economic
exposure to a highly competitive global
asset manager.
6. Prior to the Acquisition, PNC,
indirectly through its subsidiary PNC
Bancorp, Inc. (PNC Bancorp), held an
approximately 31.9% economic interest
and an approximately 43.2% voting
interest in BlackRock. Bank of America
Corporation (BOA), through its
(indirect) wholly owned subsidiary the
Merrill Lynch Group, Inc. (the Merrill
Group), held an approximately 48.3%
economic interest and approximately
4.6% voting interest in BlackRock.
Immediately following the Acquisition,
(1) Barclays, (2) BOA, and (3) PNC (each
of Barclays and PNC, a Minority Passive
Shareholder, or MPS) controlled the
following interests in BlackRock:
BOA. BOA owned approximately
3.7% of BlackRock voting common
stock and approximately 34.2% of
BlackRock equity by value;
PNC. PNC owned approximately
35.2% of BlackRock voting common
stock and approximately 24.5% of
BlackRock equity by value; and
Barclays. Barclays owned
approximately 4.8% of BlackRock
voting common stock and
approximately 19.8% of BlackRock
equity by value.
7. Post-Acquisition, a secondary
offering of BlackRock common stock
was completed on November 15, 2010
(the Secondary Offering). BlackRock’s
ownership structure following the
Secondary Offering was as follows: (a)
BOA controlled 0% of BlackRock’s
voting common stock and
approximately 7.1% of BlackRock’s
equity by value; (b) PNC controlled
approximately 25.3% of BlackRock’s
voting common stock and
approximately 20.3% of BlackRock’s
equity by value; and (c) Barclays
controlled approximately 2.3% of
BlackRock’s voting common stock and
approximately 19.6% of BlackRock’s
equity by value.
8. On June 1, 2011, BlackRock
repurchased from a subsidiary of BOA
its remaining ownership interest in
BlackRock (the BOA Repurchase). These
shares were retired. As a result of the
BOA Repurchase, BOA’s economic stake
in BlackRock was reduced to 0.0%.
Concurrently with the BOA Repurchase,
Barclays sold a portion of its BlackRock
Series B Non-Voting Preferred Stock,
which automatically converted into
common stock in the hands of the
purchaser. As a result of these events on
June 1, 2011, Barclays’ and PNC’s
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holdings by economic value increased
to approximately 19.7% and 21.7%,
respectively, and Barclays’ and PNC’s
voting ownership interests were
reduced to approximately 2.2% and
24.6%, respectively.
9. All BlackRock stock beneficially
owned from time to time by each MPS
(other than stock held in certain
fiduciary capacities and customer or
market making accounts) is subject to a
stockholders agreement entered into by
and between that MPS and BlackRock
(collectively, the Stockholders
Agreements). Pursuant to each
respective Stockholders Agreement,
each MPS has the right to identify to
BlackRock two (2) prospective directors,
and, if such nominees are reasonably
acceptable to the BlackRock Board of
Directors (the Board), BlackRock and
each respective MPS agree to use best
efforts to cause the election of such
nominees to the Board.5 However, at
least nine (9) of the current directors 6
must be ‘‘independent’’ (within the
meaning of New York Stock Exchange
(NYSE) rules) 7 of the MPSs and
BlackRock management. Furthermore,
subject to limited exceptions, each
Stockholders Agreement provides that
the relevant MPS must vote its
BlackRock voting common stock in
accordance with recommendations of
the Board. In addition, the Audit
Committee, the Management
Development and Compensation
Committee, and the Nominating and
Governance Committee of the Board
must consist entirely of independent
directors, and a majority of each other
committee (if any) of the Board, with the
exception of the Executive Committee,8
must consist of independent directors.
The Stockholders Agreements provide,
with limited exceptions, that all
decisions of any committee of the Board
require the presence of a majority of the
5 The Stockholders Agreements also contemplate
a reduction in the number of Board seats which an
MPS is entitled to designate to one upon falling
below a 10% equity interest for 90 consecutive
days, and to zero upon falling below a 5% equity
interest for 90 consecutive days.
6 There are currently 17 directors on the Board.
The maximum permitted number of directors on the
Board pursuant to the Stockholders Agreements is
19.
7 Section 303A.01 of the NYSE Listed Company
Manual requires listed companies to have a
majority of independent directors. Although an
exception is made for companies controlled by a
group of shareholders, the Stockholders Agreements
among BlackRock and the MPSs preclude the MPSs
from becoming part of any such group. BlackRock
represents that, based on current equity ownership
levels, the Board must include a minimum of 13
directors total (except for temporary vacancies
arising by reason of, for example, poor health,
retirement or resignation).
8 The Executive Committee of the Board has not
met for over five (5) years.
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directors at a meeting then serving on
such committee. In fact, as of the date
hereof, none of the directors identified
to the Board by an MPS serve on any
committee of the Board, except that one
director identified to the Board by PNC
serves on the Executive Committee.
While each MPS monitors its
investment in BlackRock through Board
members it identified to the Board and
each MPS has certain limited
governance rights, no MPS has or will
have, through the Board members it
identified, any involvement in the dayto-day management of BlackRock, any
BlackRock Manager or other BlackRock
Entity.
10. In addition, the Stockholders
Agreements provide for additional
restrictions on the ability of an MPS to
control BlackRock or any BlackRock
Manager. These restrictions include
standstill arrangements establishing
caps on voting interests,9 transfer
restrictions, and restrictions relating to
arm’s length business relationships
between an MPS (or its affiliates) and
BlackRock (or its affiliates) in each case
as set forth in the applicable
Stockholders Agreement.
Interim Prohibited Transaction Relief
11. The Applicants previously
applied for (Application No. D–11588)
and the Department issued Prohibited
Transaction Exemption 2011–17, 76
Fed. Reg. 50632 (August 15, 2011)(the
Interim Exemption) that covers certain
transactions entered into by BlackRock
Managers with, or involving, certain
direct or indirect minority passive
shareholders in BlackRock, and certain
entities related thereto, on behalf of
Client Plans or Pooled Funds subject to
ERISA, the Code and/or FERSA. Since
the Acquisition Date, the Applicants
represent that they have expended a
significant amount of time, money and
other resources to establish and
maintain the necessary infrastructure to
ensure compliance with the conditions
for relief set forth in the Interim
Exemption. The Applicants have,
among other things, put together a legal
and compliance staff that is devoted to
assuring compliance with the Interim
Exemption, dedicated significant
technology resources to developing
trading systems and compliance
solutions designed to address the
requirements of the Interim Exemption,
engaged in extensive training of
BlackRock personnel (covering
individuals serving in legal, compliance
9 The following are the caps on voting interests
contained in the Stockholder Agreements: PNC =
49.9%; and Barclays = 4.9%. The following are the
caps on economic interest: PNC = 38%; and
Barclays = 19.9%.
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and business roles) regarding
compliance with the Interim Exemption,
and implemented robust post-trade
reporting and record-keeping to monitor
compliance with the Interim Exemption.
The Interim Exemption expires on the
earlier of (a) the effective date of this
proposed exemption, if granted, or (b)
March 31, 2012.
Requested Relief
12. Given the unique nature of the
BlackRock ownership structure
following the Acquisition and
subsequent Secondary Offering and
BOA Repurchase, the Applicants
believe that neither MPS should be
regarded for ERISA purposes as an
‘‘affiliate’’ of BlackRock or any
BlackRock Manager, because the
Applicants believe that no MPS, alone
or with the other MPS, is or will be in
a position to ‘‘control’’ BlackRock. In
addition to the BlackRock ownership
structure itself preventing MPS control
of BlackRock, the Applicants believe
that the Stockholders Agreements
provide several important safeguards to
mitigate the possibility of an MPS
exerting any form of control that might
otherwise raise concerns under ERISA.
In particular, the standstill agreements,
transfer restrictions and arm’s length
business relationship provisions are
designed to ensure that BlackRock
maintains its independence. Even if the
MPSs wished to act together to control
BlackRock, BlackRock believes that the
MPSs would not be able to control
BlackRock because the Stockholders
Agreements mandate that each MPS
vote its shares in accordance with the
recommendations of the Board, which is
dominated by persons other than
nominees identified by MPSs. Lastly,
the MPSs are competitors in the
financial services industry, and as such,
concerted action among the MPSs is
extremely unlikely.
13. Nevertheless, the Applicants
represent that when a BlackRock
Manager is a fiduciary with investment
discretion with respect to a Client
Plan,10 and the BlackRock Manager is
deciding whether to enter into a
Covered Transaction 11 with or
10 ‘‘Client Plan’’ is defined in Section VI.T. of the
proposed exemption and means any plan subject to
ERISA section 406, Code section 4975 or FERSA
section 8477(c) for which a BlackRock Manager is
a fiduciary as described in ERISA section 3(21),
including, but not limited to, any Pooled Fund,
MPS Plan, Index Account or Fund, Model-Driven
Account or Fund, Other Account or Fund, or InHouse Plan, as defined in Section VI of the
proposed exemption, except where specified to the
contrary.
11 ‘‘Covered Transaction’’ is defined in Section
VI.X. of the proposed exemption and means each
transaction set forth in Section III of the proposed
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involving an MPS, the ownership
interest of the MPS in BlackRock could
affect the BlackRock Manager’s best
judgment as a fiduciary, raising issues
under ERISA section 406(b). The
Applicants note that the Department’s
regulation at 29 CFR 2550.408b–2(e)(1)
provides that ‘‘[a] person in which a
fiduciary has an interest which may
affect the exercise of such fiduciary’s
best judgment as a fiduciary includes,
for example, a person who is a party in
interest by reason of a relationship to
such fiduciary described in section
3(14)(E), (F), (G), (H), or (I)’’ of ERISA.
ERISA section 3(14)(H) provides that a
10% or more shareholder of a service
provider (which may include a plan
fiduciary) is a party in interest to the
plan in question by reason of that
relationship to the service provider.
Accordingly, the Applicants seek relief
from the prohibitions of ERISA section
406(b) for the Covered Transactions.
14. Further, if BlackRock Entities and
one or more MPS are deemed affiliates,
and because each MPS and its affiliates
are very likely parties in interest within
the meaning of ERISA section 3(14) with
respect to many Client Plans, the
Applicants also seek relief from the
prohibitions of ERISA section 406(a)
with respect to the Covered
Transactions. Specifically, many
prohibited transaction class exemptions
from ERISA section 406(a) require as a
condition for relief that the plan
fiduciary and the party in interest not be
‘‘affiliates.’’ Although the Applicants
believe that no MPS should be regarded
for ERISA purposes as an ‘‘affiliate’’ of
BlackRock, the Applicants desire the
certainty of relief which the proposed
exemption would provide if Covered
Transactions are entered into in
conformance therewith.
15. As discussed above, there have
recently occurred extraordinary
circumstances in both the U.S. and the
global financial services industry. Many
entities in the financial services
industry have faced severe economic
hardship. During this period of
upheaval, the trend of industry
consolidation amongst significant
banks, broker-dealers and other
providers of financial services has
accelerated. It is the Applicants’ belief
that each MPS’ involvement in financial
services has expanded at the same time
as the number of participants in the
capital markets has declined. As a
result, the Applicants believe that the
failure to obtain exemptive relief
proposed herein would deny Client
exemption entered into by a BlackRock Manager for
a Client Plan with or involving, directly or
indirectly, an MPS and/or a BlackRock Entity.
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Plans access to a significant portion of
the financial markets and that such
denial would unduly harm Client Plans
and their participants and beneficiaries.
16. The Applicants request that the
Department continue relief similar to
that provided in the Interim Exemption
on the terms set forth herein. The
exemption proposed herein would
provide relief for certain Covered
Transactions that, except as outlined
below, are similar in all material
respects to the Covered Transactions for
which relief is provided in the Interim
Exemption.
Structure of Relief
17. The structure of the Applicants’
requested relief is founded upon
compliance with five sets of general
conditions. The five sets of general
conditions are: (a) Modified conditions
derived from Prohibited Transaction
Exemption (PTE) 84–14, as amended
(sometimes referred to as the QPAM
Exemption); 12 (b) restrictions on the
compensation of BlackRock Managers
and their employees; (c) the
establishment and implementation of
certain policies and procedures (the
Exemption Polices and Procedures or
EPPs); (d) the appointment by
BlackRock of an Exemption Compliance
Officer (ECO); and (e) the retention by
BlackRock of an Independent Monitor
(IM). The purpose of these general
conditions is, when coupled with the
restrictions of the Stockholders
Agreements and the BlackRock
ownership structure, to foster
independence of action by the
BlackRock Managers notwithstanding
the equity interests in BlackRock held
by the MPSs. This unique overarching
structure includes a comprehensive
compliance function and an
independent monitor, each of which
work together for the benefit of Client
Plans and their participants and
beneficiaries by allowing Covered
Transactions with or involving an MPS
only if the Covered Transaction is, as
best as can be determined, as favorable
to the Client Plans as arm’s length
transactions with third parties.
18. In addition to the general
conditions, each Covered Transaction
has its own set of specific conditions
deemed suitable for it in light of the
nature of the transaction. Many of the
conditions for individual Covered
Transactions are derived from statutory
exemptions, administrative class
exemptions or administrative individual
exemptions frequently relied upon by
12 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR
49305 (Aug. 23, 2005), and as amended, 75 FR
38837 (July 6, 2010).
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fiduciaries and parties in interest
(sometimes affiliated and sometimes
not) to exempt similar transactions. The
general and transaction-specific
conditions for relief attempt to strike a
balance that takes into account both the
MPSs’ unique equity interests in
BlackRock and the ability of BlackRock
Managers acting on behalf of Client
Plans to engage in arm’s length Covered
Transactions with or involving
institutions as significant in their
markets as are the MPSs.
General Conditions
19. The structure of the relief
proposed herein is very similar to that
granted in the Interim Exemption, and
is founded upon compliance with
general conditions that are essentially
the same as the general conditions set
forth in the Interim Exemption.
Accordingly, Section II of the proposed
exemption provides general conditions
as follows:
20. Compliance with the QPAM
Exemption (Section II.A.). With certain
exceptions, the conditions for relief
under Part I of PTE 84–14 (the QPAM
Exemption) must be satisfied with
respect to each Covered Transaction.13
These exceptions are substantially
similar to those set forth in the Interim
Exemption.14 Each BlackRock Manager
utilizing the requested relief must meet
the definition of a ‘‘qualified
professional asset manager’’ (QPAM) as
described in Section VI(a) of the QPAM
Exemption, and each Covered
Transaction must satisfy the general
conditions relating to the QPAM
Exemption as set forth in the proposal,
which are essentially the same as the
Interim Exemption’s general conditions
relating to the QPAM Exemption.
21. The Applicants, however, believe
that the Interim Exemption’s conditions
should be modified in order to more
accurately reflect BlackRock’s ability to
monitor the entities that provide
investment advice to Client Plans’ assets
under its management. As a result of
changes made in this regard, a new
Section II.A.3.(b) has been added to the
proposed exemption. A discussion of
Section II.A.3.(b) is set forth below
under Covered Transactions.
22. Compensation Restrictions
(Section II.B). The Applicants recognize
that an unrestricted ability for
13 The QPAM Exemption may not be relied upon
for securities lending. See Part I(b)(1) of the QPAM
Exemption. However, for purposes of the exemption
proposed herein, securities lending constituting
Covered Transactions involving an MPS must
comply with the terms of Section II.A. of the
proposed exemption as well as the specific
conditions set forth in Section III.L. of the proposed
exemption.
14 76 FR at 50637.
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employees of BlackRock to receive
compensation in connection with the
Covered Transactions could give rise to
potential ERISA conflicts. In order to
address this potential for conflicts,
Section II.B. of the proposed exemption
provides for the same compensation
restrictions set forth in the Interim
Exemption.15
23. Exemption Policies and
Procedures (Section II.C.). The
Applicants recognize that, in order for
BlackRock to successfully manage and
monitor Covered Transactions, the
establishment and use of systematic
policies and procedures is essential.
Section II.C. of the proposed exemption
requires that BlackRock utilize (and
update as necessary) the ‘‘Exemption
Policies and Procedures’’, or ‘‘EPPs’’,
that were developed and used in
connection with the Interim Exemption
and which address each of the Covered
Transactions. Consistent with the
Interim Exemption, the Exemption
Policies and Procedures will be
developed and/or updated with the
cooperation of both the ECO and the IM,
and such EPPs will remain subject to
the approval of the IM. The EPPs need
not address transactions which are not
within the definition of the term
Covered Transactions.
24. Exemption Compliance Officer
(II.D.). The Applicants recognize that in
order to ensure compliance with the
EPPs and the terms of the proposed
exemption an internal compliance
officer is necessary. Consistent with the
Interim Exemption, Section II.D. of the
proposed exemption requires that
BlackRock employ an internal
‘‘Exemption Compliance Officer’’, or
‘‘ECO’’, as well as an ‘‘ECO Function’’.16
The ECO and the ECO Function will be
maintained by BlackRock in order to
monitor the Covered Transactions for
compliance with the Code, ERISA,
FERSA, the EPPs and the exemption.
The responsibilities and requirements of
the ECO and the ECO Function are set
forth in Section II.D. of the proposed
exemption.
25. Independent Monitor (II.E.). The
Applicants believe that the ECO and the
ECO Function alone may not be
sufficient to completely avoid potential
15 76
FR at 50638.
purposes hereof, ‘‘ECO Function’’ is
defined in Section VI.Z. of the proposed exemption
and means the ECO and such other BlackRock
employees in legal and compliance roles working
under the supervision of the ECO in connection
with the Covered Transactions. The list of
BlackRock employees shall be shared with the IM
from time to time, not less than quarterly, and such
employees will be made available to discuss the
relevant Covered Transactions with the IM to the
extent the IM or the ECO deem it reasonably
prudent.
16 For
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conflicts of interests or the appearance
thereof. Conversely, the Applicants also
believe that a wholly independent third
party alone would not be able to
efficiently or effectively monitor and
oversee all of the relevant BlackRock
activities. Consistent with the Interim
Exemption, Section II.E. of the proposed
exemption requires that BlackRock
appoint an ‘‘Independent Monitor’’, or
‘‘IM’’. The IM will monitor the ECO and
the Covered Transactions for
compliance with the Code, ERISA,
FERSA, the EPPs and the exemption.
The responsibilities and requirements of
the IM are set forth in Section II.E. of the
proposed exemption.
26. Notice (II.F.). Client Plans will
receive notice regarding the proposed
exemption through publication in the
Federal Register. The Applicants
believe that such notice is sufficient and
that additional mailings to the Client
Plans would be confusing and
burdensome to the Client Plans given
the substantial similarity between the
Interim Exemption and this proposed
exemption.
Covered Transactions
27. As discussed above, the structure
of the requested relief is founded upon
compliance with five sets of general
conditions. These five sets of general
conditions are then modified by specific
conditions deemed suitable for each
Covered Transaction. Many of the
conditions for individual Covered
Transactions are derived from statutory
exemptions, administrative class
exemptions or administrative individual
exemptions frequently relied upon by
fiduciaries and parties in interest
(sometimes affiliated and sometimes
not) to exempt similar transactions.
Section III of the proposed exemption
sets forth the Covered Transactions for
which the Applicants are seeking
exemptive relief and the conditions
which must be satisfied in respect of
such Covered Transactions in order to
be accorded such relief.
28. Except as described below, the
Covered Transactions for which relief is
proposed herein are substantially
similar to the corresponding ‘‘Covered
Transactions’’ in the Interim Exemption,
and each such Covered Transaction is
subject to substantially the same
conditions as set forth in the Interim
Exemption.17 The Applicants are not
requesting relief with respect to the
Covered Transactions described in
Section III.A. (Continuing Covered
Transactions), T. (The Provision of
Custodial, Administrative and Similar
Ministerial Services by an MPS for a
17 76
FR at 50640.
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Client Plan as a Consequence of a
BlackRock Manager Exercising
Investment Discretion on Behalf of the
Client Plan or Rendering Investment
Advice to the Client Plan) or W.
(Investment of Assets of MPS Plans in
a BlackRock Bank-Maintained Common
or Collective Trust as of the Date of the
Acquisition—Fees Paid Outside the
Trust) of the Interim Exemption.
However, the Applicants are seeking
exemptive relief with respect to a new
Covered Transaction described in
Section III.W. of the proposed
exemption.
29. The Applicants further request,
with respect to a small number of the
Covered Transactions identified herein,
certain changes from the relief provided
in the Interim Exemption and to the
applicable conditions. Set forth below is
a discussion of (a) three broad changes
that impact multiple Covered
Transactions and (b) modifications with
respect to specific Covered
Transactions.
30. MPS Investment Advice. The
Interim Exemption imposed conditions
with respect to several Covered
Transactions that restricted BlackRock
Managers from engaging in transactions
with MPSs that possess discretionary
authority or control with respect to the
investment of the Client Plan assets
involved in the transaction, or render
investment advice within the meaning
of 29 CFR 2510.3–21(c) with respect to
such assets. This condition was set forth
in Section III.I. (Repurchase
Agreements), L. (Bank Deposits and
Commercial Paper), M. (Securities
Lending) and U. (ABCP Conduit) of the
Interim Exemption. In this proposed
exemption, the relevant sections are redesignated Section III.H. (Repurchase
Agreements), K. (Bank Deposits and
Commercial Paper), L. (Securities
Lending) and S. (ABCP Conduit).
The Applicants represent that
BlackRock Managers are often unable to
make a determination as to which
parties provide investment advice with
respect to Client Plan assets. The
inability to make these determinations
created uncertainty as to which parties
were subject to the restriction of these
conditions, resulting in the relief
provided in the Interim Exemption for
those sections being unworkable in
some situations from a practical
perspective. The Applicants, therefore,
requested deletion of that portion of the
condition that would limit transactions
with MPSs that provide investment
advice within the meaning of 29 CFR
2510.3–21(c).
The Department understands the
Applicants’ concerns regarding the
practical implication of the restriction
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on transactions with investment advice
providers and, for purposes of the
exemption proposed herein, has revised
the conditions at issue so that the
restriction only apply to transactions
with MPSs that possess discretionary
authority or control with respect to the
investment of the Client Plan assets
involved in the transaction. The
Department additionally made several
related changes to the affected sections.
First, the Department added a condition
to Section III.H. and K. to clarify that the
Client Plan involved in the transaction
may not be an MPS Plan of the MPS
with whom the transaction takes place,
or an MPS Plan of another member of
the same MPS Group as such MPS.
Second, at the Applicants’ request, the
Department revised Section II.A.3. to
include a new Section II.A.3.(b), which
provides that the conditions described
above in this paragraph shall be deemed
satisfied if, with respect to the Covered
Transaction in question, section
II.A.3.(a) is satisfied. Section II.A.3.(a)
provides that, in the case of an
investment fund in which two or more
unrelated Client Plans have an interest,
a Covered Transaction with an MPS will
be deemed to satisfy the requirements of
Section II.A.2. of the proposed
exemption if the assets of a Client Plan
on behalf of which the MPS or its
affiliate possesses the authority and
which are managed by the BlackRock
Manager in the investment fund, when
combined with the assets of other Client
Plans established or maintained by the
same employer (or an affiliate thereof)
or by the same employee organization,
on behalf of which the same MPS
possesses such authority and which are
managed in the same investment fund,
represent less than ten percent (10%) of
the assets of the investment fund.
Finally, with respect to relief for
Securities lending by a BlackRock
Manager to an MPS, the Department
included two additional conditions in
Section III.L. similar to those contained
in subsections (p) and (q) of PTE 2002–
46.18 It is the Department’s view that the
general conditions of the proposed
exemption, including the modified
conditions derived from the QPAM
exemption, with the specific conditions
of these Sections as modified, provide
sufficient safeguards for the affected
Client Plans, participants and
beneficiaries, even without the
restriction on transactions with
investment advice providers.
31. Directed Brokerage Accounts/
Wrap Agreements. Section III.P., R., S.
and V. of the Interim Exemption
18 67 FR 59569 (September 23, 2002), as
corrected, 67 FR 69046 (November 14, 2002).
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provided relief that included a
provision that permitted BlackRock
Managers to use an MPS as a Securities
broker pursuant to either directed
brokerage and/or wrap fee arrangements
in effect on the date of the
Acquisition.19 The Applicants represent
that relief for such directed brokerage
and/or wrap fee arrangements is no
longer necessary. In the absence of such
necessity, the Department has
eliminated the directed brokerage and/
or wrap fee agreement provisions in the
corresponding sections (Section III.O.,
Q., R. and T.) of the proposed
exemption.
32. Primary/Secondary Markets and
Agency/Principal. Section III.L and U. of
the Interim Exemption provided relief
with respect to (a) investments in bank
deposits and commercial paper, and (b)
purchases, sales and holdings by
BlackRock Managers for Client Plans of
commercial paper issued by ABCP
conduits, when an MPS has one or more
roles.20 The Applicants request changes
from the conditions with respect to both
Covered Transactions in the Interim
Exemption. Purchases, sales and
placements of bank deposits and
commercial paper commonly occur
without reference to primary or
secondary markets and without
distinction as to whether they are on a
principal or agency basis. As a result,
such distinctions are simply not
relevant to the short term instruments
described in the Covered Transactions
(which is in contrast to trading of longer
term Fixed Income Obligations or equity
Securities). To address this issue, the
Department has modified the language
of Section II.K. and S. of the proposed
exemption to more accurately reflect the
nomenclature of bank deposits and
commercial paper.
33. Repurchase Agreements when an
MPS is the Seller (Section III.H.). With
respect to Covered Transactions
involving investments in repurchase
agreements when an MPS is the seller,
the Interim Exemption provided relief
with respect to certain repurchase
agreements that were in effect as of the
date of the Acquisition that otherwise
would not have complied with the
conditions of the Interim Exemption.21
Applicants represent that such
repurchase agreements are no longer in
place. As a result, the Applicants are no
longer requesting relief with respect to
repurchase agreements that were in
effect as of the date of the Acquisition.
19 76
FR at 50647–50650.
FR at 50643 and 50649.
21 76 FR at 50642.
The Department has made this change
to the proposed exemption.
34. Bank Deposits and Commercial
Paper (Section III.K.). With respect to
Covered Transactions involving
investments in bank deposits and
commercial paper, the Applicants
request changes from the conditions in
the Interim Exemption. The Applicants
represent that, with respect to
commercial paper, an MPS may often
act in a continuing capacity, such as a
placement agent or an administrator. To
address this concern, the language of the
proposed exemption has been modified
to reflect the fact that an MPS may act
in a continuing capacity. In addition, in
order to provide additional protections
for participants and beneficiaries, the
proposed exemption provides that all
purchases and sales of commercial
paper to or from an MPS be made
pursuant to the Three Quote Process.
35. Securities Lending to an MPS
(Section III.L.). The Interim Exemption
provided relief for the lending of
securities by BlackRock Managers to an
MPS. Such relief was extended to both
(a) Index Accounts or Funds and ModelDriven Accounts or Funds and (b) Other
Accounts or Funds. For purposes of this
proposed exemption, the Applicants
limited their request to relief for Index
Accounts or Funds and Model-Driven
Accounts or Funds. The Department has
revised Section III.L. of the proposed
exemption accordingly.
36. To-Be-Announced Trades (TBAs)
of GNMA, FHLMC, FarmerMac or FNMA
Mortgage-Backed Securities with an
MPS Counterparty (Section III.M.). With
respect to To-Be-Announced Trades
(TBAs), Section III.N. of the Interim
Exemption provided relief for TBAs of
GNMA, FHLMC, or FNMA MortgageBacked Securities with an MPS
counterparty.22 The Applicants request
that the Department add FarmerMac
mortgage-backed Securities to the relief
provided for TBAs. Such additional
relief is necessary because the
Applicants have found that, in practice,
BlackRock Managers may engage in
principal trades on a TBA basis with
FarmerMac mortgage-backed Securities.
Not allowing such TBAs, according to
the Applicants, would deprive Client
Plans of a substantial pool of TBAs.
The Applicants represent that the
addition of relief for TBAs of
FarmerMac mortgage-backed Securities
is consistent with the relief provided in
the Interim Exemption with respect to
both FHLMC and FNMA mortgagebacked Securities. All three entities are
the recipients of indirect government
guarantees, and each entity has
20 76
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2803
historically been treated similarly by the
Department.23 The Department agrees
with the Applicants, and it has added
FarmerMac mortgage-backed Securities
to the relief proposed for TBAs herein.
37. Purchase of a Portion or All of a
Loan to an Entity Which is not an MPS
and is not a BlackRock Entity from an
MPS or Other Arranger and the Holding
thereof by BlackRock Managers Where
an MPS is an Arranger, and/or an MPS
has an Ongoing Function Regarding
Such Loan (Section III.W.). The
Applicants request exemptive relief
with respect to a new Covered
Transaction. The Applicants represent
that there is a significant market in
Loans (and participations in such
Loans) made to commercial borrowers
to finance either their current and
ongoing operations, or a specific
transaction. The terms governing the
Loans and the lenders’ commitment to
fund them are generally negotiated
between the borrower and the sole
Arranger or Lead Arranger,24 as
applicable. The sole Arranger, or Lead
Arranger with the assistance of the other
Arrangers, undertakes to effectively sell
portions of the Loan in a Loan
Offering 25 by finding one or more
sophisticated financial institutions such
as commercial banks, insurance
companies or other companies or funds
regularly engaged in making, investing
in, purchasing or selling commercial
loans with sufficient capital to either
take an assignment of, or a participation
interest in, all or a portion of the Loan,
on either a firm commitment or best
efforts basis (in each case, as described
below). The Arrangers assume a portion
of the commitment to the borrower to
fund the Loans initially. The Applicants
represent that conceptually, these types
of lending transactions are similar to the
purchase and holding by BlackRock
Managers on behalf of Client Plans of
Fixed Income Obligations issued by
23 See ERISA Advisory Opinion 99–05A
(February 22, 1999).
