2798 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

1Capitalized terms used but not defined in the 

Summary of Facts and Representations have the 

meaning set forth in Section VI of the proposed 

exemption. 

2For purposes of this application, references to 

the ‘‘Applicants’’ include each of the banks, 

investment advisors and investment managers 

directly or indirectly, through one or more 

intermediaries, under the control of BlackRock, and 

any other bank, investment advisor or investment 

manager which subsequently becomes directly or 

indirectly, through one or more intermediaries, 

under the control of BlackRock, and successors of 

the foregoing. As of the date hereof, banks, 

investment advisors and investment managers 

under the control of BlackRock include, but are not 

limited to, BlackRock Advisors, LLC, BlackRock 

Financial Management, Inc., BlackRock Capital 

Management, Inc., BlackRock Institutional 

Management Corporation, BlackRock International, 

Ltd., BlackRock Realty Advisors, Inc., BlackRock 

Investment Management, LLC, BlackRock Fund 

Advisors, and BTC (collectively, the BlackRock 

Managers). ‘‘Applicants’’ also includes brokerdealers presently or subsequently under the direct 

or indirect control, through one or more 

intermediaries, of BlackRock. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[Application No. D–11687] 

Notice of Proposed Exemption; 

BlackRock, Inc. and Its Investment 

Advisory, Investment Management and 

Broker-Dealer Affiliates and Their 

Successors (Applicants): Located in 

New York, NY 

AGENCY: Employee Benefits Security 

Administration, U.S. Department of 

Labor. 

ACTION: Notice of proposed exemption. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor (the Department) of 

a proposed individual exemption from 

certain prohibited transaction 

restrictions of the Employee Retirement 

Income Security Act of 1974, as 

amended (ERISA), the Federal 

Employees’ Retirement System Act of 

1986, as amended (FERSA), and the 

Internal Revenue Code of 1986, as 

amended (the Code). The proposed 

transactions involve BlackRock, Inc. and 

its investment advisory, investment 

management and broker-dealer affiliates 

and their successors. The proposed 

exemption, if granted, would affect 

plans for which BlackRock, Inc. and its 

investment advisory, investment 

management and broker-dealer affiliates 

and their successors serve as fiduciaries, 

and the participants and beneficiaries of 

such plans. 

DATES: Effective Date: If granted, this 

proposed exemption will be effective as 

of March 31, 2012, except that, with 

respect to Covered Transactions 

described in Section III.K. and S., the 

proposed exemption will be effective as 

of October 1, 2011. 

Written Comments and Hearing 

Requests: All interested persons are 

invited to submit written comments 

and/or requests for a hearing on the 

proposed exemption within forty five 

(45) days from the date of the 

publication of this Federal Register 

Notice. Comments and requests for a 

hearing should state: (1) The name, 

address and telephone number of the 

person making the comment or the 

request for a hearing and (2) the nature 

of the person’s interest in the proposed 

exemption and the manner in which the 

person would be adversely affected by 

the proposed exemption. A request for 

a hearing must also state the issues to 

be addressed at the requested hearing 

and include a general description of the 

evidence to be presented at the 

requested hearing. 

ADDRESSES: All written comments and 

requests for a public hearing concerning 

the proposed exemption should be sent 

to the Office of Exemption 

Determinations, Employee Benefits 

Security Administration, Room N–5700, 

U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210, Attention: Application No. 

D–11687. Interested persons are also 

invited to submit comments and/or 

hearing requests to the Employee 

Benefits Security Administration by 

email or FAX. Any such comments or 

requests should be sent either to: 

moffitt.betty@dol.gov, or by Fax to (202) 

219–0204 by the end of the scheduled 

comment period. The application for 

exemption and the comments received 

will be available for inspection in the 

Public Documents Room of the 

Employee Benefits Security 

Administration, U.S. Department of 

Labor, Room N–1513, 200 Constitution 

Avenue NW., Washington, DC 20210. 

Warning: If you submit written 

comments or hearing requests, do not 

include any personally-identifiable or 

confidential business information that 

you do not want to be publiclydisclosed. All comments and hearing 

requests are posted on the Internet 

exactly as they are received, and they 

can be retrieved by most Internet search 

engines. The Department will make no 

deletions, modifications or redactions to 

the comments or hearing requests 

received, as they are public records. 

FOR FURTHER INFORMATION CONTACT: 

Brian L. Shiker, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor, telephone (202) 

693–8552. (This is not a toll-free 

number.) 

SUPPLEMENTARY INFORMATION: This 

document contains a notice of proposed 

individual exemption from the 

restrictions of ERISA section 406(a)(1) 

and 406(b), FERSA section 8477(c)(1) 

and (c)(2) and the sanctions resulting 

from the application of Code section 

4975, by reason of Code section 

4975(c)(1). The proposed exemption has 

been requested by BlackRock, Inc. and 

its investment advisory, investment 

management and broker-dealer affiliates 

and their successors pursuant to ERISA 

section 408(a), Code section 4975(c)(2) 

and FERSA section 8477(c)(3), and in 

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (55 

FR 32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of the Reorganization Plan No. 4 of 

1978, (43 FR 47713, October 17, 1978) 

transferred the authority of the Secretary 

of the Treasury to issue exemptions of 

the type requested to the Secretary of 

Labor. Accordingly, this notice of 

proposed exemption is being issued 

solely by the Department. 

Summary of Facts and 

Representations 1

1. BlackRock, Inc. (BlackRock), based 

in New York, NY, is the largest publicly 

traded investment management firm. 

BlackRock, through its investment 

advisory and investment management 

subsidiaries, currently manages assets 

for institutional and individual 

investors worldwide through a variety 

of equity, fixed income, cash 

management and alternative investment 

products. As of September 30, 2011, 

BlackRock, through its advisor 

subsidiaries, had approximately $3.345 

trillion in assets under management, 

including assets managed by BlackRock 

Institutional Trust Company, N.A. (BTC) 

(formerly known as Barclays Global 

Investors, N.A. (BGI)) and its affiliates. 

The Applicants 2 together with any 

other entity presently or subsequently 

under the direct or indirect control, 

through one or more intermediaries, of 

BlackRock and successors of any of the 

foregoing are referred to herein as the 

‘‘BlackRock Entities.’’ 

2. BTC is a national banking 

association headquartered in San 

Francisco, California. Prior to its 

acquisition by BlackRock on December 

1, 2009 (the Acquisition), BTC (then 

BGI) was the largest asset manager in 

the U.S. A significant amount of BTC’s 

assets under management in the U.S. 

consists of assets of employee benefit 

plans subject to ERISA, FERSA and/or 

the Code. BTC is a market leader in 

index and model-driven investment 

products. Until its sale to BlackRock, 

BGI was an indirect subsidiary of 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2799 

3Each of Barclays and PNC is a ‘‘Minority Passive 

Shareholder’’ or ‘‘MPS,’’ but, for avoidance of 

doubt, an MPS does not include any BlackRock 

Entity. 

4See applications associated with PTE 2009–25, 

74 FR 45300 (September 1, 2009) (Barclays); and 

PTE 2009–22, 74 FR 45284 (September 1, 2009) 

(PNC). 

5The Stockholders Agreements also contemplate 

a reduction in the number of Board seats which an 

MPS is entitled to designate to one upon falling 

below a 10% equity interest for 90 consecutive 

days, and to zero upon falling below a 5% equity 

interest for 90 consecutive days. 

6There are currently 17 directors on the Board. 

The maximum permitted number of directors on the 

Board pursuant to the Stockholders Agreements is 

19. 

7Section 303A.01 of the NYSE Listed Company 

Manual requires listed companies to have a 

majority of independent directors. Although an 

exception is made for companies controlled by a 

group of shareholders, the Stockholders Agreements 

among BlackRock and the MPSs preclude the MPSs 

from becoming part of any such group. BlackRock 

represents that, based on current equity ownership 

levels, the Board must include a minimum of 13 

directors total (except for temporary vacancies 

arising by reason of, for example, poor health, 

retirement or resignation). 

8The Executive Committee of the Board has not 

met for over five (5) years. 

Barclays PLC, a public limited company 

organized under the laws of England 

and Wales (Barclays). BTC, as of the 

date of the Acquisition, is a wholly 

owned subsidiary of BlackRock. 

3. The Applicants represent that they 

are regulated by various Federal 

government agencies such as the 

Securities and Exchange Commission 

(SEC) and the Office of the Comptroller 

of the Currency, as well as state 

government agencies and industry selfregulatory organizations (e.g., the 

Financial Industry Regulatory Authority 

or, in the case of some broker-dealers 

and banks, corresponding foreign 

regulatory authorities). As with the 

Applicants, each of (a) Barclays, (b) The 

PNC Financial Services Group, Inc. 

(PNC), and (c) each entity directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by or under common control with one 

or more of Barclays or PNC,3 has 

previously made representations to the 

Department regarding the significant 

extent to which they are regulated.4

The Acquisition 

4. There have recently occurred 

extraordinary circumstances in both the 

U.S. financial services industry and the 

global financial services industry. Many 

entities in the financial services 

industry have faced severe economic 

hardship. During this period of 

upheaval, the recent trend of industry 

consolidation amongst significant 

banks, broker-dealers and other 

providers of financial services has 

accelerated. For example, in September 

2008, Barclays Bank PLC (Barclays 

Bank), a subsidiary of Barclays, acquired 

most of the U.S. broker-dealer business 

of Lehman Brothers Holdings Inc.; and, 

in May 2008, Bear Stearns Companies 

Inc. was acquired by JPMorgan Chase & 

Co. 

5. In this context, BlackRock, in June 

2009, made a binding offer to Barclays 

pursuant to an Amended and Restated 

Stock Purchase Agreement by and 

among BlackRock, Barclays Bank and 

(for limited purposes) Barclays, which 

ultimately resulted in the Acquisition. 

BlackRock completed the Acquisition 

on December 1, 2009, in exchange for an 

aggregate of 37,566,771 shares of 

BlackRock common stock and 

participating preferred stock and 

approximately $6.6 billion in cash. 

Barclays’ decision to enter into the 

Acquisition was based upon a variety of 

factors that Barclays stated would be 

beneficial to its shareholders, including 

the creation of material economic 

exposure to a highly competitive global 

asset manager. 

6. Prior to the Acquisition, PNC, 

indirectly through its subsidiary PNC 

Bancorp, Inc. (PNC Bancorp), held an 

approximately 31.9% economic interest 

and an approximately 43.2% voting 

interest in BlackRock. Bank of America 

Corporation (BOA), through its 

(indirect) wholly owned subsidiary the 

Merrill Lynch Group, Inc. (the Merrill 

Group), held an approximately 48.3% 

economic interest and approximately 

4.6% voting interest in BlackRock. 

Immediately following the Acquisition, 

(1) Barclays, (2) BOA, and (3) PNC (each 

of Barclays and PNC, a Minority Passive 

Shareholder, or MPS) controlled the 

following interests in BlackRock: 

BOA. BOA owned approximately 

3.7% of BlackRock voting common 

stock and approximately 34.2% of 

BlackRock equity by value; 

PNC. PNC owned approximately 

35.2% of BlackRock voting common 

stock and approximately 24.5% of 

BlackRock equity by value; and 

Barclays. Barclays owned 

approximately 4.8% of BlackRock 

voting common stock and 

approximately 19.8% of BlackRock 

equity by value. 

7. Post-Acquisition, a secondary 

offering of BlackRock common stock 

was completed on November 15, 2010 

(the Secondary Offering). BlackRock’s 

ownership structure following the 

Secondary Offering was as follows: (a) 

BOA controlled 0% of BlackRock’s 

voting common stock and 

approximately 7.1% of BlackRock’s 

equity by value; (b) PNC controlled 

approximately 25.3% of BlackRock’s 

voting common stock and 

approximately 20.3% of BlackRock’s 

equity by value; and (c) Barclays 

controlled approximately 2.3% of 

BlackRock’s voting common stock and 

approximately 19.6% of BlackRock’s 

equity by value. 

8. On June 1, 2011, BlackRock 

repurchased from a subsidiary of BOA 

its remaining ownership interest in 

BlackRock (the BOA Repurchase). These 

shares were retired. As a result of the 

BOA Repurchase, BOA’s economic stake 

in BlackRock was reduced to 0.0%. 

Concurrently with the BOA Repurchase, 

Barclays sold a portion of its BlackRock 

Series B Non-Voting Preferred Stock, 

which automatically converted into 

common stock in the hands of the 

purchaser. As a result of these events on 

June 1, 2011, Barclays’ and PNC’s 

holdings by economic value increased 

to approximately 19.7% and 21.7%, 

respectively, and Barclays’ and PNC’s 

voting ownership interests were 

reduced to approximately 2.2% and 

24.6%, respectively. 

9. All BlackRock stock beneficially 

owned from time to time by each MPS 

(other than stock held in certain 

fiduciary capacities and customer or 

market making accounts) is subject to a 

stockholders agreement entered into by 

and between that MPS and BlackRock 

(collectively, the Stockholders 

Agreements). Pursuant to each 

respective Stockholders Agreement, 

each MPS has the right to identify to 

BlackRock two (2) prospective directors, 

and, if such nominees are reasonably 

acceptable to the BlackRock Board of 

Directors (the Board), BlackRock and 

each respective MPS agree to use best 

efforts to cause the election of such 

nominees to the Board.5 However, at 

least nine (9) of the current directors 6

must be ‘‘independent’’ (within the 

meaning of New York Stock Exchange 

(NYSE) rules) 7 of the MPSs and 

BlackRock management. Furthermore, 

subject to limited exceptions, each 

Stockholders Agreement provides that 

the relevant MPS must vote its 

BlackRock voting common stock in 

accordance with recommendations of 

the Board. In addition, the Audit 

Committee, the Management 

Development and Compensation 

Committee, and the Nominating and 

Governance Committee of the Board 

must consist entirely of independent 

directors, and a majority of each other 

committee (if any) of the Board, with the 

exception of the Executive Committee,8

must consist of independent directors. 

The Stockholders Agreements provide, 

with limited exceptions, that all 

decisions of any committee of the Board 

require the presence of a majority of the 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2800 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

9The following are the caps on voting interests 

contained in the Stockholder Agreements: PNC = 

49.9%; and Barclays = 4.9%. The following are the 

caps on economic interest: PNC = 38%; and 

Barclays = 19.9%. 

10 ‘‘Client Plan’’ is defined in Section VI.T. of the 

proposed exemption and means any plan subject to 

ERISA section 406, Code section 4975 or FERSA 

section 8477(c) for which a BlackRock Manager is 

a fiduciary as described in ERISA section 3(21), 

including, but not limited to, any Pooled Fund, 

MPS Plan, Index Account or Fund, Model-Driven 

Account or Fund, Other Account or Fund, or InHouse Plan, as defined in Section VI of the 

proposed exemption, except where specified to the 

contrary. 

11 ‘‘Covered Transaction’’ is defined in Section 

VI.X. of the proposed exemption and means each 

transaction set forth in Section III of the proposed 

exemption entered into by a BlackRock Manager for 

a Client Plan with or involving, directly or 

indirectly, an MPS and/or a BlackRock Entity. 

directors at a meeting then serving on 

such committee. In fact, as of the date 

hereof, none of the directors identified 

to the Board by an MPS serve on any 

committee of the Board, except that one 

director identified to the Board by PNC 

serves on the Executive Committee. 

While each MPS monitors its 

investment in BlackRock through Board 

members it identified to the Board and 

each MPS has certain limited 

governance rights, no MPS has or will 

have, through the Board members it 

identified, any involvement in the dayto-day management of BlackRock, any 

BlackRock Manager or other BlackRock 

Entity. 

10. In addition, the Stockholders 

Agreements provide for additional 

restrictions on the ability of an MPS to 

control BlackRock or any BlackRock 

Manager. These restrictions include 

standstill arrangements establishing 

caps on voting interests,9 transfer 

restrictions, and restrictions relating to 

arm’s length business relationships 

between an MPS (or its affiliates) and 

BlackRock (or its affiliates) in each case 

as set forth in the applicable 

Stockholders Agreement. 

Interim Prohibited Transaction Relief 

11. The Applicants previously 

applied for (Application No. D–11588) 

and the Department issued Prohibited 

Transaction Exemption 2011–17, 76 

Fed. Reg. 50632 (August 15, 2011)(the 

Interim Exemption) that covers certain 

transactions entered into by BlackRock 

Managers with, or involving, certain 

direct or indirect minority passive 

shareholders in BlackRock, and certain 

entities related thereto, on behalf of 

Client Plans or Pooled Funds subject to 

ERISA, the Code and/or FERSA. Since 

the Acquisition Date, the Applicants 

represent that they have expended a 

significant amount of time, money and 

other resources to establish and 

maintain the necessary infrastructure to 

ensure compliance with the conditions 

for relief set forth in the Interim 

Exemption. The Applicants have, 

among other things, put together a legal 

and compliance staff that is devoted to 

assuring compliance with the Interim 

Exemption, dedicated significant 

technology resources to developing 

trading systems and compliance 

solutions designed to address the 

requirements of the Interim Exemption, 

engaged in extensive training of 

BlackRock personnel (covering 

individuals serving in legal, compliance 

and business roles) regarding 

compliance with the Interim Exemption, 

and implemented robust post-trade 

reporting and record-keeping to monitor 

compliance with the Interim Exemption. 

The Interim Exemption expires on the 

earlier of (a) the effective date of this 

proposed exemption, if granted, or (b) 

March 31, 2012. 

Requested Relief 

12. Given the unique nature of the 

BlackRock ownership structure 

following the Acquisition and 

subsequent Secondary Offering and 

BOA Repurchase, the Applicants 

believe that neither MPS should be 

regarded for ERISA purposes as an 

‘‘affiliate’’ of BlackRock or any 

BlackRock Manager, because the 

Applicants believe that no MPS, alone 

or with the other MPS, is or will be in 

a position to ‘‘control’’ BlackRock. In 

addition to the BlackRock ownership 

structure itself preventing MPS control 

of BlackRock, the Applicants believe 

that the Stockholders Agreements 

provide several important safeguards to 

mitigate the possibility of an MPS 

exerting any form of control that might 

otherwise raise concerns under ERISA. 

In particular, the standstill agreements, 

transfer restrictions and arm’s length 

business relationship provisions are 

designed to ensure that BlackRock 

maintains its independence. Even if the 

MPSs wished to act together to control 

BlackRock, BlackRock believes that the 

MPSs would not be able to control 

BlackRock because the Stockholders 

Agreements mandate that each MPS 

vote its shares in accordance with the 

recommendations of the Board, which is 

dominated by persons other than 

nominees identified by MPSs. Lastly, 

the MPSs are competitors in the 

financial services industry, and as such, 

concerted action among the MPSs is 

extremely unlikely. 

13. Nevertheless, the Applicants 

represent that when a BlackRock 

Manager is a fiduciary with investment 

discretion with respect to a Client 

Plan,10 and the BlackRock Manager is 

deciding whether to enter into a 

Covered Transaction 11 with or 

involving an MPS, the ownership 

interest of the MPS in BlackRock could 

affect the BlackRock Manager’s best 

judgment as a fiduciary, raising issues 

under ERISA section 406(b). The 

Applicants note that the Department’s 

regulation at 29 CFR 2550.408b–2(e)(1) 

provides that ‘‘[a] person in which a 

fiduciary has an interest which may 

affect the exercise of such fiduciary’s 

best judgment as a fiduciary includes, 

for example, a person who is a party in 

interest by reason of a relationship to 

such fiduciary described in section 

3(14)(E), (F), (G), (H), or (I)’’ of ERISA. 

ERISA section 3(14)(H) provides that a 

10% or more shareholder of a service 

provider (which may include a plan 

fiduciary) is a party in interest to the 

plan in question by reason of that 

relationship to the service provider. 

Accordingly, the Applicants seek relief 

from the prohibitions of ERISA section 

406(b) for the Covered Transactions. 

14. Further, if BlackRock Entities and 

one or more MPS are deemed affiliates, 

and because each MPS and its affiliates 

are very likely parties in interest within 

the meaning of ERISA section 3(14) with 

respect to many Client Plans, the 

Applicants also seek relief from the 

prohibitions of ERISA section 406(a) 

with respect to the Covered 

Transactions. Specifically, many 

prohibited transaction class exemptions 

from ERISA section 406(a) require as a 

condition for relief that the plan 

fiduciary and the party in interest not be 

‘‘affiliates.’’ Although the Applicants 

believe that no MPS should be regarded 

for ERISA purposes as an ‘‘affiliate’’ of 

BlackRock, the Applicants desire the 

certainty of relief which the proposed 

exemption would provide if Covered 

Transactions are entered into in 

conformance therewith. 

15. As discussed above, there have 

recently occurred extraordinary 

circumstances in both the U.S. and the 

global financial services industry. Many 

entities in the financial services 

industry have faced severe economic 

hardship. During this period of 

upheaval, the trend of industry 

consolidation amongst significant 

banks, broker-dealers and other 

providers of financial services has 

accelerated. It is the Applicants’ belief 

that each MPS’ involvement in financial 

services has expanded at the same time 

as the number of participants in the 

capital markets has declined. As a 

result, the Applicants believe that the 

failure to obtain exemptive relief 

proposed herein would deny Client 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2801 

12 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 

49305 (Aug. 23, 2005), and as amended, 75 FR 

38837 (July 6, 2010). 

13The QPAM Exemption may not be relied upon 

for securities lending. See Part I(b)(1) of the QPAM 

Exemption. However, for purposes of the exemption 

proposed herein, securities lending constituting 

Covered Transactions involving an MPS must 

comply with the terms of Section II.A. of the 

proposed exemption as well as the specific 

conditions set forth in Section III.L. of the proposed 

exemption. 

14 76 FR at 50637. 

15 76 FR at 50638. 

16For purposes hereof, ‘‘ECO Function’’ is 

defined in Section VI.Z. of the proposed exemption 

and means the ECO and such other BlackRock 

employees in legal and compliance roles working 

under the supervision of the ECO in connection 

with the Covered Transactions. The list of 

BlackRock employees shall be shared with the IM 

from time to time, not less than quarterly, and such 

employees will be made available to discuss the 

relevant Covered Transactions with the IM to the 

extent the IM or the ECO deem it reasonably 

prudent. 

Plans access to a significant portion of 

the financial markets and that such 

denial would unduly harm Client Plans 

and their participants and beneficiaries. 

16. The Applicants request that the 

Department continue relief similar to 

that provided in the Interim Exemption 

on the terms set forth herein. The 

exemption proposed herein would 

provide relief for certain Covered 

Transactions that, except as outlined 

below, are similar in all material 

respects to the Covered Transactions for 

which relief is provided in the Interim 

Exemption. 

Structure of Relief 

17. The structure of the Applicants’ 

requested relief is founded upon 

compliance with five sets of general 

conditions. The five sets of general 

conditions are: (a) Modified conditions 

derived from Prohibited Transaction 

Exemption (PTE) 84–14, as amended 

(sometimes referred to as the QPAM 

Exemption); 12 (b) restrictions on the 

compensation of BlackRock Managers 

and their employees; (c) the 

establishment and implementation of 

certain policies and procedures (the 

Exemption Polices and Procedures or 

EPPs); (d) the appointment by 

BlackRock of an Exemption Compliance 

Officer (ECO); and (e) the retention by 

BlackRock of an Independent Monitor 

(IM). The purpose of these general 

conditions is, when coupled with the 

restrictions of the Stockholders 

Agreements and the BlackRock 

ownership structure, to foster 

independence of action by the 

BlackRock Managers notwithstanding 

the equity interests in BlackRock held 

by the MPSs. This unique overarching 

structure includes a comprehensive 

compliance function and an 

independent monitor, each of which 

work together for the benefit of Client 

Plans and their participants and 

beneficiaries by allowing Covered 

Transactions with or involving an MPS 

only if the Covered Transaction is, as 

best as can be determined, as favorable 

to the Client Plans as arm’s length 

transactions with third parties. 

18. In addition to the general 

conditions, each Covered Transaction 

has its own set of specific conditions 

deemed suitable for it in light of the 

nature of the transaction. Many of the 

conditions for individual Covered 

Transactions are derived from statutory 

exemptions, administrative class 

exemptions or administrative individual 

exemptions frequently relied upon by 

fiduciaries and parties in interest 

(sometimes affiliated and sometimes 

not) to exempt similar transactions. The 

general and transaction-specific 

conditions for relief attempt to strike a 

balance that takes into account both the 

MPSs’ unique equity interests in 

BlackRock and the ability of BlackRock 

Managers acting on behalf of Client 

Plans to engage in arm’s length Covered 

Transactions with or involving 

institutions as significant in their 

markets as are the MPSs. 

General Conditions 

19. The structure of the relief 

proposed herein is very similar to that 

granted in the Interim Exemption, and 

is founded upon compliance with 

general conditions that are essentially 

the same as the general conditions set 

forth in the Interim Exemption. 

Accordingly, Section II of the proposed 

exemption provides general conditions 

as follows: 

20. Compliance with the QPAM 

Exemption (Section II.A.). With certain 

exceptions, the conditions for relief 

under Part I of PTE 84–14 (the QPAM 

Exemption) must be satisfied with 

respect to each Covered Transaction.13

These exceptions are substantially 

similar to those set forth in the Interim 

Exemption.14 Each BlackRock Manager 

utilizing the requested relief must meet 

the definition of a ‘‘qualified 

professional asset manager’’ (QPAM) as 

described in Section VI(a) of the QPAM 

Exemption, and each Covered 

Transaction must satisfy the general 

conditions relating to the QPAM 

Exemption as set forth in the proposal, 

which are essentially the same as the 

Interim Exemption’s general conditions 

relating to the QPAM Exemption. 

21. The Applicants, however, believe 

that the Interim Exemption’s conditions 

should be modified in order to more 

accurately reflect BlackRock’s ability to 

monitor the entities that provide 

investment advice to Client Plans’ assets 

under its management. As a result of 

changes made in this regard, a new 

Section II.A.3.(b) has been added to the 

proposed exemption. A discussion of 

Section II.A.3.(b) is set forth below 

under Covered Transactions. 

