47060 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices

EFFECTIVE DATE: This exemption, if

granted, is effective as of December 10,

1996.

The availability of this proposed

exemption is subject to the express

condition that the material facts and

representations contained in the

applications for exemption are true and

complete and accurately describe all

material terms of the transactions.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant PTE 93–

40, refer to the proposed exemption and

grant notice which are cited above.

Signed at Washington, DC, this 2nd day of

September, 1997.

Ivan L. Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

Department of Labor.

[FR Doc. 97–23640 Filed 9–4–97; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Application No. D–10464 et al.]

Proposed Exemptions; NatWest

Securities Corporations

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of proposed exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions from certain of the

prohibited transaction restrictions of the

Employee Retirement Income Security

Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing

Requests

Unless otherwise stated in the Notice

of Proposed Exemption, all interested

persons are invited to submit written

comments, and with respect to

exemptions involving the fiduciary

prohibitions of section 406(b) of the Act,

requests for hearing within 45 days from

the date of publication of this Federal

Register Notice. Comments and requests

for a hearing should state: (1) The name,

address, and telephone number of the

person making the comment or request,

and (2) the nature of the person’s

interest in the exemption and the

manner in which the person would be

adversely affected by the exemption. A

request for a hearing must also state the

issues to be addressed and include a

general description of the evidence to be

presented at the hearing.

ADDRESSES: All written comments and

request for a hearing (at least three

copies) should be sent to the Pension

and Welfare Benefits Administration,

Office of Exemption Determinations,

Room N–5649, U.S. Department of

Labor, 200 Constitution Avenue, NW.,

Washington, DC 20210. Attention:

Application No. stated in each Notice of

Proposed Exemption. The applications

for exemption and the comments

received will be available for public

inspection in the Public Documents

Room of Pension and Welfare Benefits

Administration, U.S. Department of

Labor, Room N–5507, 200 Constitution

Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section

408(a) of the Act and/or section

4975(c)(2) of the Code, and in

accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR

32836, 32847, 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. Therefore, these notices of

proposed exemption are issued solely

by the Department.

The applications contain

representations with regard to the

proposed exemptions which are

summarized below. Interested persons

are referred to the applications on file

with the Department for a complete

statement of the facts and

representations.

NatWest Securities Corporation,

NatWest Securities Limited, Located in

New York, New York

[Application Nos. D–10464, D–10465]

Proposed Exemption

The Department is considering

granting an 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, 32847, August 10, 1990).

Section I—Transactions

A. Effective May 22, 1997, the

restrictions of section 406(a)(1) (A)

through (D) of the Employee Retirement

Income Security Act of 1974 (the Act)

and the taxes imposed by section 4975

(a) and (b) of the Internal Revenue Code

of 1986 (the Code), by reason of section

4975 (c)(1) (A) through (D) of the Code,

shall not apply to any purchase or sale

of a security between an employee

benefit plan and a broker-dealer

affiliated with NatWest Securities

Corporation and subject to British law

(NatWest/UK Affiliate), if the following

conditions, and the conditions of

Section II, are satisfied:

(1) The NatWest/UK Affiliate

customarily purchases and sells

securities for its own account in the

ordinary course of its business as a

broker-dealer.

(2) Such transaction is on terms at

least as favorable to the plan as those

which the plan could obtain in an arm’s

length transaction with an unrelated

party.

(3) Neither the NatWest/UK 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 NatWest/UK 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 NatWest/UK Affiliate

shall not be deemed to be a fiduciary

with respect to a plan solely by reason

of providing securities custodial

services for a plan.

