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Barclays Bank PLC, Barclays Capital Inc. and/or Affiliates (“Barclays”): Regarding the U.S. Department of Labor’s New Regulation Regarding the Definition of “Fiduciary”

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Overview

In April 2016, the U.S. Department of Labor issued a final regulation broadening the circumstances when a financial services firm could be a “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), by reason of being deemed to provide investment advice to a plan (or an entity considered to hold “plan assets”) subject to ERISA and/or Section 4975 of the Code or to any law or regulation similar to the foregoing (“Similar Law”) or a fiduciary thereof (the “Fiduciary Rule”). The Fiduciary Rule becomes applicable on June 9, 2017. The Fiduciary Rule contains an exception to the expanded fiduciary definition in connection with the provision of any advice by a person (the “Advice Provider”) to a fiduciary of a plan (including a fiduciary to an entity considered to hold “plan assets”) subject to ERISA and/or Section 4975 of the Code (a “Plan Client”) who is independent of the Advice Provider in connection with arm’s-length transactions or services relating to the investment of securities or other property.

To rely on this exception, certain conditions must be satisfied, including that the provider of any investment advice (i) knows or reasonably believes that it is dealing with a fiduciary that satisfies certain requirements and (ii) furnishes disclosures relating to its financial interests in any such transactions to such fiduciary. Barclays (“Barclays”, “we” or “us”) is providing this letter to supplement any existing documentation between us and the Plan Client, and to confirm our mutual understanding that we will not be considered an investment advice fiduciary with respect to such Plan Clients. Further, Barclays does not otherwise act as a “fiduciary” (as defined under ERISA, Section 4975 of the Code or any Similar Law) to Plan Clients in connection with any Transactions (as defined below).

If you are not the fiduciary responsible for causing the Plan Client to enter into transactions (including the provision of services, together “Transactions”) with or involving Barclays (or are not authorized to make representations on behalf of the Plan Client), please forward these materials to the appropriate person(s).

Mandatory Disclosures

No Impartial Advice and No Fiduciary Advice

In connection with Barclays engaging in any Transaction with a Plan Client, we are not undertaking to provide impartial advice or give advice in a fiduciary capacity for purposes of ERISA, Section 4975 of the Code, any Similar Law, or otherwise in connection with any such Transaction.

 

Existence and Nature of Financial Interests

Barclays generally has, and you should always assume we have, a financial interest in every Transaction we enter into with a Plan Client.  Depending upon the Transaction and the nature of our activities in connection with that Transaction, we may have a range of financial interests.  Our financial interests may include, without limitation, transaction fees, commissions, mark-ups or mark-downs, interest charges, discounts, rebates, credits, incentives, refunds, fee waivers, benefits associated with our ownership or other interests in or commercial relationships with trading venues, platforms or other third parties involved in a Transaction, compensation relating to the roles we play in the relevant Transaction or with respect to the relevant asset involved in the Transaction (e.g., calculation agent, trustee or servicer), reimbursement of Transaction-related expenses incurred by us, profits associated with hedging of Transactions and profits associated with the use of assets provided to us in connection with a Transaction (e.g., as collateral, margin and deposits), in each case subject to the relevant documentation governing or otherwise relating to the Transaction and to applicable law.  The following sets forth a brief summary of the nature of our financial interests with respect to various Transactions. As noted below, additional information may be obtained from the documentation governing or otherwise relating to the relevant Transaction.

Agency Execution of Transactions in Securities, Currencies, Commodities and Derivatives

