# Grant of Individual Exemption Involving BlackRock, Inc. and Its Investment Advisory, Investment Management and Broker-Dealer Affiliates and Their Successors (Applicants) Located in New York, NY > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-20344 ## Record - **Collection:** Federal Register - **Document type:** Notice - **Published:** August 15, 2011 - **Citation:** 76 FR 50632 ## Text DEPARTMENT OF LABOR Employee Benefits Security Administration [Prohibited Transaction Exemption 2011-17; Exemption Application No. D-11588] Grant of Individual Exemption Involving 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: Grant of individual exemption. SUMMARY: This document contains an 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 transactions involve BlackRock, Inc. and its investment advisory, investment management and broker-dealer affiliates and their successors. The individual exemption affects 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: This exemption is effective as of December 1, 2009. SUPPLEMENTARY INFORMATION: On March 18, 2011, the Department published a notice of proposed individual exemption from the restrictions of ERISA sections 406(a)(1) and 406(b), FERSA sections 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). 1 The Proposed Exemption was 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 final individual exemption is being issued solely by the Department. 1 76 FR 15058 (March 18, 2011). Background 2 2 Capitalized terms used but not defined in the Background Section have the meaning set forth in Section VI of the exemption. BlackRock, Inc. (BlackRock), based in New York, NY, is the largest publicly-traded investment management firm in the United States. 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, 2010, BlackRock, through its advisor subsidiaries, had approximately $3.446 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. 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. consist 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 Barclays PLC. BTC, as of the date of the Acquisition, is now a wholly-owned subsidiary of BlackRock. Immediately following the Acquisition, (1) Barclays PLC (Barclays), (2) Bank of America Corporation (BOA), and (3) The PNC Financial Services Group, Inc. (PNC) (each of these, a Minority Passive Shareholder, or MPS) controlled the following interests in BlackRock: (a) BOA. BOA owned approximately 3.7% of BlackRock voting common stock and approximately 34.2% of BlackRock equity by value. (b) PNC. PNC owned approximately 35.2% of BlackRock voting common stock and approximately 24.5% of BlackRock equity by value. (c) Barclays. Barclays owned approximately 4.8% of BlackRock voting common stock and approximately 19.8% of BlackRock equity by value. 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. All BlackRock stock beneficially owned 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 Stockholders Agreement, each MPS has or had 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 agrees to use best efforts to cause the election of such nominees to the Board. As a result of the Secondary Offering, BOA fell below a ten percent (10%) equity interest, and, assuming that it remains below this level, it lost the right to identify to BlackRock one representative director on or about February 13, 2011. At least ten (10) of the current eighteen (18) BlackRock directors must be “independent” (within the meaning of New York Stock Exchange rules) of the MPSs and BlackRock management and each MPS must vote its BlackRock voting common stock in accordance with the recommendations of the Board. In addition, the Audit Committee, the Management Development and Compensation Committee, and the Nominating and Governance Committee of the Board consist entirely of independent directors, and a majority of each other Board committee (if any), with the exception of the Executive Committee, 3 must consist of independent directors. As of the date hereof, none of the directors representing an MPS serve on any Board committee, except that one director representing PNC serves on the Executive Committee. Further, no MPS representative directors sit on any of the Board of Directors of BlackRock Managers. While each MPS monitors its investment in BlackRock through its Board representatives and each MPS has certain limited governance rights, no MPS has or will have any involvement in the day-to-day management of BlackRock, any BlackRock Manager or any other BlackRock Entity. In addition, the respective Stockholder Agreements impose standstill agreements, transfer restrictions and arm's length transaction restrictions on the ability of an MPS to control BlackRock or any BlackRock Manager. 3 While the Executive Committee may exercise the powers of the Board during intervals between Board meetings or at times when the Board is unable to convene, the Executive Committee has not met for over five (5) years. A BlackRock Manager is a fiduciary with investment discretion with respect to the applicable Client Plan. 4 As a result, the BlackRock Manager decides whether to enter into a Covered Transaction 5 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). Therefore, the Applicants sought relief from the prohibitions of ERISA section 406(b). 4 “Client Plan” means any plan subject to section 406 of the Act, Code section 4975 or FERSA section 8477(c) for which a BlackRock Manager is a fiduciary as described in section 3(21) of ERISA, including, but not limited to, any Pooled Fund, MPS Plan, Index Account or Fund, Model-Driven Account or Fund, Other Account or Fund, or In-House Plan, except where specified to the contrary. 