Notice2023-16129
Exemption From Certain Prohibited Transaction Restrictions Involving J.P. Morgan Securities LLC, J.P. Morgan Investment Management Inc., J.P. Morgan Advisors (Formerly, J.P. Morgan Securities; JPMS Brokerage), and Chase Wealth Management Located in New York, New York
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 31, 2023
Effective
December 14, 2010
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of exemption issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Internal Revenue Code of 1986 (the Code). This exemption involves certain principal trades involving J.P. Morgan Securities LLC (JPMS), J.P. Morgan Investment Management Inc. (JPMIM), J.P. Morgan Advisors (formerly, J.P. Morgan Securities; JPMS Brokerage), and Chase Wealth Management (CWM) (collectively, the Applicants), and certain of their client plans that are subject to Code section 4975 but not covered by Title I of ERISA (the Non-ERISA Plan Clients).\1\ These principal transactions resulted in the Non-ERISA Plan Clients purchasing or selling securities from or to the Applicants. ---------------------------------------------------------------------------
Full Text
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<title>Federal Register, Volume 88 Issue 145 (Monday, July 31, 2023)</title>
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[Federal Register Volume 88, Number 145 (Monday, July 31, 2023)]
[Notices]
[Pages 49497-49502]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16129]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2023-17; Exemption Application No. D-
11963]
Exemption From Certain Prohibited Transaction Restrictions
Involving J.P. Morgan Securities LLC, J.P. Morgan Investment Management
Inc., J.P. Morgan Advisors (Formerly, J.P. Morgan Securities; JPMS
Brokerage), and Chase Wealth Management Located in New York, New York
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) from certain of the prohibited
transaction restrictions of the Internal Revenue Code of 1986 (the
Code). This exemption involves certain principal trades involving J.P.
Morgan Securities LLC (JPMS), J.P. Morgan Investment Management Inc.
(JPMIM), J.P. Morgan Advisors (formerly, J.P. Morgan Securities; JPMS
Brokerage), and Chase Wealth Management (CWM) (collectively, the
Applicants), and certain of their client plans that are subject to Code
section 4975 but not covered by Title I of ERISA (the Non-ERISA Plan
Clients).\1\ These principal transactions resulted in the Non-ERISA
Plan Clients purchasing or selling securities from or to the
Applicants.
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\1\ JPMS Brokerage and CWM are lines of business within JPMS.
DATES: The exemption will be in effect from December 14, 2010, until
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September 16, 2013.
FOR FURTHER INFORMATION CONTACT: Ms. Anna Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: The Applicants requested an individual
exemption pursuant to Code section 4975(c)(2) in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011). Effective December 31, 1978, section 102 of
the Reorganization Plan No. 4 of 1978, (5 U.S.C. App. 1 (1996))
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor.
Accordingly, this exemption is being issued solely by the Department.
On October 15, 2021, the Department published a notice of proposed
exemption in the Federal Register.\2\ After considering the entire
record developed in connection with the Applicants' exemption
application, including the information discussed below, the Department
has determined to grant the exemption subject to the conditions
described below. The exemption provides only the relief specified in
its text and does not provide relief from violations of any law other
than the prohibited transaction provisions of ERISA expressly stated
herein. The Department makes the requisite findings under Code section
4975(c)(2) that the exemption is (1) administratively feasible, (2) in
the interest of the plans and their participants and beneficiaries, and
(3) protective of the rights of the plans' participants and
beneficiaries, so long as all of the exemption conditions are met.
Accordingly, affected parties should be aware that the conditions
incorporated in this exemption are, taken as a whole, necessary for the
Department to grant the relief requested by the Applicants. Absent
these or similar conditions, the Department would not have granted this
exemption.
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\2\ 86 FR 57446 (October 15, 2021).
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Background
1. As discussed in further detail in the notice of proposed
exemption, and described below, JPMS and JPMIM previously caused or
executed prohibited principal transactions on behalf of certain plan
clients covered by the Employee Retirement Income Security Act of 1974
(ERISA Plan Clients) and on behalf of certain plan clients covered only
by the Internal Revenue Code of 1986 (Non-ERISA Plan Clients).\3\ The
Applicants previously corrected the ERISA Plan Client-related
prohibited transactions under the Department's Voluntary Fiduciary
Compliance Program (the VFC Program) and received ``no action
letters.'' \4\
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\3\ 86 FR 57446 (October 15, 2021).
