37572 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

filed written notifications 

simultaneously with the Attorney 

General and the Federal Trade 

Commission disclosing changes in its 

membership. The notifications were 

filed for the purpose of extending the 

Act’s provisions limiting the recovery of 

antitrust plaintiffs to actual damages 

under specified circumstances. 

Specifically, American Institutes for 

Research, Washington, DC; Gwinnett 

County Public Schools, Suwanee GA; 

Instructure, Salt Lake City, UT; Kaltura 

Inc., New York, NY; and LearningMate 

Solutions, Inc., New York, NY, have 

been added as parties to this venture. 

Also, IVIMEDS, Dundee, UNITED 

KINGDOM; Florida State College at 

Jacksonville, Jacksonville, FL; and 

Turning Technologies, Youngstown, 

OH, have withdrawn as parties to this 

venture. 

No other changes have been made in 

either the membership or planned 

activity of the group research project. 

Membership in this group research 

project remains open, and IMS Global 

intends to file additional written 

notifications disclosing all changes in 

membership. 

On April 7, 2000, IMS Global filed its 

original notification pursuant to Section 

6(a) of the Act. The Department of 

Justice published a notice in the Federal 

Register pursuant to Section 6(b) of the 

Act on September 13, 2000 (65 FR 

55283). 

The last notification was filed with 

the Department on March 19, 2013. A 

notice was published in the Federal 

Register pursuant to Section 6(b) of the 

Act on April 15, 2013 (78 FR 22297). 

Patricia A. Brink, 

Director of Civil Enforcement, Antitrust 

Division. 

[FR Doc. 2013–14777 Filed 6–20–13; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF JUSTICE 

Antitrust Division 

Notice Pursuant to the National 

Cooperative Research and Production 

Act of 1993—U.S. Photovoltaic 

Manufacturing Consortium, Inc. 

Notice is hereby given that, on May 

21, 2013, pursuant to Section 6(a) of the 

National Cooperative Research and 

Production Act of 1993, 15 U.S.C. 4301 

et seq. (‘‘the Act’’), U.S. Photovoltaic 

Manufacturing Consortium, Inc. 

(‘‘USPVMC’’) has filed written 

notifications simultaneously with the 

Attorney General and the Federal Trade 

Commission disclosing changes in its 

membership. The notifications were 

filed for the purpose of extending the 

Act’s provisions limiting the recovery of 

antitrust plaintiffs to actual damages 

under specified circumstances. 

Specifically, Esgee Technologies, Inc., 

Austin, TX; and Magnolia Solar, 

Albany, NY, have been added as parties 

to this venture. 

No other changes have been made in 

either the membership or planned 

activity of the group research project. 

Membership in this group research 

project remains open, and USPVMC 

intends to file additional written 

notifications disclosing all changes in 

membership. 

On November 14, 2011, USPVMC 

filed its original notification pursuant to 

Section 6(a) of the Act. The Department 

of Justice published a notice in the 

Federal Register pursuant to Section 

6(b) of the Act on December 21, 2011 

(76 FR 79218). 

The last notification was filed with 

the Department on January 15, 2013. A 

notice was published in the Federal 

Register pursuant to Section 6(b) of the 

Act on February 12, 2013 (78 FR 9939). 

Patricia A. Brink, 

Director of Civil Enforcement, Antitrust 

Division. 

[FR Doc. 2013–14780 Filed 6–20–13; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF JUSTICE 

Antitrust Division 

Notice Pursuant to the National 

Cooperative Research and Production 

Act of 1993—Sematech, Inc. D/B/A 

International Sematech 

Notice is hereby given that, on May 

21, 2013, pursuant to Section 6(a) of the 

National Cooperative Research and 

Production Act of 1993, 15 U.S.C. 4301 

et seq. (‘‘the Act’’), Sematech, Inc. d/b/ 

a International Sematech 

(‘‘SEMATECH’’) has filed written 

notifications simultaneously with the 

Attorney General and the Federal Trade 

Commission disclosing changes in its 

membership. The notifications were 

filed for the purpose of extending the 

Act’s provisions limiting the recovery of 

antitrust plaintiffs to actual damages 

under specified circumstances. 

Specifically, Intermolecular, Inc., San 

Jose, CA; United Microelectronics Corp., 

Hsinchu, TAIWAN; Morgan Advanced 

Materials, Windsor, Berkshire, UNITED 

KINGDOM; Freescale Semiconductor, 

Inc., Austin, TX; and TriQuint 

Semiconductors, Inc., Richardson, TX, 

have been added as parties to this 

venture. 

Also, 4DS, Fremont, CA; NEXX 

Systems, Billerica, MA; and SU ̈ SS 

MicroTec, Garching, GERMANY, have 

withdrawn as parties to this venture. 

No other changes have been made in 

either the membership or planned 

activity of the group research project. 

Membership in this group research 

project remains open, and SEMATECH 

intends to file additional written 

notifications disclosing all changes in 

membership. 

On April 22, 1988, SEMATECH filed 

its original notification pursuant to 

Section 6(a) of the Act. The Department 

of Justice published a notice in the 

Federal Register pursuant to Section 

6(b) of the Act on May 19, 1988 (53 FR 

17987). 

The last notification was filed with 

the Department on March 7, 2013. A 

notice was published in the Federal 

Register pursuant to Section 6(b) of the 

Act on March 28, 2013 (78 FR 19009). 

Patricia A. Brink, 

Director of Civil Enforcement, Antitrust 

Division. 

[FR Doc. 2013–14776 Filed 6–20–13; 8:45 am] 

BILLING CODE 4410–11–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

RIN 1210–ZA18 

[Application Number: D–11681] 

Proposed Amendments to Class 

Prohibited Transaction Exemptions To 

Remove Credit Ratings Pursuant to the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act 

AGENCY: Employee Benefits Security 

Administration, U.S. Department of 

Labor. 

ACTION: Notice of Proposed 

Amendments to Certain Class 

Exemptions. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor (the Department) of 

Proposed Amendments to Prohibited 

Transaction Exemption (PTE) 75–1 (40 

FR 50845, October 31, 1975, as amended 

by 71 FR 5883, February 3, 2006); PTE 

80–83 (45 FR 73189, November 4, 1980); 

PTE 81–8 (46 FR 7511, January 23, 1981, 

as amended by 50 FR 14043, April 9, 

1985); PTE 95–60 (60 FR 35925, July 12, 

1995); PTE 97–41 (62 FR 42830, August 

8, 1997); and PTE 2006–16 (71 FR 

63786, October 31, 2006). The proposed 

amendments relate to the use of credit 

ratings as standards of credit-worthiness 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37573 

1Section 102 of the Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 1 (1996), generally transferred 

the authority of the Secretary of Treasury to issue 

administrative exemptions under section 4975(c)(2) 

of the Code to the Secretary of Labor. For purposes 

of this exemption, references to specific provisions 

of Title I of ERISA, unless otherwise specified, refer 

also to the corresponding provisions of the Code. 

2See Public Law 111–203, 124 Stat. 1376 (2010). 

3See Joint Explanatory Statement of the 

Committee of Conference, Conference Committee 

Report No. 111–517, to accompany H.R. 4173, 864– 

879, 870 (Jun. 29, 2010). 

4Public Law 111–203, Section 931(1). 

5Public Law 111–203, Section 931(3). 

6Public Law 111–203, Section 931(5). 

7 Id. 

8Public Law 111–203, Section 939A(a)(1)–(2). 

9Public Law 111–203, Section 939A(b). 

in such class exemptions. Section 939A 

of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank) requires the Department to 

remove any references to or 

requirements of reliance on credit 

ratings from its class exemptions and to 

substitute such standards of creditworthiness as the Department 

determines to be appropriate. If 

adopted, the proposed amendments 

would affect participants and 

beneficiaries of employee benefit plans, 

fiduciaries of such plans, and the 

financial institutions that engage in 

transactions with, or provide services or 

products to, the plans. 

DATES: Written comments and requests 

for a public hearing should be received 

by the Department on or before August 

20, 2013. If adopted, the amendments 

would be effective 60 days after the date 

of publication of the final amendments 

with respect to PTE 75–1; PTE 80–83; 

PTE 81–8; PTE 95–60; PTE 97–41; and 

PTE 2006–16. 

ADDRESSES: All written comments and 

requests for a public hearing concerning 

the proposed amendments should be 

sent to the Office of Exemption 

Determinations via email to: eOED@dol.gov, or via the Federal 

eRulemaking Portal: http:// 

www.regulations.gov at Docket ID 

number: EBSA–2012–0013 (follow the 

instructions for submitting comments). 

Interested persons may also submit 

written comments and hearing requests 

by letter addressed to: Employee 

Benefits Security Administration, Room 

N–5700, (Attention: Application No. D– 

11681), U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210, or by fax to (202) 219–0204. 

All comments and hearing requests 

must be received by the end of the 

comment period. The comments 

received will be available for public 

inspection in the Public Disclosure 

Room of the Employee Benefits Security 

Administration, Room N–1513, U.S. 

Department of Labor, 200 Constitution 

Avenue NW., Washington, DC 20210. 

Comments and hearing requests will 

also be available online at 

www.regulations.gov, at Docket ID 

number: EBSA–2012–0013 and 

www.dol.gov/ebsa, at no charge. All 

comments will be made available to the 

public. 

Warning: Do not include any 

personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want to be 

publicly disclosed. All comments may 

be posted on the Internet and can be 

retrieved by most Internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: 

Warren M. Blinder, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor, Room N–5700, 

200 Constitution Avenue NW., 

Washington, DC 20210, (202) 693–8553 

(this is not a toll-free number). 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given of the pendency before the 

Department of proposed amendments 

to: PTE 75–1, Exemptions From 

Prohibitions Respecting Certain Classes 

of Transactions Involving Employee 

Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks; 

PTE 80–83, Class Exemption for Certain 

Transactions Involving Purchases of 

Securities Where Issuer May Use 

Proceeds to Reduce or Retire 

Indebtedness to Parties in Interest; PTE 

81–8, Class Exemption Covering Certain 

Short-term Investments; PTE 95–60, 

Class Exemption for Certain 

Transactions Involving Insurance 

Company General Accounts; PTE 97–41, 

Class Exemption for Collective 

Investment Fund Conversion 

Transactions; and PTE 2006–16, Class 

Exemption To Permit Certain Loans of 

Securities by Employee Benefit Plans 

(collectively, the Class Exemptions). 

