would incentivize pricing and valuation providers to create shielding structures to avoid fiduciary
duties.

In any case, if some or all of the parties in the typical valuation chain for financial instruments
are deemed to be ERISA fiduciaries, we understand that this would raise ERISA appointment,
delegation and monitoring issues. We are advised that many plans do not permit parties other than
the plan investment committee to delegate fiduciary responsibilities to third parties and that many
plan committees require that any party serving in a fiduciary capacity for the plan must meet
specified minimum net worth and insurance tests. Accordingly, given the attenuated network of
parties that may be involved in a valuation chain, imposing fiduciary status on valuation providers
would create a confusing and unworkable complex of delegations, duties and prohibited transaction
issues.

We are also advised that ERISA litigation has increased exponentially over the last decade
and a fiduciary’s exercise of the utmost care and expertise often does not insulate the fiduciary
against costly claims from an increasingly aggressive ERISA litigation industry. We have no doubt
that if the Proposed Rule exposes valuation firms like SPSE to fiduciary liability, the cost of doing
business will increase significantly for the valuation firms and their customers.

Because benefit plans represent a small fraction of the direct customer base for firms such as
SPSE, it is likely that valuation providers would cease to offer their services to plans. So-called plan
asset vehicles also represent only a fraction of the customer base for many valuation firms and it is
possible that valuation providers would curtail business with these customers as well.

Based on the foregoing, if the DOL intends to move forward with the Proposed Rule, we
would request that it modify the rule to make clear that valuation services such as those provided by
SPSE will not constitute “investment advice” under ERISA. This can be accomplished, for example,
by adding a provision to the Proposed Rule clarifying that a party engaged in the business of
publishing or providing valuations with respect to financial instruments shall not be deemed to be
providing “investment advice” when it publishes or provides the same valuations to multiple
independent and bona fide users of those valuations, provided that such valuations are not provided
or published for the purpose of influencing the pricing or other terms of any particular transaction or
series of transactions.

We would be happy to provide any additional information or to discuss these issues further
with you. Thank you for the opportunity to comment on the Proposed Rule.

Sincerely,

V_—

Louis V. Eccleston
President
Standard & Poor’s Securities Evaluations, Inc.

2/3/2011


provide are in no way similar to ESOP valuations. We are not retained by parties to transactions to
provide values for the transactions. Our valuations are not provided in the context of any particular
transaction and are not requested for this purpose. Again, we provide daily values on millions of
instruments and we assume that these values are not necessarily used to guide purchase or sale
decisions because, as noted, purchase and sale decisions will presumably be guided by the price
available in an actual transaction between the buyer and seller, which may vary from the value we
provide. We provide our valuation feed to a broad array of customers and we are not beholden to any
particular customer. Unlike the concerns identified by the DOL in the context of ESOPs, there is no
potential that our relationships with customers receiving our valuation feeds would influence the
information we provide.

Notwithstanding the foregoing, it is at least ambiguous whether the valuation feeds offered
pursuant to our Evaluated Price Service would be deemed to be “investment advice” under the
wording of the Proposed Rule as a result of either the reference in the Proposed Rule to the Advisers
Act or the general ambiguity of the Proposed Rule.

We believe that any rule that would treat our services as investment advice for purposes of
ERISA would be inconsistent with the intent of ERISA and its 35-year history and would be harmful
to plans, valuation providers and the broader market.

ERISA fiduciary status is inconsistent with the independence required of valuation providers
such as SPSE. It is expected that these valuation providers be independent of the customers receiving
their valuation feeds. The provision of independent, objective and impartial valuations is
fundamental to our customers’ use of such valuations for a variety of purposes, including executing
withdrawals and investments in pooled investment vehicles, assessing fees, portfolio monitoring and
financial reporting. The imposition of fiduciary liability on valuation providers such as SPSE would
be functionally inconsistent with the independence that we are required to maintain. For example, if
we were regarded as a fiduciary of a plan customer, we would be required to act solely in the best
interests of that plan and owe the highest duty of loyalty to the plan, which would undermine the
credibility of our valuations provided to all our customers.

If valuation providers such as SPSE and the various other pricing and valuation aggregators
are deemed to be fiduciaries, this would extend ERISA’s fiduciary responsibilities and prohibited
transaction rules throughout a complex and obscure chain of service providers. Many pricing and
valuation platforms receive components of their inputs from third parties, who in turn may get this
information from other reporting services. For example, as described earlier, SPSE receives daily
prices on equity securities from other sources and makes those prices available on SPSE’s daily feed
to SPSE customers. A customer may use these prices to value interests in a pooled investment
vehicle, shares of which are held by another pooled vehicle in which pension plans invest.