22. Compensation Restrictions 

(Section II.B). The Applicants recognize 

that an unrestricted ability for 

employees of BlackRock to receive 

compensation in connection with the 

Covered Transactions could give rise to 

potential ERISA conflicts. In order to 

address this potential for conflicts, 

Section II.B. of the proposed exemption 

provides for the same compensation 

restrictions set forth in the Interim 

Exemption.15

23. Exemption Policies and 

Procedures (Section II.C.). The 

Applicants recognize that, in order for 

BlackRock to successfully manage and 

monitor Covered Transactions, the 

establishment and use of systematic 

policies and procedures is essential. 

Section II.C. of the proposed exemption 

requires that BlackRock utilize (and 

update as necessary) the ‘‘Exemption 

Policies and Procedures’’, or ‘‘EPPs’’, 

that were developed and used in 

connection with the Interim Exemption 

and which address each of the Covered 

Transactions. Consistent with the 

Interim Exemption, the Exemption 

Policies and Procedures will be 

developed and/or updated with the 

cooperation of both the ECO and the IM, 

and such EPPs will remain subject to 

the approval of the IM. The EPPs need 

not address transactions which are not 

within the definition of the term 

Covered Transactions. 

24. Exemption Compliance Officer 

(II.D.). The Applicants recognize that in 

order to ensure compliance with the 

EPPs and the terms of the proposed 

exemption an internal compliance 

officer is necessary. Consistent with the 

Interim Exemption, Section II.D. of the 

proposed exemption requires that 

BlackRock employ an internal 

‘‘Exemption Compliance Officer’’, or 

‘‘ECO’’, as well as an ‘‘ECO Function’’.16

The ECO and the ECO Function will be 

maintained by BlackRock in order to 

monitor the Covered Transactions for 

compliance with the Code, ERISA, 

FERSA, the EPPs and the exemption. 

The responsibilities and requirements of 

the ECO and the ECO Function are set 

forth in Section II.D. of the proposed 

exemption. 

25. Independent Monitor (II.E.). The 

Applicants believe that the ECO and the 

ECO Function alone may not be 

sufficient to completely avoid potential 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2802 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

17 76 FR at 50640. 

18 67 FR 59569 (September 23, 2002), as 

corrected, 67 FR 69046 (November 14, 2002). 

conflicts of interests or the appearance 

thereof. Conversely, the Applicants also 

believe that a wholly independent third 

party alone would not be able to 

efficiently or effectively monitor and 

oversee all of the relevant BlackRock 

activities. Consistent with the Interim 

Exemption, Section II.E. of the proposed 

exemption requires that BlackRock 

appoint an ‘‘Independent Monitor’’, or 

‘‘IM’’. The IM will monitor the ECO and 

the Covered Transactions for 

compliance with the Code, ERISA, 

FERSA, the EPPs and the exemption. 

The responsibilities and requirements of 

the IM are set forth in Section II.E. of the 

proposed exemption. 

26. Notice (II.F.). Client Plans will 

receive notice regarding the proposed 

exemption through publication in the 

Federal Register. The Applicants 

believe that such notice is sufficient and 

that additional mailings to the Client 

Plans would be confusing and 

burdensome to the Client Plans given 

the substantial similarity between the 

Interim Exemption and this proposed 

exemption. 

Covered Transactions 

27. As discussed above, the structure 

of the requested relief is founded upon 

compliance with five sets of general 

conditions. These five sets of general 

conditions are then modified by specific 

conditions deemed suitable for each 

Covered Transaction. Many of the 

conditions for individual Covered 

Transactions are derived from statutory 

exemptions, administrative class 

exemptions or administrative individual 

exemptions frequently relied upon by 

fiduciaries and parties in interest 

(sometimes affiliated and sometimes 

not) to exempt similar transactions. 

Section III of the proposed exemption 

sets forth the Covered Transactions for 

which the Applicants are seeking 

exemptive relief and the conditions 

which must be satisfied in respect of 

such Covered Transactions in order to 

be accorded such relief. 

28. Except as described below, the 

Covered Transactions for which relief is 

proposed herein are substantially 

similar to the corresponding ‘‘Covered 

Transactions’’ in the Interim Exemption, 

and each such Covered Transaction is 

subject to substantially the same 

conditions as set forth in the Interim 

Exemption.17 The Applicants are not 

requesting relief with respect to the 

Covered Transactions described in 

Section III.A. (Continuing Covered 

Transactions), T. (The Provision of 

Custodial, Administrative and Similar 

Ministerial Services by an MPS for a 

Client Plan as a Consequence of a 

BlackRock Manager Exercising 

Investment Discretion on Behalf of the 

Client Plan or Rendering Investment 

Advice to the Client Plan) or W. 

(Investment of Assets of MPS Plans in 

a BlackRock Bank-Maintained Common 

or Collective Trust as of the Date of the 

Acquisition—Fees Paid Outside the 

Trust) of the Interim Exemption. 

However, the Applicants are seeking 

exemptive relief with respect to a new 

Covered Transaction described in 

Section III.W. of the proposed 

exemption. 

29. The Applicants further request, 

with respect to a small number of the 

Covered Transactions identified herein, 

certain changes from the relief provided 

in the Interim Exemption and to the 

applicable conditions. Set forth below is 

a discussion of (a) three broad changes 

that impact multiple Covered 

Transactions and (b) modifications with 

respect to specific Covered 

Transactions. 

30. MPS Investment Advice. The 

Interim Exemption imposed conditions 

with respect to several Covered 

Transactions that restricted BlackRock 

Managers from engaging in transactions 

with MPSs that possess discretionary 

authority or control with respect to the 

investment of the Client Plan assets 

involved in the transaction, or render 

investment advice within the meaning 

of 29 CFR 2510.3–21(c) with respect to 

such assets. This condition was set forth 

in Section III.I. (Repurchase 

Agreements), L. (Bank Deposits and 

Commercial Paper), M. (Securities 

Lending) and U. (ABCP Conduit) of the 

Interim Exemption. In this proposed 

exemption, the relevant sections are redesignated Section III.H. (Repurchase 

Agreements), K. (Bank Deposits and 

Commercial Paper), L. (Securities 

Lending) and S. (ABCP Conduit). 

The Applicants represent that 

BlackRock Managers are often unable to 

make a determination as to which 

parties provide investment advice with 

respect to Client Plan assets. The 

inability to make these determinations 

created uncertainty as to which parties 

were subject to the restriction of these 

conditions, resulting in the relief 

provided in the Interim Exemption for 

those sections being unworkable in 

some situations from a practical 

perspective. The Applicants, therefore, 

requested deletion of that portion of the 

condition that would limit transactions 

with MPSs that provide investment 

advice within the meaning of 29 CFR 

2510.3–21(c). 

The Department understands the 

Applicants’ concerns regarding the 

practical implication of the restriction 

on transactions with investment advice 

providers and, for purposes of the 

exemption proposed herein, has revised 

the conditions at issue so that the 

restriction only apply to transactions 

with MPSs that possess discretionary 

authority or control with respect to the 

investment of the Client Plan assets 

involved in the transaction. The 

Department additionally made several 

related changes to the affected sections. 

First, the Department added a condition 

to Section III.H. and K. to clarify that the 

Client Plan involved in the transaction 

may not be an MPS Plan of the MPS 

with whom the transaction takes place, 

or an MPS Plan of another member of 

the same MPS Group as such MPS. 

Second, at the Applicants’ request, the 

Department revised Section II.A.3. to 

include a new Section II.A.3.(b), which 

provides that the conditions described 

above in this paragraph shall be deemed 

satisfied if, with respect to the Covered 

Transaction in question, section 

II.A.3.(a) is satisfied. Section II.A.3.(a) 

provides that, in the case of an 

investment fund in which two or more 

unrelated Client Plans have an interest, 

a Covered Transaction with an MPS will 

be deemed to satisfy the requirements of 

Section II.A.2. of the proposed 

exemption if the assets of a Client Plan 

on behalf of which the MPS or its 

affiliate possesses the authority and 

which are managed by the BlackRock 

Manager in the investment fund, when 

combined with the assets of other Client 

Plans established or maintained by the 

same employer (or an affiliate thereof) 

or by the same employee organization, 

on behalf of which the same MPS 

possesses such authority and which are 

managed in the same investment fund, 

represent less than ten percent (10%) of 

the assets of the investment fund. 

Finally, with respect to relief for 

Securities lending by a BlackRock 

Manager to an MPS, the Department 

included two additional conditions in 

Section III.L. similar to those contained 

in subsections (p) and (q) of PTE 2002– 

46.18 It is the Department’s view that the 

general conditions of the proposed 

exemption, including the modified 

conditions derived from the QPAM 

exemption, with the specific conditions 

of these Sections as modified, provide 

sufficient safeguards for the affected 

Client Plans, participants and 

beneficiaries, even without the 

restriction on transactions with 

investment advice providers. 

31. Directed Brokerage Accounts/ 

Wrap Agreements. Section III.P., R., S. 

and V. of the Interim Exemption 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2803 

19 76 FR at 50647–50650. 

20 76 FR at 50643 and 50649. 

21 76 FR at 50642. 22 76 FR at 50647. 

23See ERISA Advisory Opinion 99–05A 

(February 22, 1999). 

24 ‘‘Arranger’’ is defined in Section VI.I. of the 

proposed exemption and the term means a 

sophisticated financial institution, such as a 

commercial or investment bank, regularly engaged 

in structuring commercial loans, and ‘‘Lead 

Arranger’’ is defined in Section VI.ZZ. of the 

proposed exemption and the term means, with 

respect to any Loan Offering involving more than 

one Arranger, the Arranger designated as such by 

all of such Arrangers. 

25 ‘‘Loan Offering’’ is defined in Section VI.BBB. 

of the proposed exemption and the term means, 

with respect to the aggregate principal amount of 

any Loan extended to a commercial borrower in any 

single transaction, the process of structuring, 

marketing and offering to banks, insurance 

companies, investment funds and other 

institutional investors the opportunity to purchase 

interests in such Loan. 

provided relief that included a 

provision that permitted BlackRock 

Managers to use an MPS as a Securities 

broker pursuant to either directed 

brokerage and/or wrap fee arrangements 

in effect on the date of the 

Acquisition.19 The Applicants represent 

that relief for such directed brokerage 

and/or wrap fee arrangements is no 

longer necessary. In the absence of such 

necessity, the Department has 

eliminated the directed brokerage and/ 

or wrap fee agreement provisions in the 

corresponding sections (Section III.O., 

Q., R. and T.) of the proposed 

exemption. 

32. Primary/Secondary Markets and 

Agency/Principal. Section III.L and U. of 

the Interim Exemption provided relief 

with respect to (a) investments in bank 

deposits and commercial paper, and (b) 

purchases, sales and holdings by 

BlackRock Managers for Client Plans of 

commercial paper issued by ABCP 

conduits, when an MPS has one or more 

roles.20 The Applicants request changes 

from the conditions with respect to both 

Covered Transactions in the Interim 

Exemption. Purchases, sales and 

placements of bank deposits and 

commercial paper commonly occur 

without reference to primary or 

secondary markets and without 

distinction as to whether they are on a 

principal or agency basis. As a result, 

such distinctions are simply not 

relevant to the short term instruments 

described in the Covered Transactions 

(which is in contrast to trading of longer 

term Fixed Income Obligations or equity 

Securities). To address this issue, the 

Department has modified the language 

of Section II.K. and S. of the proposed 

exemption to more accurately reflect the 

nomenclature of bank deposits and 

commercial paper. 

33. Repurchase Agreements when an 

MPS is the Seller (Section III.H.). With 

respect to Covered Transactions 

involving investments in repurchase 

agreements when an MPS is the seller, 

the Interim Exemption provided relief 

with respect to certain repurchase 

agreements that were in effect as of the 

date of the Acquisition that otherwise 

would not have complied with the 

conditions of the Interim Exemption.21

Applicants represent that such 

repurchase agreements are no longer in 

place. As a result, the Applicants are no 

longer requesting relief with respect to 

repurchase agreements that were in 

effect as of the date of the Acquisition. 

The Department has made this change 

to the proposed exemption. 

34. Bank Deposits and Commercial 

Paper (Section III.K.). With respect to 

Covered Transactions involving 

investments in bank deposits and 

commercial paper, the Applicants 

request changes from the conditions in 

the Interim Exemption. The Applicants 

represent that, with respect to 

commercial paper, an MPS may often 

act in a continuing capacity, such as a 

placement agent or an administrator. To 

address this concern, the language of the 

proposed exemption has been modified 

to reflect the fact that an MPS may act 

in a continuing capacity. In addition, in 

order to provide additional protections 

for participants and beneficiaries, the 

proposed exemption provides that all 

purchases and sales of commercial 

paper to or from an MPS be made 

pursuant to the Three Quote Process. 

35. Securities Lending to an MPS 

(Section III.L.). The Interim Exemption 

provided relief for the lending of 

securities by BlackRock Managers to an 

MPS. Such relief was extended to both 

(a) Index Accounts or Funds and ModelDriven Accounts or Funds and (b) Other 

Accounts or Funds. For purposes of this 

proposed exemption, the Applicants 

limited their request to relief for Index 

Accounts or Funds and Model-Driven 

Accounts or Funds. The Department has 

revised Section III.L. of the proposed 

exemption accordingly. 

36. To-Be-Announced Trades (TBAs) 

of GNMA, FHLMC, FarmerMac or FNMA 

Mortgage-Backed Securities with an 

MPS Counterparty (Section III.M.). With 

respect to To-Be-Announced Trades 

(TBAs), Section III.N. of the Interim 

Exemption provided relief for TBAs of 

GNMA, FHLMC, or FNMA MortgageBacked Securities with an MPS 

counterparty.22 The Applicants request 

that the Department add FarmerMac 

mortgage-backed Securities to the relief 

provided for TBAs. Such additional 

relief is necessary because the 

Applicants have found that, in practice, 

BlackRock Managers may engage in 

principal trades on a TBA basis with 

FarmerMac mortgage-backed Securities. 

Not allowing such TBAs, according to 

the Applicants, would deprive Client 

Plans of a substantial pool of TBAs. 

The Applicants represent that the 

addition of relief for TBAs of 

FarmerMac mortgage-backed Securities 

is consistent with the relief provided in 

the Interim Exemption with respect to 

both FHLMC and FNMA mortgagebacked Securities. All three entities are 

the recipients of indirect government 

guarantees, and each entity has 

historically been treated similarly by the 

Department.23 The Department agrees 

with the Applicants, and it has added 

FarmerMac mortgage-backed Securities 

to the relief proposed for TBAs herein. 

37. Purchase of a Portion or All of a 

Loan to an Entity Which is not an MPS 

and is not a BlackRock Entity from an 

MPS or Other Arranger and the Holding 

thereof by BlackRock Managers Where 

an MPS is an Arranger, and/or an MPS 

has an Ongoing Function Regarding 

Such Loan (Section III.W.). The 

Applicants request exemptive relief 

with respect to a new Covered 

Transaction. The Applicants represent 

that there is a significant market in 

Loans (and participations in such 

Loans) made to commercial borrowers 

to finance either their current and 

ongoing operations, or a specific 

transaction. The terms governing the 

Loans and the lenders’ commitment to 

fund them are generally negotiated 

between the borrower and the sole 

Arranger or Lead Arranger,24 as 

applicable. The sole Arranger, or Lead 

Arranger with the assistance of the other 

Arrangers, undertakes to effectively sell 

portions of the Loan in a Loan 

Offering 25 by finding one or more 

sophisticated financial institutions such 

as commercial banks, insurance 

companies or other companies or funds 

regularly engaged in making, investing 

in, purchasing or selling commercial 

loans with sufficient capital to either 

take an assignment of, or a participation 

interest in, all or a portion of the Loan, 

on either a firm commitment or best 

efforts basis (in each case, as described 

below). The Arrangers assume a portion 

of the commitment to the borrower to 

fund the Loans initially. The Applicants 

represent that conceptually, these types 

of lending transactions are similar to the 

purchase and holding by BlackRock 

Managers on behalf of Client Plans of 

Fixed Income Obligations issued by 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2804 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

26Solely for purposes of Section III.W. of the 

proposed exemption, ‘‘Loan’’ is defined in Section 

VI.AAA. of the proposed exemption and the term 

does not include any Fixed Income Obligations 

which are covered separately under Section IV.A. 

of the proposed exemption. 27 76 FR at 50651. 

third parties where an MPS may act as 

the underwriter.26

The Applicants further represent that 

in a firm commitment Loan Offering, the 

Arrangers are obligated to make the 

Loan in the full amount of their 

commitment, even if they have not 

found other investors to participate in or 

take an assignment of all or a portion of 

the Loan. If the transaction is conducted 

on a best efforts basis, the Arrangers are 

not obligated to make the Loan in the 

full amount requested by the borrower 

if there is not sufficient interest in the 

market. Selling efforts with respect to a 

particular Loan Offering do not begin 

before a decision is made regarding 

whether such Loan Offering will be 

made on a firm commitment or best 

efforts basis. The Applicants are only 

requesting relief under the proposed 

exemption for Loans that are made on 

a firm commitment basis. 

The Applicants represent that 

potential purchasers of a portion or all 

of a Loan are able to review relevant 

information about the Loan in advance, 

and indicate whether they are interested 

in taking an assignment or participation 

in such Loan. In an assignment, the 

lender of record of the portion of the 

Loan which is assigned is changed, and 

the title, voting rights and all other 

rights are transferred to the assignee. In 

a participation, the lender of record 

remains the original lender, and such 

lender typically retains voting rights, 

except for certain extraordinary actions 

primarily relating to the economic terms 

of the Loan. The Applicants are only 

requesting relief under the proposed 

exemption for transactions involving the 

assignment of Loans. 

The Applicants represent that the sole 

Arranger or Lead Arranger, as 

applicable, is typically responsible for 

negotiating the terms of the Loan, 

including the Loan Offering, 

commitment or other similar 

underwriting fee to be paid by the 

borrower, and building a book of 

investors to hold the Loan. Where there 

is more than one Arranger, other 

Arrangers may participate in the sales 

effort in coordination with the Lead 

Arranger. The material terms of the 

Loan are typically negotiated and agreed 

with the borrower before 

commencement of the Loan Offering 

effort. When the sole Arranger or Lead 

Arranger, as applicable, has negotiated 

the material terms of the Loan, they are 

posted to one or more web-based sites 

(e.g., Intralinks) for potential investors 

and lenders to review. These sites 

provide detailed information regarding 

the borrower and draft Loan documents 

(e.g., credit agreement, confidential 

information statement). The covenants 

in the applicable credit agreement are 

often more highly structured than in a 

high yield fixed income underwritten 

offering and thereby would typically 

provide enhanced protection for 

investors. 

The Applicants represent that the fee 

received by an Arranger depends upon 

whether the offering is on a firm 

commitment or a best efforts basis and 

is generally calculated as a percentage of 

the principal amount of the Loan. The 

fee is generally higher for a firm 

commitment transaction than a best 

efforts transaction. In a firm 

commitment transaction, each Arranger 

will receive a specified percentage of 

the fee which is determined on the basis 

of the size of the Loan commitment 

before the sales effort commences and 

the amount of such fee does not vary 

depending on a particular member’s 

success in the sales effort. Thus, if an 

MPS is an Arranger, its compensation in 

the form of the fee will not increase if 

a BlackRock Manager on behalf of a 

Client Plan purchases from such MPS, 

rather than another Arranger. 

The Applicants represent that in some 

Loan transactions, the sole Arranger or 

Lead Arranger, as applicable, has no 

ongoing role after the sale with respect 

to the Loans. In other transactions, the 

sole Arranger or Lead Arranger, as 

applicable, does serve an ongoing 

function such as an administrative agent 

or a collateral agent. Most commonly, 

the collateral agent and the 

administrative agent are the same entity. 

The Applicants further represent that 

generally: (a) The administrative agent 

acts as an agent between the lenders and 

the borrower; the role of an 

administrative agent is administrative 

and ministerial and involves relaying 

information, tallying votes and 

organizing calls; there is no fiduciary 

relationship between the lenders and 

the administrative agent; and there is 

generally a flat fee (currently in the 

range of $100,000 to $200,000 per 

annum) for acting as an administrative 

agent and this fee is paid by the 

borrower; and (b) the collateral agent 

holds the collateral on behalf of all of 

the lenders. 

The Applicants represent that, 

according to their research, the Barclays 

MPSs are ranked in the top ten 

Arrangers for Loans. They acted in 92 

deals in 2010, representing 6% market 

share and in 70 deals in the first half of 

2011, representing a 7.6% market share. 

The same research indicates that the 

shares of PNC MPSs are smaller, but the 

PNC MPSs still rank in the top 25 

Arrangers for Loans. 

The Applicants represent that 

investments in these types of firm 

commitment assigned Loans represent 

an attractive investment opportunity for 

Client Plans. Such Loans are typically 

senior secured and typically have the 

highest or second highest priority of 

claim on a borrower’s assets and cash 

flow. Such Loans also provide an 

opportunity to generate a return based 

upon a floating interest rate (resulting in 

Client Plans receiving more when 

interest rates rise). The Applicants 

believe that a failure to obtain relief for 

this type of Covered Transaction would 

materially inhibit Client Plan access to 

this significant asset class. 

In response, the Department is 

proposing relief for the purchase and 

holding of all or a portion of a Loan by 

a BlackRock Manager on behalf of a 

Client Plan, where such purchase may 

be from an MPS or other Arranger, and/ 

or an MPS may be an Arranger and/or 

have an ongoing function regarding 

such Loan. Conditions applicable to this 

type of transaction would be: (a) The 

BlackRock Manager on behalf of the 

Client Plan obtains an assigned interest 

in the Loan or a portion thereof, as 

opposed to a participation interest, (b) 

the borrower under the Loan must not 

be an MPS or BlackRock Entity, (c) the 

Loan must be offered on a firm 

commitment basis, (d) conditions 

similar to Subsections IV.A.4–12., as 

applicable, and (e) if an MPS has an 

ongoing function in respect of such 

Loan, such as an administrative agent or 

collateral agent, the taking of or 

refraining from taking of any action by 

the responsible BlackRock Manager 

which could have a material positive or 

negative effect upon the MPS must be 

decided upon by the IM. 

Affiliated Underwritings and Affiliated 

Servicing (Section IV) 

38. Covered Transactions for which 

relief is proposed herein, including 

Sections III.B., D., E. and F., include in 

their conditions requirements regarding 

affiliated underwriting and affiliated 

servicing that are set forth in Section IV 

of the proposed exemption. The 

Department notes that these conditions 

are substantially similar to those under 

the Interim Exemption.27

Correction Procedures (Section V) 

39. The Applicants request 

confirmation that isolated transgressions 

of the EPPs, or isolated failures to 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2805 

28 76 FR at 50654. 

29For purposes of this proposed exemption, 

references to ERISA section 406 should be read to 

refer as well to the corresponding provisions of 

Code section 4975 and FERSA section 8477(c). 

30 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 

49305 (Aug. 23, 2005), and as amended, 75 FR 

38837 (July 6, 2010). 

31Solely for purposes of Section II.A.2. and 

Section II.A.3. of this exemption, no BlackRock 

Entity will be deemed to be an affiliate of an MPS. 

The Department is not making herein a 

determination as to whether any BlackRock Entity 

is an affiliate of an MPS under ERISA. 

comply with the conditions associated 

with a Covered Transaction constituting 

a non-exempt prohibited transaction 

(the latter, a Violation) should not cause 

the entire exemption, if granted, to cease 

to be available. Only a persistent pattern 

or practice of violations of the EPPs or 

the conditions of the exemption should 

potentially cause the exemption to be 

revoked. The Department notes that the 

correction procedures under the 

proposed exemption are substantially 

similar to those under the Interim 

Exemption, and the Department concurs 

with the Applicants’ analysis on this 

issue.28

Effective Date 

40. If granted, the proposed 

exemption will be effective March 31, 

2012. However, Applicants represent 

that they substantially complied with 

the conditions applicable to Covered 

Transactions described in Section III.K. 

and S. effective October 1, 2011. As a 

result, the proposed exemption will be 

effective with respect to Covered 

Transactions described in Section III.K. 

and S. as of October 1, 2011. 

41. In summary, the Applicants 

represent that the exemption proposed 

herein will satisfy the statutory criteria 

of ERISA section 408(a) and Code 

section 4975(c)(2) because: 

(a) Administratively feasible. The 

Applicants believe that the proposed 

exemption is administratively feasible. 

Most of the Covered Transactions are 

the subject of existing statutory and/or 

administrative exemptions. The 

conditions for relief for the Covered 

Transactions have been modified to 

reflect, on the one hand, the possible 

negative implication of the equity 

investments of the MPSs in BlackRock, 

and on the other hand, the 

circumscribed ability of the MPSs to 

exercise rights normally associated with 

such equity investments. In addition, 

EPPs have been developed with the 

cooperation and approval of the IM; an 

ECO has been appointed to report on 

compliance with the terms of the 

exemption and the EPPs; and the IM 

will review compliance reports, pass 

upon corrections of Violations, and if 

necessary, contact the Department. 

Granting the proposed exemption 

requires no additional monitoring by the 

Department. 

(b) In the interest of plans and 

participants and beneficiaries. The 

Applicants believe that the proposed 

exemption is in the interest of plans and 

participants and beneficiaries because 

the proposed exemption would allow 

BlackRock Managers to continue to 

engage in Covered Transactions with 

major participants in the financial 

markets which are necessary and 

beneficial to plans and their participants 

and beneficiaries. While many Covered 

Transactions (although perhaps not all) 

could be engaged in with parties other 

than MPSs, in numerous cases such 

transactions would be quantitatively or 

qualitatively inferior to the same 

transactions with an MPS. 

(c) Protective of the rights of 

participants and beneficiaries of such 

plans. Each of the Covered Transactions 

is protective of the rights of participants 

and beneficiaries because specific 

conditions have been tailored to their 

respective natures. More broadly, the 

rights of participants and beneficiaries 

are protected by the general conditions, 

modeled on the QPAM Exemption, that 

are applicable to all Covered 

Transactions. The general protective 

conditions include compensation 

restrictions, development of EPPs, and 

implementation of EPPs with the 

cooperation and approval of the IM. 

Further, the ECO will report on 

compliance with the exemption and the 

EPPs, and the IM will review 

compliance reports, pass upon 

corrections of Violations, and if 

necessary, contact the Department. 