The Class Exemptions provide relief 

from certain of the restrictions described 

in section 406 of the Employee 

Retirement Income Security Act of 1974 

(ERISA), and the taxes imposed by 

sections 4975(a) and (b) of the Code, by 

reason of a parallel provision described 

in section 4975(c)(1)(A) through (F) of 

the Code, provided that the conditions 

of the relevant exemption have been 

met. The Department is proposing to 

amend each of the Class Exemptions on 

its own motion, 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 part 

2570, subpart B (55 FR 32836, August 

10, 1990).1

A. Background 

Dodd-Frank,2 enacted in the wake of 

the financial crisis of 2008, was 

intended to, among other things, 

promote the financial stability of the 

United States by improving 

accountability and transparency in the 

financial system. Title IX, Subtitle C, of 

Dodd-Frank includes provisions 

regarding statutory and regulatory 

references to credit ratings in rules and 

regulations promulgated by Federal 

agencies, including the Department, 

which are designed ‘‘[t]o reduce the 

reliance on ratings.’’ 3

Congress recognized the ‘‘systemic 

importance of credit ratings and the 

reliance placed on credit ratings by 

individual and institutional investors 

and financial regulators.’’ 4 Because 

credit rating agencies perform 

evaluative and analytical services on 

behalf of clients, much the same as 

auditors, securities analysts, and 

investment bankers do, Congress noted 

that ‘‘the activities of credit rating 

agencies are fundamentally commercial 

in character and should be subject to the 

same standards of liability and 

oversight.’’ 5 Furthermore, Congress 

observed that, in the recent financial 

crisis precipitating Dodd-Frank, credit 

ratings of certain financial products 

proved to be inaccurate, which 

‘‘contributed significantly to the 

mismanagement of risks by financial 

institutions and investors, which in turn 

adversely impacted the health of the 

economy in the United States and 

around the world.’’ 6 As a result, 

Congress determined that ‘‘[s]uch 

inaccuracy necessitates increased 

accountability on the part of credit 

rating agencies.’’ 7

Specifically, in section 939A of DoddFrank, Congress requires that the 

Department ‘‘review any regulation 

issued by [the Department] that requires 

the use of an assessment of the creditworthiness of a security or money 

market instrument and any references to 

or requirements in such regulations 

regarding credit ratings.’’ 8 Once the 

Department has completed that review, 

the statute provides that the Department 

‘‘remove any reference to or requirement 

of reliance on credit ratings, and to 

substitute in such regulations such 

standard of credit-worthiness’’ as the 

Department determines to be 

appropriate.9

Based on the Department’s 

consideration of section 939A of DoddFrank, the Department believes that the 

Class Exemptions are ‘‘regulations’’ for 

purposes of section 939A and, therefore, 


TKELLEY on DSK3SPTVN1PROD with NOTICES
37574 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

10The Department understands that ‘‘investment 

grade’’ is the common term for a credit rating in the 

highest four rating categories issued by a credit 

rating agency. 

11See References to Credit Ratings in Certain 

Investment Company Act Rules and Forms, Release 

Nos. 33–9193, IC–29592; 76 FR 12896 (March 9, 

2011). 

12See Purchase of Certain Debt Securities by 

Business and Industrial Development Companies 

Relying on an Investment Company Act Exemption, 

Release No. IC–30268; 77 FR 70117 (November 23, 

2012). 

13See References to Ratings of Nationally 

Recognized Statistical Rating Organizations, Release 

Nos. 34–60789, IC–28939; 74 FR 52358 (October 9, 

2009). 

14See 15 U.S.C. 80a–6(a)(5)(A). BIDCOs are 

companies that operate under state statute that 

provide direct investment and loan financing, as 

well as managerial assistance to state and local 

enterprises. Because BIDCOs invest in securities, 

they frequently meet the definition of ‘‘investment 

compan[ies]’’ under the Investment Company Act 

and would otherwise be required to register and be 

regulated under the Act in the absence of an 

exemption. 

are subject to its requirement to remove 

references to credit ratings. The process 

for proposing and granting class 

exemptions is similar to the regulatory 

process, and class exemptions generally 

apply to broad classes of transactions 

and/or parties. 

Accordingly, the Department has 

conducted a review of its class 

exemptions as required by section 

939A(a) of Dodd-Frank and identified 

the Class Exemptions as those including 

references to, or requiring reliance on, 

credit ratings. In this regard, in each of 

the Class Exemptions, the Department 

has conditioned relief on the financial 

instruments which are the subject of 

such exemptions, or an issuer of such a 

financial instrument, receiving a 

specified credit rating, issued by a credit 

rating agency. Credit ratings have been 

considered useful for fiduciaries of 

employee benefit plans in evaluating the 

credit quality of a particular financial 

instrument or issuer, as plan fiduciaries 

frequently do not possess the expertise 

or resources to engage in an analysis of 

the credit quality of a financial 

instrument or its issuer. This credit 

rating condition is one component of 

the safeguards established in each Class 

Exemption to protect the interests of 

plans, and their participants and 

beneficiaries, which enter into 

transactions covered by the Class 

Exemptions. 

The credit ratings requirements found 

in the Class Exemptions range from a 

rating in one of the highest four generic 

categories of credit ratings to a rating in 

one of the highest two categories of 

credit ratings, from a nationally 

recognized statistical rating organization 

(NRSRO). In this regard, PTE 75–1 and 

PTE 80–83 require credit ratings in one 

of the four highest rating categories for 

non-convertible debt securities. PTE 

2006–16 requires a credit rating of 

‘‘investment grade’’ 10 or better for 

certain issuers of irrevocable letters of 

credit and a credit rating in one of the 

two highest rating categories for 

collateral which consists of foreign 

sovereign debt securities. PTE 81–8 

utilizes a credit rating in one of the 

three highest rating categories for 

commercial paper. PTE 95–60 and PTE 

97–41 do not require specific credit 

ratings, but instead refer generally to the 

credit ratings of certain financial 

instruments. Pursuant to Dodd-Frank, 

the Department is proposing herein to 

amend the Class Exemptions listed 

above to remove such references to 

credit ratings, and where applicable, 

substitute in their place alternative 

methods for determining credit quality 

which take into account the purpose 

and characteristics of each such Class 

Exemption. 

B. Securities and Exchange Commission 

(SEC) Alternatives to Credit Ratings 

In proposing these amendments to the 

Class Exemptions, the Department has 

considered alternatives to credit ratings 

set forth in three recent SEC releases 

(the SEC Releases). The first is a recent 

proposal (the Investment Company 

Proposal) released by the SEC in 

response to section 939A and section 

939(c) of Dodd-Frank that relates to the 

use of credit ratings in rules and forms 

under the Investment Company Act of 

1940 (the Investment Company Act).11

The second is the adoption of a new 

rule 6a-5 implementing section 939(c) of 

Dodd-Frank.12 Rule 6a-5 was initially 

proposed in the Investment Company 

Proposal and relates to the use of credit 

ratings in rules under the Investment 

Company Act (the Investment Company 

Final Rule, and together with the 

Investment Company Proposal, the 

Investment Company Releases). The 

third is the adoption of rule 

amendments (the 2009 NRSRO Rule 

Adopting Release) released by the SEC 

in 2009 on its own initiative regarding 

references to credit ratings of nationally 

recognized statistical rating 

organizations in certain rules under the 

Securities Exchange Act of 1934 (the 

Exchange Act) and the Investment 

Company Act.13

In the Investment Company Proposal, 

the SEC proposed alternatives to credit 

ratings in amendments to rules 2a–7, 

5b–3, and in the Investment Company 

Final Rule, the SEC adopted an 

alternative to credit ratings in new rule 

6a–5, each such rule under the 

Investment Company Act. In the 2009 

NRSRO Rule Adopting Release, the SEC 

adopted an alternative to credit ratings 

in amendments to rule 10f–3 under the 

Investment Company Act. Among other 

provisions, the Investment Company 

Act regulates conflicts of interest in 

investment companies, requiring 

disclosure of material details about an 

investment company, and placing 

restrictions on certain mutual fund 

activities. The Department believes that 

the alternatives described in the SEC 

Releases referenced above are 

instructive in developing appropriate 

alternatives for credit ratings referenced 

in the Class Exemptions, in part because 

of the similar manner in which the 

SEC’s rules and the Class Exemptions 

make use of such ratings, and also 

because of the similar standards of 

credit quality currently required in the 

rules and the Class Exemptions, or in 

the case of new rule 6a–5 and final rule 

10f–3, required prior to their adoption. 

In this regard, the Department 

considered new rule 6a–5 and final rule 

10f–3 for purposes of proposing to 

amend PTE 75–1 and PTE 80–83, and 

considered new rule 6a–5 with respect 

to its proposed amendment of PTE 

2006–16, in developing an alternative to 

a credit rating in one of the highest four 

rating categories, or ‘‘investment grade.’’ 

The Department also considered final 

rule 10f–3 and the proposed amendment 

to rule 2a–7 for purposes of proposing 

to amend PTE 81–8, in developing an 

alternative to a credit rating in one of 

the highest three rating categories. 

Finally, the Department also considered 

the proposed amendments to rules 2a– 

7 and 5b–3 for purposes of proposing to 

amend PTE 2006–16, in developing an 

alternative to a credit rating in one of 

the highest two rating categories. 

1. New Rule 6a–5 and Final Rule 10f– 

3: Standard for Highest Four Ratings 

Categories or ‘‘Investment Grade’’; 

Standard for Highest Three Ratings 

Categories 

Section 6(a)(5) of the Investment 

Company Act provides an exemption 

from certain of its provisions for 

business and industrial development 

companies (BIDCOs).14 Under section 

6(a)(5)(A)(iv) prior to its amendment by 

Dodd-Frank, BIDCOs seeking to rely on 

the exemption were limited in their 

purchases of securities issued by 

investment companies and private 

funds to: 

(I) any debt security that is rated 

investment grade by not less than 1 

nationally recognized statistical rating 

organization; or (II) any security issued by a 

registered open-end investment company 

that is required by its investment policies to 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37575 

15For purposes of the amendments to the Class 

Exemptions, the Department has interpreted 

carrying value as equivalent to fair market value. 