\4\ See 67 FR 15062 (March. 28, 2002), as updated at 71 FR 20262
(April 19, 2006).
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2. The VFC Program is not available to correct prohibited
transactions involving non-ERISA plans. Therefore, the Applicants
requested an exemption for JPMS and JPMIM to correct the prohibited
principal transactions that involved their Non-ERISA Plan Clients (the
Covered Transactions).
The Covered Transactions Involving JPMIM <SUP>5</SUP>
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\5\ As described more fully in the proposed exemption and in
Section II, below.
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3. A total of 3,989 trades of securities issued by third parties
were executed for the Chase Wealth Management line of business (the CWM
Wrap Program) on a principal basis. According to the Applicants, 3,985
of the trades were sales by a Non-ERISA Plan Client to a counterparty
(a JPM Counterparty) affiliated with JPMorgan Chase & Co. (JPMorgan),
with an aggregate sales price of $2,682,332.34 (the JPMIM Sales
Transactions),\6\ and four trades were purchases by a Non-ERISA Plan
Client from a JPM Counterparty (the JPMIM Purchase Transactions) with
an aggregate purchase price of $46,940.55. The purchased shares had not
been re-sold by the Non-ERISA Plan Client as of the date the
transactions were corrected.\7\ The Applicants represent that JPMIM and
JPMS endeavored to correct the prohibited transactions as quickly as
possible in the manner described under the ``Covered Transaction
Corrections'' heading of the proposed exemption.\8\
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\6\ These trades involved 3,784 Non-ERISA Plan Clients.
\7\ These trades involved two Non-ERISA Plan Clients.
\8\ 86 FR 57446, 57448.
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4. The Applicants represent that the trades did not result in any
commissions being paid by the Non-ERISA Plan Clients to JPMIM or its
affiliates. Rather, the trades were executed under the CWM Wrap
Program, under which all clients pay a wrap fee (i.e., a comprehensive
charge) that covered all of the investment advisory-related and
transactional services provided by JPMorgan to such accounts. As a
result, no additional compensation was paid in connection with either
the JPMIM Sales Transactions or the JPMIM Purchase Transactions. The
Applicants represent that JPMIM is no longer enabled to execute trades
on JPM-X, an ``alternative trading system'' owned and operated by JPMS.
5. Further, the Applicants represent that there were no
identifiable profits received by JPMIM or its affiliates in connection
with any of the aforementioned transactions, because the securities
traded were liquid securities that JPMorgan and its affiliates
regularly hold in inventory, deal in or make a market in. In this
regard, because JPMorgan is a market
[[Page 49498]]
maker in the liquid securities that were traded with the Non-ERISA Plan
Clients, JPMorgan keeps a regular inventory of such securities to
facilitate the purchase and sale of such securities, as well as other
types of transactions involving such securities, with various
counterparties. To illustrate, the Applicants present the following
example:
Assume that there was a principal trade between JPMorgan and a
Non-ERISA Plan Client involving a sale by JPMorgan of ten shares of
a stock (Stock X) to the Non-ERISA Plan Client, at a fair market
value of $50 per share. On the day of the sale, JPMorgan would hold
thousands (and likely many times more) of Stock X shares in its
inventory, and this inventory would change constantly throughout the
day and from day to day as a result of transactions involving Stock
X between JPMorgan and various counterparties. When JPMorgan sells
ten Stock X shares to the Non-ERISA Plan Client, JPMorgan will
deduct 10 Stock X shares from its inventory. However, because all of
the Stock X shares in the JPMorgan inventory are the same and are
fungible, it does not match the shares sold or disposed of with any
previously acquired shares.
6. In the example above, it is not possible to identify the cost to
JPMorgan of the specific shares that were sold to the Non-ERISA Plan
Client because: (i) the Stock X shares in the JPMorgan inventory were
all acquired at different prices and at different times (could be
above, below or at $50 per share), and (ii) JPMorgan does not
distinguish the Stock X shares sold to the Non-ERISA Plan Client from
the rest of the Stock X shares in the inventory. Therefore, it is not
possible to determine whether JPMorgan has earned any profit from the
sale of such shares to the Non-ERISA Plan Client at $50 per share.