Proposed Exemption 

Based on the facts and representations 

set forth in the application, the 

Department is considering granting the 

following exemption under the 

authority of ERISA section 408(a), Code 

section 4975(c)(2) and FERSA section 

8477(c)(3), and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (55 FR 32836, 32847, 

August 10, 1990), as follows: 

Section I: Covered Transactions 

Generally 

If the proposed exemption is granted, 

effective as of March 31, 2012 (or, in the 

case of Covered Transactions described 

in Section III.K or Section III.S. of this 

exemption, October 1, 2011), the 

restrictions of ERISA sections 406(a)(1) 

and 406(b), FERSA section 8477(c)(1) 

and (2), and the sanctions resulting from 

the application of Code section 4975, by 

reason of Code section 4975(c)(1),29

shall not apply to the Covered 

Transactions set forth in Section III and 

entered into on behalf of or with the 

assets of a Client Plan; provided, that (x) 

the generally applicable conditions of 

Section II of this exemption are 

satisfied, and, as applicable, the 

transaction-specific conditions set forth 

below in Sections III and IV of this 

exemption are satisfied, or (y) the 

Special Correction Procedure set forth 

in Section V of this exemption is 

satisfied. 

Section II: Generally Applicable 

Conditions 

A. Compliance with the QPAM 

Exemption. The following conditions of 

Part I of Prohibited Transaction 

Exemption 84–14, as amended (PTE 84– 

14 or the QPAM Exemption),30 must be 

satisfied with respect to each Covered 

Transaction: 

1. The BlackRock Manager engaging 

in the Covered Transaction is a 

Qualified Professional Asset Manager; 

2. Except as set forth in Section III of 

this exemption, at the time of the 

Covered Transaction (as determined 

under Section VI(i) of the QPAM 

Exemption) with or involving an MPS, 

such MPS, or its affiliate (within the 

meaning of Section VI(c) of the QPAM 

Exemption),31 does not have the 

authority to: 

(a) Appoint or terminate the 

BlackRock Manager as a manager of the 

Client Plan assets involved in the 

Covered Transaction, or 

(b) Negotiate on behalf of the Client 

Plan the terms of the management 

agreement with the BlackRock Manager 

(including renewals or modifications 

thereof) with respect to the Client Plan 

assets involved in the Covered 

Transaction; 

3. (a) Notwithstanding the foregoing, 

in the case of an investment fund (as 

defined in Section VI(b) of the QPAM 

Exemption) in which two or more 

unrelated Client Plans have an interest, 

and which is a Pooled Fund, a Covered 

Transaction with an MPS will be 

deemed to satisfy the requirements of 

Section II.A.2. of this exemption if the 

assets of a Client Plan on behalf of 

which the MPS or its affiliate possesses 

the authority set forth in Section 

II.A.2.(a) and/or (b) above, and which 

are managed by the BlackRock Manager 

in the investment fund, when combined 

with the assets of other Client Plans 

established or maintained by the same 

employer (or an affiliate thereof 

described in Section VI(c)(1) of the 

QPAM Exemption) or by the same 

employee organization, on behalf of 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2806 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

32For the avoidance of doubt, all MPSs are 

excluded from the term ‘‘affiliate’’ for these 

purposes. 

33For the avoidance of doubt, all MPSs are 

excluded from the term ‘‘owner’’ for these purposes. 

which the same MPS and/or its affiliates 

possess such authority and which are 

managed by the BlackRock Manager in 

the same investment fund, represent 

less than ten percent (10%) of the assets 

of the investment fund; and 

(b) the conditions set forth in 

Subsections 14. and 15. of Section III.H., 

Subsections 2(e) and 3. of Section III.K., 

Section III.L.2.(b) and Subsections 1. 

and 2. of Section III.S. of this exemption 

shall be deemed satisfied if, with 

respect to the Covered Transaction in 

question, Section II.A.2. of this 

exemption is satisfied by reason of 

Section II.A.3.(a) of this exemption. 

4. The terms of the Covered 

Transaction are negotiated on behalf of 

the investment fund by, or under the 

authority and general direction of, the 

BlackRock Manager and either the 

BlackRock Manager or (so long as the 

BlackRock Manager retains full 

fiduciary responsibility with respect to 

the Covered Transaction) a property 

manager acting in accordance with 

written guidelines established and 

administered by the BlackRock 

Manager, makes the decision on behalf 

of the investment fund to enter into the 

Covered Transaction, provided that the 

Covered Transaction is not part of an 

agreement, arrangement or 

understanding designed to benefit the 

MPS; 

5. The Covered Transaction is not 

entered into with an MPS which is a 

party in interest or disqualified person 

with respect to any Client Plan whose 

assets managed by the BlackRock 

Manager, when combined with the 

assets of other Client Plans established 

or maintained by the same employer (or 

affiliate thereof described in Section 

VI(c)(1) of the QPAM Exemption) or by 

the same employee organization, and 

managed by the BlackRock Manager, 

represent more than twenty percent 

(20%) of the total client assets managed 

by the BlackRock Manager at the time of 

the Covered Transaction; 

6. At the time the Covered 

Transaction is entered into, and at the 

time of any subsequent renewal or 

modification thereof that requires the 

consent of the BlackRock Manager, the 

terms of the Covered Transaction are at 

least as favorable to the investment fund 

as the terms generally available in arm’s 

length transactions between unrelated 

parties; and 

7. Neither the BlackRock Manager nor 

any affiliate thereof (as defined in 

Section VI(d) of the QPAM 

Exemption),32 nor any owner, direct or 

indirect, of a five percent (5%) or more 

interest in the BlackRock Manager 33 is 

a person who within the ten (10) years 

immediately preceding the Covered 

Transaction has been either convicted or 

released from imprisonment, whichever 

is later, as a result of: Any felony 

involving abuse or misuse of such 

person’s employee benefit plan position 

or employment, or position or 

employment with a labor organization; 

any felony arising out of the conduct of 

the business of a broker, dealer, 

investment adviser, bank, insurance 

company or fiduciary; income tax 

evasion; any felony involving the 

larceny, theft, robbery, extortion, 

forgery, counterfeiting, fraudulent 

concealment, embezzlement, fraudulent 

conversion, or misappropriation of 

funds or securities; conspiracy or 

attempt to commit any such crimes or 

a crime in which any of the foregoing 

crimes is an element; or any other crime 

described in ERISA section 411. For 

purposes of this section, a person shall 

be deemed to have been ‘‘convicted’’ 

from the date of the judgment of the trial 

court, regardless of whether that 

judgment remains under appeal. 

B. Compensation. None of the 

employees of a BlackRock Manager 

receives any compensation that is based 

on any Covered Transaction having 

taken place between Client Plans and 

any of the MPSs (as opposed to with 

another institution that is not an MPS). 

The fact that a specific Covered 

Transaction occurred with an MPS as 

opposed to a non-MPS counterparty is 

ignored by BlackRock and BlackRock 

Managers for compensation purposes. 

None of the employees of BlackRock or 

a BlackRock Manager receive any 

compensation from BlackRock or a 

BlackRock Manager which consists of 

equity Securities issued by an MPS, 

which fluctuates in value based on 

changes in the value of equity Securities 

issued by an MPS, or which is otherwise 

based on the financial performance of 

an MPS independent of BlackRock’s 

performance, provided that this 

condition shall not fail to be met 

because the compensation of an 

employee of a BlackRock Manager 

fluctuates with the value of a broadlybased index which includes equity 

Securities issued by an MPS. 

C. Exemption Policies and 

Procedures. BlackRock adopts and 

implements Exemption Policies and 

Procedures (EPPs) which address each 

of the types of Covered Transactions 

and which are designed to achieve the 

goals of: (1) Compliance with the terms 

of the exemption, (2) ensuring 

BlackRock’s decision-making with 

respect to the Covered Transactions on 

behalf of Client Plans with MPSs or 

BlackRock Entities is done in the 

interests of the Client Plans and their 

participants and beneficiaries, and (3) to 

the extent possible, verifying that the 

terms of such Covered Transactions are 

at least as favorable to the Client Plans 

as the terms generally available in arm’s 

length transactions with unrelated 

parties. The EPPs are developed with 

the cooperation of both the Exemption 

Compliance Officer (ECO) and the 

Independent Monitor (IM), and such 

EPPs are subject to the approval of the 

IM. The EPPs need not address 

transactions which are not within the 

definition of the term Covered 

Transactions. 

Transgressions of the EPPs which do 

not result in Violations require 

correction only if the amount involved 

in the transgression and the extent of 

deviation from the EPPs is material, 

taking into account the amount of Client 

Plan assets affected by such 

transgressions (EPP Corrections). The 

ECO will make a written determination 

as to whether such transgressions 

require EPP Correction, and, if the ECO 

determines an EPP Correction is 

required, the ECO will provide written 

notice to the IM of the EPP Correction. 

The ECO will provide summaries for the 

IM of any such EPP Corrections as part 

of the quarterly report referenced in 

Section II.D.11. 

D. Exemption Compliance Officer. 

BlackRock appoints an Exemption 

Compliance Officer (ECO) with respect 

to the Covered Transactions. If the ECO 

resigns or is removed, BlackRock shall 

appoint a successor ECO within a 

reasonable period of time, not to exceed 

thirty (30) days, which successor shall 

be subject to the affirmative written 

approval of the IM. With respect to the 

ECO, the following conditions shall be 

met: 

1. The ECO is a legal professional 

with at least ten years of experience and 

extensive knowledge of the regulation of 

financial services and products, 

including under ERISA and FERSA; 

2. A committee made up exclusively 

of members of the BlackRock Board of 

Directors (the Board) who are 

independent of BlackRock and the 

MPSs determines the ECO’s 

compensation package, with input from 

the general counsel of BlackRock; the 

ECO’s compensation is not set by 

BlackRock business unit heads, and 

there is no direct or indirect input 

regarding the identity or compensation 

of the ECO from any MPS; 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2807 

3. The ECO’s compensation is not 

based on performance of any BlackRock 

Entity or MPS, although a portion of the 

ECO’s compensation may be provided 

in the form of BlackRock stock or stock 

equivalents; 

4. The ECO can be terminated by 

BlackRock only with the approval of the 

IM; 

5. The EPPs prohibit any officer, 

director or employee of BlackRock or 

any MPS or any person acting under 

such person’s direction from directly or 

indirectly taking any action to coerce, 

manipulate, mislead, or fraudulently 

influence the ECO or any member of the 

ECO Function in the performance of his 

or her duties; 

6. The ECO is responsible for 

monitoring Covered Transactions and 

shall determine whether Violations have 

occurred, and the appropriate correction 

thereof, consistent with the 

requirements of Section V of this 

exemption; 

7. If the ECO determines a Violation 

has occurred, the ECO must determine 

why it occurred and what steps should 

be taken to avoid such a Violation in the 

future (e.g., additional training, 

additional procedures, additional 

monitoring, or additional and/or 

changed processes or systems); 

8. The ECO is responsible for 

monitoring and overseeing the 

implementation of the EPPs and 

carrying out such other responsibilities 

stipulated or described in Section III of 

this exemption. The ECO may delegate 

such responsibilities to the ECO 

Function, but the ECO will remain 

responsible for monitoring and 

overseeing the ECO Function’s 

implementation of the EPPs. When 

appropriate, the ECO will recommend 

changes to the EPPs to BlackRock and 

the IM. The ECO will consult with the 

IM regarding the need for, timing, and 

form of EPP Corrections; 

9. The ECO, with the assistance of the 

ECO Function, carries out the 

responsibilities required of the ECO 

described in: (a) The definition of 

‘‘Index’’ in this exemption and (b) with 

respect to loans of Securities to an MPS 

in Section III.L. of this exemption; 

10. The ECO, with the assistance of 

the ECO Function, monitors Covered 

Transactions and situations resulting 

from Covered Transactions with or 

involving an MPS with respect to 

which, because of the investment of the 

MPS in BlackRock, an action or inaction 

on the part of a BlackRock Manager 

might be thought to be motivated by an 

interest which may affect the exercise of 

such BlackRock Manager’s best 

judgment as a fiduciary. If a situation is 

identified by the ECO which poses the 

potential for a conflict, as specified in 

Section III of this exemption, the ECO 

shall consult with the IM, or refer 

decision-making to the discretion of the 

IM; 

11. The ECO provides a quarterly 

report to the IM summarizing the 

material activities of the ECO for the 

preceding quarter and setting forth any 

Violations discovered during the quarter 

and actions taken to correct such 

Violations. With respect to Violations, 

the ECO report details changes to 

process put in place to guard against a 

substantially similar Violation occurring 

again, and recommendations for 

additional training, additional 

procedures, additional monitoring, or 

additional and/or changed processes or 

systems or training changes and 

BlackRock management’s actions on 

such recommendations. In connection 

with providing the quarterly report for 

the second quarter and fourth quarter of 

each year, upon the request of the IM, 

the ECO and the IM shall meet in person 

to review the content of the report. 

Other members of the ECO Function 

may attend such meetings at the request 

of either the ECO or the IM; 

12. In each quarterly report, the ECO 

certifies in writing to his or her 

knowledge that (a) the quarterly report 

is accurate; (b) BlackRock’s compliance 

program is working in a manner which 

is reasonably designed to prevent 

Violations; (c) any Violations discovered 

during the quarter and the related 

corrections taken to date have been 

identified in the report; and (d) 

BlackRock has complied with the EPPs 

in all material respects; 

13. No less frequently than annually, 

the ECO certifies to the IM as to whether 

BlackRock has provided the ECO with 

adequate resources, including, but not 

limited to, adequate staffing of the ECO 

Function, and, in connection with the 

quarterly report for the fourth quarter of 

each year, the ECO shall identify to the 

IM those BlackRock Managers that 

relied upon this exemption during the 

prior year and those that the ECO 

reasonably anticipates relying on this 

exemption during the current year; and 

14. The ECO or ECO Function 

provides any further information 

regarding Covered Transactions that is 

reasonably requested by the IM. 

E. Independent Monitor. BlackRock 

retains an Independent Monitor (IM) 

with respect to the Covered 

Transactions. If the IM resigns or is 

removed, BlackRock shall appoint a 

successor IM within a reasonable period 

of time, not to exceed thirty (30) days. 

The IM: 

1. Agrees in writing to serve as IM, 

and he or she is independent within 

meaning of Section VI.TT.; 

2. Approves the ECO selected by 

BlackRock, and as part of the approval 

process and annually thereafter 

approves in general terms the 

reasonableness of the ECO’s 

compensation, taking into account such 

information as the IM may request of 

BlackRock and which BlackRock must 

supply, and approves any termination of 

the ECO by BlackRock; 

3. Assists in the development of, and 

the granting of written approval of, the 

EPPs and any material alterations of the 

EPPs by determining that they are 

reasonably designed to achieve the goals 

of (a) compliance with the terms of the 

exemption, (b) ensuring BlackRock’s 

decision-making with respect to 

Covered Transactions on behalf of 

Client Plans with MPSs or BlackRock 

Entities is done in the interests of the 

Client Plans and their respective 

participants and beneficiaries and, (c) 

requiring, to the extent possible, 

verification that the terms of such 

Covered Transactions are at least as 

favorable to the Client Plans as the 

terms generally available in comparable 

arm’s length transactions with unrelated 

parties; 

4. Consults with the ECO regarding 

the need for, timing and form of any 

EPP Corrections. The IM has the 

responsibilities with respect to 

corrections of Violations, as set forth in 

Section V of this exemption. In response 

to EPP Corrections or Violations, the IM 

considers whether, and must have the 

authority, to require further sampling, 

testing or corrective action if necessary; 

5. Exercises discretion for Client Plans 

in situations specified in Section III of 

this exemption where BlackRock 

Managers may be thought to have 

conflicts; 

6. Performs certain monitoring 

functions described in Section III, and 

carries out the responsibilities required 

of the IM, as set forth in the definition 

of ‘‘Index’’ in this exemption, and with 

respect to loans of Securities to an MPS 

as set forth in Section III.L. of this 

exemption, and carries out such other 

responsibilities stipulated in Section III 

of this exemption; 

7. Reviews the quarterly reports of the 

ECO, obtains and reviews representative 

samples of the data underlying the 

quarterly reports of the ECO, and, if the 

IM deems it appropriate, obtains 

additional factual information on either 

an ad hoc basis or on a systematic basis; 

8. Reviews the certifications of the 

ECO as to whether (a) the quarterly 

report is accurate; (b) BlackRock’s 

compliance program is working in a 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2808 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

manner which is reasonably designed to 

prevent Violations; (c) any Violations 

discovered during the quarter and the 

related corrections taken to date have 

been identified in the report; (d) 

BlackRock has complied with the EPPs 

in all material respects; and (e) 

BlackRock has provided the ECO with 

adequate resources, including, but not 

limited to, adequate staffing of the ECO 

Function; 

9. Determines, on the basis of the 

information supplied to the IM by 

BlackRock and the ECO or the ECO 

Function, whether there has occurred a 

pattern or practice of insufficient 

diligence in adhering to the EPPs and/ 

or the conditions of the exemption, and 

if such a determination is made, reports 

the same to the Department, and 

informs BlackRock and the ECO of any 

such report; 

10. Determines whether the purchases 

of equity Securities issued by an MPS 

on behalf of Client Plans that are Other 

Accounts or Funds by a BlackRock 

Manager has had a positive material 

impact on the market price for such 

Securities, notwithstanding any volume 

limitations imposed by Section III.R. of 

the exemption and/or imposed by the 

IM with respect to such equity 

Securities. The IM makes this 

determination based upon its review of 

the relevant monthly reports required by 

the exemption with respect to such 

Covered Transactions provided by the 

ECO and publicly available information 

materially related to the trading of the 

Securities of an MPS on its primary 

listing exchange (or market); 

11. Issues an annual compliance 

report, to be timely delivered to (i) the 

Chairman of the Board, (ii) the Chief 

Executive Officer of BlackRock and (iii) 

the General Counsel of BlackRock. The 

annual compliance report shall be based 

on a review of the EPPs, the quarterly 

reports provided by the ECO, any 

transactions reviewed by the IM as well 

as any additional information the IM 

requests from BlackRock, and certifying 

to each of the following (or describing 

any exceptions thereto) that: 

(a) The EPPs are reasonably designed 

to achieve the goals of (i) compliance 

with the terms of the exemption, (ii) 

ensuring BlackRock’s decision-making 

with respect to Covered Transactions on 

behalf of Client Plans with MPSs or 

BlackRock Entities is done in the 

interests of the Client Plans and the 

respective participants and 

beneficiaries, and (iii) requiring to the 

extent possible, verification that the 

terms of any Covered Transaction are at 

least as favorable to Client Plans as the 

terms generally available in comparable 

arm’s length transactions with unrelated 

parties; 

(b) The EPPs and the other terms of 

the exemption were complied with, 

with any material exceptions duly 

noted; 

(c) The IM has made the 

determination referred to in Section 

II.E.9. and the results of that 

determination; 

(d) BlackRock has provided the ECO 

with adequate resources, including but 

not limited to adequate staffing of the 

ECO Function; and 

(e) The compensation package for the 

ECO for the prior year is reasonable; 

12. The annual compliance report of 

the IM, as described in Section II.E.11., 

shall contain a summary of Violations 

and a summary of any corrections of 

Violations required by the IM and/or the 

ECO at any time during the prior year. 

In addition, the IM further certifies that 

BlackRock correctly implemented the 

prescribed corrections, based in part on 

certification from the ECO; and 

13. The annual compliance report of 

the IM shall also be timely delivered by 

the IM to the chief executive officer, the 

general counsel and the members of the 

board of directors of each of the 

BlackRock Managers identified to the 

IM by the ECO or ECO Function as 

having relied upon this exemption 

during the prior year and those that the 

ECO reasonably anticipates will be 

relying on this exemption during the 

current year. The copies of the 

compliance report described in this 

Section II.E.13. shall be accompanied by 

a cover letter from the IM calling the 

attention of the recipients to any 

Violations, material exceptions to 

compliance with the EPPs, or other 

shortfalls in compliance with the 

exemption to assist such officers and 

directors in carrying out their respective 

responsibilities. 

Section III: Covered Transactions 

A. Purchases and Holdings by 

BlackRock Managers of Fixed Income 

Obligations Issued by an MPS in an 

Underwriting on Behalf of Client Plans 

Invested in an Index Account or Fund, 

or in a Model-Driven Account or Fund. 

Relief under Section I of this exemption 

is available for a purchase and holding 

by BlackRock Managers of Fixed Income 

Obligations issued by an MPS in an 

underwriting on behalf of Client Plans 

for an Index Account or Fund, or a 

Model-Driven Account or Fund, 

provided that: 

1. Such purchase is for the sole 

purpose of maintaining quantitative 

conformity with the weight of such 

Securities prescribed by the relevant 

Index, for Index Accounts or Funds, or 

the weight of such Securities prescribed 

by the relevant Model, for Model-Driven 

Accounts or Funds; and such purchase 

is reasonably calculated not to exceed 

the purchase amount necessary for such 

Model or quantitative conformity by 

more than a de minimis amount; 

2. Such purchase is not made from 

any MPS; 

3. No BlackRock Entity is in the 

selling syndicate; 

4. After purchase, the responsible 

BlackRock Manager notifies the ECO if 

circumstances arise in which an action 

or inaction on the part of the BlackRock 

Manager regarding an MPS Fixed 

Income Obligation so acquired might be 

thought to be motivated by an interest 

which may affect the exercise of such 

BlackRock Manager’s best judgment as a 

fiduciary, and complies with decisions 

of the ECO regarding the taking, or the 

refraining from taking, of actions in 

such circumstances; and 

5. After purchase, any decision 

regarding conversion of an MPS Fixed 

Income Obligation into equity in the 

MPS is made by the IM. 

B. Purchase and Holding by 

BlackRock Managers of Fixed Income 

Obligations Issued by an MPS in an 

Underwriting on Behalf of Client Plans 

Invested in an Other Account or Fund. 

Relief under Section I of this exemption 

is available for a purchase and holding 

by BlackRock Managers of Fixed Income 

Obligations issued by an MPS in an 

underwriting on behalf of Client Plans 

invested in an Other Account or Fund 

provided that: 

1. The conditions of Section IV.A. of 

this exemption are satisfied, except that 

for purposes of Section IV.A.4.(a) and 

Section IV.A.5.(c), the MPS-issued 

Fixed Income Obligations at the time of 

purchase must be rated in one of the 

three highest rating categories by a 

Rating Organization and none of the 

Rating Organizations may rate the Fixed 

Income Obligations lower than in the 

third highest rating category; 

2. Such purchase is not made from an 

MPS; 

3. No BlackRock Entity is in the 

selling syndicate; 

4. After purchase, the responsible 

BlackRock Manager notifies the ECO if 

circumstances arise in which an action 

or inaction on the part of the BlackRock 

Manager regarding an MPS Fixed 

Income Obligation so acquired might be 

thought to be motivated by an interest 

which may affect the exercise of such 

BlackRock Manager’s best judgment as a 

fiduciary, and complies with decisions 

of the ECO regarding the taking, or the 

refraining from taking, of actions in 

such circumstances; and 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2809 

5. After purchase, any decision 

regarding conversion of an MPS Fixed 

Income Obligation into equity in the 

MPS is made by the IM. 

C. Certain Transactions in the 

Secondary Market by BlackRock 

Managers of Fixed Income Obligations 

including Fixed Income Obligations 

Issued by and/or Traded with an MPS, 

and/or Under Which an MPS has Either 

an Ongoing Function or Can Potentially 

Incur Liability. Relief under Section I of 

this exemption is available for a 

purchase or sale in the secondary 

market or the holding by BlackRock 

Managers on behalf of Client Plans of (i) 

Fixed Income Obligations issued by an 

MPS, (ii) Fixed Income Obligations 

issued by a third party or an MPS and 

purchased from or sold to an MPS, and/ 

or (iii) Fixed Income Obligations under 

which an MPS has either an ongoing 

function or can potentially incur 

liability, provided that: 

1. If the Fixed Income Obligations are 

purchased from or sold to an MPS, it is 

as a result of the Three Quote Process. 

2. With respect to Fixed Income 

Obligations that are issued by an MPS 

and are purchased and held by a 

BlackRock Manager for a Client Plan – 

(a) After purchase, the responsible 

BlackRock Manager notifies the ECO if 

circumstances arise in which an action 

or inaction on the part of the BlackRock 

Manager regarding an MPS Fixed 

Income Obligation so acquired might be 

thought to be motivated by an interest 

which may affect the exercise of such 

BlackRock Manager’s best judgment as a 

fiduciary, and complies with the 

decisions of the ECO regarding the 

taking, or the refraining from taking, of 

actions in such circumstances; 

(b) After purchase, any decision 

regarding conversion of an MPS Fixed 

Income Obligation into equity in the 

MPS is made by the IM; and 

(c) If purchased for an Index Account 

or Fund, or a Model-Driven Account or 

Fund, such purchase is for the sole 

purpose of maintaining quantitative 

conformity with the weight of such 

Securities prescribed by the relevant 

Index, for Index Accounts or Funds, or 

the weight of such Securities prescribed 

by the relevant Model, for Model-Driven 

Accounts or Funds and such purchase 

is reasonably calculated not to exceed 

the purchase amount necessary for such 

Model or quantitative conformity by 

more than a de minimis amount. 

3. With respect to Fixed Income 

Obligations (whether or not issued by an 

MPS) held by a BlackRock Manager for 

a Client Plan under which an MPS has 

an ongoing function, such as servicing 

of collateral for asset-backed debt, or the 

potential for liability, such as under 

representations or warranties made by 

an MPS with respect to collateral for 

such asset-backed debt which the MPS 

originated, the taking of or refraining 

from taking any action by the 

responsible BlackRock Manager which 

could have a material positive or 

negative effect upon the MPS is decided 

upon by the ECO. 

4. With respect to any Fixed Income 

Obligation acquired under this Section 

III.C. which is a guaranteed 

governmental mortgage pool certificate 

within the meaning of 29 CFR 2510.3– 

101(i) which is accompanied by an 

implicit U.S. Government guarantee as 

opposed to an explicit U.S. Government 

guarantee, (a) the BlackRock Manager 

initiating a purchase of such Securities 

makes a determination that such 

Securities are of substantially similar 

credit quality as guaranteed 

governmental mortgage pool certificates 

accompanied by an explicit U.S. 