24 ‘‘Arranger’’ is defined in Section VI.I. of the
proposed exemption and the term means a
sophisticated financial institution, such as a
commercial or investment bank, regularly engaged
in structuring commercial loans, and ‘‘Lead
Arranger’’ is defined in Section VI.ZZ. of the
proposed exemption and the term means, with
respect to any Loan Offering involving more than
one Arranger, the Arranger designated as such by
all of such Arrangers.
25 ‘‘Loan Offering’’ is defined in Section VI.BBB.
of the proposed exemption and the term means,
with respect to the aggregate principal amount of
any Loan extended to a commercial borrower in any
single transaction, the process of structuring,
marketing and offering to banks, insurance
companies, investment funds and other
institutional investors the opportunity to purchase
interests in such Loan.
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third parties where an MPS may act as
the underwriter.26
The Applicants further represent that
in a firm commitment Loan Offering, the
Arrangers are obligated to make the
Loan in the full amount of their
commitment, even if they have not
found other investors to participate in or
take an assignment of all or a portion of
the Loan. If the transaction is conducted
on a best efforts basis, the Arrangers are
not obligated to make the Loan in the
full amount requested by the borrower
if there is not sufficient interest in the
market. Selling efforts with respect to a
particular Loan Offering do not begin
before a decision is made regarding
whether such Loan Offering will be
made on a firm commitment or best
efforts basis. The Applicants are only
requesting relief under the proposed
exemption for Loans that are made on
a firm commitment basis.
The Applicants represent that
potential purchasers of a portion or all
of a Loan are able to review relevant
information about the Loan in advance,
and indicate whether they are interested
in taking an assignment or participation
in such Loan. In an assignment, the
lender of record of the portion of the
Loan which is assigned is changed, and
the title, voting rights and all other
rights are transferred to the assignee. In
a participation, the lender of record
remains the original lender, and such
lender typically retains voting rights,
except for certain extraordinary actions
primarily relating to the economic terms
of the Loan. The Applicants are only
requesting relief under the proposed
exemption for transactions involving the
assignment of Loans.
The Applicants represent that the sole
Arranger or Lead Arranger, as
applicable, is typically responsible for
negotiating the terms of the Loan,
including the Loan Offering,
commitment or other similar
underwriting fee to be paid by the
borrower, and building a book of
investors to hold the Loan. Where there
is more than one Arranger, other
Arrangers may participate in the sales
effort in coordination with the Lead
Arranger. The material terms of the
Loan are typically negotiated and agreed
with the borrower before
commencement of the Loan Offering
effort. When the sole Arranger or Lead
Arranger, as applicable, has negotiated
the material terms of the Loan, they are
posted to one or more web-based sites
26 Solely
for purposes of Section III.W. of the
proposed exemption, ‘‘Loan’’ is defined in Section
VI.AAA. of the proposed exemption and the term
does not include any Fixed Income Obligations
which are covered separately under Section IV.A.
of the proposed exemption.
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(e.g., Intralinks) for potential investors
and lenders to review. These sites
provide detailed information regarding
the borrower and draft Loan documents
(e.g., credit agreement, confidential
information statement). The covenants
in the applicable credit agreement are
often more highly structured than in a
high yield fixed income underwritten
offering and thereby would typically
provide enhanced protection for
investors.
The Applicants represent that the fee
received by an Arranger depends upon
whether the offering is on a firm
commitment or a best efforts basis and
is generally calculated as a percentage of
the principal amount of the Loan. The
fee is generally higher for a firm
commitment transaction than a best
efforts transaction. In a firm
commitment transaction, each Arranger
will receive a specified percentage of
the fee which is determined on the basis
of the size of the Loan commitment
before the sales effort commences and
the amount of such fee does not vary
depending on a particular member’s
success in the sales effort. Thus, if an
MPS is an Arranger, its compensation in
the form of the fee will not increase if
a BlackRock Manager on behalf of a
Client Plan purchases from such MPS,
rather than another Arranger.
The Applicants represent that in some
Loan transactions, the sole Arranger or
Lead Arranger, as applicable, has no
ongoing role after the sale with respect
to the Loans. In other transactions, the
sole Arranger or Lead Arranger, as
applicable, does serve an ongoing
function such as an administrative agent
or a collateral agent. Most commonly,
the collateral agent and the
administrative agent are the same entity.
The Applicants further represent that
generally: (a) The administrative agent
acts as an agent between the lenders and
the borrower; the role of an
administrative agent is administrative
and ministerial and involves relaying
information, tallying votes and
organizing calls; there is no fiduciary
relationship between the lenders and
the administrative agent; and there is
generally a flat fee (currently in the
range of $100,000 to $200,000 per
annum) for acting as an administrative
agent and this fee is paid by the
borrower; and (b) the collateral agent
holds the collateral on behalf of all of
the lenders.
The Applicants represent that,
according to their research, the Barclays
MPSs are ranked in the top ten
Arrangers for Loans. They acted in 92
deals in 2010, representing 6% market
share and in 70 deals in the first half of
2011, representing a 7.6% market share.
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The same research indicates that the
shares of PNC MPSs are smaller, but the
PNC MPSs still rank in the top 25
Arrangers for Loans.
The Applicants represent that
investments in these types of firm
commitment assigned Loans represent
an attractive investment opportunity for
Client Plans. Such Loans are typically
senior secured and typically have the
highest or second highest priority of
claim on a borrower’s assets and cash
flow. Such Loans also provide an
opportunity to generate a return based
upon a floating interest rate (resulting in
Client Plans receiving more when
interest rates rise). The Applicants
believe that a failure to obtain relief for
this type of Covered Transaction would
materially inhibit Client Plan access to
this significant asset class.
In response, the Department is
proposing relief for the purchase and
holding of all or a portion of a Loan by
a BlackRock Manager on behalf of a
Client Plan, where such purchase may
be from an MPS or other Arranger, and/
or an MPS may be an Arranger and/or
have an ongoing function regarding
such Loan. Conditions applicable to this
type of transaction would be: (a) The
BlackRock Manager on behalf of the
Client Plan obtains an assigned interest
in the Loan or a portion thereof, as
opposed to a participation interest, (b)
the borrower under the Loan must not
be an MPS or BlackRock Entity, (c) the
Loan must be offered on a firm
commitment basis, (d) conditions
similar to Subsections IV.A.4–12., as
applicable, and (e) if an MPS has an
ongoing function in respect of such
Loan, such as an administrative agent or
collateral agent, the taking of or
refraining from taking of any action by
the responsible BlackRock Manager
which could have a material positive or
negative effect upon the MPS must be
decided upon by the IM.
Affiliated Underwritings and Affiliated
Servicing (Section IV)
38. Covered Transactions for which
relief is proposed herein, including
Sections III.B., D., E. and F., include in
their conditions requirements regarding
affiliated underwriting and affiliated
servicing that are set forth in Section IV
of the proposed exemption. The
Department notes that these conditions
are substantially similar to those under
the Interim Exemption.27
Correction Procedures (Section V)
39. The Applicants request
confirmation that isolated transgressions
of the EPPs, or isolated failures to
27 76
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comply with the conditions associated
with a Covered Transaction constituting
a non-exempt prohibited transaction
(the latter, a Violation) should not cause
the entire exemption, if granted, to cease
to be available. Only a persistent pattern
or practice of violations of the EPPs or
the conditions of the exemption should
potentially cause the exemption to be
revoked. The Department notes that the
correction procedures under the
proposed exemption are substantially
similar to those under the Interim
Exemption, and the Department concurs
with the Applicants’ analysis on this
issue.28
Effective Date
40. If granted, the proposed
exemption will be effective March 31,
2012. However, Applicants represent
that they substantially complied with
the conditions applicable to Covered
Transactions described in Section III.K.
and S. effective October 1, 2011. As a
result, the proposed exemption will be
effective with respect to Covered
Transactions described in Section III.K.
and S. as of October 1, 2011.
41. In summary, the Applicants
represent that the exemption proposed
herein will satisfy the statutory criteria
of ERISA section 408(a) and Code
section 4975(c)(2) because:
(a) Administratively feasible. The
Applicants believe that the proposed
exemption is administratively feasible.
Most of the Covered Transactions are
the subject of existing statutory and/or
administrative exemptions. The
conditions for relief for the Covered
Transactions have been modified to
reflect, on the one hand, the possible
negative implication of the equity
investments of the MPSs in BlackRock,
and on the other hand, the
circumscribed ability of the MPSs to
exercise rights normally associated with
such equity investments. In addition,
EPPs have been developed with the
cooperation and approval of the IM; an
ECO has been appointed to report on
compliance with the terms of the
exemption and the EPPs; and the IM
will review compliance reports, pass
upon corrections of Violations, and if
necessary, contact the Department.
Granting the proposed exemption
requires no additional monitoring by the
Department.
(b) In the interest of plans and
participants and beneficiaries. The
Applicants believe that the proposed
exemption is in the interest of plans and
participants and beneficiaries because
the proposed exemption would allow
BlackRock Managers to continue to
28 76
FR at 50654.
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engage in Covered Transactions with
major participants in the financial
markets which are necessary and
beneficial to plans and their participants
and beneficiaries. While many Covered
Transactions (although perhaps not all)
could be engaged in with parties other
than MPSs, in numerous cases such
transactions would be quantitatively or
qualitatively inferior to the same
transactions with an MPS.
(c) Protective of the rights of
participants and beneficiaries of such
plans. Each of the Covered Transactions
is protective of the rights of participants
and beneficiaries because specific
conditions have been tailored to their
respective natures. More broadly, the
rights of participants and beneficiaries
are protected by the general conditions,
modeled on the QPAM Exemption, that
are applicable to all Covered
Transactions. The general protective
conditions include compensation
restrictions, development of EPPs, and
implementation of EPPs with the
cooperation and approval of the IM.
Further, the ECO will report on
compliance with the exemption and the
EPPs, and the IM will review
compliance reports, pass upon
corrections of Violations, and if
necessary, contact the Department.
Proposed Exemption
Based on the facts and representations
set forth in the application, the
Department is considering granting the
following exemption under the
authority of ERISA section 408(a), Code
section 4975(c)(2) and FERSA section
8477(c)(3), and in accordance with the
procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847,
August 10, 1990), as follows:
Section I: Covered Transactions
Generally
If the proposed exemption is granted,
effective as of March 31, 2012 (or, in the
case of Covered Transactions described
in Section III.K or Section III.S. of this
exemption, October 1, 2011), the
restrictions of ERISA sections 406(a)(1)
and 406(b), FERSA section 8477(c)(1)
and (2), and the sanctions resulting from
the application of Code section 4975, by
reason of Code section 4975(c)(1),29
shall not apply to the Covered
Transactions set forth in Section III and
entered into on behalf of or with the
assets of a Client Plan; provided, that (x)
the generally applicable conditions of
Section II of this exemption are
satisfied, and, as applicable, the
29 For purposes of this proposed exemption,
references to ERISA section 406 should be read to
refer as well to the corresponding provisions of
Code section 4975 and FERSA section 8477(c).
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2805
transaction-specific conditions set forth
below in Sections III and IV of this
exemption are satisfied, or (y) the
Special Correction Procedure set forth
in Section V of this exemption is
satisfied.
Section II: Generally Applicable
Conditions
A. Compliance with the QPAM
Exemption. The following conditions of
Part I of Prohibited Transaction
Exemption 84–14, as amended (PTE 84–
14 or the QPAM Exemption),30 must be
satisfied with respect to each Covered
Transaction:
1. The BlackRock Manager engaging
in the Covered Transaction is a
Qualified Professional Asset Manager;
2. Except as set forth in Section III of
this exemption, at the time of the
Covered Transaction (as determined
under Section VI(i) of the QPAM
Exemption) with or involving an MPS,
such MPS, or its affiliate (within the
meaning of Section VI(c) of the QPAM
Exemption),31 does not have the
authority to:
(a) Appoint or terminate the
BlackRock Manager as a manager of the
Client Plan assets involved in the
Covered Transaction, or
(b) Negotiate on behalf of the Client
Plan the terms of the management
agreement with the BlackRock Manager
(including renewals or modifications
thereof) with respect to the Client Plan
assets involved in the Covered
Transaction;
3. (a) Notwithstanding the foregoing,
in the case of an investment fund (as
defined in Section VI(b) of the QPAM
Exemption) in which two or more
unrelated Client Plans have an interest,
and which is a Pooled Fund, a Covered
Transaction with an MPS will be
deemed to satisfy the requirements of
Section II.A.2. of this exemption if the
assets of a Client Plan on behalf of
which the MPS or its affiliate possesses
the authority set forth in Section
II.A.2.(a) and/or (b) above, and which
are managed by the BlackRock Manager
in the investment fund, when combined
with the assets of other Client Plans
established or maintained by the same
employer (or an affiliate thereof
described in Section VI(c)(1) of the
QPAM Exemption) or by the same
employee organization, on behalf of
30 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR
49305 (Aug. 23, 2005), and as amended, 75 FR
38837 (July 6, 2010).
31 Solely for purposes of Section II.A.2. and
Section II.A.3. of this exemption, no BlackRock
Entity will be deemed to be an affiliate of an MPS.
The Department is not making herein a
determination as to whether any BlackRock Entity
is an affiliate of an MPS under ERISA.
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which the same MPS and/or its affiliates
possess such authority and which are
managed by the BlackRock Manager in
the same investment fund, represent
less than ten percent (10%) of the assets
of the investment fund; and
(b) the conditions set forth in
Subsections 14. and 15. of Section III.H.,
Subsections 2(e) and 3. of Section III.K.,
Section III.L.2.(b) and Subsections 1.
and 2. of Section III.S. of this exemption
shall be deemed satisfied if, with
respect to the Covered Transaction in
question, Section II.A.2. of this
exemption is satisfied by reason of
Section II.A.3.(a) of this exemption.
4. The terms of the Covered
Transaction are negotiated on behalf of
the investment fund by, or under the
authority and general direction of, the
BlackRock Manager and either the
BlackRock Manager or (so long as the
BlackRock Manager retains full
fiduciary responsibility with respect to
the Covered Transaction) a property
manager acting in accordance with
written guidelines established and
administered by the BlackRock
Manager, makes the decision on behalf
of the investment fund to enter into the
Covered Transaction, provided that the
Covered Transaction is not part of an
agreement, arrangement or
understanding designed to benefit the
MPS;
5. The Covered Transaction is not
entered into with an MPS which is a
party in interest or disqualified person
with respect to any Client Plan whose
assets managed by the BlackRock
Manager, when combined with the
assets of other Client Plans established
or maintained by the same employer (or
affiliate thereof described in Section
VI(c)(1) of the QPAM Exemption) or by
the same employee organization, and
managed by the BlackRock Manager,
represent more than twenty percent
(20%) of the total client assets managed
by the BlackRock Manager at the time of
the Covered Transaction;
6. At the time the Covered
Transaction is entered into, and at the
time of any subsequent renewal or
modification thereof that requires the
consent of the BlackRock Manager, the
terms of the Covered Transaction are at
least as favorable to the investment fund
as the terms generally available in arm’s
length transactions between unrelated
parties; and
7. Neither the BlackRock Manager nor
any affiliate thereof (as defined in
Section VI(d) of the QPAM
Exemption),32 nor any owner, direct or
32 For the avoidance of doubt, all MPSs are
excluded from the term ‘‘affiliate’’ for these
purposes.
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indirect, of a five percent (5%) or more
interest in the BlackRock Manager 33 is
a person who within the ten (10) years
immediately preceding the Covered
Transaction has been either convicted or
released from imprisonment, whichever
is later, as a result of: Any felony
involving abuse or misuse of such
person’s employee benefit plan position
or employment, or position or
employment with a labor organization;
any felony arising out of the conduct of
the business of a broker, dealer,
investment adviser, bank, insurance
company or fiduciary; income tax
evasion; any felony involving the
larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent
conversion, or misappropriation of
funds or securities; conspiracy or
attempt to commit any such crimes or
a crime in which any of the foregoing
crimes is an element; or any other crime
described in ERISA section 411. For
purposes of this section, a person shall
be deemed to have been ‘‘convicted’’
from the date of the judgment of the trial
court, regardless of whether that
judgment remains under appeal.
B. Compensation. None of the
employees of a BlackRock Manager
receives any compensation that is based
on any Covered Transaction having
taken place between Client Plans and
any of the MPSs (as opposed to with
another institution that is not an MPS).
The fact that a specific Covered
Transaction occurred with an MPS as
opposed to a non-MPS counterparty is
ignored by BlackRock and BlackRock
Managers for compensation purposes.
None of the employees of BlackRock or
a BlackRock Manager receive any
compensation from BlackRock or a
BlackRock Manager which consists of
equity Securities issued by an MPS,
which fluctuates in value based on
changes in the value of equity Securities
issued by an MPS, or which is otherwise
based on the financial performance of
an MPS independent of BlackRock’s
performance, provided that this
condition shall not fail to be met
because the compensation of an
employee of a BlackRock Manager
fluctuates with the value of a broadlybased index which includes equity
Securities issued by an MPS.
C. Exemption Policies and
Procedures. BlackRock adopts and
implements Exemption Policies and
Procedures (EPPs) which address each
of the types of Covered Transactions
and which are designed to achieve the
goals of: (1) Compliance with the terms
33 For the avoidance of doubt, all MPSs are
excluded from the term ‘‘owner’’ for these purposes.
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of the exemption, (2) ensuring
BlackRock’s decision-making with
respect to the Covered Transactions on
behalf of Client Plans with MPSs or
BlackRock Entities is done in the
interests of the Client Plans and their
participants and beneficiaries, and (3) to
the extent possible, verifying that the
terms of such Covered Transactions are
at least as favorable to the Client Plans
as the terms generally available in arm’s
length transactions with unrelated
parties. The EPPs are developed with
the cooperation of both the Exemption
Compliance Officer (ECO) and the
Independent Monitor (IM), and such
EPPs are subject to the approval of the
IM. The EPPs need not address
transactions which are not within the
definition of the term Covered
Transactions.
Transgressions of the EPPs which do
not result in Violations require
correction only if the amount involved
in the transgression and the extent of
deviation from the EPPs is material,
taking into account the amount of Client
Plan assets affected by such
transgressions (EPP Corrections). The
ECO will make a written determination
as to whether such transgressions
require EPP Correction, and, if the ECO
determines an EPP Correction is
required, the ECO will provide written
notice to the IM of the EPP Correction.
The ECO will provide summaries for the
IM of any such EPP Corrections as part
of the quarterly report referenced in
Section II.D.11.
D. Exemption Compliance Officer.
BlackRock appoints an Exemption
Compliance Officer (ECO) with respect
to the Covered Transactions. If the ECO
resigns or is removed, BlackRock shall
appoint a successor ECO within a
reasonable period of time, not to exceed
thirty (30) days, which successor shall
be subject to the affirmative written
approval of the IM. With respect to the
ECO, the following conditions shall be
met:
1. The ECO is a legal professional
with at least ten years of experience and
extensive knowledge of the regulation of
financial services and products,
including under ERISA and FERSA;
2. A committee made up exclusively
of members of the BlackRock Board of
Directors (the Board) who are
independent of BlackRock and the
MPSs determines the ECO’s
compensation package, with input from
the general counsel of BlackRock; the
ECO’s compensation is not set by
BlackRock business unit heads, and
there is no direct or indirect input
regarding the identity or compensation
of the ECO from any MPS;
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3. The ECO’s compensation is not
based on performance of any BlackRock
Entity or MPS, although a portion of the
ECO’s compensation may be provided
in the form of BlackRock stock or stock
equivalents;
4. The ECO can be terminated by
BlackRock only with the approval of the
IM;
5. The EPPs prohibit any officer,
director or employee of BlackRock or
any MPS or any person acting under
such person’s direction from directly or
indirectly taking any action to coerce,
manipulate, mislead, or fraudulently
influence the ECO or any member of the
ECO Function in the performance of his
or her duties;
6. The ECO is responsible for
monitoring Covered Transactions and
shall determine whether Violations have
occurred, and the appropriate correction
thereof, consistent with the
requirements of Section V of this
exemption;
7. If the ECO determines a Violation
has occurred, the ECO must determine
why it occurred and what steps should
be taken to avoid such a Violation in the
future (e.g., additional training,
additional procedures, additional
monitoring, or additional and/or
changed processes or systems);
8. The ECO is responsible for
monitoring and overseeing the
implementation of the EPPs and
carrying out such other responsibilities
stipulated or described in Section III of
this exemption. The ECO may delegate
such responsibilities to the ECO
Function, but the ECO will remain
responsible for monitoring and
overseeing the ECO Function’s
implementation of the EPPs. When
appropriate, the ECO will recommend
changes to the EPPs to BlackRock and
the IM. The ECO will consult with the
IM regarding the need for, timing, and
form of EPP Corrections;
9. The ECO, with the assistance of the
ECO Function, carries out the
responsibilities required of the ECO
described in: (a) The definition of
‘‘Index’’ in this exemption and (b) with
respect to loans of Securities to an MPS
in Section III.L. of this exemption;
10. The ECO, with the assistance of
the ECO Function, monitors Covered
Transactions and situations resulting
from Covered Transactions with or
involving an MPS with respect to
which, because of the investment of the
MPS in BlackRock, an action or inaction
on the part of a BlackRock Manager
might be thought to be motivated by an
interest which may affect the exercise of
such BlackRock Manager’s best
judgment as a fiduciary. If a situation is
identified by the ECO which poses the
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potential for a conflict, as specified in
Section III of this exemption, the ECO
shall consult with the IM, or refer
decision-making to the discretion of the
IM;
11. The ECO provides a quarterly
report to the IM summarizing the
material activities of the ECO for the
preceding quarter and setting forth any
Violations discovered during the quarter
and actions taken to correct such
Violations. With respect to Violations,
the ECO report details changes to
process put in place to guard against a
substantially similar Violation occurring
again, and recommendations for
additional training, additional
procedures, additional monitoring, or
additional and/or changed processes or
systems or training changes and
BlackRock management’s actions on
such recommendations. In connection
with providing the quarterly report for
the second quarter and fourth quarter of
each year, upon the request of the IM,
the ECO and the IM shall meet in person
to review the content of the report.
Other members of the ECO Function
may attend such meetings at the request
of either the ECO or the IM;
12. In each quarterly report, the ECO
certifies in writing to his or her
knowledge that (a) the quarterly report
is accurate; (b) BlackRock’s compliance
program is working in a manner which
is reasonably designed to prevent
Violations; (c) any Violations discovered
during the quarter and the related
corrections taken to date have been
identified in the report; and (d)
BlackRock has complied with the EPPs
in all material respects;
13. No less frequently than annually,
the ECO certifies to the IM as to whether
BlackRock has provided the ECO with
adequate resources, including, but not
limited to, adequate staffing of the ECO
Function, and, in connection with the
quarterly report for the fourth quarter of
each year, the ECO shall identify to the
IM those BlackRock Managers that
relied upon this exemption during the
prior year and those that the ECO
reasonably anticipates relying on this
exemption during the current year; and
14. The ECO or ECO Function
provides any further information
regarding Covered Transactions that is
reasonably requested by the IM.
E. Independent Monitor. BlackRock
retains an Independent Monitor (IM)
with respect to the Covered
Transactions. If the IM resigns or is
removed, BlackRock shall appoint a
successor IM within a reasonable period
of time, not to exceed thirty (30) days.
The IM:
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1. Agrees in writing to serve as IM,
and he or she is independent within
meaning of Section VI.TT.;
2. Approves the ECO selected by
BlackRock, and as part of the approval
process and annually thereafter
approves in general terms the
reasonableness of the ECO’s
compensation, taking into account such
information as the IM may request of
BlackRock and which BlackRock must
supply, and approves any termination of
the ECO by BlackRock;
3. Assists in the development of, and
the granting of written approval of, the
EPPs and any material alterations of the
EPPs by determining that they are
reasonably designed to achieve the goals
of (a) compliance with the terms of the
exemption, (b) ensuring BlackRock’s
decision-making with respect to
Covered Transactions on behalf of
Client Plans with MPSs or BlackRock
Entities is done in the interests of the
Client Plans and their respective
participants and beneficiaries and, (c)
requiring, to the extent possible,
verification that the terms of such
Covered Transactions are at least as
favorable to the Client Plans as the
terms generally available in comparable
arm’s length transactions with unrelated
parties;
4. Consults with the ECO regarding
the need for, timing and form of any
EPP Corrections. The IM has the
responsibilities with respect to
corrections of Violations, as set forth in
Section V of this exemption. In response
to EPP Corrections or Violations, the IM
considers whether, and must have the
authority, to require further sampling,
testing or corrective action if necessary;
5. Exercises discretion for Client Plans
in situations specified in Section III of
this exemption where BlackRock
Managers may be thought to have
conflicts;
6. Performs certain monitoring
functions described in Section III, and
carries out the responsibilities required
of the IM, as set forth in the definition
of ‘‘Index’’ in this exemption, and with
respect to loans of Securities to an MPS
as set forth in Section III.L. of this
exemption, and carries out such other
responsibilities stipulated in Section III
of this exemption;
7. Reviews the quarterly reports of the
ECO, obtains and reviews representative
samples of the data underlying the
quarterly reports of the ECO, and, if the
IM deems it appropriate, obtains
additional factual information on either
an ad hoc basis or on a systematic basis;
8. Reviews the certifications of the
ECO as to whether (a) the quarterly
report is accurate; (b) BlackRock’s
compliance program is working in a
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manner which is reasonably designed to
prevent Violations; (c) any Violations
discovered during the quarter and the
related corrections taken to date have
been identified in the report; (d)
BlackRock has complied with the EPPs
in all material respects; and (e)
BlackRock has provided the ECO with
adequate resources, including, but not
limited to, adequate staffing of the ECO
Function;
9. Determines, on the basis of the
information supplied to the IM by
BlackRock and the ECO or the ECO
Function, whether there has occurred a
pattern or practice of insufficient
diligence in adhering to the EPPs and/
or the conditions of the exemption, and
if such a determination is made, reports
the same to the Department, and
informs BlackRock and the ECO of any
such report;
10. Determines whether the purchases
of equity Securities issued by an MPS
on behalf of Client Plans that are Other
Accounts or Funds by a BlackRock
Manager has had a positive material
impact on the market price for such
Securities, notwithstanding any volume
limitations imposed by Section III.R. of
the exemption and/or imposed by the
IM with respect to such equity
Securities. The IM makes this
determination based upon its review of
the relevant monthly reports required by
the exemption with respect to such
Covered Transactions provided by the
ECO and publicly available information
materially related to the trading of the
Securities of an MPS on its primary
listing exchange (or market);
11. Issues an annual compliance
report, to be timely delivered to (i) the
Chairman of the Board, (ii) the Chief
Executive Officer of BlackRock and (iii)
the General Counsel of BlackRock. The
annual compliance report shall be based
on a review of the EPPs, the quarterly
reports provided by the ECO, any
transactions reviewed by the IM as well
as any additional information the IM
requests from BlackRock, and certifying
to each of the following (or describing
any exceptions thereto) that:
(a) The EPPs are reasonably designed
to achieve the goals of (i) compliance
with the terms of the exemption, (ii)
ensuring BlackRock’s decision-making
with respect to Covered Transactions on
behalf of Client Plans with MPSs or
BlackRock Entities is done in the
interests of the Client Plans and the
respective participants and
beneficiaries, and (iii) requiring to the
extent possible, verification that the
terms of any Covered Transaction are at
least as favorable to Client Plans as the
terms generally available in comparable
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arm’s length transactions with unrelated
parties;
(b) The EPPs and the other terms of
the exemption were complied with,
with any material exceptions duly
noted;
(c) The IM has made the
determination referred to in Section
II.E.9. and the results of that
determination;
(d) BlackRock has provided the ECO
with adequate resources, including but
not limited to adequate staffing of the
ECO Function; and
(e) The compensation package for the
ECO for the prior year is reasonable;
12. The annual compliance report of
the IM, as described in Section II.E.11.,
shall contain a summary of Violations
and a summary of any corrections of
Violations required by the IM and/or the
ECO at any time during the prior year.
In addition, the IM further certifies that
BlackRock correctly implemented the
prescribed corrections, based in part on
certification from the ECO; and
13. The annual compliance report of
the IM shall also be timely delivered by
the IM to the chief executive officer, the
general counsel and the members of the
board of directors of each of the
BlackRock Managers identified to the
IM by the ECO or ECO Function as
having relied upon this exemption
during the prior year and those that the
ECO reasonably anticipates will be
relying on this exemption during the
current year. The copies of the
compliance report described in this
Section II.E.13. shall be accompanied by
a cover letter from the IM calling the
attention of the recipients to any
Violations, material exceptions to
compliance with the EPPs, or other
shortfalls in compliance with the
exemption to assist such officers and
directors in carrying out their respective
responsibilities.
