PTE 2006-16 (Securities Lending by Employee Benefit Plans) - Hardcopy Disclosures

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I. Background
Section 104(b) of the Employee
Retirement Income Security Act of 1974
(ERISA) requires the administrator of an
employee benefit plan to furnish plan
participants and certain beneficiaries
with a Summary Plan Description (SPD)
that describes, in language
understandable to an average plan
participant, the benefits, rights, and
obligations of participants in the plan.
The information required to be
contained in the SPD is set forth in
section 102(b) of ERISA. To the extent
that there is a material modification in
the terms of the plan or a change in the
required content of the SPD, section
104(b)(1) of ERISA requires the
administrator to furnish participants
and specified beneficiaries a summary
of material modifications (SMM) or
summary of material reductions (SMR).
The Department of Labor (Department)
has issued regulations providing
guidance on compliance with the
requirements to furnish SPDs, SMMs,
and SMRs. These regulations, which are
codified at 29 CFR 2520.102–2,102–3,
and 29 CFR 104b–2 and 104b–3, contain
information collections for which the
Department has obtained OMB approval
under the OMB Control No. 1210–0039.
The current approval is scheduled to
expire on January 31, 2007, and the
Department intends, following receipt of
comments pursuant to this notice, to
submit an ICR to OMB requesting an
extension of its approval of these
information collections. The public is
not required to respond to an
information collection unless it displays
a valid control number. No change to
the existing ICR is being proposed or
made at this time.

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II. Desired Focus of Comments
The Department is particularly
interested in comments that:
• Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information,
including the validity of the
methodology and assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or

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other forms of information technology,
e.g., by permitting electronic
submissions of responses.
III. Current Actions
This notice requests comments on an
extension of OMB’s approval of the
information collections included in 29
CFR 2520.102–2,102–3, and 29 CFR
104b–2 and 104b–3. The Department is
not proposing or implementing changes
to the existing ICR at this time. A
summary of the ICR and the current
burden estimates follows:
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Summary Plan Description
Requirements under ERISA.
Type of Review: Extension of a
currently approved collection of
information.
OMB Number: 1210–0039.
Affected Public: Business or other forprofit; Not-for-profit institutions.
Respondents: 900,000.
Responses: 50,000,000.
Estimated Total Burden Hours:
1,100,000.
Estimated Total Burden Cost
(Operating and Maintenance):
$400,000,000.
Comments submitted in response to
this notice will be summarized and/or
included in the request for OMB
approval; they will also become a matter
of public record.
Joseph S. Piacentini,
Director, Office of Policy and Research,
Employee Benefits Security Administration.
[FR Doc. E6–18233 Filed 10–30–06; 8:45 am]
BILLING CODE 4510–29–P

DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Application Nos. D–08295 and D–10365]
RIN 1210–ZA10

Prohibited Transaction Exemption
(PTE) 2006–16; Class Exemption To
Permit Certain Loans of Securities by
Employee Benefit Plans
Employee Benefits Security
Administration, Department of Labor.
ACTION: Adoption of Amendment and
Revocation of PTEs 81–6 and 82–63.
AGENCY:

SUMMARY: This document amends and
replaces Prohibited Transaction
Exemption (PTE) 81–6 (46 FR 7527,
January 23, 1981) and PTE 82–63 (47 FR
14804, April 6, 1982). PTE 81–6
exempts the lending of securities by
employee benefit plans to certain banks
and broker-dealers, and PTE 82–63

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exempts certain compensation
arrangements for the provision of
securities lending services by a plan
fiduciary to an employee benefit plan.
The final amendment incorporates the
exemptions into one renumbered
exemption, and expands the relief that
was provided in PTEs 81–6 and 82–63
to include additional parties and
additional forms of collateral subject to
the specified conditions. The exemption
affects participants and beneficiaries of
employee benefit plans, persons who
lend securities on behalf of such plans,
and parties in interest who engage in
securities lending transactions with
such plans.
DATES: The effective date of this
amendment is January 2, 2007. The
revocation of PTEs 81–6 and 82–63 is
effective on January 2, 2007.
FOR FURTHER INFORMATION CONTACT:
Allison Padams Lavigne, Office of
Exemption Determinations, Employee
Benefits Security Administration, U.S.
Department of Labor, (202) 693–8540
(This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On
October 23, 2003, the Department
proposed a notice in the Federal
Register of a proposed class exemption
to amend PTEs 81–6 and 82–63 by
incorporating PTEs 81–6 and 82–63 into
a new class exemption and expanding
the existing relief from the restrictions
of sections 406(a)(1)(A) through (D) and
406(b)(1) of ERISA and the taxes
imposed by section 4975(a) and (b) of
the Code by reason of section
4975(c)(1)(A) through (E) of the Code to
additional parties under modified
conditions.1 The notice also proposed
the revocation of PTEs 81–6 and 82–63.
The proposal was published in response
to two exemption applications. One
application was submitted by the
American Bankers Association (ABA)
(D–08295), and the second application
was submitted by the Robert Morris
Associates, now known as the Risk
Management Association (RMA) (D–
10365). The applications were filed
pursuant to section 408(a) of ERISA and
section 4975(c)(2) of the Code and in
accordance with the procedures set
forth in 29 CFR 2570, subpart B (55 FR
32836, August 10, 1990).
The notice of pendency gave
interested persons an opportunity to
comment or request a public hearing on
the proposal. The Department received
six public comments. No request for a
hearing was received. Upon
1 Section 102 of Reorganization Plan No. 4 of
1978 (5 U.S.C. App. 1 (1996)) generally transferred
the authority of the Secretary of the Treasury to
issue exemptions under Code section 4975(c)(2) to
the Secretary of Labor.

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consideration of the comments received,
the Department has determined to grant
the proposed class exemption, subject to
certain modifications. These
modifications and the comments are
discussed below.
Executive Order 12866
Under Executive Order 12866, the
Department must determine whether the
regulatory action is ‘‘significant’’ and
therefore subject to the requirements of
the Executive Order and subject to
review by the Office of Management and
Budget (OMB). Under section 3(f), the
order defines a ‘‘significant regulatory
action’’ as an action that is likely to
result in a rule (1) having an annual
effect on the economy of $100 million
or more, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
This class exemption has been drafted
and reviewed in accordance with
Executive Order 12866, section 1(b),
Principles of Regulation. The
Department has determined that this
exemption is not a ‘‘significant
regulatory action’’ under section 3(f) of
the Executive Order. Accordingly, it
does not require an assessment of
potential costs and benefits under
section 6(a)(3) of that Order.

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Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps
to ensure that requested data will be
provided in the desired format, that the
reporting burden (time and financial
resources) imposed on respondents is
minimized, that the public can clearly
understand the Department’s collection
instruments, and that the Department

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can properly assess the impact of its
collection requirements on respondents.
The Department previously solicited
comments concerning the information
collection request (ICR) included in the
Proposed Amendment to PTE 81–6 and
Proposed Restatement and
Redesignation of PTE 82–63 (the
Proposal) when that document was
published in the Federal Register on
October 23, 2003 (68 FR 60715). The
ICR re-stated and combined thenexisting ICRs previously approved
under OMB Control Numbers 1210–
0065 (PTE 81–6) and 1210–0062 (PTE–
82–63) and requested approval for the
program changes set forth in the
Proposal, as well as an adjustment in
the burden estimates based on updated
information. The ICR was reviewed by
OMB and approved on April 11, 2004,
under the control number 1210–0065,
and that approval is currently scheduled
to expire on December 31, 2006.
The class exemption published in this
notice has been revised from the
Proposal in two basic ways. First, the
categories of eligible foreign banks and
broker dealers have been broadened to
include foreign banks and broker
dealers located in additional specified
foreign countries, provided that such
entities meet the additional specified
conditions. Second, the permitted types
of collateral for loans of securities by
plans to eligible banks and broker
dealers have been enlarged to include
additional types of collateral. Currently,
the Department is soliciting comments
concerning revisions in the burden
estimates for the ICR resulting from
these modifications and from further
changes in the Department’s
assumptions and estimation
methodology, which are due to better
understanding of the existing market for
foreign and domestic securities lending.
After consideration of any public
comments received in response to this
solicitation, the Department intends to
submit an ICR to OMB for review of the
paperwork burden modifications and
changes described in this section. Under
5 CFR 1320.5(b), an Agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless the collection
displays a valid control number. The
Department will publish notice in the
Federal Register of OMB’s decision
upon review of the Department’s ICR.
A copy of the ICR may be obtained by
contacting Susan G. Lahne, Office of
Policy and Research, U.S. Department of
Labor, Employee Benefits Security
Administration, 200 Constitution
Avenue, NW., Room N–5647,
Washington, DC 20210. Telephone:
(202) 693–8410; Fax: (202) 219–5333.