Government guarantee, (b) the ECO (in 

regular consultation with and under the 

supervision of the IM) monitors the 

credit spread between such implicitly 

and explicitly guaranteed certificates, 

and (c) each of the ECO and the IM 

(independently) has the authority and 

responsibility to determine whether 

purchases of implicitly guaranteed 

certificates should not be permitted due 

to such credit spread, and such 

authority and responsibility is reflected 

in the EPPs. 

5. For purposes of this Section III.C., 

Asset-Backed Securities are not Fixed 

Income Obligations. 

D. Purchase in an Underwriting and 

Holding by BlackRock Managers of 

Fixed Income Obligations Issued by a 

Third Party when an MPS is 

Underwriter, in Either a Manager or a 

Member Capacity, and/or Under Which 

an MPS has Either an Ongoing Function 

or Can Potentially Incur Liability. Relief 

under Section I of this exemption is 

available for the purchase and holding 

by BlackRock Managers of Fixed Income 

Obligations issued by third parties in an 

underwriting when an MPS is an 

underwriter, in either a manager or a 

member capacity, and/or Fixed Income 

Obligations under which an MPS has 

either an ongoing function or can 

potentially incur liability, provided that: 

1. The conditions of Section IV.A. are 

satisfied. 

2. Such purchase is not made from an 

MPS. 

3. No BlackRock Entity is in the 

selling syndicate. 

4. With respect to Fixed Income 

Obligations under which an MPS has 

either an ongoing function, such as debt 

trustee, servicer of collateral for asset– 

backed debt, or the potential for 

liability, such as under representations 

or warranties made by an MPS with 

respect to collateral for such assetbacked debt which the MPS originated, 

the taking of or refraining from taking 

any action by the responsible BlackRock 

Manager which could have a material 

positive or negative effect upon the MPS 

is decided upon by the ECO. 

5. With respect to any Fixed Income 

Obligation acquired under this Section 

III.D. which is a guaranteed 

governmental mortgage pool certificate 

within the meaning of 29 CFR 2510.3– 

101(i) which is accompanied by an 

implicit U.S. Government guarantee as 

opposed to an explicit U.S. Government 

guarantee, (a) the BlackRock Manager 

initiating a purchase of such Securities 

makes a determination that such 

Securities are of substantially similar 

credit quality as guaranteed 

governmental mortgage pool certificates 

accompanied by an explicit U.S. 

Government guarantee, (b) the ECO (in 

regular consultation with and under the 

supervision of the IM) monitors the 

credit spread between such implicitly 

and explicitly guaranteed certificates, 

and (c) each of the ECO and the IM 

(independently) has the authority and 

responsibility to determine whether 

purchases of implicitly guaranteed 

certificates should not be permitted due 

to such credit spread, and such 

authority and responsibility is reflected 

in the EPPs. 

6. For purposes of this Section III.D., 

Asset-Backed Securities are not Fixed 

Income Obligations. 

E. Purchase in an Underwriting and 

Holding by BlackRock Managers of 

Asset-Backed Securities, when an MPS 

is an Underwriter, in the Capacity as 

Either a Manager or a Member of the 

Selling Syndicate, Trustee, or, in the 

Case of Asset-Backed Securities Which 

are CMBS, Servicer. Relief under 

Section I of this exemption is available 

for the purchase and holding by 

BlackRock Managers of Asset-Backed 

Securities issued in an underwriting 

where an MPS is (i) An underwriter, in 

the capacity as either a manager or a 

member of the selling syndicate, (ii) 

trustee, or (iii) solely in the case of 

Asset-Backed Securities which are 

CMBS, serves as servicer of a trust that 

issued such CMBS, provided that: 

1. The conditions of Section IV.A. are 

satisfied, except that (a) for purposes of 

Section IV.A.4.(a), the Asset-Backed 

Securities at the time of purchase must 

be rated in one of the three highest 

rating categories by a Rating 

Organization and none of the Rating 

Organizations may rate the AssetBacked Securities lower than the third 

highest rating category, (b) in the case of 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2810 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

Asset-Backed Securities which are 

CMBS and for which the MPS is 

servicer, the conditions of Section IV.B. 

are satisfied instead of the conditions of 

Section IV.A., and (c) if an MPS is an 

underwriter and an MPS is a servicer as 

described in clause (b), the conditions of 

both Section IV.A., as modified by 

Section III.E.1.(a), and Section IV.B. 

must be satisfied; 

2. Such purchase is not made from an 

MPS; 

3. No BlackRock Entity is in the 

selling syndicate; 

4. In the case of Asset-Backed 

Securities with respect to which an MPS 

has either an ongoing function, such as 

trustee, servicer of collateral for CMBS, 

or the potential for liability, such as 

under representations or warranties 

made by an MPS with respect to 

collateral for CMBS which collateral the 

MPS originated, the taking of or 

refraining from taking of any action by 

a responsible BlackRock Manager which 

could have a material positive or 

negative effect upon the MPS is decided 

upon by the ECO; and 

5. The purchase meets the conditions 

of an applicable Underwriter 

Exemption. 

F. Purchase and Holding by 

BlackRock Managers of Equity 

Securities Issued by an Entity which is 

not an MPS and is Not a BlackRock 

Entity, in an Underwriting when an MPS 

is an Underwriter, in either a Manager 

or a Member Capacity. Relief under 

Section I of this exemption is available 

for the purchase and holding by 

BlackRock Managers of equity Securities 

issued by an entity which is not an MPS 

and which is not a BlackRock Entity in 

an underwriting when an MPS is an 

underwriter, in either a manager or a 

member capacity, provided that: 

1. The conditions of Section IV.A. are 

satisfied; 

2. Such purchase is not made from an 

MPS; 

3. No BlackRock Entity is in the 

selling syndicate; and 

4. The Securities are not Asset-Backed 

Securities. 

G. Purchase and Sale by BlackRock 

Managers of Asset-Backed Securities in 

the Secondary Market, from or to an 

MPS, and/or when an MPS is Sponsor, 

Servicer, Originator, Swap 

Counterparty, Liquidity Provider, 

Trustee or Insurer, and the Holding 

Thereof. Relief under Section I of this 

exemption is available for a sale of 

Asset-Backed Securities by a BlackRock 

Manager to an MPS, or the purchase of 

Asset-Backed Securities by BlackRock 

Managers from an MPS and the holding 

thereof, and/or any such purchase or 

sale in the secondary market or holding 

when an MPS is a sponsor, a servicer, 

an originator, a swap counterparty, a 

liquidity provider, a trustee or an 

insurer, provided that: 

1. If the Asset-Backed Securities are 

purchased from or sold to an MPS, the 

purchase or sale is as a result of the 

Three Quote Process. 

2. Regardless of from whom the 

BlackRock Manager purchases the 

Asset-Backed Securities, the purchase 

and holding of the Asset-Backed 

Security otherwise meets the conditions 

of an applicable Underwriter 

Exemption. 

3. Regardless of from whom the 

BlackRock Manager purchased the 

Asset-Backed Securities, if an MPS is, 

with respect to such Asset-Backed 

Securities, a sponsor, servicer, 

originator, swap counterparty, liquidity 

provider, insurer or trustee, as those 

terms are utilized or defined in the 

Underwriter Exemptions, and 

circumstances arise in which the taking 

of or refraining from taking of any action 

by the responsible BlackRock Manager 

could have a material positive or 

negative effect upon the MPS, the taking 

of or refraining from taking of any such 

action is decided upon by the ECO. 

H. Repurchase Agreements when an 

MPS is the Seller. Section I of this 

exemption applies to an investment by 

a BlackRock Manager of Client Plan 

assets which involves the purchase or 

other acquisition, holding, sale, 

exchange or redemption by or on behalf 

of a Client Plan of a repurchase 

agreement (or Securities or other 

instruments under cover of a repurchase 

agreement) in which the seller of the 

underlying Securities or other 

instruments is an MPS which is a bank 

supervised by the United States or a 

State, a broker-dealer registered under 

the 1934 Act, or a dealer who makes 

primary markets in Securities of the 

United States government or any agency 

thereof, or in banker’s acceptances, and 

reports daily to the Federal Reserve 

Bank of New York its positions with 

respect to these obligations, provided 

that each of the following conditions are 

satisfied: 

1. The repurchase agreement is 

embodied in, or is entered into pursuant 

to a written agreement, and such written 

agreement is a standardized industry 

form; 

2. The repurchase agreement has a 

term of one year or less; 

3. The Client Plan receives interest no 

less than that which it would receive in 

a comparable arm’s length transaction 

with an unrelated party; 

4. The Client Plan receives Securities, 

banker’s acceptances, commercial paper 

or certificates of deposit having a market 

value equal to not less than one 

hundred percent (100%) of the purchase 

price paid by the Client Plan; 

5. Upon expiration of the repurchase 

agreement and return of the Securities 

or other instruments to the seller, the 

seller transfers to the Client Plan an 

amount equal to the purchase price plus 

the appropriate interest; 

6. The Securities, banker’s 

acceptances, commercial paper or 

certificates of deposit received by the 

Client Plan: 

(a) Could be acquired directly by the 

Client Plan in a transaction not covered 

by this Section III.H. without violating 

ERISA sections 406(a)(1)(E), 406(a)(2) or 

407(a); and, 

(b) If the Securities are subject to the 

provisions of the 1933 Act, they are 

obligations that are not ‘‘restricted 

securities’’ within the meaning of Rule 

144 under the 1933 Act. 

7. If the market value of the 

underlying Securities or other 

instruments falls below the purchase 

price at any time during the term of the 

agreement, the Client Plan may, under 

the written agreement required by 

Section III.H.1., require the MPS seller 

to deliver, by the close of business on 

the following business day (as such term 

is defined for purposes of the relevant 

written agreement), additional 

Securities or other instruments the 

market value of which, together with the 

market value of Securities or other 

instruments previously delivered or 

sold to the Client Plan under the 

repurchase agreement, equals at least 

one hundred percent (100%) of the 

purchase price paid by the Client Plan. 

8. If the MPS seller does not deliver 

additional Securities or other 

instruments as required above, the 

Client Plan may terminate the 

agreement, and, if upon termination or 

expiration of the agreement, the amount 

owing is not paid to the Client Plan, the 

Client Plan may sell the Securities or 

other instruments and apply the 

proceeds against the obligations of the 

MPS seller under the agreement, and 

against any expenses associated with 

the sale. 

9. The MPS seller agrees to furnish 

the Client Plan with the most recent 

available audited statement of its 

financial condition as well as its most 

recent available unaudited statement, 

agrees to furnish additional audited and 

unaudited statements of its financial 

condition as they are issued and either: 

(a) Agrees that each repurchase 

agreement transaction pursuant to the 

agreement shall constitute a 

representation by the MPS seller that 

there has been no material adverse 

change in its financial condition since 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2811 

the date of the last statement furnished 

that has not been disclosed to the Client 

Plan with whom such written agreement 

is made; or (b) prior to each repurchase 

agreement transaction, the MPS seller 

represents that, as of the time the 

transaction is negotiated, there has been 

no material adverse change in its 

financial condition since the date of the 

last statement furnished that has not 

been disclosed to the Client Plan with 

whom such written agreement is made. 

10. In the event of termination and 

sale as described in Section III.H.9., the 

MPS seller pays to the Client Plan the 

amount of any remaining obligations 

and expenses not covered by the sale of 

the Securities or other instruments, plus 

interest at a reasonable rate. 

11. If an MPS seller involved in a 

repurchase agreement covered by this 

exemption fails to comply with any 

condition of this exemption in the 

course of engaging in the repurchase 

agreement, the BlackRock Manager who 

caused the plan to engage in such 

repurchase agreement shall not be 

deemed to have caused the plan to 

engage in a transaction prohibited by 

ERISA sections 406(a)(1)(A) through (D) 

or ERISA section 406(b), Code section 

4975, or FERSA section 8477(c) solely 

by reason of the MPS seller’s failure to 

comply with the conditions of the 

exemption. 

12. In the event of any dispute 

between a BlackRock Manager and an 

MPS seller involving a Covered 

Transaction under this Section III.H., 

the IM has the responsibility to decide 

whether, and if so how, BlackRock is to 

pursue relief on behalf of the Client 

Plan(s) against the MPS seller. 

13. At time of entry into or renewal 

of each Covered Transaction under this 

Section III.H., including both term 

repurchase transactions and daily 

renewals for ‘‘open’’ or ‘‘overnight’’ 

transactions, either (a) each Covered 

Transaction under this Section III.H., is 

as a result of the Three Quote Process, 

or, (b) the BlackRock Manager 

determines that the yield on the 

proposed transaction, or the renewal 

thereof, is at least as favorable to the 

Client Plans as the yield of the Client 

Plan on two (2) other available 

transactions which are comparable in 

terms of size, collateral type, credit 

quality of the counterparty, term and 

rate. The methodology employed for 

purposes of the comparison in (b) above 

must (c) be approved in advance by the 

ECO Function and (d), to the extent 

possible, refer to objective external data 

points, such as the Eurodollar overnight 

time deposit bid rate, the rate for 

repurchase agreements with U.S. 

government Securities, or rates for 

commercial paper issuances or agency 

discount note issuances sourced from 

Bloomberg, or another third party 

pricing service or market data provider 

(which providers may use different 

terminology to refer to these same 

external data points). The applicable 

BlackRock Manager must record a 

description of the comparable 

transactions, if reliance is placed upon 

same, and such data must be 

periodically reviewed by the ECO 

Function. The procedures described in 

this Section III.H.13. must be designed 

to ensure that BlackRock Managers 

determine to only enter into Covered 

Transactions with MPS sellers which 

are in the interests of Plan Clients, and 

such procedures must be reviewed and 

may be commented on by the IM. 

14. Neither the MPS Seller nor a 

member of the same MPS Group as the 

MPS Seller has discretionary authority 

or control with respect to the 

investment of Client Plan assets 

involved in a Covered Transaction 

under this Section III.H; provided that, 

this condition will be deemed met if a 

Client Plan meets the condition of 

Section II.A.2. by reason of Section 

II.A.3. of this exemption. 

15. The Client Plan is not an MPS 

Plan of the MPS with whom the 

purchase or sale takes place, or an MPS 

Plan of another MPS member of the 

same MPS Group as such MPS; 

provided that, this condition will be 

deemed met if a Client Plan meets the 

condition of Section II.A.2. by reason of 

Section II.A.3. of this exemption. 

I. Responding to Tender Offers and 

Exchange Offers Solicited by an MPS. 

Relief under Section I of this exemption 

is available for participation by 

BlackRock Managers on behalf of Client 

Plans in tender offers or exchange offers 

or similar transactions where an MPS 

acts as agent for the entity (which entity 

may not be an MPS) making the offer, 

provided that: 

1. The Client Plan pays no fees to the 

MPS in connection with this Covered 

Transaction; 

2. The BlackRock Manager submits to 

the ECO in advance of participation a 

written explanation of the reasons for 

such participation; and 

3. The ECO Function determines that 

the reasons for participation by the 

BlackRock Manager in the Covered 

Transaction are appropriate from the 

vantage point of the Client Plans, with 

such determination affirmatively made 

in writing prior to the BlackRock 

Manager participating in the Covered 

Transactions under this Section III.I. 

J. Purchase in Underwritings of 

Securities Issued by an Entity Which Is 

Not an MPS When the Proceeds Are 

Used To Repay a Debt to an MPS. Relief 

under Section I of this exemption is 

available for the purchase by BlackRock 

Managers of Securities in underwritings 

issued by an entity which is not an 

MPS, but where the proceeds of the 

offering are used to repay a debt owed 

to an MPS, and the payment of such 

proceeds to the MPS, provided that the 

BlackRock Manager does not know that 

the proceeds will be applied to the 

repayment of debt owed to an MPS. If 

the BlackRock Manager does know that 

proceeds of the offering will be applied 

to the repayment of debt owed to an 

MPS, the purchase of the Securities and 

the payment of the proceeds to the MPS 

are exempt under Section I of this 

exemption provided that no more than 

twenty percent (20%) of the offering is 

purchased by BlackRock Managers for 

Client Plans, and no more than fifty 

percent (50%) of the offering in the 

aggregate is purchased by BlackRock, 

BlackRock Managers and other 

BlackRock Entities for Client Plans, 

other clients of BlackRock Managers, or 

as proprietary investments. 

K. Bank Deposits and Commercial 

Paper. Relief under Section I of this 

exemption is available for an investment 

by a BlackRock Manager of Client Plan 

assets which involves the purchase or 

other acquisition, holding, sale, 

exchange or redemption by or on behalf 

of a Client Plan of certificates of deposit, 

time deposits or other bank deposits at 

an MPS and/or placed by an MPS and/ 

or sold to or purchased from an MPS, 

or in commercial paper issued by an 

MPS or with respect to which an MPS 

acts in some continuing capacity such 

as placement agent or administrator 

and/or which is sold to or purchased 

from an MPS, provided that: 

1. With respect to bank deposits, 

either: 

(a)(i) The bank is supervised by the 

United States or a State, and at the 

outset of the Covered Transaction or 

renewal thereof of, such bank has a 

credit rating in one of the top two (2) 

categories by at least one of the Rating 

Organizations; and (ii) such deposit 

bears a reasonable interest rate, or— 

(b) The BlackRock Manager and the 

MPS comply with ERISA section 

408(b)(4). 

2. With respect to commercial paper: 

(a) The Client Plan is not an MPS Plan 

of the MPS issuing the commercial 

paper, provided that, this condition will 

be deemed to be met if such a Client 

Plan meets the conditions of Section 

II.A.2. and II.A.3. of this exemption; 

(b) The commercial paper has a stated 

maturity date of nine (9) months or less 

from the date of issue, exclusive of days 

of grace, or is a renewal of an issue of 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2812 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

34For this purpose, MPS plans of Barclays MPSs 

and PNC MPSs are separately aggregated. 

commercial paper the maturity of which 

is likewise limited; 

(c) At the time it is acquired, the 

commercial paper is ranked in one of 

the two (2) highest rating categories by 

at least one of the Rating Organizations; 

(d) If the seller or purchaser of the 

commercial paper is an MPS, purchases 

and sales are made pursuant to the 

Three Quote Process, provided that for 

purposes of this Section III.K.2., firm 

quotes on comparable short-term money 

market instruments rated in the same 

category may be used for purposes of 

the Three Quote Process; and 

(e)(i) The Client Plan is not an MPS 

Plan of the MPS with whom the 

purchase or sale takes place, or an MPS 

Plan of another MPS member of the 

same MPS Group as such MPS; and (ii) 

the Client Plan is not an MPS Plan of 

an MPS which is acting in a continuing 

capacity, or an MPS Plan of another 

member of the same MPS Group as such 

MPS, provided that, the conditions set 

forth in clauses (i) and (ii) of this 

Section III.K.2.(e) will be deemed met if 

a Client Plan meets the condition of 

Section II.A.2. by reason of Section 

II.A.3. of this exemption. 

3. Neither the MPS involved in the 

Covered Transaction nor any member of 

the same MPS Group as the MPS 

involved in the Covered Transaction has 

discretionary authority or control with 

respect to the investment of Client Plan 

assets involved in the Covered 

Transaction under this Section III.K.; 

provided that, this condition will be 

deemed met if a Client Plan meets the 

condition of Section II.A.2. by reason of 

Section II.A.3. of this exemption. 

4. For purposes of the Covered 

Transactions set forth in this Section 

III.K. no BlackRock Entity shall be 

regarded as an affiliate of an MPS bank 

at which a deposit is made of Client 

Plan assets, nor of an MPS issuer of 

commercial paper in which a BlackRock 

Manager invests Client Plan assets. 

L. Securities Lending to an MPS. 

1. Relief under Section I of this 

exemption is available for: 

(a) The lending of Securities by a 

BlackRock Manager that are assets of an 

Index Account or Fund or a ModelDriven Account or Fund to an MPS 

which is a U.S. Broker-Dealer or a U.S. 

Bank provided that the conditions set 

forth in Section III.L.2. are met; 

(b) The lending of Securities by a 

BlackRock Manager that are assets of an 

Index Account or Fund or a ModelDriven Account or Fund to an MPS 

which is a Foreign Broker-Dealer or 

Foreign Bank; provided that, the 

conditions set forth in Section III.L.2. 

and Section III.L.3. below are met; and 

(c) The payment to a BlackRock 

Manager of compensation for services 

rendered in connection with loans of 

assets of an Index Account or Fund or 

a Model-Driven Account or Fund that 

are Securities to an MPS; provided that, 

the conditions set forth in Section 

III.L.4. below are met. 

2. General Conditions for Covered 

Transactions Described in Sections 

III.L.1.(a) and (b). 

(a) The length of a Securities loan to 

an MPS does not exceed one year in 

term. 

(b) Neither the MPS borrower nor any 

MPS which is a member of the same 

MPS Group as the MPS borrower has or 

exercises discretionary authority or 

control with respect to the investment of 

the Client Plan assets involved in the 

transaction. This Section III.L.2.(b) shall 

be deemed satisfied notwithstanding the 

investment of the assets of an MPS Plan 

of the MPS which is the borrower under 

such Securities lending transaction in a 

Pooled Fund as of the date of the 

Acquisition, which Pooled Fund is a 

bank-maintained common or collective 

trust, provided that such assets when 

aggregated with the assets of all other 

MPS Plans of the same MPS Group as 

that of the MPS borrower and invested 

in such Pooled Fund, at all times since 

the date of the Acquisition, constitute 

less than ten percent (10%) of the assets 

of such Pooled Fund; provided that, this 

Subsection III.L.2.(b) will be deemed 

met if a Client Plan meets the condition 

of Section II.A.2. by reason of Section 

II.A.3. of this exemption.34

(c) The Client Plan receives from the 

MPS borrower by the close of the 

BlackRock Manager’s business on the 

day in which the Securities lent are 

delivered to the MPS, 

(i) U.S. Collateral having, as of the 

close of business on the preceding 

business day, a market value, or, in the 

case of bank letters of credit, a stated 

amount, equal to not less than one 

hundred percent (100%) of the then 

market value of the Securities lent; or 

(ii) Foreign Collateral having as of the 

close of business on the preceding 

business day, a market value, or, in the 

case of bank letters of credit, a stated 

amount, equal to not less than: 

(x) One hundred two percent (102%) 

of the then market value of the 

Securities lent as valued on a 

Recognized Securities Exchange or an 

Automated Trading System on which 

the Securities are primarily traded if the 

collateral posted is denominated in the 

same currency as the Securities lent, or 

(y) One hundred five percent (105%) 

of the then market value of the 

Securities lent as valued on a 

Recognized Securities Exchange or an 

Automated Trading System on which 

the Securities are primarily traded if the 

collateral posted is denominated in a 

different currency than the Securities 

lent. 

(d) Notwithstanding the foregoing, if 

the BlackRock Manager is a U.S. Bank, 

a Registered Investment Advisor, or a 

U.S. Broker-Dealer, and such BlackRock 

Manager indemnifies the Client Plan 

with respect to the difference, if any, 

between the replacement cost of the 

borrowed Securities and the market 

value of the collateral on the date of a 

borrower default, the Client Plan 

receives from the MPS borrower by the 

close of the BlackRock Manager’s 

business on the day in which the 

Securities lent are delivered to the 

borrower, Foreign Collateral having as 

of the close of business on the preceding 

business day, a market value, or, in the 

case of bank letters of credit, a stated 

amount, equal to not less than: 

(i) One hundred percent (100%) of the 

then market value of the Securities lent 

as valued on a Recognized Securities 

Exchange or an Automated Trading 

System on which the Securities are 

primarily traded if the collateral posted 

is denominated in the same currency as 

the Securities lent; or 

(ii) One hundred one percent (101%) 

of the then market value of the 

Securities lent as valued on a 

Recognized Securities Exchange or an 

Automated Trading System on which 

the Securities are primarily traded if the 

collateral posted is denominated in a 

different currency than the Securities 

lent and such currency is denominated 

in Euros, British pounds, Japanese yen, 

Swiss francs or Canadian dollars; or 

(iii) One hundred five percent (105%) 

of the then market value of the 

Securities lent as valued on a 

Recognized Securities Exchange or an 

Automated Trading System if the 

collateral posted is denominated in a 

different currency than the Securities 

lent and such currency is other than 

those specified above. 

(e) (i) If the MPS borrower is a U.S. 

Bank or U.S. Broker-Dealer, the Client 

Plan receives such U.S. Collateral or 

Foreign Collateral from the MPS 

borrower by the close of the BlackRock 

Manager’s business on the day in which 

the Securities are delivered to the MPS 

borrower. Such collateral is received by 

the Client Plan either by physical 

delivery, wire transfer or by book entry 

in a Securities depository located in the 

United States, or, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2813 

(ii) If the MPS borrower is a Foreign 

Bank or Foreign Broker-Dealer, the 

Client Plan receives U.S. Collateral or 

Foreign Collateral from the MPS 

borrower by the close of the BlackRock 

Manager’s business on the day in which 

the Securities are delivered to the 

borrower. Such collateral is received by 

the Client Plan either by physical 

delivery, wire transfer or by book entry 

in a Securities depository located in the 

United States or held on behalf of the 

Client Plan at an Eligible Securities 

Depository. The indicia of ownership of 

such collateral shall be maintained in 

accordance with ERISA section 404(b) 

and 29 CFR 2550.404b–1. 

(f) Prior to making of any such loan, 

the MPS borrower shall have furnished 

the BlackRock Manager with: 

(i) The most recent available audited 

statement of the MPS borrower’s 

financial condition, as audited by a 

United States certified public 

accounting firm or in the case of an MPS 

borrower that is a Foreign Broker-Dealer 

or Foreign Bank, a firm which is eligible 

or authorized to issue audited financial 

statements in conformity with 

accounting principles generally 

accepted in the primary jurisdiction that 

governs the borrowing MPS Foreign 

Broker-Dealer or Foreign Bank; 

(ii) The most recent available 

unaudited statement of its financial 

condition (if the unaudited statement is 

more recent than such audited financial 

statement); and 

(iii) A representation that, at the time 

the loan is negotiated, there has been no 

material adverse change in its financial 

condition since the date of the most 

recent financial statement furnished to 

the BlackRock Manager that has not 

been disclosed to the BlackRock 

Manager. Such representations may be 

made by the MPS borrower’s agreement 

that each loan shall constitute a 

representation by the MPS borrower that 

there has been no such material adverse 

change. 