We would argue that these values should not attract fiduciary status. However, if the DOL
intends that in this type of scenario the valuation providers should be regarded as fiduciaries of the
plan, we assume that the DOL would not distinguish between whether the scenario involves so-called
plan asset vehicles or non-plan asset vehicles. If the values provided will eventually be used to value
a plan’s total assets or a plan’s allocation to a particular asset class, it should not matter if or at what
point in the chain the valuation of an underlying instrument is passed from a non-plan asset user to a
plan asset user. Nor should fiduciary status depend on a valuation provider’s level of remoteness
from the ultimate customer or the plan which eventually receives a value. Any such distinctions

2/3/2011


The McGraw-Hill companies Preset Nem York NY. 10044

McGraw-Hill Financial 212 438 5774Tel
Standard & Poor's Securities 212 438 1245 Fax
Evaluations, Inc,

February 3, 2011

Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW
Washington, DC 20210

Re: _ Definition of ERISA Fiduciaries Under the Proposed Rule (29 CFR Part 2510)
Ladies and Gentlemen:

The Department of Labor (the “DOL”) has requested comments on the proposed rule which
defines the circumstances under which a person is considered to be a “fiduciary” under the Employee
Retirement Income Security Act (“ERISA”), by reason of providing “investment advice” to an
employee benefit plan or a plan’s participants (the “Proposed Rule”). We thank you for the
opportunity to comment.

Introduction

As described in greater detail below, Standard & Poor’s Securities Evaluations, Inc. (“SPSE”)
is in the business of providing to our customers independent, objectively determined and standardized
daily pricing evaluations on over three million different securities and financial instruments, derived
predominantly by reference to market prices and market analyses.

Under the regulations and authorities that have been in place since the enactment of ERISA 35
years ago, our services are not deemed to involve the provision of “investment advice” for purposes of
ERISA. We believe that the DOL intended that the same result would be achieved under the
Proposed Rule with respect to our core evaluated pricing service. However, as discussed in greater
detail below, in light of the ambiguity of the Proposed Rule in this regard, if the DOL decides to adopt
the Proposed Rule, we would request that the DOL include in the Proposed Rule provisions which
make clear that the services provided by SPSE will not be considered “investment advice” under
ERISA.

Operative Provisions of ERISA and the Existing and Proposed Regulations

Under ERISA, a party will be a fiduciary of a benefit plan if the party administers the plan,
exercises discretion with respect to the plan’s assets or provides “investment advice” to the plan in
exchange for compensation. Ifa party is deemed to be a fiduciary of a plan, the party will be subject
to various fiduciary duties and transaction prohibitions under ERISA.

Under the Proposed Rule, a party would be deemed to provide “investment advice” if the
party provides advice, or an appraisal or fairness opinion, concerning the value of securities or other

2/3/2011


property and is an investment adviser within the meaning of the Investment Advisers Act of 1940
(the “Advisers Act”) or otherwise provides this advice pursuant to an understanding that the advice
may be considered in connection with making investment or management decisions with respect to
plan assets, and will be individualized to the needs of the plan, a plan fiduciary or a participant or
beneficiary.

The DOL has made clear that at least certain asset appraisals are intended to be treated as
“investment advice” under the Proposed Rule. The DOL’s primary concern appears to be potential
abuses with respect to valuation appraisal reports provided in connection with Employee Stock
Ownership Plan (“ESOP”) transactions, but it is unclear from the Proposed Rule what, if any, other
pricing, quotation and valuation sources will be affected.

There is a wide and ever-evolving variety of sources offering pricing, quotation and valuation
information to the markets and we would urge the DOL to study the potential impacts to this aspect
of the financial markets before it moves forward with the Proposed Rule. We assume that the core
services offered by SPSE and the majority of other broader market sources are not intended to be
considered “investment advice” under the Proposed Rule, but the ambiguity of the Proposed Rule in
this regard raises significant uncertainty and concern for both service providers and plan
representatives.

SPSE Services

Our Evaluated Price Service provides clients with independent, objectively determined and
standardized daily pricing on over three million securities and other financial instruments. SPSE is
registered under the Advisers Act and has approximately 55 employees who function as pricing
analysts in its evaluated pricing business.

