Exemption From Certain Prohibited Transaction Restrictions Involving J.P. Morgan Securities LLC, J.P. Morgan Investment Management Inc., J.P. Morgan Advisors (Formerly, J.P. Morgan Securities; JPMS Brokerage), and Chase Wealth Management Located in New York, New York, 49497-49502 [2023-16129]
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Federal Register / Vol. 88, No. 145 / Monday, July 31, 2023 / Notices
ENRD, P.O. Box 7611, Washington, DC
20044–7611.
Henry S. Friedman,
Assistant Section Chief, Environmental
Enforcement Section, Environment and
Natural Resources Division.
[FR Doc. 2023–16191 Filed 7–28–23; 8:45 am]
BILLING CODE 4410–15–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Prohibited Transaction Exemption 2023–
17; Exemption Application No. D–11963]
Exemption From Certain Prohibited
Transaction Restrictions Involving J.P.
Morgan Securities LLC, J.P. Morgan
Investment Management Inc., J.P.
Morgan Advisors (Formerly, J.P.
Morgan Securities; JPMS Brokerage),
and Chase Wealth Management
Located in New York, New York
Employee Benefits Security
Administration, Labor.
ACTION: Notice of exemption.
AGENCY:
This document contains a
notice of exemption issued by the
Department of Labor (the Department)
from certain of the prohibited
transaction restrictions of the Internal
Revenue Code of 1986 (the Code). This
exemption involves certain principal
trades involving J.P. Morgan Securities
LLC (JPMS), J.P. Morgan Investment
Management Inc. (JPMIM), J.P. Morgan
Advisors (formerly, J.P. Morgan
Securities; JPMS Brokerage), and Chase
Wealth Management (CWM)
(collectively, the Applicants), and
certain of their client plans that are
subject to Code section 4975 but not
covered by Title I of ERISA (the NonERISA Plan Clients).1 These principal
transactions resulted in the Non-ERISA
Plan Clients purchasing or selling
securities from or to the Applicants.
DATES: The exemption will be in effect
from December 14, 2010, until
September 16, 2013.
FOR FURTHER INFORMATION CONTACT: Ms.
Anna Vaughan of the Department,
telephone (202) 693–8565. (This is not
a toll-free number.)
SUPPLEMENTARY INFORMATION: The
Applicants requested an individual
exemption pursuant to Code section
4975(c)(2) in accordance with the
procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637, 66644,
October 27, 2011). Effective December
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SUMMARY:
31, 1978, section 102 of the
Reorganization Plan No. 4 of 1978, (5
U.S.C. App. 1 (1996)) transferred the
authority of the Secretary of the
Treasury to issue exemptions of the type
requested to the Secretary of Labor.
Accordingly, this exemption is being
issued solely by the Department.
On October 15, 2021, the Department
published a notice of proposed
exemption in the Federal Register.2
After considering the entire record
developed in connection with the
Applicants’ exemption application,
including the information discussed
below, the Department has determined
to grant the exemption subject to the
conditions described below. The
exemption provides only the relief
specified in its text and does not
provide relief from violations of any law
other than the prohibited transaction
provisions of ERISA expressly stated
herein. The Department makes the
requisite findings under Code section
4975(c)(2) that the exemption is (1)
administratively feasible, (2) in the
interest of the plans and their
participants and beneficiaries, and (3)
protective of the rights of the plans’
participants and beneficiaries, so long as
all of the exemption conditions are met.
Accordingly, affected parties should be
aware that the conditions incorporated
in this exemption are, taken as a whole,
necessary for the Department to grant
the relief requested by the Applicants.
Absent these or similar conditions, the
Department would not have granted this
exemption.
Background
1. As discussed in further detail in the
notice of proposed exemption, and
described below, JPMS and JPMIM
previously caused or executed
prohibited principal transactions on
behalf of certain plan clients covered by
the Employee Retirement Income
Security Act of 1974 (ERISA Plan
Clients) and on behalf of certain plan
clients covered only by the Internal
Revenue Code of 1986 (Non-ERISA Plan
Clients).3 The Applicants previously
corrected the ERISA Plan Client-related
prohibited transactions under the
Department’s Voluntary Fiduciary
Compliance Program (the VFC Program)
and received ‘‘no action letters.’’ 4
2. The VFC Program is not available
to correct prohibited transactions
involving non-ERISA plans. Therefore,
the Applicants requested an exemption
for JPMS and JPMIM to correct the
2 86
FR 57446 (October 15, 2021).
FR 57446 (October 15, 2021).
4 See 67 FR 15062 (March. 28, 2002), as updated
at 71 FR 20262 (April 19, 2006).
3 86
1 JPMS Brokerage and CWM are lines of business
within JPMS.
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prohibited principal transactions that
involved their Non-ERISA Plan Clients
(the Covered Transactions).
The Covered Transactions Involving
JPMIM 5
3. A total of 3,989 trades of securities
issued by third parties were executed
for the Chase Wealth Management line
of business (the CWM Wrap Program)
on a principal basis. According to the
Applicants, 3,985 of the trades were
sales by a Non-ERISA Plan Client to a
counterparty (a JPM Counterparty)
affiliated with JPMorgan Chase & Co.
(JPMorgan), with an aggregate sales
price of $2,682,332.34 (the JPMIM Sales
Transactions),6 and four trades were
purchases by a Non-ERISA Plan Client
from a JPM Counterparty (the JPMIM
Purchase Transactions) with an
aggregate purchase price of $46,940.55.
The purchased shares had not been resold by the Non-ERISA Plan Client as of
the date the transactions were
corrected.7 The Applicants represent
that JPMIM and JPMS endeavored to
correct the prohibited transactions as
quickly as possible in the manner
described under the ‘‘Covered
Transaction Corrections’’ heading of the
proposed exemption.8
4. The Applicants represent that the
trades did not result in any
commissions being paid by the NonERISA Plan Clients to JPMIM or its
affiliates. Rather, the trades were
executed under the CWM Wrap
Program, under which all clients pay a
wrap fee (i.e., a comprehensive charge)
that covered all of the investment
advisory-related and transactional
services provided by JPMorgan to such
accounts. As a result, no additional
compensation was paid in connection
with either the JPMIM Sales
Transactions or the JPMIM Purchase
Transactions. The Applicants represent
that JPMIM is no longer enabled to
execute trades on JPM–X, an
‘‘alternative trading system’’ owned and
operated by JPMS.
5. Further, the Applicants represent
that there were no identifiable profits
received by JPMIM or its affiliates in
connection with any of the
aforementioned transactions, because
the securities traded were liquid
securities that JPMorgan and its
affiliates regularly hold in inventory,
deal in or make a market in. In this
regard, because JPMorgan is a market
5 As described more fully in the proposed
exemption and in Section II, below.
6 These trades involved 3,784 Non-ERISA Plan
Clients.
7 These trades involved two Non-ERISA Plan
Clients.
8 86 FR 57446, 57448.
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maker in the liquid securities that were
traded with the Non-ERISA Plan
Clients, JPMorgan keeps a regular
inventory of such securities to facilitate
the purchase and sale of such securities,
as well as other types of transactions
involving such securities, with various
counterparties. To illustrate, the
Applicants present the following
example:
Assume that there was a principal trade
between JPMorgan and a Non-ERISA Plan
Client involving a sale by JPMorgan of ten
shares of a stock (Stock X) to the Non-ERISA
Plan Client, at a fair market value of $50 per
share. On the day of the sale, JPMorgan
would hold thousands (and likely many
times more) of Stock X shares in its
inventory, and this inventory would change
constantly throughout the day and from day
to day as a result of transactions involving
Stock X between JPMorgan and various
counterparties. When JPMorgan sells ten
Stock X shares to the Non-ERISA Plan Client,
JPMorgan will deduct 10 Stock X shares from
its inventory. However, because all of the
Stock X shares in the JPMorgan inventory are
the same and are fungible, it does not match
the shares sold or disposed of with any
previously acquired shares.
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6. In the example above, it is not
possible to identify the cost to JPMorgan
of the specific shares that were sold to
the Non-ERISA Plan Client because: (i)
the Stock X shares in the JPMorgan
inventory were all acquired at different
prices and at different times (could be
above, below or at $50 per share), and
(ii) JPMorgan does not distinguish the
Stock X shares sold to the Non-ERISA
Plan Client from the rest of the Stock X
shares in the inventory. Therefore, it is
not possible to determine whether
JPMorgan has earned any profit from the
sale of such shares to the Non-ERISA
Plan Client at $50 per share.