5 “Covered Transaction” means each transaction set forth in Section III of the exemption by a BlackRock Manager for a Client Plan with or involving, directly or indirectly, an MPS and/or a BlackRock Entity. Further, if BlackRock and one or more MPS are deemed affiliates, each MPS and its affiliates will very likely be parties in interest within the meaning of ERISA section 3(14) with respect to many Client Plans. Therefore, the Applicants also sought relief from the prohibitions of ERISA section 406(a). Such ERISA section 406(a) and section 406(b) relief was sought solely with respect to certain enumerated types of Covered Transactions entered into after the Acquisition and, in certain cases, before the Acquisition and that have continued after the Acquisition. The structure of the 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 84-14, as amended (sometimes referred to as the QPAM Exemption) 6 ; (b) restrictions on the compensation of BlackRock Managers and their employees; (c) the establishment and implementation of certain policies and procedures; (d) the appointment by BlackRock of an Exemption Compliance Officer; and (e) the retention by BlackRock of an Independent Monitor. 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 BlackRock 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. 6 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug. 23, 2005), and as amended, 75 FR 38837 (July 6, 2010). 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 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. Compliance with the exemption requires that all Violations must be completely corrected. No non-exempt prohibited transaction will be deemed to occur, however, if the Violation is completely corrected (within the meaning of the exemption) no later than fourteen (14) business days following the date on which the Exemption Compliance Officer submits the quarterly report to the Independent Monitor for the quarter in which the Covered Transaction first became a non-exempt prohibited transaction. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed exemption on or before May 2, 2011. During the comment period, the Department received one (1) Comment letter on the proposed exemption. The sole comment letter was filed by BlackRock. The Department received no hearing requests during the comment period. The following is a discussion of BlackRock's comments and the Department's responses. Section III.D. of the Proposed Exemption. Section III.D. of the Proposed Exemption applies to certain transactions in the secondary market by BlackRock Managers of Fixed Income Obligations, including Fixed Income Obligations issued by or traded with an MPS. Specifically, BlackRock comments on the language in Section III.D.2(a) of the Proposed Exemption that states that “[t]he purchase of the Fixed Income Obligation issued by an MPS is not made from the issuing MPS[.]” BlackRock believes that so long as the purchase of an MPS Fixed Income Obligation is the result of the Three Quote Process, as required by the Proposed Exemption, there is no reason why the purchase from the issuing MPS should not be permitted. BlackRock points out that, for ERISA purposes, the purchase of a Fixed Income Obligation issued by an MPS represents two separate transactions: (1) The purchase of a debt security and (2) an extension of credit, an ongoing relationship with an MPS, which could present the potential for an ERISA conflict of interest. The Proposed Exemption requires that all purchases (or sales) in the secondary market of Fixed Income Obligations issued by or traded with an MPS be conducted through the Three Quote Process in order to ensure that the purchase is executed on the best available economic terms. BlackRock believes that whether or not an MPS Fixed Income Obligation is purchased from the issuing MPS or some other dealer is irrelevant, and the potential for later conflict is unrelated to a purchase pursuant to the Three Quote Process. BlackRock further notes that other safeguards contained in the proposed exemption, particularly the existence of and involvement of the Exemption Compliance Officer and the Independent Monitor, serve to adequately mitigate the risk that an unaddressed conflict will arise during the holding of an MPS Fixed Income Obligation, whether acquired from the issuing MPS or another dealer. In order to address this issue, BlackRock requests that Section III.D.2(a) of the Proposed Exemption be deleted in its entirety. The Department agrees with the comment, and it has deleted Section III.D.2(a) from the exemption's operative language. Section III.F. of the Proposed Exemption. Section III.F. of the Proposed Exemption applies to the 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. BlackRock states that the language of Section III.F. of the Proposed Exemption would not provide relief in circumstances where an MPS was acting as both an underwriter and a servicer of a CMBS Asset-Backed Security. BlackRock believes such a result was not intended by the Department. 7 BlackRock comments that both the Affiliated Underwriting provisions of the Proposed Exemption (Section IV.A.) and the Affiliated Servicing provisions of the Proposed Exemption (Section IV.B.) should apply to the transaction. Specifically, in order to address this issue, BlackRock believes that: (1) In the first paragraph of Section III.F. of the Proposed Exemption, clause (iii) should be deleted in its entirety and the following should be substituted “(iii) solely in the case of Asset-Backed Securities which are CMBS, serves as servicer of a trust that issued such CMBS, provided that:”, and (2) in Section III.F.(1), “and” before “(b)” should be replaced with a comma, and the following should be inserted before the semi-colon: “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.F.1(a), and Section IV.B. must be satisfied.” 7 See Preamble to the Proposed Exemption (76 FR at 15067). The Department agrees with the comment, and it has modified Section III.F. of the exemption's operative language accordingly. Section III.M. of the Proposed Exemption. Section III.M.1. of the Proposed Exemption applies to securities lending transactions involving Client Plan assets by BlackRock Managers to an MPS which is a U.S. Broker-Dealer, a U.S. Bank, a Foreign Broker-Dealer or a Foreign Bank. Conditions applicable to these transactions are set forth in Sections III.M.2. and III.M.3. of the Proposed Exemption. BlackRock points out that Sections III.M.2(d), III.M.3(b) and III.M.3(c) of the Proposed Exemption provide an alternative means of compliance with certain collateral requirements if the lending agent is a U.S. Broker-Dealer or U.S. Bank and agrees to provide an indemnity. BlackRock does not believe, however, that there are any significant policy issues presented with respect to these conditions in circumstances where a BlackRock Manager is acting as a lending agent through one of its U.S. registered investment advisor affiliates and not through a U.S. Bank or U.S. Broker-Dealer. BlackRock argues that, as the largest publicly-traded investment management firm in the world, there should be no concern that an indemnity delivered by a BlackRock Manager would not be honored. 