Section III: Covered Transactions
A. Purchases and Holdings by
BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an
Underwriting on Behalf of Client Plans
Invested in an Index Account or Fund,
or in a Model-Driven Account or Fund.
Relief under Section I of this exemption
is available for a purchase and holding
by BlackRock Managers of Fixed Income
Obligations issued by an MPS in an
underwriting on behalf of Client Plans
for an Index Account or Fund, or a
Model-Driven Account or Fund,
provided that:
1. Such purchase is for the sole
purpose of maintaining quantitative
conformity with the weight of such
Securities prescribed by the relevant
Index, for Index Accounts or Funds, or
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the weight of such Securities prescribed
by the relevant Model, for Model-Driven
Accounts or Funds; and such purchase
is reasonably calculated not to exceed
the purchase amount necessary for such
Model or quantitative conformity by
more than a de minimis amount;
2. Such purchase is not made from
any MPS;
3. No BlackRock Entity is in the
selling syndicate;
4. After purchase, the responsible
BlackRock Manager notifies the ECO if
circumstances arise in which an action
or inaction on the part of the BlackRock
Manager regarding an MPS Fixed
Income Obligation so acquired might be
thought to be motivated by an interest
which may affect the exercise of such
BlackRock Manager’s best judgment as a
fiduciary, and complies with decisions
of the ECO regarding the taking, or the
refraining from taking, of actions in
such circumstances; and
5. After purchase, any decision
regarding conversion of an MPS Fixed
Income Obligation into equity in the
MPS is made by the IM.
B. Purchase and Holding by
BlackRock Managers of Fixed Income
Obligations Issued by an MPS in an
Underwriting on Behalf of Client Plans
Invested in an Other Account or Fund.
Relief under Section I of this exemption
is available for a purchase and holding
by BlackRock Managers of Fixed Income
Obligations issued by an MPS in an
underwriting on behalf of Client Plans
invested in an Other Account or Fund
provided that:
1. The conditions of Section IV.A. of
this exemption are satisfied, except that
for purposes of Section IV.A.4.(a) and
Section IV.A.5.(c), the MPS-issued
Fixed Income Obligations at the time of
purchase must be rated in one of the
three highest rating categories by a
Rating Organization and none of the
Rating Organizations may rate the Fixed
Income Obligations lower than in the
third highest rating category;
2. Such purchase is not made from an
MPS;
3. No BlackRock Entity is in the
selling syndicate;
4. After purchase, the responsible
BlackRock Manager notifies the ECO if
circumstances arise in which an action
or inaction on the part of the BlackRock
Manager regarding an MPS Fixed
Income Obligation so acquired might be
thought to be motivated by an interest
which may affect the exercise of such
BlackRock Manager’s best judgment as a
fiduciary, and complies with decisions
of the ECO regarding the taking, or the
refraining from taking, of actions in
such circumstances; and
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5. After purchase, any decision
regarding conversion of an MPS Fixed
Income Obligation into equity in the
MPS is made by the IM.
C. Certain Transactions in the
Secondary Market by BlackRock
Managers of Fixed Income Obligations
including Fixed Income Obligations
Issued by and/or Traded with an MPS,
and/or Under Which an MPS has Either
an Ongoing Function or Can Potentially
Incur Liability. Relief under Section I of
this exemption is available for a
purchase or sale in the secondary
market or the holding by BlackRock
Managers on behalf of Client Plans of (i)
Fixed Income Obligations issued by an
MPS, (ii) Fixed Income Obligations
issued by a third party or an MPS and
purchased from or sold to an MPS, and/
or (iii) Fixed Income Obligations under
which an MPS has either an ongoing
function or can potentially incur
liability, provided that:
1. If the Fixed Income Obligations are
purchased from or sold to an MPS, it is
as a result of the Three Quote Process.
2. With respect to Fixed Income
Obligations that are issued by an MPS
and are purchased and held by a
BlackRock Manager for a Client Plan –
(a) After purchase, the responsible
BlackRock Manager notifies the ECO if
circumstances arise in which an action
or inaction on the part of the BlackRock
Manager regarding an MPS Fixed
Income Obligation so acquired might be
thought to be motivated by an interest
which may affect the exercise of such
BlackRock Manager’s best judgment as a
fiduciary, and complies with the
decisions of the ECO regarding the
taking, or the refraining from taking, of
actions in such circumstances;
(b) After purchase, any decision
regarding conversion of an MPS Fixed
Income Obligation into equity in the
MPS is made by the IM; and
(c) If purchased for an Index Account
or Fund, or a Model-Driven Account or
Fund, such purchase is for the sole
purpose of maintaining quantitative
conformity with the weight of such
Securities prescribed by the relevant
Index, for Index Accounts or Funds, or
the weight of such Securities prescribed
by the relevant Model, for Model-Driven
Accounts or Funds and such purchase
is reasonably calculated not to exceed
the purchase amount necessary for such
Model or quantitative conformity by
more than a de minimis amount.
3. With respect to Fixed Income
Obligations (whether or not issued by an
MPS) held by a BlackRock Manager for
a Client Plan under which an MPS has
an ongoing function, such as servicing
of collateral for asset-backed debt, or the
potential for liability, such as under
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representations or warranties made by
an MPS with respect to collateral for
such asset-backed debt which the MPS
originated, the taking of or refraining
from taking any action by the
responsible BlackRock Manager which
could have a material positive or
negative effect upon the MPS is decided
upon by the ECO.
4. With respect to any Fixed Income
Obligation acquired under this Section
III.C. which is a guaranteed
governmental mortgage pool certificate
within the meaning of 29 CFR 2510.3–
101(i) which is accompanied by an
implicit U.S. Government guarantee as
opposed to an explicit U.S. Government
guarantee, (a) the BlackRock Manager
initiating a purchase of such Securities
makes a determination that such
Securities are of substantially similar
credit quality as guaranteed
governmental mortgage pool certificates
accompanied by an explicit U.S.
Government guarantee, (b) the ECO (in
regular consultation with and under the
supervision of the IM) monitors the
credit spread between such implicitly
and explicitly guaranteed certificates,
and (c) each of the ECO and the IM
(independently) has the authority and
responsibility to determine whether
purchases of implicitly guaranteed
certificates should not be permitted due
to such credit spread, and such
authority and responsibility is reflected
in the EPPs.
5. For purposes of this Section III.C.,
Asset-Backed Securities are not Fixed
Income Obligations.
D. Purchase in an Underwriting and
Holding by BlackRock Managers of
Fixed Income Obligations Issued by a
Third Party when an MPS is
Underwriter, in Either a Manager or a
Member Capacity, and/or Under Which
an MPS has Either an Ongoing Function
or Can Potentially Incur Liability. Relief
under Section I of this exemption is
available for the purchase and holding
by BlackRock Managers of Fixed Income
Obligations issued by third parties in an
underwriting when an MPS is an
underwriter, in either a manager or a
member capacity, and/or Fixed Income
Obligations under which an MPS has
either an ongoing function or can
potentially incur liability, provided that:
1. The conditions of Section IV.A. are
satisfied.
2. Such purchase is not made from an
MPS.
3. No BlackRock Entity is in the
selling syndicate.
4. With respect to Fixed Income
Obligations under which an MPS has
either an ongoing function, such as debt
trustee, servicer of collateral for asset–
backed debt, or the potential for
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liability, such as under representations
or warranties made by an MPS with
respect to collateral for such assetbacked debt which the MPS originated,
the taking of or refraining from taking
any action by the responsible BlackRock
Manager which could have a material
positive or negative effect upon the MPS
is decided upon by the ECO.
5. With respect to any Fixed Income
Obligation acquired under this Section
III.D. which is a guaranteed
governmental mortgage pool certificate
within the meaning of 29 CFR 2510.3–
101(i) which is accompanied by an
implicit U.S. Government guarantee as
opposed to an explicit U.S. Government
guarantee, (a) the BlackRock Manager
initiating a purchase of such Securities
makes a determination that such
Securities are of substantially similar
credit quality as guaranteed
governmental mortgage pool certificates
accompanied by an explicit U.S.
Government guarantee, (b) the ECO (in
regular consultation with and under the
supervision of the IM) monitors the
credit spread between such implicitly
and explicitly guaranteed certificates,
and (c) each of the ECO and the IM
(independently) has the authority and
responsibility to determine whether
purchases of implicitly guaranteed
certificates should not be permitted due
to such credit spread, and such
authority and responsibility is reflected
in the EPPs.
6. For purposes of this Section III.D.,
Asset-Backed Securities are not Fixed
Income Obligations.
E. Purchase in an Underwriting and
Holding by BlackRock Managers of
Asset-Backed Securities, when an MPS
is an Underwriter, in the Capacity as
Either a Manager or a Member of the
Selling Syndicate, Trustee, or, in the
Case of Asset-Backed Securities Which
are CMBS, Servicer. Relief under
Section I of this exemption is available
for the purchase and holding by
BlackRock Managers of Asset-Backed
Securities issued in an underwriting
where an MPS is (i) An underwriter, in
the capacity as either a manager or a
member of the selling syndicate, (ii)
trustee, or (iii) solely in the case of
Asset-Backed Securities which are
CMBS, serves as servicer of a trust that
issued such CMBS, provided that:
1. The conditions of Section IV.A. are
satisfied, except that (a) for purposes of
Section IV.A.4.(a), the Asset-Backed
Securities at the time of purchase must
be rated in one of the three highest
rating categories by a Rating
Organization and none of the Rating
Organizations may rate the AssetBacked Securities lower than the third
highest rating category, (b) in the case of
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Asset-Backed Securities which are
CMBS and for which the MPS is
servicer, the conditions of Section IV.B.
are satisfied instead of the conditions of
Section IV.A., and (c) if an MPS is an
underwriter and an MPS is a servicer as
described in clause (b), the conditions of
both Section IV.A., as modified by
Section III.E.1.(a), and Section IV.B.
must be satisfied;
2. Such purchase is not made from an
MPS;
3. No BlackRock Entity is in the
selling syndicate;
4. In the case of Asset-Backed
Securities with respect to which an MPS
has either an ongoing function, such as
trustee, servicer of collateral for CMBS,
or the potential for liability, such as
under representations or warranties
made by an MPS with respect to
collateral for CMBS which collateral the
MPS originated, the taking of or
refraining from taking of any action by
a responsible BlackRock Manager which
could have a material positive or
negative effect upon the MPS is decided
upon by the ECO; and
5. The purchase meets the conditions
of an applicable Underwriter
Exemption.
F. Purchase and Holding by
BlackRock Managers of Equity
Securities Issued by an Entity which is
not an MPS and is Not a BlackRock
Entity, in an Underwriting when an MPS
is an Underwriter, in either a Manager
or a Member Capacity. Relief under
Section I of this exemption is available
for the purchase and holding by
BlackRock Managers of equity Securities
issued by an entity which is not an MPS
and which is not a BlackRock Entity in
an underwriting when an MPS is an
underwriter, in either a manager or a
member capacity, provided that:
1. The conditions of Section IV.A. are
satisfied;
2. Such purchase is not made from an
MPS;
3. No BlackRock Entity is in the
selling syndicate; and
4. The Securities are not Asset-Backed
Securities.
G. Purchase and Sale by BlackRock
Managers of Asset-Backed Securities in
the Secondary Market, from or to an
MPS, and/or when an MPS is Sponsor,
Servicer, Originator, Swap
Counterparty, Liquidity Provider,
Trustee or Insurer, and the Holding
Thereof. Relief under Section I of this
exemption is available for a sale of
Asset-Backed Securities by a BlackRock
Manager to an MPS, or the purchase of
Asset-Backed Securities by BlackRock
Managers from an MPS and the holding
thereof, and/or any such purchase or
sale in the secondary market or holding
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when an MPS is a sponsor, a servicer,
an originator, a swap counterparty, a
liquidity provider, a trustee or an
insurer, provided that:
1. If the Asset-Backed Securities are
purchased from or sold to an MPS, the
purchase or sale is as a result of the
Three Quote Process.
2. Regardless of from whom the
BlackRock Manager purchases the
Asset-Backed Securities, the purchase
and holding of the Asset-Backed
Security otherwise meets the conditions
of an applicable Underwriter
Exemption.
3. Regardless of from whom the
BlackRock Manager purchased the
Asset-Backed Securities, if an MPS is,
with respect to such Asset-Backed
Securities, a sponsor, servicer,
originator, swap counterparty, liquidity
provider, insurer or trustee, as those
terms are utilized or defined in the
Underwriter Exemptions, and
circumstances arise in which the taking
of or refraining from taking of any action
by the responsible BlackRock Manager
could have a material positive or
negative effect upon the MPS, the taking
of or refraining from taking of any such
action is decided upon by the ECO.
H. Repurchase Agreements when an
MPS is the Seller. Section I of this
exemption applies to an investment by
a BlackRock Manager of Client Plan
assets which involves the purchase or
other acquisition, holding, sale,
exchange or redemption by or on behalf
of a Client Plan of a repurchase
agreement (or Securities or other
instruments under cover of a repurchase
agreement) in which the seller of the
underlying Securities or other
instruments is an MPS which is a bank
supervised by the United States or a
State, a broker-dealer registered under
the 1934 Act, or a dealer who makes
primary markets in Securities of the
United States government or any agency
thereof, or in banker’s acceptances, and
reports daily to the Federal Reserve
Bank of New York its positions with
respect to these obligations, provided
that each of the following conditions are
satisfied:
1. The repurchase agreement is
embodied in, or is entered into pursuant
to a written agreement, and such written
agreement is a standardized industry
form;
2. The repurchase agreement has a
term of one year or less;
3. The Client Plan receives interest no
less than that which it would receive in
a comparable arm’s length transaction
with an unrelated party;
4. The Client Plan receives Securities,
banker’s acceptances, commercial paper
or certificates of deposit having a market
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value equal to not less than one
hundred percent (100%) of the purchase
price paid by the Client Plan;
5. Upon expiration of the repurchase
agreement and return of the Securities
or other instruments to the seller, the
seller transfers to the Client Plan an
amount equal to the purchase price plus
the appropriate interest;
6. The Securities, banker’s
acceptances, commercial paper or
certificates of deposit received by the
Client Plan:
(a) Could be acquired directly by the
Client Plan in a transaction not covered
by this Section III.H. without violating
ERISA sections 406(a)(1)(E), 406(a)(2) or
407(a); and,
(b) If the Securities are subject to the
provisions of the 1933 Act, they are
obligations that are not ‘‘restricted
securities’’ within the meaning of Rule
144 under the 1933 Act.
7. If the market value of the
underlying Securities or other
instruments falls below the purchase
price at any time during the term of the
agreement, the Client Plan may, under
the written agreement required by
Section III.H.1., require the MPS seller
to deliver, by the close of business on
the following business day (as such term
is defined for purposes of the relevant
written agreement), additional
Securities or other instruments the
market value of which, together with the
market value of Securities or other
instruments previously delivered or
sold to the Client Plan under the
repurchase agreement, equals at least
one hundred percent (100%) of the
purchase price paid by the Client Plan.
8. If the MPS seller does not deliver
additional Securities or other
instruments as required above, the
Client Plan may terminate the
agreement, and, if upon termination or
expiration of the agreement, the amount
owing is not paid to the Client Plan, the
Client Plan may sell the Securities or
other instruments and apply the
proceeds against the obligations of the
MPS seller under the agreement, and
against any expenses associated with
the sale.
9. The MPS seller agrees to furnish
the Client Plan with the most recent
available audited statement of its
financial condition as well as its most
recent available unaudited statement,
agrees to furnish additional audited and
unaudited statements of its financial
condition as they are issued and either:
(a) Agrees that each repurchase
agreement transaction pursuant to the
agreement shall constitute a
representation by the MPS seller that
there has been no material adverse
change in its financial condition since
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the date of the last statement furnished
that has not been disclosed to the Client
Plan with whom such written agreement
is made; or (b) prior to each repurchase
agreement transaction, the MPS seller
represents that, as of the time the
transaction is negotiated, there has been
no material adverse change in its
financial condition since the date of the
last statement furnished that has not
been disclosed to the Client Plan with
whom such written agreement is made.
10. In the event of termination and
sale as described in Section III.H.9., the
MPS seller pays to the Client Plan the
amount of any remaining obligations
and expenses not covered by the sale of
the Securities or other instruments, plus
interest at a reasonable rate.
11. If an MPS seller involved in a
repurchase agreement covered by this
exemption fails to comply with any
condition of this exemption in the
course of engaging in the repurchase
agreement, the BlackRock Manager who
caused the plan to engage in such
repurchase agreement shall not be
deemed to have caused the plan to
engage in a transaction prohibited by
ERISA sections 406(a)(1)(A) through (D)
or ERISA section 406(b), Code section
4975, or FERSA section 8477(c) solely
by reason of the MPS seller’s failure to
comply with the conditions of the
exemption.
12. In the event of any dispute
between a BlackRock Manager and an
MPS seller involving a Covered
Transaction under this Section III.H.,
the IM has the responsibility to decide
whether, and if so how, BlackRock is to
pursue relief on behalf of the Client
Plan(s) against the MPS seller.
13. At time of entry into or renewal
of each Covered Transaction under this
Section III.H., including both term
repurchase transactions and daily
renewals for ‘‘open’’ or ‘‘overnight’’
transactions, either (a) each Covered
Transaction under this Section III.H., is
as a result of the Three Quote Process,
or, (b) the BlackRock Manager
determines that the yield on the
proposed transaction, or the renewal
thereof, is at least as favorable to the
Client Plans as the yield of the Client
Plan on two (2) other available
transactions which are comparable in
terms of size, collateral type, credit
quality of the counterparty, term and
rate. The methodology employed for
purposes of the comparison in (b) above
must (c) be approved in advance by the
ECO Function and (d), to the extent
possible, refer to objective external data
points, such as the Eurodollar overnight
time deposit bid rate, the rate for
repurchase agreements with U.S.
government Securities, or rates for
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commercial paper issuances or agency
discount note issuances sourced from
Bloomberg, or another third party
pricing service or market data provider
(which providers may use different
terminology to refer to these same
external data points). The applicable
BlackRock Manager must record a
description of the comparable
transactions, if reliance is placed upon
same, and such data must be
periodically reviewed by the ECO
Function. The procedures described in
this Section III.H.13. must be designed
to ensure that BlackRock Managers
determine to only enter into Covered
Transactions with MPS sellers which
are in the interests of Plan Clients, and
such procedures must be reviewed and
may be commented on by the IM.
14. Neither the MPS Seller nor a
member of the same MPS Group as the
MPS Seller has discretionary authority
or control with respect to the
investment of Client Plan assets
involved in a Covered Transaction
under this Section III.H; provided that,
this condition will be deemed met if a
Client Plan meets the condition of
Section II.A.2. by reason of Section
II.A.3. of this exemption.
15. The Client Plan is not an MPS
Plan of the MPS with whom the
purchase or sale takes place, or an MPS
Plan of another MPS member of the
same MPS Group as such MPS;
provided that, this condition will be
deemed met if a Client Plan meets the
condition of Section II.A.2. by reason of
Section II.A.3. of this exemption.
I. Responding to Tender Offers and
Exchange Offers Solicited by an MPS.
Relief under Section I of this exemption
is available for participation by
BlackRock Managers on behalf of Client
Plans in tender offers or exchange offers
or similar transactions where an MPS
acts as agent for the entity (which entity
may not be an MPS) making the offer,
provided that:
1. The Client Plan pays no fees to the
MPS in connection with this Covered
Transaction;
2. The BlackRock Manager submits to
the ECO in advance of participation a
written explanation of the reasons for
such participation; and
3. The ECO Function determines that
the reasons for participation by the
BlackRock Manager in the Covered
Transaction are appropriate from the
vantage point of the Client Plans, with
such determination affirmatively made
in writing prior to the BlackRock
Manager participating in the Covered
Transactions under this Section III.I.
J. Purchase in Underwritings of
Securities Issued by an Entity Which Is
Not an MPS When the Proceeds Are
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Used To Repay a Debt to an MPS. Relief
under Section I of this exemption is
available for the purchase by BlackRock
Managers of Securities in underwritings
issued by an entity which is not an
MPS, but where the proceeds of the
offering are used to repay a debt owed
to an MPS, and the payment of such
proceeds to the MPS, provided that the
BlackRock Manager does not know that
the proceeds will be applied to the
repayment of debt owed to an MPS. If
the BlackRock Manager does know that
proceeds of the offering will be applied
to the repayment of debt owed to an
MPS, the purchase of the Securities and
the payment of the proceeds to the MPS
are exempt under Section I of this
exemption provided that no more than
twenty percent (20%) of the offering is
purchased by BlackRock Managers for
Client Plans, and no more than fifty
percent (50%) of the offering in the
aggregate is purchased by BlackRock,
BlackRock Managers and other
BlackRock Entities for Client Plans,
other clients of BlackRock Managers, or
as proprietary investments.
K. Bank Deposits and Commercial
Paper. Relief under Section I of this
exemption is available for an investment
by a BlackRock Manager of Client Plan
assets which involves the purchase or
other acquisition, holding, sale,
exchange or redemption by or on behalf
of a Client Plan of certificates of deposit,
time deposits or other bank deposits at
an MPS and/or placed by an MPS and/
or sold to or purchased from an MPS,
or in commercial paper issued by an
MPS or with respect to which an MPS
acts in some continuing capacity such
as placement agent or administrator
and/or which is sold to or purchased
from an MPS, provided that:
1. With respect to bank deposits,
either:
(a)(i) The bank is supervised by the
United States or a State, and at the
outset of the Covered Transaction or
renewal thereof of, such bank has a
credit rating in one of the top two (2)
categories by at least one of the Rating
Organizations; and (ii) such deposit
bears a reasonable interest rate, or—
(b) The BlackRock Manager and the
MPS comply with ERISA section
408(b)(4).
2. With respect to commercial paper:
(a) The Client Plan is not an MPS Plan
of the MPS issuing the commercial
paper, provided that, this condition will
be deemed to be met if such a Client
Plan meets the conditions of Section
II.A.2. and II.A.3. of this exemption;
(b) The commercial paper has a stated
maturity date of nine (9) months or less
from the date of issue, exclusive of days
of grace, or is a renewal of an issue of
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commercial paper the maturity of which
is likewise limited;
(c) At the time it is acquired, the
commercial paper is ranked in one of
the two (2) highest rating categories by
at least one of the Rating Organizations;
(d) If the seller or purchaser of the
commercial paper is an MPS, purchases
and sales are made pursuant to the
Three Quote Process, provided that for
purposes of this Section III.K.2., firm
quotes on comparable short-term money
market instruments rated in the same
category may be used for purposes of
the Three Quote Process; and
(e)(i) The Client Plan is not an MPS
Plan of the MPS with whom the
purchase or sale takes place, or an MPS
Plan of another MPS member of the
same MPS Group as such MPS; and (ii)
the Client Plan is not an MPS Plan of
an MPS which is acting in a continuing
capacity, or an MPS Plan of another
member of the same MPS Group as such
MPS, provided that, the conditions set
forth in clauses (i) and (ii) of this
Section III.K.2.(e) will be deemed met if
a Client Plan meets the condition of
Section II.A.2. by reason of Section
II.A.3. of this exemption.
3. Neither the MPS involved in the
Covered Transaction nor any member of
the same MPS Group as the MPS
involved in the Covered Transaction has
discretionary authority or control with
respect to the investment of Client Plan
assets involved in the Covered
Transaction under this Section III.K.;
provided that, this condition will be
deemed met if a Client Plan meets the
condition of Section II.A.2. by reason of
Section II.A.3. of this exemption.
4. For purposes of the Covered
Transactions set forth in this Section
III.K. no BlackRock Entity shall be
regarded as an affiliate of an MPS bank
at which a deposit is made of Client
Plan assets, nor of an MPS issuer of
commercial paper in which a BlackRock
Manager invests Client Plan assets.
L. Securities Lending to an MPS.
1. Relief under Section I of this
exemption is available for:
(a) The lending of Securities by a
BlackRock Manager that are assets of an
Index Account or Fund or a ModelDriven Account or Fund to an MPS
which is a U.S. Broker-Dealer or a U.S.
Bank provided that the conditions set
forth in Section III.L.2. are met;
(b) The lending of Securities by a
BlackRock Manager that are assets of an
Index Account or Fund or a ModelDriven Account or Fund to an MPS
which is a Foreign Broker-Dealer or
Foreign Bank; provided that, the
conditions set forth in Section III.L.2.
and Section III.L.3. below are met; and
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(c) The payment to a BlackRock
Manager of compensation for services
rendered in connection with loans of
assets of an Index Account or Fund or
a Model-Driven Account or Fund that
are Securities to an MPS; provided that,
the conditions set forth in Section
III.L.4. below are met.
2. General Conditions for Covered
Transactions Described in Sections
III.L.1.(a) and (b).
(a) The length of a Securities loan to
an MPS does not exceed one year in
term.
(b) Neither the MPS borrower nor any
MPS which is a member of the same
MPS Group as the MPS borrower has or
exercises discretionary authority or
control with respect to the investment of
the Client Plan assets involved in the
transaction. This Section III.L.2.(b) shall
be deemed satisfied notwithstanding the
investment of the assets of an MPS Plan
of the MPS which is the borrower under
such Securities lending transaction in a
Pooled Fund as of the date of the
Acquisition, which Pooled Fund is a
bank-maintained common or collective
trust, provided that such assets when
aggregated with the assets of all other
MPS Plans of the same MPS Group as
that of the MPS borrower and invested
in such Pooled Fund, at all times since
the date of the Acquisition, constitute
less than ten percent (10%) of the assets
of such Pooled Fund; provided that, this
Subsection III.L.2.(b) will be deemed
met if a Client Plan meets the condition
of Section II.A.2. by reason of Section
II.A.3. of this exemption.34
(c) The Client Plan receives from the
MPS borrower by the close of the
BlackRock Manager’s business on the
day in which the Securities lent are
delivered to the MPS,
(i) U.S. Collateral having, as of the
close of business on the preceding
business day, a market value, or, in the
case of bank letters of credit, a stated
amount, equal to not less than one
hundred percent (100%) of the then
market value of the Securities lent; or
(ii) Foreign Collateral having as of the
close of business on the preceding
business day, a market value, or, in the
case of bank letters of credit, a stated
amount, equal to not less than:
(x) One hundred two percent (102%)
of the then market value of the
Securities lent as valued on a
Recognized Securities Exchange or an
Automated Trading System on which
the Securities are primarily traded if the
collateral posted is denominated in the
same currency as the Securities lent, or
34 For this purpose, MPS plans of Barclays MPSs
and PNC MPSs are separately aggregated.
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(y) One hundred five percent (105%)
of the then market value of the
Securities lent as valued on a
Recognized Securities Exchange or an
Automated Trading System on which
the Securities are primarily traded if the
collateral posted is denominated in a
different currency than the Securities
lent.
(d) Notwithstanding the foregoing, if
the BlackRock Manager is a U.S. Bank,
a Registered Investment Advisor, or a
U.S. Broker-Dealer, and such BlackRock
Manager indemnifies the Client Plan
with respect to the difference, if any,
between the replacement cost of the
borrowed Securities and the market
value of the collateral on the date of a
borrower default, the Client Plan
receives from the MPS borrower by the
close of the BlackRock Manager’s
business on the day in which the
Securities lent are delivered to the
borrower, Foreign Collateral having as
of the close of business on the preceding
business day, a market value, or, in the
case of bank letters of credit, a stated
amount, equal to not less than:
(i) One hundred percent (100%) of the
then market value of the Securities lent
as valued on a Recognized Securities
Exchange or an Automated Trading
System on which the Securities are
primarily traded if the collateral posted
is denominated in the same currency as
the Securities lent; or
(ii) One hundred one percent (101%)
of the then market value of the
Securities lent as valued on a
Recognized Securities Exchange or an
Automated Trading System on which
the Securities are primarily traded if the
collateral posted is denominated in a
different currency than the Securities
lent and such currency is denominated
in Euros, British pounds, Japanese yen,
Swiss francs or Canadian dollars; or
(iii) One hundred five percent (105%)
of the then market value of the
Securities lent as valued on a
Recognized Securities Exchange or an
Automated Trading System if the
collateral posted is denominated in a
different currency than the Securities
lent and such currency is other than
those specified above.
(e) (i) If the MPS borrower is a U.S.
Bank or U.S. Broker-Dealer, the Client
Plan receives such U.S. Collateral or
Foreign Collateral from the MPS
borrower by the close of the BlackRock
Manager’s business on the day in which
the Securities are delivered to the MPS
borrower. Such collateral is received by
the Client Plan either by physical
delivery, wire transfer or by book entry
in a Securities depository located in the
United States, or,
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(ii) If the MPS borrower is a Foreign
Bank or Foreign Broker-Dealer, the
Client Plan receives U.S. Collateral or
Foreign Collateral from the MPS
borrower by the close of the BlackRock
Manager’s business on the day in which
the Securities are delivered to the
borrower. Such collateral is received by
the Client Plan either by physical
delivery, wire transfer or by book entry
in a Securities depository located in the
United States or held on behalf of the
Client Plan at an Eligible Securities
Depository. The indicia of ownership of
such collateral shall be maintained in
accordance with ERISA section 404(b)
and 29 CFR 2550.404b–1.