B. Effective May 22, 1997, the

restrictions of section 406(a)(1) (A)

through (D) of the Act 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 an NatWest/UK Affiliate if the

following conditions, and the

conditions of Section II, are satisfied:

(1) Neither the NatWest/UK Affiliate

(the Borrower) nor an affiliate of the

Borrower 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
Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices 47061

2510.3–21(c)) with respect to those

assets;

(2) The plan receives from the

Borrower, either by physical delivery or

by book entry in a securities depository

located in the United States, by the

close of business on the day on which

the securities lent are delivered to the

Borrower, collateral consisting of U.S.

currency, securities issued or

guaranteed by the United States

Government or its agencies or

instrumentalities, or irrevocable United

States bank letters of credit issued by a

person other than the Borrower or an

affiliate thereof, or any combination

thereof, having, as of the close of

business on the preceding business day,

a market value (or, in the case of letters

of credit, a stated amount) equal to not

less than 100 percent of the then market

value of the securities lent. The

collateral referred to in this Section

I(B)(2) must be held in the United

States;

(3) Prior to the making of any such

loan, the Borrower shall have furnished

the following items to the fiduciary for

the plan who is making decisions on

behalf of the plan with respect to the

lending of securities (the Lending

Fiduciary): (1) The most recent available

audited statement of the Borrower’s

financial condition, (2) the most recent

available unaudited statement of the

Borrower’s financial condition (if more

recent than such audited stated), and (3)

a representation that, at the time the

loan is negotiated, there has been no

material adverse change in the

Borrower’s 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 representation may be

made by the Borrower’s agreement that

each such loan shall constitute a

representation by the Borrower that

there has been no such material adverse

change;

(4) The loan is made pursuant to a

written loan agreement, the terms of

which are at least as favorable to the

plan as those which the plan could

obtain in an arm’s-length transaction

with an unrelated party. Such

agreement may be in the form of a

master agreement covering a series of

securities-lending transactions;

(5) The plan (1) receives a reasonable

fee that is related to the value of the

borrowed securities and the duration of

the loan, or (2) has the opportunity to

derive compensation through the

investment of cash 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 an unrelated party

in an arm’s-length transaction;

(6) 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,

cash dividends, interest payments,

shares of stock as a result of stock splits

and rights to purchase additional

securities;

(7) If the market value of the collateral

on the close of trading on a business day

is less than 100 percent of the market

value of the borrowed securities at the

close of trading on that day, the

Borrower shall deliver, by the close of

business on the following business day,

an additional amount of collateral (as

described in paragraph (2)) the market

value of which, together with the market

value of all previously delivered

collateral, equals at least 100 percent of

the market value of all the borrowed

securities as of such preceding day.

Notwithstanding the foregoing, part of

the collateral may be returned to the

Borrower if the market value of the

collateral exceeds 100 percent of the

market value of the borrowed securities,

as long as the market value of the

remaining collateral equals at least 100

percent of the market value of the

borrowed securities;

(8) 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 (1) the customary delivery period

for such securities, (2) three business

days, or (3) the time negotiated for such

delivery by the plan and the Borrower,

whichever is lesser; and

(9) In the event the loan is terminated

and the Borrower fails to return the

borrowed securities or the equivalent

thereof within the time described in

paragraph (8) above, then (i) the plan

may, under the terms of the loan

agreement, purchase securities identical

to the borrowed securities (or their

equivalent as described above) and may

apply the collateral to the payment of

the purchase price, any other

obligations of the Borrower under the

agreement, and any expenses associated

with the sale and/or purchase, and (ii)

the 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 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 non-cash collateral with an

amount of cash not less than the then

current market value of the collateral,

provided such replacement is approved

by the Lending Fiduciary.

(10) If the Borrower fails to comply

with any condition of this exemption, in

the course of engaging in a securitieslending transactions, 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 the Act

solely by reason of the Borrower’s

failure to comply with the conditions of

the exemption.

C. Effective May 22, 1997, the

restrictions of sections 406(a)(1) (A)

through (D) and 406(b)(2) of the Act and

the taxes imposed by section 4975 (a)

and (b) of the Code shall not apply to

any extension of credit to an employee

benefit plan by an NatWest/UK Affiliate

to permit the settlement of securities

transactions or in connection with the

writing of options contracts provided

that the following conditions are met:

(a) The NatWest/UK Affiliate is not a

fiduciary with respect to any assets of

such plan, unless no interest or other

consideration is received by such

fiduciary or any affiliate thereof in

connection with such extension of

credit; and

(b) Such extension of credit would be

lawful under the Securities Exchange

Act of 1934 and any rules or regulations

thereunder if such act, rules or

regulations were applicable.