8 8 BlackRock also points out that certain cross-references were inadvertently omitted in Section III.M.3. of the Proposed Exemption. The Department agrees, and the language has been modified to apply the proper cross references to Sections VI.KK. and VI.JJ. of the exemption. In order to address these issues, BlackRock believes that Section III.M. of the Proposed Exemption should be revised to include the phrase “, an investment advisor registered under the Investment Advisors Act of 1940, as amended” after the words “U.S. Bank” in the first sentence of Sections III.M.2(d), III.M.3(b)(ii) and III.M.3(c) of the Proposed Exemption. The Department agrees that under the unique factual scenario presented by this exemption, adding U.S. registered investment advisors does not present any significant policy concerns, provided that the registered investment advisor is required to meet additional requirements regarding assets under management and shareholders' or partners' equity. Such additional requirements will ensure that the applicable BlackRock Manager can meet the terms of an indemnity agreement. As a result, the Department has modified Section III.M. of the exemption's operative language to include the term “Registered Investment Advisor” after the words “U.S. Bank” in the first sentence of Sections III.M.2(d), III.M.3(b)(ii) and III.M.3(c) of the Proposed Exemption. Further, the Department has inserted a definition in Section VI.GGG. of the exemption that reads as follows: “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.” Section III.P. of the Proposed Exemption. Section III.P. of the Proposed Exemption applies to agency execution of equity and fixed income securities trades and related clearing as described in Prohibited Transaction Exemption 86-128, as amended 9 (PTE 86-128), including agency cross trades, where the broker is an MPS. Section III.P.2. of the Proposed Exemption requires that Covered Transactions described in Section III.P. of the Proposed Exemption must satisfy the conditions of Section III(e), Section III(f), Section III(g)(2) and Section III(h) of PTE 86-128, which Sections require, among other things, the delivery of certain information to a Client Plan's “authorizing fiduciary.” BlackRock is concerned that this provision is inconsistent with Section III.P.3. of the Proposed Exemption which requires that the ECO Function receive the information required to be provided to the “authorizing fiduciary” under those sections of PTE 86-128. Applicants believe that it was the Department's intention that the conditions of Section III of PTE 86-128 that relate to actions required of, or information to be provided to, the Client Plan's authorizing fiduciary, may be satisfied if required of, or provided to, the ECO Function, including the authority to terminate the MPS broker-dealer. 10 9 51 FR 41686 (Nov. 18, 1986), as amended, 67 FR 64137 (Oct. 17, 2002 ). 10 The Applicants believe such intent is set forth in the Summary of Facts and Representations published with the Proposed Exemption, 76 FR at 15073. In order to address this ambiguity, BlackRock proposes that Section III.P.3. of the Proposed Exemption be deleted and Section III.P.2. of the Proposed Exemption be amended to read as follows: “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.P.2. to provide as follows: * * *” The Department agrees that its intent was to permit the ECO Function to satisfy certain provisions that otherwise might be applicable to a Client Plan's “authorizing fiduciary” under PTE 86-128. While the Department does not believe that the language of the Proposed Exemption is unclear, in order to ensure clarity, it has modified Section III.P. of the exemption's operative language as requested by BlackRock. Section III.U. of the Proposed Exemption. Section III.U. of the Proposed Exemption applies to 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. BlackRock points out that Section III.U. of the Proposed Exemption does not specifically apply to circumstances under which commercial paper issued by an ABCP Conduit in which an MPS is a placement agent and/or has one or more continuing roles is purchased from or sold to an MPS by a BlackRock Manager. BlackRock believes that this omission was unintentional and is inconsistent with the intent and subsequent provisions of Section III.U. of the Proposed Exemption. In order to address this issue, BlackRock requests that the first paragraph of Section III.U. of the Proposed Exemption should be revised to read: “Relief under Section I of this exemption is available for the purchase or 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: * * *” Further, Section III.U.4. of the Proposed Exemption requires that purchases and sales of ABCP Conduit commercial paper must be conducted pursuant to the Three Quote Process even in situations where such purchase or sale is with a third party in the secondary market and the MPS' sole involvement relates to its performance in a continuing role with respect such ABCP Conduit. BlackRock believes that if the sole involvement of an MPS is acting in a continuing role, then the Three Quote Process should not be required for purchases from or sales to third parties because there will be no additional compensation payable to and/or other benefits conferrable on such MPS in the secondary market by reason of such purchase or sale whether or not the Three Quote Process is followed. In order to address this issue, BlackRock believes that Section