RFI Securities Lending-12-17-2008.doc

Request for Information on Securities Lending

Introduction The Employee Retirement Income Security Act of 1974 (ERISA) established Pension Benefit Guaranty Corporation (PBGC) as a federal corporation to encourage the growth of defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. Defined benefit pension plans promise to pay a specified monthly benefit at retirement, commonly based on salary and years on the job. PBGC, a wholly owned United States Government Corporation, administers the insurance program and termination process for most defined benefit pension plans that are tax-qualified under the Internal Revenue Code. PBGC is headed by an Executive Director who reports to a Board of Directors consisting of the Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as Chairman. General tax revenues do not fund PBGC. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.

As reported in the 2007 Annual Report, the Pension Benefit Guaranty Corporation (PBGC) protects the pensions of 44 million workers and retirees in over 30,000 private defined benefit pension plans. PBGC administers two pension insurance programs, the single-employer program and the multiemployer program. The single-employer program protects about 33.8 million participants in 28,900 pension plans. Under this program, a company can voluntarily seek to terminate its plan using either a standard termination or a distress termination procedure. Additionally, PBGC may seek termination of a plan without the employer’s consent to protect the interest of the plan participants of the plan or of PBGC. In addition to the single-employer program, about 10.0 million people are covered by about 1,530 multiemployer plans. PBGC must seek termination when a plan cannot pay current benefits. Ultimately, as a result of the termination of pension plans, PBGC pays benefits to participants and beneficiaries. Information about PBGC can be found at: http://www.pbgc.gov/ Securities Lending at the PBGC

The PBGC participates in a securities lending program administered by its custodian bank whereby the custodian bank lends PBGC’s securities to third parties. The custodian bank requires collateral from the borrower that equals 102 percent to105 percent of the securities lent. The collateral is held by the custodian bank. In addition to the lending program managed by the custodian bank, some of the PBGC’s investment managers are authorized to invest in repurchase agreements and reverse repurchase agreements. The manager either receives cash as collateral or pays cash out to be used as collateral. Any cash collateral received is invested. The total value of securities on loan at September 30, 2007, and September 30, 2006, was $4.939 billion and $6.352 billion, respectively. Although securities on loan have decreased since September 30, 2006, there continues to be an ongoing demand for securities to lend and varies based on the securities held in portfolio by the PBGC and the market demand to borrow those specific securities. It is reasonable to anticipate that with the recently revised investment policy of the PBGC, there will be meaningful adjustments to the nature of the demand for the restructured portfolio’s securities.

The amount of cash collateral received for these loaned securities was $5.045 billion at September 30, 2007, and $6.491 billion at September 30, 2006. These amounts are recorded as assets and are offset with a corresponding liability. The PBGC had earned income from securities lending of $6.2 million as of September 30, 2007 and $5.2 million as of September 30, 2006.

As of September 30, 2007, the PBGC loaned out $4.939 billion in securities of approximately $18.210 billion of securities available for securities lending. The PBGC has the ability and right to restrict specific securities from the securities lending program. Currently, it has no such restrictions. In addition, the PBGC has the ability to recall any security on loan.

REQUEST FOR INFORMATION (RFI)

The overarching purpose of this RFI is to determine if additional competing of the securities lending business will benefit the PBGC.

More specifically, the this RFI is obtaining information to assess and explore the viability of expanding our securities lending program to potentially qualified sources in the commercial and public sector marketplace. Responses to this RFI will help PBGC to gauge the interest and availability of qualified companies that can enhance its current securities lending activities. They will also help us gain a better understanding of potential costs and benefits associated with modifying and potentially expanding the provider base of the program and may form the basis of a review and refinement of the PBGC securities lending program policies.

Requested Response

This RFI seeks the following information. In addition to addressing the questions below, you have the option to provide additional commentary pertinent to your securities lending program.

A. Securities Lending Process

1. Are you a custodian agent and do you require custody to engage in lending securities for clients?

2. If you are not a custodian bank, indicate your interface and counterparty lines established with major custodian banks.

3. Explain whether you act as agent only or also act as principal in your securities lending activity and if you act as principal, whether you run a matched book.

4. Describe your basic approaches to securities lending. This should include the method by which you estimate and/or guarantee lending activity for client portfolios. Do you only operate in one manner for clients or are there options?

5. Include a diagram of your securities lending process including the legal vehicles used and the capitalization of those vehicles. Please indicate how dedicated that capital is to the securities lending activity and what other activities that capital supports.