Section II—General Conditions

A. The NatWest/UK Affiliate is

registered as a broker-dealer with the

Securities and Futures Authority of the

United Kingdom (the S.F.A.)

B. The NatWest/UK Affiliate is in

compliance with all requirements of

Rule 15a–6 (17 CFR 240.15a–6) under

the Securities and Exchange Act of

1934, which provides for foreign brokerdealers a limited exemption from U.S.

registration requirements;

C. Prior to the transaction, the

NatWest/UK Affiliate enters into a

written agreement with the plan in

which the NatWest/UK Affiliate

consents to the jurisdiction of the courts

of the United States with respect to the

transactions covered by this exemption;

D. (1) The NatWest/UK Affiliate

maintains or causes to be maintained

within the United States for a period of

six years from the date of such

transaction such records as are

necessary to enable the persons

described in this section to determine

whether the conditions of this

exemption have been met; except that a
47062 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices

1The Department notes that the proposed

principal transactions are subject to the fiduciary

responsibility requirements of part 4, subtitle B,

title I of the Act. Section 404(a) of the Act requires,

among other things, that a fiduciary of a plan act

prudently, solely in the interest of the plan’s

participants and beneficiaries, and for the exclusive

purpose of providing benefits to participants and

beneficiaries when making investment decisions on

behalf of a plan.

party in interest with respect to an

employee benefit plan, other than the

NatWest/UK 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 this section, and a

prohibited transaction will not be

deemed to have occurred if, due to

circumstances beyond the control of the

NatWest/UK Affiliate, such records are

lost or destroyed prior to the end of

such six year period;

(2) The records referred to in

subsection (1) above are unconditionally

available for examination during normal

business hours by duly authorized

employees of (a) the Department of

Labor, (b) the Internal Revenue Service,

(c) plan participants and beneficiaries,

(d) any employer of plan participants

and beneficiaries, and (e) any employee

organization any of whose members are

covered by such plan; except that none

of the persons described in (c) through

(e) of this subsection shall be authorized

to examine trade secrets of NatWest

Securities Corporation or the NatWest/

UK Affiliate or any commercial or

financial information which is

privileged or confidential.

III—Definitions

Affiliate of a person shall include: (i)

Any person directly or indirectly,

through one or more intermediaries,

controlling, controlled by, or under

common control with such other

person; (ii) any officer, director, or

partner, employee or relative (as defined

in section 3(15) of the Act) of such other

person; and (iii) 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.

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 notional principal contracts.

Summary of Facts and Representations

1. NatWest Securities Corporation

(NatWest) is a securities firm operating

primarily in the United States, with

additional activities in the major

markets worldwide. It engages primarily

in securities brokerage activities on an

agency basis. Clients include major

corporations, pension funds, investment

funds including mutual funds, and

financial institutions.

2. NatWest has foreign affiliates world

wide who are in the business of trading

securities, including a broker-dealer

affiliate in London, England (the

NatWest/UK Affiliate), currently

NatWest Securities Limited. NatWest

represents that in the ordinary course of

their business as broker-dealers, these

foreign affiliates customarily operate as

traders in dealers markets wherein the

broker-dealer purchases and sells

securities for its own account and

engages in purchases and sales of

securities with its clients, and that such

trades are referred to as principal

transactions. NatWest states that in

issuing Prohibited Transaction Class

Exemption 75–1 (PTCE 75–1, 40 FR

50845, October 31, 1975) the

Department has recognized the

functions of registered broker-dealers in

principal transactions on behalf of

clients which are employee benefit

plans covered by the Act. Part II of

PTCE 75–1 provides exemptive relief

from section 406(a) of the Act for

principal transactions between plans

and broker-dealers which are registered

under the Securities Exchange Act of

1934, provided all requirements stated

in Part II are satisfied. NatWest

represents that, like the U.S. dealer

markets, international equity and debt

markets, including the options markets,

are no less dependent on a willingness

of dealers to trade as principals. In the

absence of an exemption for principal

transactions, such as PTCE 75–1, those

responsible for trading activities on

behalf of plan investors would be

prevented from engaging in transactions

with those broker-dealers and banks that

provide the markets for the securities

and are most capable of handling such

transactions.