The Covered Transactions Involving
JPMS Brokerage 9
7. According to the Applicants, fifteen
(15) trades involving JPMS Brokerage
were mistakenly executed on a principal
basis, although not on JPM–X. Of the
fifteen (15) trades, two (2) were sales of
securities 10 by a Non-ERISA Plan Client
to a JPM Counterparty (the JPMS
Brokerage Sales Transactions) with an
aggregate sales price of $61,854.54, and
thirteen (13) trades were purchases of
securities by a Non-ERISA Plan Client
from a JPM Counterparty (the JPMS
Brokerage Purchase Transactions) with
an aggregate purchase price of
$557,232.08.11 The purchased securities
were subsequently sold by the NonERISA Plan Client before the prohibited
transactions were discovered. The
Applicants state that JPMS Brokerage
endeavored to correct the prohibited
transactions as quickly as possible in
the manner described under the
‘‘Covered Transaction Corrections’’
heading of the proposed exemption.12
8. The Applicants represent that the
trades in question did not result in any
commissions being paid by the NonERISA Plan Clients to JPMS or its
affiliates. Rather, the trades were
executed under a wrap fee program,
under which all clients pay a wrap fee
(i.e., a comprehensive charge) that
covered all of the investment advisoryrelated and transactional services
provided by JPMorgan to such
accounts.13 As a result, no additional
compensation was paid in connection
with either the JPMS Brokerage Sales
Transactions or the JPMS Brokerage
Purchase Transactions.
9. Further, the Applicants represent
that there were no identifiable profits
received by JPMS or its affiliates in
connection with any of the
aforementioned transactions, because
the securities traded were liquid
securities that JPMorgan and its
affiliates regularly hold in inventory,
deal in or make a market in. The
Applicants state their explanation above
(as to why there were no identifiable
profits received by JPMIM or its
affiliates with respect to the JPMIM
Sales Transactions) also applies here (as
to why there were no identifiable profits
paid to JPMS with respect to the JPMS
Brokerage Sales Transactions and JPMS
Brokerage Purchase Transactions).
No Intent To Profit From Trades
10. The Applicants represent that
JPMorgan did not cause the principal
trades in question with the Non-ERISA
Plan Clients with an intent to profit
from such trades. The Applicants
represent that the trades were executed
by mistake and the execution was not
motivated by the receipt of any profit or
other compensation by JPMorgan.
11. The Applicants state that all
principal trades with the Non-ERISA
Plan Clients were executed at fair
market value and achieved best
execution, and, as a result of the
correction process that JPMorgan
undertook, all of the affected NonERISA Plan Clients were restored
economically to the positions that they
would have been in had the principal
trades not occurred (or, in certain cases,
to positions that are more economically
favorable than the positions they would
have been in).
12. In addition, the Applicants
represent that with respect to the trades
executed by JPM–X, which represented
the vast majority of the principal trades
in question, JPM–X was set up
structurally so that all executions must
be at or within the National Best Bid
and Offer (NBBO) and there was a less
than 1% chance (based on volume of
shares traded) that any execution would
be against a JPMorgan principal
account, further indicating that there
was no intention on the part of
JPMorgan to take advantage of the NonERISA Plan Clients in connection with
these trades.
The Proposed Exemption
13. On October 15, 2021, the
Department of Labor (the Department)
published a proposed exemption that
would permit the Covered Transactions
if the conditions therein were met.14
Among these conditions, the Applicants
were required to apply the same
conditions to correct the Covered
Transactions that they applied to correct
the transactions involving their ERISA
Plan Clients under the VFC Program. In
addition, an independent fiduciary,
Evercore Trust Company, N.A.
(Evercore),15 was required to determine
that that the correction methodologies
utilized to correct the transactions: (a)
were sufficient to return each affected
Non-ERISA Plan Client to at least the
position it would have been in had the
Covered Transaction not occurred; (b)
provided Non-ERISA Plan Clients with
a greater benefit than other correction
methodology alternatives, consistent
with the VFC Program; and (c) were
properly applied based on a review of
a representative sample of the
corrections selected at random by
Evercore.
14. The proposed exemption invited
all interested persons, including current
participants and beneficiaries of the
Plans, to submit comments or requests
for a hearing to the Department within
90 days of the date of publication. The
Applicants agreed to provide notice to
interested persons (NTIP) by U.S. mail
to the beneficial owner of each NonERISA Plan Client affected by the
Covered Transactions, as defined in
14 86
9 As
described in the proposed exemption and in
Section II, below.
10 These trades involved two non-ERISA Plan
Clients.
11 These trades involved seven Non-ERISA Plan
Clients.
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FR 57446, 57448.
13 The Applicant notes that the Covered
Transactions involving JPMS Brokerage were
technically executed under a different wrap fee
program that does not have an official name but is
similar to the CWM Wrap Program.
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12 86
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FR 57446.
sold its institutional trust and
independent fiduciary business to Newport Group
Inc. and its subsidiary, Newport Trust Company
(NTC). Since October 19, 2017, NTC has served as
the independent fiduciary in connection with this
proposed exemption.
15 Evercore
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Section II, below, within 60 days of the
publication of the notice of proposed
exemption in the Federal Register
(Notice of Proposed Exemption) and
that the NTIP would include a copy of
the Notice of Proposed Exemption.
Throughout the comment period, the
Department received several requests
from the recipients of the NTIP to
explain the proposed transactions. It
was during these conversations that the
Department was informed that the
Notice of Proposed Exemption had not
been included in the NTIP. The
Department contacted the Applicants
who confirmed that there was an error
in the mailing which excluded the
Notice of Proposed Exemption from the
NTIP.
15. To ensure interested persons
would receive full notice and have
sufficient time to provide their
comments to the Department, the
Applicants agreed that a second notice
to interested persons (the Second NTIP)
would be delivered to all Non-ERISA
Plan Clients along with a copy of the
Notice of Proposed Exemption. On
March 22, 2022, the Applicants
informed the Department that the
Second NTIP dated March 14, 2022, was
mailed via U.S. first-class mail to the
beneficial owner of each Non-ERISA
Plan Client affected by the Covered
Transactions.16 Accordingly, the
Department extended the comment
period through April 18, 2022.17
Comments
16. During the comment period, the
Department received one written
comment from the Applicants that
requested certain changes to the
proposed exemption’s operative
language and Summary of Facts and
Representations. The Applicants’
comments and the Department’s
responses thereto are discussed below.
The Department did not receive any
requests for a public hearing.
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Applicants’ Requested Revisions to
Operative Language
17. Requested Clarification and
Change to Section I of the Proposed
Exemption. On page 57450 of the
proposed exemption, the first sentence
of Section I states that: ‘‘If the proposed
exemption is granted, the sanctions
resulting from the application of Code
16 The Department considers the Second NTIP
delivery to be completed three days following the
March 14, 2022, mailing via U.S. first-class mail.
17 Because the requisite 30-day comment period
would end on the weekend (Saturday, March 16,
2022), the Department added an additional two
days to the comment period to ensure that
interested persons had a sufficient opportunity to
comment.
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section 4975, by reason of Code section
4975(c)(1)(A), (D) and (E), shall not
apply, effective December 14, 2010,
until September 16, 2013, to certain
principal trades involving J.P. Morgan
Securities LLC (JPMS), J.P. Morgan
Investment Management Inc. (JPMIM),
J.P. Morgan Securities (JPMS Brokerage),
and Chase Wealth Management (CWM)
(collectively, the Applicants), and
certain of their client plans that are
subject to Code section 4975 but
covered by not Title I of ERISA (the
Non-ERISA Plan Clients).’’ 18
The Applicants request that the
Department clarify that JPMS Brokerage
and CWM are lines of business within
JPMS to be consistent with how JPMS
Brokerage and CWM are introduced in
the proposed exemption’s Summary of
Facts and Representations. Further, the
Applicants request that the phrase: ‘‘but
covered by not Title I of ERISA’’ be
changed to read: ‘‘but not covered by
Title I of ERISA,’’ for clarity.
Department’s Response: After
considering the Applicants’ comments,
the Department has revised Section I of
the grant notice as requested.
18. Requested Change to Section II of
the Proposed Exemption. On page 57450
of the proposed exemption, the first
sentence of Section II(a) states that: ‘‘For
purposes of this proposed exemption,
the term ‘‘Covered Transaction means:
. . .,’’ and then lists a series of
transactions.
The Applicants suggest changing the
term, ‘‘Covered Transaction’’ in the
sentence, which is the introductory
paragraph of this section, to ‘‘Covered
Transactions’’ (i.e., from singular to
plural), because there was more than
one transaction.
Department’s Response: After
considering the Applicants’ comment,
the Department has made a
corresponding revision to the
introductory paragraph of Section II of
the grant notice as requested.
19. Requested Change to Section II(a)
of the Proposed Exemption. On page
57450 of the proposed exemption, the
first sentence of Section II(a) states:
‘‘3,989 trades of securities issued by
third-parties that were executed on a
principal basis for certain JPMSsponsored wrap fee programs under the
Chase Wealth Management line of
business (i.e., the CWM Wrap Program)
on or about July 27 and July 30, 2012.’’