(f) Prior to making of any such loan,
the MPS borrower shall have furnished
the BlackRock Manager with:
(i) The most recent available audited
statement of the MPS borrower’s
financial condition, as audited by a
United States certified public
accounting firm or in the case of an MPS
borrower that is a Foreign Broker-Dealer
or Foreign Bank, a firm which is eligible
or authorized to issue audited financial
statements in conformity with
accounting principles generally
accepted in the primary jurisdiction that
governs the borrowing MPS Foreign
Broker-Dealer or Foreign Bank;
(ii) The most recent available
unaudited statement of its financial
condition (if the unaudited statement is
more recent than such audited financial
statement); and
(iii) A representation that, at the time
the loan is negotiated, there has been no
material adverse change in its financial
condition since the date of the most
recent financial statement furnished to
the BlackRock Manager that has not
been disclosed to the BlackRock
Manager. Such representations may be
made by the MPS borrower’s agreement
that each loan shall constitute a
representation by the MPS borrower that
there has been no such material adverse
change.
(g) The loan is made pursuant to a
written loan agreement, the terms of
which are at least as favorable to the
Client Plan as an arm’s-length
transaction with an unrelated party
would be. Such loan agreement states
that the Client Plan has a continuing
security interest in, title to, or the rights
of secured creditor with respect to the
collateral. Such agreement may be in the
form of a master agreement covering a
series of Securities lending transactions.
(h) The written loan agreement must
be a standardized industry form;
provided, that, with the approval of the
ECO on or about the date of the
Acquisition, written loan agreements
with an MPS borrower that were in
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effect as of the date of the Acquisition
may continue to be used until there is
a material modification of the same, at
which time standardized industry forms
must be adopted.
(i) In return for lending Securities, the
Client Plan:
(i) Receives a reasonable fee (in
connection with the Securities lending
transaction), and/or
(ii) Has the opportunity to derive
compensation through the investment of
the currency collateral. Where the Client
Plan has that opportunity, the Client
Plan may pay a loan rebate or similar fee
to the MPS borrower, if such fee is not
greater than the Client Plan would pay
in a comparable transaction with an
unrelated party.
(j) All fees and other consideration
received by the Client Plan in
connection with the loan of Securities
are reasonable. The identity of the
currency in which the payment of fees
and rebates will be made is set forth in
either the written loan agreement or the
loan confirmation as agreed to by the
MPS borrower and the BlackRock
Manager prior to the making of the loan.
(i) Pricing of a loan to an MPS
borrower is based on (i) rates for
comparable loans of the same Security
to non-MPS borrowers and (ii) thirdparty market data:
(x) For loans of liquid Securities
(sometimes referred to as general
collateral loans), an automatic system
may be used to price loans so long as
the resulting rate the Client Plan
receives from the MPS borrower is at
least as favorable to the Client Plan as
the rate the BlackRock Managers are
receiving for Client Plans or other
clients from non-MPS borrowers of the
same Security;
(y) For purposes of pricing loans of
less liquid Securities (sometimes
referred to as ‘‘special loans’’), and for
purposes of determining whether to
terminate or continue a loan which does
not have a set term, pricing may also be
based on a BlackRock trader
determination that continuing the loan
is in the interest of the Client Plan based
on all relevant factors, including price
(provided that price is within the range
of prices of other loans of the same
Security to comparable non-MPS
borrowers by BlackRock Managers for
Client Plans or other clients) and
potential adverse consequences to the
Client Plan of terminating the loan,
provided that the pricing data used in
making these decisions is retained and
made available for possible review by
the ECO.
(ii) Automatic pricing mechanisms
and pricing decisions by traders are
subject to ongoing periodic review by
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2813
the ECO Function, and the results of
such review are included in reports by
the ECO to the IM. Specifically, the
quarterly reports by the ECO to the IM
must address the lending patterns of
illiquid Securities to the MPS borrowers
from all Client Plans, including the
percentage that loans of such Securities
to the MPSs represent of all loans of
such Securities from all Client Plans.
(k) The Client Plan receives the
equivalent of all distributions made to
holders of the borrowed Securities
during the term of the loan including,
but not limited to, dividends, interest
payments, shares of stock as a result of
stock splits and rights to purchase
additional Securities;
(l) If the market value of the collateral
at the close of trading on a business day
is less than the applicable percentage of
the market value of the borrowed
Securities at the close of trading on that
day (as described in this Section
III.L.2.(c) of this exemption), then the
MPS borrower shall deliver, by the close
of business on the following business
day, an additional amount of U.S.
Collateral or Foreign Collateral the
market value of which, together with the
market value of all previously delivered
collateral, equals at least the applicable
percentage of the market value of all the
borrowed Securities as of such
preceding day.
Notwithstanding the foregoing, part of
the U.S. Collateral or Foreign Collateral
may be returned to the MPS borrower if
the market value of the collateral
exceeds the applicable percentage
(described in this Section III.L.2.(c) of
this exemption) of the market value of
the borrowed Securities, as long as the
market value of the remaining U.S.
Collateral or Foreign Collateral equals at
least the applicable percentage of the
market value of the borrowed Securities.
(m) The loan may be terminated by
the Client Plan at any time, whereupon
the MPS borrower shall deliver
certificates for Securities identical to the
borrowed Securities (or the equivalent
thereof in the event of reorganization,
recapitalization or merger of the issuer
of the borrowed Securities) to the Client
Plan within the lesser of:
(i) The customary delivery period for
such Securities,
(ii) Five business days, or
(iii) The time negotiated for such
delivery by the BlackRock Manager for
the Client Plan, and the borrower.
(n) In the event that the loan is
terminated, and the MPS borrower fails
to return the borrowed Securities or the
equivalent thereof within the applicable
time described in Section III.M.2.(m),
the BlackRock Manager for the Client
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Plan may, under the terms of the loan
agreement:
(i) Purchase Securities identical to the
borrowed Securities (or their equivalent
as described above) and may apply the
collateral to the payment of the
purchase price, any other obligations of
the borrower under the agreement, and
any expenses associated with the sale
and/or purchase, and
(ii) The MPS borrower is obligated,
under the terms of the loan agreement,
to pay, and does pay to the Client Plan
the amount of any remaining obligations
and expenses not covered by the
collateral, including reasonable
attorney’s fees incurred by the Client
Plan for legal action arising out of
default on the loans, plus interest at a
reasonable rate.
Notwithstanding the foregoing, the
MPS borrower may, in the event the
MPS borrower fails to return borrowed
Securities as described above, replace
collateral, other than U.S. currency,
with an amount of U.S. currency that is
not less than the then current market
value of the collateral, provided such
replacement is approved by the
BlackRock Manager.
(o) If the MPS borrower fails to
comply with any provision of a loan
agreement which requires compliance
with this exemption, the BlackRock
Manager who caused the Client Plan to
engage in such transaction shall not be
deemed to have caused the Client Plan
to engage in a transaction prohibited by
ERISA sections 406(a)(1)(A) through (D)
or ERISA section 406(b) or FERSA
section 8477(c) solely by reason of the
borrower’s failure to comply with the
conditions of the exemption.
(p) If the Securities being loaned to an
MPS borrower are managed in an Index
Account or Fund, or a Model-Driven
Account or Fund where the Index or the
Model are created or maintained by the
MPS borrower, the ECO Function
periodically performs a review, no less
frequently than quarterly, of the use of
such MPS-sponsored Index or Model,
and the Securities loaned from such an
account or fund to the MPS, which
review is designed to enable a
reasonable judgment as to whether the
use of such Index or Model, or any
changes thereto, were for the purpose of
benefitting BlackRock or the MPS
through the Securities lending activity
described in this Section III.L. If the
ECO forms a reasonable judgment that
the use of such Index or Model, or any
changes thereto, were for the purpose of
benefitting BlackRock or the MPS, the
ECO shall promptly inform the IM.
(q) In the event of any dispute
between the BlackRock Manager on
behalf of a Client Plan and an MPS
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borrower involving a Covered
Transaction under this Section III.L., the
IM shall decide whether, and if so, how
the BlackRock Manager is to pursue
relief on behalf of the Client Plan(s)
against the MPS borrower.
(r) Sophistication of Authorizing
Fiduciary. Only Client Plans with total
assets having an aggregate market value
of at least $50 million are permitted to
lend Securities to an MPS except as
provided in clauses (1)–(3) below.
(1) Master Trusts. In the case of two
or more Client Plans which are
maintained by the same employer,
controlled group of corporations or
employee organization, whose assets are
commingled for investment purposes in
a single master trust or any other entity
the assets of which are ‘‘plan assets’’
under 29 CFR 2510.3–101, which entity
is engaged in Securities lending
arrangements with a BlackRock
Manager, the foregoing $50 million
requirement shall be deemed satisfied if
such trust or other entity has aggregate
assets which are in excess of $50
million; provided that if the fiduciary
responsible for making the investment
decision on behalf of such master trust
or other entity is not the employer or an
affiliate of the employer, such fiduciary
has total assets under its management
and control, exclusive of the $50 million
threshold amount attributable to plan
investment in the commingled entity,
which are in excess of $100 million.
(2) Single Authorizing Fiduciary for
Multiple Unaffiliated Client Plans. In
the case of two or more Client Plans
which are not maintained by the same
employer, controlled group of
corporations or employee organization,
whose assets are commingled for
investment purposes in a group trust or
any other form of entity the assets of
which are ‘‘plan assets’’ under 29 CFR
2510.3–101, which entity is engaged in
Securities lending arrangements with
such BlackRock Manager as securities
lending agent, the foregoing $50 million
requirement is satisfied if such trust or
other entity has aggregate assets which
are in excess of $50 million (excluding
the assets of any Client Plan with
respect to which the fiduciary
responsible for making the investment
decision on behalf of such group trust
or other entity or any member of the
controlled group of corporations
including such fiduciary is the
employer maintaining such Plan or an
employee organization whose members
are covered by such Plan). However, the
fiduciary responsible for making the
investment decision on behalf of such
group trust or other entity:
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(A) Has full investment responsibility
with respect to plan assets invested
therein; and
(B) Has total assets under its
management and control, exclusive of
the $50 million threshold amount
attributable to plan investment in the
commingled entity, which are in excess
of $100 million; and
(3) Pooled Funds. In the case of two
or more Client Plans invested in a
Pooled Fund, whether or not through an
entity described in paragraphs (r)(1) or
(r)(2), the $50 million requirement shall
be deemed satisfied if 50 percent or
more of the units of beneficial interest
in such Pooled Fund are held by
investors each having total net assets of
at least $50 million. Such investors may
include Client Plans, entities described
in paragraphs (r)(1) or (r)(2), or other
investors that are not employee benefit
plans covered by section 406 of ERISA,
section 4975 of the Code, or section
8477 of FERSA.
In addition, none of the entities
described in this Section III.L.2.(r) are
formed for the sole purpose of making
loans of Securities.
(s) With respect to any calendar
quarter, at least 50 percent or more of
the outstanding dollar value of
Securities loans negotiated on behalf of
Client Plans will be to borrowers
unrelated to MPSs.
3. Specific Conditions for
Transactions Described in Section
III.L.1.(b).
(a) The BlackRock Manager maintains
the written documentation for the loan
agreement at a site within the
jurisdiction of the courts of the United
States.
(b) Prior to entering into a transaction
involving an MPS Foreign Broker-Dealer
that is described in Section VI.PP.(1) or
(2) or an MPS Foreign Bank that is
described in Section VI.OO.(1) either:
(i) The MPS Foreign Broker-Dealer or
Foreign Bank agrees to submit to the
jurisdiction of the United States; agrees
to appoint an agent for service of
process in the United States, which may
be an affiliate (a Process Agent);
consents to service of process on the
Process Agent; and agrees that any
enforcement by a Client Plan of its
rights under the Securities lending
agreement will, as the option of the
Client Plan, occur exclusively in the
United States courts; or
(ii) The BlackRock Manager, if a U.S.
Bank, a Registered Investment Advisor,
or U.S. Broker-Dealer, agrees to
indemnify the Client Plan with respect
to the difference, if any, between the
replacement cost of the borrowed
Securities and the market value of the
collateral on the date of an MPS
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borrower default plus interest and any
transaction costs incurred (including
attorney’s fees of such Client Plan
arising out of the default on the loans or
the failure to indemnify properly under
this provision) which the Client Plan
may incur or suffer directly arising out
of a borrower default by the MPS
Foreign Broker-Dealer or Foreign Bank.
(c) In the case of a Securities lending
transaction involving an MPS Foreign
Broker-Dealer that is described in
Section VI.PP.(3) or an MPS Foreign
Bank that is described in Section
VI.OO.(2), the BlackRock Manager must
be a U.S. Bank, a Registered Investment
Advisor, or U.S. Broker-Dealer, and
prior to entering into the loan
transaction, such BlackRock Manager
must agree to indemnify the Client Plan
with respect to the difference, if any,
between the replacement cost of the
borrowed Securities and the market
value of the collateral on the date of an
MPS borrower default plus interest and
any transaction costs incurred
(including attorney’s fees of such plan
arising out of the default on the loans or
the failure to indemnify properly under
this provision) which the Client Plan
may incur or suffer directly arising out
of a borrower default by the MPS
Foreign Broker-Dealer or Foreign Bank.
4. Specific Conditions for Covered
Transactions Described in Section
III.L.1.(c):
(a) The loan of Securities is not
prohibited by section 406(a) of ERISA or
otherwise satisfies the conditions of this
exemption.
(b) The BlackRock Manager is
authorized to engage in Securities
lending transactions on behalf of the
Client Plan.
(c) The compensation, the terms of
which are at least as favorable to the
Client Plan as an arm’s length
transaction with an unrelated party, is
reasonable and is paid in accordance
with the terms of a written instrument,
which may be in the form of a master
agreement covering a series of Securities
lending transactions.
(d) Except as otherwise provided in
Section III.L.4.(f), the arrangement
under which the compensation is paid:
(i) Is subject to the prior written
authorization of a fiduciary of a Client
Plan (the authorizing fiduciary), who is
(other than in the case of an In-House
Plan) independent of the BlackRock
Manager, provided that for purposes of
this Section III.M.4.(d) a fiduciary of an
MPS Plan acting as the authorizing
fiduciary shall be deemed independent
of the BlackRock Manager so long as
such fiduciary, as of the date of the
authorization, is not a BlackRock Entity,
and
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(ii) May be terminated by the
authorizing fiduciary within:
(x) The time negotiated for such
notice of termination by the Client Plan
and the BlackRock Manager, or
(y) Five business days, whichever is
less, in either case without penalty to
the Client Plan.
(e) No such authorization is made or
renewed unless the BlackRock Manager
shall have furnished the authorizing
fiduciary with any reasonably available
information which the BlackRock
Manager reasonably believes to be
necessary to determine whether such
authorization should be made or
renewed, and any other reasonably
available information regarding the
matter that the authorizing fiduciary
may reasonably request.
(f) Special Rule for Commingled
Investment Funds. In the case of a
pooled separate account maintained by
an insurance company qualified to do
business in a State or a common or
collective trust fund maintained by a
bank or trust company supervised by a
State or Federal agency, the
requirements of Section III.L.4.(d) of this
exemption shall not apply, provided
that:
(i) The information described in
Section III.L.4.(e) (including information
with respect to any material change in
the arrangement) shall be furnished by
the BlackRock Manager to the
authorizing fiduciary described in
Section III.L.4.(d) with respect to each
Client Plan whose assets are invested in
the account or fund, not less than 30
days prior to implementation of the
arrangement or material change thereto,
and, where requested, upon the
reasonable request of the authorizing
fiduciary;
(ii) In the event any such authorizing
fiduciary submits a notice in writing to
the BlackRock Manager objecting to the
implementation of, material change in,
or continuation of the arrangement, the
Client Plan on whose behalf the
objection was tendered is given the
opportunity to terminate its investment
in the account or fund, without penalty
to the Client Plan, within such time as
may be necessary to effect such
withdrawal in an orderly manner that is
equitable to all withdrawing plans and
to the non-withdrawing plans. In the
case of a Client Plan that elects to
withdraw pursuant to the foregoing,
such withdrawal shall be effected prior
to the implementation of, or material
change in, the arrangement; but an
existing arrangement need not be
discontinued by reason of a Client Plan
electing to withdraw; and
(iii) In the case of a Client Plan whose
assets are proposed to be invested in the
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2815
account or fund subsequent to the
implementation of the compensation
arrangement and which has not
authorized the arrangement in the
manner described in Sections
III.L.4.(f)(i) and (ii), the Client Plan’s
investment in the account or fund shall
be authorized in the manner described
in Section III.L.4.(d)(i).
M. To-Be-Announced Trades (TBAs)
of GNMA, FHLMC, FarmerMac or FNMA
Mortgage-Backed Securities with an
MPS Counterparty. Relief under Section
I of this exemption is available for
trades (purchases and sales) on a
principal basis of mortgage-backed
Securities issued by FHLMC, FNMA,
FarmerMac or guaranteed by GNMA and
meeting the definition of ‘‘guaranteed
governmental mortgage pool certificate’’
in 29 CFR 2510.3–101(i) with an MPS
on a TBA basis, including, when
applicable, delivery of the underlying
Securities to a Client Plan, provided
that:
1. The Covered Transactions under
this Section III.M. are a result of the
Three Quote Process; provided that,
solely for purposes of this Section
III.M.1., firm quotes under the Three
Quote Process may be obtained on
‘‘comparable Securities,’’ as described
below, when firm quotes with respect to
the applicable TBA transactions are not
reasonably obtainable;
2. With regard to purchases of
FHLMC, FarmerMac and FNMA
mortgage-backed Securities on a TBA
basis, (i) the BlackRock Manager makes
a determination that such Securities are
of substantially similar credit quality as
GNMA guaranteed governmental
mortgage pool certificates, (ii) the ECO
(in regular consultation with and under
the supervision of the IM) monitors the
credit spread between GNMA and
FHLMC/FNMA/FarmerMac mortgagebacked Securities, and (iii) each of the
ECO and the IM (independently) has the
authority and responsibility to
determine whether purchases of
FHLMC, FarmerMac and/or FNMA
mortgage-backed Securities on a TBA
basis should not be permitted due to
such credit spread, and such authority
and responsibility is reflected in the
EPPs; and
3. With regard to possible delivery of
underlying Securities to Client Plans, as
opposed to cash settlement, the ECO
Function approves any such delivery in
advance.
For purposes of Section III.M.1.,
‘‘comparable Securities’’ are Securities
that: (a) Are issued and/or guaranteed
by the same agency, (b) have the same
coupon, (c) have a principal amount at
least equal to but no more than two
percent (2%) greater than the Security
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purchased or sold, (d) are of the same
program or class, and (e) either (i) have
an aggregate weighted average monthly
maturity within a 12-month variance of
the Security purchased or sold, but in
no case can the variance be more than
ten percent (10%) of such aggregate
weighted average maturity of the
Securities purchased or sold, or (ii) meet
some other comparable objective
standard containing a range of variance
that is no greater than that described in
(i) above and that assures that the aging
of the Securities is properly taken into
account.
N. Foreign Exchange Transactions
with an MPS Counterparty. Relief under
Section I of this exemption is available
for a Foreign Exchange Transaction by
a BlackRock Manager on behalf of Client
Plans with an MPS as counterparty
provided that:
1. (a) The Foreign Exchange
Transaction is as a result of the Three
Quote Process; or (b) if the total net
amount of the Foreign Exchange
Transaction on behalf of Client Plans by
BlackRock Managers is greater than $1
million, the exchange rate is within
0.5% above or below the Interbank Rate
as represented to the BlackRock
Managers by the MPS;
2. The Foreign Exchange Transactions
with an MPS counterparty only involve
currencies of countries that are
classified as ‘‘developed’’ or ‘‘emerging’’
markets by a third party Index provider
that divides national economies into
‘‘developed,’’ ‘‘emerging’’ and ‘‘frontier’’
markets. The Index provider shall be
selected by BlackRock, provided,
however, the IM shall have the right to
reject the Index provider in its sole
discretion at any time; and
3. Each Foreign Exchange Transaction
complying with Section III.N.1.(b) must
be set forth in the applicable quarterly
reports of the ECO to the IM.
O. Agency Execution of Equity and
Fixed Income Securities Trades and
Related Clearing as Described in PTE
86–128, Including Agency Cross Trades,
When the Broker is an MPS. Relief
under Section I of this exemption is
available for transactions in Securities
described in Section II of Prohibited
Transaction Exemption 86–128, as
amended 35 (PTE 86–128), as if
BlackRock Managers and MPS brokerdealers were ‘‘affiliates’’ as defined in
Section I.(b) of PTE 86–128, provided
the following conditions are satisfied:
1. The MPS is selected to perform
Securities brokerage services for Client
Plans pursuant to the normal brokerage
placement practices, policies and
35 51 FR 41686 (Nov. 18, 1986), as amended, 67
FR 64137 (Oct. 17, 2002).
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procedures of the BlackRock Manager
designed to ensure best execution.
2. The conditions of PTE 86–128 set
forth in the following sections of that
exemption must be complied with:
Section III(e); Section III(f); Section
III(g)(2); and Section III(h); provided,
however, that, for purposes of Section
III(e), Section III(f) and Section III(g)(2)
of PTE 86–128, the ECO Function is the
‘‘authorizing fiduciary’’ referred to
therein; and the ECO has the authority
to terminate the use of the MPS as
broker-dealer without penalty to Client
Plans at any time; and provided further
that the first sentence of Section III(h) of
PTE 86–128 is amended for purposes of
this Section III.O.2. to provide as
follows: ‘‘A trustee (other than a
nondiscretionary trustee) may only
engage in a covered transaction with a
plan that has total net assets with a
value of at least $50 million and in the
case of a Pooled Fund, the $50 million
requirement will be met if fifty percent
(50%) or more of the units of beneficial
interest in such Pooled Fund are held by
investors having total net assets with a
value of at least $50 million.’’
3. With respect to agency cross
transactions described in Section III(g)
of PTE 86–128 that are being effected or
executed by an MPS broker, (i) neither
the MPS broker effecting or executing
the agency cross transaction nor any
member of the same MPS Group as the
MPS broker effecting or executing the
agency cross transaction may have
discretionary authority to act on behalf
of, and/or provide investment advice to
another party to the agency cross
transaction which is a seller when the
Client Plan is a buyer, or which is a
buyer, when the Client Plan is a seller
(Another Party), and (ii), neither the
BlackRock Manager nor the trader for
the BlackRock Manager instituting the
transaction for the Client Plan may have
knowledge that a BlackRock Entity has
discretionary authority and/or provides
investment advice to Another Party to
the agency cross transaction.
4. The exceptions in Sections IV(a),
(b), and (c) of PTE 86–128 are applicable
to this exemption.
P. Use by BlackRock Managers of
Exchanges and Automated Trading
Systems on Behalf of Client Plans. Relief
under Section I of this exemption is
available for the direct or indirect use
by, or directing of trades to, U.S. and
non-U.S. exchanges or U.S. Automated
Trading Systems (ATS) in which one or
more MPSs have an ownership interest
by BlackRock Managers for Client Plans,
if either:
1. No one MPS (together with other
members of the same MPS Group) has
(i) a greater than ten percent (10%)
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ownership interest in the exchange or
ATS or (ii) the BlackRock Managers do
not know the level of such ownership
interest; or
2. If a BlackRock Manager knows that
an MPS (together with other members of
the same MPS Group) has an ownership
interest that is greater than ten percent
(10%) but not greater than twenty
percent (20%) in the exchange or ATS,
(a) The ECO makes a determination,
summarized in the ECO quarterly
report, that there is no reason for a
BlackRock Manager or all BlackRock
Managers to discontinue such direct or
indirect use of or the directing of trades
to any such exchange or ATS on the
basis that the amount of use or the
volume of trades is unwarranted or not
in the interests of the Client Plans and
their participants and beneficiaries, and
does not make a determination that a
BlackRock Manager or all BlackRock
Managers must discontinue such direct
or indirect use of or the directing of
trades to any such exchange or ATS on
the basis that the amount of use or the
volume of trades is unwarranted or not
in the interests of the Client Plans and
their participants and beneficiaries. The
IM may request any additional
information relating to any such
determination summarized in the ECO
quarterly report and may, after
consultation with the ECO, make a
determination that a BlackRock Manager
or all BlackRock Managers must
discontinue such direct or indirect use
of or the directing of trades to any such
exchange or ATS on the basis that the
amount of use or the volume of trades
is unwarranted or not in the interests of
the Client Plans and their participants
and beneficiaries;
(b) The price and compensation
associated with any purchases or sales
utilizing such exchange or ATS are not
greater than the price and compensation
associated with an arm’s length
transaction with an unrelated party; and
(c) All such exchanges and ATSs shall
be situated within the jurisdiction of the
U.S. District Courts and regulated by a
U.S. Federal regulatory body or a U.S.
federally approved self-regulatory body,
provided that this condition shall not
apply to the direct or indirect use of or
the directing of trades to an exchange in
a country other than the United States
which is regulated by a government
regulator or a government approved selfregulatory body in such country and
which involves trading in Securities
(including the lending of Securities) or
futures contracts.
Q. Purchases in the Secondary Market
of Common and Preferred Stock Issued
by an MPS by BlackRock Managers for
Client Plans Invested in an Index
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Account or Fund, or a Model-Driven
Account or Fund. Relief under Section
I of this exemption is available for the
purchase in the secondary market of
common or preferred stock issued by an
MPS by BlackRock Managers for Client
Plans invested in an Index Account or
Fund, or a Model-Driven Account or
Fund provided that:
1. Such purchase is for the sole
purpose of maintaining quantitative
conformity with the weight of such
Securities prescribed by the relevant
Index, for Index Accounts or Funds, or
the weight of such Securities prescribed
by the relevant Model, for Model-Driven
Accounts or Funds, and such purchase
is reasonably calculated not to exceed
the purchase amount necessary for such
Model or quantitative conformity by
more than a de minimis amount.
2. Such purchase is not made from the
issuing MPS.
3. Notwithstanding Section III.Q.2.,
BlackRock Managers may rely on other
exemptive relief when acquiring stock
of an MPS for Client Plans through an
MPS broker, including the issuing MPS.
R. Purchase in the Secondary Market
of Common and Preferred Stock Issued
by an MPS by BlackRock Managers for
Client Plans Invested in an Other
Account or Fund. Relief under Section
I of this exemption is available for the
purchase in the secondary market of
common or preferred stock issued by an
MPS by BlackRock Managers for Client
Plans invested in an Other Account or
Fund provided that:
1. Such purchase is not made from the
issuing MPS.
2. Notwithstanding Section III.R.1.,
BlackRock Managers may rely on other
exemptive relief when acquiring stock
of an MPS for Client Plans under this
Section III.R. through an MPS broker,
including the issuing MPS.
3. As a consequence of a purchase of
MPS stock, the class of stock purchased
does not constitute more than five
percent (5%) of the Other Account or
Fund. In the case of a Pooled Fund, the
class of stock purchased and attributed
to each Client Plan does not exceed five
percent (5%) of such Client Plan’s
proportionate interest in the Pooled
Fund.
4. Aggregate daily purchases of a class
of MPS stock for Client Plans do not
exceed the greater of (i) fifteen percent
(15%) of the aggregate average daily
trading volume (ADTV) for the previous
ten (10) trading days, or (ii) fifteen
percent (15%) of trading volume on the
date of the purchase. These volume
limitations must be met on a portfolio
manager by portfolio manager basis
unless purchases are coordinated among
portfolio managers, in which case the
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limitations are applied to the
coordinated purchase.36 Any
coordinated purchases of the same class
of MPS stock in the secondary market
for Index Accounts or Funds or for
Model-Driven Accounts or Funds must
be taken into account when applying
these ADTV limitations on purchases
for an Other Account or Fund; provided,
however, if coordinated purchases for
Index Accounts or Funds, or for ModelDriven Accounts or Funds, would cause
the fifteen percent (15%) limitation to
be exceeded, BlackRock Managers can
nonetheless acquire for Other Accounts
or Funds up to the greater of five
percent (5%) of ADTV for the previous
ten (10) trading days or five percent
(5%) of trading volume on the day of the
Covered Transaction. For purposes of
this Section III.R.4., cross trades of MPS
equity Securities which comply with an
applicable statutory or administrative
prohibited transaction exemption are
not taken into account.
5. The ECO Function monitors the
volume limits on purchases of MPS
stock described in Section III.R.4. and
provides a monthly report to the IM
with respect to such purchases and
limits. The IM shall impose lower
volume limitations and take other
appropriate action with respect to such
purchases if the IM determines on the
basis of these reports by the ECO and
publicly available information
materially related to the trading of the
Securities of an MPS on its primary
listing exchange (or market) that the
purchases described have a material
positive impact on the market price for
such Securities.
S. Purchases, Sales and Holdings by
BlackRock Managers for Client Plans of
Commercial Paper Issued by ABCP
Conduits, When an MPS Has One or
More Roles. Relief under Section I of
this exemption is available for the
purchase and sale, including purchases
from or sales to an MPS, and the
holding by BlackRock Managers acting
on behalf of Client Plans of commercial
paper issued by an ABCP Conduit with
respect to which an MPS acts as seller,
placement agent, and/or in some
continuing capacity such as program
administrator, provider of liquidity or
provider of credit support, provided
that:
36 For example, if two or more portfolio managers
send their purchase orders to the same trading desk
and the traders on that trading desk coordinate the
purchases of the same MPS equity Securities, the
limitations apply to the trading desk; if two or more
portfolio managers or two or more trading desks are
coordinating purchases of MPS equity Securities,
the limitations are applied across the group of
portfolio managers or traders who are coordinating
the purchase orders.