3. NatWest represents that over the

past decade, plans have increasingly

invested in foreign equity and debt

securities, including foreign government

securities. NatWest states that plans

seeking to enter into such investments

may wish to increase the number of

trading partners available to them by

trading with foreign broker-dealers such

as the NatWest/UK Affiliate. However,

where NatWest provides services to

such plans which are covered by the

Act, principal transactions with the

NatWest/UK Affiliate would be

prohibited by the Act. The exemptive

relief afforded U.S. broker-dealers by

PTCE 75–1 would not be available with

respect to the NatWest/UK Affiliate

because that class exemption is limited

to broker-dealers registered with the

U.S. Securities and Exchange

Commission (S.E.C.) under the

Securities Exchange Act of 1934 (the

1934 Act). NatWest represents that its

NatWest/UK Affiliate is not so

registered but, instead, is governed by

the rules, regulations and registration

requirements of the Securities and

Futures Authority of the United

Kingdom (the S.F.A.). Furthermore,

NatWest represents that Rule 15(a)–6 of

the 1934 Act offers foreign brokerdealers limited exemption from the

S.E.C. registration requirements

pursuant to provisions with which the

NatWest/UK Affiliate is able to comply.

However, NatWest states that because of

the S.E.C. registration requirement of

PTCE 75–1, the NatWest/UK Affiliate is

prevented from engaging in principal

transactions with plans with respect to

which NatWest is a party in interest,

even though such affiliate is registered

with the S.F.A., experienced in the

markets, and able to satisfy the Rule

15(a)–6 requirements for S.E.C.

registration exemption. Accordingly,

NatWest is requesting an individual

exemption to permit its NatWest/UK

Affiliate to engage in principal

transactions with plans under the terms

and conditions set forth herein, which

NatWest represents are equivalent to

those set forth in PTCE 75–1, Part II. 1

4. The proposed exemption will be

applicable only to transactions affected

by an NatWest/UK Affiliate which is

registered as a broker-dealer with the

S.F.A. and in compliance with Rule

15(a)–6. NatWest represents that the role

of a broker-dealer in a principal

transaction in the United Kingdom is

substantially identical to that of a

broker-dealer in a principal transaction

in the United States. NatWest further

represents that registration of a brokerdealer with the S.F.A. is equivalent to

registration of a broker-dealer with the

S.E.C. under the 1934 Act. NatWest

maintains that the S.F.A. has

promulgated rules for broker-dealers

which are equivalent to S.E.C. rules,

relating to registration requirements,

minimum capitalization, reporting

requirements, periodic examinations,

fund segregation, client protection, and

enforcement. NatWest represents that

the rules and regulations set forth by the

S.F.A. and the S.E.C. share a common

objective: The protection of the investor

by the regulation of securities markets.
Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices 47063

NatWest explains that under S.F.A.

rules, persons who manage investments

or give advice with respect to

investments must be registered as a

‘‘registered representative’’. If a person

is not a registered representative and, as

part of his duties, makes commitments

in market dealings or transactions, that

persons must be registered as a

‘‘registered trader’’. NatWest represents

that the S.F.A. rules require each firm

which employs registered

representatives or registered traders to

have positive tangible net worth and be

able to meet its obligations as they fall

due, and that the S.F.A. rules set forth

comprehensive financial resource and

reporting/disclosure rules regarding

capital adequacy. In addition to

demonstration of capital adequacy,

NatWest states that the S.F.A. rules

impose reporting/disclosure

requirements on broker-dealers with

respect to risk management, internal

controls, and all records relating to a

counterparty, and that all records must

be produced at the request of the S.F.A.

at any time. NatWest states that S.F.A.’s

registration requirements for brokerdealers are backed up by potential fines

and penalties, and rules which establish

a comprehensive disciplinary system.