III.U.4. of the Proposed Exemption should be revised to delete the words “and/or an MPS performs a continuing role with respect to the Securities.” The Department agrees with the comments, and it has modified Section III.U. of the exemption's operative language accordingly. Structured Securities, Including Guaranteed Governmental Mortgage Pool Certificates. BlackRock has determined that there is a common type of transaction which is superficially similar to the “guaranteed governmental mortgage pool certificate” TBA transactions covered by Section III.N. of the Proposed Exemption, but which in substance is more similar to a straightforward secondary market purchase of a “guaranteed governmental mortgage pool certificate” as defined in the Department's regulations at 29 CFR 2510.3-101(i). An example, BlackRock states, of such a transaction would be a “specified pool” trade, wherein a BlackRock Manager identifies an existing specific mortgage pool listed on the FHLMC Web site, and asks a dealer (or dealers) for a quote on the delivery of a FHLMC pass-through certificate based on such specified pool in a few days time. BlackRock believes that this sort of purchase from an MPS was intended to be covered by the Proposed Exemption, subject to the credit quality determination set forth in Section III.N.2 of the Proposed Exemption and the Three Quote Process. Accordingly, BlackRock requests that the definition of “Fixed Income Obligation” be amended to explicitly include Securities which are guaranteed governmental mortgage pool certificates. BlackRock additionally believes purchases of Fixed Income Securities, including guaranteed governmental mortgage pool certificates, should be explicitly permitted where an MPS has either an ongoing function or can potentially incur liability. It notes that, pursuant to 29 CFR 2510.3-101(i)(1), when a plan invests in a guaranteed governmental mortgage pool, its assets include its investment in the certificate, but do not, solely by reason of such investment, include any of the underlying mortgages. However, private sector entities, such as an MPS, may perform services with respect to the underlying mortgages. 11 BlackRock believes investments in guaranteed governmental pool certificates are analogous to investments in high quality asset-backed debt Securities. 11 See, e.g., Advisory Opinion 99-05A, regarding the Federal Agricultural Mortgage Corporation. BlackRock observes that Sections III.B., III.C. and III.D. of the Proposed Exemption would permit BlackRock Managers to acquire Fixed Income Obligations issued by an MPS, subject to applicable conditions. On such grounds, BlackRock believes that BlackRock Managers should, therefore, be able to purchase Fixed Income Obligations, whether they are debt under 29 CFR 2510.3-101, or they are guaranteed governmental mortgage pool certificates, if an MPS performs an ongoing function with respect to such Fixed Income Obligations, such as trustee or servicer of collateral of a private sector collateralized structured obligation constituting debt under the plan asset regulation, or such as a trustee or mortgage servicer under a FNMA certificate. The conditions of Sections III.D. and III.E. of the Proposed Exemption reflect the ability of a BlackRock Manager to purchase and hold third party Fixed Income Obligations under which an MPS has an ongoing function “such as debt trustee [or] servicer of collateral for asset-backed debt. * * *” BlackRock notes that the heading for Section III.E. mentions only one such role, that of “[d]ebt [t]rustee”, and the heading of Section III.D. does not mention any continuing roles. BlackRock believes that the exemption should clearly reflect the ability of BlackRock Managers to acquire and hold Fixed Income Obligations despite an MPS or MPSs performing one or more of a multiplicity of possible roles with respect to such Securities. BlackRock argues that, in the primary markets, the affiliated underwriting restrictions minimize the chance that a purchase may be intended to benefit an MPS. Accordingly, BlackRock believes that the following changes should be made to the exemption: 1. Section VI.HH. should be amended to read as follows: “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 with respect to which an MPS is the entity which acts as lead lender); and (2) guaranteed governmental mortgage pool certificates within the meaning of 29 CFR 2510.3-101(i). (3) Asset-Backed Securities are not Fixed Income Obligations for purposes of this exemption. 2. The title of Section III.D. and the opening paragraphs thereof should be revised to read as follows: “ D. Certain Transactions in the Secondary Market by BlackRock Managers of Fixed Income Obligations Including Fixed Income Obligations Issued by 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 but 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) * * *” 3. The title of Section III.E. and the opening paragraph thereof should be revised to “ 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 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: * * *” 4. A new subsection should be added to each of Sections III.D. and III.E. of the exemption, the text of which would be: 12 . 