(g) The loan is made pursuant to a 

written loan agreement, the terms of 

which are at least as favorable to the 

Client Plan as an arm’s-length 

transaction with an unrelated party 

would be. Such loan agreement states 

that the Client Plan has a continuing 

security interest in, title to, or the rights 

of secured creditor with respect to the 

collateral. Such agreement may be in the 

form of a master agreement covering a 

series of Securities lending transactions. 

(h) The written loan agreement must 

be a standardized industry form; 

provided, that, with the approval of the 

ECO on or about the date of the 

Acquisition, written loan agreements 

with an MPS borrower that were in 

effect as of the date of the Acquisition 

may continue to be used until there is 

a material modification of the same, at 

which time standardized industry forms 

must be adopted. 

(i) In return for lending Securities, the 

Client Plan: 

(i) Receives a reasonable fee (in 

connection with the Securities lending 

transaction), and/or 

(ii) Has the opportunity to derive 

compensation through the investment of 

the currency collateral. Where the Client 

Plan has that opportunity, the Client 

Plan may pay a loan rebate or similar fee 

to the MPS borrower, if such fee is not 

greater than the Client Plan would pay 

in a comparable transaction with an 

unrelated party. 

(j) All fees and other consideration 

received by the Client Plan in 

connection with the loan of Securities 

are reasonable. The identity of the 

currency in which the payment of fees 

and rebates will be made is set forth in 

either the written loan agreement or the 

loan confirmation as agreed to by the 

MPS borrower and the BlackRock 

Manager prior to the making of the loan. 

(i) Pricing of a loan to an MPS 

borrower is based on (i) rates for 

comparable loans of the same Security 

to non-MPS borrowers and (ii) thirdparty market data: 

(x) For loans of liquid Securities 

(sometimes referred to as general 

collateral loans), an automatic system 

may be used to price loans so long as 

the resulting rate the Client Plan 

receives from the MPS borrower is at 

least as favorable to the Client Plan as 

the rate the BlackRock Managers are 

receiving for Client Plans or other 

clients from non-MPS borrowers of the 

same Security; 

(y) For purposes of pricing loans of 

less liquid Securities (sometimes 

referred to as ‘‘special loans’’), and for 

purposes of determining whether to 

terminate or continue a loan which does 

not have a set term, pricing may also be 

based on a BlackRock trader 

determination that continuing the loan 

is in the interest of the Client Plan based 

on all relevant factors, including price 

(provided that price is within the range 

of prices of other loans of the same 

Security to comparable non-MPS 

borrowers by BlackRock Managers for 

Client Plans or other clients) and 

potential adverse consequences to the 

Client Plan of terminating the loan, 

provided that the pricing data used in 

making these decisions is retained and 

made available for possible review by 

the ECO. 

(ii) Automatic pricing mechanisms 

and pricing decisions by traders are 

subject to ongoing periodic review by 

the ECO Function, and the results of 

such review are included in reports by 

the ECO to the IM. Specifically, the 

quarterly reports by the ECO to the IM 

must address the lending patterns of 

illiquid Securities to the MPS borrowers 

from all Client Plans, including the 

percentage that loans of such Securities 

to the MPSs represent of all loans of 

such Securities from all Client Plans. 

(k) The Client Plan receives the 

equivalent of all distributions made to 

holders of the borrowed Securities 

during the term of the loan including, 

but not limited to, dividends, interest 

payments, shares of stock as a result of 

stock splits and rights to purchase 

additional Securities; 

(l) If the market value of the collateral 

at the close of trading on a business day 

is less than the applicable percentage of 

the market value of the borrowed 

Securities at the close of trading on that 

day (as described in this Section 

III.L.2.(c) of this exemption), then the 

MPS borrower shall deliver, by the close 

of business on the following business 

day, an additional amount of U.S. 

Collateral or Foreign Collateral the 

market value of which, together with the 

market value of all previously delivered 

collateral, equals at least the applicable 

percentage of the market value of all the 

borrowed Securities as of such 

preceding day. 

Notwithstanding the foregoing, part of 

the U.S. Collateral or Foreign Collateral 

may be returned to the MPS borrower if 

the market value of the collateral 

exceeds the applicable percentage 

(described in this Section III.L.2.(c) of 

this exemption) of the market value of 

the borrowed Securities, as long as the 

market value of the remaining U.S. 

Collateral or Foreign Collateral equals at 

least the applicable percentage of the 

market value of the borrowed Securities. 

(m) The loan may be terminated by 

the Client Plan at any time, whereupon 

the MPS borrower shall deliver 

certificates for Securities identical to the 

borrowed Securities (or the equivalent 

thereof in the event of reorganization, 

recapitalization or merger of the issuer 

of the borrowed Securities) to the Client 

Plan within the lesser of: 

(i) The customary delivery period for 

such Securities, 

(ii) Five business days, or 

(iii) The time negotiated for such 

delivery by the BlackRock Manager for 

the Client Plan, and the borrower. 

(n) In the event that the loan is 

terminated, and the MPS borrower fails 

to return the borrowed Securities or the 

equivalent thereof within the applicable 

time described in Section III.M.2.(m), 

the BlackRock Manager for the Client 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2814 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

Plan may, under the terms of the loan 

agreement: 

(i) Purchase Securities identical to the 

borrowed Securities (or their equivalent 

as described above) and may apply the 

collateral to the payment of the 

purchase price, any other obligations of 

the borrower under the agreement, and 

any expenses associated with the sale 

and/or purchase, and 

(ii) The MPS borrower is obligated, 

under the terms of the loan agreement, 

to pay, and does pay to the Client Plan 

the amount of any remaining obligations 

and expenses not covered by the 

collateral, including reasonable 

attorney’s fees incurred by the Client 

Plan for legal action arising out of 

default on the loans, plus interest at a 

reasonable rate. 

Notwithstanding the foregoing, the 

MPS borrower may, in the event the 

MPS borrower fails to return borrowed 

Securities as described above, replace 

collateral, other than U.S. currency, 

with an amount of U.S. currency that is 

not less than the then current market 

value of the collateral, provided such 

replacement is approved by the 

BlackRock Manager. 

(o) If the MPS borrower fails to 

comply with any provision of a loan 

agreement which requires compliance 

with this exemption, the BlackRock 

Manager who caused the Client Plan to 

engage in such transaction shall not be 

deemed to have caused the Client Plan 

to engage in a transaction prohibited by 

ERISA sections 406(a)(1)(A) through (D) 

or ERISA section 406(b) or FERSA 

section 8477(c) solely by reason of the 

borrower’s failure to comply with the 

conditions of the exemption. 

(p) If the Securities being loaned to an 

MPS borrower are managed in an Index 

Account or Fund, or a Model-Driven 

Account or Fund where the Index or the 

Model are created or maintained by the 

MPS borrower, the ECO Function 

periodically performs a review, no less 

frequently than quarterly, of the use of 

such MPS-sponsored Index or Model, 

and the Securities loaned from such an 

account or fund to the MPS, which 

review is designed to enable a 

reasonable judgment as to whether the 

use of such Index or Model, or any 

changes thereto, were for the purpose of 

benefitting BlackRock or the MPS 

through the Securities lending activity 

described in this Section III.L. If the 

ECO forms a reasonable judgment that 

the use of such Index or Model, or any 

changes thereto, were for the purpose of 

benefitting BlackRock or the MPS, the 

ECO shall promptly inform the IM. 

(q) In the event of any dispute 

between the BlackRock Manager on 

behalf of a Client Plan and an MPS 

borrower involving a Covered 

Transaction under this Section III.L., the 

IM shall decide whether, and if so, how 

the BlackRock Manager is to pursue 

relief on behalf of the Client Plan(s) 

against the MPS borrower. 

(r) Sophistication of Authorizing 

Fiduciary. Only Client Plans with total 

assets having an aggregate market value 

of at least $50 million are permitted to 

lend Securities to an MPS except as 

provided in clauses (1)–(3) below. 

(1) Master Trusts. In the case of two 

or more Client Plans which are 

maintained by the same employer, 

controlled group of corporations or 

employee organization, whose assets are 

commingled for investment purposes in 

a single master trust or any other entity 

the assets of which are ‘‘plan assets’’ 

under 29 CFR 2510.3–101, which entity 

is engaged in Securities lending 

arrangements with a BlackRock 

Manager, the foregoing $50 million 

requirement shall be deemed satisfied if 

such trust or other entity has aggregate 

assets which are in excess of $50 

million; provided that if the fiduciary 

responsible for making the investment 

decision on behalf of such master trust 

or other entity is not the employer or an 

affiliate of the employer, such fiduciary 

has total assets under its management 

and control, exclusive of the $50 million 

threshold amount attributable to plan 

investment in the commingled entity, 

which are in excess of $100 million. 

(2) Single Authorizing Fiduciary for 

Multiple Unaffiliated Client Plans. In 

the case of two or more Client Plans 

which are not maintained by the same 

employer, controlled group of 

corporations or employee organization, 

whose assets are commingled for 

investment purposes in a group trust or 

any other form of entity the assets of 

which are ‘‘plan assets’’ under 29 CFR 

2510.3–101, which entity is engaged in 

Securities lending arrangements with 

such BlackRock Manager as securities 

lending agent, the foregoing $50 million 

requirement is satisfied if such trust or 

other entity has aggregate assets which 

are in excess of $50 million (excluding 

the assets of any Client Plan with 

respect to which the fiduciary 

responsible for making the investment 

decision on behalf of such group trust 

or other entity or any member of the 

controlled group of corporations 

including such fiduciary is the 

employer maintaining such Plan or an 

employee organization whose members 

are covered by such Plan). However, the 

fiduciary responsible for making the 

investment decision on behalf of such 

group trust or other entity: 

(A) Has full investment responsibility 

with respect to plan assets invested 

therein; and 

(B) Has total assets under its 

management and control, exclusive of 

the $50 million threshold amount 

attributable to plan investment in the 

commingled entity, which are in excess 

of $100 million; and 

(3) Pooled Funds. In the case of two 

or more Client Plans invested in a 

Pooled Fund, whether or not through an 

entity described in paragraphs (r)(1) or 

(r)(2), the $50 million requirement shall 

be deemed satisfied if 50 percent or 

more of the units of beneficial interest 

in such Pooled Fund are held by 

investors each having total net assets of 

at least $50 million. Such investors may 

include Client Plans, entities described 

in paragraphs (r)(1) or (r)(2), or other 

investors that are not employee benefit 

plans covered by section 406 of ERISA, 

section 4975 of the Code, or section 

8477 of FERSA. 

In addition, none of the entities 

described in this Section III.L.2.(r) are 

formed for the sole purpose of making 

loans of Securities. 

(s) With respect to any calendar 

quarter, at least 50 percent or more of 

the outstanding dollar value of 

Securities loans negotiated on behalf of 

Client Plans will be to borrowers 

unrelated to MPSs. 

3. Specific Conditions for 

Transactions Described in Section 

III.L.1.(b). 

(a) The BlackRock Manager maintains 

the written documentation for the loan 

agreement at a site within the 

jurisdiction of the courts of the United 

States. 

(b) Prior to entering into a transaction 

involving an MPS Foreign Broker-Dealer 

that is described in Section VI.PP.(1) or 

(2) or an MPS Foreign Bank that is 

described in Section VI.OO.(1) either: 

(i) The MPS Foreign Broker-Dealer or 

Foreign Bank agrees to submit to the 

jurisdiction of the United States; agrees 

to appoint an agent for service of 

process in the United States, which may 

be an affiliate (a Process Agent); 

consents to service of process on the 

Process Agent; and agrees that any 

enforcement by a Client Plan of its 

rights under the Securities lending 

agreement will, as the option of the 

Client Plan, occur exclusively in the 

United States courts; or 

(ii) The BlackRock Manager, if a U.S. 

Bank, a Registered Investment Advisor, 

or U.S. Broker-Dealer, agrees to 

indemnify the Client Plan with respect 

to the difference, if any, between the 

replacement cost of the borrowed 

Securities and the market value of the 

collateral on the date of an MPS 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2815 

borrower default plus interest and any 

transaction costs incurred (including 

attorney’s fees of such Client Plan 

arising out of the default on the loans or 

the failure to indemnify properly under 

this provision) which the Client Plan 

may incur or suffer directly arising out 

of a borrower default by the MPS 

Foreign Broker-Dealer or Foreign Bank. 

(c) In the case of a Securities lending 

transaction involving an MPS Foreign 

Broker-Dealer that is described in 

Section VI.PP.(3) or an MPS Foreign 

Bank that is described in Section 

VI.OO.(2), the BlackRock Manager must 

be a U.S. Bank, a Registered Investment 

Advisor, or U.S. Broker-Dealer, and 

prior to entering into the loan 

transaction, such BlackRock Manager 

must agree to indemnify the Client Plan 

with respect to the difference, if any, 

between the replacement cost of the 

borrowed Securities and the market 

value of the collateral on the date of an 

MPS borrower default plus interest and 

any transaction costs incurred 

(including attorney’s fees of such plan 

arising out of the default on the loans or 

the failure to indemnify properly under 

this provision) which the Client Plan 

may incur or suffer directly arising out 

of a borrower default by the MPS 

Foreign Broker-Dealer or Foreign Bank. 

4. Specific Conditions for Covered 

Transactions Described in Section 

III.L.1.(c): 

(a) The loan of Securities is not 

prohibited by section 406(a) of ERISA or 

otherwise satisfies the conditions of this 

exemption. 

(b) The BlackRock Manager is 

authorized to engage in Securities 

lending transactions on behalf of the 

Client Plan. 

(c) The compensation, the terms of 

which are at least as favorable to the 

Client Plan as an arm’s length 

transaction with an unrelated party, is 

reasonable and is paid in accordance 

with the terms of a written instrument, 

which may be in the form of a master 

agreement covering a series of Securities 

lending transactions. 

(d) Except as otherwise provided in 

Section III.L.4.(f), the arrangement 

under which the compensation is paid: 

(i) Is subject to the prior written 

authorization of a fiduciary of a Client 

Plan (the authorizing fiduciary), who is 

(other than in the case of an In-House 

Plan) independent of the BlackRock 

Manager, provided that for purposes of 

this Section III.M.4.(d) a fiduciary of an 

MPS Plan acting as the authorizing 

fiduciary shall be deemed independent 

of the BlackRock Manager so long as 

such fiduciary, as of the date of the 

authorization, is not a BlackRock Entity, 

and 

(ii) May be terminated by the 

authorizing fiduciary within: 

(x) The time negotiated for such 

notice of termination by the Client Plan 

and the BlackRock Manager, or 

(y) Five business days, whichever is 

less, in either case without penalty to 

the Client Plan. 

(e) No such authorization is made or 

renewed unless the BlackRock Manager 

shall have furnished the authorizing 

fiduciary with any reasonably available 

information which the BlackRock 

Manager reasonably believes to be 

necessary to determine whether such 

authorization should be made or 

renewed, and any other reasonably 

available information regarding the 

matter that the authorizing fiduciary 

may reasonably request. 

(f) Special Rule for Commingled 

Investment Funds. In the case of a 

pooled separate account maintained by 

an insurance company qualified to do 

business in a State or a common or 

collective trust fund maintained by a 

bank or trust company supervised by a 

State or Federal agency, the 

requirements of Section III.L.4.(d) of this 

exemption shall not apply, provided 

that: 

(i) The information described in 

Section III.L.4.(e) (including information 

with respect to any material change in 

the arrangement) shall be furnished by 

the BlackRock Manager to the 

authorizing fiduciary described in 

Section III.L.4.(d) with respect to each 

Client Plan whose assets are invested in 

the account or fund, not less than 30 

days prior to implementation of the 

arrangement or material change thereto, 

and, where requested, upon the 

reasonable request of the authorizing 

fiduciary; 

(ii) In the event any such authorizing 

fiduciary submits a notice in writing to 

the BlackRock Manager objecting to the 

implementation of, material change in, 

or continuation of the arrangement, the 

Client Plan on whose behalf the 

objection was tendered is given the 

opportunity to terminate its investment 

in the account or fund, without penalty 

to the Client Plan, within such time as 

may be necessary to effect such 

withdrawal in an orderly manner that is 

equitable to all withdrawing plans and 

to the non-withdrawing plans. In the 

case of a Client Plan that elects to 

withdraw pursuant to the foregoing, 

such withdrawal shall be effected prior 

to the implementation of, or material 

change in, the arrangement; but an 

existing arrangement need not be 

discontinued by reason of a Client Plan 

electing to withdraw; and 

(iii) In the case of a Client Plan whose 

assets are proposed to be invested in the 

account or fund subsequent to the 

implementation of the compensation 

arrangement and which has not 

authorized the arrangement in the 

manner described in Sections 

III.L.4.(f)(i) and (ii), the Client Plan’s 

investment in the account or fund shall 

be authorized in the manner described 

in Section III.L.4.(d)(i). 

M. To-Be-Announced Trades (TBAs) 

of GNMA, FHLMC, FarmerMac or FNMA 

Mortgage-Backed Securities with an 

MPS Counterparty. Relief under Section 

I of this exemption is available for 

trades (purchases and sales) on a 

principal basis of mortgage-backed 

Securities issued by FHLMC, FNMA, 

FarmerMac or guaranteed by GNMA and 

meeting the definition of ‘‘guaranteed 

governmental mortgage pool certificate’’ 

in 29 CFR 2510.3–101(i) with an MPS 

on a TBA basis, including, when 

applicable, delivery of the underlying 

Securities to a Client Plan, provided 

that: 

1. The Covered Transactions under 

this Section III.M. are a result of the 

Three Quote Process; provided that, 

solely for purposes of this Section 

III.M.1., firm quotes under the Three 

Quote Process may be obtained on 

‘‘comparable Securities,’’ as described 

below, when firm quotes with respect to 

the applicable TBA transactions are not 

reasonably obtainable; 

2. With regard to purchases of 

FHLMC, FarmerMac and FNMA 

mortgage-backed Securities on a TBA 

basis, (i) the BlackRock Manager makes 

a determination that such Securities are 

of substantially similar credit quality as 

GNMA guaranteed governmental 

mortgage pool certificates, (ii) the ECO 

(in regular consultation with and under 

the supervision of the IM) monitors the 

credit spread between GNMA and 

FHLMC/FNMA/FarmerMac mortgagebacked Securities, and (iii) each of the 

ECO and the IM (independently) has the 

authority and responsibility to 

determine whether purchases of 

FHLMC, FarmerMac and/or FNMA 

mortgage-backed Securities on a TBA 

basis should not be permitted due to 

such credit spread, and such authority 

and responsibility is reflected in the 

EPPs; and 

3. With regard to possible delivery of 

underlying Securities to Client Plans, as 

opposed to cash settlement, the ECO 

Function approves any such delivery in 

advance. 

For purposes of Section III.M.1., 

‘‘comparable Securities’’ are Securities 

that: (a) Are issued and/or guaranteed 

by the same agency, (b) have the same 

coupon, (c) have a principal amount at 

least equal to but no more than two 

percent (2%) greater than the Security 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2816 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

35 51 FR 41686 (Nov. 18, 1986), as amended, 67 

FR 64137 (Oct. 17, 2002). 

purchased or sold, (d) are of the same 

program or class, and (e) either (i) have 

an aggregate weighted average monthly 

maturity within a 12-month variance of 

the Security purchased or sold, but in 

no case can the variance be more than 

ten percent (10%) of such aggregate 

weighted average maturity of the 

Securities purchased or sold, or (ii) meet 

some other comparable objective 

standard containing a range of variance 

that is no greater than that described in 

(i) above and that assures that the aging 

of the Securities is properly taken into 

account. 

N. Foreign Exchange Transactions 

with an MPS Counterparty. Relief under 

Section I of this exemption is available 

for a Foreign Exchange Transaction by 

a BlackRock Manager on behalf of Client 

Plans with an MPS as counterparty 

provided that: 

1. (a) The Foreign Exchange 

Transaction is as a result of the Three 

Quote Process; or (b) if the total net 

amount of the Foreign Exchange 

Transaction on behalf of Client Plans by 

BlackRock Managers is greater than $1 

million, the exchange rate is within 

0.5% above or below the Interbank Rate 

as represented to the BlackRock 

Managers by the MPS; 

2. The Foreign Exchange Transactions 

with an MPS counterparty only involve 

currencies of countries that are 

classified as ‘‘developed’’ or ‘‘emerging’’ 

markets by a third party Index provider 

that divides national economies into 

‘‘developed,’’ ‘‘emerging’’ and ‘‘frontier’’ 

markets. The Index provider shall be 

selected by BlackRock, provided, 

however, the IM shall have the right to 

reject the Index provider in its sole 

discretion at any time; and 

3. Each Foreign Exchange Transaction 

complying with Section III.N.1.(b) must 

be set forth in the applicable quarterly 

reports of the ECO to the IM. 

O. Agency Execution of Equity and 

Fixed Income Securities Trades and 

Related Clearing as Described in PTE 

86–128, Including Agency Cross Trades, 

When the Broker is an MPS. Relief 

under Section I of this exemption is 

available for transactions in Securities 

described in Section II of Prohibited 

Transaction Exemption 86–128, as 

amended 35 (PTE 86–128), as if 

BlackRock Managers and MPS brokerdealers were ‘‘affiliates’’ as defined in 

Section I.(b) of PTE 86–128, provided 

the following conditions are satisfied: 

1. The MPS is selected to perform 

Securities brokerage services for Client 

Plans pursuant to the normal brokerage 

placement practices, policies and 

procedures of the BlackRock Manager 

designed to ensure best execution. 

2. The conditions of PTE 86–128 set 

forth in the following sections of that 

exemption must be complied with: 

Section III(e); Section III(f); Section 

III(g)(2); and Section III(h); provided, 

however, that, for purposes of Section 

III(e), Section III(f) and Section III(g)(2) 

of PTE 86–128, the ECO Function is the 

‘‘authorizing fiduciary’’ referred to 

therein; and the ECO has the authority 

to terminate the use of the MPS as 

broker-dealer without penalty to Client 

Plans at any time; and provided further 

that the first sentence of Section III(h) of 

PTE 86–128 is amended for purposes of 

this Section III.O.2. to provide as 

follows: ‘‘A trustee (other than a 

nondiscretionary trustee) may only 

engage in a covered transaction with a 

plan that has total net assets with a 

value of at least $50 million and in the 

case of a Pooled Fund, the $50 million 

requirement will be met if fifty percent 

(50%) or more of the units of beneficial 

interest in such Pooled Fund are held by 

investors having total net assets with a 

value of at least $50 million.’’ 

3. With respect to agency cross 

transactions described in Section III(g) 

of PTE 86–128 that are being effected or 

executed by an MPS broker, (i) neither 

the MPS broker effecting or executing 

the agency cross transaction nor any 

member of the same MPS Group as the 

MPS broker effecting or executing the 

agency cross transaction may have 

discretionary authority to act on behalf 

of, and/or provide investment advice to 

another party to the agency cross 

transaction which is a seller when the 

Client Plan is a buyer, or which is a 

buyer, when the Client Plan is a seller 

(Another Party), and (ii), neither the 

BlackRock Manager nor the trader for 

the BlackRock Manager instituting the 

transaction for the Client Plan may have 

knowledge that a BlackRock Entity has 

discretionary authority and/or provides 

investment advice to Another Party to 

the agency cross transaction. 

4. The exceptions in Sections IV(a), 

(b), and (c) of PTE 86–128 are applicable 

to this exemption. 

P. Use by BlackRock Managers of 

Exchanges and Automated Trading 

Systems on Behalf of Client Plans. Relief 

under Section I of this exemption is 

available for the direct or indirect use 

by, or directing of trades to, U.S. and 

non-U.S. exchanges or U.S. Automated 

Trading Systems (ATS) in which one or 

more MPSs have an ownership interest 

by BlackRock Managers for Client Plans, 

if either: 

1. No one MPS (together with other 

members of the same MPS Group) has 

(i) a greater than ten percent (10%) 

ownership interest in the exchange or 

ATS or (ii) the BlackRock Managers do 

not know the level of such ownership 

interest; or 

2. If a BlackRock Manager knows that 

an MPS (together with other members of 

the same MPS Group) has an ownership 

interest that is greater than ten percent 

(10%) but not greater than twenty 

percent (20%) in the exchange or ATS, 

(a) The ECO makes a determination, 

summarized in the ECO quarterly 

report, that there is no reason for a 

BlackRock Manager or all BlackRock 

Managers to discontinue such direct or 

indirect use of or the directing of trades 

to any such exchange or ATS on the 

basis that the amount of use or the 

volume of trades is unwarranted or not 

in the interests of the Client Plans and 

their participants and beneficiaries, and 

does not make a determination that a 

BlackRock Manager or all BlackRock 

Managers must discontinue such direct 

or indirect use of or the directing of 

trades to any such exchange or ATS on 

the basis that the amount of use or the 

volume of trades is unwarranted or not 

in the interests of the Client Plans and 

their participants and beneficiaries. The 

IM may request any additional 

information relating to any such 

determination summarized in the ECO 

quarterly report and may, after 

consultation with the ECO, make a 

determination that a BlackRock Manager 

or all BlackRock Managers must 

discontinue such direct or indirect use 

of or the directing of trades to any such 

exchange or ATS on the basis that the 

amount of use or the volume of trades 

is unwarranted or not in the interests of 

the Client Plans and their participants 

and beneficiaries; 

(b) The price and compensation 

associated with any purchases or sales 

utilizing such exchange or ATS are not 

greater than the price and compensation 

associated with an arm’s length 

transaction with an unrelated party; and 

(c) All such exchanges and ATSs shall 

be situated within the jurisdiction of the 

U.S. District Courts and regulated by a 

U.S. Federal regulatory body or a U.S. 

federally approved self-regulatory body, 

provided that this condition shall not 

apply to the direct or indirect use of or 

the directing of trades to an exchange in 

a country other than the United States 

which is regulated by a government 

regulator or a government approved selfregulatory body in such country and 

which involves trading in Securities 

(including the lending of Securities) or 

futures contracts. 

