Daily Rules, Proposed Rules, and Notices of the Federal Government
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).
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:
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,
A BlackRock Manager is a fiduciary with investment discretion with respect to the applicable Client Plan.
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)
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.
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.
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.
The Department agrees with the comment, and it has modified Section III.F. of the exemption's operative language accordingly.
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.”
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.
“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.
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.
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:
(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 “
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:
“() 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.
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.
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).
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.
Brian Shiker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, telephone (202) 693-8552.
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,
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),
(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:
(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),
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 (
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
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.
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,
(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,
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.