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These are not toll-free numbers. The ICR
also may be viewed via the internet at
http://www.reginfo.gov/public/do/
PRAMain. The Department and OMB
are particularly interested in comments
that:
• Evaluate whether the collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., by permitting electronic submission
of responses.
Comments should be sent to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC 20503;
Attention: Desk Officer for the
Employee Benefits Security
Administration. Although comments
may be submitted through January 2,
2007, OMB requests that comments be
received within 30 days of publication
of this class exemption to ensure their
consideration.
The Department has consulted with
industry experts and has received
additional information on the nature
and operation of the foreign and
domestic securities lending markets.
Based on this new information, the
Department is revising its prior
paperwork burden analysis to reflect its
better understanding of the likely
impact of the exemption.
In its prior paperwork burden
analysis, the Department based its
estimates conservatively on the
assumption that all domestic broker
dealers and banks with trust powers
would take advantage of the exemption.
This led to an estimate of 13,900
domestic entities that would be
respondents to the information
collections of the Proposal. Given the
highly sophisticated nature of the
securities lending market in general and
the specific limitations of the exemption
in particular, including the required
indemnification agreements, equity
capital minimums, and levels of
collateralization, the Department
believes that its original estimate

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overstated the likely incidence of
reliance. The Department now assumes
that the exemption will be relied upon
only by the limited group of large,
sophisticated domestic broker dealers
and banks currently active in the
securities lending market, which the
Department estimates at approximately
140 separate entities. In addition, the
Department estimates that in total 60
foreign broker dealers and banks will
begin to rely upon the exemption in its
final form, including the 13 entities
located in the United Kingdom that
were previously included in the
Department’s paperwork burden
analysis for the Proposal. This produces
a total estimate of 200 respondents.
Given the nature of securities lending
practices, which require expert
knowledge, efficient and sophisticated
communications systems, and careful
monitoring and control of the timing of
securities loan transactions, the
Department further believes that each of
the borrowing entities will establish
securities lending relationships with
only a limited number of plans. For
purposes of this estimate, the
Department has assumed that each
borrower will sign a contract with no
more than 10 employee benefit plans.
The specific information collections
of this exemption have not changed
from the Proposal. As described in the
prior ICR, the exemption provides that,
before a plan can lend securities, the
borrower must provide the plan with a
financial statement. In addition, the
agreements regarding the loan
transaction or series of transactions and
the compensation arrangement for the
Lending Fiduciary must be described in
a written document. The Department
continues to assume that these
documents are routinely prepared by
the respondent entities in-house as part
of usual and customary business
practice. The Department has therefore
treated the preparation and review of
these documents as an hour burden for
purposes of this analysis; the cost
burden derives solely from material and
postage costs for distribution. These
costs were estimated at $4.00 per
priority or overnight domestic mailing
of the documents. Discussions with
industry experts indicated that nearly
all of the foreign-based institutions
likely to rely on the exemption have
established domestic branches. The
Department assumes, therefore, that all
mailings will be handled by the
domestic-based operations and that
there will be few, if any, respondents
using foreign mail services.
The Department has also assumed
that the respondents, all of which are
large, sophisticated financial entities,

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will generally communicate by
electronic means. Because electronic
communications will be undertaken
through existing electronic systems and
databases, the Department has not
added any additional burden for
documents that are assumed to be
distributed by electronic means.
Financial statements. The Department
assumes that each of the 200
respondents will provide each plan with
which it has a master lending agreement
(10 plans each) with a new financial
statement on a quarterly basis, resulting
in an estimate of 8,000 financial
statements distributed annually (200
respondents × 10 plans × 4 quarterly
financial statements). No preparation
burden for these statements is assumed,
however, since the financial statements
will have been prepared for other
purposes. The Department has assumed
that only 10 percent of the respondents
will distribute the financial statements
in paper by mail. For the 800 financial
statements that are therefore assumed to
be distributed annually by mail (10
percent of 8,000 = 800), the Department
assumes an hour burden of 5 minutes
per statement, consisting of the
preparation of an overnight or priority
delivery package, resulting in an annual
hour burden of 67 hours of clerical time
(800 mailings × 5 min./60 min.). For
these purposes, each statement is
assumed, based on financial statements
filed with the Securities and Exchange
Commission, to consist of 10 pages. For
the 800 financial statements delivered
via mail, the Department further
assumes a total annual cost of $3,200
(800 mailings × $4.00 per mailing).
For the remaining 90 percent of the
financial statements distributed
annually, or 7,200 statements (8,000 ¥
800 = 7,200), the Department has
assumed electronic distribution and has
not estimated any additional
distribution burden.
Lending and compensation
agreements. The Department assumes
that each respondent will use master
agreements for both the lending
agreement and the lending fiduciary
compensation agreement and will
review and distribute them on an
annual basis. For purposes of burden
analysis, the Department has assumed
that each respondent will annually
require 30 minutes to review each of
these two agreements for compliance (1
hour total per respondent), resulting in
an annual hour burden of 200 hours
(200 respondents × 1 hour per
respondent).
The respondents are further assumed
to require 5 minutes to package and
mail the agreements. Because of the
nature of these agreements, the

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Department assumes that the
respondents will provide each of their
plan partners with a single mailing
annually containing both the lending
agreement and the compensation
agreement for that partner and that all
agreements will be distributed in paper
form by priority or overnight mail. The
total time for preparation is 167 hours
(200 respondents × 10 lending partners
× 5 minutes per agreement)/60). The
cost for the distribution of these 2,000
documents (2,000 = 200 respondents ×
10 lending partners each) by overnight
or priority mail is estimated at $8,000.
The total annual hour burden for this
information collection, based on these
assumptions, is therefore 434 hours (67
hours + 200 hours + 167 hours). The
equivalent cost of the annual hour
burden is estimated at $21,514, based on
$16,600 for legal staff review of the
agreements (200 hours × $83 per hour =
$16,600) and $4,914 for clerical time to
prepare and distribute the documents
(234 hours × $21 per hour = $4,914).
The total annual cost burden for this
information collection is estimated at
$11,200 ($8,000 for the agreements +
$3,200 for the financial statements =
$11,200).
The following summarizes the
Department’s paperwork burden
estimates for this information collection:
Type of Review: Revision of a
currently approved collection.
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Securities Lending Prohibited
Transaction Exemption.
OMB Number: 1210–0065.
Affected Public: Business or other forprofit, Not-for-profit institutions.
Total Respondents: 200.
Frequency: On occasion.
Total Responses: 2,000.
Estimated Total Burden Hours: 434.
Estimated Burden Cost: $11,200.
Discussion of Comments Received
The Department received six
comments regarding the proposed class
exemption. The commenters requested
specific modifications to the proposal in
the following areas:
1. Definition of ‘‘Foreign Broker-Dealer’’
and ‘‘Foreign Bank’’
One commenter asked the Department
to expand the definition of Foreign
Broker-Dealers and Foreign Banks to
include those foreign broker-dealers or
foreign banks that are located in a
foreign country in which a foreign
broker-dealer or a foreign bank has
received an individual exemption
involving the lending of securities by
plans. The commenter notes that, in
each of these exemptions, the foreign

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banks and foreign broker-dealers were
under their country’s governmental
regulation and oversight, which
provided a sufficient level of protection
for plans. Another commenter asked the
Department to expand relief to include
broker-dealers and banks of Germany
and the Netherlands within the
definitions of Foreign Bank and Foreign
Broker-Dealer. In the alternative, the
commenter requested that relief be
extended to broker-dealers and banks of
Germany and the Netherlands, provided
that the Lending Fiduciary is a U.S.
Broker-Dealer or U.S. Bank and such
fiduciary indemnifies the plan against
losses that arise from a borrower’s
default. This commenter states that this
type of indemnification agreement is
present in most securities lending
transactions.
The Department notes that the terms
and conditions of the individual
exemptions generally require that the
foreign borrower be affiliated with a
U.S. Bank or a U.S. Broker-Dealer that
indemnifies the plan in the United
States against potential loss resulting
from a borrower’s default. In addition,
those exemptions require that the
collateral be maintained in the United
States in U.S. dollars or U.S.
denominated securities. The
Department notes that while these
conditions were appropriate and
protective of the plan in the context of
an individual exemption, they may not
be feasible in the context of a class
exemption.2 Thus, for purposes of the
class exemption, it may be difficult for
a plan to readily assess the risk of
lending securities to broker-dealers and
banks located in the various foreign
jurisdictions. The Department believes
that the presence of governmental
regulation and oversight by the foreign
countries that were involved in the
individual exemptions, and an
indemnification by a U.S. regulated
entity, provide a significant degree of
protection for plans. Accordingly, the
Department has determined to expand
the definition of Foreign Broker-Dealer
(as defined in section V(c)) and Foreign
Bank (as defined in section V(d)) under
limited circumstances.
2 The terms and conditions of the individual
exemptions generally involve the lending of
securities by a plan to a foreign affiliate of a U.S.
broker-dealer or U.S. bank and require the U.S.
affiliate to indemnify the plan in the United States
against any potential losses arising from a default.
In addition, these exemptions require that the
collateral be maintained in U.S. dollars or U.S.
denominated securities and be held in the U.S. The
proposed class exemption did not contain an
affiliate requirement and permitted non-U.S. forms
of collateral that may be maintained outside the
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Under the final exemption, the
definition of Foreign Broker-Dealer has
been expanded to include those brokerdealers registered and regulated under
the relevant securities laws of a
governmental entity of a country other
than the United States where such
securities laws were applicable to a
broker-dealer that received: (i) An
individual exemption, granted by the
Department under section 408(a) of
ERISA, involving the loan of securities
by a plan to a broker-dealer or (ii) a final
authorization by the Department to
engage in an otherwise prohibited
transaction pursuant to PTE 96–62, as
amended, (61 FR 39988 (July 31, 1996);
67 FR 44622 (July 3, 2002)) involving
the loan of securities by a plan to a
broker-dealer. The term ‘‘Foreign Bank’’
has been expanded to include those
banks subject to regulation by the
relevant governmental banking
agency(ies) of a country other than the
United States, where the regulation and
oversight of these banking agencies were
applicable to a bank that received: (i) 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 (ii) a final
authorization by the Department to
engage in an otherwise prohibited
transaction pursuant to PTE 96–62, as
amended, (61 FR 39988 (July 31, 1996);
67 FR 44622 (July 3, 2002)) involving
the loan of securities by a plan to a
bank.3
However, to further protect the plans
from any unnecessary costs and risks
associated with the lending of securities
in the different foreign jurisdictions, a
new condition has been added to
section III(c) of the exemption. This
condition requires, in the case of a
securities lending transaction involving
a Foreign Broker-Dealer or a Foreign
Bank that is described above (as defined
in section V(c)(2) and V(d)(2) of the
exemption), the Lending Fiduciary to be
a U.S. Bank or U.S. Broker-Dealer that
3 To date, individual exemptions have been
granted and transactions have received final
authorization under PTE 96–62, as amended, that
involve securities loans by plans to broker-dealers
and banks regulated under the applicable laws of
Japan, Germany, the Netherlands, Sweden,
Switzerland, France, Australia, Canada and the
United Kingdom. Thus, any broker-dealer or bank
that is subject to government regulation in any one
of these countries would be able to utilize the relief
provided in this exemption, if all applicable
conditions are met. In this regard, if in the future,
the Department grants individual exemptions or
final authorizations under PTE 96–62 for
transactions involving securities loans by plans to
broker-dealers or banks regulated under the
applicable laws of additional foreign countries,
broker-dealers and banks subject to such
government regulation would be able to utilize the
final exemption provided all applicable conditions
are met.