12 An “explicit U.S. Government guarantee” refers to the U.S. Government's statutory guarantee of certain guaranteed governmental mortgage pool certificates. An “implicit U.S. Government guarantee” refers to guaranteed governmental mortgage pool certificates that are not statutorily guaranteed by the U.S. Government but are still issued by corporations chartered by the U.S. Government. “( ) With respect to any Fixed Income Obligation acquired under this Section III 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 (i) 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, (ii) 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 (iii) 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.” The Department agrees with the comments, and it has modified the exemption's operative language. Model or Quantitative Conformity. Sections III.B.1., III.D.2(c), III.R.1. and III.X.1. of the Proposed Exemption apply to Covered Transactions that involve Model-Driven Accounts or Funds and Index Accounts or Funds. The Applicants have noted that the provisions in Sections III.B.1., III.D.2(c), III.R.1. and III.X.1. of the Proposed Exemption that state that purchases must not “exceed the purchase amount necessary for such Model or quantitative conformity” present a practical issue for the Applicants due to the fact that in the ordinary course of trading in Securities under the specified Covered Transactions, the amount of the Securities purchased could inadvertently exceed the amount necessary for Model or quantitative conformity despite the responsible BlackRock Manager's intention and reasonable attempt to comply with the condition. The Applicants have suggested that the language be revised as follows: “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.” The Department agrees with the comment, and it has modified Sections III.B.1., III.D.2(c), III.R.1. and III.X.1. of the exemption's operative language accordingly. Effective Dates. Section I of the Proposed Exemption states that the exemption will be effective from December 1, 2009, through the earlier of (1) The effective date of an individual exemption granting permanent relief for the Covered Transaction or (2) May 31, 2011. BlackRock believes that it is unlikely that an individual exemption granting permanent relief for the Covered Transactions will be granted until late in 2011 or early 2012. As a result, BlackRock requests that the date May 31, 2011, set forth in Section I of the Proposed Exemption, should be revised to March 31, 2012. The Department agrees with the comment, and it has modified Section I of the final exemption accordingly. Following the Secondary Offering, BOA's interest in BlackRock decreased significantly. As a result, the exemption ceased to be available with respect to Bank of America Corporation and any entity directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with Bank of America Corporation (collectively, the BOA Group) on the day after the number of representatives of the BOA Group on the BlackRock Board of Directors was reduced to one (1). Technical Corrections. BlackRock also sought a number of technical corrections to the Proposed Exemption. Where the Department agrees with such technical corrections, the technical corrections have been made. After giving full consideration to the entire record, including BlackRock's written comment, the Department has decided to grant the exemption, as modified herein. For further information regarding BlackRock's comments and other matters discussed herein, interested persons are encouraged to obtain copies of the exemption application file (Exemption Application No. D-11588) that the Department maintains with respect to this case. The complete application file, as well as supplemental submissions received by the Department, is made available for public inspection in the Public Documents room of the Employee Benefits Security Administration, Room N-1513, U.S. Department of Labor, 200 Constitution Ave., NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the notice of proposed exemption published on March 18, 2011, at 76 FR 15058. FOR FURTHER INFORMATION CONTACT: Brian Shiker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, telephone (202) 693-8552. Exemption Section I: Covered Transactions Generally For the period from December 1, 2009, through the earlier of (i) The effective date of an individual exemption granting permanent relief for the following transactions, or (ii) March 31, 2012, 13 the restrictions of ERISA sections 406(a)(1) and 406(b), FERSA sections 8477(c)(1) and (2), and the sanctions resulting from the application of Code section 4975, by reason of Code section 4975(c)(1), 14 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. 13 The exemption ceased to be available with respect to Bank of America Corporation and any entity directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with Bank of America Corporation (collectively, the BOA Group) on the day after the number of representatives of the BOA Group on the BlackRock Board of Directors was reduced to one (1). 14 For purposes of this 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). 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), 15 must be satisfied with respect to each Covered Transaction: 15 49 FR 9494 (Mar. 13, 1984), as amended, 70 FR 49305 (Aug. 23, 2005), and as amended, 75 FR 38837 (July 6, 2010). 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), 16 does not have the authority to: 16 Solely for purposes of this Section II.A.2., 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. (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, 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 Subsections 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 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; (b) For purposes of Section II.A.3.(a) of this exemption, and for purposes of Sections III.I.6, L.3(b), M.2.(b) and U.1. of this exemption, with respect to the assets of an MPS Plan invested in a Pooled Fund as of the date of the Acquisition, which Pooled Fund is a bank-maintained common or collective trust, such assets when aggregated with the assets of all other MPS Plans of the same MPS Group and invested in such Pooled Fund shall be deemed to constitute less than ten percent (10%) of the assets of such Pooled Fund from the date of the Acquisition through July 1, 2010 (the Unwind Period); provided, that: 17 17 For purposes of this Section II.A.3.