6. Please describe your securities lending queue and how you prioritize and determine which client portfolios are selected for various lending opportunities accessed by the program. What methods do you provide clients to indicate their status in the queue or the degree to which their portfolios are being lent versus the other clients in the queue?

7. Do you or have you engaged in the practice known as “ratio lending” wherein client securities are lent in a bundled manner to borrowers? Please describe your policy by which you insure that client lending activity is optimized in terms of return per dollar of collateral.

8. Describe your policy by which client securities are segregated for lending purposes and/or bundled with other clients’ securities. Describe how you insure that each client is receiving full value for their securities if bundling is part of your process.

9. Should the PBGC invest the security lending collateral in a commingled money market fund or should the PBGC invest the security lending collateral in a separate money vehicle designed solely for the PBGC?

B. Collateral Management

1. How much of your client lending activity involves cash collateral versus non-cash collateral?

2. Do you manage client cash collateral directly and/or offer third-party cash management investment vehicles from which clients may choose their collateral reinvestment alternatives?

3. Describe your loss history with collateral funds you manage or are offered by you for client use. (Please give longest history available).

4. Do you advise your clients of the risk ratings of the collateral pools you manage and/or offer? If requested, would you provide position level detail on these funds via electronic feed on a daily/weekly or monthly basis?

5. Do you provide any indemnification for reinvestment risk for any clients?

C. Counterparty Risk

1. Please list your major counterparty lines and any indication of line capacity.

2. Describe your relationships with the major prime brokers and how they have changed over the past year.

3. To what extent do you use “exclusive” lending arrangements with any counterparties?

4. What is the extent of your counterparty indemnification?

5. Have you ever absorbed losses due to your counterparty indemnification agreements for clients? If so, please describe.

6. Are all client indemnification agreements essentially similar? Do all clients receive this indemnification on the same basis?

7. Please attach a copy of your standard and/or “most favored nation” counterparty indemnification agreement.

D. Risk Analytics

1. Describe the program performance analytics provided for clients.

2. Describe the level of detail (i.e. trade level, sector level, domestic v/s international, etc.) made available for clients.

3. What utilization measures or benchmarks do you use?

4. What spread analysis do you provide your clients? Do you provide detail on rebate levels by trade and by counterparty?

5. Describe any counterparty risk analytics provided for clients.

6. Describe any reinvestment risk analytics provided for clients

7. Describe any Risk Adjusted Return on Capital analytics provided for clients.

8. Describe how these analytics are delivered and provided to clients.

9. If you do not provide analytics of the type described above, would you be prepared to provide data to another analytics provider to allow for full program consolidation of these analytics?

E. Capabilities and Related Experience

1. What is the current size of your securities lending operation?

2. How long have your been involved in the securities lending?

3. Identify the number of personnel dedicated to securities lending. Indicate the various functional areas in which they are involved (ie. Trading, collateral management, operations, compliance, sales, client service, risk management, etc.)

4. How long have you been in the business? What percentage of revenues and profit does securities lending provide to your institution?

5. What types of securities are included in your program?

6. What would you estimate your current securities lending capacity to be?

7. Demonstrate the financial strength of your institution.

8. How many securities lending clients do you have?

9. Have you been sued by clients or counterparties for any reason in your securities lending activities? Have you settled any such claims? Please describe the circumstances and status of such litigation or settlements.

10. Describe any losses taken by your firm due to securities lending in the past 5 years.

F. Costs

1. How are you compensated for your securities lending services?

2. What are the direct fees of your securities lending program?

3. What is your percent split of the proceeds of lent securities?

4. What do you charge for or how much are you paid for cash collateral management? Include compensation granted you by outside managers.

5. Do you charge clients for any other services such as advisory, analytics or reporting services? Please detail those charges.

Responses to this Request for Information (RFI) are to be submitted in Word format, electronically by email to Fiorela Kvalevog, kvalevog.fiorela@pbgc.gov and are due on or before 10:00 am EST on Monday, December 22, 2008.

Questions to this RFI are to be submitted electronically by email to Fiorela Kvalevog, kvalevog.fiorela@pbgc.gov and are due on or before 11:00am EST on Monday, December 15, 2008.

Even though the PBGC is not seeking formal proposals, the technical responses to the RFI must address the PBGC’s requirements in sufficient detail to allow them to be reviewed for technical merit.

Please note that the PBGC does not intend to award a contract on the basis of this RFI. In addition, any response received will not be used as a proposal. This request is for information purposes only.

The RFI is not an RFP, may be canceled at any time, and may not result in the issuance of an RFP or award of a contract.

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