16 17 CFR 270.2a–7. 

17 ‘‘Requisite NRSROs’’ are defined as any two 

nationally recognized statistical rating organizations 

that have issued a rating with respect to a security 

or class of debt obligations of an issuer or, if only 

one such organization has issued a rating with 

respect to such security or class of debt obligations 

of an issuer at the time the investment company 

acquires the security, that nationally recognized 

statistical rating organization. A Requisite NRSRO 

must also be a ‘‘Designated NRSRO,’’ which is 

generally any one of at least four nationally 

recognized statistical rating organizations that a 

money market fund’s board of directors has 

designated for use, and determines at least annually 

issues credit ratings that are sufficiently reliable for 

the fund to use in determining whether a security 

is an eligible security. After enactment of DoddFrank, money market funds received SEC staff 

assurances that the staff would not recommend 

enforcement action if a money market fund board 

did not designate NRSROs (and did not make 

certain related disclosures) before the SEC made 

any modifications to rule 2a–7 as mandated by 

section 939A of Dodd-Frank. See Investment 

Company Institute, SEC No-Action Letter (Aug. 19, 

2010). 

18Eligible securities also must have a remaining 

maturity of 397 calendar days or less. Unrated 

securities of comparable credit quality can also 

meet the definition of ‘‘eligible security.’’ 

invest not less than 65 percent of its total 

assets in securities described in subclause (I) 

or securities that are determined by such 

registered open-end investment company to 

be comparable in quality to securities 

described in subclause (I). 

The Department understands that an 

‘‘investment grade’’ rating is a common 

term for a rating in one of the highest 

four rating categories by a credit rating 

agency. 

Section 939(c) of Dodd-Frank 

amended section 6(a)(5)(A)(iv) of the 

Investment Company Act, effective July 

21, 2012, to eliminate the reference to 

‘‘investment grade.’’ As amended, the 

section references debt securities that 

meet ‘‘such standards of creditworthiness as the Commission shall 

adopt.’’ Rule 6a-5 sets forth a creditworthiness standard to replace the 

credit rating reference to ‘‘investment 

grade’’ that Dodd-Frank eliminated from 

section 6(a)(5)(A)(iv). 

Under rule 6a–5, the requirements for 

creditworthiness under section 

6(a)(5)(A)(iv)(I) would be satisfied if the 

board of directors or members of the 

BIDCO (or a delegate thereof) 

determines that the debt security is: 

(a) subject to no greater than moderate 

credit risk and (b) sufficiently liquid that the 

security can be sold at or near its carrying 

value within a reasonably short period of 

time. 

The determination is made at the time 

of the purchase.15

In the Investment Company Final 

Rule, the SEC stated that this standard 

is designed to limit purchases of 

securities to those of ‘‘sufficiently high 

credit quality that they are likely to 

maintain a fairly stable market value 

and may be liquidated easily . . ..’’ The 

SEC provided the following explanation 

of moderate credit risk: 

Debt securities (or their issuers) subject to 

a moderate level of credit risk would 

demonstrate at least average creditworthiness relative to other similar debt 

issues (or issuers of similar debt). Moderate 

credit risk would denote current low 

expectations of default risk associated with 

the security, with an adequate capacity for 

payment by the issuer of principal and 

interest. 

The SEC noted further that in making 

such determinations, ‘‘a BIDCO’s board 

of directors or members (or its or their 

delegate) can also consider credit 

quality reports prepared by outside 

sources, including NRSRO ratings, that 

the BIDCO board or members conclude 

are credible and reliable for this 

purpose.’’ 

In the Investment Company Final 

Rule, the SEC noted that the standard of 

credit-worthiness in rule 6a–5 is similar 

to that previously adopted for rule 10f– 

3 under the Investment Company Act, 

amended effective November 12, 2009, 

to remove references to NRSRO ratings. 

Section 10(f) of the Investment 

Company Act prohibits a registered 

investment company from knowingly 

purchasing or otherwise acquiring, 

during the existence of any 

underwriting or selling syndicate, any 

security for which a principal 

underwriter of the security has certain 

relationships with the registered 

investment company, such as an officer, 

director, or investment adviser. Rule 

10f–3 contains a definition of ‘‘eligible 

municipal securities’’ with respect to 

securities that may be purchased during 

an affiliated underwriting under certain 

conditions. Prior to the amendment of 

the rule, such eligible municipal 

securities were required to have: 

an investment grade rating from at least one 

NRSRO; provided, that if the issuer of the 

municipal securities, or the entity supplying 

the revenues or other payments from which 

the issue is to be paid, has been in 

continuous operation for less than three 

years, including the operation of any 

predecessors, the securities shall have 

received one of the three highest ratings from 

an NRSRO. 

As amended, the definition of eligible 

municipal securities in rule 10f-3 

requires that the securities: 

are sufficiently liquid that they can be sold 

at or near their carrying value within a 

reasonably short period of time and either: i. 

Are subject to no greater than moderate credit 

risk; or ii. If the issuer of the municipal 

securities, or the entity supplying the 

revenues or other payments from which the 

issue is to be paid, has been in continuous 

operation for less than three years, including 

the operation of any predecessors, the 

securities are subject to a minimal or low 

amount of credit risk. 

In the 2009 NRSRO Rule Adopting 

Release, the SEC noted that securities 

with a minimal or low credit risk 

‘‘would be less susceptible to default 

risk (i.e., have a low risk of default) than 

those with moderate credit risk. These 

securities (or their issuers) also would 

demonstrate a strong capacity for 

principal and interest payments and 

present above average creditworthiness 

relative to other municipal or tax 

exempt issues (or issuers).’’ 

Thus, in both new rule 6a–5 and final 

rule 10f–3, the SEC set forth a standard 

to replace ‘‘investment grade’’ that 

requires that the security be: 

• Sufficiently liquid that it can be 

sold at or near its carrying value within 

a reasonably short period of time, and 

• subject to no greater than moderate 

credit risk. 

Additionally, with respect to a 

requirement that a security be rated in 

one of the three highest rating 

categories, the SEC in final rule 10f–3 

created a standard of credit-worthiness 

that would require the security to be: 

• Sufficiently liquid that it can be 

sold at or near its carrying value within 

a reasonably short period of time, and 

• subject to a minimal or low amount 

of credit risk. 

The Department likewise proposes 

herein to adopt similar standards to 

replace references in the Class 

Exemptions to the highest four rating 

categories or ‘‘investment grade,’’ and 

the highest three rating categories. 

2. Proposed Rule 2a–7: Standard for 

Highest Two Rating Categories 

Investment Company Act rule 2a–7, 

which governs the operation of money 

market funds, exempts money market 

funds from certain of its provisions 

regarding the calculation of current net 

asset value per share.16 A fund that 

relies on rule 2a–7 may use special 

valuation and pricing procedures that 

help the fund maintain a stable net asset 

value per share (typically $1.00). To 

facilitate maintaining a stable net asset 

value, among other conditions, rule 2a– 

7 limits money market funds to 

investing in debt obligations that are at 

the time of acquisition, ‘‘eligible 

securities,’’ meaning they have: 

received a rating from the Requisite 

NRSROs 17 in one of the two highest shortterm rating categories.18

Rule 2a–7 further requires that 

securities purchased by money market 


TKELLEY on DSK3SPTVN1PROD with NOTICES
37576 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

19Under rule 2a–7(a), an eligible security is 

generally either a ‘‘first tier security’’ or a ‘‘second 

tier security.’’ First tier securities are defined as (a) 

securities possessing a short-term rating from the 

requisite NRSROs in the highest short-term rating 

category for debt obligations, (b) comparable 

unrated securities, (c) securities issued by money 

market funds, or (d) government securities, as 

defined in the Investment Company Act. Second 

tier securities, in turn, are defined as any eligible 

securities that are not first tier securities. The 

Department has determined not to adopt the ‘‘first 

tier’’ and ‘‘second tier’’ labels utilized in Rule 2a– 

7 to describe securities rated in the highest and 

second highest rating categories, respectively, 

because such labels are unnecessary in the context 

of the Class Exemptions. 

20The SEC explains in the Investment Company 

Proposal that a repurchase agreement functions 

economically as ‘‘a loan from the fund to the 

counterparty, in which the securities purchased by 

the fund serve as collateral for the loan and are 

placed in the possession or under the control of the 

fund’s custodian during the term of the agreement.’’ 

Accordingly, the SEC notes that ‘‘a fund investing 

in a repurchase agreement looks to the value and 

liquidity of the securities collateralizing the 

repurchase agreement rather than the credit quality 

of the counterparty for satisfaction of the 

repurchase agreement.’’ 

funds are those ‘‘that the fund’s board 

of directors determines present minimal 

credit risks (which determination must 

be based on factors pertaining to credit 

quality in addition to any rating 

assigned to such securities by a 

Designated NRSRO).’’ 19

In order to implement Section 939A 

of Dodd-Frank, the SEC proposed to 

amend rule 2a–7 of the Investment 

Company Act to remove the references 

to credit ratings discussed above and 

replace them with alternative standards 

of credit worthiness that are designed to 

achieve the same degree of credit 

quality as the ratings requirement 

currently in use. Under the proposed 

amendment, the requirement of rule 2a– 

7 regarding minimal credit risks would 

be moved into the definition of ‘‘eligible 

security.’’ Thus, an eligible security 

would be a security that: 

the fund’s board of directors determines 

presents minimal credit risks (which 

determination must be based on factors 

pertaining to credit quality and the issuer’s 

ability to meet its short-term financial 

obligations). 

In the Investment Company Proposal, 

the SEC explained that an issuer that 

would satisfy the credit-worthiness 

requirement associated with an eligible 

security should have ‘‘a very strong 

ability to repay its short-term debt 

obligations, and a very low vulnerability 

to default.’’ 