The Applicants request changing the
phrase: ‘‘on or about’’ to the word: ‘‘on,’’
as the dates listed are the exact dates on
which the transactions occurred.
18 86 FR 57446,57450. Please note that all
references to page numbers of the proposed
exemption refer to the version that was published
in the Federal Register on October 15, 2021.
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49499
Department’s Response: After
considering the Applicant’s request, the
Department has revised Section II(a) of
the grant notice to reflect this change.
20. Requested Change to Section III(g)
of the Proposed Exemption. On page
57450 of the proposed exemption,
Section III(g) states: ‘‘The Covered
Transactions were conducted using
trading systems and procedures
designed to result in trades being
conducted at prices that are as favorable
as possible to the Non-ERISA Plan
Clients under prevailing market
conditions, and were in fact conducted
at terms and prices no less favorable to
the Non-ERISA Plan Clients than the
prices the financial advisers could have
obtained for the Non-ERISA Plan Clients
by conducting trades in arm’s-length
transactions with third-party market
participants; . . .’’
The Applicants suggest changing the
phrase in Section III(g) of the proposal
that reads ‘‘than the prices the financial
advisers’’ to the phrase: ‘‘than [the
prices] the Applicants’’ to be more
precise.
Department’s Response: After
considering the Applicants’ comment,
the Department has revised Section
III(g) of the grant notice to reflect this
change as requested.
21. Change to Section IV of the
Proposed Exemption. The Applicants
and the Department discussed making
certain changes to the recordkeeping
provision in Section IV of this
exemption, which requires the
Applicants to maintain, or cause to be
maintained, for a period of six (6) years
from the date of any Covered
Transaction, such records as are
necessary to enable the persons
described in Section IV(b) to determine
whether the conditions of this
exemption have been met. Specifically,
the Applicants requested a modification
to the verb tense in Section IV of the
proposed exemption to reflect that, in
their view, the recordkeeping period
had passed. In response, the Department
informed the Applicants that it intended
to modify Section IV so that the
recordkeeping requirement would be
effective for six (6) years from the
publication date of the exemption.
The Applicants raised several
concerns in response, including that the
Applicants may not have all the records
required under Section IV, because of
the passage of time between the Covered
Transactions and the publication date of
the exemption. In this regard, the
Applicants were not aware such records
would be required to be maintained for
a longer period than is required in
similar, prior granted retroactive
exemptions, which is typically six (6)
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years from the date of the covered
transactions. Nor did the Applicants
learn about the Department’s intended
modification until after the Applicants
submitted their comment during the
comment period. Finally, the
Applicants state that most of the
individuals who are familiar with the
records associated with the Covered
Transactions are no longer employed
with the Applicants, and it would be
logistically challenging to locate and
retrieve such records as more time
progresses.
In light of the Department’s intent for
the recordkeeping period to begin on the
publication date of the exemption, the
Applicants request that Section IV(a) be
modified slightly to require the
Applicants to ‘‘use commercially
reasonable efforts to (i) identify such
records, to the extent they are available
to the Applicants as of the date of
publication of this final exemption in
the Federal Register, as are necessary to
enable the persons described in Section
IV(b)(1) to determine whether the
conditions of this exemption have been
met and (ii) maintain, or cause to be
maintained (including on behalf of the
Applicants by any agent, advisor or
other service provider to the Applicants)
such records, for a period of six (6) years
from the date this final exemption is
published in the Federal Register.’’
Furthermore, the Applicants request
that the exemption requires that record
requests be made ‘‘upon reasonable
advance request,’’ due to the logistical
challenges the Applicant may confront
in making such records available for
review.
Department’s Response: The
Department views the change to the
recordkeeping requirement in Section
IV, requiring the Applicants to maintain
such records for six (6) years beginning
on the publication date of the
exemption, as necessary to allow the
individuals referenced in Section IV(b)
to verify the Applicants’ compliance
with the exemption conditions and their
representations submitted to support the
application. The present-tense language
in Section IV of the proposed exemption
could have had the effect of rendering
the recordkeeping requirement
meaningless and frustrated the ability of
the parties described in Section IV(b)(1)
to verify that the Applicants have
adhered to the exemption conditions.
However, the Department is also
cognizant that the Applicants may not
have retained all of the records
referenced in Section IV(a) due solely to
the passage of time since the Covered
Transactions occurred, and that the
Applicants did not anticipate the
Department would include a
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recordkeeping requirement that would
extend the period the records were
required to be maintained from the
publication date of the final exemption
rather than the date the Covered
Transactions covered transactions
occurred.
Based on conversations with NTC, the
independent fiduciary in connection
with the exemption, the Department
understands that NTC has retained the
records it relied on to review the
Applicants’ corrections of the Covered
Transactions and make any
determinations required under the
exemption.19 Based upon this
understanding, as well as
representations by the Applicants
regarding the challenges they
confronted in maintaining the records
several years after the Covered
Transactions occurred, the Department
views the Applicants’ proposed change
of the recordkeeping provision as a
reasonable modification to the proposed
exemption, provided that, if the
Applicants do not themselves possess
any records necessary to comply with
Section IV of the exemption, the
Applicants will obtain such records
from the independent fiduciary.
Other Requested Revisions
22. Minor Revisions. At the
Applicants’ request, the Department
made several minor, non-substantive
revisions to the proposed exemption’s
title and Summary of Facts and
Representations. The Department does
not discuss the revisions in this grant
notice but notes that the requested
revisions may be found in the
exemption application file which is
available through the Department’s
Public Disclosure Office.20
23. Other Clarifications. On its own
motion, the Department made several
minor and non-substantive revisions
that are intended to clarify the operative
language of the exemption.
24. Accordingly, after considering the
entire record developed in connection
with the Applicant’s exemption request,
and in consideration of: (a) the
exemption’s protective conditions; (b)
the corrective payments made to the
Non-ERISA Plan Clients; and (c)
Evercore’s review of the corrections to
19 NTC confirmed to the Department that it has
maintained the records associated with the services
it provided to the Applicants in accordance with its
own record retention policies and procedures and
would provide them to the Applicants if necessary
to satisfy the exemption conditions.
20 The complete application file (D–11963) is
available for public inspection in the Public
Disclosure Room of the Employee Benefits Security
Administration, Room N–1515, U.S. Department of
Labor, 200 Constitution Avenue NW, Washington,
DC 20210.
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the Covered Transactions, the
Department has determined to grant this
exemption consistent with the
requirements of Code section 4975(c)(2).
25. The complete application file (D–
11963) is available for public inspection
in the Public Disclosure Room of the
Employee Benefits Security
Administration, Room N–1515, U.S.
Department of Labor, 200 Constitution
Avenue NW, Washington, DC 20210.
For a more complete statement of the
facts and representations supporting the
Department’s decision to grant this
exemption, refer to the notice of
proposed exemption published on
October 15, 2021, at 86 FR 57446.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under ERISA
section 408(a) and/or Code section
4975(c)(2) does not relieve a fiduciary or
other party in interest or disqualified
person from certain requirements of
other ERISA and/or Code provisions,
including any prohibited transaction
provisions to which the exemption does
not apply and the general fiduciary
responsibility provisions of ERISA
section 404, which, among other things,
require a fiduciary to discharge their
duties respecting the plan solely in the
interest of the plan’s participants and
beneficiaries and in a prudent fashion in
accordance with ERISA section
404(a)(1)(B); nor does it affect the
requirement of Code section 401(a) that
requires plans to operate for the
exclusive benefit of the employees of
the employer maintaining the plan and
their beneficiaries.
(2) As required by ERISA section
408(a) and/or Code section 4975(c)(2),
the Department hereby finds that the
exemption is: (a) administratively
feasible; (b) in the interests of the
affected plan and its participants and
beneficiaries; and (c) protective of the
rights of the participants and
beneficiaries of such plan.
(3) This exemption is supplemental
to, and not in derogation of, any other
applicable ERISA and/or Code
provisions, including statutory or
administrative exemptions and
transitional rules. Furthermore, the fact
that a transaction is subject to an
administrative or statutory exemption is
not dispositive of determining whether
the transaction is in fact a prohibited
transaction.
(4) The availability of this exemption
is subject to the express condition that
the material facts and representations
contained in the application accurately
describe all material terms of the
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Federal Register / Vol. 88, No. 145 / Monday, July 31, 2023 / Notices
transactions that are the subject of the
exemption are true and accurate at all
times.
Accordingly, the Department grants
the following exemption under the
authority of Code section 4975(c)(2) and
in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637, 66644, October 27, 2011):
Exemption
Section I. Covered Transactions
The sanctions resulting from the
application of Code section 4975, by
reason of Code section 4975(c)(1)(A), (D)
and (E), shall not apply, effective
December 14, 2010, until September 16,
2013, to certain principal trades
involving J.P. Morgan Securities LLC
(JPMS), J.P. Morgan Investment
Management Inc. (JPMIM), J.P. Morgan
Advisors (formerly, J.P. Morgan
Securities; JPMS Brokerage), and Chase
Wealth Management (CWM)
(collectively, the Applicants), and
certain of their client plans that are
subject to Code section 4975 but not
covered by Title I of ERISA (the NonERISA Plan Clients).21 These principal
transactions resulted in the Non-ERISA
Plan Clients purchasing or selling
securities from or to the Applicants (the
Covered Transactions, as defined in
Section II, below).