5. NatWest represents that in addition

to the protections which are afforded by

registration with S.F.A., compliance

with the requirements of Rule 15a–6 (17

CFR 240.15a–6) under the 1934 Act will

offer additional protections in lieu of

registration with the S.E.C. NatWest

states that Rule 15a–6 provides an

exemption from U.S. broker-dealer

registration for a foreign broker-dealer

that induces or attempts to induce the

purchase or sale of any security

(including over-the-counter equity and

debt options) by a ‘‘U.S. institutional

investor’’ or a ‘‘U.S. major institutional

investor’’, provided that the foreign

broker dealer, among other things,

enters into these transactions through a

U.S. registered broker-dealer

intermediary. The term ‘‘U.S.

institutional investor’’, as defined in

Rule 15a–6(b)(7), includes an employee

benefit plan within the meaning of the

Employee Retirement Income Security

Act of 1974 (the Act) if (a) the

investment decision is made by a plan

fiduciary, as defined in section 3(21) of

the Act, which is either a bank, savings

and loan association, insurance

company or registered investment

advisor, or (b) the employee benefit plan

has total assets in excess of $5 million,

or (c) the employee benefit plan is a selfdirected plan with investment decisions

made solely by persons that are

accredited investors as defined in Rule

501(a)(1) of Regulation D of the

Securities Act of 1933, as amended. The

term U.S. major institutional investor is

defined as a person that is a U.S.

institutional investor that has total

assets in excess of $100 million.

NatWest represents that the

intermediation of the U.S. registered

broker-dealer imposes upon the foreign

broker-dealer the requirement that the

securities transaction be effected in

accordance with a number of U.S.

securities laws and regulations

applicable to U.S. registered brokerdealers.

NatWest represents that under Rule

15a–6, a foreign broker-dealer that

induces or attempts to induce the

purchase or sale of any security by a

U.S. institutional or major institutional

investor in accordance with Rule 15a–

6 must, among other things:

(a) Consent to service of process for

any civil action brought by, or

proceeding before, the S.E.C. or any selfregulatory organization

(b) Provide the S.E.C. with any

information or documents within its

possession, custody or control, any

testimony of any such foreign associated

persons, and any assistance in taking

the evidence of other persons, wherever

located, that the S.E.C. requests and that

relates to transactions effected pursuant

to the Rule

(c) Rely on the U.S. registered brokerdealer through which the transactions

with the U.S. institutional and major

institutional investors are effected to

(among other things):

(1) Effect the transactions, other than

negotiating their terms

(2) Issue all required confirmations

and statements

(3) As between the foreign brokerdealer and the U.S. registered brokerdealer, extend or arrange for the

extension of credit in connection with

the transactions

(4) Maintain required books and

records relating to the transactions,

including those required by Rules 17a–

3 (Records to be Made by Certain

Exchange Members) and 17a–4 (Records

to be Preserved by Certain Exchange

Members, Brokers and Dealers) of the

1934 Act

(5) Receive, deliver, and safeguard

funds and securities in connection with

the transactions on behalf of the U.S.

institutional investor or U.S. major

institutional investor in compliance

with Rule 15c3–3 of the 1934 Act

(Customer Protection—Reserves and

Custody of Securities); and

(6) Participate in all oral

communications (e.g., telephone calls)

between the foreign associated person

and the U.S. institutional investor (not

the U.S. major institutional investor),

and accompany the foreign associated

person on all visits with both U.S.

institutional and major institutional

investors. By virtue of this participation,

the U.S. registered broker-dealer would

become responsible for the content of all

these communications.

6. NatWest represents that a normal

part of the execution of securities

transactions by broker-dealers on behalf

of customers, including employee

benefit plans, is the extension of credit

to customers to permit the settlement of

transactions in the customary settlement

period, and that such extensions of

credit are also customary activities of

broker-dealers in connection with the

writing of option contracts. NatWest

notes that exemptive relief for such

transactions is provided under Part V of

PTCE 75–1. However, the exemptive

relief under Part V of PTCE 75–1, like

that under Part II, is available only with

respect to broker-dealers which are

registered with the S.E.C. under the

1934 Act. Accordingly, NatWest

requests that the exemption include

relief for extensions of credit by the

NatWest/UK affiliate in the ordinary

course of the purchase or sale of

securities, regardless of whether they

are effected on an agency or a principal

basis. The proposed exemption provides

relief for extensions of credit by the

NatWest/UK Affiliate to a plan to permit

the settlement of securities transactions

or in connection with the writing of

options contracts, provided that the

NatWest/UK Affiliate is not a fiduciary

with respect to any assets of the plan,

unless no interest or other consideration

is received by the NatWest/UK Affiliate

in connection with such extension of

credit. The proposed exemption also

requires that the extension of credit

would be lawful under the 1934 Act and

any rules or regulations thereunder if

such act, rules, or regulations were

applicable.