The Covered Transactions Involving JPMS Brokerage <SUP>9</SUP>
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\9\ As described in the proposed exemption and in Section II,
below.
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7. According to the Applicants, fifteen (15) trades involving JPMS
Brokerage were mistakenly executed on a principal basis, although not
on JPM-X. Of the fifteen (15) trades, two (2) were sales of securities
\10\ by a Non-ERISA Plan Client to a JPM Counterparty (the JPMS
Brokerage Sales Transactions) with an aggregate sales price of
$61,854.54, and thirteen (13) trades were purchases of securities by a
Non-ERISA Plan Client from a JPM Counterparty (the JPMS Brokerage
Purchase Transactions) with an aggregate purchase price of
$557,232.08.\11\ The purchased securities were subsequently sold by the
Non-ERISA Plan Client before the prohibited transactions were
discovered. The Applicants state that JPMS Brokerage endeavored to
correct the prohibited transactions as quickly as possible in the
manner described under the ``Covered Transaction Corrections'' heading
of the proposed exemption.\12\
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\10\ These trades involved two non-ERISA Plan Clients.
\11\ These trades involved seven Non-ERISA Plan Clients.
\12\ 86 FR 57446, 57448.
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8. The Applicants represent that the trades in question did not
result in any commissions being paid by the Non-ERISA Plan Clients to
JPMS or its affiliates. Rather, the trades were executed under a wrap
fee program, under which all clients pay a wrap fee (i.e., a
comprehensive charge) that covered all of the investment advisory-
related and transactional services provided by JPMorgan to such
accounts.\13\ As a result, no additional compensation was paid in
connection with either the JPMS Brokerage Sales Transactions or the
JPMS Brokerage Purchase Transactions.
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\13\ The Applicant notes that the Covered Transactions involving
JPMS Brokerage were technically executed under a different wrap fee
program that does not have an official name but is similar to the
CWM Wrap Program.
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9. Further, the Applicants represent that there were no
identifiable profits received by JPMS or its affiliates in connection
with any of the aforementioned transactions, because the securities
traded were liquid securities that JPMorgan and its affiliates
regularly hold in inventory, deal in or make a market in. The
Applicants state their explanation above (as to why there were no
identifiable profits received by JPMIM or its affiliates with respect
to the JPMIM Sales Transactions) also applies here (as to why there
were no identifiable profits paid to JPMS with respect to the JPMS
Brokerage Sales Transactions and JPMS Brokerage Purchase Transactions).
No Intent To Profit From Trades
10. The Applicants represent that JPMorgan did not cause the
principal trades in question with the Non-ERISA Plan Clients with an
intent to profit from such trades. The Applicants represent that the
trades were executed by mistake and the execution was not motivated by
the receipt of any profit or other compensation by JPMorgan.
11. The Applicants state that all principal trades with the Non-
ERISA Plan Clients were executed at fair market value and achieved best
execution, and, as a result of the correction process that JPMorgan
undertook, all of the affected Non-ERISA Plan Clients were restored
economically to the positions that they would have been in had the
principal trades not occurred (or, in certain cases, to positions that
are more economically favorable than the positions they would have been
in).
12. In addition, the Applicants represent that with respect to the
trades executed by JPM-X, which represented the vast majority of the
principal trades in question, JPM-X was set up structurally so that all
executions must be at or within the National Best Bid and Offer (NBBO)
and there was a less than 1% chance (based on volume of shares traded)
that any execution would be against a JPMorgan principal account,
further indicating that there was no intention on the part of JPMorgan
to take advantage of the Non-ERISA Plan Clients in connection with
these trades.
The Proposed Exemption
13. On October 15, 2021, the Department of Labor (the Department)
published a proposed exemption that would permit the Covered
Transactions if the conditions therein were met.\14\ Among these
conditions, the Applicants were required to apply the same conditions
to correct the Covered Transactions that they applied to correct the
transactions involving their ERISA Plan Clients under the VFC Program.
