[Federal Register Volume 66, Number 215 (Tuesday, November 6, 2001)]
[Notices]
[Pages 56130-56133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27754]



[[Page 56130]]

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PENSION AND WELFARE BENEFITS ADMINISTRATION

[Prohibited Transaction Exemption (PTE) 2001-45; Exemption Application 
No. D-10946]


Grant of Individual Exemption To Amend PTE 99-45, Involving 
Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), Located in 
New York, NY

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of 
Labor.

ACTION: Grant of individual exemption to modify PTE 99-45.

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SUMMARY: This document contains a final exemption before the Department 
of Labor (the Department) that amends PTE 99-45 (64 FR 61138, November 
9, 1999), an exemption issued to DLJ. PTE 99-45, which is effective as 
of September 24, 1999, permits the (1) purchase or sale of a security 
between certain affiliates of DLJ which are foreign broker-dealers (the 
Foreign Affiliates) and employee benefit plans (the Plans) with respect 
to which the Foreign Affiliates are parties in interest, including 
options written by a Plan, DLJ or the Foreign Affiliates; (2) the 
extension of credit to the Plans by the Foreign Affiliates to permit 
the settlement of securities transactions that are effected on either 
an agency or a principal basis, or in connection with the writing of 
options contracts; and (3) the lending of securities to the Foreign 
Affiliates by the Plans. These transactions are described in a notice 
of pendency that was published by the Department on September 7, 2001 
at 66 FR 46826 and clarified on September 17, 2001 by a Notice of 
Technical Correction (66 FR 48067), also issued by the Department.
    The final exemption expands the scope of PTE 99-45 in order that it 
will apply to both current and future Foreign Affiliates of DLJ and 
Credit Suisse First Boston Corporation (CSFB) that are located in the 
United Kingdom and Australia and subject to the securities regulatory 
entities within these jurisdictions. In addition, the final exemption 
incorporates, by reference, many of the facts. representations and 
conditions contained in PTE 99-45, as well as certain revisions made in 
the Notice of Technical Correction.

EFFECTIVE DATE:  This exemption is effective as of November 3, 2000.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, telephone (202) 219-8881. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: On September 7, 2001, the Department 
published a notice of proposed exemption in the Federal Register at 66 
FR 46826, that would amend PTE 99-45. PTE 99-45 provides an exemption 
form certain prohibited transaction restrictions of section 406 of the 
Employee Retirement Income Security Act of 1974 (the Act) and from the 
sanctions resulting from the application of section 4975 of the 
Internal Revenue Code of 1986 (the Code), as amended, by reason of 
section 4975(c)(1) of the Code. The proposed exemption was requested in 
an application filed on behalf of DLJ and CSFB pursuant to section 
408(a) of the Act 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 
32826, August 10, 1990). Effective December 31, 1978, section 102 of 
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) 
transferred the authority of the Secretary of the Treasury to issue 
exemptions of the type requested to the Secretary of Labor. 
Accordingly, this exemption is being issued solely by the Department.
    The proposed exemption gave interested persons an opportunity to 
comment and to request a hearing. In this regard, all interested 
persons were invited to submit written comments or requests for a 
hearing on the pending exemption on or before October 22, 2001. All 
comments were to be made a part of the record. During the comment 
period, the Department received no comments or hearing requests from 
interested persons.

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 the Act 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 the Act and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which require, among other things, a fiduciary to 
discharge his or her duties respecting the plan solely in the itnerest 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it 
affect the requirements of section 401(a) of the Code that the plan 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) The exemption does not extend to transactions prohibited under 
section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;
    (3) In accordance with section 408(a) of the act, section 
4975(c)(2), of the Code, and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, August 10, 1990), the Department finds 
that the exemption is administratively feasible, in the interest of the 
plan and of its participants and beneficiaries and protective of the 
rights of participants and beneficiaries of the plan;
    (4) The exemption is supplemental to, and not in derogation of, any 
other provision of the Act and the Code, including statutory or 
administrative exemptions. 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
    (5) This exemption is subject to the express condition that the 
facts and representations set forth in the notice of proposed 
exemption, the Notice of Technical Correction, and the proposed and 
final exemptions relating to PTE 99-45, accurately describe, where 
relevant, the material terms of the transactions to be consummated 
pursuant to this exemption.