(b), the MPS Plans of each of the MPS Groups (the PNC MPSs, the BOA MPSs, and the Barclays MPSs) are separately aggregated ( e.g., all MPS Plans of BOA MPSs are aggregated together but are not aggregated with MPS Plans of Barclays MPSs or PNC MPSs). (i) The fees paid by such MPS Plans to BlackRock Managers during the Unwind Period are not more than reasonable compensation and are substantially the same as fees paid to the same BlackRock Managers by other, comparable Client Plans which are not MPS Plans, invested in such Pooled Fund as of the date of the Acquisition; (ii) such MPS Plans do not pay to the same BlackRock Managers during the Unwind Period any type of fee or other compensation that was not charged to or otherwise borne by Client Plan investors, which are not MPS Plans, in the Pooled Fund as of the date of the Acquisition; (iii) during the Unwind Period, the IM reviews the investment by the MPS Plans in the Pooled Fund; all fees paid by the MPS Plans to BlackRock Managers are disclosed to the IM; the IM reviews the offering documents for the Pooled Funds and any advisory or management agreements with BlackRock Managers; and any material change in the terms and conditions of the investment by the MPS Plans in the Pooled Fund, including but not limited to fees paid to BlackRock Managers and the terms of the advisory or management agreements with BlackRock Managers, are promptly disclosed to the IM and are subject to the IM's approval; and (iv) during the Unwind Period, each MPS Plan may terminate its investment in the Pooled Fund upon no more than thirty (30) days notice and without incurring a redemption fee paid to a BlackRock Manager; 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), 18 nor any owner, direct or indirect, of a five percent (5%) or more interest in the BlackRock Manager 19 is a person who within the ten 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. 18 For the avoidance of doubt, all MPSs are excluded from the term “affiliate” for these purposes. 19 For the avoidance of doubt, all MPSs are excluded from the term “owner” for these purposes. B. Compensation. None of the employees of a BlackRock Manager receive 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 broadly-based 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 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; 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 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. 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 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.M. of this exemption, and carries out such other responsibilities stipulated or described in Section III of this exemption including supervision of the ECO Function; 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, the ECO shall consult with the IM, or refer decision-making to the discretion of the IM; 11. The ECO provides a quarterly report 20 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; 20 The first quarterly report covered a 4-month period ending March 31, 2010. 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 he reasonably anticipates relying on this exemption during the current year; and 14. The ECO provides any further information regarding Covered Transactions 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(OO); 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.M. 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 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, 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.S. 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, 21 to be timely delivered to (i) the Chairman of the Board of Directors of BlackRock, (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: 21 The first annual compliance report covered the 13-month period ending December 31, 2010. (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, 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 boards of directors of each of the BlackRock Managers identified to the IM by the ECO 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. F. Special Notice Provisions. A Special Notice containing (i) A notice of all of the conditions for relief under Sections III.C., E., F., G., Q., R., S. and V. and (ii) a copy of the Notice to Interested Parties must be provided to affected Client Plans in writing (which may be provided by U.S. mail or electronically, including by e-mail or use of a centralized electronic mailbox, so long as such electronic communication is reasonably calculated to result in the applicable Client Plan's receipt) as soon as practical, but no later than fifteen (15) days, following the date that the Notice to Interested Persons is provided to Client Plans generally, through publication in the Federal Register . As soon as practical following the Special Notice, a Client Plan fiduciary independent of any BlackRock Entity must be provided any additional material information regarding Covered Transactions described in Sections III.C., E., F., G., Q., R., S. and V. by the applicable BlackRock Manager on reasonable request; provided, that, solely for purposes of this subsection, the fiduciary of an In-House Plan is not required to be independent of any BlackRock Entity. Section III: Covered Transactions A. Continuing Transactions. Relief under Section I of this exemption is available for Type B Covered Transactions and Type C Covered Transactions and the unwind, settlement or other termination thereof provided that: 1. A list of all Type B Covered Transactions and all Type C Covered Transactions (the B and C List) as of the date of the Acquisition is prepared by BlackRock and provided to the ECO. 2. Any discretionary act by a BlackRock Manager with respect to a transaction on the B and C List is approved in advance in writing by the ECO. Such approval is required for, but not limited to, sales and other transfers to a third party, redemptions, the exercise of options, and the declaration of default or other credit impairment-driven decisions. The ECO must determine that the terms of such discretionary act are in the interests of the affected Client Plans. 3. The ECO Function periodically monitors outstanding transactions on the B and C List to inquire if an affirmative discretionary act, such as a credit driven action, would be appropriate. If the ECO makes such a determination, the ECO must direct the action be taken and must approve the terms thereof as being in the interests of the affected Client Plans. 4. The ECO Function sends to the IM an updated copy of the B and C List as of the end of each fiscal quarter summarizing the Type B Covered Transactions and Type C Covered Transactions remaining at the end of the quarter and any discretionary actions taken during the quarter by BlackRock Managers with respect to such transactions. 