Furthermore, in the Investment 

Company Proposal, the SEC noted that 

money market fund boards of directors 

‘‘would still be able to consider quality 

determinations prepared by outside 

sources, including NRSRO ratings, that 

fund advisers conclude are credible and 

reliable, in making credit risk 

determinations.’’ However, the SEC 

observed further that fund advisers 

would be expected ‘‘to understand the 

method for determining the rating and 

make an independent judgment of credit 

risks, and to consider an outside 

source’s record with respect to 

evaluating the types of securities in 

which the fund invests.’’ 

Thus, the SEC proposed to amend the 

requirement in rule 2a–7 that an 

‘‘eligible security’’ has received a rating 

from certain NRSROs in one of the 

highest two rating categories with a 

standard of credit-worthiness that 

would require that the security: 

• Present minimal credit risks based 

on factors pertaining to credit quality 

and the issuer’s ability to meet its shortterm financial obligations. 

The Department likewise proposes 

herein to adopt a similar standard in 

order to replace references in the Class 

Exemptions to credit ratings in one of 

the highest two rating categories. 

3. Proposed Rule 5b–3: Standard for 

Highest Two Rating Categories 

Rule 5b–3 under the Investment 

Company Act permits funds to treat the 

acquisition of a repurchase agreement as 

an acquisition of securities 

collateralizing the repurchase agreement 

in determining whether the fund is in 

compliance with certain provisions of 

the Investment Company Act, if the 

obligation of the seller to repurchase the 

securities from the fund is 

‘‘collateralized fully.’’ 20 In order for a 

repurchase agreement to be 

collateralized fully under rule 5b– 

3(c)(1), among other things, the 

collateral for the repurchase agreement 

must consist entirely of: 

(A) cash items; (B) government securities; 

(C) securities that at the time the repurchase 

agreement is entered into are rated in the 

highest rating category by the [r]equisite 

NRSROs; or (D) certain comparable unrated 

securities. 

In response to section 939A of DoddFrank, the SEC has proposed to 

eliminate the credit ratings requirement 

in rule 5b–3(c)(1) and set forth a new 

standard of credit-worthiness applicable 

to collateral other than cash or 

government securities. Under the 

proposed amendment to rule 5b–3, the 

requirements for credit-worthiness 

under rule 5b–3(c)(1) would be satisfied 

if the fund’s board of directors (or its 

delegate) determines that the purchased 

securities are: 

(i) Issued by an issuer that has the highest 

capacity to meet its financial obligations; and 

(ii) sufficiently liquid that they can be sold 

at approximately their carrying value in the 

ordinary course of business within seven 

calendar days. 

The determination is made at the time 

the repurchase agreement is entered 

into. 

In the Investment Company Proposal, 

the SEC stated that it designed ‘‘the 

proposed amendments to retain a degree 

of credit quality similar to that under 

the current rule.’’ The SEC provided the 

following description of an issuer with 

the ‘‘highest capacity’’ to meet its 

financial obligations: 

[an issuer with] an exceptionally strong 

capacity to repay its short or long-term debt 

obligations, as appropriate, the lowest 

expectation of default, and a capacity for 

repayment of its financial commitments that 

is the least susceptible to adverse effects of 

changes in circumstances. 

The SEC further noted that in making 

such determinations, ‘‘fund boards (or 

their delegates) would still be able to 

consider analysis provided by outside 

sources, including credit agency ratings, 

that they conclude are credible and 

reliable, for purposes of making these 

credit quality evaluations.’’ 

The SEC observed in the Investment 

Company Proposal that, securities 

trading in a secondary market at the 

time of the acquisition of the repurchase 

agreement would satisfy the proposed 

liquidity standard. 

In the Investment Company Proposal, 

the SEC explained that the proposed 

amendments were designed: 

to be clear enough to permit a fund board or 

fund investment adviser to make a 

determination regarding credit quality and 

liquidity that would achieve the same 

objectives that the credit rating requirement 

was designed to achieve, i.e., to limit 

collateral securities to those that are likely to 

retain a fairly stable market value and that, 

under ordinary circumstances, the fund 

would be able to liquidate quickly in the 

event of a counterparty default. 

Thus, in the proposed amendment to 

rule 5b–3, the SEC proposed a new 

standard of credit-worthiness to replace 

the reference to a credit rating in the 

highest rating category that would 

require a security to be: 

• Issued by an issuer that has the 

highest capacity to meet its financial 

obligations, and 

• sufficiently liquid that it can be 

sold at approximately its carrying value 

in the ordinary course of business 

within seven calendar days. 

The Department proposes herein to 

make use of certain portions of the 

standard set forth above, including that 

pertaining to the liquidity of the 

securities, to replace references in the 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37577 

21The factors listed below were published in the 

SEC’s proposing release entitled, Removal of 

Certain References to Credit Ratings Under the 

Securities Exchange Act of 1934, Release No. 34– 

64352; 76 FR 26550, at 26552–26553 (May 6, 2011). 

While such factors derive from the SEC’s proposed 

amendment to Rule 15c3–1, which requires a 

broker-dealer to determine whether a security 

satisfies a ‘‘minimal amount of credit risk,’’ the 

Department believes that they may, where 

appropriate, be helpful in connection with a 

fiduciary’s determination of credit quality under the 

amendments proposed herein. 

Class Exemption to a credit rating in the 

highest rating category. 

C. Class Exemptions 

These proposed amendments to the 

Class Exemptions are designed to 

implement the mandate of section 

939A(b) of Dodd-Frank to ‘‘remove any 

reference to or requirement of reliance 

on credit ratings and to substitute in 

such regulations such standard of 

credit-worthiness as each respective 

agency shall determine as appropriate 

for such regulations.’’ In this regard, the 

Department has designed the proposed 

amendments to retain the same degree 

of credit quality required under the 

Class Exemptions prior to the 

amendments, but without referencing or 

relying on credit ratings. The 

Department does not consider the 

changes proposed herein to be 

substantive in nature. Thus, for 

example, although the proposed 

amendment to PTE 75–1, Part III and 

Part IV, no longer refers to securities 

rated in one of the four highest rating 

categories, it is meant to capture 

securities that should generally qualify 

for that designation without relying on 

third-party credit ratings. 

The Department recognizes that, 

where a fiduciary has neither the 

expertise nor the time to make an 

informed determination of credit 

quality, it may be appropriate as a 

matter of prudence for such fiduciary to 

seek out the advice and counsel of third 

parties. Furthermore, it should be noted 

that, while credit ratings may no longer 

serve as a basis, or threshold, of credit 

quality, section 939A of Dodd-Frank 

does not prohibit a fiduciary from using 

credit ratings as an element, or data 

point, in that analysis. 

The Department notes that, in 

conducting an analysis of the credit 

quality of a particular financial 

instrument or person, a fiduciary should 

consider a variety of factors that may be 

applicable in making such 

determination. The following factors, 

derived from a recent SEC release 

regarding proposed changes to certain 

rules under the Securities Exchange Act 

of 1934 (the Exchange Act Proposal), 

may be considered relevant in assessing 

credit risk: 21

• Credit spreads (i.e., the amount of 

credit risk a position in commercial 

paper and/or nonconvertible debt is 

subject to, based on the spread between 

the security’s yield and the yield of 

Treasury or other securities, or based on 

credit default swap spreads that 

reference the security); 

• Securities-related research (i.e., to 

what extent providers of securitiesrelated research believe the issuer of the 

security will be able to meet its financial 

commitments, generally, or specifically, 

with respect to securities held); 

• Internal or external credit risk 

assessments (i.e., whether credit 

assessments developed internally by a 

broker-dealer or externally by a credit 

rating agency, express a view as to the 

credit risk associated with a particular 

security); 

• Default statistics (i.e., whether 

providers of credit information relating 

to securities express a view that specific 

securities have a probability of default 

consistent with other securities with a 

determined amount of credit risk); 

• Inclusion on an index (i.e., whether 

a security, or issuer of the security, is 

included as a component of a 

recognized index of instruments that are 

subject to a determined amount of credit 

risk); 

• Priorities and enhancements (i.e., 

the extent to which a security is covered 

by credit enhancements, such as 

overcollateralization and reserve 

accounts, or has priority under 

applicable bankruptcy or creditors’ 

rights provisions); 

• Price, yield and/or volume (i.e., 

whether the price and yield of a security 

or a credit default swap that references 

the security are consistent with other 

securities that the broker-dealer has 

determined are subject to a certain 

amount of credit risk and whether the 

price resulted from active trading); and 

• Asset class-specific factors (e.g., in 

the case of structured finance products, 

the quality of the underlying assets). 

The Department observes that the 

SEC’s list above was not meant to be 

exhaustive or mutually exclusive, and 

that the range and type of specific 

factors considered would vary 

depending on the particular securities 

that are reviewed. 

The Department notes further that in 

making a determination of the relative 

credit quality of a particular financial 

instrument or entity, as well as in 

assigning a relative value to a third 

party’s advice or a credit rating, a plan 

fiduciary would continue to be subject 

to section 404 of ERISA. Moreover, such 

fiduciary would remain subject to the 

other conditions of relief as set forth in 

the Class Exemptions, including, but not 

limited to, any requirements regarding 

the maintenance of records which are 

necessary to enable the persons 

described therein to determine whether 

the conditions of such Class Exemption 

have been met. 

1. PTE 75–1 

PTE 75–1, granted soon after the 

enactment of ERISA, provides relief for 

certain transactions that were customary 

at the time between plans and brokerdealers or banks, including a plan’s 

acquisition of securities from a member 

of an underwriting syndicate of which 

a plan fiduciary or its affiliate is a 

member, and an employee benefit plan’s 

purchase or sale of securities for which 

the plan’s fiduciary is a ‘‘market 

maker,’’ to or from such fiduciary or its 

affiliate. 