Exemption

    Under the authority of section 408(a) of the Act 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), the 
Department hereby amends PTE 99-45 as follow:

Section I. Covered Transactions

    A. The restrictions of section 406(a)(1)(A) through (D) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply, effective November 3, 2000, to any purchase or sale of a 
security between certain affiliates of Donaldson, Lufkin & Jenrette 
Securities Corporation (DLJ) or Credit Suisse First Boston Corporation 
(CSFB) which are foreign broker-dealers (the Foreign Affiliates, as 
defined below) and employee benefit plans (the Plans) with respect to 
which the Foreign Affiliates are parties in interest, including options 
written by a Plan, DLJ, CSFB, or a Foreign Affiliate, provided that the 
following conditions

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and the General Conditions of Section II, are satisfied:
    (1) The Foreign Affiliate customarily purchases and sells 
securities for its own account in the ordinary course of its business 
as a broker-dealer;
    (2) The terms of any transaction are at least as favorable to the 
Plan as those which the Plan could obtain in a comparable arm's length 
transaction with an unrelated party; and
    (3) Neither the Foreign Affiliate nor an affiliate thereof has 
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, and the Foreign Affiliate is a party in interest or 
disqualified person with respect to the Plan assets involved in the 
transaction solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections. For purposes of this paragraph, the Foreign 
Affiliate shall not be deemed to be a fiduciary with respect to Plan 
assets solely by reason of providing securities custodial services for 
a Plan.
    B. The restrictions of sections 406(a)(1)(A) through (D) and 
406(b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(D) of the Code, shall not apply, effective November 3, 2000, to any 
extension of credit to the Plans by the Foreign Affiliates to permit 
the settlement of securities transactions regardless of whether they 
are effected on an agency or a principal basis, or in connection with 
the writing of options contracts, provided that the following 
conditions and the General Conditions of Section II are satisfied:
    (1) The Foreign Affiliate is not a fiduciary with respect to any 
Plan assets involved in the transaction, unless no interest or other 
consideration is received by the Foreign Affiliate or an affiliate 
thereof, in connection with such extension of credit; and
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934 (the 1934 Act) and any rules or regulations 
thereunder if such Act, rules or regulations were applicable.
    C. The restrictions of section 406(a)(1)(A) through (D) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply, effective November 3, 2000, to the lending of securities to 
the Foreign Affiliates by the Plans, provided that the following 
conditions and the General Conditions of Section II are satisfied:
    (1) Neither the Foreign Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
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;
    (2) The Plan receives from the Foreign Affiliate (by physical 
delivery or by book entry in a securities depository, wire transfer, or 
similar means) by the close of business on the day on which the loaned 
securities are delivered to the Foreign Affiliate, collateral 
consisting of cash, securities issued or guaranteed by the U.S. 
Government or its agencies or instrumentalities, or irrevocable U.S. 
bank letters of credit issued by persons other than the Foreign 
Affiliate or an affiliate of the Foreign Affiliate, or any combination 
thereof. All collateral shall be in U.S. dollars, or dollar-denominated 
securities or bank letters of credit, and shall be held in the United 
States;
    (3) The collateral has, as of the close of business on the 
preceding business day, a market value equal to at least 100 percent of 
the then market value of the loaned securities (or, in the case of 
letters of credit, a stated amount equal to same);
    (4) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains items at 
least as favorable to the Plan as those the Plan could obtain in an 
arm's length transaction with an unrelated party;
    (5) In return for lending securities, the Plan either (a) receives 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than the Plan would pay 
an unrelated party in a comparable arm's length transaction with an 
unrelated party;
    (6) The Plan receives at least the equivalent of all distributions 
on the borrowed securities made during the term of the loan, including, 
but not limited to, cash dividends, interest payments, shares of stock 
as a result of stock splits and rights to purchase additional 
securities that the Plan would have received (net of tax withholdings) 
\1\ had it remained the record owner of such securities.
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    \1\ The Department notes the Applicants' representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan may be subject to foreign tax withholdings and that the 
Foreign Affiliate will always put the Plan back in at least as good 
a position as it would have been in had it not lent the securities.
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    (7) If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate delivers additional collateral, by the close of the 
Plan's business on the following business day, to bring the level of 
the collateral back to at least 100 percent. However, if the market 
value of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent;
    (8) Before entering into a Loan Agreement, the Foreign Affiliate 
furnishes to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change;
    (9) The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
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 (a) the customary delivery period for such securities, 
(b) five business days, or (c) the time negotiated for such delivery by 
the Plan and the Foreign Affiliate, whichever is least, or, 
alternatively such period as permitted by Prohibited Transaction Class 
Exemption (PTCE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 
FR 18754, May 19, 1987), as it may be amended or superseded.\2\
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    \2\ PTCE 81-6 provides an exemption under certain conditions 
from section 406(a)(1)(A) through (D) of the Act and the 
corresponding provisions of section 4975 (c) of the Code for the 
lending of securities that are assets of an employee benefits plan 
to a U.S. broker-dealer registered under the 1934 Act (or exempted 
from registration under the 1934 Act as a dealer in exempt 
Government securities, as defined therein).