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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 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 plan may incur or suffer directly
arising out of a borrower default. In this
regard, it is the Department’s
understanding that in a default
situation, the plan will be able to
recover the money it is owed under this
indemnification agreement from the
lending fiduciary in the United States.
Another commenter asked the
Department to expand the definition of
borrower to include Canadian brokerdealers and Canadian banks. The
commenter described a strong similarity
in the type of government oversight
between broker-dealers and banks in
Canada and the United States. In
particular, the commenter described the
regulation of Canadian broker-dealers.
In Canada, securities regulation is
within the jurisdiction of the Provinces.
In Ontario, the Ontario Securities
Commission (OSC) is responsible for
regulating the securities markets with
the purpose of protecting investors,
ensuring optimal allocation of financial
resources and maintaining public
confidence in the markets. The OSC
regulates market participants by notices
and orders. It has an enforcement role
in the market. It has the power to ensure
that trading activities are carried out in
accordance with applicable regulations.
It can investigate, prosecute and impose
penalties on individuals who do not
comply with such regulations. Other
provincial securities commissions
operate similarly. All powers of all the
commissions are subject to the oversight
of the Ministers of Finance in each
Province.
In addition, the commenter notes that
the Canadian Securities Administration
(CSA) reviews the activities of the
provincial securities commissions to
ensure consistency in the regulatory
framework among the Provinces. The
commenter adds that Canadian brokerdealers are subject to oversight by selfregulatory organizations (SRO’s), which
are subject to the supervision of the
provincial commissions. According to
the commenter, the Market Regulation
Services is the independent regulation
services provider for Canadian equity
markets and is a recognized SRO by the
CSA. Its mandate is to foster and protect
investor confidence and market integrity
through the administration,
interpretation and enforcement of a

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common set of market integrity
principles.
The commenter also described the
regulation of Canadian banks. The
commenter noted that the Office of
Superintendent of Financial Institutions
(OSFI) regulates Canadian banks. OSFI
is an independent agency of the
Government of Canada and reports to
the Minister of Finance. Its principal
role is to safeguard depositors and other
banking clients. OSFI imposes capital
requirements to ensure that Canadian
banks are able to meet their financial
obligations as well as strict reporting,
managing, accounting and auditing
requirements.
Lastly, the commenter represented
that under Canadian law, counterparties
may agree to submit to the jurisdiction
of the courts of the United States and
the judgments of the courts in the
United States are readily enforceable in
Canada. Based on the representations of
the commenter regarding the regulatory
supervision of Canadian broker-dealers
and banks, the Department has
expanded the definition of ‘‘Foreign
Broker-Dealer’’ to include any brokerdealer that: (i) Is regulated 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 SRO; and has expanded the
definition of ‘‘Foreign Bank’’ to include
any bank that is regulated by the Office
of the Superintendent of Financial
Institutions in Canada.
Finally, one commenter requested
that plans be permitted to loan
securities to entities other than those
permitted under the proposed
exemption, provided that all obligations
of the borrower are fully guaranteed by
an entity that could have borrowed the
securities itself. To the extent the
commenter is referring to entities other
than broker-dealers and banks for which
the Department has previously granted
relief, this comment raises issues that
are beyond the scope of our original
consideration, and the commenter has
not provided sufficient information for
the Department to consider this request.
Accordingly, the Department has
determined not to adopt this comment.

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2. Level of Foreign Collateral That Must
Be Pledged
One commenter expressed support for
the collateral requirements found in the
proposed exemption. Three commenters
(including the Applicant) requested that
the collateralization requirements
(described in section II(b) of the
proposed exemption) be made
consistent with those in SEC Rule 15c3–

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3 (17 CFR 240.15c3–3).4 The Applicant
states that regulatory and market
developments have occurred since the
Applicant first filed its exemption
application. The Applicant expressed
concern that, if the exemption requires
different collateralization levels for
plans than what is required for other
investors by Rule 15c3–3, plans would
be placed at a competitive disadvantage.
Another commenter suggested that the
level of collateralization required in SEC
Rule 15c3–3 be required for those
transactions in which the lending
fiduciary is a U.S. Bank and such
lending fiduciary indemnifies the plan
against losses resulting from the
borrower’s default. According to the
commenter, most securities lending
transactions include these types of
indemnification arrangements. Lastly, a
commenter suggested that the
collateralization requirements stated in
the proposed exemption only be
modified for those transactions
involving plans with total assets in
excess of $500 million.
Rule 15c3–3 requires 100%
collateralization if the collateral and
securities are denominated in the same
currency; 101% if the collateral and
securities are denominated in a different
currency (i.e., Euros, British pounds,
Swiss francs, Canadian dollars, and
Japanese yen); and 105% if the
collateral and securities are
denominated in a different currency and
such currency is other than those
specified above.
On the basis of the comments, the
Department has determined to adopt the
collateralization requirements in Rule
15c3–3 for certain transactions where
the lending fiduciary is a U.S. BrokerDealer or U.S. Bank, and such fiduciary
indemnifies the plan against loss in the
event of borrower default.
Specifically, the Department has
expanded section II(b) of the exemption
to provide that: In the case of a
securities lending transaction in which
the Lending Fiduciary is a U.S. Bank or
U.S. Broker-Dealer, and such Lending
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, the plan receives from the
borrower by the close of the Lending
4 On April 16, 2003, the SEC issued the Order
Regarding the Collateral Broker-Dealers Must
Pledge When Borrowing Customer Securities
(Release No. 47683). Rule 15c3–3 specifies the types
and amount of collateral that may be offered by
broker-dealers who borrow fully paid and excess
margin securities from customers. For purposes of
this exemption, the term ‘‘Rule 15c3–3’’ shall also
refer to the SEC Order contained in Release No.
47683.

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Fiduciary’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) 100 percent of the then market value
of the securities lent as valued on a
recognized securities exchange (as
defined in section V(j)) or an automated
trading system (as defined in section
V(k)) on which the securities are
primarily traded if the collateral posted
is denominated in the same currency as
the securities lent; or (ii) 101 percent of
the then market value of the securities
lent as valued on a recognized securities
exchange (as defined in section V(j)) or
an automated trading system (as defined
in section V(k)) on which the securities
are primarily traded if the collateral
posted is 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) 105 percent of the then
market value of the securities lent as
valued on a recognized securities
exchange (as defined in section V(j)) or
an automated trading system (as defined
in section V(k)) if the collateral posted
is in a different currency than the
securities lent and is denominated in a
currency other than those specified
above.
Lastly, the Department believes that
the Lending Fiduciary indemnification
requirement discussed above provides a
sufficient safeguard to protect a plan’s
interest under the revised
collateralization levels making the $500
million plan asset test unnecessary.
Accordingly, the Department has not
modified the exemption in this respect.
3. Expand The Types of Collateral
Permitted Under The Exemption
Several commenters requested that
the class exemption permit plans to
accept the types of collateral permitted
under SEC Rule 15c3–3. Another
commenter requested that the definition
of foreign collateral be broadened to
include equity securities and fixed
income securities.
Rule 15c3–3 permits the following forms of
collateral:
1. Government securities as defined in
section 3(42)(A) and (B) of the Securities
Exchange Act of 1934 (the Exchange Act) (15
U.S.C. 78c(42)(A) and (B)) may be pledged
when borrowing any securities.
2. Government securities as defined in
section 3(42)(C) of the Exchange Act (15
U.S.C. 78c(42)(C)) and issued or guaranteed
as to principal or interest by the following
corporations may be pledged when
borrowing any securities: (i) Federal Home
Loan Mortgage Corporation, (ii) the Federal