7. In addition to exemptive relief for

principal transactions and extensions of

credit in connection with the purchase

or sale of securities, NatWest is also

requesting exemptive relief for the

lending of securities, equivalent to that

provided under the terms and

conditions of Prohibited Transaction

Class Exemption 81–6 (PTCE 81–6, 46

FR 7527, January 23, 1981, amended at

52 FR 18754, May 19, 1987), a class

exemption to permit certain loans of

securities by employee benefit plans.

NatWest represents that in PTCE 81–6

the Department has recognized that

securities lending represents a low-risk

means of enhancing the investment

return of plans with respect to securities

that would otherwise be idle. NatWest
47064 Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices

represents that the conditions of Section

I(B) of the proposed exemption will

subject the NatWest/UK Affiliate to all

of the conditions imposed on brokerdealers under PTCE 81–6, other than

registration under the 1934 Act.

NatWest notes that such conditions

include requirements relating to daily

marking to market, setting collateral at

100 percent of the market value of the

securities, the rules for termination of

the loan, and return of the borrowed

securities. In addition, NatWest notes

that the collateral will be in U.S. dollars

and will be held in the United States.

8. In summary, the applicant

represents that the proposed

transactions satisfy the criteria of

section 408(a) of the Act for the

following reasons: (1) With respect to

principal transactions affected by the

NatWest/UK Affiliate , the exemption

will enable plans to realize the same

benefits of efficiency and convenience

which derive from principal

transactions executed pursuant to Part II

of PTCE 75–1 by broker-dealers

registered in the United States; (2) With

respect to extensions of credit by the

NatWest/UK Affiliate in connection

with purchases or sales of securities, the

exemption will enable the NatWest/UK

to extend credit in the ordinary course

of business to affect the transactions

within the customary settlement period

or in connection with the writing of

options contracts; (3) With respect to

securities lending transactions affected

by the NatWest/UK Affiliate, the

exemption will enable plans to realize a

low-risk return on securities that

otherwise would remain idle, as in

securities lending transactions executed

pursuant to PTCE 81–6 by brokerdealers registered in the United States;

and (4) The proposed exemption

generally imposes terms and conditions

upon the transactions executed by the

NatWest/UK Affiliate which are the

same as those imposed on U.S. brokerdealers under PTCE 75–1 and PTCE 81–

6.

FOR FURTHER INFORMATION CONTACT:

Ronald Willett of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

Carl M. Callaway Individual

Retirement Account (IRA) Located in

Huntington, West Virginia

[Application No. D–10469]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of 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, 32847,

August 10, 1990). If the exemption is

granted the sanctions resulting from the

application of section 4975 of the Code,

by reason of section 4975(c)(1) (A)

through (E) of the Code, shall not apply

to the proposed transaction involving a

sale or exchange of certain securities

(the Sale) by the IRA to Carl M.

Callaway and his wife, Marianna F.

Callaway, both disqualified persons

with respect to the IRA; provided the

following conditions are satisfied: (a)

The sale or exchange is a one-time

transaction constituting an exchange of

securities approximately equal in value

and any difference in value occurring is

immediately eradicated with cash

payments by either the Callaways or the

IRA, in order to equalize the value of the

exchanged assets, (b) the IRA incurs no

commissions or other expenses in

connection with the transaction, (c) the

transaction involves only securities that

have a fair market value on the date of

the exchange which is objectively

determinable through independently

and regularly published market prices

and quotations, and (d) the IRA tenders

as consideration stock valued at an

amount equal to the reported closing

price of the stock on the date of the Sale

and the IRA receives U.S. Treasury

notes valued at the reported closing bid

on the date of the Sale, plus the accrued

interest the notes earned to the date of

the Sale.

