DoL Adopts New Securities Lending Exemption

October 30, 2006 ( - The Department of Labor's Employee Benefits Security Administration has adopted a final class exemption expanding the opportunities for securities lending between pension plans, banks and broker-dealers.

The exemption will allow pension plans to create additional income by lending securities from their portfolios to a greater pool of permissible borrowers, according to a DoL announcement. Under the new 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 announcement said, the new exemption expands the types of collateral that may be offered to plans for securities lending transactions 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.

Also, if the plan’s US 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 final exemption, which revokes and replaces Prohibited Transaction Exemptions 81-6 and 82-63, also provides conditions to safeguard the assets of plans involved in securities lending transactions.

The final exemption will be published in the Federal Register for October 31, 2006.