This exemption is subject to the
conditions set forth below in Sections III
and IV.
ddrumheller on DSK120RN23PROD with NOTICES1
Section II. Definition of Covered
Transactions
For purposes of this proposed
exemption, the term ‘‘Covered
Transactions’’ means:
(a) 3,989 trades of securities issued by
third parties that were executed on a
principal basis for certain JPMSsponsored wrap fee programs under the
Chase Wealth Management line of
business (i.e., the CWM Wrap Program)
on July 27 and July 30, 2012. Of these
trades: (1) 3,985 of the trades involved
sales by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan
Chase & Co. (a JPM Counterparty), with
an aggregate sales price of $2,682,332.34
(i.e., the JPMIM Sales Transactions); and
(2) four (4) of the trades involved
purchases by a Non-ERISA Plan Client
from a JPM Counterparty (i.e., the
JPMIM Purchase Transactions) and the
purchased shares, with an aggregate
purchase price of $46,940.55, had not
been re-sold by the Non-ERISA Plan
Client as of the date the transactions
were corrected; and
21 JPMS Brokerage and CWM are lines of business
within JPMS.
VerDate Sep<11>2014
18:11 Jul 28, 2023
Jkt 259001
(b) fifteen (15) trades involving JPMS
Brokerage that were executed on a
principal basis on December 14, 2010,
January 13, 2011, February 3, 2012,
December 31, 2012, August 22, 2013,
and September 16, 2013. Of these
trades: (1) two (2) involved sales of
securities with an aggregate sales price
of $61,854.54 by a Non-ERISA Plan
Client to a JPM Counterparty (i.e., the
JPMS Brokerage Sales Transactions);
and (2) thirteen (13) involved purchases
of securities by a Non-ERISA Plan Client
from a JPM Counterparty (i.e., the JPMS
Brokerage Purchase Transactions), with
an aggregate purchase price of
$557,232.08, that were purchased and
subsequently sold by the Non-ERISA
Plan Client before the prohibited
transactions were discovered.
Section III. Specific Conditions
(a) The Applicants corrected the
Covered Transactions in a manner that
was: (1) consistent with the relevant
requirements set forth in the
Department’s Voluntary Fiduciary
Correction Program (the VFC Program);
and (2) consistent with the Applicants’
corrections of similar prohibited
transactions involving its ERISA plan
clients, as described in their VFC
Program applications, dated December
31, 2014 (the VFC Program
Applications);
(b) The Applicants received ‘‘no
action letters’’ from the Department in
connection with their VFC Program
Applications;
(c) An independent fiduciary,
Evercore Trust Company, N.A.
(Evercore), reviewed the Applicants’
corrections of the Covered Transactions;
(d) Evercore confirmed that the
methods utilized to correct the Covered
Transactions were properly applied to
the Covered Transactions and sufficient
to return each affected Non-ERISA Plan
Client to at least the same position it
would have been in had the Covered
Transactions not occurred;
(e) The Non-ERISA Plan Clients did
not pay any additional compensation
with respect to the Covered
Transactions, because such transactions
were executed under a wrap program
under which all clients pay a
comprehensive wrap fee covering all the
investment advisory-related and
transactional services provided to such
accounts (the Wrap Program);
(f) The Applicants promptly credited
or issued a check to each Non-ERISA
Plan Client to whom a corrective
payment was due after discovering the
Covered Transactions;
(g) The Covered Transactions were
conducted using trading systems and
procedures designed to result in trades
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
49501
being conducted at prices that are as
favorable as possible to the Non-ERISA
Plan Clients under prevailing market
conditions, and were in fact conducted
at terms and prices no less favorable to
the Non-ERISA Plan Clients than the
prices the Applicants could have
obtained for the Non-ERISA Plan Clients
by conducting trades in arm’s-length
transactions with third-party market
participants;
(h) The Covered Transactions were
not part of an agreement, arrangement or
understanding designed to benefit a
disqualified person as defined in Code
section 4975(e)(2);
(i) The Applicants did not take
advantage of the relief provided by the
VFC Program and Prohibited
Transaction Exemption 2002–51 for
three (3) years before the date the
Applicants’ submitted the VFC Program
Applications; 22
(j) The Applicants and their affiliates
did not receive any additional direct or
indirect fee or commission in
connection with the Covered
Transactions, because such transactions
were executed under a Wrap Program;
(k) The JPM Counterparties to the
Non-ERISA Plan Clients did not receive
any identifiable direct or indirect profit
or compensation from the Covered
Transactions;
(l) The Covered Transactions were
inadvertent, executed at fair market
value, and achieved best execution, and
were not motivated by the receipt of any
profit or other compensation;
(m) All of the securities traded were
liquid securities that JPMorgan and its
affiliates regularly held in inventory,
dealt in, or made a market in;
(n) No contractual provisions
purported to give Evercore or Newport
Trust Company (i.e., NTC) a right to
indemnification, in whole or part, by a
party related to the Applicants, for
negligence or breach of federal or state
law responsibilities by Evercore or NTC,
with respect to any task performed by
Evercore or NTC pursuant to the
Applicants’ exemption request; and
(o) All of the facts and representations
set forth in the Summary of Facts and
Representations are true and accurate.
Section IV. General Conditions
(a) The Applicants shall use
commercially reasonable efforts to (i)
22 PTE 2002–51 Section II. F(1) provides that
‘‘[w]ith respect to any transaction described in
Section I., the applicant has not taken advantage of
the relief provided by the VFC Program and this
exemption for a similar type of transaction(s)
identified in the current application during the
period which is three years prior to submission of
the current application’’. 67 FR 70623 (November
25, 2002), as amended, 71 FR 20135 (April 19,
2006).
E:\FR\FM\31JYN1.SGM
31JYN1
ddrumheller on DSK120RN23PROD with NOTICES1
49502
Federal Register / Vol. 88, No. 145 / Monday, July 31, 2023 / Notices
identify such records as are necessary to
enable the persons described in Section
IV(b)(1) to determine whether the
conditions of this exemption have been
met, to the extent such records are
available to the Applicants or NTC, the
independent fiduciary, as of the date of
publication of this final exemption in
the Federal Register, and (ii) maintain,
or cause to be maintained (including to
be maintained on behalf of the
Applicants by any agent, advisor or
other service provider to the
Applicants), such records for a period of
six (6) years from the date of publication
of this final exemption in the Federal
Register, except that:
(1) A separate prohibited transaction
shall not be considered to have occurred
if the records identified in Section IV(a)
are lost or destroyed before the end of
the six-year period due to circumstances
beyond the control of Applicants; and
(2) No disqualified person with
respect to a Non-ERISA Plan Client,
other than the Applicants, is subject to
excise taxes imposed by Code section
4975 if such records are not maintained
or made available for examination as
required by section IV(b)(1).
(b)(1) Except as provided in section
IV(b)(2), the records referred to in
section IV(a) are unconditionally
available upon reasonable advance
request at their customary location for
examination during normal business
hours by:
(A) any duly authorized employee or
representative of the Department, the
Internal Revenue Service, or the
Securities and Exchange Commission;
(B) any fiduciary of any Non-ERISA
Plan Client that engaged in a Covered
Transaction, or any duly authorized
employee or representative of such
fiduciary; or
(C) any owner or beneficiary of a NonERISA Plan Client that engaged in a
Covered Transaction or a representative
of such owner or beneficiary.
(2) None of the persons described in
sections IV(b)(1)(B) and (C) shall be
authorized to examine the Applicants’
trade secrets or privileged or
confidential commercial and financial
information.
(3) If the Applicants refuse to disclose
records referred to in section IV(a) to
any persons described in sections
IV(b)(1)(B), and (C) on the basis that
such information is exempt from
disclosure, the Applicants shall provide
a written notice advising such persons
of the reasons for the refusal and that
the Department may request such
information within 30 days after their
request.
VerDate Sep<11>2014
18:11 Jul 28, 2023
Jkt 259001
Effective Date: This exemption is in
effect from December 14, 2010, until
September 16, 2013.
Signed at Washington, DC, this 24th day of
July 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2023–16129 Filed 7–28–23; 8:45 am]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
Employment and Training
Administration
Agency Information Collection
Activities; Comment Request; O*NET
Data Collection Program
ACTION:
Notice.