Summary of Facts and Representations

1. The IRA is an individual retirement

account as described under 408(a) of the

Code. The IRA was established by Carl

M. Callaway who is the sole participant.

The custodian of the assets of the IRA

is Hilliard-Lyons Inc., a registered

broker/dealer headquartered in

Louisville, KY, which has an office in

Huntington, WV serving the IRA. As of

June 27, 1997, the total assets of the IRA

were $1,213,813, of which 2.65 percent

consists of U.S. Treasury notes and 6.14

percent are corporate notes. There are

53.37 percent of the total assets invested

in common stocks and 19.09 percent in

mutual funds and 18.66 percent of the

total assets is held in cash.

2. Mr. Callaway is semi-retired and

presently taking distributions from the

IRA. Mr. Callaway desires to reduce the

amount of common stock in the IRA and

increase its investments in quality

corporate bonds and U.S. Treasury

securities. Mr. Callaway is concerned

that the distributions he is receiving

will be adversely affected because, in

his opinion, the current holdings of the

IRA lack diversification and expose the

IRA to the risk inherent in holding

thinly traded stocks and other

investments that are subject to

fluctuations in the stock markets.

Mr. Callaway represents that in order

to alleviate this concern, the IRA needs

to acquire fixed income investments

that are recognizably sound and

publicly traded and will generate

sufficient cash flows which are able to

make the distributions in a timely

fashion. To accomplish this portfolio

change without the IRA incurring

extensive commissions or possible

losses from the bid-ask spreads on the

securities markets, Mr. Callaway

proposes the sale or exchange of certain

stocks in the IRA for U.S. Treasury notes

owned individually by himself and his

wife. Mr. Callaway further represents

that the proposed exchange will involve

only securities approximately equal in

value and the parties to the exchange

will provide for cash payments to

equalize the value of the securities

exchanged. Also Mr. Callaway

represents that the value of all

investments in this transaction are

determinable through regularly

published, objective, and independent

market prices and quotations.

3. Mr. Callaway proposes that the IRA

will exchange with Mrs. Callaway the

following shares of stock and receive the

following U.S. Treasury notes at closing

market values reported on the date of

the Sale:

Company Ticker symbol

& exchange

(a) 850 shares, Hewlett

Packard.

HWP (NYSE)

(b) 4,970 shares, Horizon

Bancorp.

HZWV

(NASDAQ)

(c) 500 shares, IBM ............. IBM (NYSE)

(d) 575 shares, Motorola ..... MOT (NYSE)

(e) 650 shares, Nokia .......... NOKA (NYSE)

U.S. Treasury Notes

(a) $25,000 U.S. Treasury note, 71⁄8%—

due 10/15/98

(b) $215,000 U.S. Treasury note, 71⁄4%—

due 08/15/04

(c) $50,000 U.S. Treasury note, 77⁄8%—

due 11/15/04

In addition Mr. Callaway proposes

that the IRA will exchange with himself

the following shares of stock for the

following U.S. Treasury note:

(a) 2,000 shares, Horizon Bancorp—

HZWV (NASDAQ)

(b) $50,000 U.S. Treasury note, 73⁄4%—

due 2/15/01

4. Mr. Callaway represents that the

Sale would permit the custodian of the

IRA to make the proposed exchanges

with the Callaways and promptly

document the transaction and publish it

in the monthly statement for the IRA.

Furthermore it is represented that the
Federal Register / Vol. 62, No. 172 / Friday, September 5, 1997 / Notices 47065

Sale enables the IRA diversify its

portfolio. Mr. Callaway represents that

Sale will occur only with the utilization

of the fair market values of the involved

securities based on the closing prices on

the date of the Sale for the stock and the

bid prices for the U.S. Treasury notes.

5. In summary, the applicant

represents that the proposed transaction

satisfies the criteria contained in section

4975(c)(2) of the Code because (a) the

sale and exchange will be a one-time

transaction involving securities for

which market values are readily

ascertainable; (b) the IRA will incur no

commissions or other expenses from the

Sale; (c) the IRA will receive not less

than the fair market value of its

securities involved in the Sale; and (d)

the participant of the IRA has

determined that the proposed

transaction is appropriate for and in the

best interest of his IRA and he desires

that the transaction be consummated.