In addition, an independent fiduciary, Evercore Trust Company, N.A.
(Evercore),\15\ was required to determine that that the correction
methodologies utilized to correct the transactions: (a) were sufficient
to return each affected Non-ERISA Plan Client to at least the position
it would have been in had the Covered Transaction not occurred; (b)
provided Non-ERISA Plan Clients with a greater benefit than other
correction methodology alternatives, consistent with the VFC Program;
and (c) were properly applied based on a review of a representative
sample of the corrections selected at random by Evercore.
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\14\ 86 FR 57446.
\15\ Evercore sold its institutional trust and independent
fiduciary business to Newport Group Inc. and its subsidiary, Newport
Trust Company (NTC). Since October 19, 2017, NTC has served as the
independent fiduciary in connection with this proposed exemption.
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14. The proposed exemption invited all interested persons,
including current participants and beneficiaries of the Plans, to
submit comments or requests for a hearing to the Department within 90
days of the date of publication. The Applicants agreed to provide
notice to interested persons (NTIP) by U.S. mail to the beneficial
owner of each Non-ERISA Plan Client affected by the Covered
Transactions, as defined in
[[Page 49499]]
Section II, below, within 60 days of the publication of the notice of
proposed exemption in the Federal Register (Notice of Proposed
Exemption) and that the NTIP would include a copy of the Notice of
Proposed Exemption. Throughout the comment period, the Department
received several requests from the recipients of the NTIP to explain
the proposed transactions. It was during these conversations that the
Department was informed that the Notice of Proposed Exemption had not
been included in the NTIP. The Department contacted the Applicants who
confirmed that there was an error in the mailing which excluded the
Notice of Proposed Exemption from the NTIP.
15. To ensure interested persons would receive full notice and have
sufficient time to provide their comments to the Department, the
Applicants agreed that a second notice to interested persons (the
Second NTIP) would be delivered to all Non-ERISA Plan Clients along
with a copy of the Notice of Proposed Exemption. On March 22, 2022, the
Applicants informed the Department that the Second NTIP dated March 14,
2022, was mailed via U.S. first-class mail to the beneficial owner of
each Non-ERISA Plan Client affected by the Covered Transactions.\16\
Accordingly, the Department extended the comment period through April
18, 2022.\17\
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\16\ The Department considers the Second NTIP delivery to be
completed three days following the March 14, 2022, mailing via U.S.
first-class mail.
\17\ Because the requisite 30-day comment period would end on
the weekend (Saturday, March 16, 2022), the Department added an
additional two days to the comment period to ensure that interested
persons had a sufficient opportunity to comment.
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Comments
16. During the comment period, the Department received one written
comment from the Applicants that requested certain changes to the
proposed exemption's operative language and Summary of Facts and
Representations. The Applicants' comments and the Department's
responses thereto are discussed below. The Department did not receive
any requests for a public hearing.
Applicants' Requested Revisions to Operative Language
17. Requested Clarification and Change to Section I of the Proposed
Exemption. On page 57450 of the proposed exemption, the first sentence
of Section I states that: ``If the proposed exemption is granted, the
sanctions resulting from the application of Code section 4975, by
reason of Code section 4975(c)(1)(A), (D) and (E), shall not apply,
effective December 14, 2010, until September 16, 2013, to certain
principal trades involving J.P. Morgan Securities LLC (JPMS), J.P.
Morgan Investment Management Inc. (JPMIM), J.P. Morgan Securities (JPMS
Brokerage), and Chase Wealth Management (CWM) (collectively, the
Applicants), and certain of their client plans that are subject to Code
section 4975 but covered by not Title I of ERISA (the Non-ERISA Plan
Clients).'' \18\
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\18\ 86 FR 57446,57450. Please note that all references to page
numbers of the proposed exemption refer to the version that was
published in the Federal Register on October 15, 2021.
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The Applicants request that the Department clarify that JPMS
Brokerage and CWM are lines of business within JPMS to be consistent
with how JPMS Brokerage and CWM are introduced in the proposed
exemption's Summary of Facts and Representations. Further, the
Applicants request that the phrase: ``but covered by not Title I of
ERISA'' be changed to read: ``but not covered by Title I of ERISA,''
for clarity.