Our customer base encompasses a wide variety of institutional investors, including banks,
insurance companies and managers of mutual funds and other pooled investment vehicles. For
example, managers of mutual funds require daily independent values for the portfolio securities held
by those mutual funds for purposes of reflecting net asset values to the market, executing purchases
and redemptions of fund shares and calculating fund fees. These customers enter into contracts with
SPSE pursuant to which SPSE provides them with access to SPSE’s valuations. Some customers
receive a valuation feed of all or virtually all the securities and financial instruments that SPSE
values, while others elect to receive valuation feeds relating to a designated subset of securities and
instruments.

Our valuation feeds may also include values on equity securities and exchange-traded funds,
which are derived from third-party, market-based sources. Our feeds also cover fixed-income
securities, including notes, commercial paper, bonds, certificates of deposit, forward contracts,
convertible securities, asset-backed securities (including mortgage-backed securities), swaps and
other derivatives issued by government, municipal, corporate, agency and other entities. Our market
approach pricing uses data from a hierarchy of market sources regarding the instrument being priced
or, for less frequently traded securities, an instrument with similar characteristics. These sources
include reports related to securities trading levels provided under various market transparency efforts
(e.g., the FINRA Trade Reporting and Compliance Engine and the Municipal Securities Rulemaking
Board), information received from clients, information received from market participants and, in the
case of some non-rated bonds and other fixed-income instruments that have seen a pronounced drop
in credit quality, research conducted by SPSE.

2/3/20119:34:09 AM.


We do not tailor our valuations to any customer, customer type or group of customers.
Moreover, our valuations do not take into account a particular customer’s investment objectives,
financial situation or needs and they are not intended as a recommendation of a particular security,
financial instrument or strategy.

Although benefit plans do not constitute a significant part of our customer base, our valuation
feeds are applied in scenarios that might directly or indirectly impact plan investments. For example,
if a plan holds shares of a mutual fund, those shares might be valued by the manager of the mutual
fund based, in part, on values we provided to the manager relating to the portfolio securities of the
mutual fund. We understand that under other relevant DOL rules the portfolio securities of the
mutual fund in this scenario would not be plan assets of the investing plan, although the shares of the
mutual fund that are held by the plan would be plan assets.

The same values that we provide to mutual fund managers are also provided to other
customers. These customers include, for example, insurance companies, which may use these values
for purposes of their general and separate accounts, and banks, which may use the values for
purposes of their plan and non-plan trusts and custodial accounts. Due to the diverse set of customers
to whom our valuation feeds are provided and the range of end uses to which such values are put, the
valuation feeds that we provide are not provided pursuant to an understanding that these valuations
will be used as the basis for any particular investment or management decisions.

SPSE typically does not provide purpose-specific valuation services. Instead, we provide
values which our customers may use for a broad variety of purposes, such as striking a net asset value
for executing purchases and redemptions for pooled investment vehicles, computing asset
management fees, managing and rebalancing portfolios and preparing reports and accounting
statements. SPSE does not consult with its customers regarding the appropriateness of their use of
SPSE’s valuations for any particular purpose. SPSE also does not have the ability to discern whether
the valuations that it provides for any of its three million covered instruments are the appropriate
values for any particular use by customers or whether different value assumptions should be made by
customers. For example, while SPSE may indicate a market-derived value for a particular security or
class of securities, depending on liquidity, a customer may or may not be able to buy or sell those
securities for that value. Therefore, SPSE cannot determine whether the customer’s reliance on the
values reflected by SPSE is appropriate for any particular usage by the customer. Our customers are
typically sophisticated investment managers and financial institutions and we assume they use our
valuation feeds appropriately. However, because we cannot know or control our customers’ use of
our valuation feeds, we cannot be presumed to be able to play a fiduciary role with respect to our
customers or the plans with which they may, in turn, have relationships.

Investment advice under the Proposed Rule requires an undertaking to provide individualized
advice. We do not provide individualized valuations to our customers. Two different customers
receiving a value on the same security will receive the same value. Thus, by definition our valuations
are not individualized. As noted, some customers receive valuation feeds which include a designated
subset of the three million-plus instruments. However, we assume that the manner in which they are
delivered would not be sufficient to render our standardized valuations individualized advice.

We understand the DOL’s concern regarding valuations of a single, privately held stock in the
context of an ESOP transaction. We note that the DOL’s Proposed Rule has stirred significant debate
as to whether the provision of ESOP valuations should be regarded as “investment advice” and we
assume that the DOL intends to study this issue further. However, the valuation services that we

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