Department of Labor Fiduciary Rule Independent Fiduciary Disclosure and Deemed Representations

Dear Client:

As you may be aware, the U.S. Department of Labor issued a final regulation (the “Regulation”) re-defining when one becomes 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 (“Code”) in connection with the provision of “investment advice”, which regulation is expected to become applicable on or after June 9, 2017. The Regulation provides an exception to fiduciary status in connection with the provision of “advice” by a person (e.g., a bank or broker-dealer) to a fiduciary of entities subject to Title I of ERISA and Section 4975 of the Code1 (collectively “Plans”) who is independent of the “advice” provider in connection with arm’s length transactions related to the investment of securities or other property (the “Independent Fiduciary Exception”).

If you or your managed account(s) are not a Plan, please disregard this message.

You (or one of your affiliates) may be acting as a fiduciary on behalf of one or more such Plans in connection with one or more accounts, relationships, services or transactions with Deutsche Bank AG or its affiliates with respect to our Corporate & Investment Banking products and services (collectively “DB,” “us” or “we,” and such services, service relationships and transactions “Transactions”). Unless otherwise mutually agreed upon in writing, we do not act as a fiduciary (as defined under ERISA, Section 4975 of the Code, the Regulation or any similar law) to Plans and do not undertake to provide impartial advice or give advice in any such fiduciary capacity with respect to our Corporate & Investment Banking products and services.2

To utilize the Independent Fiduciary Exception, certain conditions must be satisfied, including that the person providing any “advice” knows or reasonably believes that it is dealing with an independent fiduciary that meets certain conditions, and provides certain disclosures to such fiduciary. We are providing this letter to supplement any existing agreements regarding a Plan or disclosures previously provided by us, or otherwise to obtain the representations set forth herein and provide and reference certain disclosures.3

I. Overview of Our Financial Interests.

As a general matter, we serve in a number of different capacities and have a financial interest in each Transaction.4 Our financial interests may vary depending upon the type of Transaction, and may include, for example, fees, commissions, mark-ups or mark-downs, interest charges, discounts, rebates, credits, credit equivalents, refunds, fee waivers, and other compensation for acting in roles associated with the relevant Transaction. In some instances, it may be more advantageous for us to engage in certain transactions as opposed to others because we may earn higher revenues, compensation, gain greater market share or meet other internal or external business objectives. Our financial interests also may extend to reimbursement of expenses incurred in connection with a given Transaction, the overall profitability, and direct and indirect profits derived from any given Transaction, as well as those profits as may be derived directly or indirectly through our hedging of Transactions and associated with the risk management of exposures we have accumulated through the conduct of our business. We may also have a financial interest in Transactions arising out of the use of assets provided to us (e.g., collateral, margin and/or deposits), in all cases subject to the documentation governing the relevant Transaction and applicable law or rights in respect of loans or other debt obligations in which we make a market, assign or participate interests in, or as to which we act as administrative agent. We also may have arrangements with one or more trading venues, exchanges, or other alternative trading platforms, though which we may receive concessions, rebates, market volume or other discounts and other benefits which may provide incentives for us to route orders to one or more particular such venue rather than others that may be available in the marketplace. We may also have business relationships with other clients which may provide an incentive for us to make introductions.

Because of the breadth and depth of information and resources we may have available to us as a global financial institution and the diversity of our business and client objectives, not all information known by us may be known to you. And, of course, our interests in any given Transaction or Transactions may vary from time to time relative to other Transactions depending on the overall profitability or other desired commercial objectives. Below is a description of the nature of our financial interests in connection with various categories of Transactions. This is in addition to any information provided in a trade confirmation, Term Sheet, etc., that may spell out in more detail certain compensation or other financial interest we may have in the Transaction.