The Department of Labor’s
(DOL) Employment and Training
Administration (ETA) is soliciting
comments concerning a revision to a
previously approved information
collection request (ICR) titled ‘‘O*NET
Data Collection Program.’’ This
comment request is part of continuing
Departmental efforts to reduce
paperwork and respondent burden in
accordance with the Paperwork
Reduction Act of 1995 (PRA).
DATES: Consideration will be given to all
written comments received by
September 29, 2023.
ADDRESSES: A copy of this ICR with
applicable supporting documentation,
including a description of the likely
respondents, proposed frequency of
response, and estimated total burden,
may be obtained free by contacting
Lauren Fairley by telephone at (202)
693–3731 (this is not a toll-free
number), TTY 1–877–889–5627 (this is
not a toll-free number), or by email at
fairley.lauren@dol.gov or by accessing
https://www.onetcenter.org/
ombclearance.html.
Submit written comments about, or
requests for a copy of, this ICR by mail
or courier to the U.S. Department of
Labor, Employment and Training
Administration—Division of National
Programs Tools and Technical
Assistance, 200 Constitution Avenue
NW, C4526, Washington, DC 20210; by
email: fairley.lauren@dol.gov; or by fax
(202) 693–3015.
FOR FURTHER INFORMATION CONTACT:
Lauren Fairley by telephone at (202)
693–3731 (this is not a toll-free number)
or by email at fairley.lauren@dol.gov.
Authority: 44 U.S.C. 3506(c)(2)(A).
SUPPLEMENTARY INFORMATION: DOL, as
part of continuing efforts to reduce
SUMMARY:
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
paperwork and respondent burden,
conducts a pre-clearance consultation
program to provide the general public
and Federal agencies an opportunity to
comment on proposed and/or
continuing collections of information
before submitting them to the Office of
Management and Budget (OMB) for final
approval. This program helps to ensure
requested data can be provided in the
desired format, reporting burden (time
and financial resources) is minimized,
collection instruments are clearly
understood, and the impact of collection
requirements can be properly assessed.
The O*NET Data Collection Program
ICR 1205–0421 received OMB Clearance
on November 22, 2021.
This revision to the previouslyapproved ICR proposes to collect
updated occupational characteristics
and requirements information on an
ongoing basis. Under this proposal, both
selected sample sizes of business
establishments and use of the
Occupation Expert Methodology have
been increased to offset declining
response rates and the potentially
lasting impacts of COVID–19 on
business eligibility (see Section 15).
Selected respondents will be offered
varying incentive amounts to assess the
impact for reducing the potential for
nonresponse bias, increasing response
rates, and minimizing follow-up data
collection efforts; and contacted
Occupation Expert source organizations
will be presented with the opportunity
of a recognition program for their
participation (Section 9).
Informational materials have been
condensed to reduce redundancy and
burden (Appendix F).
Appendix G in this ICR package
differs from the 2021 Appendix G
submission: the look and format of the
questionnaires have been modernized to
reflect current best practices for surveys,
including standardization of similar
background questions between the
Establishment and Occupation Expert
questionnaires; and updating the
instructions and questions for level
items to add additional clarity.
This information collection is subject
to the PRA. A Federal agency generally
cannot conduct or sponsor a collection
of information, and the public is
generally not required to respond to an
information collection, unless it is
approved by OMB under the PRA and
displays a currently valid OMB Control
Number. In addition, notwithstanding
any other provisions of law, no person
shall generally be subject to penalty for
failing to comply with a collection of
information that does not display a
valid Control Number. See 5 CFR
1320.5(a) and 1320.6.
E:\FR\FM\31JYN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 145 (Monday, July 31, 2023)]
[Notices]
[Pages 49497-49502]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16129]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2023-17; Exemption Application No. D-
11963]
Exemption From Certain Prohibited Transaction Restrictions
Involving J.P. Morgan Securities LLC, J.P. Morgan Investment Management
Inc., J.P. Morgan Advisors (Formerly, J.P. Morgan Securities; JPMS
Brokerage), and Chase Wealth Management Located in New York, New York
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) from certain of the prohibited
transaction restrictions of the Internal Revenue Code of 1986 (the
Code). This exemption involves certain principal trades involving J.P.
Morgan Securities LLC (JPMS), J.P. Morgan Investment Management Inc.
(JPMIM), J.P. Morgan Advisors (formerly, J.P. Morgan Securities; JPMS
Brokerage), and Chase Wealth Management (CWM) (collectively, the
Applicants), and certain of their client plans that are subject to Code
section 4975 but not covered by Title I of ERISA (the Non-ERISA Plan
Clients).\1\ These principal transactions resulted in the Non-ERISA
Plan Clients purchasing or selling securities from or to the
Applicants.
---------------------------------------------------------------------------
\1\ JPMS Brokerage and CWM are lines of business within JPMS.
DATES: The exemption will be in effect from December 14, 2010, until
---------------------------------------------------------------------------
September 16, 2013.
FOR FURTHER INFORMATION CONTACT: Ms. Anna Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: The Applicants requested an individual
exemption pursuant to Code section 4975(c)(2) in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011). Effective December 31, 1978, section 102 of
the Reorganization Plan No. 4 of 1978, (5 U.S.C. App. 1 (1996))
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor.
Accordingly, this exemption is being issued solely by the Department.
On October 15, 2021, the Department published a notice of proposed
exemption in the Federal Register.\2\ After considering the entire
record developed in connection with the Applicants' exemption
application, including the information discussed below, the Department
has determined to grant the exemption subject to the conditions
described below. The exemption provides only the relief specified in
its text and does not provide relief from violations of any law other
than the prohibited transaction provisions of ERISA expressly stated
herein. The Department makes the requisite findings under Code section
4975(c)(2) that the exemption is (1) administratively feasible, (2) in
the interest of the plans and their participants and beneficiaries, and
(3) protective of the rights of the plans' participants and
beneficiaries, so long as all of the exemption conditions are met.
Accordingly, affected parties should be aware that the conditions
incorporated in this exemption are, taken as a whole, necessary for the
Department to grant the relief requested by the Applicants. Absent
these or similar conditions, the Department would not have granted this
exemption.
---------------------------------------------------------------------------
\2\ 86 FR 57446 (October 15, 2021).
---------------------------------------------------------------------------
Background
1. As discussed in further detail in the notice of proposed
exemption, and described below, JPMS and JPMIM previously caused or
executed prohibited principal transactions on behalf of certain plan
clients covered by the Employee Retirement Income Security Act of 1974
(ERISA Plan Clients) and on behalf of certain plan clients covered only
by the Internal Revenue Code of 1986 (Non-ERISA Plan Clients).\3\ The
Applicants previously corrected the ERISA Plan Client-related
prohibited transactions under the Department's Voluntary Fiduciary
Compliance Program (the VFC Program) and received ``no action
letters.'' \4\
---------------------------------------------------------------------------
\3\ 86 FR 57446 (October 15, 2021).
\4\ See 67 FR 15062 (March. 28, 2002), as updated at 71 FR 20262
(April 19, 2006).
---------------------------------------------------------------------------
2. The VFC Program is not available to correct prohibited
transactions involving non-ERISA plans. Therefore, the Applicants
requested an exemption for JPMS and JPMIM to correct the prohibited
principal transactions that involved their Non-ERISA Plan Clients (the
Covered Transactions).
The Covered Transactions Involving JPMIM 5
---------------------------------------------------------------------------
\5\ As described more fully in the proposed exemption and in
Section II, below.
---------------------------------------------------------------------------
3. A total of 3,989 trades of securities issued by third parties
were executed for the Chase Wealth Management line of business (the CWM
Wrap Program) on a principal basis. According to the Applicants, 3,985
of the trades were sales by a Non-ERISA Plan Client to a counterparty
(a JPM Counterparty) affiliated with JPMorgan Chase & Co. (JPMorgan),
with an aggregate sales price of $2,682,332.34 (the JPMIM Sales
Transactions),\6\ and four trades were purchases by a Non-ERISA Plan
Client from a JPM Counterparty (the JPMIM Purchase Transactions) with
an aggregate purchase price of $46,940.55. The purchased shares had not
been re-sold by the Non-ERISA Plan Client as of the date the
transactions were corrected.\7\ The Applicants represent that JPMIM and
JPMS endeavored to correct the prohibited transactions as quickly as
possible in the manner described under the ``Covered Transaction
Corrections'' heading of the proposed exemption.\8\
---------------------------------------------------------------------------
\6\ These trades involved 3,784 Non-ERISA Plan Clients.
\7\ These trades involved two Non-ERISA Plan Clients.
\8\ 86 FR 57446, 57448.
---------------------------------------------------------------------------
4. The Applicants represent that the trades did not result in any
commissions being paid by the Non-ERISA Plan Clients to JPMIM or its
affiliates. Rather, the trades were executed under the CWM Wrap
Program, under which all clients pay a wrap fee (i.e., a comprehensive
charge) that covered all of the investment advisory-related and
transactional services provided by JPMorgan to such accounts. As a
result, no additional compensation was paid in connection with either
the JPMIM Sales Transactions or the JPMIM Purchase Transactions. The
Applicants represent that JPMIM is no longer enabled to execute trades
on JPM-X, an ``alternative trading system'' owned and operated by JPMS.