Notice to Interested Persons

Because Mr. Callaway is the only

participant in his IRA, it has been

determined that there is no need to

distribute the notice of proposed

exemption to interested persons.

Comments and requests for a hearing are

due 30 days after publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr.

C.E. Beaver of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

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/or section

4975(c)(2) of the Code does not relieve

a fiduciary or other party in interest of

disqualified person from certain other

provisions of the Act and/or 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 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 the act; 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) Before an exemption may be

granted under section 408(a) of the Act

and/or section 4975(c)(2) of the Code,

the Department must find that the

exemption is administratively feasible,

in the interests of the plan and of its

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of the plan;

(3) The proposed exemptions, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of the Act and/or 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 proposed exemptions, if

granted, will be subject to the express

condition that the material facts and

representations contained in each

application are true and complete and

accurately describe all material terms of

the transaction which is the subject of

the exemption. In the case of continuing

exemption transactions, if any of the

material facts or representations

described in the application change

after the exemption is granted, the

exemption will cease to apply as of the

date of such change. In the event of any

such change, application for a new

exemption may be made to the

Department.

Signed at Washington, DC, this 2nd day of

September, 1997.

Ivan Strasfeld,

Director of Exemption Determinations

Pension and Welfare Benefits Administration,

Department of Labor.

[FR Doc. 97–23642 Filed 9–4–97; 8:45 am]

BILLING CODE 4510–29–P

INTERNATIONAL BOUNDARY AND

WATER COMMISSION, U.S. SECTION

Privacy Act of 1974; System of

Records

AGENCY: International Boundary and

Water Commission.

ACTION: Amendment of system of

records to include new routine uses.

SUMMARY: In accordance with the

Privacy Act (5 U.S.C. 552a(e)(11), the

International Boundary & Water

Commission is issuing notice of our

intent to amend the system of records to

include new routine uses. We invite

public comment on this publication.

DATES: The changes will become

effective as proposed, on October 1,

1997, unless comments which would

warrant our preventing the changes

from taking effect are received on or

before 30 days from the date of this

notice.

ADDRESSES: Interested individuals may

comment on this publication by writing

to (Richard L. Livengood, IBWC, 4171

N. Mesa, Suite C–310, El Paso, TX

79902). All comments received will be

available for public inspection at that

address.

FOR FURTHER INFORMATION CONTACT:

(Richard L. Livengood, IBWC, 4171 N.

Mesa, Suite C–310, El Paso, TX 79902).

SUPPLEMENTARY INFORMATION:

I. Discussion of Proposed Additions to

Routine Use

Pursuant to the Pub. L. 104–193, the

Personal Responsibility and Work

Opportunity Reconciliation Act of 1996,

the International Boundary and Water

Commission will disclose data from its

payroll system of records to the Office

of Child Support Enforcement,

Administration for Children and

Families, Department of Health and

Human Services for use in its Federal

Parent Locator System (FPLS) and

Federal Tax Offset System, DHHS/OCSE

No. 09–90–0074. Information on this

system was last published at 61 FR

38754, July 25, 1996.

FPLS is a computerized network

through which States may request

location information from Federal and

State agencies to find non-custodial

parents and/or their employers for

purposes of establishing paternity and

securing support. Effective October 1,

1997, the FPLS will be enlarged to

include the National Directory of New

Hires, a database containing information

on employees commencing

employment, quarterly wage data on

private and public sector employees,

and information on unemployment

compensation benefits. Effective

October 1, 1998, the FPLS will be

expanded to include a Federal Case

Registry. The Federal Case Registry will

contain abstracts on all participants

involved in child support enforcement

cases. When the Federal Case Registry is

instituted, its files will be matched on

an ongoing basis against the files in the

National Directory of New Hires to

determine if an employee is a

participant in a child support case

anywhere in the country. If the FPLS

identifies a person as being a participant

in a State Child support case, that State

will be notified of the participant’s

current employer. State requests to the

FPLS for location information will also

continue to be processed after October

1, 1998.

The data to be disclosed by The

International Boundary and Water

Commission to the FPLS include: Wages

earned, income taxes paid both state

and federal.