For more information about the nature of our interests, please also review our other annual securities related disclosure, our fixed income and our futures related disclosures along with our other materials located on our website.5 To the extent relevant to your business with DB, please also consider additional industry disclosures such as International Swaps and Derivatives Association related disclosures, Futures Industry Association related disclosures, and Securities Industry and Financial Markets Association Model Underwriter Disclosure pursuant to MSRB Rule G-17.6

A. Direct Compensation

Commissions on Agency Transactions. DB may receive commissions when it acts as the Plan’s agent in connection with securities Transactions. In addition, if we execute a securities Transaction in non-US markets for a Plan and the Plan account settles the Transaction in a currency different from the currency in which the Transaction was executed, unless instructed otherwise, we will effect a currency Transaction for the Plan’s account to facilitate the settlement of the Transaction and we stand to earn a profit from the currency Transaction.7 DB also operates internal trading platforms that match customer orders and enable DB to earn compensation from both transacting parties.

DB, in its capacity as a futures commission merchant (“FCM”) or a broker-dealer, may also receive commissions and/or clearing fees when it acts as the Plan’s agent in any Transaction relying on such status.8

Markups and Markdowns on Principal and Riskless Principal Transactions. DB may act as principal (or riskless principal) in connection with the purchase or sale of securities, loans and currency in underwritten or other Transactions. DB may include a markup on sales or markdown on purchases (spread) and/or charge Transaction related fees and DB may also enter into hedging and other trading activity to manage the risk. DB may retain the profit or bear the loss related to such hedging and trading activity, unless the parties agree otherwise. The proceeds of securities sold by us in the primary market may be used by the issuer to satisfy a loan or other extension of credit made by us to the issuer or an affiliate of the issuer or in other direct or indirect financings. DB may charge a fee for canceling and correcting trades.

Prime Brokerage. When we serve as prime broker, we may also charge brokerage commissions, ticket charges, mark-ups, fees and interest charges (including those for lending securities to the Plan and/or for financing positions or strategies as well as with respect to securities margin Transactions) and custodial and/or related cash management services.9

Securities Lending, Repurchase Transactions and Other Financings. In securities lending Transactions, unless otherwise described in the operative agreements, the borrower in the Transaction will typically pay the lender a loan fee (for non-cash collateral) and the lender will pay the borrower a fee or rebate on collateral consisting of cash, in each case at rates as the borrower and lender may agree. 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. We may collateralize or rehypothecate securities. We may receive fees and related compensation where we act as securities lending agent. We may also receive fees for acting as a custodian on accounts. For each repurchase Transaction, the parties agree to a financing fee (which is the interest rate for the time period of such Transaction) payable by the seller to the buyer. The repurchase price of such Transaction is sometimes calculated by adding this financing fee to the purchase price. We also may provide or arrange financing for, or provide other services to, investors or other participants in a Transaction (including financing or services related to such investment or participation). In some cases, an issuer, investor or other participant in a Transaction may invest in assets issued or sold by us (or sold to us by a Transaction participant), or a vehicle structured or sponsored by us. These cases may result in compensation for us. DB may charge a fee for the custody and administration of the Plan’s accounts, generally expressed as a percentage of custodied assets.

Bilateral Derivative and Financial Intermediation. We may also act as counterparty in certain bilateral derivative Transactions (e.g., foreign exchange (FX) Transactions, options (FX or otherwise), swaptions, credit default swaps, credit default options, total return swaps, interest rate swaps, equity swaps, “structuring” fees and futures or combinations thereof). In such Transactions, we may earn compensation from fees and commissions, and/or our compensation may be implicit in the difference between payments and deliveries made to or by us under Transactions and our costs (or gains) in hedging and carrying the resulting exposures. The returns from these Transactions could be substantial (as may potential losses).

We may also charge a position maintenance fee in connection with clearing OTC derivatives.10 DB may also act as a financial intermediary (i.e., step in between the Plan and its counterparty on a principal basis) in OTC Transactions and may charge intermediation fees in connection therewith.