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Federal Register / Vol. 71, No. 210 / Tuesday, October 31, 2006 / Notices
National Mortgage Corporation, (iii) the
Student Loan Marketing Association and (iv)
the Financing Corporation.
3. Securities issued by, or guaranteed as to
principal and interest by, the following
Multinational Banks—the obligations of
which are backed by participating countries,
including the United States—may be pledged
when borrowing any securities: (i)
International Bank for Reconstruction and
Development, (ii) the Inter-American
Development Bank, (iii) the Asian
Development Bank, (iv) the African
Development Bank, (v) the European Bank
for Reconstruction and Development, and (vi)
the International Finance Corporation.
4. Mortgage-backed securities that meet the
definition of a ‘‘mortgage related security’’ as
defined by section 3(a)(41) of the Exchange
Act (15 U.S.C. 78c(a)(41)) may be pledged
when borrowing any securities.
5. Negotiable certificates of deposit and
bankers acceptances issued by a ‘‘bank’’ as
that term is defined in section 3(a)(6) of the
Exchange Act (15 U.S.C. 78c(a)(6)), 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, may
be pledged when borrowing any securities.
6. Foreign sovereign debt securities may be
pledged when borrowing any securities,
provided that: (i) At least one nationally
recognized statistical rating agency (NRSRO)
has rated in one of its two highest rating
categories either the issue, the issuer or
guarantor, or other outstanding unsecured
long-term debt securities issued or
guaranteed by the issuer or guarantor; and (ii)
if the securities pledged are denominated in
a different currency than those borrowed, the
broker-dealer shall provide collateral in an
amount that exceeds the minimum
collateralization requirements in paragraph
(b)(3) of Rule 15c3–3 (100%) by 1% when the
collateral is denominated in the Euro, British
pound, Swiss franc, Canadian dollar or
Japanese yen, or by 5% when it is
denominated in another currency.
7. Foreign sovereign debt securities that do
not meet the NRSRO rating condition set
forth in Item 6 above may be pledged only
when borrowing non-equity securities issued
by a person organized or incorporated in the
same jurisdiction (including other debt
securities issued by the foreign sovereign);
provided that, if such foreign sovereign debt
securities have been assigned a rating lower
than the securities borrowed, such foreign
sovereign debt securities must be rated in one
of the four highest rating categories by at
least one NRSRO. If the securities pledged
are denominated in a different currency than
those borrowed, the broker-dealer shall
provide collateral in an amount that exceeds
the minimum collateralization requirement
in paragraph (b)(3) of Rule 15c3–3 by 1%
when the collateral is denominated in the
Euro, British pound, Swiss franc, Canadian
dollar or Japanese yen, or by 5% when it is
denominated in another currency.
8. The Euro, British pound, Swiss franc,
Canadian dollar or Japanese yen may be
pledged when borrowing any securities,
provided that, when the securities borrowed
are denominated in a different currency than
that pledged, the broker-dealer shall provide

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collateral in an amount that exceeds the
minimum collateralization requirement in
paragraph (b)(3) of Rule 15c3–3 by 1%. Any
other foreign currency may be pledged when
borrowing any non-equity securities
denominated in the same currency.
9. Non-governmental debt securities may
be pledged when borrowing any securities,
provided that, in the relevant cash market
they are not traded flat or in default as to
principal or interest, and are rated in one of
the two highest rating categories by at least
one NRSRO. If such securities are not
denominated in U.S. dollars or in the
currency of the securities being borrowed,
the broker-dealer shall provide collateral in
an amount that exceeds the minimum
collateralization requirement in paragraph
(b)(3) of Rule 15c3–3 by 1% when the
securities pledged are denominated in the
Euro, British pound, Swiss franc, Canadian
dollar or Japanese yen, or by 5% when they
are denominated in any other currency.

The Department agrees with the
commenters that the types of the
collateral allowed under the class
exemption should be expanded.
Although the SEC concluded that the
designation of additional categories of
permissible collateral will add liquidity
to the securities lending market and
lower borrowing costs for brokerdealers, the Department does not believe
that the commenters have made a
sufficient showing that adopting all the
categories of collateral described in Rule
15c3–3 would be protective of the
interests of participants and
beneficiaries if a borrower were to
default.
In this regard, the Department notes
that the collateral described in
categories 1 and 2 of Rule 15c3–3
satisfies the definition of ‘‘U.S.
Collateral’’ under the proposed
exemption. For the sake of clarity, the
Department has revised the definition of
‘‘U.S. Collateral’’ to specifically include:
Government securities as defined in
section 3(42)(A) and (B) of the Securities
Exchange Act of 1934 (the Exchange
Act); and Government securities as
defined in section 3(42)(C) of the
Exchange Act and issued or guaranteed
as to principal or interest by the
following corporations: (i) Federal
Home Loan Mortgage Corporation, (ii)
the Federal National Mortgage
Corporation, (iii) the Student Loan
Marketing Association and (iv) the
Financing Corporation.
Additionally, the Department believes
that it would be appropriate to expand
the definition of ‘‘U.S. Collateral’’ to
include: ‘‘Mortgage-backed securities’’
as described in category 4 of Rule 15c3–
3, and ‘‘negotiable certificates of deposit
and banker acceptances’’ as described in
category 5 of Rule 15c3–3.
Further, the Department has
determined that it would be appropriate

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63791

to expand the definition of ‘‘Foreign
Collateral’’ to include all other types of
collateral that are specified under Rule
15c3–3, as amended by the SEC from
time to time, provided the Lending
Fiduciary is a U.S. Broker-Dealer or U.S.
Bank, and such entity provides the plan
with an indemnification 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. In the absence of an
indemnification by a U.S. Broker-Dealer
or U.S. Bank, the definition of ‘‘Foreign
Collateral’’ in the final exemption has
been revised to include the types of
collateral described in categories 3 of
Rule 15c3–3, rated foreign sovereign
debt described in category 6, and the
British pound, the Canadian dollar, the
Swiss franc, the Japanese yen or the
Euro.
In response to a comment, the
Department has determined not to
revise the exemption to include equity
securities and fixed-income securities as
these items appear to be outside the
scope of Rule 15c3–3, and the
Department has insufficient information
about how these items would function
as collateral.
4. Issues Relating to the Lending
Fiduciary’s Indemnification of the Plan
From Loss Upon a Borrower’s Default
Two commenters requested that the
Department revise the indemnification
provision of section III(b) to limit the
lending fiduciary’s indemnification
obligation to losses resulting from a
borrower’s default, and not from any
shortfall in the earnings on the
collateral. The Department notes that
the indemnification by the Lending
Fiduciary is only applicable when the
borrower defaults and there is a
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 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 plan may incur or suffer directly
arising out of a borrower default. The
indemnification requirement, under the
proposal, was never intended to
encompass losses arising out of the
investment of the collateral by a
Lending Fiduciary or other party.
Accordingly, the Department has
clarified section III(b)(2) of the
exemption to reflect this intent.

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are structured as repos, provided that all
of the other terms and conditions of the
exemption are otherwise met. For the
sake of clarity, the Department has
added a definition of the terms ‘‘lending
of securities’’ or ‘‘loan of securities’’ to
include securities loans that are
structured as repurchase agreements,
provided that all terms of the exemption
are otherwise met (section V(l) of the
exemption).
Another commenter expressed
concern that the exemption prevents
plans from lending certain fixed income
securities when a plan accepts foreign
collateral by requiring the
collateralization level for foreign
collateral to be determined by reference
to the market value of the securities lent
on a ‘‘recognized securities exchange,’’
or an ‘‘automated trading system.’’ (See
section II(b)(1)(B) and II(b)(2)(B))) The
commenter requests that market value
be determined in the same manner as
set out under the 2000 version of the
Master Securities Loan Agreement
which was jointly published by the
commenter and the Securities Industry
Association. The Department believes
that the objective standard contained in
the proposal is an important safeguard,
5. Miscellaneous Comments
and is not persuaded by the comment.
Another commenter questioned
One commenter requested that the
whether the exemption would apply to
Department clarify section IV(c) of the
repurchase agreements (repos). The
proposal. Section IV(c) of the proposal
commenter states that in the context of
requires that the compensation be
securities loans that are structured and
reasonable and be paid to the Lending
documented as repos, a Master
Fiduciary in accordance with the terms
Repurchase Agreement is utilized
of a written instrument, which may be
instead of a Master Securities Lending
in the form of a master agreement
Agreement. Except for the difference in
covering a series of securities lending
the form of the arrangement, such an
transactions. The commenter was
agreement contains all of the same
concerned that this provision could
information and substantive
require that the aggregate compensation
requirements that would be found in a
for all loans be reasonable. Thus, if one
typical Master Securities Lending
loan’s compensation failed, then all
Agreement. The commenter indicates
loans would fail this condition. The
that the Master Repurchase Agreement
Department intended that this condition
contains terms and conditions that
apply on a loan-by-loan basis. Thus, the
satisfy all of the substantive
failure of one loan to meet this
requirements of the exemption,
requirement would not cause all loans
including the requirement that the
entered into pursuant to a master
securities be returned at termination of
agreement to fail such requirement.
A commenter requested clarification
the loan (i.e., repurchase transaction) in
on whether the exemption covers ‘‘feeconsideration for the return of the cash,
for-hold’’ arrangements. The commenter
the requirement that any interest or
describes ‘‘fee-for-holds’’ as the
dividends on the securities lent (i.e.,
following. The borrower pays a fee in
sold) be paid by the securities borrower
exchange for the guaranteed availability
(i.e., the purchaser) to the securities
lender (i.e., the seller) as and when paid, of a particular security for a specified
period of time or until the arrangement
and the requirement that the securities
is terminated by either party. If a fee-forlender (i.e., the seller) receive
reasonable compensation for the loan of hold arrangement is in place and the
the securities (which may consist of the holding borrower chooses to borrow any
such held securities, the fee-for-hold
ability to retain investment earnings on
arrangement with respect to such
the cash collateral in excess of a presecurities terminates and the borrower
specified rebate amount).
will enter into a securities loan
The Department notes that the
arrangement. These arrangements may
exemption permits securities loans that