When we execute securities, currency, commodity or derivative Transactions (including, but not limited to futures Transactions) for a Plan Client on an agency basis, we generally expect to receive a commission, and depending upon the Transaction we may receive additional fees or impose additional charges (including give-up fees, ticket charges, administrative charges and service fees).  In connection with certain Transactions, we may enter into hedging and other trading activity to manage our risk, and generally will keep the profit and/or bear any loss associated with such activity.  When executing Transactions as agent (and depending upon the Transaction), we may direct orders to third parties (e.g., executing firms, brokers, clearing firms or market-makers), trading venues (e.g., exchanges, designated contract markets, alternative trading systems), or trading platforms (e.g,. derivatives exchanges, clearing organizations, swap execution facilities or similar platforms or systems) with respect to which we may be paid, or otherwise benefit from, credits, reduced transaction costs, discounts, refunds, rebates, fee waivers, caps/floors or similar arrangements, payments, benefits or other concessions or incentives.  In addition, we may have an ownership or other interest in or relationship with U.S. or foreign third parties, trading venues and trading platforms and, as a result, may receive financial benefits associated with such interest or relationship when Transactions are executed on, with or through such third party, venue or platform.  We may also receive compensation in connection with clearing securities Transactions for executing brokers.  For more information, you should consult the relevant account agreements, trade confirmations, and other disclosures or writings related to the Transactions.  Further, you should review “Barclays Bank PLC, Barclays Capital Inc. and Affiliates:  Certain Disclosures for Customers, Including Covered ERISA Plans Under Section 408(b)(2) of ERISA” (“Barclays Section 408(b)(2) Disclosure”) available at:  https://www.home.barclays/disclosures/erisa/.

Principal Transactions in Securities, Bank Debt, Currency and Commodities

As a general matter, in connection with any purchase or sale of securities, bank loans, currency and commodities when we act as principal, we will impose a mark-up or mark-down, and/or charge certain Transaction fees.  In connection with certain principal Transactions, we may enter into hedging and other trading activity to manage the risk associated with a Transaction and generally will keep the profit or bear any loss related to such activity. 

We may act in one or more roles in a Transaction or with respect to an issuer of an asset involved in a Transaction.  Depending upon the Transaction or relevant asset, such roles could include acting as placement agent, calculation agent, underwriter, servicer, sponsor, originator, trustee, insurer, obligor, liquidity provider, Transaction counterparty or other type of service provider.  We generally expect to receive fees or other compensation in connection with acting in any roles associated with, or services provided with respect to, a Transaction or the relevant issuer.

Depending upon the Transaction, the proceeds of securities by or on behalf of an issuer may be used to satisfy a loan or other extension of credit made by us to the issuer or an affiliate thereof.

For more information (including information regarding any Barclays role in connection with a particular Transaction or asset), you should consult any Plan Client trade confirmation or similar document, any Plan Client agreement with us covering principal Transactions, the relevant offering documentation and any other available documentation relating to the Transaction or asset.

Structured Products

In connection with structured products or securitization transactions (e.g., synthetic securities, CLOs, credit- or equity-linked notes or other asset-backed securities (“ABS”)) we may assume multiple roles and earn compensation from explicit fees and commissions, or our compensation may be implicit. We may receive compensation for acting on one or more roles in connection with a Transaction or the relevant issuer, including as underwriter or placement agent, calculation agent, servicer, issuer, sponsor, originator, obligor, liquidity provider, insurer, Transaction counterparty or trustee. As an issuer of notes and other products we benefit by receiving the net proceeds from the initial offering of such notes or products and may profit by receiving proceeds that exceed our costs. We may also receive fees or otherwise profit from intermediating or hedging any liquidity or swap position. We may also profit from an implied derivative embedded in the relevant structure (e.g., in a credit- or equity-linked note issued by us or an affiliate). In addition, we may also receive compensation by originating or acquiring collateral sold to a structured product or an ABS issuer prior to, on or following the issuance date and we may receive compensation for acting as warehouse provider for assets of an issuer prior to the issuance of a structured product or ABS security. Further, in certain cases, a structured product issuer may invest in assets issued by us, or a vehicle structured or sponsored by us or an asset we sold to the issuer, which in each case may result in compensation for us. For more information (including information regarding any role(s) we may have in connection with a structured product), you should consult any relevant offering documentation and any other available documentation relating to the relevant asset.