Structured Products and Structured Transactions. As a global financial institution, DB may act in one or more roles with respect to a Transaction involving the issuance of securities or the warehousing of assets. For certain securities, such as asset backed securities or structured products, we may act as issuer, underwriter, placement agent, payment agent, trustee, servicer, sub-servicer, calculation agent, obligor, originator, liquidity provider or other Transaction related counterparty (i.e., credit or insurance enhancement or swap provider). We generally expect to receive fees or other compensation in connection with acting in any such roles. Some of these products may also involve an implied derivative and may also result in compensation for our “warehousing” of certain originated assets prior to, on or following the issuance date of a given Transaction. We may receive compensation for acting as warehouse provider for an issuer prior to the issuance of a structured product or asset backed security. Where we may act as an index sponsor and/or administrator and intellectual property provider we may also receive additional licensing, use, commission, royalty and other compensation. We may also receive fees under referral, solicitation, placement and distribution arrangements.

Extensions of Credit. In a connection with a loan or other extension of credit to a Plan, we will generally earn interest on the Transaction. Under certain Transactions, we may also earn a number of fees at the beginning and during Transactions. Charges are listed in the Plan’s Pricing Term Sheet, if applicable, and for all other clients, the relevant client agreement or separate fee disclosure will reflect any such fee. DB may make a private, secondary market in loans, including trading in whole loans, portions of loans or participation loans. In the event a Plan has permitted us to rehypothecate collateral in connection with a given Transaction (i.e., a loan or extension of credit to a Plan, or under a swap transaction), we may generate additional income through the use of such collateral.

Financial Advisory (Investment Banking). We may act as a financial advisor to corporations and other issuers concerning their capital structure and other related matters and may have interactions with you concerning Transactions involving the purchase, sale, exchange or tender of securities or other financial instruments with respect to such issuers in which we may earn commissions, discounts, advisory or similar fees, selling concessions, “success” premiums, origination and other hedging related compensation with respect to such companies. Our relationships with these and other clients may create certain incentives for us in our interactions with you, as fiduciary for any Plan, to offer investments relating to these companies rather than other investments available in the marketplace. In addition, many of these institutions for which we serve as financial advisor or similar functions may also provide us compensation for access to certain tools, analytics, valuation (and related) opinions.

Loan Participations and Assignments. We originate, manage, assign, and participate in syndicates of loans and other debt products to companies in a number of commercial scenarios. These may include financings and refinancings for operations, plant and equipment, working capital or other corporate purposes, as well as for acquisitive (or dispositive) corporate transactions. We may also act as a loan syndication agent, arranger, administrative agent, collateral agent or in similar functions in which we may have financial or commercial interests that may be different than those of investors. In those cases, we may also have powers, that if exercised (i.e., the ability to enforce certain payment rights, calls of default, exercise of remedies etc.) may result in outcomes different from those desired by a holder of the relevant debt or participation interest. We may also create secondary markets in loans, and receive fees, commissions, spreads and other revenues related thereto, as well as sell (or buy) credit protection with respect to the reference entity to other financial institutions or other institutional market participants. Depending on its role in any given loan syndication, participation or other structure, we may have incentives to the issuer (obligor) or to certain lenders (or have interests with respect to certain levels of the capital structure to the detriment of others) that may or may not be the same as for other investors.

B. Indirect Compensation

In connection with certain Transactions, we may enter into hedging and other trading activity to manage the risk and may keep the profit or bear the loss related to such hedging and trading activity, unless otherwise agreed between the parties. Commissions paid to DB for futures or listed option trades (as described above) may be collected from the clearing broker or FCM where DB does not clear the trades.

Third Parties and Market Venues. In connection with executing Transactions and depending upon the type of Transaction, DB may receive payments or benefits from third parties, trading venues and platforms for order flow, concessions, credits, discounts, refunds, fee waivers, caps/floors or similar arrangements, payments, incentives, rebates or other benefits under arrangements with third parties. There may be circumstances in which we may exercise certain rights with respect to any collateral or margin posted by a Plan that will generate additional compensation for us. Receipt of such compensation may depend on whether DB provides or takes net liquidity. Finally, we may receive compensation in connection with clearing securities Transactions for executing brokers.