Department's Response: After considering the Applicants' comments,
the Department has revised Section I of the grant notice as requested.
18. Requested Change to Section II of the Proposed Exemption. On
page 57450 of the proposed exemption, the first sentence of Section
II(a) states that: ``For purposes of this proposed exemption, the term
``Covered Transaction means: . . .,'' and then lists a series of
transactions.
The Applicants suggest changing the term, ``Covered Transaction''
in the sentence, which is the introductory paragraph of this section,
to ``Covered Transactions'' (i.e., from singular to plural), because
there was more than one transaction.
Department's Response: After considering the Applicants' comment,
the Department has made a corresponding revision to the introductory
paragraph of Section II of the grant notice as requested.
19. Requested Change to Section II(a) of the Proposed Exemption. On
page 57450 of the proposed exemption, the first sentence of Section
II(a) states: ``3,989 trades of securities issued by third-parties that
were executed on a principal basis for certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management line of business (i.e., the
CWM Wrap Program) on or about July 27 and July 30, 2012.''
The Applicants request changing the phrase: ``on or about'' to the
word: ``on,'' as the dates listed are the exact dates on which the
transactions occurred.
Department's Response: After considering the Applicant's request,
the Department has revised Section II(a) of the grant notice to reflect
this change.
20. Requested Change to Section III(g) of the Proposed Exemption.
On page 57450 of the proposed exemption, Section III(g) states: ``The
Covered Transactions were conducted using trading systems and
procedures designed to result in trades being conducted at prices that
are as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at terms and
prices no less favorable to the Non-ERISA Plan Clients than the prices
the financial advisers could have obtained for the Non-ERISA Plan
Clients by conducting trades in arm's-length transactions with third-
party market participants; . . .''
The Applicants suggest changing the phrase in Section III(g) of the
proposal that reads ``than the prices the financial advisers'' to the
phrase: ``than [the prices] the Applicants'' to be more precise.
Department's Response: After considering the Applicants' comment,
the Department has revised Section III(g) of the grant notice to
reflect this change as requested.
21. Change to Section IV of the Proposed Exemption. The Applicants
and the Department discussed making certain changes to the
recordkeeping provision in Section IV of this exemption, which requires
the Applicants to maintain, or cause to be maintained, for a period of
six (6) years from the date of any Covered Transaction, such records as
are necessary to enable the persons described in Section IV(b) to
determine whether the conditions of this exemption have been met.
Specifically, the Applicants requested a modification to the verb tense
in Section IV of the proposed exemption to reflect that, in their view,
the recordkeeping period had passed. In response, the Department
informed the Applicants that it intended to modify Section IV so that
the recordkeeping requirement would be effective for six (6) years from
the publication date of the exemption.
The Applicants raised several concerns in response, including that
the Applicants may not have all the records required under Section IV,
because of the passage of time between the Covered Transactions and the
publication date of the exemption. In this regard, the Applicants were
not aware such records would be required to be maintained for a longer
period than is required in similar, prior granted retroactive
exemptions, which is typically six (6)
[[Page 49500]]
years from the date of the covered transactions. Nor did the Applicants
learn about the Department's intended modification until after the
Applicants submitted their comment during the comment period. Finally,
the Applicants state that most of the individuals who are familiar with
the records associated with the Covered Transactions are no longer
employed with the Applicants, and it would be logistically challenging
to locate and retrieve such records as more time progresses.
In light of the Department's intent for the recordkeeping period to
begin on the publication date of the exemption, the Applicants request
that Section IV(a) be modified slightly to require the Applicants to
``use commercially reasonable efforts to (i) identify such records, to
the extent they are available to the Applicants as of the date of
publication of this final exemption in the Federal Register, as are
necessary to enable the persons described in Section IV(b)(1) to
determine whether the conditions of this exemption have been met and
(ii) maintain, or cause to be maintained (including on behalf of the
Applicants by any agent, advisor or other service provider to the
Applicants) such records, for a period of six (6) years from the date
this final exemption is published in the Federal Register.''