5. Further, the Applicants represent that there were no
identifiable profits received by JPMIM or its affiliates in connection
with any of the aforementioned transactions, because the securities
traded were liquid securities that JPMorgan and its affiliates
regularly hold in inventory, deal in or make a market in. In this
regard, because JPMorgan is a market
[[Page 49498]]
maker in the liquid securities that were traded with the Non-ERISA Plan
Clients, JPMorgan keeps a regular inventory of such securities to
facilitate the purchase and sale of such securities, as well as other
types of transactions involving such securities, with various
counterparties. To illustrate, the Applicants present the following
example:
Assume that there was a principal trade between JPMorgan and a
Non-ERISA Plan Client involving a sale by JPMorgan of ten shares of
a stock (Stock X) to the Non-ERISA Plan Client, at a fair market
value of $50 per share. On the day of the sale, JPMorgan would hold
thousands (and likely many times more) of Stock X shares in its
inventory, and this inventory would change constantly throughout the
day and from day to day as a result of transactions involving Stock
X between JPMorgan and various counterparties. When JPMorgan sells
ten Stock X shares to the Non-ERISA Plan Client, JPMorgan will
deduct 10 Stock X shares from its inventory. However, because all of
the Stock X shares in the JPMorgan inventory are the same and are
fungible, it does not match the shares sold or disposed of with any
previously acquired shares.
6. In the example above, it is not possible to identify the cost to
JPMorgan of the specific shares that were sold to the Non-ERISA Plan
Client because: (i) the Stock X shares in the JPMorgan inventory were
all acquired at different prices and at different times (could be
above, below or at $50 per share), and (ii) JPMorgan does not
distinguish the Stock X shares sold to the Non-ERISA Plan Client from
the rest of the Stock X shares in the inventory. Therefore, it is not
possible to determine whether JPMorgan has earned any profit from the
sale of such shares to the Non-ERISA Plan Client at $50 per share.
The Covered Transactions Involving JPMS Brokerage 9
---------------------------------------------------------------------------
\9\ As described in the proposed exemption and in Section II,
below.
---------------------------------------------------------------------------
7. According to the Applicants, fifteen (15) trades involving JPMS
Brokerage were mistakenly executed on a principal basis, although not
on JPM-X. Of the fifteen (15) trades, two (2) were sales of securities
\10\ by a Non-ERISA Plan Client to a JPM Counterparty (the JPMS
Brokerage Sales Transactions) with an aggregate sales price of
$61,854.54, and thirteen (13) trades were purchases of securities by a
Non-ERISA Plan Client from a JPM Counterparty (the JPMS Brokerage
Purchase Transactions) with an aggregate purchase price of
$557,232.08.\11\ The purchased securities were subsequently sold by the
Non-ERISA Plan Client before the prohibited transactions were
discovered. The Applicants state that JPMS Brokerage endeavored to
correct the prohibited transactions as quickly as possible in the
manner described under the ``Covered Transaction Corrections'' heading
of the proposed exemption.\12\
---------------------------------------------------------------------------
\10\ These trades involved two non-ERISA Plan Clients.
\11\ These trades involved seven Non-ERISA Plan Clients.
\12\ 86 FR 57446, 57448.
---------------------------------------------------------------------------
8. The Applicants represent that the trades in question did not
result in any commissions being paid by the Non-ERISA Plan Clients to
JPMS or its affiliates. Rather, the trades were executed under a wrap
fee program, under which all clients pay a wrap fee (i.e., a
comprehensive charge) that covered all of the investment advisory-
related and transactional services provided by JPMorgan to such
accounts.\13\ As a result, no additional compensation was paid in
connection with either the JPMS Brokerage Sales Transactions or the
JPMS Brokerage Purchase Transactions.
---------------------------------------------------------------------------
\13\ The Applicant notes that the Covered Transactions involving
JPMS Brokerage were technically executed under a different wrap fee
program that does not have an official name but is similar to the
CWM Wrap Program.
---------------------------------------------------------------------------
9. Further, the Applicants represent that there were no
identifiable profits received by JPMS or its affiliates in connection
with any of the aforementioned transactions, because the securities
traded were liquid securities that JPMorgan and its affiliates
regularly hold in inventory, deal in or make a market in. The
Applicants state their explanation above (as to why there were no
identifiable profits received by JPMIM or its affiliates with respect
to the JPMIM Sales Transactions) also applies here (as to why there
were no identifiable profits paid to JPMS with respect to the JPMS
Brokerage Sales Transactions and JPMS Brokerage Purchase Transactions).
No Intent To Profit From Trades
10. The Applicants represent that JPMorgan did not cause the
principal trades in question with the Non-ERISA Plan Clients with an
intent to profit from such trades. The Applicants represent that the
trades were executed by mistake and the execution was not motivated by
the receipt of any profit or other compensation by JPMorgan.
11. The Applicants state that all principal trades with the Non-
ERISA Plan Clients were executed at fair market value and achieved best
execution, and, as a result of the correction process that JPMorgan
undertook, all of the affected Non-ERISA Plan Clients were restored
economically to the positions that they would have been in had the
principal trades not occurred (or, in certain cases, to positions that
are more economically favorable than the positions they would have been
in).
12. In addition, the Applicants represent that with respect to the
trades executed by JPM-X, which represented the vast majority of the
principal trades in question, JPM-X was set up structurally so that all
executions must be at or within the National Best Bid and Offer (NBBO)
and there was a less than 1% chance (based on volume of shares traded)
that any execution would be against a JPMorgan principal account,
further indicating that there was no intention on the part of JPMorgan
to take advantage of the Non-ERISA Plan Clients in connection with
these trades.
The Proposed Exemption
13. On October 15, 2021, the Department of Labor (the Department)
published a proposed exemption that would permit the Covered
Transactions if the conditions therein were met.\14\ Among these
conditions, the Applicants were required to apply the same conditions
to correct the Covered Transactions that they applied to correct the
transactions involving their ERISA Plan Clients under the VFC Program.
In addition, an independent fiduciary, Evercore Trust Company, N.A.
(Evercore),\15\ was required to determine that that the correction
methodologies utilized to correct the transactions: (a) were sufficient
to return each affected Non-ERISA Plan Client to at least the position
it would have been in had the Covered Transaction not occurred; (b)
provided Non-ERISA Plan Clients with a greater benefit than other
correction methodology alternatives, consistent with the VFC Program;
and (c) were properly applied based on a review of a representative
sample of the corrections selected at random by Evercore.
---------------------------------------------------------------------------
\14\ 86 FR 57446.
\15\ Evercore sold its institutional trust and independent
fiduciary business to Newport Group Inc. and its subsidiary, Newport
Trust Company (NTC). Since October 19, 2017, NTC has served as the
independent fiduciary in connection with this proposed exemption.
---------------------------------------------------------------------------
14. The proposed exemption invited all interested persons,
including current participants and beneficiaries of the Plans, to
submit comments or requests for a hearing to the Department within 90
days of the date of publication. The Applicants agreed to provide
notice to interested persons (NTIP) by U.S. mail to the beneficial
owner of each Non-ERISA Plan Client affected by the Covered
Transactions, as defined in
[[Page 49499]]
Section II, below, within 60 days of the publication of the notice of
proposed exemption in the Federal Register (Notice of Proposed
Exemption) and that the NTIP would include a copy of the Notice of
Proposed Exemption. Throughout the comment period, the Department
received several requests from the recipients of the NTIP to explain
the proposed transactions. It was during these conversations that the
Department was informed that the Notice of Proposed Exemption had not
been included in the NTIP. The Department contacted the Applicants who
confirmed that there was an error in the mailing which excluded the
Notice of Proposed Exemption from the NTIP.
15. To ensure interested persons would receive full notice and have
sufficient time to provide their comments to the Department, the
Applicants agreed that a second notice to interested persons (the
Second NTIP) would be delivered to all Non-ERISA Plan Clients along
with a copy of the Notice of Proposed Exemption. On March 22, 2022, the
Applicants informed the Department that the Second NTIP dated March 14,
2022, was mailed via U.S. first-class mail to the beneficial owner of
each Non-ERISA Plan Client affected by the Covered Transactions.\16\
Accordingly, the Department extended the comment period through April
18, 2022.\17\
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\16\ The Department considers the Second NTIP delivery to be
completed three days following the March 14, 2022, mailing via U.S.
first-class mail.
\17\ Because the requisite 30-day comment period would end on
the weekend (Saturday, March 16, 2022), the Department added an
additional two days to the comment period to ensure that interested
persons had a sufficient opportunity to comment.