Specifically, PTE 75–1, Part III, 

provides relief from the restrictions of 

section 406 of ERISA and the taxes 

imposed by section 4975(a) and (b) of 

the Code, by reason of section 4975(c)(1) 

of the Code, for an employee benefit 

plan’s acquisition of securities during 

the existence of an underwriting 

syndicate, from a person other than a 

fiduciary with respect to the plan, 

where a fiduciary of such employee 

benefit plan is a member of the 

underwriting syndicate. Section III(a) 

provides further that no fiduciary who 

is involved in any way in causing the 

plan to make such purchase may be a 

manager of such underwriting or selling 

syndicate. In this regard, section (a) 

defines a manager as any member of an 

underwriting or selling syndicate who, 

either alone or together with other 

members of the syndicate, is authorized 

to act on behalf of the members of the 

syndicate in connection with the sale 

and distribution of the securities being 

offered or who receives compensation 

from the members of the syndicate for 

its services as a manager of the 

syndicate. 

Part IV of PTE 75–1 provides relief 

from the restrictions of section 406 of 

ERISA and the taxes imposed by section 

4975(a) and (b) of the Code, by reason 

of section 4975(c)(1) of the Code, for a 

plan’s purchase or sale of securities 

from or to a ‘‘market maker’’ with 

respect to such security who is also a 

fiduciary with respect to the plan or an 

affiliate of such fiduciary. Part IV 

provides further that at least one person 

other than the fiduciary must be a 

market-maker in such securities, and the 

transaction must be executed at a net 

price to the plan for the number of 

shares or other units to be purchased or 


TKELLEY on DSK3SPTVN1PROD with NOTICES
37578 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

sold in the transaction which is more 

favorable to the plan than that which 

such fiduciary, acting in good faith, 

reasonably believes to be available at the 

time of such transaction from all other 

market makers in such securities. 

The relief afforded in Part III and Part 

IV of PTE 75–1 is also conditioned 

upon, among other things, the issuer of 

the securities having been in continuous 

operation for not less than three years, 

including the operations of any 

predecessors. However, several 

exceptions to this condition exist with 

respect to each exemption, including an 

exception for securities that are ‘‘nonconvertible debt securities rated in one 

of the four highest rating categories by 

at least one nationally recognized 

statistical rating organization.’’ 

The condition requiring the issuer of 

securities in an underwriting to have 

been in continuous operation for at least 

three years bolsters the quality of the 

underwritten securities, by ensuring 

that the issuer is an established entity 

that has been operating as a business for 

a continuous period of time. Securities 

issued by such an issuer should be more 

predictable in terms of price and trading 

volume stability than securities issued 

by unproven entities with shorter 

operating histories. Ostensibly, debt 

securities rated as investment grade or 

higher, by an unrelated third party in 

the business of evaluating credit quality, 

possess attributes of credit quality that 

provide more predictability in terms of 

price, volatility, and ultimate payment 

of principal. Thus, the Department is 

cognizant that any substitute for credit 

ratings must provide the same level of 

protection for plans entering into the 

transactions. 

The Department is proposing to 

replace the references to credit ratings 

in Part III and Part IV of PTE 75–1 with 

the requirement that, ‘‘[a]t the time of 

acquisition, such securities are nonconvertible debt securities (i) subject to 

no greater than moderate credit risk and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ Thus, as 

amended, condition (c)(1) of Part III and 

condition (a)(1) of Part IV, of PTE 75– 

1, would require securities to be issued 

by a person that has been in continuous 

operation for not less than three years, 

including the operations of any 

predecessors, unless, among other 

exceptions, the fiduciary directing the 

plan in such transaction has made a 

determination that, at the time they are 

acquired, such securities satisfy the new 

standard described above. 

For purposes of this amendment, debt 

securities subject to a moderate level of 

credit risk should possess at least 

average credit-worthiness relative to 

other similar debt issues. Moderate 

credit risk would denote current low 

expectations of default risk, with an 

adequate capacity for payment of 

principal and interest. 

The Department views the new 

proposed standard as reflecting the 

same level of credit quality as required 

prior to this amendment. The alternative 

standard described above is modeled on 

the SEC’s new rule 6a–5 and final rule 

10f–3 of the Investment Company Act. 

New rule 6a-5 and one element of the 

final amendments to rule 10f–3 each set 

forth a standard that replaced a 

reference to an ‘‘investment grade’’ 

rating, which the Department 

understands is the same as a reference 

to one of the four highest rating 

categories issued by at least one 

nationally recognized statistical rating 

organization. Furthermore, because PTE 

75–1, Part III, and final rule 10f–3 

involve the acquisition of securities in 

an underwriting where there is a 

relationship between the acquiring fund 

or entity and a member of the 

underwriting syndicate, it is relevant 

that the standard of credit quality 

required under each rule is similar. 

The proposed standard is also 

appropriate for PTE 75–1, because it 

addresses concerns that an acquirer of 

securities might be harmed by a 

purchase of illiquid securities. In this 

regard, the proposed standard preserves 

the purpose of the original condition in 

paragraphs (c)(1) of Part III and (a)(1) of 

Part IV of PTE 75–1, by restricting 

fiduciaries’ acquisitions to purchases of 

securities of sufficiently high credit 

quality. As stated above, in making 

these determinations, a fiduciary would 

not be precluded from considering 

credit quality reports prepared by 

outside sources, including credit ratings 

prepared by credit rating agencies, that 

they conclude are credible and reliable 

for this purpose. 

2. PTE 80–83 

PTE 80–83 generally provides relief 

for the purchase or acquisition in a 

public offering of securities by a 

fiduciary, on behalf of an employee 

benefit plan, solely because the 

proceeds from the sale may be used by 

the issuer of the securities to retire or 

reduce indebtedness owed to a party in 

interest with respect to the plan. Part C 

of the exemption provides relief from 

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

through (D) and 406(b)(1) and (2) of 

ERISA and the taxes imposed by reason 

of section 4975(c)(1)(A) through (E) of 

the Code, for the purchase or acquisition 

in a public offering of securities, by a 

fiduciary which is a bank or affiliate 

thereof, on behalf of a plan solely 

because the proceeds of the sale may be 

used by the issuer of the securities to 

retire or reduce indebtedness owed to 

such fiduciary or an affiliate thereof. In 

the event that such fiduciary of the plan 

‘‘knows’’ that the proceeds of the issue 

will be used in whole or in part by the 

issuer of the securities to reduce or 

retire indebtedness owed to such 

fiduciary or affiliate thereof, the relief in 

Part C is conditioned upon, among other 

things, the issuer of such securities 

having been in continuous operation for 

not less than three years, including the 

operations of any predecessors, unless 

such securities are non-convertible debt 

securities rated in one of the four 

highest rating categories by at least one 

nationally recognized statistical rating 

organization. 

As in PTE 75–1, Part III and Part IV, 

the three years continuous operation 

condition bolsters the quality of the 

underwritten securities by ensuring that 

the issuer is an established entity that 

has been operating as a business for a 

continuous period of time. In crafting an 

alternative to credit ratings to be used as 

an exception to the three years 

continuous operation condition, the 

Department has likewise employed an 

alternative that provides similar 

protection for plans entering into the 

transactions. 

The Department is proposing to 

amend condition 3 of Part C of PTE 80– 

83 to replace the reference to credit 

ratings with a requirement that, ‘‘at the 

time of acquisition, such securities are 

non-convertible debt securities (i) 

subject to no greater than moderate 

credit risk and (ii) sufficiently liquid 

that such securities can be sold at or 

near their fair market value within a 

reasonably short period of time.’’ For 

purposes of this amendment, debt 

securities subject to a moderate level of 

credit risk should possess at least 

average credit-worthiness relative to 

other similar debt issues. Moderate 

credit risk would denote current low 

expectations of default risk, with an 

adequate capacity for payment of 

principal and interest. 

The Department views the new 

proposed standard as reflecting the 

same level of credit quality as required 

prior to this amendment. It is 

appropriate that the proposed 

alternative is modeled on the SEC’s new 

rule 6a–5 and final rule 10f–3 of the 

Investment Company Act. New rule 6a– 

5 and one element of the final 

amendments to rule 10f–3 each 

supplied a standard that replaced the 

reference to an ‘‘investment grade’’ 

rating, which the Department 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37579 

22 510 US 86 (1993). 

23PTE 83–1 provides relief for the operation of 

certain mortgage pool investment trusts and the 

acquisition and holding by plans of certain 

mortgage-backed pass-through certificates 

evidencing interests therein. 

24The Underwriter Exemptions are comprised of 

a number of individual exemptions in which credit 

ratings have been used extensively (e.g., PTE 2009– 

31 (74 FR 59003, November 16, 2009)), which 

provide relief for the operation of certain asset pool 

investment trusts and the acquisition and holding 

by plans of certain asset-based pass-through 

certificates representing interests in those trusts. 

understands is the same as a reference 

to a rating in one of the four highest 

rating categories by at least one 

nationally recognized statistical rating 

organization. The alternative standard 

in the proposed amendment to PTE 80– 

83 also addresses concerns that an 

acquirer of securities might be harmed 

by such person’s purchase of illiquid 

securities. The alternative preserves the 

level of protection afforded by the 

original standard, by requiring a 

fiduciary to make a prudent 

determination that a security acquired 

in an underwriting is of a sufficiently 

high credit quality. In making the 

proposed determination of credit 

quality, a fiduciary may consider 

information provided by third parties, 

including credit ratings issued by credit 

rating agencies. 

3. PTE 81–8 

PTE 81–8 provides exemptive relief 

from the restrictions of section 

406(a)(1)(A), (B), and (D) of ERISA and 

the taxes imposed by reason of section 

4975(c)(1)(A), (B), and (D) of the Code, 

for the investment of employee benefit 

plan assets which involve the purchase 

or other acquisition, holding, sale, 

exchange or redemption by or on behalf 

of an employee benefit plan of certain 

short-term investments issued by a party 

in interest, including commercial paper. 

As a condition of exemptive relief, 

paragraph II(D) requires that, with 

respect to an acquisition or holding of 

commercial paper, at the time it is 

acquired, such commercial paper must 

be ranked in one of the three highest 

rating categories by at least one 

nationally recognized statistical rating 

service. The original condition was 

incorporated into PTE 81–8 to allow 

fiduciaries who make investment 

decisions regarding the short-term 

investments of a plan to choose from a 

broad range of issues of commercial 

paper while assuring that the quality of 

the issue had been assessed by an 

independent third party. 