Q. Purchases in the Secondary Market 

of Common and Preferred Stock Issued 

by an MPS by BlackRock Managers for 

Client Plans Invested in an Index 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2817 

36For example, if two or more portfolio managers 

send their purchase orders to the same trading desk 

and the traders on that trading desk coordinate the 

purchases of the same MPS equity Securities, the 

limitations apply to the trading desk; if two or more 

portfolio managers or two or more trading desks are 

coordinating purchases of MPS equity Securities, 

the limitations are applied across the group of 

portfolio managers or traders who are coordinating 

the purchase orders. 

Account or Fund, or a Model-Driven 

Account or Fund. Relief under Section 

I of this exemption is available for the 

purchase in the secondary market of 

common or preferred stock issued by an 

MPS by BlackRock Managers for Client 

Plans invested in an Index Account or 

Fund, or a Model-Driven Account or 

Fund provided that: 

1. Such purchase is for the sole 

purpose of maintaining quantitative 

conformity with the weight of such 

Securities prescribed by the relevant 

Index, for Index Accounts or Funds, or 

the weight of such Securities prescribed 

by the relevant Model, for Model-Driven 

Accounts or Funds, and such purchase 

is reasonably calculated not to exceed 

the purchase amount necessary for such 

Model or quantitative conformity by 

more than a de minimis amount. 

2. Such purchase is not made from the 

issuing MPS. 

3. Notwithstanding Section III.Q.2., 

BlackRock Managers may rely on other 

exemptive relief when acquiring stock 

of an MPS for Client Plans through an 

MPS broker, including the issuing MPS. 

R. Purchase in the Secondary Market 

of Common and Preferred Stock Issued 

by an MPS by BlackRock Managers for 

Client Plans Invested in an Other 

Account or Fund. Relief under Section 

I of this exemption is available for the 

purchase in the secondary market of 

common or preferred stock issued by an 

MPS by BlackRock Managers for Client 

Plans invested in an Other Account or 

Fund provided that: 

1. Such purchase is not made from the 

issuing MPS. 

2. Notwithstanding Section III.R.1., 

BlackRock Managers may rely on other 

exemptive relief when acquiring stock 

of an MPS for Client Plans under this 

Section III.R. through an MPS broker, 

including the issuing MPS. 

3. As a consequence of a purchase of 

MPS stock, the class of stock purchased 

does not constitute more than five 

percent (5%) of the Other Account or 

Fund. In the case of a Pooled Fund, the 

class of stock purchased and attributed 

to each Client Plan does not exceed five 

percent (5%) of such Client Plan’s 

proportionate interest in the Pooled 

Fund. 

4. Aggregate daily purchases of a class 

of MPS stock for Client Plans do not 

exceed the greater of (i) fifteen percent 

(15%) of the aggregate average daily 

trading volume (ADTV) for the previous 

ten (10) trading days, or (ii) fifteen 

percent (15%) of trading volume on the 

date of the purchase. These volume 

limitations must be met on a portfolio 

manager by portfolio manager basis 

unless purchases are coordinated among 

portfolio managers, in which case the 

limitations are applied to the 

coordinated purchase.36 Any 

coordinated purchases of the same class 

of MPS stock in the secondary market 

for Index Accounts or Funds or for 

Model-Driven Accounts or Funds must 

be taken into account when applying 

these ADTV limitations on purchases 

for an Other Account or Fund; provided, 

however, if coordinated purchases for 

Index Accounts or Funds, or for ModelDriven Accounts or Funds, would cause 

the fifteen percent (15%) limitation to 

be exceeded, BlackRock Managers can 

nonetheless acquire for Other Accounts 

or Funds up to the greater of five 

percent (5%) of ADTV for the previous 

ten (10) trading days or five percent 

(5%) of trading volume on the day of the 

Covered Transaction. For purposes of 

this Section III.R.4., cross trades of MPS 

equity Securities which comply with an 

applicable statutory or administrative 

prohibited transaction exemption are 

not taken into account. 

5. The ECO Function monitors the 

volume limits on purchases of MPS 

stock described in Section III.R.4. and 

provides a monthly report to the IM 

with respect to such purchases and 

limits. The IM shall impose lower 

volume limitations and take other 

appropriate action with respect to such 

purchases if the IM determines on the 

basis of these reports by the ECO and 

publicly available information 

materially related to the trading of the 

Securities of an MPS on its primary 

listing exchange (or market) that the 

purchases described have a material 

positive impact on the market price for 

such Securities. 

S. Purchases, Sales and Holdings by 

BlackRock Managers for Client Plans of 

Commercial Paper Issued by ABCP 

Conduits, When an MPS Has One or 

More Roles. Relief under Section I of 

this exemption is available for the 

purchase and sale, including purchases 

from or sales to an MPS, and the 

holding by BlackRock Managers acting 

on behalf of Client Plans of commercial 

paper issued by an ABCP Conduit with 

respect to which an MPS acts as seller, 

placement agent, and/or in some 

continuing capacity such as program 

administrator, provider of liquidity or 

provider of credit support, provided 

that: 

1. (a) The Client Plan is not an MPS 

Plan of the MPS with whom the 

purchase or sale takes place, or an MPS 

Plan of another MPS member of the 

same MPS Group as such MPS; and (b) 

the Client Plan is not an MPS Plan of 

an MPS which is acting in a continuing 

capacity, or an MPS Plan of another 

MPS member of the same MPS Group as 

such MPS; provided that, the conditions 

set forth in clauses (a) and (b) of this 

Section III.S.1. will be deemed met if a 

Client Plan meets the condition of 

Section II.A.2. by reason of Section 

II.A.3. of this exemption; 

2. Neither the MPS involved in the 

Covered Transaction nor any member of 

the same MPS Group as the MPS 

involved in such Covered Transaction 

has discretionary authority or control 

with respect to Client Plan assets 

involved in the Covered Transaction 

under this Section III.S.; provided that, 

this condition will be deemed met if a 

Client Plan meets the condition of 

Section II.A.2. by reason of Section 

II.A.3. of this exemption; 

3. The commercial paper has a stated 

maturity date of nine months or less 

from the date of issue, exclusive of days 

of grace, or is a renewal of an issue of 

commercial paper the maturity of which 

is likewise limited; 

4. At the time it is acquired, the 

commercial paper is ranked in the 

highest rating category by at least one of 

the Rating Organizations; 

5. If the seller or purchaser of the 

ABCP commercial paper is an MPS, 

purchases and sales are made pursuant 

to the Three Quote Process, provided 

that, for purposes of this Section III.S.5., 

firm quotes on comparable short-term 

money market instruments rated in the 

same category may be used for purposes 

of the Three Quote Process; and 

6. If an MPS performs a continuing 

role and there is a default, the taking or 

refraining from taking of any action by 

the responsible BlackRock Manager 

which could have a material positive or 

negative effect upon the MPS is decided 

upon by the IM. 

No BlackRock Entity is to be regarded 

as an affiliate of any MPS for purposes 

of the Covered Transactions set forth in 

this Section III.S. 

T. Purchase, Holding and Disposition 

by BlackRock Managers for Client Plans 

of Shares of Exchange-Traded OpenEnd Investment Companies Registered 

Under the 1940 Act (ETF) Managed by 

BlackRock Managers. Relief under 

Section I of this exemption is available 

for the purchase, holding and 

disposition by BlackRock Managers for 

Client Plans of shares of an ETF 

managed by a BlackRock Manager 

provided that: 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2818 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

37BlackRock requested such relief for the 

avoidance of any issue about the necessity for such 

relief in particular circumstances; the Department is 

not opining on the need for such relief herein. 

1. The BlackRock Manager purchases 

such ETF shares from or through a 

person other than an MPS or a 

BlackRock Entity; and 

2. No purchase is exempt under 

Section I of this exemption if the 

BlackRock Manager portfolio manager 

acting for the Client Plan knows or 

should know that the shares to be 

acquired for Client Plans are Creation 

Shares, or that the purchase for Client 

Plans will result in new Creation 

Shares. 

U. Purchase, Holding and/or 

Disposition of BlackRock Equity 

Securities in the Secondary Market by 

BlackRock Managers for an Index 

Account or Fund, or a Model-Driven 

Account or Fund, Including Buy-Ups.37

Relief under Section I of this exemption 

is available for the purchase, holding 

and disposition of common or preferred 

stock issued by BlackRock in the 

secondary market by BlackRock 

Managers for Client Plans in an Index 

Account or Fund, or in a Model-Driven 

Account or Fund provided that: 

1. The acquisition, holding and 

disposition of the BlackRock Securities 

is for the sole purpose of maintaining 

quantitative conformity with the weight 

of such Securities prescribed by the 

relevant Index, for Index Accounts or 

Funds, or the weight of such Securities 

prescribed by the relevant Model, for 

Model-Driven Accounts or Funds, and 

such purchase is reasonably calculated 

not to exceed the purchase amount 

necessary for such Model or quantitative 

conformity by more than a de minimis 

amount. 

2. Any acquisition of BlackRock 

Securities does not involve any 

agreement, arrangement or 

understanding regarding the design or 

operation of the account or fund 

acquiring the BlackRock Securities 

which is intended to benefit BlackRock 

or any party in which BlackRock may 

have an interest. 

3. With respect to an acquisition of 

BlackRock Securities by such an 

account or fund which constitutes a 

Buy-Up. 

(a) The acquisition is made on a single 

trading day from or through one brokerdealer, which broker-dealer is not an 

MPS or a BlackRock Entity; provided, 

however, that if the volume limitation 

in Section III.U.3.(d) below cannot be 

satisfied in a single trading day, the 

acquisition will be completed in as few 

trading days as possible in compliance 

with such volume limitation and such 

trades will be reviewed by the ECO and 

reported to the IM; 

(b) Based upon the best available 

information, the acquisition is not the 

opening transaction of a trading day and 

is not made in the last half hour before 

the close of the trading day; 

(c) The price paid by the BlackRock 

Manager is not higher than the lowest 

current independent offer quotation, 

determined on the basis of reasonable 

inquiry from broker-dealers who are not 

MPSs or BlackRock Entities; 

(d) Aggregate daily purchases do not 

exceed fifteen percent (15%) of 

aggregate average daily trading volume 

for the Security, as determined by the 

greater of (i) the trading volume for the 

Security occurring on the applicable 

Recognized Securities Exchange and/or 

Automated Trading System on the date 

of the transactions, or (ii) the aggregate 

average daily trading volume for the 

Security occurring on the applicable 

Recognized Securities Exchange and/or 

Automated Trading System for the 

previous ten (10) trading days, both 

based on the best information 

reasonably available at the time of the 

transaction. These volume limitations 

are applied on a portfolio manager by 

portfolio manager basis unless 

purchases of BlackRock Securities are 

coordinated by the portfolio managers 

or trading desks, in which case the 

limitations are aggregated for the 

coordinating portfolio managers or 

trading desks. Provided further, if 

BlackRock, without Client Plan 

direction or consent, initiates a new 

Index Account or Fund or Model-Driven 

Account or Fund on its own accord, 

with BlackRock Securities included 

therein, the volume restrictions for such 

new account or fund shall be 

determined by aggregating all portfolio 

managers purchasing for such new 

account of fund. Cross trades of 

BlackRock Securities which comply 

with an applicable statutory or 

administrative prohibited transaction 

exemption are not included in the 

amount of aggregate daily purchases to 

which the limitations of this Section 

III.U. apply; 

(e) All purchases and sales of 

BlackRock Securities occur either (i) on 

a Recognized Securities Exchange, (ii) 

through an Automated Trading System 

operated by a broker-dealer that is not 

a BlackRock Entity and is either 

registered under the 1934 Act, and 

thereby subject to regulation by the 

Securities and Exchange Commission, 

or subject to regulation and supervision 

by the Securities and Futures Authority 

of the UK or another applicable 

regulatory authority, which provides a 

mechanism for customer orders to be 

matched on an anonymous basis 

without the participation of a brokerdealer, or (iii) through an Automated 

Trading System that is operated by a 

Recognized Securities Exchange, 

pursuant to the applicable securities 

laws, and provides a mechanism for 

customer orders to be matched on an 

anonymous basis without the 

participation of a broker-dealer; and 

(f) The ECO designs acquisition 

procedures for BlackRock Managers to 

follow in Buy-Ups, which the IM 

approves in advance of the 

commencement of any Buy-Up, and the 

ECO Function monitors BlackRock 

Manager’s compliance with such 

procedures. 

V. Acquisition by BlackRock 

Managers of Financial Guarantees, 

Indemnities and Similar Protections for 

Client Plans from MPSs. Relief under 

Section I of this exemption is available 

for the provision by an MPS of a 

financial guarantee, indemnification 

arrangement or similar instrument or 

arrangement providing protection to a 

Client Plan against possible losses or 

risks provided that: 

1. The terms of the arrangement 

(including the identity of the provider) 

are approved by a fiduciary of the Client 

Plan which is independent of the MPS 

providing such protection and of 

BlackRock; 

2. The compensation owed the MPS 

under the arrangement is paid by a 

BlackRock Entity and not paid out of the 

assets of the Client Plan; 

3. In the event a Client Plan or the 

ECO concludes an event has occurred 

which should trigger the obligations of 

the MPS under the arrangement, and the 

MPS disagrees to any material extent, 

the IM determines the steps the 

BlackRock Manager must take to protect 

the interests of the Client Plan; and 

4. The MPS providing the 

arrangement is capable of being sued in 

United States courts, has contractually 

agreed to be subject to litigation in the 

United States with respect to any matter 

relating to this Section III.V., and has 

sufficient assets in the United States to 

honor its commitments under the 

arrangement. 

W. Purchase of a Portion or All of a 

Loan to an Entity Which is not an MPS 

and is not a BlackRock Entity from an 

MPS or Other Arranger and the Holding 

thereof by BlackRock Managers Where 

an MPS is an Arranger, and/or an MPS 

has an Ongoing Function Regarding 

Such Loan. Relief under Section I of this 

exemption is available for the purchase 

from an MPS or other Arranger by 

BlackRock Managers on behalf of Client 

Plans of all or a portion of a Loan and 

the holding thereof, where an MPS is an 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2819 

38Proceeds of the Assigned Loan may be used by 

the relevant borrower to repay a debt owed to an 

MPS, provided that the conditions set forth in 

Section III.J. of this exemption are satisfied (for 

these purposes and for purposes of such conditions 

the Assigned Loan shall be deemed to be a 

Security). 

Arranger and/or an MPS has an ongoing 

function in relation to the Loan, 

provided that: 

1. The BlackRock Manager obtains an 

assignment of the Loan or portion 

thereof on behalf of the Client Plan, 

which assignment provides for the 

Client Plan to become the lender of 

record, and the transfer of title, voting 

rights and all other applicable rights to 

such Client Plan (the Loan or the 

portion thereof, an ‘‘Assigned Loan’’); 

2. The borrower under the Assigned 

Loan is not an MPS or a BlackRock 

Entity; 38

3. The Assigned Loan is purchased 

prior to the end of the first day on 

which any sales are made pursuant to 

that offering, at a price that is not more 

than the price paid by each other 

purchaser of Assigned Loans in that 

offering or in any concurrent offering of 

the Assigned Loans, except that 

Assigned Loans may be purchased at a 

price that is not more than the price 

paid by each other purchaser of the 

Assigned Loans in that offering or in 

any concurrent offering of the Assigned 

Loans and may be purchased on a day 

subsequent to the end of the first day on 

which any sales are made, pursuant to 

that offering, provided that the interest 

rates, as of the date of such purchase, on 

comparable Assigned Loans offered 

subsequent to the end of the first day on 

which any sales are made and prior to 

the purchase date are less than the 

interest rate of the Assigned Loans being 

purchased; 

4. The Assigned Loan is offered 

pursuant to a selling agreement or 

arrangement under which the Arrangers 

are committed to make the full amount 

of the loan commitment to the borrower; 

5. The borrower under the Assigned 

Loan to be purchased pursuant to this 

exemption must have been in 

continuous operation for not less than 

three (3) years, including the operation 

of any predecessors, unless: 

(a) The Assigned Loan has a Facility 

Rating in one of the four highest rating 

categories by a Rating Organization; 

provided that none of the Rating 

Organizations provides a Facility Rating 

in a category lower than the fourth 

highest rating category with respect to 

the Assigned Loan; provided further 

that if the Assigned Loan lacks a Facility 

Rating, the Assigned Loan shall have a 

Borrower Rating that meets the ratings 

standards set forth in this subsection; or 

(b) The Assigned Loan is fully 

guaranteed by a guarantor that has been 

in continuous operation for not less 

than three (3) years, including the 

operation of any predecessors, provided 

that such guarantor has issued 

Securities registered under the 1933 

Act; or if such guarantor has issued 

Securities which are exempt from such 

registration requirement, such guarantor 

has been in continuous operation for not 

less than three (3) years, including the 

operation of any predecessors, and such 

guarantor is: 

(i) A bank, 

(ii) An issuer of Securities which are 

exempt from such registration 

requirement, pursuant to a Federal 

statute other than the 1933 Act; or 

(iii) An issuer of Securities that are 

the subject of a distribution and are of 

a class which is required to be registered 

under Section 12 of the 1934 Act, and 

are issued by an issuer that has been 

subject to the reporting requirements of 

Section 13 of the 1934 Act for a period 

of at least ninety (90) days immediately 

preceding the sale of such Loans and 

that has filed all reports required to be 

filed hereunder with the SEC during the 

preceding twelve (12) months. 

6. The aggregate amount of an 

Assigned Loan being purchased in a 

Loan Offering pursuant to this 

exemption by the BlackRock Manager 

with: (i) The assets of all Client Plans; 

and (ii) the assets, calculated on a pro 

rata basis, of all Client Plans investing 

in Pooled Funds managed by the 

BlackRock Manager; and (iii) the assets 

of plans to which the BlackRock 

Manager renders investment advice 

within the meaning of 29 CFR 2510.3– 

21(c) does not exceed: 

(a) Thirty five percent (35%) of the 

total amount of the Assigned Loan being 

purchased in the Loan Offering, if the 

Facility Rating of such Assigned Loan 

is, or, if such Assigned Loan does not 

have a Facility Rating, the borrower 

thereunder has a Borrower Rating, in 

one of the four highest rating categories 

by at least one of the Rating 

Organizations; provided that none of the 

Rating Organizations provides a Facility 

Rating for such Assigned Loan or, if 

such Assigned Loan does not have a 

Facility Rating, a Borrower Rating, in a 

category lower than the fourth highest 

rating category; or 

(b) Twenty five percent (25%) of the 

total amount of the Assigned Loan being 

purchased in the Loan Offering, if the 

Facility Rating of such Assigned Loan 

is, or, if such Assigned Loan does not 

have a Facility Rating, the borrower 

thereunder has a Borrower Rating, in the 

fifth or sixth highest rating categories by 

at least one of the Rating Organizations; 

provided that none of the Rating 

Organizations provides a Facility Rating 

for such Assigned Loan or, if such 

Assigned Loan does not have a Facility 

Rating, a Borrower Rating, in a category 

lower than the sixth highest rating 

category; and provided that 

(c) The assets of any single Client Plan 

(and the assets of any Client Plans 

investing in Pooled Funds) may not be 

used to purchase any Assigned Loan if 

the Facility Rating of such Assigned 

Loan is, or, if such Assigned Loan does 

not have a Facility Rating, the borrower 

thereunder has a Borrower Rating that is 

lower than the sixth highest rating 

category by any of the Rating 

Organizations. 

7. Notwithstanding the percentage of 

a Loan Offering permitted to be 

acquired, as set forth in Subsections 6(a) 

or (b) of this Section III.W., the amount 

of Assigned Loans in a Loan Offering 

purchased pursuant to this exemption 

by the BlackRock Manager on behalf of 

any single Client Plan, either 

individually or through investment, 

calculated on a pro rata basis, in a 

Pooled Fund may not exceed three 

percent (3%) of the total amount of such 

Assigned Loans being offered in such 

Loan Offering, provided that a SubAdvised Pooled Fund as a whole may 

purchase up to three percent (3%) of a 

Loan Offering. 

8. The aggregate amount to be paid by 

any single Client Plan in purchasing any 

Assigned Loans which are the subject of 

this exemption, including any amounts 

paid by any Client Plan in purchasing 

such Assigned Loans through a Pooled 

Fund, calculated on a pro rata basis, 

does not exceed three percent (3%) of 

the fair market value of the net assets of 

such Client Plan, as of the last day of the 

most recent fiscal quarter of such Client 

Plan prior to such transaction, provided 

that a Sub-Advised Pooled Fund as a 

whole may pay up to one percent (1%) 

of fair market value of its net assets in 

purchasing such Assigned Loans. 

9. The BlackRock Manager has an 

opportunity to review the material terms 

of the Assigned Loan prior to agreeing 

to acquire the Assigned Loan, as well as 

review information which information 

may be obtained from one or more webbased sites (e.g., Intralinks) maintained 

for potential investors and lenders for 

this purpose. Information available to be 

reviewed shall include information 

regarding the borrower and draft loan 

documents (e.g., credit agreement, 

confidential information statement). 

10. The Covered Transactions in this 

Section III.W. are not part of an 

agreement, arrangement, or 

understanding designed to benefit any 

BlackRock Entity or MPS. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2820 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

11. Each Client Plan engaging in 

Covered Transactions pursuant to this 

Section III.W. shall have total net assets 

of at least $100 million in Securities of 

issuers that are not affiliated with such 

Client Plan (the $100 Million Net Asset 

Requirement). 

For purposes of a Pooled Fund 

engaging in the purchase of an Assigned 

Loan which is the subject of this 

exemption, each Client Plan in such 

Pooled Fund other than a Sub-Advised 

Pooled Fund shall have total net assets 

of at least $100 million in Securities of 

issuers that are not affiliated with such 

Client Plan. Notwithstanding the 

foregoing, if each Client Plan in such 

Pooled Fund other than a Sub-Advised 

Pooled Fund does not have total net 

assets of at least $100 million in 

Securities of issuers that are not 

affiliated with such Client Plan, the 

$100 Million Net Asset Requirement 

will be met if 50 percent (50%) or more 

of the units of beneficial interest in such 

Pooled Fund are held by investors, each 

of which have total net assets of at least 

$100 million in Securities of issuers that 

are not affiliated with such investor, and 

the Pooled Fund itself qualifies as a 

QIB. 

For purposes of the net asset 

requirements described in this Section 

III.W., where a group of Client Plans is 

maintained by a single employer or 

controlled group of employers, as 

defined in ERISA section 407(d)(7), the 

$100 Million Net Asset Requirement 

may be met by aggregating the assets of 

such Client Plans, if the assets of such 

Client Plans are pooled for investment 

purposes in a single master trust. 

12. No more than twenty percent 

(20%) of the assets of a Pooled Fund, at 

the time of a Covered Transaction, are 

comprised of assets of In-House Plans 

for which the BlackRock Manager, or a 

BlackRock Entity exercises investment 

discretion. 

13. The BlackRock Manager must be 

a QPAM, and, in addition to satisfying 

the requirements for a QPAM under 

section VI(a) of PTE 84–14, the 

BlackRock Manager must also have total 

client assets under its management and 

control in excess of $5 billion, as of the 

last day of its most recent fiscal year and 

shareholders’ or partners’ equity in 

excess of $1 million. 

14. The conditions of Subsections 

IV.A.11. and 12. are satisfied with 

respect to the Covered Transactions 

described in this Section III.W. 

15. With respect to any Assigned Loan 

under which an MPS has an ongoing 

function, such as an administrative 

agent or collateral agent, the taking of or 

refraining from taking of any action by 

the responsible BlackRock Manager 

which could have a material positive or 

negative effect upon the MPS is decided 

upon by the IM. 

Section IV: Affiliated Underwritings and 

Affilliated Servicing 

A. Affiliated Underwritings 

1. The Securities to be purchased are 

either: 

(a) Part of an issue registered under 

the 1933 Act, or, if Securities to be 

purchased are part of an issue that is 

exempt from such registration 

requirement, such Securities: 

(i) Are issued or guaranteed by the 

United States or by any person 

controlled or supervised by and acting 

as an instrumentality of the United 

States pursuant to authority granted by 

the Congress of the United States, 

(ii) Are issued by a bank, 

(iii) Are exempt from such registration 

requirement pursuant to a Federal 

statute other than the 1933 Act, or 

(iv) Are the subject of a distribution 

and are of a class which is required to 

be registered under section 12 of the 

1934 Act, and are issued by an issuer 

that has been subject to the reporting 

requirements of section 13 of the 1934 

Act for a period of at least ninety (90) 

days immediately preceding the sale of 

such Securities and that has filed all 

reports required to be filed thereunder 

with the SEC during the preceding 

twelve (12) months; or 

(b) Part of an issue that is an Eligible 

Rule 144A Offering. Where the Eligible 

Rule 144A Offering of the Securities is 

of equity Securities, the offering 

syndicate shall obtain a legal opinion 

regarding the adequacy of the disclosure 

in the offering memorandum; or 

(c) Municipal bonds taxable by the 

United States, including Build America 

Bonds created under section 54AA of 

the Code or successor thereto, under 

which the United States pays a subsidy 

to the state or local government issuer, 

but not including Build America Bonds 

which provide a tax credit to investors. 

2. The Securities to be purchased are 

purchased prior to the end of the first 

day on which any sales are made, 

pursuant to that offering, at a price that 

is not more than the price paid by each 

other purchaser of the Securities in that 

offering or in any concurrent offering of 

the Securities, except that: 

(a) If such Securities are offered for 

subscription upon exercise of rights, 

they may be purchased on or before the 

fourth day preceding the day on which 

the rights offering terminates; or 

(b) If such Securities are debt 

Securities, they may be purchased at a 

price that is not more than the price 

paid by each other purchaser of the 

Securities in that offering or in any 

concurrent offering of the Securities and 

may be purchased on a day subsequent 

to the end of the first day on which any 

sales are made, pursuant to that offering, 

provided that the interest rates, as of the 

date of such purchase, on comparable 

debt Securities offered to the public 

subsequent to the end of the first day on 

which any sales are made and prior to 

the purchase date are less than the 

interest rate of the debt Securities being 

purchased; and 

3. The Securities to be purchased are 

offered pursuant to an underwriting or 

selling agreement under which the 

members of the syndicate are committed 

to purchase all of the Securities being 

offered, except if: 

(a) Such Securities are purchased by 

others pursuant to a rights offering; or 

(b) Such Securities are offered 

pursuant to an over-allotment option. 