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    (10) In the event that the loan is terminated and the Foreign 
Affiliate fails to return the borrowed securities or the equivalent 
thereof within the time described in paragraph (9), the Plan may 
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 Foreign 
Affiliate under the Loan Agreement, and any expenses associated with 
the sale and/or purchase. The Foreign Affiliate is obligated to pay, 
under the terms of the Loan Agreement, and does not pay, to the Plan, 
the amount of any remaining obligations and expenses not covered by the 
collateral, plus interest at a reasonable rate. Notwithstanding the 
foregoing, the Foreign Affiliate may, in the event it fails to return 
borrowed securities as described above, replace non-cash collateral 
with an amount of cash not less than the then current market value of 
the collateral, provided that such replacement is approved by the 
independent Plan fiduciary; and
    (11) The independent Plan fiduciary maintains the situs of the Loan 
Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404b-1. However, in the event that the independent Plan 
fiduciary does not maintain the situs of the Loan Agreement in 
accordance with the indica of ownership requirements of section 404(b) 
of the Act, the Foreign Affiliate shall not be subject to the civil 
penalty which may be assessed under section 502(i) of the Act, or the 
taxes imposed by section 4975(a) and (b) of the Code.
    If the Foreign Affiliate fails to comply with any condition of this 
exemption in the course of engaging in a securities lending 
transaction, the Plan fiduciary which 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 the Act 
solely by reason of the Foreign Affiliate's failure to comply with the 
conditions of the exemption.

Section II. General Conditions

    A. The Foreign Affiliate is a registered broker-dealer subject to 
regulation by a governmental agency, as described in Section III. C., 
and is in compliance with all applicable rules and regulations thereof 
in connection with any transactions covered by this exemption;
    B. The Foreign Affiliate, in connection with any transactions 
covered by this exemption, is in compliance with the requirements of 
Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and 
Exchange Commission interpretations thereof, providing for foreign 
affiliates a limited exemption from U.S. broker-dealer registration 
requirements.
    C. Prior to the transaction, the Foreign Affiliate enters into a 
written agreement with the Plan in which the Foreign Affiliate consents 
to the jurisdiction of the courts of the United States for any civil 
action or proceeding brought in respect of the subject transactions.
    D. The Foreign Affiliate maintains, or causes to be maintained, 
within the United States for a period of six years from the date of any 
transaction such records as are necessary to enable the persons 
described in paragraph E. to determine whether the conditions of this 
exemption have been met except that--
    (1) A party in interest with respect to a Plan, other than the 
Foreign Affiliate, shall not be subject to a civil penalty under 
section 502(i) of the Act or the taxes imposed by section 4975(a) or 
(b) of the Code, if such records are not maintained, or are not 
available for examination, as required by paragraph E.; and
    (2) A prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the control of the Foreign Affiliate, 
such records are lost or destroyed prior to the end of such six year 
period;
    E. Notwithstanding the provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Foreign Affiliate makes the records 
referred to above in paragraph D., unconditionally available for 
examination during normal business hours at their customary location to 
the following persons or an authorized representative thereof:
    (1) The Department, the Internal Revenue Service or the SEC;
    (2) Any fiduciary of a Plan;
    (3) Any contributing employer to a Plan;
    (4) Any employee organization any of whose members are covered by a 
Plan; and
    (5) Any participant or beneficiary of a Plan. However, none of the 
persons described above in paragraphs (2)-(5) of this paragraph E. 
shall be authorized to examine trade secrets of the Foreign Affiliate, 
or any commercial or financial information which is privileged or 
confidential.
    F. Prior to any Plan's approval of any transaction with a Foreign 
Affiliate, the Plan is provided copies of the proposed and final 
exemption with respect to the exemptive relief granted herein.

Section III. Definitions

    For purposes of this exemption,
    A. The terms ``DLJ'' or ``CSFB'' as referred to in Section I., mean 
Donaldson, Lufkin & Jenrette Securities Corporation or Credit Suisse 
First Boston Corporation.
    B. The term ``affiliate'' of another person shall include:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director or partner. (For purposes of this definition, the 
term ``control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.)
    C. The term ``Foreign Affiliate,'' shall mean a current or future 
affiliate of DLJ or CSFB that is subject to regulation as a broker-
dealer by--
    (1) The Securities and Futures Authority, in the United Kingdom; or
    (2) The Australian Securities & Investments Commission in 
Australia.
    D. The term ``security'' shall include equities, fixed income 
securities, options on equity and on fixed income securities, 
government obligations, and any other instrument that constitutes a 
security under U.S. securities laws. The term ``security'' does not 
include swap agreements or other national principal contracts.

Section IV. Effective Date

    This exemption is effective as of November 3, 2000.
    The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application for exemption are true and complete and accurately describe 
all material terms of the transactions. In the case of continuing 
transactions, if any of the material facts or representations described 
in the applications change, the exemption will cease to apply as of the 
date of such change. In the event of any such change, an application 
for a new exemption must be made to the Department.

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    For a more complete statement of the facts and representations 
supporting the Department's decision to grant PTE 99-45 and this final 
exemption, refer to the proposed exemptions and the grant notices which 
are cited above.

    Signed at Washington, DC, this 31st day of October, 2001.
Ivan L. Strasfeld,
Director of Exemption, Determinations, Pension and Welfare Benefits, 
Administration, U.S. Department of Labor.
[FR Doc. 01-27754 Filed 11-5-01; 8:45 am]
BILLING CODE 4510-29-M