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Another commenter asked the
Department to expand section III(b)(2) of
the proposed exemption to permit a
parent corporation (which may or may
not be domiciled in the United States)
of a U.S. subsidiary acting as a Lending
Fiduciary to provide the indemnity in
lieu of the Lending Fiduciary itself. The
Department believes that this request
raises issues that are beyond the scope
of the proposed exemption and has
determined not to modify the exemption
as requested by the commenter.
One commenter requested
clarification regarding the scope of the
indemnification provisions under the
exemption. Specifically, the commenter
questioned whether, in accordance with
the provisions in an indemnification
agreement, a Lending Fiduciary can
stand in the shoes of the plan, and seek
recovery from the borrower. Nothing in
the final exemption would preclude a
Lending Fiduciary from entering into an
indemnification agreement that permits
the Lending Fiduciary to seek recovery
against a defaulting borrower after the
Lending Fiduciary has made the plan
whole pursuant to the indemnification
agreement.

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take two forms: (1) The plan may grant
the borrower the right of first refusal
essentially giving the borrower an
option to borrow the securities if the
lending plan is approached by another
party seeking to borrow the same held
securities; or (2) the plan may grant the
borrower the exclusive right to borrow
the securities. The commenter stated
that title to the securities does not
transfer until securities are actually
delivered. The borrower pays a fee
related to the type, quantity and
duration of the fee-for-hold
arrangement. Once loaned, the lending
fee paid is based on market conditions
at the time of the loan. The plan may
terminate the arrangement at any time
so that it may dispose of the securities
at any time. The Department is of the
view that these arrangements are within
the scope of the exemption, provided
that all terms and conditions are
otherwise met.
One commenter requested that relief
be extended to transactions covered by
the Federal Employee’s Retirement
System Act of 1986 (FERSA). The
Department notes that relief from the
prohibited transaction provisions of
FERSA is provided for transactions
described in section I(c) of the final
amendment by reason of PTE T88–1, as
amended (53 FR 52838 (December 29,
1988), 57 FR 8689 (March 11, 1992).) No
additional exemptive relief is necessary
under the final amendment for those
prohibited transactions described in
FERSA which parallel those described
in section 406(a) of ERISA, if the plan
receives no less than adequate
consideration.
In this regard, PTE T88–1, as
amended, adopted six prohibited
transaction class exemptions (including
PTE 82–63) for purposes of section
8477(c)(2) of FERSA. The amendment to
PTE T88–1 extended such relief to any
amendments of these class exemptions
which are granted by the Department
pursuant to section 408(a) of ERISA
unless the Department determines that
PTE T88–1, as amended does not apply
to such amendment. Accordingly, the
Department determines that PTE T88–1,
as amended shall apply to this final
amendment for purposes of FERSA.
One commenter noted that the
requirements in section II(d) that the
loan agreement identify the currency in
which payment of any fees will be made
to the plan would be burdensome. The
commenter noted that, in the context of
securities loans secured by cash
collateral, it is industry practice that the
lender pays a rebate to the borrower
rather than receiving a fee. Secondly, it
is industry practice that the borrower’s
rebate will be in the same currency as

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the currency of the cash collateral. In
addition, many loans are covered by a
master agreement and, in the context of
a securities loan secured by non-cash
collateral, parties may need to offer
different forms of collateral on a loanby-loan basis. Thus, the commenter
requests that the parties be permitted to
specify the currency of the fees in the
loan confirmation. The Department
concurs with the comment, and has
modified the final exemption
accordingly.
A commenter asked the Department to
clarify how the final exemption would
apply to securities loans that were
entered into pursuant to PTEs 81–6 and
82–63 prior to the effective date of the
final exemption. The Department notes
that loan transactions entered into prior
to the effective date of this exemption
would be covered by PTE 81–6 and PTE
82–63, provided all conditions of the
exemption are met. Transactions
entered into on or after the effective date
of the final exemption would be covered
by this exemption, provided that the
conditions therein are met. The
Department notes that the conditions of
PTE 81–6 and PTE 82–63 have been
incorporated into this class exemption.
Description of the Exemption
Section I of the exemption describes
the transactions that are covered by the
exemption. Section I(a) tracks the
language of PTE 81–6 by permitting the
lending of securities that are assets of an
employee benefit plan to a U.S. BrokerDealer or U.S. Bank, if the general
conditions set forth in section II are met.
However, the conditions contained in
PTE 81–6 have been amended to permit
additional types of collateral to be used
for the securities loan. Section I(b) of the
exemption expands PTE 81–6 by
permitting the lending of securities that
are assets of an employee benefit plan
to a Foreign Broker-Dealer or a Foreign
Bank. A Foreign Broker-Dealer or a
Foreign Bank must meet both the
general conditions set forth in section II
of the proposed exemption, as well as
the specific conditions described in
section III.
Under the final exemption, a Foreign
Broker-Dealer is defined in section V(c)
as 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)(i)
Registered and regulated under the laws
of the Financial Services Authority in
the United Kingdom, or (ii)(a) registered
and regulated under the laws of a
securities commission of a Province of
Canada that is a member of the
Canadian Securities Administration,
and (b) is subject to the oversight of a

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Canadian self-regulatory authority; or
(2) 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: (i) 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 (ii) 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 broker-dealer.
Section V(d) of the final exemption
defines the term ‘‘Foreign Bank’’ to
mean: An institution that has,
substantially similar powers to a bank as
defined in section 202(a)(2) of the
Investment Advisers Act, has as of the
last day of its most recent fiscal year,
equity capital which is the equivalent of
no less than $200 million, and is subject
to: (1) Regulation by the Financial
Services Authority in the United
Kingdom or the Office of the
Superintendent of Financial Institutions
in Canada, 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: (i) 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 (ii) 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.
Section I(c) permits the payment to a
lending fiduciary of compensation for
services rendered in connection with
loans of plan assets that are securities,
provided that the conditions set forth in
section IV are met. The conditions
found in section IV mirror the
conditions that were found in PTE 82–
63. Although the relief provided by
section I(c) would apply to a broader
range of lending activities, no changes
have been made with respect to any of
the conditions that are contained in PTE
82–63.
Section II(a) of the final exemption
remains as proposed and requires that
neither the borrower nor any affiliate of
the borrower have or exercise
discretionary authority or control with
respect to the investment of the plan
assets involved in the transaction, or
render investment advice (within the
meaning of 29 CFR 2510.3–21(c)) with
respect to those assets.

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Under the final exemption, section
II(b)requires that the plan receive from
the borrower by the close of the Lending
Fiduciary’s business on the day in
which the securities lent are delivered
to the borrower, (1) ‘‘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
100 percent of the then market value of
the securities lent; or (2) ‘‘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) 102 percent of the
then market value of the securities lent
as valued on a recognized securities
exchange (as defined in section V(j)) or
an automated trading system (as defined
in section V(k)) on which the securities
are primarily traded if the collateral
posted is denominated in the same
currency as the securities lent, or(ii) 105
percent of the then market value of the
securities lent as valued on a recognized
securities exchange (as defined in
section V(j)) or an automated trading
system (as defined in V(k)) on which the
securities are primarily traded if the
collateral posted is denominated in a
different currency than the securities.
In addition, section II(b) has been
expanded to include new
collateralization requirements in the
case of a securities lending transaction
in which the Lending Fiduciary is a U.S.
Bank or U.S. Broker-Dealer, and such
Lending 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. For those securities
transactions involving such an
indemnification, the plan may receive
from the borrower by the close of the
Lending Fiduciary’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 day, a market
value or in the case of bank letters of
credit, a stated amount, equal to not less
than:
(i) 100 percent of the then market
value of the securities lent as valued on
a recognized securities exchange (as
defined in section V(j)) or an automated
trading system (as defined in section
V(k)) on which the securities are
primarily traded if the collateral posted
is denominated in the same currency as
the securities lent; or (ii) 101 percent of
the then market value of the securities
lent as valued on a recognized securities
exchange (as defined in section V(j)) or
an automated trading system (as defined

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in section V(k)) on which the securities
are primarily traded if the collateral
posted is 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) 105 percent of the then
market value of the securities lent as
valued on a recognized securities
exchange or an automated trading
system (as defined in section V(k)) if the
collateral posted is in a different
currency than the securities lent and is
denominated in a currency other than
those specified above.5
The final exemption contains a
revised definition of ‘‘U.S. Collateral’’
that incorporates additional forms of
collateral described in Rule 15c3–3. The
term ‘‘U.S. Collateral’’ is defined in
section V(e) as:
(1) U.S. currency,
(2) ‘‘government securities’’ as
defined in section 3(a)(42)(A) and (B) of
the Securities Exchange Act of 1934 (the
Exchange Act),
(3) ‘‘government securities’’ as
defined in section 3(a)(42)(C) of the
Exchange 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 Exchange 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 Exchange 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
or an affiliate thereof, or any
combination thereof.
The final exemption contains a
revised definition of ‘‘Foreign
Collateral’’ that permits U.S. Banks, U.S.
Broker-Dealers, Foreign Banks and
Foreign Broker-Dealers to accept a
broader range of collateral. The term
‘‘Foreign Collateral’’ is defined in
section V(f) as:
(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
5 The Department notes that this requirement
would not preclude the Lending Fiduciary from
requiring additional collateral should the
circumstances so warrant.