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1. (a) The Client Plan is not an MPS
Plan of the MPS with whom the
purchase or sale takes place, or an MPS
Plan of another MPS member of the
same MPS Group as such MPS; and (b)
the Client Plan is not an MPS Plan of
an MPS which is acting in a continuing
capacity, or an MPS Plan of another
MPS member of the same MPS Group as
such MPS; provided that, the conditions
set forth in clauses (a) and (b) of this
Section III.S.1. will be deemed met if a
Client Plan meets the condition of
Section II.A.2. by reason of Section
II.A.3. of this exemption;
2. Neither the MPS involved in the
Covered Transaction nor any member of
the same MPS Group as the MPS
involved in such Covered Transaction
has discretionary authority or control
with respect to Client Plan assets
involved in the Covered Transaction
under this Section III.S.; provided that,
this condition will be deemed met if a
Client Plan meets the condition of
Section II.A.2. by reason of Section
II.A.3. of this exemption;
3. The commercial paper has a stated
maturity date of nine months or less
from the date of issue, exclusive of days
of grace, or is a renewal of an issue of
commercial paper the maturity of which
is likewise limited;
4. At the time it is acquired, the
commercial paper is ranked in the
highest rating category by at least one of
the Rating Organizations;
5. If the seller or purchaser of the
ABCP commercial paper is an MPS,
purchases and sales are made pursuant
to the Three Quote Process, provided
that, for purposes of this Section III.S.5.,
firm quotes on comparable short-term
money market instruments rated in the
same category may be used for purposes
of the Three Quote Process; and
6. If an MPS performs a continuing
role and there is a default, the taking or
refraining from taking of any action by
the responsible BlackRock Manager
which could have a material positive or
negative effect upon the MPS is decided
upon by the IM.
No BlackRock Entity is to be regarded
as an affiliate of any MPS for purposes
of the Covered Transactions set forth in
this Section III.S.
T. Purchase, Holding and Disposition
by BlackRock Managers for Client Plans
of Shares of Exchange-Traded OpenEnd Investment Companies Registered
Under the 1940 Act (ETF) Managed by
BlackRock Managers. Relief under
Section I of this exemption is available
for the purchase, holding and
disposition by BlackRock Managers for
Client Plans of shares of an ETF
managed by a BlackRock Manager
provided that:
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1. The BlackRock Manager purchases
such ETF shares from or through a
person other than an MPS or a
BlackRock Entity; and
2. No purchase is exempt under
Section I of this exemption if the
BlackRock Manager portfolio manager
acting for the Client Plan knows or
should know that the shares to be
acquired for Client Plans are Creation
Shares, or that the purchase for Client
Plans will result in new Creation
Shares.
U. Purchase, Holding and/or
Disposition of BlackRock Equity
Securities in the Secondary Market by
BlackRock Managers for an Index
Account or Fund, or a Model-Driven
Account or Fund, Including Buy-Ups.37
Relief under Section I of this exemption
is available for the purchase, holding
and disposition of common or preferred
stock issued by BlackRock in the
secondary market by BlackRock
Managers for Client Plans in an Index
Account or Fund, or in a Model-Driven
Account or Fund provided that:
1. The acquisition, holding and
disposition of the BlackRock Securities
is for the sole purpose of maintaining
quantitative conformity with the weight
of such Securities prescribed by the
relevant Index, for Index Accounts or
Funds, or the weight of such Securities
prescribed by the relevant Model, for
Model-Driven Accounts or Funds, and
such purchase is reasonably calculated
not to exceed the purchase amount
necessary for such Model or quantitative
conformity by more than a de minimis
amount.
2. Any acquisition of BlackRock
Securities does not involve any
agreement, arrangement or
understanding regarding the design or
operation of the account or fund
acquiring the BlackRock Securities
which is intended to benefit BlackRock
or any party in which BlackRock may
have an interest.
3. With respect to an acquisition of
BlackRock Securities by such an
account or fund which constitutes a
Buy-Up.
(a) The acquisition is made on a single
trading day from or through one brokerdealer, which broker-dealer is not an
MPS or a BlackRock Entity; provided,
however, that if the volume limitation
in Section III.U.3.(d) below cannot be
satisfied in a single trading day, the
acquisition will be completed in as few
trading days as possible in compliance
with such volume limitation and such
37 BlackRock requested such relief for the
avoidance of any issue about the necessity for such
relief in particular circumstances; the Department is
not opining on the need for such relief herein.
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trades will be reviewed by the ECO and
reported to the IM;
(b) Based upon the best available
information, the acquisition is not the
opening transaction of a trading day and
is not made in the last half hour before
the close of the trading day;
(c) The price paid by the BlackRock
Manager is not higher than the lowest
current independent offer quotation,
determined on the basis of reasonable
inquiry from broker-dealers who are not
MPSs or BlackRock Entities;
(d) Aggregate daily purchases do not
exceed fifteen percent (15%) of
aggregate average daily trading volume
for the Security, as determined by the
greater of (i) the trading volume for the
Security occurring on the applicable
Recognized Securities Exchange and/or
Automated Trading System on the date
of the transactions, or (ii) the aggregate
average daily trading volume for the
Security occurring on the applicable
Recognized Securities Exchange and/or
Automated Trading System for the
previous ten (10) trading days, both
based on the best information
reasonably available at the time of the
transaction. These volume limitations
are applied on a portfolio manager by
portfolio manager basis unless
purchases of BlackRock Securities are
coordinated by the portfolio managers
or trading desks, in which case the
limitations are aggregated for the
coordinating portfolio managers or
trading desks. Provided further, if
BlackRock, without Client Plan
direction or consent, initiates a new
Index Account or Fund or Model-Driven
Account or Fund on its own accord,
with BlackRock Securities included
therein, the volume restrictions for such
new account or fund shall be
determined by aggregating all portfolio
managers purchasing for such new
account of fund. Cross trades of
BlackRock Securities which comply
with an applicable statutory or
administrative prohibited transaction
exemption are not included in the
amount of aggregate daily purchases to
which the limitations of this Section
III.U. apply;
(e) All purchases and sales of
BlackRock Securities occur either (i) on
a Recognized Securities Exchange, (ii)
through an Automated Trading System
operated by a broker-dealer that is not
a BlackRock Entity and is either
registered under the 1934 Act, and
thereby subject to regulation by the
Securities and Exchange Commission,
or subject to regulation and supervision
by the Securities and Futures Authority
of the UK or another applicable
regulatory authority, which provides a
mechanism for customer orders to be
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matched on an anonymous basis
without the participation of a brokerdealer, or (iii) through an Automated
Trading System that is operated by a
Recognized Securities Exchange,
pursuant to the applicable securities
laws, and provides a mechanism for
customer orders to be matched on an
anonymous basis without the
participation of a broker-dealer; and
(f) The ECO designs acquisition
procedures for BlackRock Managers to
follow in Buy-Ups, which the IM
approves in advance of the
commencement of any Buy-Up, and the
ECO Function monitors BlackRock
Manager’s compliance with such
procedures.
V. Acquisition by BlackRock
Managers of Financial Guarantees,
Indemnities and Similar Protections for
Client Plans from MPSs. Relief under
Section I of this exemption is available
for the provision by an MPS of a
financial guarantee, indemnification
arrangement or similar instrument or
arrangement providing protection to a
Client Plan against possible losses or
risks provided that:
1. The terms of the arrangement
(including the identity of the provider)
are approved by a fiduciary of the Client
Plan which is independent of the MPS
providing such protection and of
BlackRock;
2. The compensation owed the MPS
under the arrangement is paid by a
BlackRock Entity and not paid out of the
assets of the Client Plan;
3. In the event a Client Plan or the
ECO concludes an event has occurred
which should trigger the obligations of
the MPS under the arrangement, and the
MPS disagrees to any material extent,
the IM determines the steps the
BlackRock Manager must take to protect
the interests of the Client Plan; and
4. The MPS providing the
arrangement is capable of being sued in
United States courts, has contractually
agreed to be subject to litigation in the
United States with respect to any matter
relating to this Section III.V., and has
sufficient assets in the United States to
honor its commitments under the
arrangement.
W. Purchase of a Portion or All of a
Loan to an Entity Which is not an MPS
and is not a BlackRock Entity from an
MPS or Other Arranger and the Holding
thereof by BlackRock Managers Where
an MPS is an Arranger, and/or an MPS
has an Ongoing Function Regarding
Such Loan. Relief under Section I of this
exemption is available for the purchase
from an MPS or other Arranger by
BlackRock Managers on behalf of Client
Plans of all or a portion of a Loan and
the holding thereof, where an MPS is an
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Arranger and/or an MPS has an ongoing
function in relation to the Loan,
provided that:
1. The BlackRock Manager obtains an
assignment of the Loan or portion
thereof on behalf of the Client Plan,
which assignment provides for the
Client Plan to become the lender of
record, and the transfer of title, voting
rights and all other applicable rights to
such Client Plan (the Loan or the
portion thereof, an ‘‘Assigned Loan’’);
2. The borrower under the Assigned
Loan is not an MPS or a BlackRock
Entity; 38
3. The Assigned Loan is purchased
prior to the end of the first day on
which any sales are made pursuant to
that offering, at a price that is not more
than the price paid by each other
purchaser of Assigned Loans in that
offering or in any concurrent offering of
the Assigned Loans, except that
Assigned Loans may be purchased at a
price that is not more than the price
paid by each other purchaser of the
Assigned Loans in that offering or in
any concurrent offering of the Assigned
Loans and may be purchased on a day
subsequent to the end of the first day on
which any sales are made, pursuant to
that offering, provided that the interest
rates, as of the date of such purchase, on
comparable Assigned Loans offered
subsequent to the end of the first day on
which any sales are made and prior to
the purchase date are less than the
interest rate of the Assigned Loans being
purchased;
4. The Assigned Loan is offered
pursuant to a selling agreement or
arrangement under which the Arrangers
are committed to make the full amount
of the loan commitment to the borrower;
5. The borrower under the Assigned
Loan to be purchased pursuant to this
exemption must have been in
continuous operation for not less than
three (3) years, including the operation
of any predecessors, unless:
(a) The Assigned Loan has a Facility
Rating in one of the four highest rating
categories by a Rating Organization;
provided that none of the Rating
Organizations provides a Facility Rating
in a category lower than the fourth
highest rating category with respect to
the Assigned Loan; provided further
that if the Assigned Loan lacks a Facility
Rating, the Assigned Loan shall have a
Borrower Rating that meets the ratings
standards set forth in this subsection; or
38 Proceeds of the Assigned Loan may be used by
the relevant borrower to repay a debt owed to an
MPS, provided that the conditions set forth in
Section III.J. of this exemption are satisfied (for
these purposes and for purposes of such conditions
the Assigned Loan shall be deemed to be a
Security).
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(b) The Assigned Loan is fully
guaranteed by a guarantor that has been
in continuous operation for not less
than three (3) years, including the
operation of any predecessors, provided
that such guarantor has issued
Securities registered under the 1933
Act; or if such guarantor has issued
Securities which are exempt from such
registration requirement, such guarantor
has been in continuous operation for not
less than three (3) years, including the
operation of any predecessors, and such
guarantor is:
(i) A bank,
(ii) An issuer of Securities which are
exempt from such registration
requirement, pursuant to a Federal
statute other than the 1933 Act; or
(iii) An issuer of Securities that are
the subject of a distribution and are of
a class which is required to be registered
under Section 12 of the 1934 Act, and
are issued by an issuer that has been
subject to the reporting requirements of
Section 13 of the 1934 Act for a period
of at least ninety (90) days immediately
preceding the sale of such Loans and
that has filed all reports required to be
filed hereunder with the SEC during the
preceding twelve (12) months.
6. The aggregate amount of an
Assigned Loan being purchased in a
Loan Offering pursuant to this
exemption by the BlackRock Manager
with: (i) The assets of all Client Plans;
and (ii) the assets, calculated on a pro
rata basis, of all Client Plans investing
in Pooled Funds managed by the
BlackRock Manager; and (iii) the assets
of plans to which the BlackRock
Manager renders investment advice
within the meaning of 29 CFR 2510.3–
21(c) does not exceed:
(a) Thirty five percent (35%) of the
total amount of the Assigned Loan being
purchased in the Loan Offering, if the
Facility Rating of such Assigned Loan
is, or, if such Assigned Loan does not
have a Facility Rating, the borrower
thereunder has a Borrower Rating, in
one of the four highest rating categories
by at least one of the Rating
Organizations; provided that none of the
Rating Organizations provides a Facility
Rating for such Assigned Loan or, if
such Assigned Loan does not have a
Facility Rating, a Borrower Rating, in a
category lower than the fourth highest
rating category; or
(b) Twenty five percent (25%) of the
total amount of the Assigned Loan being
purchased in the Loan Offering, if the
Facility Rating of such Assigned Loan
is, or, if such Assigned Loan does not
have a Facility Rating, the borrower
thereunder has a Borrower Rating, in the
fifth or sixth highest rating categories by
at least one of the Rating Organizations;
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provided that none of the Rating
Organizations provides a Facility Rating
for such Assigned Loan or, if such
Assigned Loan does not have a Facility
Rating, a Borrower Rating, in a category
lower than the sixth highest rating
category; and provided that
(c) The assets of any single Client Plan
(and the assets of any Client Plans
investing in Pooled Funds) may not be
used to purchase any Assigned Loan if
the Facility Rating of such Assigned
Loan is, or, if such Assigned Loan does
not have a Facility Rating, the borrower
thereunder has a Borrower Rating that is
lower than the sixth highest rating
category by any of the Rating
Organizations.
7. Notwithstanding the percentage of
a Loan Offering permitted to be
acquired, as set forth in Subsections 6(a)
or (b) of this Section III.W., the amount
of Assigned Loans in a Loan Offering
purchased pursuant to this exemption
by the BlackRock Manager on behalf of
any single Client Plan, either
individually or through investment,
calculated on a pro rata basis, in a
Pooled Fund may not exceed three
percent (3%) of the total amount of such
Assigned Loans being offered in such
Loan Offering, provided that a SubAdvised Pooled Fund as a whole may
purchase up to three percent (3%) of a
Loan Offering.
8. The aggregate amount to be paid by
any single Client Plan in purchasing any
Assigned Loans which are the subject of
this exemption, including any amounts
paid by any Client Plan in purchasing
such Assigned Loans through a Pooled
Fund, calculated on a pro rata basis,
does not exceed three percent (3%) of
the fair market value of the net assets of
such Client Plan, as of the last day of the
most recent fiscal quarter of such Client
Plan prior to such transaction, provided
that a Sub-Advised Pooled Fund as a
whole may pay up to one percent (1%)
of fair market value of its net assets in
purchasing such Assigned Loans.
9. The BlackRock Manager has an
opportunity to review the material terms
of the Assigned Loan prior to agreeing
to acquire the Assigned Loan, as well as
review information which information
may be obtained from one or more webbased sites (e.g., Intralinks) maintained
for potential investors and lenders for
this purpose. Information available to be
reviewed shall include information
regarding the borrower and draft loan
documents (e.g., credit agreement,
confidential information statement).
10. The Covered Transactions in this
Section III.W. are not part of an
agreement, arrangement, or
understanding designed to benefit any
BlackRock Entity or MPS.
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11. Each Client Plan engaging in
Covered Transactions pursuant to this
Section III.W. shall have total net assets
of at least $100 million in Securities of
issuers that are not affiliated with such
Client Plan (the $100 Million Net Asset
Requirement).
For purposes of a Pooled Fund
engaging in the purchase of an Assigned
Loan which is the subject of this
exemption, each Client Plan in such
Pooled Fund other than a Sub-Advised
Pooled Fund shall have total net assets
of at least $100 million in Securities of
issuers that are not affiliated with such
Client Plan. Notwithstanding the
foregoing, if each Client Plan in such
Pooled Fund other than a Sub-Advised
Pooled Fund does not have total net
assets of at least $100 million in
Securities of issuers that are not
affiliated with such Client Plan, the
$100 Million Net Asset Requirement
will be met if 50 percent (50%) or more
of the units of beneficial interest in such
Pooled Fund are held by investors, each
of which have total net assets of at least
$100 million in Securities of issuers that
are not affiliated with such investor, and
the Pooled Fund itself qualifies as a
QIB.
For purposes of the net asset
requirements described in this Section
III.W., where a group of Client Plans is
maintained by a single employer or
controlled group of employers, as
defined in ERISA section 407(d)(7), the
$100 Million Net Asset Requirement
may be met by aggregating the assets of
such Client Plans, if the assets of such
Client Plans are pooled for investment
purposes in a single master trust.
12. No more than twenty percent
(20%) of the assets of a Pooled Fund, at
the time of a Covered Transaction, are
comprised of assets of In-House Plans
for which the BlackRock Manager, or a
BlackRock Entity exercises investment
discretion.
13. The BlackRock Manager must be
a QPAM, and, in addition to satisfying
the requirements for a QPAM under
section VI(a) of PTE 84–14, the
BlackRock Manager must also have total
client assets under its management and
control in excess of $5 billion, as of the
last day of its most recent fiscal year and
shareholders’ or partners’ equity in
excess of $1 million.
14. The conditions of Subsections
IV.A.11. and 12. are satisfied with
respect to the Covered Transactions
described in this Section III.W.
15. With respect to any Assigned Loan
under which an MPS has an ongoing
function, such as an administrative
agent or collateral agent, the taking of or
refraining from taking of any action by
the responsible BlackRock Manager
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which could have a material positive or
negative effect upon the MPS is decided
upon by the IM.
Section IV: Affiliated Underwritings and
Affilliated Servicing
A. Affiliated Underwritings
1. The Securities to be purchased are
either:
(a) Part of an issue registered under
the 1933 Act, or, if Securities to be
purchased are part of an issue that is
exempt from such registration
requirement, such Securities:
(i) Are issued or guaranteed by the
United States or by any person
controlled or supervised by and acting
as an instrumentality of the United
States pursuant to authority granted by
the Congress of the United States,
(ii) Are issued by a bank,
(iii) Are exempt from such registration
requirement pursuant to a Federal
statute other than the 1933 Act, or
(iv) Are the subject of a distribution
and are of a class which is required to
be registered under section 12 of the
1934 Act, and are issued by an issuer
that has been subject to the reporting
requirements of section 13 of the 1934
Act for a period of at least ninety (90)
days immediately preceding the sale of
such Securities and that has filed all
reports required to be filed thereunder
with the SEC during the preceding
twelve (12) months; or
(b) Part of an issue that is an Eligible
Rule 144A Offering. Where the Eligible
Rule 144A Offering of the Securities is
of equity Securities, the offering
syndicate shall obtain a legal opinion
regarding the adequacy of the disclosure
in the offering memorandum; or
(c) Municipal bonds taxable by the
United States, including Build America
Bonds created under section 54AA of
the Code or successor thereto, under
which the United States pays a subsidy
to the state or local government issuer,
but not including Build America Bonds
which provide a tax credit to investors.
2. The Securities to be purchased are
purchased prior to the end of the first
day on which any sales are made,
pursuant to that offering, at a price that
is not more than the price paid by each
other purchaser of the Securities in that
offering or in any concurrent offering of
the Securities, except that:
(a) If such Securities are offered for
subscription upon exercise of rights,
they may be purchased on or before the
fourth day preceding the day on which
the rights offering terminates; or
(b) If such Securities are debt
Securities, they may be purchased at a
price that is not more than the price
paid by each other purchaser of the
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Securities in that offering or in any
concurrent offering of the Securities and
may be purchased on a day subsequent
to the end of the first day on which any
sales are made, pursuant to that offering,
provided that the interest rates, as of the
date of such purchase, on comparable
debt Securities offered to the public
subsequent to the end of the first day on
which any sales are made and prior to
the purchase date are less than the
interest rate of the debt Securities being
purchased; and
3. The Securities to be purchased are
offered pursuant to an underwriting or
selling agreement under which the
members of the syndicate are committed
to purchase all of the Securities being
offered, except if:
(a) Such Securities are purchased by
others pursuant to a rights offering; or
(b) Such Securities are offered
pursuant to an over-allotment option.
4. The issuer of the Securities to be
purchased pursuant to this exemption
must have been in continuous operation
for not less than three (3) years,
including the operation of any
predecessors, unless the Securities to be
purchased:
(a) Are non-convertible debt
Securities rated in one of the four
highest rating categories by a Rating
Organization; provided that none of the
Rating Organizations rates such
Securities in a category lower than the
fourth highest rating category; or
(b)(i) Are debt Securities issued or
fully guaranteed by the United States or
by any person controlled or supervised
by and acting as an instrumentality of
the United States pursuant to authority
granted by the Congress of the United
States; or
(ii) Are municipal bonds taxable by
the United States, including Build
America Bonds created under section
54AA of the Code or successor thereto,
under which the United States pays a
subsidy to the state or local government
issuer, but not including Build America
Bonds which provide a tax credit to
investors; or
(c) Are debt Securities which are fully
guaranteed by a guarantor that has been
in continuous operation for not less
than three (3) years, including the
operation of any predecessors, provided
that such guarantor has issued other
Securities registered under the 1933
Act; or if such guarantor has issued
other Securities which are exempt from
such registration requirement, such
guarantor has been in continuous
operation for not less than three (3)
years, including the operation of any
predecessors, and such guarantor is:
(i) A bank;
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(ii) An issuer of Securities which are
exempt from such registration
requirement, pursuant to a Federal
statute other than the 1933 Act; or
(iii) An issuer of Securities that are
the subject of a distribution and are of
a class which is required to be registered
under section 12 of the 1934 Act, and
are issued by an issuer that has been
subject to the reporting requirements of
section 13 of the 1934 Act for a period
of at least ninety (90) days immediately
preceding the sale of such Securities
and that has filed all reports required to
be filed hereunder with the SEC during
the preceding twelve (12) months.
5. The aggregate amount of Securities
of an issue purchased, pursuant to this
exemption, by the BlackRock Manager
with: (i) The assets of all Client Plans;
and (ii) the assets, calculated on a pro
rata basis, of all Client Plans investing
in Pooled Funds managed by the
BlackRock Manager; and (iii) the assets
of plans to which the BlackRock
Manager renders investment advice
within the meaning of 29 CFR 2510.3
21(c) does not exceed:
(a) Ten percent (10%) of the total
amount of the Securities being offered
in an issue, if such Securities are equity
Securities;
(b) Thirty five percent (35%) of the
total amount of the Securities being
offered in an issue, if such Securities are
Asset-Backed Securities rated in one of
the three highest rating categories by at
least one of the Rating Organizations;
provided that none of the Rating
Organizations rates such Securities in a
category lower than the third highest
rating category;
(c) Thirty five percent (35%) of the
total amount of the Securities being
offered in an issue, if such Securities are
debt Securities rated in one of the four
highest rating categories by at least one
of the Rating Organizations; provided
that none of the Rating Organizations
rates such Securities in a category lower
than the fourth highest rating category;
or
(d) Twenty five percent (25%) of the
total amount of the Securities being
offered in an issue, if such Securities are
debt Securities (excluding Asset-Backed
Securities) rated in the fifth or sixth
highest rating categories by at least one
of the Rating Organizations; provided
that none of the Rating Organizations
rates such Securities in a category lower
than the sixth highest rating category;
and
(e) The assets of any single Client Plan
(and the assets of any Client Plans
investing in Pooled Funds) may not be
used to purchase any Securities being
offered, if such Securities are debt
Securities rated lower than the sixth
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highest rating category by any of the
Rating Organizations;
(f) Notwithstanding the percentage of
Securities of an issue permitted to be
acquired, as set forth in Subsections
A.5.(a)–(d) of this Section IV., the
amount of Securities in any issue
(whether equity or debt Securities or
Asset-Backed Securities) purchased,
pursuant to this exemption, by the
BlackRock Manager on behalf of any
single Client Plan, either individually or
through investment, calculated on a pro
rata basis, in a Pooled Fund may not
exceed three percent (3%) of the total
amount of such Securities being offered
in such issue, provided that a SubAdvised Pooled Fund as a whole may
purchase up to three percent (3%) of an
issue; and
(g) If purchased in an Eligible Rule
144A Offering, the total amount of the
Securities being offered for purposes of
determining the percentages, described,
above, in Section IV.A.5.(a)–(d) and (f),
is the total of:
(i) The principal amount of the
offering of such class of Securities sold
by underwriters or members of the
selling syndicate to QIBs; plus
(ii) The principal amount of the
offering of such class of Securities in
any concurrent public offering.
6. The aggregate amount to be paid by
any single Client Plan in purchasing any
Securities which are the subject of this
exemption, including any amounts paid
by any Client Plan in purchasing such
Securities through a Pooled Fund,
calculated on a pro rata basis, does not
exceed three percent (3%) of the fair
market value of the net assets of such
Client Plan, as of the last day of the most
recent fiscal quarter of such Client Plan
prior to such transaction, provided that
a Sub-Advised Pooled Fund as a whole
may pay up to one percent (1%) of fair
market value of its net assets in
purchasing such Securities.
7. The Covered Transactions are not
part of an agreement, arrangement, or
understanding designed to benefit any
BlackRock Entity or MPS.
8. Each Client Plan shall have total
net assets with a value of at least $50
million (the $50 Million Net Asset
Requirement). For purposes of engaging
in Covered Transactions involving an
Eligible Rule 144A Offering, each Client
Plan shall have total net assets of at least
$100 million in Securities of issuers that
are not affiliated with such Client Plan
(the $100 Million Net Asset
Requirement).
For purposes of a Pooled Fund
engaging in an Affiliated Underwriting,
each Client Plan in such Pooled Fund
other than a Sub-Advised Pooled Fund
shall have total net assets with a value
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2821
of at least $50 million. Notwithstanding
the foregoing, if each such Client Plan
in a Pooled Fund other than a SubAdvised Pooled Fund does not have
total net assets with a value of at least
$50 million, the $50 Million Net Asset
Requirement will be met, if fifty percent
(50%) or more of the units of beneficial
interest in such Pooled Fund are held by
investors, each of which has total net
assets with a value of at least $50
million.
For purposes of a Pooled Fund
engaging in an Affiliated Underwriting
involving an Eligible Rule 144A
Offering, each Client Plan in such
Pooled Fund other than a Sub-Advised
Pooled Fund shall have total net assets
of at least $100 million in Securities of
issuers that are not affiliated with such
Client Plan. Notwithstanding the
foregoing, if each such Client Plan in
such Pooled Fund other than a SubAdvised Pooled Fund does not have
total net assets of at least $100 million
in Securities of issuers that are not
affiliated with such Client Plan, the
$100 Million Net Asset Requirement
will be met if fifty percent (50%) or
more of the units of beneficial interest
in such Pooled Fund are held by
investors, each of which have total net
assets of at least $100 million in
Securities of issuers that are not
affiliated with such investor, and the
Pooled Fund itself qualifies as a QIB.
For purposes of the net asset
requirements described above in Section
IV.A.8., where a group of Client Plans is
maintained by a single employer or
controlled group of employers, as
defined in ERISA section 407(d)(7), the
$50 Million Net Asset Requirement (or
in the case of an Eligible Rule 144A
Offering, the $100 Million Net Asset
Requirement) may be met by aggregating
the assets of such Client Plans, if the
assets of such Client Plans are pooled
for investment purposes in a single
master trust.
9. No more than twenty percent (20%)
of the assets of a Pooled Fund, at the
time of a Covered Transaction, are
comprised of assets of In-House Plans
for which the BlackRock Manager, or a
BlackRock Entity exercises investment
discretion.
10. The BlackRock Manager must be
a QPAM, and, in addition to satisfying
the requirements for a QPAM under
section VI(a) of PTE 84–14, the
BlackRock Manager must also have total
client assets under its management and
control in excess of $5 billion, as of the
last day of its most recent fiscal year and
shareholders’ or partners’ equity in
excess of $1 million.
11. The BlackRock Manager
maintains, or causes to be maintained,
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for a period of six (6) years from the date
of any Covered Transaction such
records as are necessary to enable the
persons described below in Section
IV.A.12.(a) to determine whether the
conditions of this exemption have been
met, except that:
(a) No party in interest with respect to
a plan which engages in the Covered
Transactions, other than the BlackRock
Manager, shall be subject to a civil
penalty under ERISA section 502(i) or
the taxes imposed by Code sections
4975(a) and (b), if such records are not
maintained, or not available for
examination as required below by
Section IV.A.12.(a); and
(b) A separate prohibited transaction
shall not be considered to have occurred
if, due to circumstances beyond the
control of the BlackRock Manager, such
records are lost or destroyed prior to the
end of the six-year period.