4. The issuer of the Securities to be 

purchased pursuant to this exemption 

must have been in continuous operation 

for not less than three (3) years, 

including the operation of any 

predecessors, unless the Securities to be 

purchased: 

(a) Are non-convertible debt 

Securities rated in one of the four 

highest rating categories by a Rating 

Organization; provided that none of the 

Rating Organizations rates such 

Securities in a category lower than the 

fourth highest rating category; or 

(b)(i) Are debt Securities issued or 

fully guaranteed by the United States or 

by any person controlled or supervised 

by and acting as an instrumentality of 

the United States pursuant to authority 

granted by the Congress of the United 

States; or 

(ii) Are municipal bonds taxable by 

the United States, including Build 

America Bonds created under section 

54AA of the Code or successor thereto, 

under which the United States pays a 

subsidy to the state or local government 

issuer, but not including Build America 

Bonds which provide a tax credit to 

investors; or 

(c) Are debt Securities which are fully 

guaranteed by a guarantor that has been 

in continuous operation for not less 

than three (3) years, including the 

operation of any predecessors, provided 

that such guarantor has issued other 

Securities registered under the 1933 

Act; or if such guarantor has issued 

other Securities which are exempt from 

such registration requirement, such 

guarantor has been in continuous 

operation for not less than three (3) 

years, including the operation of any 

predecessors, and such guarantor is: 

(i) A bank; 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2821 

(ii) An issuer of Securities which are 

exempt from such registration 

requirement, pursuant to a Federal 

statute other than the 1933 Act; or 

(iii) An issuer of Securities that are 

the subject of a distribution and are of 

a class which is required to be registered 

under section 12 of the 1934 Act, and 

are issued by an issuer that has been 

subject to the reporting requirements of 

section 13 of the 1934 Act for a period 

of at least ninety (90) days immediately 

preceding the sale of such Securities 

and that has filed all reports required to 

be filed hereunder with the SEC during 

the preceding twelve (12) months. 

5. The aggregate amount of Securities 

of an issue purchased, pursuant to this 

exemption, by the BlackRock Manager 

with: (i) The assets of all Client Plans; 

and (ii) the assets, calculated on a pro 

rata basis, of all Client Plans investing 

in Pooled Funds managed by the 

BlackRock Manager; and (iii) the assets 

of plans to which the BlackRock 

Manager renders investment advice 

within the meaning of 29 CFR 2510.3 

21(c) does not exceed: 

(a) Ten percent (10%) of the total 

amount of the Securities being offered 

in an issue, if such Securities are equity 

Securities; 

(b) Thirty five percent (35%) of the 

total amount of the Securities being 

offered in an issue, if such Securities are 

Asset-Backed Securities rated in one of 

the three highest rating categories by at 

least one of the Rating Organizations; 

provided that none of the Rating 

Organizations rates such Securities in a 

category lower than the third highest 

rating category; 

(c) Thirty five percent (35%) of the 

total amount of the Securities being 

offered in an issue, if such Securities are 

debt Securities rated in one of the four 

highest rating categories by at least one 

of the Rating Organizations; provided 

that none of the Rating Organizations 

rates such Securities in a category lower 

than the fourth highest rating category; 

or 

(d) Twenty five percent (25%) of the 

total amount of the Securities being 

offered in an issue, if such Securities are 

debt Securities (excluding Asset-Backed 

Securities) rated in the fifth or sixth 

highest rating categories by at least one 

of the Rating Organizations; provided 

that none of the Rating Organizations 

rates such Securities in a category lower 

than the sixth highest rating category; 

and 

(e) The assets of any single Client Plan 

(and the assets of any Client Plans 

investing in Pooled Funds) may not be 

used to purchase any Securities being 

offered, if such Securities are debt 

Securities rated lower than the sixth 

highest rating category by any of the 

Rating Organizations; 

(f) Notwithstanding the percentage of 

Securities of an issue permitted to be 

acquired, as set forth in Subsections 

A.5.(a)–(d) of this Section IV., the 

amount of Securities in any issue 

(whether equity or debt Securities or 

Asset-Backed Securities) purchased, 

pursuant to this exemption, by the 

BlackRock Manager on behalf of any 

single Client Plan, either individually or 

through investment, calculated on a pro 

rata basis, in a Pooled Fund may not 

exceed three percent (3%) of the total 

amount of such Securities being offered 

in such issue, provided that a SubAdvised Pooled Fund as a whole may 

purchase up to three percent (3%) of an 

issue; and 

(g) If purchased in an Eligible Rule 

144A Offering, the total amount of the 

Securities being offered for purposes of 

determining the percentages, described, 

above, in Section IV.A.5.(a)–(d) and (f), 

is the total of: 

(i) The principal amount of the 

offering of such class of Securities sold 

by underwriters or members of the 

selling syndicate to QIBs; plus 

(ii) The principal amount of the 

offering of such class of Securities in 

any concurrent public offering. 

6. The aggregate amount to be paid by 

any single Client Plan in purchasing any 

Securities which are the subject of this 

exemption, including any amounts paid 

by any Client Plan in purchasing such 

Securities through a Pooled Fund, 

calculated on a pro rata basis, does not 

exceed three percent (3%) of the fair 

market value of the net assets of such 

Client Plan, as of the last day of the most 

recent fiscal quarter of such Client Plan 

prior to such transaction, provided that 

a Sub-Advised Pooled Fund as a whole 

may pay up to one percent (1%) of fair 

market value of its net assets in 

purchasing such Securities. 

7. The Covered Transactions are not 

part of an agreement, arrangement, or 

understanding designed to benefit any 

BlackRock Entity or MPS. 

8. Each Client Plan shall have total 

net assets with a value of at least $50 

million (the $50 Million Net Asset 

Requirement). For purposes of engaging 

in Covered Transactions involving an 

Eligible Rule 144A Offering, each Client 

Plan shall have total net assets of at least 

$100 million in Securities of issuers that 

are not affiliated with such Client Plan 

(the $100 Million Net Asset 

Requirement). 

For purposes of a Pooled Fund 

engaging in an Affiliated Underwriting, 

each Client Plan in such Pooled Fund 

other than a Sub-Advised Pooled Fund 

shall have total net assets with a value 

of at least $50 million. Notwithstanding 

the foregoing, if each such Client Plan 

in a Pooled Fund other than a SubAdvised Pooled Fund does not have 

total net assets with a value of at least 

$50 million, the $50 Million Net Asset 

Requirement will be met, if fifty percent 

(50%) or more of the units of beneficial 

interest in such Pooled Fund are held by 

investors, each of which has total net 

assets with a value of at least $50 

million. 

For purposes of a Pooled Fund 

engaging in an Affiliated Underwriting 

involving an Eligible Rule 144A 

Offering, each Client Plan in such 

Pooled Fund other than a Sub-Advised 

Pooled Fund shall have total net assets 

of at least $100 million in Securities of 

issuers that are not affiliated with such 

Client Plan. Notwithstanding the 

foregoing, if each such Client Plan in 

such Pooled Fund other than a SubAdvised Pooled Fund does not have 

total net assets of at least $100 million 

in Securities of issuers that are not 

affiliated with such Client Plan, the 

$100 Million Net Asset Requirement 

will be met if fifty percent (50%) or 

more of the units of beneficial interest 

in such Pooled Fund are held by 

investors, each of which have total net 

assets of at least $100 million in 

Securities of issuers that are not 

affiliated with such investor, and the 

Pooled Fund itself qualifies as a QIB. 

For purposes of the net asset 

requirements described above in Section 

IV.A.8., where a group of Client Plans is 

maintained by a single employer or 

controlled group of employers, as 

defined in ERISA section 407(d)(7), the 

$50 Million Net Asset Requirement (or 

in the case of an Eligible Rule 144A 

Offering, the $100 Million Net Asset 

Requirement) may be met by aggregating 

the assets of such Client Plans, if the 

assets of such Client Plans are pooled 

for investment purposes in a single 

master trust. 

9. No more than twenty percent (20%) 

of the assets of a Pooled Fund, at the 

time of a Covered Transaction, are 

comprised of assets of In-House Plans 

for which the BlackRock Manager, or a 

BlackRock Entity exercises investment 

discretion. 

10. The BlackRock Manager must be 

a QPAM, and, in addition to satisfying 

the requirements for a QPAM under 

section VI(a) of PTE 84–14, the 

BlackRock Manager must also have total 

client assets under its management and 

control in excess of $5 billion, as of the 

last day of its most recent fiscal year and 

shareholders’ or partners’ equity in 

excess of $1 million. 

11. The BlackRock Manager 

maintains, or causes to be maintained, 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2822 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

for a period of six (6) years from the date 

of any Covered Transaction such 

records as are necessary to enable the 

persons described below in Section 

IV.A.12.(a) to determine whether the 

conditions of this exemption have been 

met, except that: 

(a) No party in interest with respect to 

a plan which engages in the Covered 

Transactions, other than the BlackRock 

Manager, shall be subject to a civil 

penalty under ERISA section 502(i) or 

the taxes imposed by Code sections 

4975(a) and (b), if such records are not 

maintained, or not available for 

examination as required below by 

Section IV.A.12.(a); and 

(b) A separate prohibited transaction 

shall not be considered to have occurred 

if, due to circumstances beyond the 

control of the BlackRock Manager, such 

records are lost or destroyed prior to the 

end of the six-year period. 

12. (a) Except as provided below, in 

Section IV.A.12.(b), and 

notwithstanding the provisions of 

subsections (a)(2) and (b) of ERISA 

section 504, the records referred to 

above, in Section IV.A.11. are 

unconditionally available at their 

customary location for examination 

during normal business hours by: 

(i) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the SEC; 

(ii) Any fiduciary of any Client Plan 

that engages in the Covered 

Transactions, or any duly authorized 

employee or representative of such 

fiduciary; 

(iii) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a Client Plan that engages in 

the Covered Transactions, or any 

authorized employee or representative 

of these entities; or 

(iv) Any participant or beneficiary of 

a Client Plan that engages in the 

Covered Transactions, or duly 

authorized employee or representative 

of such participant or beneficiary; 

(b) None of the persons described in 

Section IV.A.12.(a)(ii) through (iv) shall 

be authorized to examine trade secrets 

of the BlackRock Manager, or 

commercial or financial information 

which is privileged or confidential; and 

(c) Should the BlackRock Manager 

refuse to disclose information on the 

basis that such information is exempt 

from disclosure, pursuant to Section 

IV.A.12.(b), the BlackRock Manager 

shall, by the close of the thirtieth (30th) 

day following the request, provide a 

written notice advising that person of 

the reasons for the refusal and that the 

Department may request such 

information. 

B. Affiliated Servicing 

1. The Securities are CMBS that are 

rated in one of the three highest rating 

categories by a Rating Organization; 

provided that none of the Rating 

Organizations rates such Securities in a 

category lower than the third highest 

rating category. 

2. The purchase of the CMBS meets 

the conditions of an applicable 

Underwriter Exemption. 

3. (a) The aggregate amount of CMBS 

of an issue purchased, pursuant to this 

exemption, by the BlackRock Manager 

with: 

(i) The assets of all Client Plans; and 

(ii) The assets, calculated on a pro rata 

basis, of all Client Plans and In-House 

Plans investing in Pooled Funds 

managed by the BlackRock Manager; 

and 

(iii) The assets of plans to which the 

BlackRock Manager renders investment 

advice, within the meaning of 29 CFR 

2510.3–21(c), does not exceed thirty five 

percent (35%) of the total amount of the 

CMBS being offered in an issue. 

(b) Notwithstanding the percentage of 

CMBS of an issue permitted to be 

acquired, as set forth in Section 

IV.B.3.(a) of this exemption, the amount 

of CMBS in any issue purchased, 

pursuant to this exemption, by the 

BlackRock Manager on behalf of any 

single Client Plan, either individually or 

through investment, calculated on a pro 

rata basis, in a Pooled Fund may not 

exceed three percent (3%) of the total 

amount of such CMBS being offered in 

such issue, and; 

(c) If purchased in an Eligible Rule 

144A Offering, the total amount of the 

CMBS being offered for purposes of 

determining the percentages described 

in Section IV.B.3.(a), is the total of: 

(i) The principal amount of the 

offering of such class of CMBS sold by 

underwriters or members of the selling 

syndicate to QIBs; plus 

(ii) The principal amount of the 

offering of such class of CMBS in any 

concurrent public offering. 

4. The aggregate amount to be paid by 

any single Client Plan in purchasing any 

CMBS which are the subject of this 

exemption, including any amounts paid 

by any Client Plan in purchasing such 

CMBS through a Pooled Fund, 

calculated on a pro rata basis, does not 

exceed three percent (3%) of the fair 

market value of the net assets of such 

Client Plan, as of the last day of the most 

recent fiscal quarter of such Client Plan 

prior to such transaction. 

5. The Covered Transactions under 

this Section IV.B. are not part of an 

agreement, arrangement, or 

understanding designed to benefit any 

MPS. 

6. The requirements of Sections 

IV.A.8. through 12. are met. 

Section V: Correction Procedures 

A. 1. The ECO shall monitor Covered 

Transactions and shall determine 

whether a particular Covered 

Transaction constitutes a Violation. The 

ECO shall notify the IM within five (5) 

business days following the discovery of 

any Violation. 

2. The ECO shall make an initial 

determination as to how to correct a 

Violation and place the conclusion of 

such determination in writing, with 

such conclusion disclosed to the IM 

within five (5) business days of the 

placing of the conclusion of such 

determination in writing. Following the 

initial determination, the ECO must 

keep the IM apprised on a current basis 

of the process of correction and must 

consult with the IM regarding each 

Violation and the appropriate form of 

correction. The ECO shall report the 

correction of the Violation to the IM 

within five (5) business days following 

completion of the correction. For 

purposes of this Section V.A.2., 

‘‘correction’’ must be consistent with 

ERISA section 502(i) and Code section 

4975(f)(5). 

3. The IM shall determinate whether 

it agrees that the correction of a 

Violation by the ECO is adequate and 

shall place the conclusion of such 

determination in writing, and, if the IM 

does not agree with the adequacy of the 

correction, the IM shall have the 

authority to require additional 

corrective actions by BlackRock. 

4. A summary of Violations and 

corrections of Violations will be in the 

IM’s annual compliance report as 

described in Section II.E.12. 

B. Special Correction Procedure 

1. If a Covered Transaction which 

would otherwise constitute a Violation 

is corrected under this ‘‘Special 

Correction Procedure,’’ such Covered 

Transaction shall continue to be exempt 

under Section I of this exemption. 

2. (a) The Special Correction 

Procedure is a complete correction of 

the Violation no later than fourteen (14) 

business days following the date on 

which the ECO submits the quarterly 

report to the IM for the quarter in which 

the Covered Transaction first would 

become a non-exempt prohibited 

transaction by reason of constituting a 

Violation if not for this Section V.B. 

(b) Solely for purposes of the Special 

Correction Procedure, ‘‘correction’’ of a 

Covered Transaction which would 

otherwise be a Violation means either: 

(i) Restoring the Client Plan to the 

position it would have been in had the 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2823 

39PTE 2002–51, 67 FR 70623 (November 25, 

2002), as amended, 71 FR 20135 (April 19, 2006). 

40The definition of terms herein shall apply 

equally to the singular and plural forms of the terms 

defined. Section headings are for convenience only. 

conditions of the exemption been 

complied with; 

(ii) Correction consistent with ERISA 

section 502(i) and Code section 

4975(f)(5); or 

(iii) Correction consistent with the 

Voluntary Fiduciary Correction 

Program.39

(c) Other than with respect to the 

definition of ‘‘correction’’ specified 

above, when utilizing the Special 

Correction Procedure the ECO and the 

IM shall comply with Section V.A. 

Section VI: Definitions 40

A. ‘‘1933 Act’’ means the Securities 

Act of 1933, as amended. 

B. ‘‘1934 Act’’ or ‘‘Exchange Act’’ 

means the Securities Exchange Act of 

1934, as amended. 

C. ‘‘1940 Act’’ means the Investment 

Company Act of 1940, as amended. 

D. ‘‘$50 Million Net Asset 

Requirement’’ shall have the meaning 

set forth in Section IV.A.8. of this 

exemption. 

E. ‘‘$100 Million Net Asset 

Requirement’’ shall have the meaning 

set forth in Section IV.A.8. of this 

exemption. 

F. ‘‘ABCP Conduit’’ means a special 

purpose vehicle that acquires assets 

from one or more originators and issues 

commercial paper to provide funding to 

the originator(s). Such vehicles are 

typically administered by a bank, but is 

not required to be administered by a 

bank, which provides liquidity support 

(standing ready to purchase the 

conduit’s commercial paper if it cannot 

be rolled over) and/or credit support 

(committing to cover losses in the event 

of default). The program administrator 

also typically acts as placement agent 

for the commercial paper, sometimes 

together with one or more other 

placement agents. Commercial paper 

issued by such a conduit may be 

purchased directly from the program 

administrator or other placement agent, 

or traded on the secondary market with 

another broker-dealer making a market 

in the Securities. 

G. ‘‘Acquisition’’ means the 

acquisition by BlackRock of Barclays 

Global Investors UK Holdings, Ltd. and 

its subsidiaries on December 1, 2009. 

H. ‘‘Affiliate’’ of another person 

means: 

(1) Any person directly or indirectly, 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with such person; 

(2) Any officer, director, partner, 

employee, or relative (as defined in 

section 3(15) of ERISA) of such other 

person; and 

(3) Any corporation or partnership of 

which such other person is an officer, 

director, partner or employee. 

I. ‘‘Arranger’’ means a sophisticated 

financial institution, such as a 

commercial or investment bank, 

regularly engaged in structuring 

commercial loans. 

J. ‘‘Asset-Backed Securities’’ means 

Securities which are pass-through 

certificates or trust certificates 

characterized as equity pursuant to 29 

CFR 2510.3–101 that represent a 

beneficial ownership interest in the 

assets of an issuer which is a trust, with 

any such trust limited to (1) a single or 

multi-family residential or commercial 

mortgage investment trust, or (2) a 

motor vehicle receivable investment 

trust, and which entitles the holder to 

payments of principal, interest and/or 

other payments made with respect to 

the assets of the trust, the corpus or 

assets of which consist solely or 

primarily of secured obligations that 

bear interest or are purchased at a 

discount. For purposes of Section IV.A. 

of this exemption, excluding Section 

IV.A.5., Asset-Backed Securities are 

treated as debt Securities. 

K. ‘‘Assigned Loan’’ has the meaning 

set forth in Section III.W.1. of this 

exemption. 

L. ‘‘Authorizing fiduciary’’ has the 

meaning set forth in Section III.M.4(d)(i) 

of this exemption. 

M. ‘‘Automated Trading System’’ or 

‘‘ATS’’ means an electronic trading 

system, ECN or electronic clearing 

network or similar venue that functions 

in a manner intended to simulate a 

Securities exchange by electronically 

matching orders from multiple buyers 

and sellers, such as an ‘‘alternative 

trading system’’ within the meaning of 

the SEC’s Reg. ATS (17 CFR 242.300), as 

such definition may be amended from 

time to time, or an ‘‘automated 

quotation system’’ as described in 

Section 3(a)(51)(A)(ii) of the 1934 Act. 

N. ‘‘BlackRock’’ means BlackRock, 

Inc. and any successors thereof. 

O. ‘‘BlackRock Entity’’ means 

BlackRock and any entity directly or 

indirectly, through one or more 

intermediaries, under the control of 

BlackRock, and any other entity which 

subsequently becomes directly or 

indirectly, through one or more 

intermediaries, under the control of 

BlackRock, and successors of the 

foregoing. 

P. ‘‘BlackRock Manager’’ means any 

bank, investment advisor, investment 

manager directly or indirectly, through 

one or more intermediaries, under the 

control of BlackRock, and any other 

bank, investment advisor, or investment 

manager which subsequently becomes 

directly or indirectly, through one or 

more intermediaries, under the control 

of BlackRock, and successors of the 

foregoing, including but not limited to 

BlackRock Advisors, LLC, BlackRock 

Financial Management, Inc., BlackRock 

Capital Management, Inc., BlackRock 

Institutional Management Corporation, 

BlackRock International, Ltd., 

BlackRock Realty Advisors, Inc., 

BlackRock Investment Management, 

LLC, BlackRock Fund Advisors, and 

BlackRock Institutional Trust Company, 

N.A. and any of the investment advisors 

and investment manager it controls. 

Q. ‘‘Board’’ means the Board of 

Directors of BlackRock. 

R. ‘‘Borrower Rating’’ means, solely 

for purposes of Section III.W. of this 

exemption, a rating assigned by a Rating 

Organization to a borrowing entity 

reflecting such borrower’s overall 

capacity and willingness to meet its 

financial obligations. More specifically, 

a Borrower’s Rating generally refers to 

the borrower’s ability and willingness to 

meet senior, unsecured obligations. 

S. ‘‘Buy-Up’’ means an initial 

acquisition of Securities issued by 

BlackRock by a BlackRock Manager, if 

such acquisition exceeds one percent 

(1%) of the aggregate daily trading 

volume for such Security, for an Index 

Account or Fund, or a Model-Driven 

Account or Fund which is necessary to 

bring the fund’s or account’s holdings of 

such Securities either to its 

capitalization-weighted or other 

specified composition in the relevant 

Index, as determined by the 

organization maintaining such Index, or 

to its correct weighting as determined 

by the Model. 

T. ‘‘Client Plan’’ means any plan 

subject to ERISA section 406, Code 

section 4975 or FERSA section 8477(c) 

for which a BlackRock Manager is a 

fiduciary as described in ERISA section 

3(21), including, but not limited to, any 

Pooled Fund, MPS Plan, Index Account 

or Fund, Model-Driven Account or 

Fund, Other Account or Fund, or InHouse Plan, except where specified to 

the contrary. 

U. ‘‘CMBS’’ means an Asset-Backed 

Security with respect to which the 

assets or corpus of the issuer consist 

solely or primarily of obligations 

secured by commercial real property 

(including obligations secured by 

leasehold interests on commercial real 

property). 

V. ‘‘Code’’ means the Internal 

Revenue Code of 1986, as amended. 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2824 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

W. ‘‘Control’’ means the power to 

exercise a controlling influence over the 

management or policies of a person 

other than an individual. 

X. ‘‘Covered Transaction’’ means each 

transaction set forth in Section III by a 

BlackRock Manager for a Client Plan 

with, affecting or involving, directly or 

indirectly, an MPS and/or a BlackRock 

Entity. 

Y. ‘‘Creation Shares’’ means new 

shares in an ETF created by an exchange 

of a specified basket of Securities and/ 

or cash to the ETF for such new shares 

of the ETF. 

Z. ‘‘ECO Function’’ means the ECO 

and such other BlackRock Entity 

employees in legal and compliance roles 

working under the supervision of the 

ECO in connection with the Covered 

Transactions. The list of BlackRock 

Entity employees shall be shared with 

the IM from time to time, not less than 

quarterly, and such employees will be 

made available to discuss the relevant 

Covered Transactions with the IM to the 

extent the IM or the ECO deem it 

reasonably prudent. 

AA. ‘‘Electronic Communications 

Network’’ or ‘‘ECN’’ means an electronic 

system described in Rule 600(b)(23) of 

Regulation NMS under the 1934 Act. 

BB. ‘‘Eligible Rule 144A Offering’’ 

shall have the same meaning as defined 

in SEC Rule 10f–3(a)(4) (17 CFR 

270.10f–3(a)(4)) under the 1940 Act. 

CC. ‘‘Eligible Securities Depository’’ 

means an eligible securities depository 

as that term is defined under Rule 17f– 

7 of the 1940 Act, as such definition 

may be amended from time to time. 

DD. ‘‘EPP Correction’’ has the 

meaning set forth in Section II.C. of this 

exemption. 

EE. ‘‘ERISA’’ means the Employee 

Retirement Income Security Act of 1974, 

as amended. 

FF. ‘‘ETF’’ means an exchange-traded 

open-end investment company 

registered under the 1940 Act. 

GG. ‘‘Exemption Compliance Officer’’ 

or ‘‘ECO’’ means an officer of BlackRock 

or of a BlackRock Entity appointed by 

BlackRock or such BlackRock Entity, 

subject to the approval of the IM, who 

is responsible for compliance with the 

exemption. The ECO, unless otherwise 

stated in this exemption, will be 

responsible for: Monitoring all Covered 

Transactions and reviewing compliance 

with all of the conditions of the 

exemption applicable thereto; approving 

certain Covered Transactions in advance 

as required by the terms of the 

exemption; reviewing reports of 

Covered Transactions and the results of 

sampling of Covered Transactions; and 

determining when Covered Transactions 

transgress the EPPs and/or constitute a 

Violation. 

HH. ‘‘Exemption Polices and 

Procedures’’ or ‘‘EPPs’’ means the 

written policy adopted and 

implemented by BlackRock for 

BlackRock Entities that is reasonably 

designed to ensure compliance with the 

terms of the exemption. The EPPs must 

reflect the specific requirements of the 

exemption, but must also be designed to 

ensure that the decisions to enter into 

Covered Transactions on behalf of 

Client Plans with the MPSs are in the 

interests of Client Plans and their 

participants and beneficiaries, including 

by ensuring to the extent possible that 

the terms of each Covered Transaction 

are at least as favorable to the Client 

Plan as the terms generally available in 

comparable arm’s length transactions 

with unrelated parties. 

II. ‘‘Facility Rating’’ means, solely for 

purposes of Section III.W. of this 

exemption, a rating assigned by a Rating 

Organization to a specific loan, note or 

other financial obligation, a specific 

class of financial obligations, or a 

specific financial program within a 

borrower’s capital structure. The rating 

on a specific loan facility or other issue 

may reflect positive or negative 

adjustments relative to the borrower’s 

rating for (1) The presence of collateral, 

(2) explicit subordination, or (3) any 

other factors that affect the payment 

priority, expected recovery, or credit 

stability of the specific issue. 