5. Upon the determination by the IM that an action taken with respect to a Type B Covered Transaction or Type C Covered Transaction was inappropriate or that the compensation the Client Plans received was inadequate, or that an action should have been taken but was not, the Client Plans are made whole by BlackRock. B. 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. C. 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; 5. After purchase, any decision regarding conversion of an MPS Fixed Income Obligation into equity in the MPS is made by the IM; and 6. Special Notice of all of the foregoing conditions for relief under this Section III.C. must be provided in accordance with the terms of Section II.F. D. Certain Transactions in the Secondary Market by BlackRock Managers of Fixed Income Obligations Including Fixed Income Obligations Issued by 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 but 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.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. 5. 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 Fixed Income Obligations Issued by a Third Party when an MPS is Underwriter, in Either a Manager or 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 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. 5. With respect to any Fixed Income Obligation acquired under this Section III.E. 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.E., Asset-Backed Securities are not Fixed Income Obligations. 7. Special Notice of all of the foregoing conditions for relief under this Section III.E. must be provided in accordance with the terms of Section II.F. F. 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 Asset-Backed Securities lower than the third highest rating category, (b) in the case of 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.F.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; 5. The purchase meets the conditions of an applicable Underwriter Exemption; and 6. Special Notice of all of the foregoing conditions for relief under this Section III.F. must be provided in accordance with the terms of Section II.F. G. 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; 4. The Securities are not Asset-Backed Securities; and 5. Special Notice of all of the foregoing conditions for relief under this Section III.G. must be provided in accordance with the terms of Section II.F. H. 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. I. Repurchase Agreements when 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. Such written agreement must be a standardized industry form; provided, that with the approval of the ECO on or about the date of the Acquisition, written agreements with an MPS 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; 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. Neither the MPS seller nor any MPS which is a member of the same MPS Group has discretionary authority or control with respect to the investment of the Client Plan assets involved in the transaction or renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to such assets. This Section III.I.6. shall be deemed satisfied notwithstanding the investment of assets of an MPS Plan of the MPS which is the seller under such repurchase agreement 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 seller and invested in such Pooled Fund, at all times since the date of the Acquisition, constitute or are deemed pursuant to Section II.A.3.(b) to constitute less than ten percent (10%) of the assets of such Pooled Fund. 7. 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.I. 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; provided that such restricted securities are permitted until July 31, 2010. 8. 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.I.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. 9. 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. 10. 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 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. 11. In the event of termination and sale as described in Section III.I.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. 12. 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. 13. In the event of any dispute between a BlackRock Manager and an MPS seller involving a Covered Transaction under this Section III.I., 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. 14. At time of entry into or renewal of each Covered Transaction under this Section III.I., including both term repurchase transactions and daily renewals for “open” or “overnight” transactions, either (a) each Covered Transaction under this Section III.I., 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.I.14. 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. J. 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. Effective as of October 1, 2010, the ECO Function must affirmatively make this determination in writing prior to the BlackRock Manager participating in the Covered Transactions under this Section III.J. K. 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. L. 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, or in commercial paper issued by 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; (ii) neither the bank nor an affiliate of the bank has discretionary authority or control with respect to the investment of Client Plan assets involved in the Covered Transaction or renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to those assets; and (iii) 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; (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 commercial paper the maturity of which is likewise limited; (c) neither the MPS issuer of the commercial paper, any MPS guarantor of the commercial paper, nor any member of the same MPS Group as such MPS issuer or guarantor has discretionary authority or control with respect to the investment of the Client Plan assets involved in the Covered Transaction or renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to those assets; and (d) 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. 