The Department proposes to amend 

paragraph II(D) to delete the reference to 

the credit rating of commercial paper 

and replace it with the requirement that, 

‘‘at the time of acquisition, the 

commercial paper is (i) subject to a 

minimal or low amount of credit risk 

based on factors pertaining to credit 

quality and the issuer’s ability to meet 

its short-term financial obligations, and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ Commercial paper 

subject to a minimal or low credit risk 

would be less susceptible to default risk 

(i.e., have a low risk of default) than 

those with moderate credit risk. These 

instruments also would demonstrate a 

strong capacity for principal and 

interest payments and present aboveaverage credit-worthiness relative to 

other issues of commercial paper. 

The Department views the new 

proposed standard as reflecting the 

same level of credit quality required 

prior to this amendment. The ‘‘minimal 

or low amount of credit risk’’ standard 

in the proposed alternative is modeled 

on one element of the SEC’s final rule 

10f–3 of the Investment Company Act, 

described above, which was developed 

as an alternative to a credit rating in one 

of the highest three rating categories. In 

developing the alternative standard for 

PTE 81–8, as amended, the Department 

found it relevant that final rule 10f–3 

provides an alternative to the same 

credit rating category that is currently in 

PTE 81–8. 

In addition, the Department 

considered the language ‘‘based on 

factors pertaining to credit quality and 

the issuer’s ability to meet its short-term 

financial obligations’’ from the SEC’s 

proposed amendment to rule 2a–7. The 

Department understands rule 2a–7 to 

apply to mutual funds (more 

specifically, money market funds) that 

invest in high quality, short-term debt 

instruments. As commercial paper is a 

short-term debt instrument as well, the 

Department determined that it would be 

appropriate to include such language in 

its alternative credit standard to reflect 

an increased focus on the issuer’s ability 

to meet its short-term obligations. 

The Department notes that the 

preamble to PTE 81–8 (46 FR 7511 at 

7512, January 23, 1981) states that, 

based on the record, the Department 

was unable to conclude that unrated 

issues of commercial paper sold in a 

private offering ‘‘have such protective 

characteristics that affected plans would 

not need the independent safeguards 

that the rating condition is intended to 

provide,’’ which may suggest that a 

credit rating by an independent third 

party is an important condition of the 

relief provided. Under section 939A of 

Dodd-Frank, the Department cannot 

continue to mandate that commercial 

paper acquired by a plan pursuant to 

PTE 81–8 must receive a specified credit 

rating. However, the Department also 

noted in PTE 81–8, that a determination 

whether an investment in commercial 

paper is appropriate for a plan should 

be determined ‘‘by the responsible plan 

fiduciaries, taking into account all the 

relevant facts and circumstances.’’ For 

purposes of this amendment, the 

Department believes that a fiduciary’s 

determination of the credit quality of 

commercial paper according to the 

proposed standard should, as a matter of 

prudence, include the reports or advice 

of independent third parties, including 

where appropriate, such commercial 

paper’s credit rating. 

4. PTE 95–60 

PTE 95–60 was granted in response to 

the Supreme Court’s decision in John 

Hancock Mutual Life Insurance Co. v. 

Harris Trust & Savings Bank (Harris 

Trust),22 holding that those funds 

allocated to an insurer’s general account 

pursuant to a contract with a plan that 

vary with the investment experience of 

the insurance company are ‘‘plan 

assets’’ under ERISA. Harris Trust 

created uncertainty with respect to a 

number of exemptions previously 

granted by the Department in 

connection with the operation of asset 

pool investment trusts that issue assetbacked, pass-through certificates to 

plans. Specifically, the Department had 

previously granted PTE 83–1 (48 FR 

895, January 7, 1983) 23 and the 

‘‘Underwriter Exemptions,’’ 24 which 

were conditioned, among other things, 

upon the certificates that were 

purchased by plans not being 

subordinated to other classes of 

certificates issued by the same trust. 

Because, in a typical asset pool 

investment trust, one or more classes of 

subordinated certificates are often 

purchased by life insurance companies, 

in holding that insurance company 

general accounts may be considered 

‘‘plan assets,’’ Harris Trust raised the 

potential for servicers and trustees of 

pools to be engaging in prohibited 

transactions for the same acts involving 

the operation of trusts which would be 

exempt if the certificates were not 

subordinated. 

PTE 95–60 provides exemptive relief 

for certain transactions engaged in by 

insurance company general accounts in 

which an employee benefit plan has an 

interest, if certain specified conditions 

are met. Under Section III, additional 

relief is provided from the restrictions of 

sections 406(a), 406(b) and 407(a) of 

ERISA and the taxes imposed by section 

4975(a) and (b) of the Code by reason of 

section 4975(c) of the Code for certain 


TKELLEY on DSK3SPTVN1PROD with NOTICES
37580 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

transactions entered into in connection 

with the servicing, management, and 

operation of a trust (a Trust), described 

in PTE 83–1 or in one of the 

Underwriter Exemptions, in which an 

insurance company general account has 

an interest as a result of its acquisition 

of certificates issued by the Trust. 

Section III(a)(2) of PTE 95–60 requires 

that the conditions of either PTE 83–1 

or an applicable Underwriter Exemption 

be met other than the requirements that 

the certificates acquired by the general 

account (A) not be subordinated to the 

rights and interests evidenced by other 

certificates of the same trust and (B) 

receive a rating that is in one of the 

three highest generic rating categories 

from an independent rating agency. 

Because PTE 83–1 only requires nonsubordination with respect to the 

acquired certificates, and does not have 

a credit rating reference or requirement, 

the exception from the ratings 

requirement applies only to the 

Underwriter Exemptions. 

The Department proposes to delete 

the reference in Section III(a)(2)(B) 

pertaining to the credit ratings of 

certificates acquired by a general 

account and replace it with a general 

reference to the credit quality of such 

certificates. Thus, Section III(a)(2) of 

PTE 95–60, as amended, would provide 

that ‘‘[t]he conditions of either PTE 83– 

1 or the relevant Underwriter 

Exemption are met, except for the 

requirements that: (A) The rights and 

interests evidenced by the certificates 

acquired by the general account are not 

subordinated to the rights and interests 

evidenced by other certificates of the 

same Trust, and (B) the certificates 

acquired by the general account have 

the credit quality required under the 

relevant Underwriter Exemption at the 

time of such acquisition.’’ 

The Department believes that this 

modification will bring PTE 95–60 into 

compliance with the mandate in section 

939A of Dodd-Frank that any reference 

to or requirement of reliance on credit 

ratings be removed from the 

Department’s rules and regulations. 

Because the Department has not 

proposed to amend the Underwriter 

Exemptions, this proposed amendment 

cannot refer to a specific alternative to 

credit ratings in such exemptions. 

Nevertheless, because Section III(a)(2), 

as amended, would state that the 

certificates are not required to meet the 

standard of credit quality referred to in 

the conditions of the Underwriter 

Exemptions, the Department believes 

that the amended requirement would be 

consistent with section 939A(b) of 

Dodd-Frank. Additionally, in the 

Department’s view, there should not be 

any substantive distinction between a 

person’s compliance with the condition 

in paragraph III(a)(2)(B) prior to or after 

this amendment takes effect. 

5. PTE 97–41 

Section II of PTE 97–41 provides 

relief from sections 406(a) and 406(b)(1) 

and (2) of ERISA and the taxes imposed 

by section 4975 of the Code, by reason 

of section 4975(c)(1)(A) through (E) of 

the Code, for the purchase, by an 

employee benefit plan, of shares of one 

or more mutual funds in exchange for 

the assets of the plan, transferred inkind to the mutual fund from a 

collective investment fund (CIF) 

maintained by a bank or plan adviser 

where such bank or plan adviser is the 

investment adviser to the mutual fund 

and also a fiduciary of the plan, in 

connection with a complete withdrawal 

of the plan’s assets from the CIF. 

Exemptive relief is conditioned upon, 

inter alia, Section II(c), the ‘‘pro rata 

division rule,’’ which provides that the 

transferred assets must constitute the 

plan’s pro rata portion of the assets that 

were held by the CIF immediately prior 

to the transfer. However, Section II(c) 

provides further that, notwithstanding 

the foregoing, the allocation of fixed 

income securities held by a CIF among 

plans on the basis of each plan’s pro rata 

share of the aggregate value of such 

securities will not fail to meet the 

requirements of the pro rata division 

rule if (1) the aggregate value of such 

securities does not exceed one percent 

of the total value of the assets held by 

the CIF immediately prior to the 

transfer, and (2) such securities have the 

same coupon rate and maturity, and at 

the time of transfer, the same credit 

ratings from nationally recognized 

statistical rating organizations. 

The exception to the general pro rata 

division rule in Section II(c) ensures 

that plans can avoid the transaction 

costs involved in liquidating small 

positions in fixed-income securities that 

are not divisible, or that can be divided 

only at substantial cost, prior to their 

maturity. In these situations, equivalent, 

small investments of fixed-income 

securities are treated as fungible for 

allocation purposes if such securities 

have the same coupon rates, maturities 

and credit ratings at the time of the 

transaction. This requirement ensures 

that all plans receive securities that 

have equivalent terms and features and 

that such fixed-income securities will be 

allocated among the plans in a manner 

such that each plan receives its pro rata 

share of the value of such securities. 

The Department is proposing to 

amend the exception found in Section 

II(c) by deleting the requirement found 

in subsection (2) that the securities 

transferred in-kind from a CIF to the 

mutual fund have the same credit 

ratings and replacing it with a 

requirement that such securities are of 

the same credit quality. Section II(c)(1) 

and (2), as amended, would provide that 

the allocation of fixed-income securities 

held by a CIF among the plans on the 

basis of each plan’s pro rata share of the 

aggregate value of such securities will 

not fail to meet the requirements of 

Section II(c) if ‘‘(1) the aggregate value 

of such securities does not exceed one 

percent of the total value of the assets 

held by the CIF immediately prior to the 

transfer, and (2) such securities have the 

same coupon rate and maturity, and at 

the time of transfer, the same credit 

quality.’’ 