OTC Derivatives Transactions

We may act as counterparty to a Plan Client in bilateral derivative Transactions, including credit default swaps, rate swaps, equity swaps, futures and options and foreign currency transactions. In connection with these Transactions we may earn compensation from explicit fees, financing charges and/or commissions, or our compensation may be implicit in the difference between payments and deliveries made to or by us under the Transactions and our costs (or gains) in hedging and carrying resulting Transactions or positions. In some cases, we may earn a substantial return from associated hedging positions. We may also receive a structuring fee for a Transaction. In addition, we may exercise hypothecation or other rights of use over collateral posted by a Plan Client that may generate additional compensation or benefits for us. You should be aware that there is no active market for many bilateral derivative Transactions. You should not assume that any fees, financing charges, commissions or any other price or value quoted or offered by Barclays is the most favorable to you. Differences between such values offered by Barclays and those quoted or offered by other market participants could be substantial. Further, we may have ownership or other interests in, or relationships with, certain derivatives trading platforms with respect to which we may obtain a financial benefit if a Plan Client’s transaction is executed on, with or through such platforms. For more information, you should consult the relevant Plan Client trading agreement (e.g., ISDA Master Agreement), any confirmations and the ISDA General Disclosure Statement for Transactions.

Cleared Derivatives (including Futures) Transactions

With respect to the provision of services to a Plan Client regarding futures, options on futures, swaps, forwards and other exchange-traded or cleared derivatives contracts, and any similar instruments, we will generally charge a commission and/or a clearing fee with respect to any Transaction submitted for clearing, and may charge administrative fees. Further, with respect to any margin or collateral posted to us in connection with such Transactions, we may earn interest or income on the assets posted as collateral or margin, including through use or investment of margin or collateral to the extent permitted under applicable law and the relevant agreement. We may also earn income from financing a Plan Client’s margin obligations. We may earn “float” from account balance deficits. In addition, third parties (such as floor brokers or other executing institutions), trading facilities and clearinghouses may provide us with volume, market-making or other discounts or credits, or provide for other incentives or concessions. We may participate in and obtain financial benefits from such programs, incentives or concessions. We may also have ownership interests or economic interests in, or commercial relationships with, certain derivatives trading venues or clearinghouses with respect to which we may obtain a financial benefit if a Transaction is executed and/or cleared at such a venue or clearinghouse. For more information, you should consult the Plan Client’s Futures & Options Customer Account Agreement, Cleared Derivatives Transactions Addendum, Cleared Derivatives Execution Agreement, any applicable fee schedule, any trade confirmations, and Barclays ERISA Section 408(b)(2) disclosure.

Prime Brokerage and Securities Margin

We may charge or receive brokerage commissions, mark-ups, rebates, fees (including administrative fees, wire fees, transfer fees, fees for exercises of options and clearing and custody of assets) and other charges (including ticket charges and interest and financing charges), in connection with serving as prime broker or with respect to securities margin Transactions. In addition, if permitted by the relevant agreement and applicable law, we may exercise certain rights with respect to any assets posted as collateral by a Plan Client that may generate additional compensation or benefits for us. In connection with entering into securities financing Transactions with a Plan Client, we may also provide ancillary services and enter into related types of financing Transactions where we have financial interests, such as stock loan and repurchase Transactions (each discussed below). For more information, you should consult the Plan Client’s Prime Brokerage Agreement, Prime Brokerage Services Agreement, Arranged Lending and Custody Account Agreement, any applicable fee schedule (including a Price Proposal), any other related Transaction agreements (e.g., a Master Securities Loan Agreement, Global Master Securities Lending Agreement, Master Repurchase Agreement or Global Master Repurchase Agreement), any trade confirmations and the Barclays ERISA Section 408(b)(2) disclosure. You should also consider the information in “Agency Execution of Transactions in Securities, Currencies, Commodities and Derivatives”, “Principal Transactions in Securities, Bank Debt, Currency and Commodities” and “Cleared Derivatives (Including Futures) Transactions”, as applicable.

Securities Lending, Repurchase Agreements and Forwards

When engaging in a securities lending Transaction, unless otherwise agreed between the parties, the borrower will pay the lender a loan fee and the lender will pay borrower a fee or rebate on collateral consisting of cash, in each case at rates as the borrower and lender have agreed upon. When acting as borrower, we borrow securities as principal and may on-lend such securities to other parties or use the securities for our own purposes, and we may receive compensation in connection with such activity. For each repurchase transaction, the parties generally agree to a financing fee payable by the seller to buyer (generally determined by application of the pricing rate and price differential contained in the repurchase price). For each forward transaction, there will generally be a financing fee embedded in the forward transaction price.