3. For purposes of the Covered Transactions set forth in this Section III.L.: (a) 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, and (b) Section III.L.1.(a)(ii) and Sections III.L.2.(a) and (c) shall be deemed satisfied notwithstanding the investment of assets of an MPS Plan of the MPS which is the depository bank or issuer of commercial paper 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 the issuer of such asset and invested in such Pooled Fund, at all times since the date of the Acquisition, constitute or are deemed pursuant to Section II.A.3.(b) to constitute less than ten percent (10%) of such Pooled Fund. M. 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 a Client Plan to an MPS which is a U.S. Broker-Dealer or a U.S. Bank provided that the conditions set forth in Section III.M.2. are met; (b) the lending of Securities by a BlackRock Manager that are assets of a Client Plan to an MPS which is a Foreign Broker-Dealer or Foreign Bank; provided that, the conditions set forth in Section III.M.2. and Section III.M.3. below are met; and (c) the payment to a BlackRock Manager of compensation for services rendered in connection with loans of Client Plan assets that are Securities to an MPS; provided that, the conditions set forth in Section III.M.4. below are met. 2. General Conditions for Transactions Described in Sections III.M.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, or renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to those assets. This Section III.M.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 or are deemed pursuant to Section II.A.3.(b) to constitute less than ten percent (10%) of the assets of such Pooled Fund. (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 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, (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 section 404(b) of ERISA 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 either in 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) third-party 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: (x) 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; and (y) illiquid Securities to the MPS borrowers from all Other Accounts or Funds, including the percentage that loans of such Securities to the MPSs represent of all loans of such Securities from all Other Accounts or Funds. (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.M.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.M.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 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 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.M. 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.M., 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) If the Securities being loaned to an MPS borrower are managed in an Other Account or Fund, the employees of the BlackRock Manager who exercise discretionary authority or control over the Other Account or Fund shall not have access to the information regarding whether the particular Securities are on loan to an MPS, with such access limitations imposed on or about September 30, 2010, and implemented through the EPPs on or about September 30, 2010. 3. Specific Conditions for Transactions Described in Section III.M.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.KK.(1) or (2) or an MPS Foreign Bank that is described in Section VI.JJ.(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; consents to service of process on such 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 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.KK.(3) or an MPS Foreign Bank that is described in Section VI.JJ.(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 Transactions Described in Section III.M.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.M.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.M.4.(d) of this exemption shall not apply, provided that: (i) The information described in Section III.M.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.M.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.M.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.M.4.(d)(i). N. To-Be-Announced Trades (TBAs) of GNMA, FHLMC 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 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.N. are a result of the Three Quote Process; provided that, solely for purposes of this Section III.N.1., firm quotes under the Three Quote Process may also include firm quotes obtained on comparable Securities, as described below, when firm quotes with respect to the applicable TBA transactions are not reasonably attainable. 2. With regard to purchases of FHLMC 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 mortgage-backed Securities, and (iii) each of the ECO and the IM (independently) has the authority and responsibility to determine whether purchases of FHLMC 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. 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.N.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 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. O. 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) the total net amount of the Foreign Exchange Transaction on behalf of Client Plans by BlackRock Managers is greater than $1 million and the exchange rate is within 0.5% above or below the Interbank Rate as represented to the BlackRock Managers by the MPS; 2. 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.O.1.(b) must be set forth in the applicable quarterly reports of the ECO to the IM. P. 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 22 (PTE 86-18), as if BlackRock Managers and MPS broker-dealers were “affiliates” as defined in Section I.(b) of PTE 86-128, provided the following conditions are satisfied: 22 51 FR 41686 (Nov. 18, 1986), as amended, 67 FR 64137 (Oct. 17, 2002). 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.P.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 86-1 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-20344. Public record. Not legal advice.