In making the determination as to the 

credit quality of fixed income securities 

for purposes of this condition, the 

Department notes that a fiduciary 

should, to the extent possible, engage in 

credit quality comparisons of securities 

using the same standards (e.g., 

employing the same metrics) for each 

set of securities. The Department 

believes that an ‘‘apples to apples’’ 

comparison of the credit quality of each 

security taking into account the same 

variables would comply with the 

proposed amendment to the condition 

set forth in Section II(c)(2). Furthermore, 

the Department notes that a fiduciary 

may rely on reports and advice given by 

independent third parties, including 

ratings issued by rating agencies. 

6. PTE 2006–16 

Sections I(a) and (b) of PTE 2006–16 

provide exemptive relief from 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 for 

the lending of securities that are assets 

of an employee benefit plan to certain 

banks and broker-dealers that are parties 

in interest with respect to the plan. 

Section I(c) of PTE 2006–16 provides 

exemptive relief from 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 for the payment to a fiduciary of 

compensation for services rendered in 

connection with loans of plan assets 

that are securities. 

Section II(b) of PTE 2006–16 

conditions the relief provided under 

Sections I(a) and (b) upon the plans’ 

receipt 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, of either 

‘‘U.S. Collateral,’’ or ‘‘Foreign 

Collateral,’’ as such terms are defined in 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37581 

25See Investment Company Proposal, supra note 

11, at text following n.54. 

26As noted above, the SEC adopted rule 6a–5 

under the Investment Company Act as directed by 

section 939(c) of Dodd-Frank, which eliminates a 

statutory condition requiring that certain securities 

have received a credit rating of investment grade, 

and instead requires that the securities ‘‘meet such 

standards of creditworthiness as the Commission 

shall adopt.’’ 

Section V of the exemption. Section 

V(f)(2) defines ‘‘Foreign Collateral’’ to 

include ‘‘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.’’ Section V(f)(4) 

defines ‘‘Foreign Collateral’’ to include 

‘‘irrevocable letters of credit issued by a 

[f]oreign [b]ank, 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.’’ 

The Department is proposing to 

amend Section V(f)(2) to delete the 

reference to credit ratings and provide 

that ‘‘Foreign Collateral’’ will include 

‘‘foreign sovereign debt securities that 

are (i) subject to a minimal amount of 

credit risk, and (ii) sufficiently liquid 

that such securities can be sold at or 

near their fair market value in the 

ordinary course of business within 

seven calendar days.’’ 

The credit risk associated with 

securities that present ‘‘minimal credit 

risks’’ would differ from that of the 

highest credit quality securities only to 

a small degree. Thus, an issuer that 

would satisfy the credit-worthiness 

requirement associated with foreign 

sovereign debt securities should have a 

very strong ability to repay its debt 

obligations, and a very low vulnerability 

to default. In addition, the SEC has 

indicated its expectation that securities 

that trade in a secondary market at the 

time of their acquisition would satisfy 

the ‘‘seven calendar day’’ liquidity 

standard.25

The Department views the new 

standard as reflecting the same level of 

credit quality required prior to this 

amendment. The alternative standard of 

credit quality proposed for Section 

V(f)(2) of PTE 2006–16 takes a similar 

approach to the SEC’s proposed 

amendments to rule 2a–7, which 

governs the securities that certain 

money market funds may hold as 

investments, and proposed amendments 

to rule 5b–3, which relates to funds 

entering into repurchase agreements 

that are collateralized with certain high 

credit-quality securities, as described 

above. 

The Department believes that the 

‘‘minimal’’ credit risk standard in the 

proposed alternative to credit ratings in 

rule 2a–7 is an appropriate model for 

the alternative standard of credit quality 

proposed in Section V(f)(2) of PTE 

2006–16, as the current level of credit 

worthiness required under both 

provisions reflects credit ratings in one 

of the two highest rating categories. 

However, the Department understands 

that, whereas rule 2a–7 currently 

utilizes a short-term rating, foreign 

sovereign debt securities described in 

Section V(f)(2) could comprise either 

long-term or short-term securities. 

Therefore, in formulating the proposed 

alternative standard of credit quality in 

Section V(f)(2), the Department did not 

include in its proposed standard the 

language ‘‘based on factors pertaining to 

credit quality and the issuer’s ability to 

meet its short-term financial 

obligations.’’ However, in the case of a 

short-term foreign sovereign debt 

security used as collateral, fiduciaries 

may wish to include the issuer’s ability 

to meet its short term obligations as a 

factor in its evaluation of the security’s 

credit quality. 

In addition to the ‘‘minimal’’ credit 

risk standard of the proposed 

amendment, the Department believes 

that the liquidity requirement proposed 

in rule 5b–3 (‘‘sufficiently liquid that 

such securities can be sold at or near 

their fair market value in the ordinary 

course of business within seven 

calendar days’’) is appropriate for 

inclusion in the alternative standard of 

credit quality proposed in Section 

V(f)(2) of PTE 2006–16, because the 

economic considerations and regulatory 

framework underpinning securities 

repurchase agreements is similar to that 

supporting securities lending 

transactions. 

The Department is also proposing to 

amend Section V(f)(4) to delete the 

reference to credit ratings and provide 

that ‘‘Foreign Collateral’’ will include 

‘‘irrevocable letters of credit issued by a 

Foreign Bank, other than the borrower 

or an affiliate thereof, provided that, at 

the time the letters of credit are issued, 

the Foreign Bank’s ability to honor its 

commitments thereunder is subject to 

no greater than moderate credit risk.’’ 

The Department notes that, where a 

Foreign Bank’s ability to honor its 

commitment under a letter of credit is 

subject to a moderate level of credit risk, 

such bank would demonstrate at least 

average credit-worthiness relative to 

other issuers of similar debt. Moderate 

credit risk would denote current low 

expectations of default risk, with an 

adequate capacity for payment of 

principal and interest. 

The Department views the new 

standard as reflecting the same level of 

credit quality required prior to this 

amendment. The proposed alternative 

described for Section V(f)(4) is modeled 

after the SEC’s new rule 6a–5 of the 

Investment Company Act, described 

above, which adopts an alternative to a 

credit rating of investment grade, or a 

credit rating in one the four highest 

rating categories.26 In particular, the 

Department has modeled the new 

standard of credit quality for PTE 2006– 

16 on the credit quality element of the 

standard in rule 6a–5; as such, the 

proposed amendment focuses on the 

issuing bank’s ability to honor its 

commitment under the letter of credit. 

Furthermore, in developing the 

alternative standard for Section V(f)(4) 

of PTE 2006–16, as amended, the 

Department found it relevant that the 

standards adopted in new rule 6a–5 and 

proposed in amendments to Section 

V(f)(4) of PTE 2006–16 are designed to 

reflect the same level of credit quality as 

the credit ratings they replaced in 

section 6(a)(5)(A)(iv) of the Investment 

Company Act and would replace in 

Section V(f)(4), respectively. 

Finally, Lending Fiduciaries making 

determinations of credit quality under 

Sections V(f)(2) and V(f)(4) of PTE 

2006–16 would still be able to consider 

credit quality determinations prepared 

by outside sources, including credit 

ratings issued by rating organizations, 

that such fiduciaries conclude are 

credible and reliable, in making 

determinations of credit worthiness. 

7. Request for Comment Regarding 

Modifications to Class Exemptions 

The Department is requesting 

comments regarding all aspects of these 

proposed amendments. In this regard, 

the Department specifically requests 

comments regarding whether the 

alternatives for credit ratings described 

herein represent adequate substitutes for 

credit ratings by rating organizations, 

taking into account the different Class 

Exemptions making use of such ratings, 

and the costs to comply with the 

alternatives, and invites comments on 

additional or alternative credit 

standards for consideration by the 

Department. As stated above, any 

suggested alternative to a credit rating 

should retain as close as possible the 

original intent of the standard in its 

related Class Exemption. Furthermore, 

the Department will consider the SEC’s 

treatment of comments received in 

response to its proposals modifying the 

use of credit ratings as part of its 

compliance with section 939A and 

939(c) of Dodd-Frank. 


TKELLEY on DSK3SPTVN1PROD with NOTICES
37582 Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 

27As stated in FASB Accounting Standards 

Codification Topic 820, Fair Value Measurements 

and Disclosures (ASC Topic 820). 

28The Department notes that it recently proposed 

an amendment to the Underwriter Exemptions (the 

Underwriter Proposal) that modified the definition 

of ‘‘Rating Agency’’ to eliminate specific references 

to named credit rating agencies. Pursuant to the 

Underwriter Proposal, the term ‘‘Rating Agency’’ 

would be defined using a general framework of selfexecuting criteria based on both (i) SEC rules 

applicable to NRSROs and (ii) the Department’s 

own ‘‘seasoning’’ requirement for credit rating 

agencies. The Underwriter Proposal makes no 

modifications to the use of credit ratings in the 

Underwriter Exemptions, including the requirement 

that securities available for purchase by Plans 

generally must be rated in one of the three highest 

rating categories (or four in the case of certain 

‘‘Designated Transactions’’). See Notice of Proposed 

Amendment to Prohibited Transaction Exemption 

2007–05, 72 FR 13130 (March 20, 2007), Involving 

Prudential Securities Incorporated, et al., To 

Amend the Definition of ‘‘Rating Agency,’’ 77 FR 

76773 (December 28, 2012). 

In addition to the comments 

requested above, the Department 

requests comments on guidance 

provided in connection with the term 

‘‘moderate credit risk’’ as used in the 

proposed amendments to PTEs 75–1, 

80–83, and 2006–16. Specifically, the 

Department solicits input on whether 

average credit-worthiness relative to 

other similar issues or issuers is an 

appropriate point of reference to 

associate with a moderate level of credit 

risk, as used in the Class Exemptions. 