Furthermore, the Applicants request that the exemption requires that
record requests be made ``upon reasonable advance request,'' due to the
logistical challenges the Applicant may confront in making such records
available for review.
Department's Response: The Department views the change to the
recordkeeping requirement in Section IV, requiring the Applicants to
maintain such records for six (6) years beginning on the publication
date of the exemption, as necessary to allow the individuals referenced
in Section IV(b) to verify the Applicants' compliance with the
exemption conditions and their representations submitted to support the
application. The present-tense language in Section IV of the proposed
exemption could have had the effect of rendering the recordkeeping
requirement meaningless and frustrated the ability of the parties
described in Section IV(b)(1) to verify that the Applicants have
adhered to the exemption conditions.
However, the Department is also cognizant that the Applicants may
not have retained all of the records referenced in Section IV(a) due
solely to the passage of time since the Covered Transactions occurred,
and that the Applicants did not anticipate the Department would include
a recordkeeping requirement that would extend the period the records
were required to be maintained from the publication date of the final
exemption rather than the date the Covered Transactions covered
transactions occurred.
Based on conversations with NTC, the independent fiduciary in
connection with the exemption, the Department understands that NTC has
retained the records it relied on to review the Applicants' corrections
of the Covered Transactions and make any determinations required under
the exemption.\19\ Based upon this understanding, as well as
representations by the Applicants regarding the challenges they
confronted in maintaining the records several years after the Covered
Transactions occurred, the Department views the Applicants' proposed
change of the recordkeeping provision as a reasonable modification to
the proposed exemption, provided that, if the Applicants do not
themselves possess any records necessary to comply with Section IV of
the exemption, the Applicants will obtain such records from the
independent fiduciary.
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\19\ NTC confirmed to the Department that it has maintained the
records associated with the services it provided to the Applicants
in accordance with its own record retention policies and procedures
and would provide them to the Applicants if necessary to satisfy the
exemption conditions.
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Other Requested Revisions
22. Minor Revisions. At the Applicants' request, the Department
made several minor, non-substantive revisions to the proposed
exemption's title and Summary of Facts and Representations. The
Department does not discuss the revisions in this grant notice but
notes that the requested revisions may be found in the exemption
application file which is available through the Department's Public
Disclosure Office.\20\
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\20\ The complete application file (D-11963) is available for
public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, Room N-1515, U.S. Department of
Labor, 200 Constitution Avenue NW, Washington, DC 20210.
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23. Other Clarifications. On its own motion, the Department made
several minor and non-substantive revisions that are intended to
clarify the operative language of the exemption.
24. Accordingly, after considering the entire record developed in
connection with the Applicant's exemption request, and in consideration
of: (a) the exemption's protective conditions; (b) the corrective
payments made to the Non-ERISA Plan Clients; and (c) Evercore's review
of the corrections to the Covered Transactions, the Department has
determined to grant this exemption consistent with the requirements of
Code section 4975(c)(2).
25. The complete application file (D-11963) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue 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 October 15, 2021, at 86 FR 57446.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA section 408(a) and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain requirements of other ERISA and/or Code provisions,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
ERISA section 404, which, among other things, require a fiduciary to
discharge their duties respecting the plan solely in the interest of
the plan's participants and beneficiaries and in a prudent fashion in
accordance with ERISA section 404(a)(1)(B); nor does it affect the
requirement of Code section 401(a) that requires plans to operate for
the exclusive benefit of the employees of the employer maintaining the
plan and their beneficiaries.
(2) As required by ERISA section 408(a) and/or Code section
4975(c)(2), the Department hereby finds that the exemption is: (a)
administratively feasible; (b) in the interests of the affected plan
and its participants and beneficiaries; and (c) protective of the
rights of the participants and beneficiaries of such plan.
(3) This exemption is supplemental to, and not in derogation of,
any other applicable ERISA and/or Code provisions, including statutory
or administrative exemptions and transitional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of determining whether the transaction is
in fact a prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the
[[Page 49501]]
transactions that are the subject of the exemption are true and
accurate at all times.