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States: The International Bank for
Reconstruction and Development, the InterAmerican 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, Canadian dollar,
Swiss franc, 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 Exchange 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.

The Department notes that section
II(c) of the exemption remains
unchanged from the proposal and
requires that plans receive collateral
from borrowers by physical delivery, by
wire transfer or by book entry in a
securities depository located in the
United States. For borrowers that are
Foreign Banks and Foreign BrokerDealers, the exemption requires that the
plan receive either collateral by physical
delivery, by wire entry or by book entry
in a securities depository located in the
United States or held on behalf of the
plan at an Eligible Securities Depository
as defined in section V(i)of the
exemption.
Section II(d) of the exemption has
been modified in light of the expanded
definition of ‘‘Foreign Broker-Dealer’’
and ‘‘Foreign Bank.’’ That section
requires that the borrower furnish the
Lending Fiduciary with its most recent
available audited statement of the
borrower’s financial condition, as
audited by a United States certified
public accounting firm or in the case of
a borrower that is a Foreign BrokerDealer 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 Foreign BrokerDealer or Foreign Bank.
Under section II(e) of the exemption,
the loan must be made pursuant to a
written loan agreement. Section II(e)
further requires that the securities

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lending agreement must give the plan a
continuing security interest in, title to,
or the rights of a secured creditor with
respect to the collateral received by the
plan. In section (f) of the exemption, the
plan may receive a reasonable fee in
connection with the securities loan or
have the opportunity to derive
compensation through the investment of
the currency collateral. The plan may
pay a loan rebate or similar fee to the
borrower where the plan invests the
currency collateral.
Section II(g) of the exemption requires
that the fees and other consideration
received by the plan in connection with
the loan of securities must be
reasonable. The identity of the currency
in which payment of fees and rebates
will be made must be disclosed to the
plan either in the written loan
agreement or the loan confirmation as
agreed to by the borrower and the plan
(or Lending Fiduciary) prior to the
making of the loan.
Under the exemption, section II(h)
requires that the plan receive the
equivalent of all distributions made to
holders of the borrower 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. Section II(i)
requires that, 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, then the 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 borrowed
securities as of such preceding day.
Notwithstanding the foregoing, part of
the U.S. Collateral or Foreign Collateral
may be returned to the borrower if the
market value of the collateral exceeds
the applicable percentage described in
this exemption as long as the market
value of the remaining collateral equals
the applicable percentage described in
the exemption of the market value of the
borrowed securities.
Under section II(j) of the exemption,
a plan may terminate a loan at any time.
Section II(k) of the exemption permits a
plan to purchase securities identical to
the loaned securities if the borrower
does not return the loaned securities,
and obligates the borrower to pay to the
plan any amount of remaining
obligation and expenses not covered by
the collateral. Section II(l) of the

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exemption states that if a borrower fails
to comply with any provision of a loan
agreement which requires compliance
with this exemption, the plan fiduciary
who caused the plan to engage in such
transaction shall not be deemed to have
caused the plan to engage in a
transaction prohibited by section
406(a)(1)(A) through (D) of ERISA solely
by reason of the borrower’s failure to
comply with the conditions of the
exemption.
Section III of the exemption contains
conditions that are applicable to
securities lending transactions with
Foreign Broker-Dealers and Foreign
Banks. Section III(a) requires that the
lending fiduciary maintain the situs of
the loan agreement in accordance with
the indicia of ownership requirements
under section 404(b) of ERISA and the
regulations promulgated under 29 CFR
2550.404(b)-1. Further, section III(b)
requires that a foreign borrower agree to
submit to the jurisdiction of the district
courts of the United States, and agree
that the plan may in its sole discretion
enforce the agreement in a U.S. court. It
is the Department’s understanding that
in the event the borrower were to
default, the plan would be able to secure
a judgment in the United States which
would be enforceable in a UK or a
Canadian court. As an alternative to the
requirement that the Foreign BrokerDealer or Foreign Bank must agree to
submit to the jurisdiction of the United
States courts, the lending fiduciary may,
if a U.S. Bank or U.S. Broker-Dealer,
indemnify 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
cost incurred (including attorney’s fees
of such plan arising out of the default
on the loans or the failure to indemnify
properly under the exemption) which
the plan may incur or suffer directly
arising out of a borrower’s default.
The final exemption contains a new
condition in section III(c) which
requires that in the case of a securities
lending transaction involving a Foreign
Broker-Dealer or a Foreign Bank that is
described in section V(c)(2) or V(d)(2),
the Lending Fiduciary must be a U.S.
Bank or U.S. Broker-Dealer and prior to
entering into the loan transaction, such
fiduciary must agree to indemnify 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 incurred (including
attorney’s fees of such plan arising out
of the default on the loans or the failure

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to indemnify properly under this
provision) which the plan may incur or
suffer directly arising out of a borrower
default. It is the Department’s
understanding that, in the event of a
borrower default, the plan would be
able to recover from the lending
fiduciary, in the United States, the
amount it is entitled to under the
indemnification agreement.
As in the proposal, section IV of the
exemption incorporates the conditions
of PTE 82–63. Section V of the
exemption contains the definitions.
Unless noted above, the definitions of
the exemption remain as they were in
the proposed exemption.
The Department has added section VI
that specifies the effective dates of the
final exemption and the revocation of
PTEs 81–6 and 82–63.
Lastly, the Department notes that
section 611(d)(1) of the Pension
Protection Act of 2006 (Pub. L. 109–280)
(the PPA) amended the Employee
Retirement Income Security Act of 1974
(ERISA) in part, by adding a new section
408(b)(17) which provides relief from
ERISA section 406(a)(1)(A), (B) and (D)
for any transaction between a plan and
a person that is a party in interest other
than fiduciary (or an affiliate) who has
or exercises any discretionary authority
or control with respect to the
investment of the plan assets involved
in the transaction or renders investment
advice (within the meaning of section
3(21)(A)(ii)) with respect to those assets,
solely by reason of providing services to
the plan or solely by reason of a
relationship to such a service provider
described in ERISA section 3(14)(F), (G),
(H) or (I), or both, but only if in
connection with such transaction the
plan receives no less, nor pays more,
than adequate consideration.6 The
Department notes that to the extent that
a transaction involving a loan of
securities by a plan to a party in interest
meets the requirements of ERISA
section 408(b)(17), such transaction
does not need to comply with the terms
of this class exemption. The Department
further notes that the new section
408(b)(17) will not be available for the
payment of compensation to a plan’s
securities lending agent. In this regard,
see 408(b)(2) of ERISA and section I(c)
of this final exemption for relief
permitting the payment of
compensation related to foreign
securities lending services.
6 Section 611(d)(2) of the PPA provided similar
exemptive relief in amending section 4975 of the
Code to add the new section 4975(c)(20).

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63795

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 section 408(a) of
ERISA and section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in
interest or disqualified person from certain
other provisions of ERISA and the Code.
These provisions include any prohibited
transaction provisions to which the
exemption does not apply and the general
fiduciary responsibility provisions of section
404 of ERISA which, among other things,
require a fiduciary to discharge his duties
respecting the plan solely in the interest of
the participants and beneficiaries of the plan
and in a prudent fashion in accordance with
section 404(a)(1)(B) of ERISA; nor does it
affect the requirement of section 401(a) of the
Code that the plan must operate for the
exclusive benefit of the employees of the
employer maintaining the plan and their
beneficiaries;
(2) In accordance with section 408(a) of
ERISA and section 4975(c)(2) of the Code,
and based on the entire record, the
Department finds that the exemption is
administratively feasible, in the interests of
the plan(s) and of its participants and
beneficiaries, and protective of the rights of
the participants and beneficiaries of the plan;
(3) This exemption is supplemental to, and
not in derogation of, any other provisions of
ERISA and the Code, 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 whether the
transaction is in fact a prohibited transaction;
and
(4) The class exemption is applicable to a
particular transaction only if the transaction
satisfies the conditions specified in the class
exemption.