The Department also requests comments 

regarding the inclusion of a liquidity 

requirement as part of its standard of 

credit-worthiness proposed for use in 

the Class Exemptions. In this regard, the 

Department is interested in commenters’ 

views as to whether a liquidity 

requirement contributes to the 

protective characteristics of the relevant 

standard of credit-worthiness proposed 

for use in the applicable Class 

Exemptions, and invites comments on 

alternative liquidity requirements for 

consideration by the Department or 

whether the absence of such a 

requirement is more appropriate. Any 

comment received in this regard should 

explain in detail the commenter’s 

rationale, including how the presence or 

absence of a liquidity requirement 

would be protective of plans, 

participants and their beneficiaries. 

Finally, the Department requests 

comments regarding its use of ‘‘fair 

market value’’ for purposes of 

establishing a liquidity requirement in 

the proposed alternatives to credit 

ratings. Specifically, the Department 

requests comments concerning whether 

a different measure of value, such as 

‘‘carrying value’’ or ‘‘fair value,’’ 27

would be more appropriate for the 

proposed alternatives to credit ratings 

and offer greater protections for 

employee benefit plans and their 

participants and beneficiaries engaging 

in the covered transactions. Any 

comment received in this regard should 

explain in detail the suggested measure 

of value, including how it is determined 

and why it is appropriate for use in a 

Class Exemption. 

8. Underwriter Exemptions 

The Underwriter Exemptions are 

comprised of a number of individual 

exemptions in which credit ratings have 

been used extensively (e.g., PTE 2009– 

31 (74 FR 59003, November 16, 2009)), 

which provide relief for the operation of 

certain asset pool investment trusts and 

the acquisition and holding by plans of 

certain asset-based pass-through 

certificates representing interests in 

those trusts. It is the Department’s view 

that the Underwriter Exemptions, as 

individual prohibited transaction 

exemptions, are not federal regulations, 

and therefore section 939A of DoddFrank does not require their review and 

modification. 

Accordingly, notwithstanding the 

deadline for compliance with section 

939A, the Underwriter Exemptions will 

remain in force with no modifications to 

their credit rating requirements.28 The 

Department is cognizant, however, of 

the Congressional intent to reduce 

reliance on credit ratings and is 

considering alternative standards for use 

instead of, or in addition to, existing 

requirements for credit ratings in 

granted individual prohibited 

transaction exemptions. Thus, the 

Department is requesting comments 

regarding such alternatives in addition 

to any comments regarding the Class 

Exemptions. 

9. Executive Order 12866 Statement 

Under Executive Order 12866 (the 

Executive Order), the Department must 

determine whether a 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) of the Executive Order, a 

‘‘significant regulatory action’’ is an 

action that is likely to result in a rule 

(1) having an effect on the economy of 

$100 million or more in any one year, 

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. OMB has determined that this 

action is significant within the meaning 

of section 3(f)(4) of the Executive Order, 

and accordingly, OMB has reviewed 

these proposed amendments to PTE 75– 

1, PTE 80–83, PTE 81–8, PTE 95–60, 

PTE 97–41, and PTE 2006–16 pursuant 

to the Executive Order. 

10. Paperwork Reduction Act 

According to the Paperwork 

Reduction Act of 1995 (Pub. L. 104–13) 

(the PRA), no persons are required to 

respond to a collection of information 

unless such collection displays a valid 

OMB control number. The Department 

notes that a Federal agency cannot 

conduct or sponsor a collection of 

information unless it is approved by 

OMB under the PRA, and displays a 

currently valid OMB control number, 

and the public is not required to 

respond to a collection of information 

unless it displays a currently valid OMB 

control number. See 44 U.S.C. 3507. 

Also, notwithstanding any other 

provisions of law, no person shall be 

subject to penalty for failing to comply 

with a collection of information if the 

collection of information does not 

display a currently valid OMB control 

number. See 44 U.S.C. 3512. 

The Department has not made a 

submission to OMB at this time, because 

the proposed amendments do not revise 

the information collection requests 

contained in the following PTEs: PTE 

75–1, which is approved by OMB under 

OMB Control Number 1210–0092; PTE 

80–83, which is approved by OMB 

under OMB Control Number 1210–0064; 

PTE 81–8, which is approved by OMB 

under OMB Control Number 1210–0061; 

PTE 95–60, which is approved by OMB 

under OMB Control Number 1210–0114; 

PTE 97–41, which is approved by OMB 

under OMB Control Number 1210–0104; 

and PTE 2006–16, which is approved by 

OMB under OMB Control Number 

1210–0065. 

GENERAL INFORMATION 

The attention of interested persons is 

directed to the following: 

(1) Before an exemption may be 

granted under section 408(a) of ERISA 

and 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 


TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 120 / Friday, June 21, 2013 / Notices 37583 

protective of the rights of participants 

and beneficiaries of such plan; 

(2) The proposed amendments, if 

granted, will be 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 

(3) If granted, the proposed 

amendments will be applicable to a 

particular transaction only if the 

conditions specified in the class 

exemption are met. 

WRITTEN COMMENTS 

All interested persons are invited to 

submit written comments or requests for 

a hearing on the proposed exemption to 

the address and within the time period 

set forth above. All comments and 

requests for a hearing will be made a 

part of the record. Comments and 

requests for a hearing should state the 

reasons for the writer’s interest in the 

proposed exemption. Comments 

received will be available for public 

inspection at the address set forth 

above. 

PROPOSED AMENDMENT 

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 2570, 

subpart B (55 FR 32836, August 10, 

1990), the Department proposes to 

amend the following class exemptions 

as set forth below: 

1. PTE 75–1 is amended by making 

the following modifications: 

(a) Part III, Paragraph (c)(1) is deleted 

in its entirety and replaced with the 

following: ‘‘(1) At the time of 

acquisition, such securities are nonconvertible debt securities (i) subject to 

no greater than moderate credit risk and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ 

(b) Part IV, Paragraph (a)(1), is deleted 

in its entirety and replaced with the 

following: ‘‘(1) At the time of 

acquisition, such securities are nonconvertible debt securities (i) subject to 

no greater than moderate credit risk and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ 

2. PTE 80–83 is amended by deleting 

Paragraph I(C)(3) in its entirety and 

replacing it with the following: ‘‘(3) The 

issuer of such securities has been in 

continuous operation for not less than 

three years, including the operations of 

any predecessors, unless at the time of 

acquisition, such securities are nonconvertible debt securities (i) subject to 

no greater than moderate credit risk and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ 

3. PTE 81–8 is amended by deleting 

Paragraph II(D) in its entirety and 

replacing it with the following: ‘‘(D) 

With respect to an acquisition or 

holding of commercial paper (including 

an acquisition by exchange) occurring 

on or after the effective date of this 

amendment, at the time of acquisition, 

the commercial paper is (i) subject to a 

minimal or low amount of credit risk 

based on factors pertaining to credit 

quality and the issuer’s ability to meet 

its short-term financial obligations and 

(ii) sufficiently liquid that such 

securities can be sold at or near their 

fair market value within a reasonably 

short period of time.’’ 

4. PTE 95–60 is amended by deleting 

Paragraph III(a)(2)(B) in its entirety and 

replacing it with the following: ‘‘(B) the 

certificates acquired by the general 

account have the credit quality required 

under the relevant Underwriter 

Exemption at the time of such 

acquisition.’’ 

5. PTE 97–41 is amended by deleting 

Paragraph (II)(c)(2) in its entirety and 

replacing it with the following: ‘‘(2) 

such securities have the same coupon 

rate and maturity, and at the time of 

transfer, the same credit quality.’’ 

6. PTE 2006–16 is amended by 

making the following modifications to 

the definition of ‘‘Foreign Collateral’’ in 

Section V(f): 

(a) Paragraph V(f)(2) is deleted in its 

entirety and replaced with the 

following: ‘‘(2) foreign sovereign debt 

securities that are (i) subject to a 

minimal amount of credit risk, and (ii) 

sufficiently liquid that such securities 

can be sold at or near their fair market 

value in the ordinary course of business 

within seven calendar days;’’ and 

(b) Paragraph V(f)(4) is deleted in its 

entirety and replaced with the 

following: ‘‘(4) irrevocable letters of 

credit issued by a Foreign Bank, other 

than the borrower or an affiliate thereof, 

provided that, at the time the letters of 

credit are issued, the Foreign Bank’s 

ability to honor its commitments 

thereunder is subject to no greater than 

moderate credit risk.’’ 

Lyssa Hall, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2013–14790 Filed 6–20–13; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

Request for Certification of 

Compliance—Rural Industrialization 

Loan and Grant Program 

AGENCY: Employment and Training 

Administration, Labor. 

ACTION: Notice. 

SUMMARY: The Employment and 

Training Administration is issuing this 

notice to announce the receipt of a 

‘‘Certification of Non-Relocation and 

Market and Capacity Information 

Report’’ (Form 4279–2) for the 

following: 

Applicant/Location: Anderson Behavioral 

Health, Inc. Marshville, North Carolina. 

Principal Product/Purpose: The loan, 

guarantee, or grant is for the construction of 

a 13,000 sq. ft. administration building, six 

residence cottages, water, waste, and road 

infrastructure. It will also be used to 

purchase furniture and equipment. 

The NAICS industry code for this 

enterprise is 623220 and comprises 

establishments primarily engaged in 

providing residential care and treatment for 

patients with mental health and substance 

abuse illnesses. 

DATES: All interested parties may submit 

comments in writing no later than July 

5, 2013. Copies of adverse comments 

received will be forwarded to the 

applicant noted above. 

ADDRESSES: Address all comments 

concerning this notice to Anthony D. 

Dais, U.S. Department of Labor, 

Employment and Training 

Administration, 200 Constitution 

Avenue NW., Room S–4231, 

Washington, DC 20210; or email 

Dais.Anthony@dol.gov; or transmit via 

fax (202)693–3015 (this is not a toll-free 

number). 

FOR FURTHER INFORMATION CONTACT: 

Anthony D. Dais, at telephone number 

(202)693–2784 (this is not a toll-free 

number). 

SUPPLEMENTARY INFORMATION: Section 

188 of the Consolidated Farm and Rural 

Development Act of 1972, as established 

under 29 CFR Part 75, authorizes the 

United States Department of Agriculture 

to make or guarantee loans or grants to 


TKELLEY on DSK3SPTVN1PROD with NOTICES