JJ. ‘‘FarmerMac’’ means the Federal 

Agricultural Mortgage Corporation. 

KK. ‘‘FERSA’’ means the Federal 

Employees’ Retirement System Act of 

1986, as amended. 

LL. ‘‘FHLMC’’ means the Federal 

Home Loan Mortgage Corporation. 

MM. ‘‘Fixed Income Obligations’’ 

means: (1) Fixed income obligations 

including structured debt or other 

instruments characterized as debt 

pursuant to 29 CFR 2510.3–101, 

including, but not limited to, debt 

convertible into equity, certificates of 

deposit and loans (other than loans 

described in Section III.W. with respect 

to which an MPS is an Arranger) and (2) 

guaranteed governmental mortgage pool 

certificates within the meaning of 29 

CFR 2510.3–101(i). Asset-Backed 

Securities are not Fixed Income 

Obligations for purposes of this 

exemption. 

NN. ‘‘FNMA’’ means the Federal 

National Mortgage Association. 

OO. ‘‘Foreign Bank’’ means an 

institution that has substantially similar 

powers to a bank as defined in section 

202(a)(2) of the Investment Advisers 

Act, as amended, has as of the last day 

of its most recent fiscal year, equity 

capital which is the equivalent of no 

less than $200 million, and is subject to: 

(1) (a) Registration and regulation, as 

applicable, under the laws of the United 

Kingdom, or (b)(i) registration and 

regulation by a securities commission of 

a Province of Canada that is a member 

of the Canadian Securities 

Administration, and (ii) is subject to the 

oversight of a Canadian self-regulatory 

authority; or 

(2) Regulation by the relevant 

governmental banking agency(ies) of a 

country other than the United States 

and the regulation and oversight of 

these banking agencies were applicable 

to a bank that received: (a) An 

individual exemption, granted by the 

Department under section 408(a) of 

ERISA, involving the loan of Securities 

by a plan to a bank or (b) a final 

authorization by the Department to 

engage in an otherwise prohibited 

transaction pursuant to PTE 96–62, as 

amended, involving the loan of 

Securities by a plan to a bank. On the 

date this exemption becomes effective, 

the following countries shall qualify for 

purposes of this clause (2): United 

Kingdom, Canada, Germany, Japan, 

Australia, Switzerland, France, the 

Netherlands and Sweden. 

PP. ‘‘Foreign Broker-Dealer’’ means a 

broker-dealer that has, as of the last day 

of its most recent fiscal year, equity 

capital that is the equivalent of no less 

than $200 million and is: 

(1) Registered and regulated under the 

laws of the United Kingdom; 

(2) Registered and regulated by a 

securities commission of a Province of 

Canada that is a member of the 

Canadian Securities Administration, 

and is subject to the oversight of a 

Canadian self-regulatory authority; or 

(3) Registered and regulated under the 

relevant Securities laws of a 

governmental entity of a country other 

than the United States and such 

Securities laws and regulation were 

applicable to a broker-dealer that 

received: (a) An individual exemption, 

granted by the Department under 

section 408(a) of ERISA, involving the 

loan of Securities by a plan to a brokerdealer or (b) a final authorization by the 

Department to engage in an otherwise 

prohibited transaction pursuant to PTE 

96–62, as amended, involving the loan 

of Securities by a plan to a brokerdealer. On the date this exemption 

becomes effective, the following 

countries shall qualify for purposes of 

this clause (2): United Kingdom, 

Canada, Germany, Japan, Australia, 

Switzerland, France, the Netherlands 

and Sweden. 

QQ. ‘‘Foreign Collateral’’ means: 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2825 

(1) Securities issued by or guaranteed 

as to principal and interest by the 

following Multilateral Development 

Banks, the obligations of which are 

backed by the participating countries, 

including the United States: The 

International Bank for Reconstruction 

and Development, the Inter-American 

Development Bank, the Asian 

Development Bank, the African 

Development Bank, the European Bank 

for Reconstruction and Development 

and the International Finance 

Corporation; 

(2) Foreign sovereign debt Securities 

provided that at least one nationally 

recognized statistical rating organization 

has rated in one of its two highest 

categories either the issue, the issuer or 

guarantor; 

(3) The British pound, the Canadian 

dollar, the Swiss franc, the Japanese yen 

or the Euro; 

(4) Irrevocable letters of credit issued 

by a Foreign Bank, other than the 

borrower or an affiliate thereof, which 

has a counterparty rating of investment 

grade or better as determined by a 

nationally recognized statistical rating 

organization; or 

(5) Any type of collateral described in 

Rule 15c3–3 of the 1934 Act as amended 

from time to time provided that the 

lending fiduciary is a U.S. Bank or U.S. 

Broker-Dealer and such fiduciary 

indemnifies the plan with respect to the 

difference, if any, between the 

replacement cost of the borrowed 

Securities and the market value of the 

collateral on the date of a borrower 

default plus interest and any transaction 

costs which a plan may incur or suffer 

directly arising out of a borrower 

default. Notwithstanding the foregoing, 

collateral described in any of the 

categories enumerated in section V(e) of 

Prohibited Transaction Exemption 

2006–16 will be considered U.S. 

Collateral for purposes of the 

exemption. 

RR. ‘‘Foreign Exchange Transaction’’ 

means the exchange of the currency of 

one nation for the currency of another 

nation, or a contract for such an 

exchange. The term Foreign Exchange 

Transaction includes option contracts 

on foreign exchange transactions. 

Foreign Exchange Transactions may be 

either ‘‘spot’’, ‘‘forward’’ or ‘‘split’’ 

depending on the settlement date of the 

transaction. 

SS. ‘‘GNMA’’ means the Government 

National Mortgage Association. 

TT. ‘‘Independent Monitor’’ or ‘‘IM’’ 

means an individual or entity appointed 

by BlackRock to carry out certain 

functions set forth in Sections II, III and 

V of the exemption and who (or which), 

given the number of types of Covered 

Transactions and the number of actual 

individual Covered Transactions 

potentially covered by the exemption, 

must be knowledgeable and experienced 

with respect to each Covered 

Transaction and able to demonstrate 

sophistication in relevant markets, 

instruments and trading techniques 

relative thereto, and, in addition, must 

understand and accept in writing its 

duties and responsibilities under ERISA 

and the exemption with respect to the 

Client Plans. The IM must be 

independent of and unrelated to 

BlackRock and any MPS. For purposes 

of this exemption, such individual or 

entity will not be deemed to be 

independent of and unrelated to 

BlackRock and the MPSs if: 

(1) Such individual or entity directly 

or indirectly controls, is controlled by, 

or is under common control with 

BlackRock or an MPS; 

(2) Such individual or entity, or any 

employee thereof performing services in 

connection with this exemption, or an 

officer, director, partner, or highly 

compensated employee (as defined in 

Code section 4975(e)(2)(H)) thereof, is 

an officer, director, partner or highly 

compensated employee (as defined in 

Code section 4975(e)(2)(H)) of 

BlackRock or an MPS; or any member of 

the business segment performing 

services in connection with this 

exemption is a relative of an officer, 

director, partner or highly compensated 

employee (as defined in Code section 

4975(e)(2)(H)) of BlackRock or an MPS. 

However, if an individual is a director 

of the IM and an officer, director, 

partner or highly compensated 

employee (as defined in Code section 

4975(e)(2)(H)) of BlackRock or an MPS, 

and if he or she abstains from 

participation in any of the services 

performed by the IM under this 

exemption, then this Section VI.OO.(2) 

shall not apply. 

For purposes of this Subsection, the 

term officer means a president, any 

senior vice president in charge of a 

principal business unit, division or 

function (such as sales, administration, 

or finance), or any other officer who 

performs a policy-making function for 

the IM, BlackRock, or an MPS. 

(3) The IM directly or indirectly 

receives any compensation or other 

consideration for the IM’s personal 

account in connection with any Covered 

Transaction, except that the IM may 

receive compensation from BlackRock 

for acting as IM as contemplated herein 

if the amount or payment of such 

compensation is reasonable and not 

contingent upon or in any way affected 

by any decision made by the IM while 

acting as IM; or 

(4) The annual gross revenue received 

by the IM, during any year of its 

engagement, from the MPSs and 

BlackRock Entities for all services 

exceeds the greater of (a) five percent 

(5%) of the IM’s annual gross revenue 

from all sources for its prior tax year, or, 

(b) one percent (1%) of the annual gross 

revenue of the IM and its majority 

shareholder from all sources for their 

prior tax year. 

UU. ‘‘Index’’ means an equity or debt 

Securities or commodities index that 

represents the investment performance 

of a specific segment of the market for 

equity or debt Securities or commodities 

in the United States and/or an 

individual foreign country or any 

collection of foreign countries, but only 

if— 

(1) The organization creating and 

maintaining the index is: 

(a) Engaged in the business of 

providing financial information, 

evaluation, advice or Securities 

brokerage services to institutional 

clients, 

(b) A publisher of financial news or 

information, or 

(c) A public Securities exchange or 

association of Securities dealers; and 

(2) The index is created and 

maintained by an organization 

independent of all BlackRock Entities. 

For purposes of this definition of 

‘‘Index,’’ every BlackRock Entity is 

deemed to be independent of every 

MPS. 

(3) The index is a generally accepted 

standardized index of Securities or 

commodities which is not specifically 

tailored for the use of a BlackRock 

Manager(s). 

(4) If the organization creating, 

providing or maintaining the Index is an 

MPS: 

(a) Such Index must be widely-used 

in the market by independent 

institutional investors other than 

pursuant to an investment management 

or advisory relationship with a 

BlackRock Manager, and must be 

prepared or applied by such MPS in the 

same manner as for customers other 

than a BlackRock Manager(s); 

(b) BlackRock must certify to the ECO 

whether, in its reasonable judgment, 

such Index is widely-used in the 

market. In making this determination, 

BlackRock shall take into consideration 

factors such as (i) publication of 

summary Index information by the MPS 

providing the Index, Bloomberg, 

Reuters, or a similar institution involved 

in the dissemination of financial 

information, and (ii) delivery of Index 

information including but not limited to 

Index component information by such 

MPS to clients or other subscribers 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2826 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

including by electronic means including 

via the internet; 

(c) BlackRock must notify the ECO if 

it becomes aware that: (i) Such Index is 

operated other than in accordance with 

objective rules, in the ordinary course of 

business, (ii) manipulation of any such 

Index has occurred for the purpose of 

benefiting BlackRock, or (iii) in the 

event that any rule change occurred in 

connection with the rules underlying 

such Index, such rule change was made 

by the MPS for the purpose of benefiting 

BlackRock; provided, however, this 

Subsection (c)(iii) expressly excludes 

instances where the rule changes were 

made in response to requests from 

clients/prospective clients of BlackRock 

even if BlackRock is ultimately hired to 

manage such a portfolio (e.g., if plan 

sponsor X requests a ‘‘Global ex-Sudan 

Fixed Income Index’’, an MPS decides 

to sponsor such index and plan sponsor 

X approaches BlackRock or otherwise 

issues a ‘‘Request for Proposal’’ for 

investment managers who could manage 

an index portfolio benchmarked to the 

Global ex-Sudan Fixed Income Index). 

(d) BlackRock must certify to the ECO 

annually that it is not aware of the 

occurrence of any of the events 

described in Section VI.PP.(4)(c), and if 

BlackRock cannot so certify, or if 

BlackRock provides the ECO with the 

notice described Section VI.PP.(4)(c), 

the ECO shall notify the IM, and the IM 

must take appropriate remedial action 

which may include, but need not be 

limited to, instructions for relevant 

BlackRock Managers to cease using such 

Index. 

VV. ‘‘Index Account or Fund’’ means 

any investment fund, account or 

portfolio sponsored, maintained, 

trusteed, or managed by a BlackRock 

Manager or a BlackRock Entity, in 

which one or more Client Plans invest, 

and— 

(1) Which is designed to track the rate 

of return, risk profile and other 

characteristics of an Index by either (i) 

replicating the same combination of 

Securities or commodities which 

compose such Index or (ii) sampling the 

Securities or commodities which 

compose such Index based on objective 

criteria and data; 

(2) For which the BlackRock Manager 

does not use its discretion, or data 

within its control, to affect the identity 

or amount of Securities or commodities 

to be purchased or sold; 

(3) That contains ‘‘plan assets’’ subject 

to either ERISA section 406, Code 

section 4975 or FERSA section 8477(c); 

and, 

(4) That involves no agreement, 

arrangement, or understanding 

regarding the design or operation of the 

Index Account or Fund which is 

intended to benefit a BlackRock Entity 

or an MPS, or any party in which a 

BlackRock Entity or an MPS may have 

an interest. 

For purposes of this definition of 

‘‘Index Account or Fund’’, every 

BlackRock Entity is deemed to be 

independent of each MPS. 

WW. ‘‘In-House Plan’’ means an 

employee benefit plan that is subject to 

ERISA section 406 and/or Code section 

4975, and that is sponsored by a 

BlackRock Entity for its employees. 

XX. ‘‘Interbank Rate’’ means the 

interbank bid and asked rate for foreign 

exchange transactions of comparable 

size and maturity at the time of the 

transaction as quoted on a nationally 

recognized service for facilitating 

foreign currency trades between large 

commercial banks and Securities 

dealers. 

YY. ‘‘Know’’ means to have actual 

knowledge. BlackRock Managers will be 

deemed to have actual knowledge of 

information set forth in a written 

agreement or offering document as of 

the date the BlackRock Manager 

receives such agreement or document. 

ZZ. ‘‘Lead Arranger’’ means, with 

respect to any Loan Offering involving 

more than one Arranger, the Arranger 

designated as such by all of such 

Arrangers. 

AAA. ‘‘Loan’’ means, solely for 

purposes of Section III.W. of this 

exemption, a delivery by a lender and 

receipt by a commercial borrower of a 

sum of money to fund current and 

ongoing operations or a specific 

transaction upon agreement that such 

borrower is to repay it upon agreed 

terms. For the avoidance of doubt, this 

term does not include any Fixed Income 

Obligations which are covered 

separately under Section IV.A. of this 

exemption. 

BBB. ‘‘Loan Offering’’ means, with 

respect to the aggregate principal 

amount of any Loan extended to a 

commercial borrower in any single 

transaction, the process of structuring, 

marketing and offering to banks, 

insurance companies, investment funds 

and other institutional investors the 

opportunity to purchase interests in 

such Loan. 

CCC. ‘‘Model’’ means a computer 

model that is based on prescribed 

objective criteria using independent 

data not within the control of a 

BlackRock Entity to transform an Index. 

DDD. ‘‘Model-Driven Account or 

Fund’’ means any investment fund, 

account or portfolio sponsored, 

maintained, trusteed, or managed by a 

BlackRock Manager or a BlackRock 

Entity in which one or more Client 

Plans invest, and— 

(1) Which is composed of Securities 

or commodities the identity of which 

and the amount of which are selected by 

a Model; 

(2) That contains ‘‘plan assets’’ subject 

to either ERISA section 406, Code 

section 4975 or FERSA section 8477(c); 

and 

(3) That involves no agreement, 

arrangement, or understanding 

regarding the design or operation of the 

Model-Driven Account or Fund or the 

utilization of any specific objective 

criteria which is intended to benefit a 

BlackRock Entity or an MPS, or any 

party in which a BlackRock Entity or an 

MPS may have an interest. 

For purposes of this definition of 

‘‘Model-Driven Account or Fund,’’ every 

BlackRock Entity is deemed to be 

independent of each MPS. 

EEE. ‘‘MPS’’ or ‘‘Minority Passive 

Shareholder’’ means any of (1) Barclays 

PLC, (2) The PNC Financial Services 

Group, Inc., or (3) each entity directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by or under common control with one 

or more of Barclays PLC (Barclays 

MPSs) or The PNC Financial Services 

Group, Inc., (PNC MPSs) (each of the 

PNC MPSs and the Barclays MPSs, an 

MPS Group) but excluding any and all 

BlackRock Entities. 

FFF. ‘‘MPS Group’’ shall have the 

meaning set forth in the definition of 

MPS. 

GGG. ‘‘MPS Plans’’ means an 

employee benefit plan(s) that is subject 

to ERISA section 406 and/or Code 

section 4975, and that is sponsored by 

an MPS for its employees. 

HHH. ‘‘Other Account or Fund’’ 

means any investment fund, account or 

portfolio sponsored, maintained, 

trusteed, or managed by a BlackRock 

Manager or a BlackRock Entity in which 

one or more Client Plans invest, and— 

(1) Which is not an Index Account or 

Fund or a Model-Driven Account or 

Fund; and 

(2) That contains ‘‘plan assets’’ subject 

to either ERISA section 406, Code 

section 4975 or FERSA section 8477(c). 

III. ‘‘Pooled Fund’’ means a common 

or collective trust fund or other pooled 

investment fund: 

(1) In which Client Plan(s) invest; 

(2) For which a BlackRock Manager 

exercises discretionary authority or 

discretionary control respecting the 

management or disposition of the assets 

of such fund(s); and 

(3) That contains ‘‘plan assets’’ subject 

to either ERISA section 406, Code 

section 4975 or FERSA section 8477(c). 

mstockstill on DSK4VPTVN1PROD with NOTICES2

Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 2827 

Solely for purposes of Section IV of 

this exemption, ‘‘Pooled Fund(s)’’ shall 

only include funds or trusts which 

otherwise meet this definition but 

which also are either (i) maintained by 

a BlackRock Entity or (ii) maintained by 

a person which is not a BlackRock 

Entity but is sub-advised by a BlackRock 

Manager, provided that with respect to 

a Pooled Fund described in (ii), (A) the 

fund or trust is either a bank-maintained 

common or collective trust fund or an 

insurance company pooled separate 

account that holds assets of at least $250 

million, (B) the bank or insurance 

company sponsoring the Pooled Fund 

has total client assets under its 

management or control in excess of $5 

billion as of the last day of its most 

recent fiscal year, and shareholders’ or 

partners’ equity in excess of $1 million, 

and (C) the decision to invest the Client 

Plan into the bank-maintained common 

or collective trust or insurance company 

pooled separate account and to maintain 

such investment is made by a Client 

Plan fiduciary which is not a BlackRock 

Entity. Such sub-advised Pooled Funds 

are sometimes referred to herein as 

‘‘Sub-Advised Pooled Funds’’. 

JJJ. ‘‘Qualified Institutional Buyer’’ or 

‘‘QIB’’ shall have the same meaning as 

defined in SEC Rule 144A (17 CFR 

230.144A(a)(1)) under the 1933 Act. 

KKK. ‘‘QPAM Exemption’’ or ‘‘PTE 

84–14’’ means Prohibited Transaction 

Exemption 84–14, as amended. 

LLL. ‘‘Qualified Professional Asset 

Manager’’ or ‘‘QPAM’’ shall have the 

meaning set forth in Section VI(a) of the 

QPAM Exemption. 

MMM. ‘‘Rating Organizations’’ means 

Standard & Poor’s Rating Services, 

Moody’s Investors Service, Inc., Fitch 

Ratings Inc., DBRS Limited, DBRS, Inc., 

or any similar agency subsequently 

recognized by the Department as a 

Rating Organization or any successors 

thereto. 

NNN. ‘‘Recognized Securities 

Exchange’’ means a U.S. securities 

exchange that is registered as a 

‘‘national securities exchange’’ under 

section 6 of the 1934 Act, or a 

designated offshore securities market, as 

defined in Regulation S of the SEC (17 

CFR 230.902(b)), as such definition may 

be amended from time to time, which 

performs with respect to Securities the 

functions commonly performed by a 

stock exchange within the meaning of 

definitions under the applicable 

Securities laws (e.g., 17 CFR 240.3b–16). 

OOO. ‘‘Registered Investment 

Advisor’’ means an investment advisor 

registered under the Investment 

Advisors Act of 1940, as amended, that 

has total client assets under its 

management or control in excess of $5 

billion as of the last day of its most 

recent fiscal year and shareholders’ or 

partners’ equity in excess of $1 million, 

as shown in the most recent balance 

sheet prepared within the two years 

immediately preceding a Covered 

Transaction, in accordance with 

generally accepted accounting 

principles. 

PPP. ‘‘SEC’’ means the United States 

Securities and Exchange Commission. 

QQQ. ‘‘Securities’’ shall have the 

same meaning as defined in section 

2(a)(36) of the 1940 Act. For purposes of 

Section IV of this exemption, except as 

where specifically identified, AssetBacked Securities are treated as debt 

Securities. 

RRR. ‘‘Three Quote Process’’ means 

three bids or offers (either of which 

being sometimes referred to as quotes) 

are received by a trader for a BlackRock 

Manager each of which such quotes 

such trader reasonably believes is an 

indication that the dealer presenting the 

bid or offer is willing to transact the 

trade at the stipulated volume under 

discussion, and all material terms 

(including volume) under discussion are 

materially similar with respect to each 

other such quote. In selecting the best of 

three such quotes, a BlackRock Manager 

shall maintain books and records for the 

three firm bids/offers in a convention 

that it reasonably believes is customary 

for the specific asset class (such as 

‘‘price’’ quotes, ‘‘yield’’ quotes or 

‘‘spread’’ quotes). For example, 

corporate bonds are often quoted on a 

spread basis and dealers customarily 

quote the spread above a certain 

benchmark bond’s yield (e.g., for a given 

size and direction such as a BlackRock 

trader may ask for quotes to sell $1 

million of a particular bond, dealer 1 

may quote 50 bps above the yield of the 

10 year treasury bond, dealer 2 might 

quote 52 bps above the yield of the 10 

year treasury bond and dealer 3 might 

quote 53 bps above the yield of the 10 

year treasury bond). If only two firm 

bids/offers can be obtained, the trade 

requires prior approval by the ECO and 

the ECO must inquire as to why three 

firm bids/offers could not be obtained. 

If in the case of a sale or purchase a 

trader for a BlackRock Manager 

reasonably believes it would be 

injurious to the Client Plan to specify 

the size of the intended trade to certain 

bidders, a bid on a portion of the 

intended trade may be treated as a firm 

bid if the trader documents (i) why the 

bid price is a realistic indication of the 

economic terms for the actual amount 

being traded despite the difference in 

the size of the actual trade and (ii) why 

it would be harmful to the Client Plan 

to solicit multiple bids on the actual 

amount of the trade. If a trader for a 

BlackRock Manager solicits bids from 

three or more dealers on a sale or 

purchase of a certain volume of 

Securities, and receives back three or 

more bids, but at least one bid is not for 

the full amount of the intended sale, if 

the price offered by the partial bidder(s) 

is less than the price offered by the full 

bidder(s), the trader may assume a full 

bid by the partial bidder(s) would not be 

the best bid, and the trader can 

consummate the trade, in the case of at 

least two full bids, with the dealer 

making the better of the full bids, or in 

the case of only one full bid, with the 

dealer making that full bid. 

SSS. ‘‘Underwriter Exemption(s)’’ 

means a group of individual exemptions 

granted by the Department to provide 

relief for the origination and operation 

of certain asset pool investment trusts 

and the acquisition, holding and 

disposition by plans of Asset-Backed 

Securities representing undivided 

interests in those trusts. Such group of 

individual exemptions was collectively 

amended by Prohibited Transaction 

Exemption 2009–31, 74 FR 59001 (Nov. 

16, 2009). 

TTT. ‘‘U.S. Bank’’ means a bank as 

defined in section 202(a)(2) of the 

Investment Advisers Act, as amended. 

UUU. ‘‘U.S. Broker-Dealer’’ means a 

broker-dealer registered under the 1934 

Act or exempted from registration under 

section 15(a)(1) of the 1934 Act as a 

dealer in exempted government 

Securities (as defined in section 3(a)(12) 

of the 1934 Act). 

VVV. ‘‘U.S. Collateral’’ means: 

(1) U.S. currency; 

(2) ‘‘Government securities’’ as 

defined in section 3(a)(42)(A) and (B) of 

the 1934 Act; 

(3) ‘‘Government securities’’ as 

defined in section 3(a)(42)(C) of the 

1934 Act issued or guaranteed as to 

principal or interest by the following 

corporations: The Federal Home Loan 

Mortgage Corporation, the Federal 

National Mortgage Association, the 

Student Loan Marketing Association 

and the Financing Corporation; 

(4) Mortgage-backed Securities 

meeting the definition of a ‘‘mortgage 

related security’’ set forth in section 

3(a)(41) of the 1934 Act; 

(5) Negotiable certificates of deposit 

and bankers acceptances issued by a 

‘‘bank’’ as that term is defined in section 

3(a)(6) of the 1934 Act, and which are 

payable in the United States and 

deemed to have a ‘‘ready market’’ as that 

term is defined in 17 CFR 240.15c3–1; 

or 

(6) Irrevocable letters of credit issued 

by a U.S. Bank other than the borrower 

mstockstill on DSK4VPTVN1PROD with NOTICES2

2828 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Notices 

or an affiliate thereof, or any 

combination, thereof. 

WWW. ‘‘Violation’’ means a Covered 

Transaction which is a prohibited 

transaction under ERISA sections 406 or 

407, Code section 4975, or FERSA 

section 8477(c) and which is not exempt 

by reason of a failure to comply with 

this exemption or another 

administrative or statutory exemption. 

To the extent that the non-exempt 

prohibited transaction relates to an act 

or omission that is separate and distinct 

from a prior otherwise exempt 

transaction that may relate to the same 

asset (e.g., a conversion of a debt 

instrument into an equity instrument or 

a creditor’s committee for a debt 

instrument), the Violation occurs only at 

the current point in time and no 

Violation shall be deemed to occur for 

the earlier transaction relating to the 

same asset (e.g., the initial purchase of 

the asset) that was otherwise in 

compliance with ERISA, the Code or 

FERSA. 

Effective Date: This exemption is 

effective as of March 31, 2012, except 

that, with respect to Covered 

Transactions described in Section III.K. 

and S., the exemption is effective as of 

October 1, 2011. 

Signed at Washington, DC, this 12th day of 

January, 2012. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2012–788 Filed 1–18–12; 8:45 am] 

BILLING CODE 4510–29–P 

mstockstill on DSK4VPTVN1PROD with NOTICES2