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Comments
16. During the comment period, the Department received one written
comment from the Applicants that requested certain changes to the
proposed exemption's operative language and Summary of Facts and
Representations. The Applicants' comments and the Department's
responses thereto are discussed below. The Department did not receive
any requests for a public hearing.
Applicants' Requested Revisions to Operative Language
17. Requested Clarification and Change to Section I of the Proposed
Exemption. On page 57450 of the proposed exemption, the first sentence
of Section I states that: ``If the proposed exemption is granted, the
sanctions resulting from the application of Code section 4975, by
reason of Code section 4975(c)(1)(A), (D) and (E), shall not apply,
effective December 14, 2010, until September 16, 2013, to certain
principal trades involving J.P. Morgan Securities LLC (JPMS), J.P.
Morgan Investment Management Inc. (JPMIM), J.P. Morgan Securities (JPMS
Brokerage), and Chase Wealth Management (CWM) (collectively, the
Applicants), and certain of their client plans that are subject to Code
section 4975 but covered by not Title I of ERISA (the Non-ERISA Plan
Clients).'' \18\
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\18\ 86 FR 57446,57450. Please note that all references to page
numbers of the proposed exemption refer to the version that was
published in the Federal Register on October 15, 2021.
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The Applicants request that the Department clarify that JPMS
Brokerage and CWM are lines of business within JPMS to be consistent
with how JPMS Brokerage and CWM are introduced in the proposed
exemption's Summary of Facts and Representations. Further, the
Applicants request that the phrase: ``but covered by not Title I of
ERISA'' be changed to read: ``but not covered by Title I of ERISA,''
for clarity.
Department's Response: After considering the Applicants' comments,
the Department has revised Section I of the grant notice as requested.
18. Requested Change to Section II of the Proposed Exemption. On
page 57450 of the proposed exemption, the first sentence of Section
II(a) states that: ``For purposes of this proposed exemption, the term
``Covered Transaction means: . . .,'' and then lists a series of
transactions.
The Applicants suggest changing the term, ``Covered Transaction''
in the sentence, which is the introductory paragraph of this section,
to ``Covered Transactions'' (i.e., from singular to plural), because
there was more than one transaction.
Department's Response: After considering the Applicants' comment,
the Department has made a corresponding revision to the introductory
paragraph of Section II of the grant notice as requested.
19. Requested Change to Section II(a) of the Proposed Exemption. On
page 57450 of the proposed exemption, the first sentence of Section
II(a) states: ``3,989 trades of securities issued by third-parties that
were executed on a principal basis for certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management line of business (i.e., the
CWM Wrap Program) on or about July 27 and July 30, 2012.''
The Applicants request changing the phrase: ``on or about'' to the
word: ``on,'' as the dates listed are the exact dates on which the
transactions occurred.
Department's Response: After considering the Applicant's request,
the Department has revised Section II(a) of the grant notice to reflect
this change.
20. Requested Change to Section III(g) of the Proposed Exemption.
On page 57450 of the proposed exemption, Section III(g) states: ``The
Covered Transactions were conducted using trading systems and
procedures designed to result in trades being conducted at prices that
are as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at terms and
prices no less favorable to the Non-ERISA Plan Clients than the prices
the financial advisers could have obtained for the Non-ERISA Plan
Clients by conducting trades in arm's-length transactions with third-
party market participants; . . .''
The Applicants suggest changing the phrase in Section III(g) of the
proposal that reads ``than the prices the financial advisers'' to the
phrase: ``than [the prices] the Applicants'' to be more precise.
Department's Response: After considering the Applicants' comment,
the Department has revised Section III(g) of the grant notice to
reflect this change as requested.
21. Change to Section IV of the Proposed Exemption. The Applicants
and the Department discussed making certain changes to the
recordkeeping provision in Section IV of this exemption, which requires
the Applicants to maintain, or cause to be maintained, for a period of
six (6) years from the date of any Covered Transaction, such records as
are necessary to enable the persons described in Section IV(b) to
determine whether the conditions of this exemption have been met.
Specifically, the Applicants requested a modification to the verb tense
in Section IV of the proposed exemption to reflect that, in their view,
the recordkeeping period had passed. In response, the Department
informed the Applicants that it intended to modify Section IV so that
the recordkeeping requirement would be effective for six (6) years from
the publication date of the exemption.
The Applicants raised several concerns in response, including that
the Applicants may not have all the records required under Section IV,
because of the passage of time between the Covered Transactions and the
publication date of the exemption. In this regard, the Applicants were
not aware such records would be required to be maintained for a longer
period than is required in similar, prior granted retroactive
exemptions, which is typically six (6)
[[Page 49500]]
years from the date of the covered transactions. Nor did the Applicants
learn about the Department's intended modification until after the
Applicants submitted their comment during the comment period. Finally,
the Applicants state that most of the individuals who are familiar with
the records associated with the Covered Transactions are no longer
employed with the Applicants, and it would be logistically challenging
to locate and retrieve such records as more time progresses.
In light of the Department's intent for the recordkeeping period to
begin on the publication date of the exemption, the Applicants request
that Section IV(a) be modified slightly to require the Applicants to
``use commercially reasonable efforts to (i) identify such records, to
the extent they are available to the Applicants as of the date of
publication of this final exemption in the Federal Register, as are
necessary to enable the persons described in Section IV(b)(1) to
determine whether the conditions of this exemption have been met and
(ii) maintain, or cause to be maintained (including on behalf of the
Applicants by any agent, advisor or other service provider to the
Applicants) such records, for a period of six (6) years from the date
this final exemption is published in the Federal Register.''
Furthermore, the Applicants request that the exemption requires that
record requests be made ``upon reasonable advance request,'' due to the
logistical challenges the Applicant may confront in making such records
available for review.
Department's Response: The Department views the change to the
recordkeeping requirement in Section IV, requiring the Applicants to
maintain such records for six (6) years beginning on the publication
date of the exemption, as necessary to allow the individuals referenced
in Section IV(b) to verify the Applicants' compliance with the
exemption conditions and their representations submitted to support the
application. The present-tense language in Section IV of the proposed
exemption could have had the effect of rendering the recordkeeping
requirement meaningless and frustrated the ability of the parties
described in Section IV(b)(1) to verify that the Applicants have
adhered to the exemption conditions.
However, the Department is also cognizant that the Applicants may
not have retained all of the records referenced in Section IV(a) due
solely to the passage of time since the Covered Transactions occurred,
and that the Applicants did not anticipate the Department would include
a recordkeeping requirement that would extend the period the records
were required to be maintained from the publication date of the final
exemption rather than the date the Covered Transactions covered
transactions occurred.
Based on conversations with NTC, the independent fiduciary in
connection with the exemption, the Department understands that NTC has
retained the records it relied on to review the Applicants' corrections
of the Covered Transactions and make any determinations required under
the exemption.\19\ Based upon this understanding, as well as
representations by the Applicants regarding the challenges they
confronted in maintaining the records several years after the Covered
Transactions occurred, the Department views the Applicants' proposed
change of the recordkeeping provision as a reasonable modification to
the proposed exemption, provided that, if the Applicants do not
themselves possess any records necessary to comply with Section IV of
the exemption, the Applicants will obtain such records from the
independent fiduciary.
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\19\ NTC confirmed to the Department that it has maintained the
records associated with the services it provided to the Applicants
in accordance with its own record retention policies and procedures
and would provide them to the Applicants if necessary to satisfy the
exemption conditions.
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Other Requested Revisions
22. Minor Revisions. At the Applicants' request, the Department
made several minor, non-substantive revisions to the proposed
exemption's title and Summary of Facts and Representations. The
Department does not discuss the revisions in this grant notice but
notes that the requested revisions may be found in the exemption
application file which is available through the Department's Public
Disclosure Office.\20\
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\20\ The complete application file (D-11963) is available for
public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, Room N-1515, U.S. Department of
Labor, 200 Constitution Avenue NW, Washington, DC 20210.
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23. Other Clarifications. On its own motion, the Department made
several minor and non-substantive revisions that are intended to
clarify the operative language of the exemption.
24. Accordingly, after considering the entire record developed in
connection with the Applicant's exemption request, and in consideration
of: (a) the exemption's protective conditions; (b) the corrective
payments made to the Non-ERISA Plan Clients; and (c) Evercore's review
of the corrections to the Covered Transactions, the Department has
determined to grant this exemption consistent with the requirements of
Code section 4975(c)(2).
25. The complete application file (D-11963) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210. For a more complete
statement of the facts and representations supporting the Department's
decision to grant this exemption, refer to the notice of proposed
exemption published on October 15, 2021, at 86 FR 57446.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA section 408(a) and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain requirements of other ERISA and/or Code provisions,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
ERISA section 404, which, among other things, require a fiduciary to
discharge their duties respecting the plan solely in the interest of
the plan's participants and beneficiaries and in a prudent fashion in
accordance with ERISA section 404(a)(1)(B); nor does it affect the
requirement of Code section 401(a) that requires plans to operate for
the exclusive benefit of the employees of the employer maintaining the
plan and their beneficiaries.