Accordingly, the Department grants the following exemption under
the authority of Code section 4975(c)(2) and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011):
Exemption
Section I. Covered Transactions
The sanctions resulting from the application of Code section 4975,
by reason of Code section 4975(c)(1)(A), (D) and (E), shall not apply,
effective December 14, 2010, until September 16, 2013, to certain
principal trades involving J.P. Morgan Securities LLC (JPMS), J.P.
Morgan Investment Management Inc. (JPMIM), J.P. Morgan Advisors
(formerly, J.P. Morgan Securities; JPMS Brokerage), and Chase Wealth
Management (CWM) (collectively, the Applicants), and certain of their
client plans that are subject to Code section 4975 but not covered by
Title I of ERISA (the Non-ERISA Plan Clients).\21\ These principal
transactions resulted in the Non-ERISA Plan Clients purchasing or
selling securities from or to the Applicants (the Covered Transactions,
as defined in Section II, below).
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\21\ JPMS Brokerage and CWM are lines of business within JPMS.
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This exemption is subject to the conditions set forth below in
Sections III and IV.
Section II. Definition of Covered Transactions
For purposes of this proposed exemption, the term ``Covered
Transactions'' means:
(a) 3,989 trades of securities issued by third parties that were
executed on a principal basis for certain JPMS-sponsored wrap fee
programs under the Chase Wealth Management line of business (i.e., the
CWM Wrap Program) on July 27 and July 30, 2012. Of these trades: (1)
3,985 of the trades involved sales by a Non-ERISA Plan Client to a
counterparty affiliated with JPMorgan Chase & Co. (a JPM Counterparty),
with an aggregate sales price of $2,682,332.34 (i.e., the JPMIM Sales
Transactions); and (2) four (4) of the trades involved purchases by a
Non-ERISA Plan Client from a JPM Counterparty (i.e., the JPMIM Purchase
Transactions) and the purchased shares, with an aggregate purchase
price of $46,940.55, had not been re-sold by the Non-ERISA Plan Client
as of the date the transactions were corrected; and
(b) fifteen (15) trades involving JPMS Brokerage that were executed
on a principal basis on December 14, 2010, January 13, 2011, February
3, 2012, December 31, 2012, August 22, 2013, and September 16, 2013. Of
these trades: (1) two (2) involved sales of securities with an
aggregate sales price of $61,854.54 by a Non-ERISA Plan Client to a JPM
Counterparty (i.e., the JPMS Brokerage Sales Transactions); and (2)
thirteen (13) involved purchases of securities by a Non-ERISA Plan
Client from a JPM Counterparty (i.e., the JPMS Brokerage Purchase
Transactions), with an aggregate purchase price of $557,232.08, that
were purchased and subsequently sold by the Non-ERISA Plan Client
before the prohibited transactions were discovered.
Section III. Specific Conditions
(a) The Applicants corrected the Covered Transactions in a manner
that was: (1) consistent with the relevant requirements set forth in
the Department's Voluntary Fiduciary Correction Program (the VFC
Program); and (2) consistent with the Applicants' corrections of
similar prohibited transactions involving its ERISA plan clients, as
described in their VFC Program applications, dated December 31, 2014
(the VFC Program Applications);
(b) The Applicants received ``no action letters'' from the
Department in connection with their VFC Program Applications;
(c) An independent fiduciary, Evercore Trust Company, N.A.