12. (a) Except as provided below, in
Section IV.A.12.(b), and
notwithstanding the provisions of
subsections (a)(2) and (b) of ERISA
section 504, the records referred to
above, in Section IV.A.11. are
unconditionally available at their
customary location for examination
during normal business hours by:
(i) Any duly authorized employee or
representative of the Department, the
Internal Revenue Service, or the SEC;
(ii) Any fiduciary of any Client Plan
that engages in the Covered
Transactions, or any duly authorized
employee or representative of such
fiduciary;
(iii) Any employer of participants and
beneficiaries and any employee
organization whose members are
covered by a Client Plan that engages in
the Covered Transactions, or any
authorized employee or representative
of these entities; or
(iv) Any participant or beneficiary of
a Client Plan that engages in the
Covered Transactions, or duly
authorized employee or representative
of such participant or beneficiary;
(b) None of the persons described in
Section IV.A.12.(a)(ii) through (iv) shall
be authorized to examine trade secrets
of the BlackRock Manager, or
commercial or financial information
which is privileged or confidential; and
(c) Should the BlackRock Manager
refuse to disclose information on the
basis that such information is exempt
from disclosure, pursuant to Section
IV.A.12.(b), the BlackRock Manager
shall, by the close of the thirtieth (30th)
day following the request, provide a
written notice advising that person of
the reasons for the refusal and that the
Department may request such
information.
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B. Affiliated Servicing
1. The Securities are CMBS that are
rated in one of the three highest rating
categories by a Rating Organization;
provided that none of the Rating
Organizations rates such Securities in a
category lower than the third highest
rating category.
2. The purchase of the CMBS meets
the conditions of an applicable
Underwriter Exemption.
3. (a) The aggregate amount of CMBS
of an issue purchased, pursuant to this
exemption, by the BlackRock Manager
with:
(i) The assets of all Client Plans; and
(ii) The assets, calculated on a pro rata
basis, of all Client Plans and In-House
Plans investing in Pooled Funds
managed by the BlackRock Manager;
and
(iii) The assets of plans to which the
BlackRock Manager renders investment
advice, within the meaning of 29 CFR
2510.3–21(c), does not exceed thirty five
percent (35%) of the total amount of the
CMBS being offered in an issue.
(b) Notwithstanding the percentage of
CMBS of an issue permitted to be
acquired, as set forth in Section
IV.B.3.(a) of this exemption, the amount
of CMBS in any issue purchased,
pursuant to this exemption, by the
BlackRock Manager on behalf of any
single Client Plan, either individually or
through investment, calculated on a pro
rata basis, in a Pooled Fund may not
exceed three percent (3%) of the total
amount of such CMBS being offered in
such issue, and;
(c) If purchased in an Eligible Rule
144A Offering, the total amount of the
CMBS being offered for purposes of
determining the percentages described
in Section IV.B.3.(a), is the total of:
(i) The principal amount of the
offering of such class of CMBS sold by
underwriters or members of the selling
syndicate to QIBs; plus
(ii) The principal amount of the
offering of such class of CMBS in any
concurrent public offering.
4. The aggregate amount to be paid by
any single Client Plan in purchasing any
CMBS which are the subject of this
exemption, including any amounts paid
by any Client Plan in purchasing such
CMBS through a Pooled Fund,
calculated on a pro rata basis, does not
exceed three percent (3%) of the fair
market value of the net assets of such
Client Plan, as of the last day of the most
recent fiscal quarter of such Client Plan
prior to such transaction.
5. The Covered Transactions under
this Section IV.B. are not part of an
agreement, arrangement, or
understanding designed to benefit any
MPS.
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6. The requirements of Sections
IV.A.8. through 12. are met.
Section V: Correction Procedures
A. 1. The ECO shall monitor Covered
Transactions and shall determine
whether a particular Covered
Transaction constitutes a Violation. The
ECO shall notify the IM within five (5)
business days following the discovery of
any Violation.
2. The ECO shall make an initial
determination as to how to correct a
Violation and place the conclusion of
such determination in writing, with
such conclusion disclosed to the IM
within five (5) business days of the
placing of the conclusion of such
determination in writing. Following the
initial determination, the ECO must
keep the IM apprised on a current basis
of the process of correction and must
consult with the IM regarding each
Violation and the appropriate form of
correction. The ECO shall report the
correction of the Violation to the IM
within five (5) business days following
completion of the correction. For
purposes of this Section V.A.2.,
‘‘correction’’ must be consistent with
ERISA section 502(i) and Code section
4975(f)(5).
3. The IM shall determinate whether
it agrees that the correction of a
Violation by the ECO is adequate and
shall place the conclusion of such
determination in writing, and, if the IM
does not agree with the adequacy of the
correction, the IM shall have the
authority to require additional
corrective actions by BlackRock.
4. A summary of Violations and
corrections of Violations will be in the
IM’s annual compliance report as
described in Section II.E.12.
B. Special Correction Procedure
1. If a Covered Transaction which
would otherwise constitute a Violation
is corrected under this ‘‘Special
Correction Procedure,’’ such Covered
Transaction shall continue to be exempt
under Section I of this exemption.
2. (a) The Special Correction
Procedure is a complete correction of
the Violation no later than fourteen (14)
business days following the date on
which the ECO submits the quarterly
report to the IM for the quarter in which
the Covered Transaction first would
become a non-exempt prohibited
transaction by reason of constituting a
Violation if not for this Section V.B.
(b) Solely for purposes of the Special
Correction Procedure, ‘‘correction’’ of a
Covered Transaction which would
otherwise be a Violation means either:
(i) Restoring the Client Plan to the
position it would have been in had the
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conditions of the exemption been
complied with;
(ii) Correction consistent with ERISA
section 502(i) and Code section
4975(f)(5); or
(iii) Correction consistent with the
Voluntary Fiduciary Correction
Program.39
(c) Other than with respect to the
definition of ‘‘correction’’ specified
above, when utilizing the Special
Correction Procedure the ECO and the
IM shall comply with Section V.A.
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Section VI: Definitions 40
A. ‘‘1933 Act’’ means the Securities
Act of 1933, as amended.
B. ‘‘1934 Act’’ or ‘‘Exchange Act’’
means the Securities Exchange Act of
1934, as amended.
C. ‘‘1940 Act’’ means the Investment
Company Act of 1940, as amended.
D. ‘‘$50 Million Net Asset
Requirement’’ shall have the meaning
set forth in Section IV.A.8. of this
exemption.
E. ‘‘$100 Million Net Asset
Requirement’’ shall have the meaning
set forth in Section IV.A.8. of this
exemption.
F. ‘‘ABCP Conduit’’ means a special
purpose vehicle that acquires assets
from one or more originators and issues
commercial paper to provide funding to
the originator(s). Such vehicles are
typically administered by a bank, but is
not required to be administered by a
bank, which provides liquidity support
(standing ready to purchase the
conduit’s commercial paper if it cannot
be rolled over) and/or credit support
(committing to cover losses in the event
of default). The program administrator
also typically acts as placement agent
for the commercial paper, sometimes
together with one or more other
placement agents. Commercial paper
issued by such a conduit may be
purchased directly from the program
administrator or other placement agent,
or traded on the secondary market with
another broker-dealer making a market
in the Securities.
G. ‘‘Acquisition’’ means the
acquisition by BlackRock of Barclays
Global Investors UK Holdings, Ltd. and
its subsidiaries on December 1, 2009.
H. ‘‘Affiliate’’ of another person
means:
(1) Any person directly or indirectly,
through one or more intermediaries,
controlling, controlled by, or under
common control with such person;
39 PTE 2002–51, 67 FR 70623 (November 25,
2002), as amended, 71 FR 20135 (April 19, 2006).
40 The definition of terms herein shall apply
equally to the singular and plural forms of the terms
defined. Section headings are for convenience only.
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(2) Any officer, director, partner,
employee, or relative (as defined in
section 3(15) of ERISA) of such other
person; and
(3) Any corporation or partnership of
which such other person is an officer,
director, partner or employee.
I. ‘‘Arranger’’ means a sophisticated
financial institution, such as a
commercial or investment bank,
regularly engaged in structuring
commercial loans.
J. ‘‘Asset-Backed Securities’’ means
Securities which are pass-through
certificates or trust certificates
characterized as equity pursuant to 29
CFR 2510.3–101 that represent a
beneficial ownership interest in the
assets of an issuer which is a trust, with
any such trust limited to (1) a single or
multi-family residential or commercial
mortgage investment trust, or (2) a
motor vehicle receivable investment
trust, and which entitles the holder to
payments of principal, interest and/or
other payments made with respect to
the assets of the trust, the corpus or
assets of which consist solely or
primarily of secured obligations that
bear interest or are purchased at a
discount. For purposes of Section IV.A.
of this exemption, excluding Section
IV.A.5., Asset-Backed Securities are
treated as debt Securities.
K. ‘‘Assigned Loan’’ has the meaning
set forth in Section III.W.1. of this
exemption.
L. ‘‘Authorizing fiduciary’’ has the
meaning set forth in Section III.M.4(d)(i)
of this exemption.
M. ‘‘Automated Trading System’’ or
‘‘ATS’’ means an electronic trading
system, ECN or electronic clearing
network or similar venue that functions
in a manner intended to simulate a
Securities exchange by electronically
matching orders from multiple buyers
and sellers, such as an ‘‘alternative
trading system’’ within the meaning of
the SEC’s Reg. ATS (17 CFR 242.300), as
such definition may be amended from
time to time, or an ‘‘automated
quotation system’’ as described in
Section 3(a)(51)(A)(ii) of the 1934 Act.
N. ‘‘BlackRock’’ means BlackRock,
Inc. and any successors thereof.
O. ‘‘BlackRock Entity’’ means
BlackRock and any entity directly or
indirectly, through one or more
intermediaries, under the control of
BlackRock, and any other entity which
subsequently becomes directly or
indirectly, through one or more
intermediaries, under the control of
BlackRock, and successors of the
foregoing.
P. ‘‘BlackRock Manager’’ means any
bank, investment advisor, investment
manager directly or indirectly, through
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2823
one or more intermediaries, under the
control of BlackRock, and any other
bank, investment advisor, or investment
manager which subsequently becomes
directly or indirectly, through one or
more intermediaries, under the control
of BlackRock, and successors of the
foregoing, including but not limited to
BlackRock Advisors, LLC, BlackRock
Financial Management, Inc., BlackRock
Capital Management, Inc., BlackRock
Institutional Management Corporation,
BlackRock International, Ltd.,
BlackRock Realty Advisors, Inc.,
BlackRock Investment Management,
LLC, BlackRock Fund Advisors, and
BlackRock Institutional Trust Company,
N.A. and any of the investment advisors
and investment manager it controls.
Q. ‘‘Board’’ means the Board of
Directors of BlackRock.
R. ‘‘Borrower Rating’’ means, solely
for purposes of Section III.W. of this
exemption, a rating assigned by a Rating
Organization to a borrowing entity
reflecting such borrower’s overall
capacity and willingness to meet its
financial obligations. More specifically,
a Borrower’s Rating generally refers to
the borrower’s ability and willingness to
meet senior, unsecured obligations.
S. ‘‘Buy-Up’’ means an initial
acquisition of Securities issued by
BlackRock by a BlackRock Manager, if
such acquisition exceeds one percent
(1%) of the aggregate daily trading
volume for such Security, for an Index
Account or Fund, or a Model-Driven
Account or Fund which is necessary to
bring the fund’s or account’s holdings of
such Securities either to its
capitalization-weighted or other
specified composition in the relevant
Index, as determined by the
organization maintaining such Index, or
to its correct weighting as determined
by the Model.
T. ‘‘Client Plan’’ means any plan
subject to ERISA section 406, Code
section 4975 or FERSA section 8477(c)
for which a BlackRock Manager is a
fiduciary as described in ERISA section
3(21), including, but not limited to, any
Pooled Fund, MPS Plan, Index Account
or Fund, Model-Driven Account or
Fund, Other Account or Fund, or InHouse Plan, except where specified to
the contrary.
U. ‘‘CMBS’’ means an Asset-Backed
Security with respect to which the
assets or corpus of the issuer consist
solely or primarily of obligations
secured by commercial real property
(including obligations secured by
leasehold interests on commercial real
property).
V. ‘‘Code’’ means the Internal
Revenue Code of 1986, as amended.
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W. ‘‘Control’’ means the power to
exercise a controlling influence over the
management or policies of a person
other than an individual.
X. ‘‘Covered Transaction’’ means each
transaction set forth in Section III by a
BlackRock Manager for a Client Plan
with, affecting or involving, directly or
indirectly, an MPS and/or a BlackRock
Entity.
Y. ‘‘Creation Shares’’ means new
shares in an ETF created by an exchange
of a specified basket of Securities and/
or cash to the ETF for such new shares
of the ETF.
Z. ‘‘ECO Function’’ means the ECO
and such other BlackRock Entity
employees in legal and compliance roles
working under the supervision of the
ECO in connection with the Covered
Transactions. The list of BlackRock
Entity employees shall be shared with
the IM from time to time, not less than
quarterly, and such employees will be
made available to discuss the relevant
Covered Transactions with the IM to the
extent the IM or the ECO deem it
reasonably prudent.
AA. ‘‘Electronic Communications
Network’’ or ‘‘ECN’’ means an electronic
system described in Rule 600(b)(23) of
Regulation NMS under the 1934 Act.
BB. ‘‘Eligible Rule 144A Offering’’
shall have the same meaning as defined
in SEC Rule 10f–3(a)(4) (17 CFR
270.10f–3(a)(4)) under the 1940 Act.
CC. ‘‘Eligible Securities Depository’’
means an eligible securities depository
as that term is defined under Rule 17f–
7 of the 1940 Act, as such definition
may be amended from time to time.
DD. ‘‘EPP Correction’’ has the
meaning set forth in Section II.C. of this
exemption.
EE. ‘‘ERISA’’ means the Employee
Retirement Income Security Act of 1974,
as amended.
FF. ‘‘ETF’’ means an exchange-traded
open-end investment company
registered under the 1940 Act.
GG. ‘‘Exemption Compliance Officer’’
or ‘‘ECO’’ means an officer of BlackRock
or of a BlackRock Entity appointed by
BlackRock or such BlackRock Entity,
subject to the approval of the IM, who
is responsible for compliance with the
exemption. The ECO, unless otherwise
stated in this exemption, will be
responsible for: Monitoring all Covered
Transactions and reviewing compliance
with all of the conditions of the
exemption applicable thereto; approving
certain Covered Transactions in advance
as required by the terms of the
exemption; reviewing reports of
Covered Transactions and the results of
sampling of Covered Transactions; and
determining when Covered Transactions
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transgress the EPPs and/or constitute a
Violation.
HH. ‘‘Exemption Polices and
Procedures’’ or ‘‘EPPs’’ means the
written policy adopted and
implemented by BlackRock for
BlackRock Entities that is reasonably
designed to ensure compliance with the
terms of the exemption. The EPPs must
reflect the specific requirements of the
exemption, but must also be designed to
ensure that the decisions to enter into
Covered Transactions on behalf of
Client Plans with the MPSs are in the
interests of Client Plans and their
participants and beneficiaries, including
by ensuring to the extent possible that
the terms of each Covered Transaction
are at least as favorable to the Client
Plan as the terms generally available in
comparable arm’s length transactions
with unrelated parties.
II. ‘‘Facility Rating’’ means, solely for
purposes of Section III.W. of this
exemption, a rating assigned by a Rating
Organization to a specific loan, note or
other financial obligation, a specific
class of financial obligations, or a
specific financial program within a
borrower’s capital structure. The rating
on a specific loan facility or other issue
may reflect positive or negative
adjustments relative to the borrower’s
rating for (1) The presence of collateral,
(2) explicit subordination, or (3) any
other factors that affect the payment
priority, expected recovery, or credit
stability of the specific issue.
JJ. ‘‘FarmerMac’’ means the Federal
Agricultural Mortgage Corporation.
KK. ‘‘FERSA’’ means the Federal
Employees’ Retirement System Act of
1986, as amended.
LL. ‘‘FHLMC’’ means the Federal
Home Loan Mortgage Corporation.
MM. ‘‘Fixed Income Obligations’’
means: (1) Fixed income obligations
including structured debt or other
instruments characterized as debt
pursuant to 29 CFR 2510.3–101,
including, but not limited to, debt
convertible into equity, certificates of
deposit and loans (other than loans
described in Section III.W. with respect
to which an MPS is an Arranger) and (2)
guaranteed governmental mortgage pool
certificates within the meaning of 29
CFR 2510.3–101(i). Asset-Backed
Securities are not Fixed Income
Obligations for purposes of this
exemption.
NN. ‘‘FNMA’’ means the Federal
National Mortgage Association.
OO. ‘‘Foreign Bank’’ means an
institution that has substantially similar
powers to a bank as defined in section
202(a)(2) of the Investment Advisers
Act, as amended, has as of the last day
of its most recent fiscal year, equity
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capital which is the equivalent of no
less than $200 million, and is subject to:
(1) (a) Registration and regulation, as
applicable, under the laws of the United
Kingdom, or (b)(i) registration and
regulation by a securities commission of
a Province of Canada that is a member
of the Canadian Securities
Administration, and (ii) is subject to the
oversight of a Canadian self-regulatory
authority; or
(2) Regulation by the relevant
governmental banking agency(ies) of a
country other than the United States
and the regulation and oversight of
these banking agencies were applicable
to a bank that received: (a) An
individual exemption, granted by the
Department under section 408(a) of
ERISA, involving the loan of Securities
by a plan to a bank or (b) a final
authorization by the Department to
engage in an otherwise prohibited
transaction pursuant to PTE 96–62, as
amended, involving the loan of
Securities by a plan to a bank. On the
date this exemption becomes effective,
the following countries shall qualify for
purposes of this clause (2): United
Kingdom, Canada, Germany, Japan,
Australia, Switzerland, France, the
Netherlands and Sweden.
PP. ‘‘Foreign Broker-Dealer’’ means a
broker-dealer that has, as of the last day
of its most recent fiscal year, equity
capital that is the equivalent of no less
than $200 million and is:
(1) Registered and regulated under the
laws of the United Kingdom;
(2) Registered and regulated by a
securities commission of a Province of
Canada that is a member of the
Canadian Securities Administration,
and is subject to the oversight of a
Canadian self-regulatory authority; or
(3) Registered and regulated under the
relevant Securities laws of a
governmental entity of a country other
than the United States and such
Securities laws and regulation were
applicable to a broker-dealer that
received: (a) An individual exemption,
granted by the Department under
section 408(a) of ERISA, involving the
loan of Securities by a plan to a brokerdealer or (b) a final authorization by the
Department to engage in an otherwise
prohibited transaction pursuant to PTE
96–62, as amended, involving the loan
of Securities by a plan to a brokerdealer. On the date this exemption
becomes effective, the following
countries shall qualify for purposes of
this clause (2): United Kingdom,
Canada, Germany, Japan, Australia,
Switzerland, France, the Netherlands
and Sweden.
QQ. ‘‘Foreign Collateral’’ means:
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(1) Securities issued by or guaranteed
as to principal and interest by the
following Multilateral Development
Banks, the obligations of which are
backed by the participating countries,
including the United States: The
International Bank for Reconstruction
and Development, the Inter-American
Development Bank, the Asian
Development Bank, the African
Development Bank, the European Bank
for Reconstruction and Development
and the International Finance
Corporation;
(2) Foreign sovereign debt Securities
provided that at least one nationally
recognized statistical rating organization
has rated in one of its two highest
categories either the issue, the issuer or
guarantor;
(3) The British pound, the Canadian
dollar, the Swiss franc, the Japanese yen
or the Euro;
(4) Irrevocable letters of credit issued
by a Foreign Bank, other than the
borrower or an affiliate thereof, which
has a counterparty rating of investment
grade or better as determined by a
nationally recognized statistical rating
organization; or
(5) Any type of collateral described in
Rule 15c3–3 of the 1934 Act as amended
from time to time provided that the
lending fiduciary is a U.S. Bank or U.S.
Broker-Dealer and such fiduciary
indemnifies the plan with respect to the
difference, if any, between the
replacement cost of the borrowed
Securities and the market value of the
collateral on the date of a borrower
default plus interest and any transaction
costs which a plan may incur or suffer
directly arising out of a borrower
default. Notwithstanding the foregoing,
collateral described in any of the
categories enumerated in section V(e) of
Prohibited Transaction Exemption
2006–16 will be considered U.S.
Collateral for purposes of the
exemption.
RR. ‘‘Foreign Exchange Transaction’’
means the exchange of the currency of
one nation for the currency of another
nation, or a contract for such an
exchange. The term Foreign Exchange
Transaction includes option contracts
on foreign exchange transactions.
Foreign Exchange Transactions may be
either ‘‘spot’’, ‘‘forward’’ or ‘‘split’’
depending on the settlement date of the
transaction.
SS. ‘‘GNMA’’ means the Government
National Mortgage Association.
TT. ‘‘Independent Monitor’’ or ‘‘IM’’
means an individual or entity appointed
by BlackRock to carry out certain
functions set forth in Sections II, III and
V of the exemption and who (or which),
given the number of types of Covered
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Transactions and the number of actual
individual Covered Transactions
potentially covered by the exemption,
must be knowledgeable and experienced
with respect to each Covered
Transaction and able to demonstrate
sophistication in relevant markets,
instruments and trading techniques
relative thereto, and, in addition, must
understand and accept in writing its
duties and responsibilities under ERISA
and the exemption with respect to the
Client Plans. The IM must be
independent of and unrelated to
BlackRock and any MPS. For purposes
of this exemption, such individual or
entity will not be deemed to be
independent of and unrelated to
BlackRock and the MPSs if:
(1) Such individual or entity directly
or indirectly controls, is controlled by,
or is under common control with
BlackRock or an MPS;
(2) Such individual or entity, or any
employee thereof performing services in
connection with this exemption, or an
officer, director, partner, or highly
compensated employee (as defined in
Code section 4975(e)(2)(H)) thereof, is
an officer, director, partner or highly
compensated employee (as defined in
Code section 4975(e)(2)(H)) of
BlackRock or an MPS; or any member of
the business segment performing
services in connection with this
exemption is a relative of an officer,
director, partner or highly compensated
employee (as defined in Code section
4975(e)(2)(H)) of BlackRock or an MPS.
However, if an individual is a director
of the IM and an officer, director,
partner or highly compensated
employee (as defined in Code section
4975(e)(2)(H)) of BlackRock or an MPS,
and if he or she abstains from
participation in any of the services
performed by the IM under this
exemption, then this Section VI.OO.(2)
shall not apply.
For purposes of this Subsection, the
term officer means a president, any
senior 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 IM, BlackRock, or an MPS.
(3) The IM directly or indirectly
receives any compensation or other
consideration for the IM’s personal
account in connection with any Covered
Transaction, except that the IM may
receive compensation from BlackRock
for acting as IM as contemplated herein
if the amount or payment of such
compensation is reasonable and not
contingent upon or in any way affected
by any decision made by the IM while
acting as IM; or
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(4) The annual gross revenue received
by the IM, during any year of its
engagement, from the MPSs and
BlackRock Entities for all services
exceeds the greater of (a) five percent
(5%) of the IM’s annual gross revenue
from all sources for its prior tax year, or,
(b) one percent (1%) of the annual gross
revenue of the IM and its majority
shareholder from all sources for their
prior tax year.
UU. ‘‘Index’’ means an equity or debt
Securities or commodities index that
represents the investment performance
of a specific segment of the market for
equity or debt Securities or commodities
in the United States and/or an
individual foreign country or any
collection of foreign countries, but only
if—
(1) The organization creating and
maintaining the index is:
(a) Engaged in the business of
providing financial information,
evaluation, advice or Securities
brokerage services to institutional
clients,
(b) A publisher of financial news or
information, or
(c) A public Securities exchange or
association of Securities dealers; and
(2) The index is created and
maintained by an organization
independent of all BlackRock Entities.
For purposes of this definition of
‘‘Index,’’ every BlackRock Entity is
deemed to be independent of every
MPS.
(3) The index is a generally accepted
standardized index of Securities or
commodities which is not specifically
tailored for the use of a BlackRock
Manager(s).
(4) If the organization creating,
providing or maintaining the Index is an
MPS:
(a) Such Index must be widely-used
in the market by independent
institutional investors other than
pursuant to an investment management
or advisory relationship with a
BlackRock Manager, and must be
prepared or applied by such MPS in the
same manner as for customers other
than a BlackRock Manager(s);
(b) BlackRock must certify to the ECO
whether, in its reasonable judgment,
such Index is widely-used in the
market. In making this determination,
BlackRock shall take into consideration
factors such as (i) publication of
summary Index information by the MPS
providing the Index, Bloomberg,
Reuters, or a similar institution involved
in the dissemination of financial
information, and (ii) delivery of Index
information including but not limited to
Index component information by such
MPS to clients or other subscribers
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including by electronic means including
via the internet;
(c) BlackRock must notify the ECO if
it becomes aware that: (i) Such Index is
operated other than in accordance with
objective rules, in the ordinary course of
business, (ii) manipulation of any such
Index has occurred for the purpose of
benefiting BlackRock, or (iii) in the
event that any rule change occurred in
connection with the rules underlying
such Index, such rule change was made
by the MPS for the purpose of benefiting
BlackRock; provided, however, this
Subsection (c)(iii) expressly excludes
instances where the rule changes were
made in response to requests from
clients/prospective clients of BlackRock
even if BlackRock is ultimately hired to
manage such a portfolio (e.g., if plan
sponsor X requests a ‘‘Global ex-Sudan
Fixed Income Index’’, an MPS decides
to sponsor such index and plan sponsor
X approaches BlackRock or otherwise
issues a ‘‘Request for Proposal’’ for
investment managers who could manage
an index portfolio benchmarked to the
Global ex-Sudan Fixed Income Index).
(d) BlackRock must certify to the ECO
annually that it is not aware of the
occurrence of any of the events
described in Section VI.PP.(4)(c), and if
BlackRock cannot so certify, or if
BlackRock provides the ECO with the
notice described Section VI.PP.(4)(c),
the ECO shall notify the IM, and the IM
must take appropriate remedial action
which may include, but need not be
limited to, instructions for relevant
BlackRock Managers to cease using such
Index.
VV. ‘‘Index Account or Fund’’ means
any investment fund, account or
portfolio sponsored, maintained,
trusteed, or managed by a BlackRock
Manager or a BlackRock Entity, in
which one or more Client Plans invest,
and—
(1) Which is designed to track the rate
of return, risk profile and other
characteristics of an Index by either (i)
replicating the same combination of
Securities or commodities which
compose such Index or (ii) sampling the
Securities or commodities which
compose such Index based on objective
criteria and data;
(2) For which the BlackRock Manager
does not use its discretion, or data
within its control, to affect the identity
or amount of Securities or commodities
to be purchased or sold;
(3) That contains ‘‘plan assets’’ subject
to either ERISA section 406, Code
section 4975 or FERSA section 8477(c);
and,
(4) That involves no agreement,
arrangement, or understanding
regarding the design or operation of the
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Index Account or Fund which is
intended to benefit a BlackRock Entity
or an MPS, or any party in which a
BlackRock Entity or an MPS may have
an interest.
For purposes of this definition of
‘‘Index Account or Fund’’, every
BlackRock Entity is deemed to be
independent of each MPS.
WW. ‘‘In-House Plan’’ means an
employee benefit plan that is subject to
ERISA section 406 and/or Code section
4975, and that is sponsored by a
BlackRock Entity for its employees.
XX. ‘‘Interbank Rate’’ means the
interbank bid and asked rate for foreign
exchange transactions of comparable
size and maturity at the time of the
transaction as quoted on a nationally
recognized service for facilitating
foreign currency trades between large
commercial banks and Securities
dealers.
YY. ‘‘Know’’ means to have actual
knowledge. BlackRock Managers will be
deemed to have actual knowledge of
information set forth in a written
agreement or offering document as of
the date the BlackRock Manager
receives such agreement or document.
ZZ. ‘‘Lead Arranger’’ means, with
respect to any Loan Offering involving
more than one Arranger, the Arranger
designated as such by all of such
Arrangers.
AAA. ‘‘Loan’’ means, solely for
purposes of Section III.W. of this
exemption, a delivery by a lender and
receipt by a commercial borrower of a
sum of money to fund current and
ongoing operations or a specific
transaction upon agreement that such
borrower is to repay it upon agreed
terms. For the avoidance of doubt, this
term does not include any Fixed Income
Obligations which are covered
separately under Section IV.A. of this
exemption.
BBB. ‘‘Loan Offering’’ means, with
respect to the aggregate principal
amount of any Loan extended to a
commercial borrower in any single
transaction, the process of structuring,
marketing and offering to banks,
insurance companies, investment funds
and other institutional investors the
opportunity to purchase interests in
such Loan.
CCC. ‘‘Model’’ means a computer
model that is based on prescribed
objective criteria using independent
data not within the control of a
BlackRock Entity to transform an Index.
DDD. ‘‘Model-Driven Account or
Fund’’ means any investment fund,
account or portfolio sponsored,
maintained, trusteed, or managed by a
BlackRock Manager or a BlackRock
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Entity in which one or more Client
Plans invest, and—
(1) Which is composed of Securities
or commodities the identity of which
and the amount of which are selected by
a Model;
(2) That contains ‘‘plan assets’’ subject
to either ERISA section 406, Code
section 4975 or FERSA section 8477(c);
and
(3) That involves no agreement,
arrangement, or understanding
regarding the design or operation of the
Model-Driven Account or Fund or the
utilization of any specific objective
criteria which is intended to benefit a
BlackRock Entity or an MPS, or any
party in which a BlackRock Entity or an
MPS may have an interest.