Exemption
Accordingly, the following exemption
is granted under the authority of section
408(a) of ERISA and section 4975(c)(2)
of the Code and in accordance with the
procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, August
10, 1990).
I. Transactions
(a) Effective January 2, 2007, the
restrictions of section 406(a)(1)(A)
through (D) of ERISA and the taxes
imposed by section 4975(a) and (b) of
the Code by reason of section
4975(c)(1)(A) through (D) of the Code
shall not apply to the lending of
securities that are assets of an employee
benefit plan to a ‘‘U.S. Broker-Dealer’’ or
to a ‘‘U.S. Bank,’’ provided that the
conditions set forth in section II below
are met.
(b) Effective January 2, 2007, the
restrictions of section 406(a)(1)(A)
through (D) of ERISA and the taxes
imposed by section 4975(a) and (b) of

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the Code by reason of section
4975(c)(1)(A) through (D) of the Code
shall not apply to the lending of
securities that are assets of an employee
benefit plan to a ‘‘Foreign BrokerDealer’’ or ‘‘Foreign Bank’’, provided
that the conditions set forth in sections
II and III below are met.
(c) Effective January 2, 2007, the
restrictions of section 406(b)(1) of
ERISA and the taxes imposed by section
4975(a) and (b) of the Code by reason of
section 4975(c)(1)(E) of the Code shall
not apply to the payment to a fiduciary
(the Lending Fiduciary) of
compensation for services rendered in
connection with loans of plan assets
that are securities, provided that the
conditions set forth in section IV below
are met.
II. General Conditions For Transactions
Described in Sections I(a) and I(b)
(a) Neither the borrower nor any
affiliate of the borrower has or exercises
discretionary authority or control with
respect to the investment of the plan
assets involved in the transaction, or
renders investment advice (within the
meaning of 29 CFR 2510.3–21(c)) with
respect to those assets;
(b) The plan receives from the
borrower by the close of the Lending
Fiduciary’s business on the day in
which the securities lent are delivered
to the borrower, (1) ‘‘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
100 percent of the then market value of
the securities lent; or
(2) ‘‘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:

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(i) 102 percent of the then market value of
the securities lent as valued on a recognized
securities exchange (as defined in section
V(j)) or an automated trading system (as
defined in section V(k)) on which the
securities are primarily traded if the
collateral posted is denominated in the same
currency as the securities lent, or
(ii) 105 percent of the then market value of
the securities lent as valued on a recognized
securities exchange (as defined in section
V(j)) or an automated trading system (as
defined in V(k)) on which the securities are
primarily traded if the collateral posted is
denominated in a different currency than the
securities lent.

Notwithstanding the foregoing, if the
Lending Fiduciary is a U.S. Bank or U.S.
Broker-Dealer, and such Lending
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

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collateral on the date of a borrower
default, the plan receives from the
borrower by the close of the Lending
Fiduciary’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) 100 percent of the then market value of
the securities lent as valued on a recognized
securities exchange (as defined in section
V(j)) or an automated trading system (as
defined in section V(k)) on which the
securities are primarily traded if the
collateral posted is denominated in the same
currency as the securities lent; or
(ii) 101 percent of the then market value of
the securities lent as valued on a recognized
securities exchange (as defined in section
V(j)) or an automated trading system (as
defined in V(k)) 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) 105 percent of the then market value
of the securities lent as valued on a
recognized securities exchange (as defined in
section V(j)) or an automated trading system
(as defined in V(k)) if the collateral posted is
denominated in a different currency than the
securities lent and such currency is other
than those specified above.

(c)(1) If the borrower is a U.S. Bank
or U.S. Broker-Dealer, the Plan receives
such U.S. Collateral or Foreign
Collateral from the borrower by the
close of the Lending Fiduciary’s
business on the day in which the
securities are delivered to the borrower.
Such collateral is received by the plan
either by physical delivery, wire transfer
or by book entry in a securities
depository located in the United States.
or,
(2) If the borrower is a Foreign Bank
or Foreign Broker-Dealer, the plan
receives U.S. Collateral or Foreign
Collateral from the borrower by the
close of the Lending Fiduciary’s
business on the day in which the
securities are delivered to the borrower.
Such collateral is received by the 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 plan at an
Eligible Securities Depository. The
indicia of ownership of such collateral
shall be maintained in accordance with
section 404(b) of ERISA and 29 CFR
2550.404b–1.
(d) Prior to making of any such loan,
the borrower shall have furnished the
Lending Fiduciary with:
(1) The most recent available audited
statement of the borrower’s financial

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condition, as audited by a United States
certified public accounting firm or in the case
of a 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
Foreign Broker-Dealer or Foreign Bank;
(2) The most recent available unaudited
statement of its financial condition (if the
unaudited statement is more recent than such
audited financial statement); and
(3) 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 plan that has not
been disclosed to the Lending Fiduciary.
Such representations may be made by the
borrower’s agreement that each loan shall
constitute a representation by the borrower
that there has been no such material adverse
change.

(e) The loan is made pursuant to a
written loan agreement, the terms of
which are at least as favorable to the
plan as an arm’s-length transaction with
an unrelated party would be. Such loan
agreement states that the plan has a
continuing security interest in, title to,
or the rights of a 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.
(f) In return for lending securities, the
plan:
(1) Receives a reasonable fee (in
connection with the securities lending
transaction), and/or
(2) Has the opportunity to derive
compensation through the investment of
the currency collateral. Where the plan
has that opportunity, the plan may pay
a loan rebate or similar fee to the
borrower, if such fee is not greater than
the plan would pay in a comparable
transaction with an unrelated party.
(g) All fees and other consideration
received by the 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 shall be disclosed to the plan
either in the written loan agreement or
the loan confirmation as agreed to by
the borrower and the plan (or Lending
Fiduciary) prior to the making of the
loan.
(h) The 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;
(i) 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

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Federal Register / Vol. 71, No. 210 / Tuesday, October 31, 2006 / Notices
securities at the close of trading on that
day (as described in section II(b) of this
exemption), then the 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 borrower if the
market value of the collateral exceeds
the applicable percentage (described in
section II(b)) of the 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;
(j) The loan may be terminated by the
plan at any time, whereupon the
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 plan
within the lesser of:
(1) The customary delivery period for
such securities,
(2) Five business days, or
(3) The time negotiated for such
delivery by the plan and the borrower.
(k) In the event that the loan is
terminated, and the borrower fails to
return the borrowed securities or the
equivalent thereof within the applicable
time described in section II(j) above, the
plan may, under the terms of the loan
agreement:

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(1) 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
(2) The borrower is obligated, under the
terms of the loan agreement, to pay, and does
pay to the plan the amount of any remaining
obligations and expenses not covered by the
collateral, including reasonable attorney’s
fees incurred by the plan for legal action
arising out of default on the loans, plus
interest at a reasonable rate.

Notwithstanding the foregoing, the
borrower may, in the event the 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 Lending
Fiduciary.

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(l) If the borrower fails to comply with
any provision of a loan agreement
which requires compliance with this
exemption, the plan fiduciary who
caused the plan to engage in such
transaction shall not be deemed to have
caused the plan to engage in a
transaction prohibited by section
406(a)(1)(A) through (D) of ERISA solely
by reason of the borrower’s failure to
comply with the conditions of the
exemption.
III. Specific Conditions For Transactions
Described in Section I(b)
(a) The Lending Fiduciary 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 a Foreign Broker-Dealer that is
described in section V(c)(1) or a Foreign
Bank that is described in section V(d)(1)
either:
(1) The 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 (the Process Agent);
consents to service of process on the Process
Agent; and agrees that any enforcement by a
plan of its rights under the securities lending
agreement will, at the option of the plan,
occur exclusively in the United States courts;
or
(2) The Lending Fiduciary, if a U.S. Bank
or U.S. Broker-Dealer, agrees to indemnify
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 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 plan may
incur or suffer directly arising out of a
borrower default by the Foreign BrokerDealer or Foreign Bank.

(c) In the case of a securities lending
transaction involving a Foreign BrokerDealer that is described in section
V(c)(2) or a Foreign Bank that is
described in section V(d)(2), the
Lending Fiduciary must be a U.S. Bank
or U.S. Broker-Dealer, and prior to
entering into the loan transaction, such
fiduciary must agree to indemnify 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 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 plan may incur or
suffer directly arising out of a borrower

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default by the Foreign Broker-Dealer or
Foreign Bank.
IV. Specific Conditions for Transactions
Described in Section I(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 Lending Fiduciary is
authorized to engage in securities
lending transactions on behalf of the
plan.
(c) The compensation 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 IV(f), the arrangement under
which the compensation is paid:
(1) Is subject to the prior written
authorization of a plan fiduciary (the
‘‘authorizing fiduciary’’), who is (other than
in the case of a plan covering only employees
of the Lending Fiduciary or any affiliates of
such fiduciary) independent of the Lending
Fiduciary and of any affiliate thereof, and
(2) May be terminated by the authorizing
fiduciary within:
(A) The time negotiated for such notice of
termination by the plan and the Lending
Fiduciary, or
(B) five business days, whichever is less, in
either case without penalty to the plan.

(e) No such authorization is made or
renewed unless the Lending Fiduciary
shall have furnished the authorizing
fiduciary with any reasonably available
information which the Lending
Fiduciary 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 IV(d) of this
exemption shall not apply, provided
that:
(1) The information described in section
IV(e) (including information with respect to
any material change in the arrangement) shall
be furnished by the Lending Fiduciary to the
authorizing fiduciary described in section
IV(d) with respect to each 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;

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63798

Federal Register / Vol. 71, No. 210 / Tuesday, October 31, 2006 / Notices

(2) In the event any such authorizing
fiduciary submits a notice in writing to the
Lending Fiduciary objecting to the
implementation of, material change in, or
continuation of the arrangement, the 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 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 nonwithdrawing plans. In the case of a 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 plan
electing to withdraw; and
(3) In the case of a plan whose assets are
proposed to be invested in the account or
fund subsequent to the implementation of the
compensation arrangement and which has
not authorized the arrangement in the
manner described in sections IV(f)(1) and
IV(f)(2), the plan’s investment in the account
or fund shall be authorized in the manner
described in section IV(d)(1).