In addition, when engaging in securities lending, repurchase or forward Transactions, if we are borrower or lender, or seller or buyer (as applicable), we may use any collateral or asset delivered by a Plan Client to us in connection with our business unless the parties agree otherwise or applicable legal requirements provide otherwise. In these transactions, we may also seek to earn fees in connection with securities or other instruments that we may lend or sell to Plan Client. For more information, you should consult the relevant Transaction agreement (e.g., Master Repurchase Agreement, Global Master Repurchase Agreement, Master Securities Loan Agreement, Global Master Securities Lending Agreement or Master Securities Forward Transaction Agreement), any trade confirmations and other documentation relevant to the Transaction.

Other Loans and Extensions of Credit

In a connection with a loan or other extension of credit to a Plan Client, we will generally earn interest on the Transaction. Under certain Transactions, we may also earn one or more of the following fees: structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away fees or alternate Transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing. In the event a Plan Client has permitted us to rehypothecate collateral, we may generate additional income through the use of such collateral. For more information, you should consult the relevant credit agreement, fee letter, commitment letter, or similar document applicable to the Transaction.

Other Products and Services

With respect to any Transaction not described herein that we enter into with a Plan Client, we expect to have (and you should always assume we have) a financial interest. Depending upon the type of Transaction, our financial interest may include (among others) the items listed above in “Financial Interests”. For more information, you should consult the relevant documentation governing or otherwise relating to the Plan Client Transactions or provided by us in connection with any such Transactions, any Transaction confirmations, fee disclosures and, if applicable, the Barclays ERISA Section 408(b)(2) disclosure.

Deemed Representations  

Unless you have notified us otherwise in writing, effective on June 9, 2017, by continuing any Transaction in place on such date or entering into any new Transaction on or following such date, any fiduciary making the investment decision on behalf of Plan Customer Client with respect to such Transaction and the Plan Customer Client will each be deemed to represent (which representations will be deemed repeated at all times until the termination of any Transaction) that:

(a)   the fiduciary is independent of Barclays;

(b)   the fiduciary is either (1) a “bank” as defined in Section 202 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) that is regulated and supervised and subject to periodic examination by a State or Federal agency, (2) an insurance carrier which is qualified under the laws of more than one State to perform the services of managing, acquiring or disposing of assets of a plan, (3) an investment adviser registered under the Advisers Act or, if not registered by reason of paragraph (1) of Section 203A of such Act, is registered as an investment adviser under the laws of a State in which it maintains its principal office and place of business; (4) a broker-dealer registered under the Securities Exchange Act of 1934, as amended or (5) any independent fiduciary that holds, or has under its management and control, total assets of at least $50 million;

(c)   the fiduciary is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies; and

(d)   the fiduciary is acting as a fiduciary under ERISA or Section 4975 of the Code, or both, with respect to the Transaction, and is responsible for exercising independent judgment in evaluating each Transaction.

Further, unless you have notified us otherwise in writing, such fiduciary and the Plan Client will be deemed to acknowledge and agree that:

(y)   Barclays is not undertaking to provide impartial investment advice, suggestions, recommendations or alternatives or give investment advice, suggestions, recommendations or alternatives in a fiduciary capacity, in connection with the Transaction; and

(z)   Barclays is not receiving a fee or other compensation directly from Plan Client, any plan fiduciary, plan participant or beneficiary, IRA or IRA owner for the provision of investment advice (as opposed to other services, trades, or transactions) in connection with any Transaction.

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If you have any questions regarding the foregoing, please contact your Barclays representative.

ENDNOTES

1 This document is not an agreement for a transaction or services. In the event of any discrepancy between the information contained herein and the terms governing our contractual relationships with respect to a Plan Client, except with respect to the definition of “fiduciary” under ERISA and Section 4975 of the Code in connection with the provision of investment advice, the latter will govern.

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