For purposes of this definition of
‘‘Model-Driven Account or Fund,’’ every
BlackRock Entity is deemed to be
independent of each MPS.
EEE. ‘‘MPS’’ or ‘‘Minority Passive
Shareholder’’ means any of (1) Barclays
PLC, (2) The PNC Financial Services
Group, Inc., or (3) each entity directly or
indirectly, through one or more
intermediaries, controlling, controlled
by or under common control with one
or more of Barclays PLC (Barclays
MPSs) or The PNC Financial Services
Group, Inc., (PNC MPSs) (each of the
PNC MPSs and the Barclays MPSs, an
MPS Group) but excluding any and all
BlackRock Entities.
FFF. ‘‘MPS Group’’ shall have the
meaning set forth in the definition of
MPS.
GGG. ‘‘MPS Plans’’ means an
employee benefit plan(s) that is subject
to ERISA section 406 and/or Code
section 4975, and that is sponsored by
an MPS for its employees.
HHH. ‘‘Other Account or Fund’’
means any investment fund, account or
portfolio sponsored, maintained,
trusteed, or managed by a BlackRock
Manager or a BlackRock Entity in which
one or more Client Plans invest, and—
(1) Which is not an Index Account or
Fund or a Model-Driven Account or
Fund; and
(2) That contains ‘‘plan assets’’ subject
to either ERISA section 406, Code
section 4975 or FERSA section 8477(c).
III. ‘‘Pooled Fund’’ means a common
or collective trust fund or other pooled
investment fund:
(1) In which Client Plan(s) invest;
(2) For which a BlackRock Manager
exercises discretionary authority or
discretionary control respecting the
management or disposition of the assets
of such fund(s); and
(3) That contains ‘‘plan assets’’ subject
to either ERISA section 406, Code
section 4975 or FERSA section 8477(c).
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Solely for purposes of Section IV of
this exemption, ‘‘Pooled Fund(s)’’ shall
only include funds or trusts which
otherwise meet this definition but
which also are either (i) maintained by
a BlackRock Entity or (ii) maintained by
a person which is not a BlackRock
Entity but is sub-advised by a BlackRock
Manager, provided that with respect to
a Pooled Fund described in (ii), (A) the
fund or trust is either a bank-maintained
common or collective trust fund or an
insurance company pooled separate
account that holds assets of at least $250
million, (B) the bank or insurance
company sponsoring the Pooled Fund
has total client assets under its
management or control in excess of $5
billion as of the last day of its most
recent fiscal year, and shareholders’ or
partners’ equity in excess of $1 million,
and (C) the decision to invest the Client
Plan into the bank-maintained common
or collective trust or insurance company
pooled separate account and to maintain
such investment is made by a Client
Plan fiduciary which is not a BlackRock
Entity. Such sub-advised Pooled Funds
are sometimes referred to herein as
‘‘Sub-Advised Pooled Funds’’.
JJJ. ‘‘Qualified Institutional Buyer’’ or
‘‘QIB’’ shall have the same meaning as
defined in SEC Rule 144A (17 CFR
230.144A(a)(1)) under the 1933 Act.
KKK. ‘‘QPAM Exemption’’ or ‘‘PTE
84–14’’ means Prohibited Transaction
Exemption 84–14, as amended.
LLL. ‘‘Qualified Professional Asset
Manager’’ or ‘‘QPAM’’ shall have the
meaning set forth in Section VI(a) of the
QPAM Exemption.
MMM. ‘‘Rating Organizations’’ means
Standard & Poor’s Rating Services,
Moody’s Investors Service, Inc., Fitch
Ratings Inc., DBRS Limited, DBRS, Inc.,
or any similar agency subsequently
recognized by the Department as a
Rating Organization or any successors
thereto.
NNN. ‘‘Recognized Securities
Exchange’’ means a U.S. securities
exchange that is registered as a
‘‘national securities exchange’’ under
section 6 of the 1934 Act, or a
designated offshore securities market, as
defined in Regulation S of the SEC (17
CFR 230.902(b)), as such definition may
be amended from time to time, which
performs with respect to Securities the
functions commonly performed by a
stock exchange within the meaning of
definitions under the applicable
Securities laws (e.g., 17 CFR 240.3b–16).
OOO. ‘‘Registered Investment
Advisor’’ means an investment advisor
registered under the Investment
Advisors Act of 1940, as amended, that
has total client assets under its
management or control in excess of $5
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billion as of the last day of its most
recent fiscal year and shareholders’ or
partners’ equity in excess of $1 million,
as shown in the most recent balance
sheet prepared within the two years
immediately preceding a Covered
Transaction, in accordance with
generally accepted accounting
principles.
PPP. ‘‘SEC’’ means the United States
Securities and Exchange Commission.
QQQ. ‘‘Securities’’ shall have the
same meaning as defined in section
2(a)(36) of the 1940 Act. For purposes of
Section IV of this exemption, except as
where specifically identified, AssetBacked Securities are treated as debt
Securities.
RRR. ‘‘Three Quote Process’’ means
three bids or offers (either of which
being sometimes referred to as quotes)
are received by a trader for a BlackRock
Manager each of which such quotes
such trader reasonably believes is an
indication that the dealer presenting the
bid or offer is willing to transact the
trade at the stipulated volume under
discussion, and all material terms
(including volume) under discussion are
materially similar with respect to each
other such quote. In selecting the best of
three such quotes, a BlackRock Manager
shall maintain books and records for the
three firm bids/offers in a convention
that it reasonably believes is customary
for the specific asset class (such as
‘‘price’’ quotes, ‘‘yield’’ quotes or
‘‘spread’’ quotes). For example,
corporate bonds are often quoted on a
spread basis and dealers customarily
quote the spread above a certain
benchmark bond’s yield (e.g., for a given
size and direction such as a BlackRock
trader may ask for quotes to sell $1
million of a particular bond, dealer 1
may quote 50 bps above the yield of the
10 year treasury bond, dealer 2 might
quote 52 bps above the yield of the 10
year treasury bond and dealer 3 might
quote 53 bps above the yield of the 10
year treasury bond). If only two firm
bids/offers can be obtained, the trade
requires prior approval by the ECO and
the ECO must inquire as to why three
firm bids/offers could not be obtained.
If in the case of a sale or purchase a
trader for a BlackRock Manager
reasonably believes it would be
injurious to the Client Plan to specify
the size of the intended trade to certain
bidders, a bid on a portion of the
intended trade may be treated as a firm
bid if the trader documents (i) why the
bid price is a realistic indication of the
economic terms for the actual amount
being traded despite the difference in
the size of the actual trade and (ii) why
it would be harmful to the Client Plan
to solicit multiple bids on the actual
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amount of the trade. If a trader for a
BlackRock Manager solicits bids from
three or more dealers on a sale or
purchase of a certain volume of
Securities, and receives back three or
more bids, but at least one bid is not for
the full amount of the intended sale, if
the price offered by the partial bidder(s)
is less than the price offered by the full
bidder(s), the trader may assume a full
bid by the partial bidder(s) would not be
the best bid, and the trader can
consummate the trade, in the case of at
least two full bids, with the dealer
making the better of the full bids, or in
the case of only one full bid, with the
dealer making that full bid.
SSS. ‘‘Underwriter Exemption(s)’’
means a group of individual exemptions
granted by the Department to provide
relief for the origination and operation
of certain asset pool investment trusts
and the acquisition, holding and
disposition by plans of Asset-Backed
Securities representing undivided
interests in those trusts. Such group of
individual exemptions was collectively
amended by Prohibited Transaction
Exemption 2009–31, 74 FR 59001 (Nov.
16, 2009).
TTT. ‘‘U.S. Bank’’ means a bank as
defined in section 202(a)(2) of the
Investment Advisers Act, as amended.
UUU. ‘‘U.S. Broker-Dealer’’ means a
broker-dealer registered under the 1934
Act or exempted from registration under
section 15(a)(1) of the 1934 Act as a
dealer in exempted government
Securities (as defined in section 3(a)(12)
of the 1934 Act).
VVV. ‘‘U.S. Collateral’’ means:
(1) U.S. currency;
(2) ‘‘Government securities’’ as
defined in section 3(a)(42)(A) and (B) of
the 1934 Act;
(3) ‘‘Government securities’’ as
defined in section 3(a)(42)(C) of the
1934 Act issued or guaranteed as to
principal or interest by the following
corporations: The Federal Home Loan
Mortgage Corporation, the Federal
National Mortgage Association, the
Student Loan Marketing Association
and the Financing Corporation;
(4) Mortgage-backed Securities
meeting the definition of a ‘‘mortgage
related security’’ set forth in section
3(a)(41) of the 1934 Act;
(5) Negotiable certificates of deposit
and bankers acceptances issued by a
‘‘bank’’ as that term is defined in section
3(a)(6) of the 1934 Act, and which are
payable in the United States and
deemed to have a ‘‘ready market’’ as that
term is defined in 17 CFR 240.15c3–1;
or
(6) Irrevocable letters of credit issued
by a U.S. Bank other than the borrower
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or an affiliate thereof, or any
combination, thereof.
WWW. ‘‘Violation’’ means a Covered
Transaction which is a prohibited
transaction under ERISA sections 406 or
407, Code section 4975, or FERSA
section 8477(c) and which is not exempt
by reason of a failure to comply with
this exemption or another
administrative or statutory exemption.
To the extent that the non-exempt
prohibited transaction relates to an act
or omission that is separate and distinct
from a prior otherwise exempt
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transaction that may relate to the same
asset (e.g., a conversion of a debt
instrument into an equity instrument or
a creditor’s committee for a debt
instrument), the Violation occurs only at
the current point in time and no
Violation shall be deemed to occur for
the earlier transaction relating to the
same asset (e.g., the initial purchase of
the asset) that was otherwise in
compliance with ERISA, the Code or
FERSA.
Effective Date: This exemption is
effective as of March 31, 2012, except
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that, with respect to Covered
Transactions described in Section III.K.
and S., the exemption is effective as of
October 1, 2011.
Signed at Washington, DC, this 12th day of
January, 2012.
Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2012–788 Filed 1–18–12; 8:45 am]
BILLING CODE 4510–29–P
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]]>Agencies
[Federal Register Volume 77, Number 12 (Thursday, January 19, 2012)]
[Notices]
[Pages 2798-2828]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-788]
[[Page 2797]]
Vol. 77
Thursday,
No. 12
January 19, 2012
Part II
Department of Labor
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Employee Benefits Security Administration
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Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants): Located in New York, NY; Notice
Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 /
Notices
[[Page 2798]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11687]
Notice of Proposed Exemption; BlackRock, Inc. and Its Investment
Advisory, Investment Management and Broker-Dealer Affiliates and Their
Successors (Applicants): Located in New York, NY
AGENCY: Employee Benefits Security Administration, U.S. Department of
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 a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), the Federal
Employees' Retirement System Act of 1986, as amended (FERSA), and the
Internal Revenue Code of 1986, as amended (the Code). The proposed
transactions involve BlackRock, Inc. and its investment advisory,
investment management and broker-dealer affiliates and their
successors. The proposed exemption, if granted, would affect plans for
which BlackRock, Inc. and its investment advisory, investment
management and broker-dealer affiliates and their successors serve as
fiduciaries, and the participants and beneficiaries of such plans.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of March 31, 2012, except that, with respect to Covered
Transactions described in Section III.K. and S., the proposed exemption
will be effective as of October 1, 2011.
Written Comments and Hearing Requests: All interested persons are
invited to submit written comments and/or requests for a hearing on the
proposed exemption within forty five (45) days from the date of the
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 the request for a hearing and (2) the
nature of the person's interest in the proposed exemption and the
manner in which the person would be adversely affected by the proposed
exemption. A request for a hearing must also state the issues to be
addressed at the requested hearing and include a general description of
the evidence to be presented at the requested hearing.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attention: Application No. D-11687. Interested
persons are also invited to submit comments and/or hearing requests to
the Employee Benefits Security Administration by email or FAX. Any such
comments or requests should be sent either 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 inspection in the Public Documents Room of the Employee
Benefits Security Administration, U.S. Department of Labor, Room N-
1513, 200 Constitution Avenue NW., Washington, DC 20210.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
FOR FURTHER INFORMATION CONTACT: Brian L. Shiker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8552. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of ERISA section 406(a)(1)
and 406(b), FERSA section 8477(c)(1) and (c)(2) and the sanctions
resulting from the application of Code section 4975, by reason of Code
section 4975(c)(1). The proposed exemption has been requested by
BlackRock, Inc. and its investment advisory, investment management and
broker-dealer affiliates and their successors pursuant to ERISA section
408(a), Code section 4975(c)(2) and FERSA section 8477(c)(3), and in
accordance with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978,
section 102 of the Reorganization Plan No. 4 of 1978, (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Accordingly, this notice of proposed exemption is being issued
solely by the Department.
Summary of Facts and Representations \1\
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\1\ Capitalized terms used but not defined in the Summary of
Facts and Representations have the meaning set forth in Section VI
of the proposed exemption.
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1. BlackRock, Inc. (BlackRock), based in New York, NY, is the
largest publicly traded investment management firm. BlackRock, through
its investment advisory and investment management subsidiaries,
currently manages assets for institutional and individual investors
worldwide through a variety of equity, fixed income, cash management
and alternative investment products. As of September 30, 2011,
BlackRock, through its advisor subsidiaries, had approximately $3.345
trillion in assets under management, including assets managed by
BlackRock Institutional Trust Company, N.A. (BTC) (formerly known as
Barclays Global Investors, N.A. (BGI)) and its affiliates. The
Applicants \2\ together with any other entity presently or subsequently
under the direct or indirect control, through one or more
intermediaries, of BlackRock and successors of any of the foregoing are
referred to herein as the ``BlackRock Entities.''
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\2\ For purposes of this application, references to the
``Applicants'' include each of the banks, investment advisors and
investment managers directly or indirectly, through one or more
intermediaries, under the control of BlackRock, and any other bank,
investment advisor or investment manager which subsequently becomes
directly or indirectly, through one or more intermediaries, under
the control of BlackRock, and successors of the foregoing. As of the
date hereof, banks, investment advisors and investment managers
under the control of BlackRock include, but are not limited to,
BlackRock Advisors, LLC, BlackRock Financial Management, Inc.,
BlackRock Capital Management, Inc., BlackRock Institutional
Management Corporation, BlackRock International, Ltd., BlackRock
Realty Advisors, Inc., BlackRock Investment Management, LLC,
BlackRock Fund Advisors, and BTC (collectively, the BlackRock
Managers). ``Applicants'' also includes broker-dealers presently or
subsequently under the direct or indirect control, through one or
more intermediaries, of BlackRock.
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2. BTC is a national banking association headquartered in San
Francisco, California. Prior to its acquisition by BlackRock on
December 1, 2009 (the Acquisition), BTC (then BGI) was the largest
asset manager in the U.S. A significant amount of BTC's assets under
management in the U.S. consists of assets of employee benefit plans
subject to ERISA, FERSA and/or the Code. BTC is a market leader in
index and model-driven investment products. Until its sale to
BlackRock, BGI was an indirect subsidiary of
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Barclays PLC, a public limited company organized under the laws of
England and Wales (Barclays). BTC, as of the date of the Acquisition,
is a wholly owned subsidiary of BlackRock.
3. The Applicants represent that they are regulated by various
Federal government agencies such as the Securities and Exchange
Commission (SEC) and the Office of the Comptroller of the Currency, as
well as state government agencies and industry self-regulatory
organizations (e.g., the Financial Industry Regulatory Authority or, in
the case of some broker-dealers and banks, corresponding foreign
regulatory authorities). As with the Applicants, each of (a) Barclays,
(b) The PNC Financial Services Group, Inc. (PNC), and (c) each entity
directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with one or more of
Barclays or PNC,\3\ has previously made representations to the
Department regarding the significant extent to which they are
regulated.\4\
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\3\ Each of Barclays and PNC is a ``Minority Passive
Shareholder'' or ``MPS,'' but, for avoidance of doubt, an MPS does
not include any BlackRock Entity.
\4\ See applications associated with PTE 2009-25, 74 FR 45300
(September 1, 2009) (Barclays); and PTE 2009-22, 74 FR 45284
(September 1, 2009) (PNC).
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The Acquisition
4. There have recently occurred extraordinary circumstances in both
the U.S. financial services industry and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the recent
trend of industry consolidation amongst significant banks, broker-
dealers and other providers of financial services has accelerated. For
example, in September 2008, Barclays Bank PLC (Barclays Bank), a
subsidiary of Barclays, acquired most of the U.S. broker-dealer
business of Lehman Brothers Holdings Inc.; and, in May 2008, Bear
Stearns Companies Inc. was acquired by JPMorgan Chase & Co.
5. In this context, BlackRock, in June 2009, made a binding offer
to Barclays pursuant to an Amended and Restated Stock Purchase
Agreement by and among BlackRock, Barclays Bank and (for limited
purposes) Barclays, which ultimately resulted in the Acquisition.
BlackRock completed the Acquisition on December 1, 2009, in exchange
for an aggregate of 37,566,771 shares of BlackRock common stock and
participating preferred stock and approximately $6.6 billion in cash.
Barclays' decision to enter into the Acquisition was based upon a
variety of factors that Barclays stated would be beneficial to its
shareholders, including the creation of material economic exposure to a
highly competitive global asset manager.
6. Prior to the Acquisition, PNC, indirectly through its subsidiary
PNC Bancorp, Inc. (PNC Bancorp), held an approximately 31.9% economic
interest and an approximately 43.2% voting interest in BlackRock. Bank
of America Corporation (BOA), through its (indirect) wholly owned
subsidiary the Merrill Lynch Group, Inc. (the Merrill Group), held an
approximately 48.3% economic interest and approximately 4.6% voting
interest in BlackRock. Immediately following the Acquisition, (1)
Barclays, (2) BOA, and (3) PNC (each of Barclays and PNC, a Minority
Passive Shareholder, or MPS) controlled the following interests in
BlackRock:
BOA. BOA owned approximately 3.7% of BlackRock voting common stock
and approximately 34.2% of BlackRock equity by value;
PNC. PNC owned approximately 35.2% of BlackRock voting common stock
and approximately 24.5% of BlackRock equity by value; and
Barclays. Barclays owned approximately 4.8% of BlackRock voting
common stock and approximately 19.8% of BlackRock equity by value.
7. Post-Acquisition, a secondary offering of BlackRock common stock
was completed on November 15, 2010 (the Secondary Offering).
BlackRock's ownership structure following the Secondary Offering was as
follows: (a) BOA controlled 0% of BlackRock's voting common stock and
approximately 7.1% of BlackRock's equity by value; (b) PNC controlled
approximately 25.3% of BlackRock's voting common stock and
approximately 20.3% of BlackRock's equity by value; and (c) Barclays
controlled approximately 2.3% of BlackRock's voting common stock and
approximately 19.6% of BlackRock's equity by value.
8. On June 1, 2011, BlackRock repurchased from a subsidiary of BOA
its remaining ownership interest in BlackRock (the BOA Repurchase).
These shares were retired. As a result of the BOA Repurchase, BOA's
economic stake in BlackRock was reduced to 0.0%. Concurrently with the
BOA Repurchase, Barclays sold a portion of its BlackRock Series B Non-
Voting Preferred Stock, which automatically converted into common stock
in the hands of the purchaser. As a result of these events on June 1,
2011, Barclays' and PNC's holdings by economic value increased to
approximately 19.7% and 21.7%, respectively, and Barclays' and PNC's
voting ownership interests were reduced to approximately 2.2% and
24.6%, respectively.
9. All BlackRock stock beneficially owned from time to time by each
MPS (other than stock held in certain fiduciary capacities and customer
or market making accounts) is subject to a stockholders agreement
entered into by and between that MPS and BlackRock (collectively, the
Stockholders Agreements). Pursuant to each respective Stockholders
Agreement, each MPS has the right to identify to BlackRock two (2)
prospective directors, and, if such nominees are reasonably acceptable
to the BlackRock Board of Directors (the Board), BlackRock and each
respective MPS agree to use best efforts to cause the election of such
nominees to the Board.\5\ However, at least nine (9) of the current
directors \6\ must be ``independent'' (within the meaning of New York
Stock Exchange (NYSE) rules) \7\ of the MPSs and BlackRock management.
Furthermore, subject to limited exceptions, each Stockholders Agreement
provides that the relevant MPS must vote its BlackRock voting common
stock in accordance with recommendations of the Board. In addition, the
Audit Committee, the Management Development and Compensation Committee,
and the Nominating and Governance Committee of the Board must consist
entirely of independent directors, and a majority of each other
committee (if any) of the Board, with the exception of the Executive
Committee,\8\ must consist of independent directors. The Stockholders
Agreements provide, with limited exceptions, that all decisions of any
committee of the Board require the presence of a majority of the
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directors at a meeting then serving on such committee. In fact, as of
the date hereof, none of the directors identified to the Board by an
MPS serve on any committee of the Board, except that one director
identified to the Board by PNC serves on the Executive Committee. While
each MPS monitors its investment in BlackRock through Board members it
identified to the Board and each MPS has certain limited governance
rights, no MPS has or will have, through the Board members it
identified, any involvement in the day-to-day management of BlackRock,
any BlackRock Manager or other BlackRock Entity.
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\5\ The Stockholders Agreements also contemplate a reduction in
the number of Board seats which an MPS is entitled to designate to
one upon falling below a 10% equity interest for 90 consecutive
days, and to zero upon falling below a 5% equity interest for 90
consecutive days.
\6\ There are currently 17 directors on the Board. The maximum
permitted number of directors on the Board pursuant to the
Stockholders Agreements is 19.
\7\ Section 303A.01 of the NYSE Listed Company Manual requires
listed companies to have a majority of independent directors.
Although an exception is made for companies controlled by a group of
shareholders, the Stockholders Agreements among BlackRock and the
MPSs preclude the MPSs from becoming part of any such group.
BlackRock represents that, based on current equity ownership levels,
the Board must include a minimum of 13 directors total (except for
temporary vacancies arising by reason of, for example, poor health,
retirement or resignation).
\8\ The Executive Committee of the Board has not met for over
five (5) years.
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10. In addition, the Stockholders Agreements provide for additional
restrictions on the ability of an MPS to control BlackRock or any
BlackRock Manager. These restrictions include standstill arrangements
establishing caps on voting interests,\9\ transfer restrictions, and
restrictions relating to arm's length business relationships between an
MPS (or its affiliates) and BlackRock (or its affiliates) in each case
as set forth in the applicable Stockholders Agreement.
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\9\ The following are the caps on voting interests contained in
the Stockholder Agreements: PNC = 49.9%; and Barclays = 4.9%. The
following are the caps on economic interest: PNC = 38%; and Barclays
= 19.9%.
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Interim Prohibited Transaction Relief
11. The Applicants previously applied for (Application No. D-11588)
and the Department issued Prohibited Transaction Exemption 2011-17, 76
Fed. Reg. 50632 (August 15, 2011)(the Interim Exemption) that covers
certain transactions entered into by BlackRock Managers with, or
involving, certain direct or indirect minority passive shareholders in
BlackRock, and certain entities related thereto, on behalf of Client
Plans or Pooled Funds subject to ERISA, the Code and/or FERSA. Since
the Acquisition Date, the Applicants represent that they have expended
a significant amount of time, money and other resources to establish
and maintain the necessary infrastructure to ensure compliance with the
conditions for relief set forth in the Interim Exemption. The
Applicants have, among other things, put together a legal and
compliance staff that is devoted to assuring compliance with the
Interim Exemption, dedicated significant technology resources to
developing trading systems and compliance solutions designed to address
the requirements of the Interim Exemption, engaged in extensive
training of BlackRock personnel (covering individuals serving in legal,
compliance and business roles) regarding compliance with the Interim
Exemption, and implemented robust post-trade reporting and record-
keeping to monitor compliance with the Interim Exemption.
The Interim Exemption expires on the earlier of (a) the effective
date of this proposed exemption, if granted, or (b) March 31, 2012.
Requested Relief
12. Given the unique nature of the BlackRock ownership structure
following the Acquisition and subsequent Secondary Offering and BOA
Repurchase, the Applicants believe that neither MPS should be regarded
for ERISA purposes as an ``affiliate'' of BlackRock or any BlackRock
Manager, because the Applicants believe that no MPS, alone or with the
other MPS, is or will be in a position to ``control'' BlackRock. In
addition to the BlackRock ownership structure itself preventing MPS
control of BlackRock, the Applicants believe that the Stockholders
Agreements provide several important safeguards to mitigate the
possibility of an MPS exerting any form of control that might otherwise
raise concerns under ERISA. In particular, the standstill agreements,
transfer restrictions and arm's length business relationship provisions
are designed to ensure that BlackRock maintains its independence. Even
if the MPSs wished to act together to control BlackRock, BlackRock
believes that the MPSs would not be able to control BlackRock because
the Stockholders Agreements mandate that each MPS vote its shares in
accordance with the recommendations of the Board, which is dominated by
persons other than nominees identified by MPSs. Lastly, the MPSs are
competitors in the financial services industry, and as such, concerted
action among the MPSs is extremely unlikely.
13. Nevertheless, the Applicants represent that when a BlackRock
Manager is a fiduciary with investment discretion with respect to a
Client Plan,\10\ and the BlackRock Manager is deciding whether to enter
into a Covered Transaction \11\ with or involving an MPS, the ownership
interest of the MPS in BlackRock could affect the BlackRock Manager's
best judgment as a fiduciary, raising issues under ERISA section
406(b). The Applicants note that the Department's regulation at 29 CFR
2550.408b-2(e)(1) provides that ``[a] person in which a fiduciary has
an interest which may affect the exercise of such fiduciary's best
judgment as a fiduciary includes, for example, a person who is a party
in interest by reason of a relationship to such fiduciary described in
section 3(14)(E), (F), (G), (H), or (I)'' of ERISA. ERISA section
3(14)(H) provides that a 10% or more shareholder of a service provider
(which may include a plan fiduciary) is a party in interest to the plan
in question by reason of that relationship to the service provider.
Accordingly, the Applicants seek relief from the prohibitions of ERISA
section 406(b) for the Covered Transactions.
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\10\ ``Client Plan'' is defined in Section VI.T. of the proposed
exemption and means any plan subject to ERISA section 406, Code
section 4975 or FERSA section 8477(c) for which a BlackRock Manager
is a fiduciary as described in ERISA section 3(21), including, but
not limited to, any Pooled Fund, MPS Plan, Index Account or Fund,
Model-Driven Account or Fund, Other Account or Fund, or In-House
Plan, as defined in Section VI of the proposed exemption, except
where specified to the contrary.
\11\ ``Covered Transaction'' is defined in Section VI.X. of the
proposed exemption and means each transaction set forth in Section
III of the proposed exemption entered into by a BlackRock Manager
for a Client Plan with or involving, directly or indirectly, an MPS
and/or a BlackRock Entity.
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14. Further, if BlackRock Entities and one or more MPS are deemed
affiliates, and because each MPS and its affiliates are very likely
parties in interest within the meaning of ERISA section 3(14) with
respect to many Client Plans, the Applicants also seek relief from the
prohibitions of ERISA section 406(a) with respect to the Covered
Transactions. Specifically, many prohibited transaction class
exemptions from ERISA section 406(a) require as a condition for relief
that the plan fiduciary and the party in interest not be
``affiliates.'' Although the Applicants believe that no MPS should be
regarded for ERISA purposes as an ``affiliate'' of BlackRock, the
Applicants desire the certainty of relief which the proposed exemption
would provide if Covered Transactions are entered into in conformance
therewith.
15. As discussed above, there have recently occurred extraordinary
circumstances in both the U.S. and the global financial services
industry. Many entities in the financial services industry have faced
severe economic hardship. During this period of upheaval, the trend of
industry consolidation amongst significant banks, broker-dealers and
other providers of financial services has accelerated. It is the
Applicants' belief that each MPS' involvement in financial services has
expanded at the same time as the number of participants in the capital
markets has declined. As a result, the Applicants believe that the
failure to obtain exemptive relief proposed herein would deny Client
[[Page 2801]]
Plans access to a significant portion of the financial markets and that
such denial would unduly harm Client Plans and their participants and
beneficiaries.
16. The Applicants request that the Department continue relief
similar to that provided in the Interim Exemption on the terms set
forth herein. The exemption proposed herein would provide relief for
certain Covered Transactions that, except as outlined below, are
similar in all material respects to the Covered Transactions for which
relief is provided in the Interim Exemption.
Structure of Relief
17. The structure of the Applicants' requested relief is founded
upon compliance with five sets of general conditions. The five sets of
general conditions are: (a) Modified conditions derived from Prohibited
Transaction Exemption (PTE) 84-14, as amended (sometimes referred to as
the QPAM Exemption); \12\ (b) restrictions on the compensation of
BlackRock Managers and their employees; (c) the establishment and
implementation of certain policies and procedures (the Exemption
Polices and Procedures or EPPs); (d) the appointment by BlackRock of an
Exemption Compliance Officer (ECO); and (e) the retention by BlackRock
of an Independent Monitor (IM). The purpose of these general conditions
is, when coupled with the restrictions of the Stockholders Agreements
and the BlackRock ownership structure, to foster independence of action
by the BlackRock Managers notwithstanding the equity interests in
BlackRock held by the MPSs. This unique overarching structure includes
a comprehensive compliance function and an independent monitor, each of
which work together for the benefit of Client Plans and their
participants and beneficiaries by allowing Covered Transactions with or
involving an MPS only if the Covered Transaction is, as best as can be
determined, as favorable to the Client Plans as arm's length
transactions with third parties.