V. Definitions

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For purposes of this exemption:
(a) The term ‘‘U.S. Broker-Dealer’’ means a
broker-dealer registered under the Securities
Exchange Act of 1934 (the 1934 Act or the
Exchange 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).
(b) The term ‘‘U.S. Bank’’ means a bank as
defined in section 202(a)(2) of the Investment
Advisers Act.
(c) The term ‘‘Foreign Broker-Dealer’’
means a broker-dealer that has, as of the last
day of its most recent fiscal year, equity
capital that is equivalent of no less than $200
million and is:
(1) (i) Registered and regulated under the
laws of the Financial Services Authority in
the United Kingdom, or
(ii)(a) registered and regulated by a
securities commission of a Province of
Canada that is a member of the Canadian
Securities Administration, and (b) is subject
to the oversight of a Canadian self-regulatory
authority; or
(2) 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: (i) An individual exemption,
granted by the Department under section
408(a) of ERISA, involving the loan of
securities by a plan to a broker-dealer or (ii)
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 broker-dealer.
(d) The term ‘‘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, has
as of the last day of its most recent fiscal

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17:02 Oct 30, 2006

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year, equity capital which is equivalent of no
less than $200 million, and is subject to:
(1) Regulation by the Financial Services
Authority in the United Kingdom or the
Office of the Superintendent of Financial
Institutions in Canada, 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.
(e) The term ‘‘U.S. Collateral’’ means:
(1) U.S. currency;
(2) ‘‘government securities’’ as defined in
section 3(a)(42)(A) and (B) of the Exchange
Act;
(3) ‘‘government securities’’ as defined in
section 3(a)(42)(C) of the Exchange 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 Exchange 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
Exchange 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 or an
affiliate thereof, or any combination, thereof.
(f) The term ‘‘Foreign Collateral’’ means:
(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 InterAmerican 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 Exchange Act as amended from
time to time provided that the lending
fiduciary is a U.S. Bank or U.S. Broker-Dealer

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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) will be
considered U.S. Collateral for purposes of the
exemption.
(g) The term ‘‘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;
(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.
(h) The term ‘‘control’’ means the power to
exercise a controlling influence over the
management or policies of a person other
than an individual.
(i) The term ‘‘Eligible Securities
Depository’’ means an eligible securities
depository as that term is defined under Rule
17f-7 of the Investment Company Act of 1940
[15 U.S.C. 80a], as such definition may be
amended from time to time.
(j) The term ‘‘recognized securities
exchange’’ means a U.S. securities exchange
that is registered as a ‘‘national securities
exchange’’ under section 6 of the Exchange
Act of 1934 (15 U.S.C. 78f) or a designated
offshore securities market as defined in
Regulation S of the Securities Act of 1933 [17
CFR part 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 the
definitions under the applicable securities
laws (e.g., 17 CFR part 240.3b-16).
(k) The term ‘‘automated trading system’’
means an electronic trading system that
functions in a manner intended to simulate
a securities exchange by electronically
matching orders on an agency basis from
multiple buyers and sellers such as an
‘‘alternative trading system’’ within the
meaning of SEC’s Reg. ATS [17 CFR part
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 Securities and Exchange
Act of 1934 [15 U.S.C. 78c(a)(51)(A)(ii)].
(l) The term ‘‘lending of securities’’ or
‘‘loan of securities’’ shall include securities
loans that are structured as repurchase
agreements provided, that all terms of the
exemption are otherwise met.

VI. Effective Dates
(a) This exemption is effective on
January 2, 2007.
(b) PTEs 81–6 and 82–63 are revoked
effective January 2, 2007.

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Federal Register / Vol. 71, No. 210 / Tuesday, October 31, 2006 / Notices
Signed at Washington, DC, this 25th day of
October, 2006.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. E6–18238 Filed 10–30–06; 8:45 am]
BILLING CODE 4510–29–P

DEPARTMENT OF LABOR
Employment and Training
Administration

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Notice of Determinations Regarding
Eligibility To Apply for Worker
Adjustment Assistance and Alternative
Trade Adjustment Assistance
In accordance with Section 223 of the
Trade Act of 1974, as amended (19
U.S.C. 2273) the Department of Labor
herein presents summaries of
determinations regarding eligibility to
apply for trade adjustment assistance for
workers (TA–W) number and alternative
trade adjustment assistance (ATAA) by
(TA–W) number issued during the
period of October 2 through October 6,
2006.
In order for an affirmative
determination to be made for workers of
a primary firm and a certification issued
regarding eligibility to apply for worker
adjustment assistance, each of the group
eligibility requirements of Section
222(a) of the Act must be met.
I. Section (a)(2)(A) all of the following
must be satisfied:
A. A significant number or proportion
of the workers in such workers’ firm, or
an appropriate subdivision of the firm,
have become totally or partially
separated, or are threatened to become
totally or partially separated;
B. The sales or production, or both, of
such firm or subdivision have decreased
absolutely; and
C. Increased imports of articles like or
directly competitive with articles
produced by such firm or subdivision
have contributed importantly to such
workers’ separation or threat of
separation and to the decline in sales or
production of such firm or subdivision;
or
II. Section (a)(2)(B) both of the
following must be satisfied:
A. A significant number or proportion
of the workers in such workers’ firm, or
an appropriate subdivision of the firm,
have become totally or partially
separated, or are threatened to become
totally or partially separated;
B. There has been a shift in
production by such workers’ firm or
subdivision to a foreign country of
articles like or directly competitive with

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articles which are produced by such
firm or subdivision; and
C. One of the following must be
satisfied:
1. The country to which the workers’
firm has shifted production of the
articles is a party to a free trade
agreement with the United States;
2. The country to which the workers’
firm has shifted production of the
articles to a beneficiary country under
the Andean Trade Preference Act,
African Growth and Opportunity Act, or
the Caribbean Basin Economic Recovery
Act; or
3. There has been or is likely to be an
increase in imports of articles that are
like or directly competitive with articles
which are or were produced by such
firm or subdivision.
Also, in order for an affirmative
determination to be made for
secondarily affected workers of a firm
and a certification issued regarding
eligibility to apply for worker
adjustment assistance, each of the group
eligibility requirements of Section
222(b) of the Act must be met.
(1) Significant number or proportion
of the workers in the workers’ firm or
an appropriate subdivision of the firm
have become totally or partially
separated, or are threatened to become
totally or partially separated;
(2) The workers’ firm (or subdivision)
is a supplier or downstream producer to
a firm (or subdivision) that employed a
group of workers who received a
certification of eligibility to apply for
trade adjustment assistance benefits and
such supply or production is related to
the article that was the basis for such
certification; and
(3) Either—
(A) The workers’ firm is a supplier
and the component parts it supplied for
the firm (or subdivision) described in
paragraph (2) accounted for at least 20
percent of the production or sales of the
workers’ firm; or
(B) A loss of business by the workers’
firm with the firm (or subdivision)
described in paragraph (2) contributed
importantly to the workers’ separation
or threat of separation.
In order for the Division of Trade
Adjustment Assistance to issue a
certification of eligibility to apply for
Alternative Trade Adjustment
Assistance (ATAA) for older workers,
the group eligibility requirements of
Section 246(a)(3)(A)(ii) of the Trade Act
must be met.
1. Whether a significant number of
workers in the workers’ firm are 50
years of age or older.
2. Whether the workers in the
workers’ firm possess skills that are not
easily transferable.

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3. The competitive conditions within
the workers’ industry (i.e., conditions
within the industry are adverse).
Affirmative Determinations for Worker
Adjustment Assistance
The following certifications have been
issued. The date following the company
name and location of each
determination references the impact
date for all workers of such
determination.
The following certifications have been
issued. The requirements of Section
222(a)(2)(A) (increased imports) of the
Trade Act have been met.
None.
The following certifications have been
issued. The requirements of Section
222(a)(2)(B) (shift in production) of the
Trade Act have been met.
None.
The following certifications have been
issued. The requirements of Section
222(b) (supplier to a firm whose workers
are certified eligible to apply for TAA)
of the Trade Act have been met.
None.
The following certifications have been
issued. The requirements of Section
222(b) (downstream producer for a firm
whose workers are certified eligible to
apply for TAA based on increased
imports from or a shift in production to
Mexico or Canada) of the Trade Act
have been met.
None.
Affirmative Determinations for Worker
Adjustment Assistance and Alternative
Trade Adjustment Assistance
The following certifications have been
issued. The date following the company
name and location of each
determination references the impact
date for all workers of such
determination.
The following certifications have been
issued. The requirements of Section
222(a)(2)(A) (increased imports) and
Section 246(a)(3)(A)(ii) of the Trade Act
have been met.
TA–W–60,003; Central Products Co.,
Brighton, CO: September 1, 2005.
TA–W–60,084; Hekman Furniture Co.,
Grand Rapids, MI: September 13,
2005.
TA–W–60,177; Hooker Furniture Corp.,
Martinsville, VA: September 29,
2005.
TA–W–59,980; Mechanical Products
Manufacturing, Co., Lucasville, OH:
August 18, 2005.
The following certifications have been
issued. The requirements of Section
222(a)(2)(B) (shift in production) and
Section 246(a)(3)(A)(ii) of the Trade Act
have been met.

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