(Evercore), reviewed the Applicants' corrections of the Covered
Transactions;
(d) Evercore confirmed that the methods utilized to correct the
Covered Transactions were properly applied to the Covered Transactions
and sufficient to return each affected Non-ERISA Plan Client to at
least the same position it would have been in had the Covered
Transactions not occurred;
(e) The Non-ERISA Plan Clients did not pay any additional
compensation with respect to the Covered Transactions, because such
transactions were executed under a wrap program under which all clients
pay a comprehensive wrap fee covering all the investment advisory-
related and transactional services provided to such accounts (the Wrap
Program);
(f) The Applicants promptly credited or issued a check to each Non-
ERISA Plan Client to whom a corrective payment was due after
discovering the Covered Transactions;
(g) The Covered Transactions were conducted using trading systems
and procedures designed to result in trades being conducted at prices
that are as favorable as possible to the Non-ERISA Plan Clients under
prevailing market conditions, and were in fact conducted at terms and
prices no less favorable to the Non-ERISA Plan Clients than the prices
the Applicants could have obtained for the Non-ERISA Plan Clients by
conducting trades in arm's-length transactions with third-party market
participants;
(h) The Covered Transactions were not part of an agreement,
arrangement or understanding designed to benefit a disqualified person
as defined in Code section 4975(e)(2);
(i) The Applicants did not take advantage of the relief provided by
the VFC Program and Prohibited Transaction Exemption 2002-51 for three
(3) years before the date the Applicants' submitted the VFC Program
Applications; \22\
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\22\ PTE 2002-51 Section II. F(1) provides that ``[w]ith respect
to any transaction described in Section I., the applicant has not
taken advantage of the relief provided by the VFC Program and this
exemption for a similar type of transaction(s) identified in the
current application during the period which is three years prior to
submission of the current application''. 67 FR 70623 (November 25,
2002), as amended, 71 FR 20135 (April 19, 2006).
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(j) The Applicants and their affiliates did not receive any
additional direct or indirect fee or commission in connection with the
Covered Transactions, because such transactions were executed under a
Wrap Program;
(k) The JPM Counterparties to the Non-ERISA Plan Clients did not
receive any identifiable direct or indirect profit or compensation from
the Covered Transactions;
(l) The Covered Transactions were inadvertent, executed at fair
market value, and achieved best execution, and were not motivated by
the receipt of any profit or other compensation;
(m) All of the securities traded were liquid securities that
JPMorgan and its affiliates regularly held in inventory, dealt in, or
made a market in;
(n) No contractual provisions purported to give Evercore or Newport
Trust Company (i.e., NTC) a right to indemnification, in whole or part,
by a party related to the Applicants, for negligence or breach of
federal or state law responsibilities by Evercore or NTC, with respect
to any task performed by Evercore or NTC pursuant to the Applicants'
exemption request; and
(o) All of the facts and representations set forth in the Summary
of Facts and Representations are true and accurate.
Section IV. General Conditions
(a) The Applicants shall use commercially reasonable efforts to (i)
[[Page 49502]]
identify such records as are necessary to enable the persons described
in Section IV(b)(1) to determine whether the conditions of this
exemption have been met, to the extent such records are available to
the Applicants or NTC, the independent fiduciary, as of the date of
publication of this final exemption in the Federal Register, and (ii)
maintain, or cause to be maintained (including to be maintained on
behalf of the Applicants by any agent, advisor or other service
provider to the Applicants), such records for a period of six (6) years
from the date of publication of this final exemption in the Federal
Register, except that:
(1) A separate prohibited transaction shall not be considered to
have occurred if the records identified in Section IV(a) are lost or
destroyed before the end of the six-year period due to circumstances
beyond the control of Applicants; and
(2) No disqualified person with respect to a Non-ERISA Plan Client,
other than the Applicants, is subject to excise taxes imposed by Code
section 4975 if such records are not maintained or made available for
examination as required by section IV(b)(1).
(b)(1) Except as provided in section IV(b)(2), the records referred
to in section IV(a) are unconditionally available upon reasonable
advance request at their customary location for examination during
normal business hours by:
(A) any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the Securities and
Exchange Commission;
(B) any fiduciary of any Non-ERISA Plan Client that engaged in a
Covered Transaction, or any duly authorized employee or representative
of such fiduciary; or
(C) any owner or beneficiary of a Non-ERISA Plan Client that
engaged in a Covered Transaction or a representative of such owner or
beneficiary.
(2) None of the persons described in sections IV(b)(1)(B) and (C)
shall be authorized to examine the Applicants' trade secrets or
privileged or confidential commercial and financial information.
(3) If the Applicants refuse to disclose records referred to in
section IV(a) to any persons described in sections IV(b)(1)(B), and (C)
on the basis that such information is exempt from disclosure, the
Applicants shall provide a written notice advising such persons of the
reasons for the refusal and that the Department may request such
information within 30 days after their request.
Effective Date: This exemption is in effect from December 14, 2010,
until September 16, 2013.
Signed at Washington, DC, this 24th day of July 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-16129 Filed 7-28-23; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on July 31, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.