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\12\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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18. In addition to the general conditions, each Covered Transaction
has its own set of specific conditions deemed suitable for it in light
of the nature of the transaction. Many of the conditions for individual
Covered Transactions are derived from statutory exemptions,
administrative class exemptions or administrative individual exemptions
frequently relied upon by fiduciaries and parties in interest
(sometimes affiliated and sometimes not) to exempt similar
transactions. The general and transaction-specific conditions for
relief attempt to strike a balance that takes into account both the
MPSs' unique equity interests in BlackRock and the ability of BlackRock
Managers acting on behalf of Client Plans to engage in arm's length
Covered Transactions with or involving institutions as significant in
their markets as are the MPSs.
General Conditions
19. The structure of the relief proposed herein is very similar to
that granted in the Interim Exemption, and is founded upon compliance
with general conditions that are essentially the same as the general
conditions set forth in the Interim Exemption. Accordingly, Section II
of the proposed exemption provides general conditions as follows:
20. Compliance with the QPAM Exemption (Section II.A.). With
certain exceptions, the conditions for relief under Part I of PTE 84-14
(the QPAM Exemption) must be satisfied with respect to each Covered
Transaction.\13\ These exceptions are substantially similar to those
set forth in the Interim Exemption.\14\ Each BlackRock Manager
utilizing the requested relief must meet the definition of a
``qualified professional asset manager'' (QPAM) as described in Section
VI(a) of the QPAM Exemption, and each Covered Transaction must satisfy
the general conditions relating to the QPAM Exemption as set forth in
the proposal, which are essentially the same as the Interim Exemption's
general conditions relating to the QPAM Exemption.
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\13\ The QPAM Exemption may not be relied upon for securities
lending. See Part I(b)(1) of the QPAM Exemption. However, for
purposes of the exemption proposed herein, securities lending
constituting Covered Transactions involving an MPS must comply with
the terms of Section II.A. of the proposed exemption as well as the
specific conditions set forth in Section III.L. of the proposed
exemption.
\14\ 76 FR at 50637.
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21. The Applicants, however, believe that the Interim Exemption's
conditions should be modified in order to more accurately reflect
BlackRock's ability to monitor the entities that provide investment
advice to Client Plans' assets under its management. As a result of
changes made in this regard, a new Section II.A.3.(b) has been added to
the proposed exemption. A discussion of Section II.A.3.(b) is set forth
below under Covered Transactions.
22. Compensation Restrictions (Section II.B). The Applicants
recognize that an unrestricted ability for employees of BlackRock to
receive compensation in connection with the Covered Transactions could
give rise to potential ERISA conflicts. In order to address this
potential for conflicts, Section II.B. of the proposed exemption
provides for the same compensation restrictions set forth in the
Interim Exemption.\15\
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\15\ 76 FR at 50638.
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23. Exemption Policies and Procedures (Section II.C.). The
Applicants recognize that, in order for BlackRock to successfully
manage and monitor Covered Transactions, the establishment and use of
systematic policies and procedures is essential. Section II.C. of the
proposed exemption requires that BlackRock utilize (and update as
necessary) the ``Exemption Policies and Procedures'', or ``EPPs'', that
were developed and used in connection with the Interim Exemption and
which address each of the Covered Transactions. Consistent with the
Interim Exemption, the Exemption Policies and Procedures will be
developed and/or updated with the cooperation of both the ECO and the
IM, and such EPPs will remain subject to the approval of the IM. The
EPPs need not address transactions which are not within the definition
of the term Covered Transactions.
24. Exemption Compliance Officer (II.D.). The Applicants recognize
that in order to ensure compliance with the EPPs and the terms of the
proposed exemption an internal compliance officer is necessary.
Consistent with the Interim Exemption, Section II.D. of the proposed
exemption requires that BlackRock employ an internal ``Exemption
Compliance Officer'', or ``ECO'', as well as an ``ECO Function''.\16\
The ECO and the ECO Function will be maintained by BlackRock in order
to monitor the Covered Transactions for compliance with the Code,
ERISA, FERSA, the EPPs and the exemption. The responsibilities and
requirements of the ECO and the ECO Function are set forth in Section
II.D. of the proposed exemption.
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\16\ For purposes hereof, ``ECO Function'' is defined in Section
VI.Z. of the proposed exemption and means the ECO and such other
BlackRock employees in legal and compliance roles working under the
supervision of the ECO in connection with the Covered Transactions.
The list of BlackRock employees shall be shared with the IM from
time to time, not less than quarterly, and such employees will be
made available to discuss the relevant Covered Transactions with the
IM to the extent the IM or the ECO deem it reasonably prudent.
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25. Independent Monitor (II.E.). The Applicants believe that the
ECO and the ECO Function alone may not be sufficient to completely
avoid potential
[[Page 2802]]
conflicts of interests or the appearance thereof. Conversely, the
Applicants also believe that a wholly independent third party alone
would not be able to efficiently or effectively monitor and oversee all
of the relevant BlackRock activities. Consistent with the Interim
Exemption, Section II.E. of the proposed exemption requires that
BlackRock appoint an ``Independent Monitor'', or ``IM''. The IM will
monitor the ECO and the Covered Transactions for compliance with the
Code, ERISA, FERSA, the EPPs and the exemption. The responsibilities
and requirements of the IM are set forth in Section II.E. of the
proposed exemption.
26. Notice (II.F.). Client Plans will receive notice regarding the
proposed exemption through publication in the Federal Register. The
Applicants believe that such notice is sufficient and that additional
mailings to the Client Plans would be confusing and burdensome to the
Client Plans given the substantial similarity between the Interim
Exemption and this proposed exemption.
Covered Transactions
27. As discussed above, the structure of the requested relief is
founded upon compliance with five sets of general conditions. These
five sets of general conditions are then modified by specific
conditions deemed suitable for each Covered Transaction. Many of the
conditions for individual Covered Transactions are derived from
statutory exemptions, administrative class exemptions or administrative
individual exemptions frequently relied upon by fiduciaries and parties
in interest (sometimes affiliated and sometimes not) to exempt similar
transactions. Section III of the proposed exemption sets forth the
Covered Transactions for which the Applicants are seeking exemptive
relief and the conditions which must be satisfied in respect of such
Covered Transactions in order to be accorded such relief.
28. Except as described below, the Covered Transactions for which
relief is proposed herein are substantially similar to the
corresponding ``Covered Transactions'' in the Interim Exemption, and
each such Covered Transaction is subject to substantially the same
conditions as set forth in the Interim Exemption.\17\ The Applicants
are not requesting relief with respect to the Covered Transactions
described in Section III.A. (Continuing Covered Transactions), T. (The
Provision of Custodial, Administrative and Similar Ministerial Services
by an MPS for a Client Plan as a Consequence of a BlackRock Manager
Exercising Investment Discretion on Behalf of the Client Plan or
Rendering Investment Advice to the Client Plan) or W. (Investment of
Assets of MPS Plans in a BlackRock Bank-Maintained Common or Collective
Trust as of the Date of the Acquisition--Fees Paid Outside the Trust)
of the Interim Exemption. However, the Applicants are seeking exemptive
relief with respect to a new Covered Transaction described in Section
III.W. of the proposed exemption.
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\17\ 76 FR at 50640.
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29. The Applicants further request, with respect to a small number
of the Covered Transactions identified herein, certain changes from the
relief provided in the Interim Exemption and to the applicable
conditions. Set forth below is a discussion of (a) three broad changes
that impact multiple Covered Transactions and (b) modifications with
respect to specific Covered Transactions.
30. MPS Investment Advice. The Interim Exemption imposed conditions
with respect to several Covered Transactions that restricted BlackRock
Managers from engaging in transactions with MPSs that possess
discretionary authority or control with respect to the investment of
the Client Plan assets involved in the transaction, or render
investment advice within the meaning of 29 CFR 2510.3-21(c) with
respect to such assets. This condition was set forth in Section III.I.
(Repurchase Agreements), L. (Bank Deposits and Commercial Paper), M.
(Securities Lending) and U. (ABCP Conduit) of the Interim Exemption. In
this proposed exemption, the relevant sections are re-designated
Section III.H. (Repurchase Agreements), K. (Bank Deposits and
Commercial Paper), L. (Securities Lending) and S. (ABCP Conduit).
The Applicants represent that BlackRock Managers are often unable
to make a determination as to which parties provide investment advice
with respect to Client Plan assets. The inability to make these
determinations created uncertainty as to which parties were subject to
the restriction of these conditions, resulting in the relief provided
in the Interim Exemption for those sections being unworkable in some
situations from a practical perspective. The Applicants, therefore,
requested deletion of that portion of the condition that would limit
transactions with MPSs that provide investment advice within the
meaning of 29 CFR 2510.3-21(c).
The Department understands the Applicants' concerns regarding the
practical implication of the restriction on transactions with
investment advice providers and, for purposes of the exemption proposed
herein, has revised the conditions at issue so that the restriction
only apply to transactions with MPSs that possess discretionary
authority or control with respect to the investment of the Client Plan
assets involved in the transaction. The Department additionally made
several related changes to the affected sections. First, the Department
added a condition to Section III.H. and K. to clarify that the Client
Plan involved in the transaction may not be an MPS Plan of the MPS with
whom the transaction takes place, or an MPS Plan of another member of
the same MPS Group as such MPS. Second, at the Applicants' request, the
Department revised Section II.A.3. to include a new Section II.A.3.(b),
which provides that the conditions described above in this paragraph
shall be deemed satisfied if, with respect to the Covered Transaction
in question, section II.A.3.(a) is satisfied. Section II.A.3.(a)
provides that, in the case of an investment fund in which two or more
unrelated Client Plans have an interest, a Covered Transaction with an
MPS will be deemed to satisfy the requirements of Section II.A.2. of
the proposed exemption if the assets of a Client Plan on behalf of
which the MPS or its affiliate possesses the authority and which are
managed by the BlackRock Manager in the investment fund, when combined
with the assets of other Client Plans established or maintained by the
same employer (or an affiliate thereof) or by the same employee
organization, on behalf of which the same MPS possesses such authority
and which are managed in the same investment fund, represent less than
ten percent (10%) of the assets of the investment fund. Finally, with
respect to relief for Securities lending by a BlackRock Manager to an
MPS, the Department included two additional conditions in Section
III.L. similar to those contained in subsections (p) and (q) of PTE
2002-46.\18\ It is the Department's view that the general conditions of
the proposed exemption, including the modified conditions derived from
the QPAM exemption, with the specific conditions of these Sections as
modified, provide sufficient safeguards for the affected Client Plans,
participants and beneficiaries, even without the restriction on
transactions with investment advice providers.
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\18\ 67 FR 59569 (September 23, 2002), as corrected, 67 FR 69046
(November 14, 2002).
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31. Directed Brokerage Accounts/Wrap Agreements. Section III.P.,
R., S. and V. of the Interim Exemption
[[Page 2803]]
provided relief that included a provision that permitted BlackRock
Managers to use an MPS as a Securities broker pursuant to either
directed brokerage and/or wrap fee arrangements in effect on the date
of the Acquisition.\19\ The Applicants represent that relief for such
directed brokerage and/or wrap fee arrangements is no longer necessary.
In the absence of such necessity, the Department has eliminated the
directed brokerage and/or wrap fee agreement provisions in the
corresponding sections (Section III.O., Q., R. and T.) of the proposed
exemption.
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\19\ 76 FR at 50647-50650.
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32. Primary/Secondary Markets and Agency/Principal. Section III.L
and U. of the Interim Exemption provided relief with respect to (a)
investments in bank deposits and commercial paper, and (b) purchases,
sales and holdings by BlackRock Managers for Client Plans of commercial
paper issued by ABCP conduits, when an MPS has one or more roles.\20\
The Applicants request changes from the conditions with respect to both
Covered Transactions in the Interim Exemption. Purchases, sales and
placements of bank deposits and commercial paper commonly occur without
reference to primary or secondary markets and without distinction as to
whether they are on a principal or agency basis. As a result, such
distinctions are simply not relevant to the short term instruments
described in the Covered Transactions (which is in contrast to trading
of longer term Fixed Income Obligations or equity Securities). To
address this issue, the Department has modified the language of Section
II.K. and S. of the proposed exemption to more accurately reflect the
nomenclature of bank deposits and commercial paper.
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\20\ 76 FR at 50643 and 50649.
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33. Repurchase Agreements when an MPS is the Seller (Section
III.H.). With respect to Covered Transactions involving investments in
repurchase agreements when an MPS is the seller, the Interim Exemption
provided relief with respect to certain repurchase agreements that were
in effect as of the date of the Acquisition that otherwise would not
have complied with the conditions of the Interim Exemption.\21\
Applicants represent that such repurchase agreements are no longer in
place. As a result, the Applicants are no longer requesting relief with
respect to repurchase agreements that were in effect as of the date of
the Acquisition. The Department has made this change to the proposed
exemption.
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\21\ 76 FR at 50642.
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34. Bank Deposits and Commercial Paper (Section III.K.). With
respect to Covered Transactions involving investments in bank deposits
and commercial paper, the Applicants request changes from the
conditions in the Interim Exemption. The Applicants represent that,
with respect to commercial paper, an MPS may often act in a continuing
capacity, such as a placement agent or an administrator. To address
this concern, the language of the proposed exemption has been modified
to reflect the fact that an MPS may act in a continuing capacity. In
addition, in order to provide additional protections for participants
and beneficiaries, the proposed exemption provides that all purchases
and sales of commercial paper to or from an MPS be made pursuant to the
Three Quote Process.
35. Securities Lending to an MPS (Section III.L.). The Interim
Exemption provided relief for the lending of securities by BlackRock
Managers to an MPS. Such relief was extended to both (a) Index Accounts
or Funds and Model-Driven Accounts or Funds and (b) Other Accounts or
Funds. For purposes of this proposed exemption, the Applicants limited
their request to relief for Index Accounts or Funds and Model-Driven
Accounts or Funds. The Department has revised Section III.L. of the
proposed exemption accordingly.
36. To-Be-Announced Trades (TBAs) of GNMA, FHLMC, FarmerMac or FNMA
Mortgage-Backed Securities with an MPS Counterparty (Section III.M.).
With respect to To-Be-Announced Trades (TBAs), Section III.N. of the
Interim Exemption provided relief for TBAs of GNMA, FHLMC, or FNMA
Mortgage-Backed Securities with an MPS counterparty.\22\ The Applicants
request that the Department add FarmerMac mortgage-backed Securities to
the relief provided for TBAs. Such additional relief is necessary
because the Applicants have found that, in practice, BlackRock Managers
may engage in principal trades on a TBA basis with FarmerMac mortgage-
backed Securities. Not allowing such TBAs, according to the Applicants,
would deprive Client Plans of a substantial pool of TBAs.
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\22\ 76 FR at 50647.
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The Applicants represent that the addition of relief for TBAs of
FarmerMac mortgage-backed Securities is consistent with the relief
provided in the Interim Exemption with respect to both FHLMC and FNMA
mortgage-backed Securities. All three entities are the recipients of
indirect government guarantees, and each entity has historically been
treated similarly by the Department.\23\ The Department agrees with the
Applicants, and it has added FarmerMac mortgage-backed Securities to
the relief proposed for TBAs herein.
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\23\ See ERISA Advisory Opinion 99-05A (February 22, 1999).
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37. Purchase of a Portion or All of a Loan to an Entity Which is
not an MPS and is not a BlackRock Entity from an MPS or Other Arranger
and the Holding thereof by BlackRock Managers Where an MPS is an
Arranger, and/or an MPS has an Ongoing Function Regarding Such Loan
(Section III.W.). The Applicants request exemptive relief with respect
to a new Covered Transaction. The Applicants represent that there is a
significant market in Loans (and participations in such Loans) made to
commercial borrowers to finance either their current and ongoing
operations, or a specific transaction. The terms governing the Loans
and the lenders' commitment to fund them are generally negotiated
between the borrower and the sole Arranger or Lead Arranger,\24\ as
applicable. The sole Arranger, or Lead Arranger with the assistance of
the other Arrangers, undertakes to effectively sell portions of the
Loan in a Loan Offering \25\ by finding one or more sophisticated
financial institutions such as commercial banks, insurance companies or
other companies or funds regularly engaged in making, investing in,
purchasing or selling commercial loans with sufficient capital to
either take an assignment of, or a participation interest in, all or a
portion of the Loan, on either a firm commitment or best efforts basis
(in each case, as described below). The Arrangers assume a portion of
the commitment to the borrower to fund the Loans initially. The
Applicants represent that conceptually, these types of lending
transactions are similar to the purchase and holding by BlackRock
Managers on behalf of Client Plans of Fixed Income Obligations issued
by
[[Page 2804]]
third parties where an MPS may act as the underwriter.\26\
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\24\ ``Arranger'' is defined in Section VI.I. of the proposed
exemption and the term means a sophisticated financial institution,
such as a commercial or investment bank, regularly engaged in
structuring commercial loans, and ``Lead Arranger'' is defined in
Section VI.ZZ. of the proposed exemption and the term means, with
respect to any Loan Offering involving more than one Arranger, the
Arranger designated as such by all of such Arrangers.
\25\ ``Loan Offering'' is defined in Section VI.BBB. of the
proposed exemption and the term means, with respect to the aggregate
principal amount of any Loan extended to a commercial borrower in
any single transaction, the process of structuring, marketing and
offering to banks, insurance companies, investment funds and other
institutional investors the opportunity to purchase interests in
such Loan.
\26\ Solely for purposes of Section III.W. of the proposed
exemption, ``Loan'' is defined in Section VI.AAA. of the proposed
exemption and the term does not include any Fixed Income Obligations
which are covered separately under Section IV.A. of the proposed
exemption.
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The Applicants further represent that in a firm commitment Loan
Offering, the Arrangers are obligated to make the Loan in the full
amount of their commitment, even if they have not found other investors
to participate in or take an assignment of all or a portion of the
Loan. If the transaction is conducted on a best efforts basis, the
Arrangers are not obligated to make the Loan in the full amount
requested by the borrower if there is not sufficient interest in the
market. Selling efforts with respect to a particular Loan Offering do
not begin before a decision is made regarding whether such Loan
Offering will be made on a firm commitment or best efforts basis. The
Applicants are only requesting relief under the proposed exemption for
Loans that are made on a firm commitment basis.
The Applicants represent that potential purchasers of a portion or
all of a Loan are able to review relevant information about the Loan in
advance, and indicate whether they are interested in taking an
assignment or participation in such Loan. In an assignment, the lender
of record of the portion of the Loan which is assigned is changed, and
the title, voting rights and all other rights are transferred to the
assignee. In a participation, the lender of record remains the original
lender, and such lender typically retains voting rights, except for
certain extraordinary actions primarily relating to the economic terms
of the Loan. The Applicants are only requesting relief under the
proposed exemption for transactions involving the assignment of Loans.
The Applicants represent that the sole Arranger or Lead Arranger,
as applicable, is typically responsible for negotiating the terms of
the Loan, including the Loan Offering, commitment or other similar
underwriting fee to be paid by the borrower, and building a book of
investors to hold the Loan. Where there is more than one Arranger,
other Arrangers may participate in the sales effort in coordination
with the Lead Arranger. The material terms of the Loan are typically
negotiated and agreed with the borrower before commencement of the Loan
Offering effort. When the sole Arranger or Lead Arranger, as
applicable, has negotiated the material terms of the Loan, they are
posted to one or more web-based sites (e.g., Intralinks) for potential
investors and lenders to review. These sites provide detailed
information regarding the borrower and draft Loan documents (e.g.,
credit agreement, confidential information statement). The covenants in
the applicable credit agreement are often more highly structured than
in a high yield fixed income underwritten offering and thereby would
typically provide enhanced protection for investors.
The Applicants represent that the fee received by an Arranger
depends upon whether the offering is on a firm commitment or a best
efforts basis and is generally calculated as a percentage of the
principal amount of the Loan. The fee is generally higher for a firm
commitment transaction than a best efforts transaction. In a firm
commitment transaction, each Arranger will receive a specified
percentage of the fee which is determined on the basis of the size of
the Loan commitment before the sales effort commences and the amount of
such fee does not vary depending on a particular member's success in
the sales effort. Thus, if an MPS is an Arranger, its compensation in
the form of the fee will not increase if a BlackRock Manager on behalf
of a Client Plan purchases from such MPS, rather than another Arranger.
The Applicants represent that in some Loan transactions, the sole
Arranger or Lead Arranger, as applicable, has no ongoing role after the
sale with respect to the Loans. In other transactions, the sole
Arranger or Lead Arranger, as applicable, does serve an ongoing
function such as an administrative agent or a collateral agent. Most
commonly, the collateral agent and the administrative agent are the
same entity. The Applicants further represent that generally: (a) The
administrative agent acts as an agent between the lenders and the
borrower; the role of an administrative agent is administrative and
ministerial and involves relaying information, tallying votes and
organizing calls; there is no fiduciary relationship between the
lenders and the administrative agent; and there is generally a flat fee
(currently in the range of $100,000 to $200,000 per annum) for acting
as an administrative agent and this fee is paid by the borrower; and
(b) the collateral agent holds the collateral on behalf of all of the
lenders.
The Applicants represent that, according to their research, the
Barclays MPSs are ranked in the top ten Arrangers for Loans. They acted
in 92 deals in 2010, representing 6% market share and in 70 deals in
the first half of 2011, representing a 7.6% market share. The same
research indicates that the shares of PNC MPSs are smaller, but the PNC
MPSs still rank in the top 25 Arrangers for Loans.
The Applicants represent that investments in these types of firm
commitment assigned Loans represent an attractive investment
opportunity for Client Plans. Such Loans are typically senior secured
and typically have the highest or second highest priority of claim on a
borrower's assets and cash flow. Such Loans also provide an opportunity
to generate a return based upon a floating interest rate (resulting in
Client Plans receiving more when interest rates rise). The Applicants
believe that a failure to obtain relief for this type of Covered
Transaction would materially inhibit Client Plan access to this
significant asset class.
In response, the Department is proposing relief for the purchase
and holding of all or a portion of a Loan by a BlackRock Manager on
behalf of a Client Plan, where such purchase may be from an MPS or
other Arranger, and/or an MPS may be an Arranger and/or have an ongoing
function regarding such Loan. Conditions applicable to this type of
transaction would be: (a) The BlackRock Manager on behalf of the Client
Plan obtains an assigned interest in the Loan or a portion thereof, as
opposed to a participation interest, (b) the borrower under the Loan
must not be an MPS or BlackRock Entity, (c) the Loan must be offered on
a firm commitment basis, (d) conditions similar to Subsections IV.A.4-
12., as applicable, and (e) if an MPS has an ongoing function in
respect of such Loan, such as an administrative agent or collateral
agent, the taking of or refraining from taking of any action by the
responsible BlackRock Manager which could have a material positive or
negative effect upon the MPS must be decided upon by the IM.
Affiliated Underwritings and Affiliated Servicing (Section IV)
38. Covered Transactions for which relief is proposed herein,
including Sections III.B., D., E. and F., include in their conditions
requirements regarding affiliated underwriting and affiliated servicing
that are set forth in Section IV of the proposed exemption. The
Department notes that these conditions are substantially similar to
those under the Interim Exemption.\27\
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\27\ 76 FR at 50651.
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Correction Procedures (Section V)
39. The Applicants request confirmation that isolated
transgressions of the EPPs, or isolated failures to
[[Page 2805]]
comply with the conditions associated with a Covered Transaction
constituting a non-exempt prohibited transaction (the latter, a
Violation) should not cause the entire exemption, if granted, to cease
to be available. Only a persistent pattern or practice of violations of
the EPPs or the conditions of the exemption should potentially cause
the exemption to be revoked. The Department notes that the correction
procedures under the proposed exemption are substantially similar to
those under the Interim Exemption, and the Department concurs with the
Applicants' analysis on this issue.\28\
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\28\ 76 FR at 50654.
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Effective Date
40. If granted, the proposed exemption will be effective March 31,
2012. However, Applicants represent that they substantially complied
with the conditions applicable to Covered Transactions described in
Section III.K. and S. effective October 1, 2011. As a result, the
proposed exemption will be effective with respect to Covered
Transactions described in Section III.K. and S. as of October 1, 2011.
41. In summary, the Applicants represent that the exemption
proposed herein will satisfy the statutory criteria of ERISA section
408(a) and Code section 4975(c)(2) because:
(a) Administratively feasible. The Applicants believe that the
proposed exemption is administratively feasible. Most of the Covered
Transactions are the subject of existing statutory and/or
administrative exemptions. The conditions for relief for the Covered
Transactions have been modified to reflect, on the one hand, the
possible negative implication of the equity investments of the MPSs in
BlackRock, and on the other hand, the circumscribed ability of the MPSs
to exercise rights normally associated with such equity investments. In
addition, EPPs have been developed with the cooperation and approval of
the IM; an ECO has been appointed to report on compliance with the
terms of the exemption and the EPPs; and the IM will review compliance
reports, pass upon corrections of Violations, and if necessary, contact
the Department. Granting the proposed exemption requires no additional
monitoring by the Department.
(b) In the interest of plans and participants and beneficiaries.
The Applicants believe that the proposed exemption is in the interest
of plans and participants and beneficiaries because the proposed
exemption would allow BlackRock Managers to continue to engage in
Covered Transactions with major participants in the financial markets
which are necessary and beneficial to plans and their participants and
beneficiaries. While many Covered Transactions (although perhaps not
all) could be engaged in with parties other than MPSs, in numerous
cases such transactions would be quantitatively or qualitatively
inferior to the same transactions with an MPS.
(c) Protective of the rights of participants and beneficiaries of
such plans. Each of the Covered Transactions is protective of the
rights of participants and beneficiaries because specific conditions
have been tailored to their respective natures. More broadly, the
rights of participants and beneficiaries are protected by the general
conditions, modeled on the QPAM Exemption, that are applicable to all
Covered Transactions. The general protective conditions include
compensation restrictions, development of EPPs, and implementation of
EPPs with the cooperation and approval of the IM. Further, the ECO will
report on compliance with the exemption and the EPPs, and the IM will
review compliance reports, pass upon corrections of Violations, and if
necessary, contact the Department.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the following
exemption under the authority of ERISA section 408(a), Code section
4975(c)(2) and FERSA section 8477(c)(3), and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990), as follows:
Section I: Covered Transactions Generally
If the proposed exemption is granted, effective as of March 31,
2012 (or, in the case of Covered Transactions described in Section
III.K or Section III.S. of this exemption, October 1, 2011), the
restrictions of ERISA sections 406(a)(1) and 406(b), FERSA section
8477(c)(1) and (2), and the sanctions resulting from the application of
Code section 4975, by reason of Code section 4975(c)(1),\29\ shall not
apply to the Covered Transactions set forth in Section III and entered
into on behalf of or with the assets of a Client Plan; provided, that
(x) the generally applicable conditions of Section II of this exemption
are satisfied, and, as applicable, the transaction-specific conditions
set forth below in Sections III and IV of this exemption are satisfied,
or (y) the Special Correction Procedure set forth in Section V of this
exemption is satisfied.
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\29\ For purposes of this proposed exemption, references to
ERISA section 406 should be read to refer as well to the
corresponding provisions of Code section 4975 and FERSA section
8477(c).
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Section II: Generally Applicable Conditions
A. Compliance with the QPAM Exemption. The following conditions of
Part I of Prohibited Transaction Exemption 84-14, as amended (PTE 84-14
or the QPAM Exemption),\30\ must be satisfied with respect to each
Covered Transaction:
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\30\ 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug.
23, 2005), and as amended, 75 FR 38837 (July 6, 2010).
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1. The BlackRock Manager engaging in the Covered Transaction is a
Qualified Professional Asset Manager;
2. Except as set forth in Section III of this exemption, at the
time of the Covered Transaction (as determined under Section VI(i) of
the QPAM Exemption) with or involving an MPS, such MPS, or its
affiliate (within the meaning of Section VI(c) of the QPAM
Exemption),\31\ does not have the authority to:
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\31\ Solely for purposes of Section II.A.2. and Section II.A.3.
of this exemption, no BlackRock Entity will be deemed to be an
affiliate of an MPS. The Department is not making herein a
determination as to whether any BlackRock Entity is an affiliate of
an MPS under ERISA.
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(a) Appoint or terminate the BlackRock Manager as a manager of the
Client Plan assets involved in the Covered Transaction, or
(b) Negotiate on behalf of the Client Plan the terms of the
management agreement with the BlackRock Manager (including renewals or
modifications thereof) with respect to the Client Plan assets involved
in the Covered Transaction;
3. (a) Notwithstanding the foregoing, in the case of an investment
fund (as defined in Section VI(b) of the QPAM Exemption) in which two
or more unrelated Client Plans have an interest, and which is a Pooled
Fund, a Covered Transaction with an MPS will be deemed to satisfy the
requirements of Section II.A.2. of this exemption if the assets of a
Client Plan on behalf of which the MPS or its affiliate possesses the
authority set fo