(2) As required by ERISA section 408(a) and/or Code section
4975(c)(2), the Department hereby finds that the exemption is: (a)
administratively feasible; (b) in the interests of the affected plan
and its participants and beneficiaries; and (c) protective of the
rights of the participants and beneficiaries of such plan.
(3) This exemption is supplemental to, and not in derogation of,
any other applicable ERISA and/or Code provisions, including statutory
or administrative exemptions and transitional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of determining whether the transaction is
in fact a prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the
[[Page 49501]]
transactions that are the subject of the exemption are true and
accurate at all times.
Accordingly, the Department grants the following exemption under
the authority of Code section 4975(c)(2) and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011):
Exemption
Section I. Covered Transactions
The sanctions resulting from the application of Code section 4975,
by reason of Code section 4975(c)(1)(A), (D) and (E), shall not apply,
effective December 14, 2010, until September 16, 2013, to certain
principal trades involving J.P. Morgan Securities LLC (JPMS), J.P.
Morgan Investment Management Inc. (JPMIM), J.P. Morgan Advisors
(formerly, J.P. Morgan Securities; JPMS Brokerage), and Chase Wealth
Management (CWM) (collectively, the Applicants), and certain of their
client plans that are subject to Code section 4975 but not covered by
Title I of ERISA (the Non-ERISA Plan Clients).\21\ These principal
transactions resulted in the Non-ERISA Plan Clients purchasing or
selling securities from or to the Applicants (the Covered Transactions,
as defined in Section II, below).
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\21\ JPMS Brokerage and CWM are lines of business within JPMS.
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This exemption is subject to the conditions set forth below in
Sections III and IV.
Section II. Definition of Covered Transactions
For purposes of this proposed exemption, the term ``Covered
Transactions'' means:
(a) 3,989 trades of securities issued by third parties that were
executed on a principal basis for certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management line of business (i.e., the
CWM Wrap Program) on July 27 and July 30, 2012. Of these trades: (1)
3,985 of the trades involved sales by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan Chase & Co. (a JPM Counterparty),
with an aggregate sales price of $2,682,332.34 (i.e., the JPMIM Sales
Transactions); and (2) four (4) of the trades involved purchases by a
Non-ERISA Plan Client from a JPM Counterparty (i.e., the JPMIM Purchase
Transactions) and the purchased shares, with an aggregate purchase
price of $46,940.55, had not been re-sold by the Non-ERISA Plan Client
as of the date the transactions were corrected; and
(b) fifteen (15) trades involving JPMS Brokerage that were executed
on a principal basis on December 14, 2010, January 13, 2011, February
3, 2012, December 31, 2012, August 22, 2013, and September 16, 2013. Of
these trades: (1) two (2) involved sales of securities with an
aggregate sales price of $61,854.54 by a Non-ERISA Plan Client to a JPM
Counterparty (i.e., the JPMS Brokerage Sales Transactions); and (2)
thirteen (13) involved purchases of securities by a Non-ERISA Plan
Client from a JPM Counterparty (i.e., the JPMS Brokerage Purchase
Transactions), with an aggregate purchase price of $557,232.08, that
were purchased and subsequently sold by the Non-ERISA Plan Client
before the prohibited transactions were discovered.
Section III. Specific Conditions
(a) The Applicants corrected the Covered Transactions in a manner
that was: (1) consistent with the relevant requirements set forth in
the Department's Voluntary Fiduciary Correction Program (the VFC
Program); and (2) consistent with the Applicants' corrections of
similar prohibited transactions involving its ERISA plan clients, as
described in their VFC Program applications, dated December 31, 2014
(the VFC Program Applications);
(b) The Applicants received ``no action letters'' from the
Department in connection with their VFC Program Applications;
(c) An independent fiduciary, Evercore Trust Company, N.A.
(Evercore), reviewed the Applicants' corrections of the Covered
Transactions;
(d) Evercore confirmed that the methods utilized to correct the
Covered Transactions were properly applied to the Covered Transactions
and sufficient to return each affected Non-ERISA Plan Client to at
least the same position it would have been in had the Covered
Transactions not occurred;
(e) The Non-ERISA Plan Clients did not pay any additional
compensation with respect to the Covered Transactions, because such
transactions were executed under a wrap program under which all clients
pay a comprehensive wrap fee covering all the investment advisory-
related and transactional services provided to such accounts (the Wrap
Program);
(f) The Applicants promptly credited or issued a check to each Non-
ERISA Plan Client to whom a corrective payment was due after
discovering the Covered Transactions;
(g) The Covered Transactions were conducted using trading systems
and procedures designed to result in trades being conducted at prices
that are as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at terms and
prices no less favorable to the Non-ERISA Plan Clients than the prices
the Applicants could have obtained for the Non-ERISA Plan Clients by
conducting trades in arm's-length transactions with third-party market
participants;
(h) The Covered Transactions were not part of an agreement,
arrangement or understanding designed to benefit a disqualified person
as defined in Code section 4975(e)(2);
(i) The Applicants did not take advantage of the relief provided by
the VFC Program and Prohibited Transaction Exemption 2002-51 for three
(3) years before the date the Applicants' submitted the VFC Program
Applications; \22\
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\22\ PTE 2002-51 Section II. F(1) provides that ``[w]ith respect
to any transaction described in Section I., the applicant has not
taken advantage of the relief provided by the VFC Program and this
exemption for a similar type of transaction(s) identified in the
current application during the period which is three years prior to
submission of the current application''. 67 FR 70623 (November 25,
2002), as amended, 71 FR 20135 (April 19, 2006).
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(j) The Applicants and their affiliates did not receive any
additional direct or indirect fee or commission in connection with the
Covered Transactions, because such transactions were executed under a
Wrap Program;
(k) The JPM Counterparties to the Non-ERISA Plan Clients did not
receive any identifiable direct or indirect profit or compensation from
the Covered Transactions;
(l) The Covered Transactions were inadvertent, executed at fair
market value, and achieved best execution, and were not motivated by
the receipt of any profit or other compensation;
(m) All of the securities traded were liquid securities that
JPMorgan and its affiliates regularly held in inventory, dealt in, or
made a market in;
(n) No contractual provisions purported to give Evercore or Newport
Trust Company (i.e., NTC) a right to indemnification, in whole or part,
by a party related to the Applicants, for negligence or breach of
federal or state law responsibilities by Evercore or NTC, with respect
to any task performed by Evercore or NTC pursuant to the Applicants'
exemption request; and
(o) All of the facts and representations set forth in the Summary
of Facts and Representations are true and accurate.
Section IV. General Conditions
(a) The Applicants shall use commercially reasonable efforts to (i)
[[Page 49502]]
identify such records as are necessary to enable the persons described
in Section IV(b)(1) to determine whether the conditions of this
exemption have been met, to the extent such records are available to
the Applicants or NTC, the independent fiduciary, as of the date of
publication of this final exemption in the Federal Register, and (ii)
maintain, or cause to be maintained (including to be maintained on
behalf of the Applicants by any agent, advisor or other service
provider to the Applicants), such records for a period of six (6) years
from the date of publication of this final exemption in the Federal
Register, except that:
(1) A separate prohibited transaction shall not be considered to
have occurred if the records identified in Section IV(a) are lost or
destroyed before the end of the six-year period due to circumstances
beyond the control of Applicants; and
(2) No disqualified person with respect to a Non-ERISA Plan Client,
other than the Applicants, is subject to excise taxes imposed by Code
section 4975 if such records are not maintained or made available for
examination as required by section IV(b)(1).
(b)(1) Except as provided in section IV(b)(2), the records referred
to in section IV(a) are unconditionally available upon reasonable
advance request at their customary location for examination during
normal business hours by:
(A) any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission;
(B) any fiduciary of any Non-ERISA Plan Client that engaged in a
Covered Transaction, or any duly authorized employee or representative
of such fiduciary; or
(C) any owner or beneficiary of a Non-ERISA Plan Client that
engaged in a Covered Transaction or a representative of such owner or
beneficiary.
(2) None of the persons described in sections IV(b)(1)(B) and (C)
shall be authorized to examine the Applicants' trade secrets or
privileged or confidential commercial and financial information.
(3) If the Applicants refuse to disclose records referred to in
section IV(a) to any persons described in sections IV(b)(1)(B), and (C)
on the basis that such information is exempt from disclosure, the
Applicants shall provide a written notice advising such persons of the
reasons for the refusal and that the Department may request such
information within 30 days after their request.
Effective Date: This exemption is in effect from December 14, 2010,
until September 16, 2013.
Signed at Washington, DC, this 24th day of July 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-16129 Filed 7-28-23; 8:45 am]
BILLING CODE 4510-29-P
