U.S. Labor Department Finalizes Amendment On Securities Lending Exemption

Archived News Release — Caution: Information may be out of date.

Washington, DC - The U.S. Department of Labor's Employee Benefits Security Administration today announced adoption of a final class exemption expanding the opportunities for securities lending between employee benefit pension plans, banks and broker-dealers.

The exemption, which consolidates two existing class exemptions, provides conditions to safeguard the assets of plans involved in securities lending transactions. The updated requirements will permit pension plans to earn additional income by lending securities from their portfolios to a greater universe of permissible borrowers.

Under the exemption, the categories of permissible borrowers have been expanded to include broker-dealers and banks of the United Kingdom, Canada and certain other foreign broker-dealers and banks. In addition, the types of collateral that may be offered to plans for securities lending transactions have been broadened to include negotiable certificates of deposits payable in the United States, mortgage backed securities, the British pound, the Canadian dollar, the Swiss franc, Japanese yen, the Euro, securities issued by Multilateral Development Banks, rated foreign sovereign debt and irrevocable letters of credit issued by certain foreign banks. If the plan’s U.S. domiciled lending agent agrees to indemnify the plan against losses resulting from a borrower’s default, the final exemption permits a plan to accept any other type of collateral currently permitted by the Securities and Exchange Commission under Rule 15c3-3 of the Securities and Exchange Act of 1934.

The Employee Retirement Income Security Act gives the Labor Department authority to grant an exemption from the law’s prohibited transaction provisions. The department grants class exemptions when it determines that the exemption is in the interest and protective of the rights of benefit plan participants and beneficiaries.

The final exemption revokes and replaces Prohibited Transaction Exemptions 81-6 and 82-63. The exemption is to be published in the October 31, 2006 Federal Register.

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Archived News Release — Caution: Information may be out of date.

Contact Name: Peter Hong/Gloria Della
Phone Number: 202.693.4676/202.693.8664