The payments, rebates or other benefits received may exceed DB’s own trading costs. CCPs, exchanges, centers or venues may post additional disclosures concerning such payments, rebates and other benefits on their respective websites. In accordance with SEC Rule 606, DB discloses quarterly the principal exchanges, centers and other venues to which it routed securities orders for execution.11 DB may have ownership interests in CCPs, exchanges or other market centers or trading or other venues. In addition, we may have ownership interests or other economic interests in certain derivatives trading platforms or systems. Any such interest may become more valuable as a result of the use of such CCPs, exchanges, centers or venues. To the extent permitted under applicable law, pursuant to its shareholder, partnership or similar agreements, DB may receive additional benefits from such CCPs, exchanges, centers or venues.12

Nonmonetary Compensation. DB’s employees may periodically receive gifts (other than cash or cash equivalents), entertainment or meals from third parties or attend educational conferences hosted by third parties. No agreement or arrangement exists between DB and any third party regarding the provision of gifts, entertainment, meals or conferences based on service contracts or arrangements with any particular Plan, and none of the foregoing is received by DB’s employees by reason of services provided to a particular Plan. DB employees are subject to DB’s internal policies and procedures relating to gifts, meals, entertainment and conferences that are consistent with regulatory requirements, including ERISA where applicable.

From time to time, DB may sponsor entertainment events. These events are unrelated to any contract or arrangement for services with any particular Plan. Client representatives may be given tickets to such events to the extent consistent with the Department of Labor’s de minimis rules described in its enforcement manual. The cost of these events may be subsidized by a third party.

II. Deemed Representations of the Independent Fiduciary and Plan Client

Unless we are notified in writing to the contrary, effective on the later of June 9, 2017, or the date the Regulation becomes applicable (such date, the “Applicable Date”), by continuing any Transaction in place on the Applicable Date or entering into any new Transaction on or after the Applicable Date, each of the independent fiduciary making the investment decision on behalf of the Plan with respect to such Transaction and the Plan will be deemed to represent (which representations will be deemed repeated, with respect to any particular Transaction, at all times until the termination of such Transaction) that:

  1. it is either:
    a. a bank (as defined in section 202 of the Investment Advisers Act of 1940 (“IAA”)) or similar institution that is regulated and supervised and subject to periodic examination by a State or Federal agency;
    b. an insurance carrier that is qualified under the laws of more than one state to perform the services of managing, acquiring or disposing of assets of a plan;
    c. an investment adviser under the IAA or the laws of the State in which it maintains its principal office and place of Business;
    d. a broker-dealer registered under the Securities Act of 1934; or
    e. an independent fiduciary that holds, or has under management or control, total assets of at least $50 million, provided in such case that the Plan is subject to Title I of ERISA;

  2. it is capable of evaluating investment risks independently, both in general and with regard to particular Transactions and investment strategies;

  3. it acknowledges that Deutsche Bank Securities Inc. and its affiliates are not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity in connection with any Transaction with Deutsche Bank Securities Inc. and/or its affiliates with respect to Corporate & Investment Banking products and services (and any market color, suggestion, proposal for consideration, analytics or tools, recommendations or otherwise shall not be regarded as being provided in any fiduciary capacity or considered impartial), and it further acknowledges that in connection with any such Transaction Deutsche Bank Securities Inc. and its affiliates with respect to Corporate & Investment Banking products and services may have a financial interest in any Transaction, including, without limitation, interests that may conflict with Plan clients for which independent fiduciary acts as such;

  4. it is a fiduciary under either:
    a. the Employee Retirement Income Security Act of 1974 (“ERISA”);
    b. the Internal Revenue Code (the “Code”); or
    c. both ERISA and the Code, with regard to the Transaction and responsible for exercising independent judgment in evaluating the Transaction;

  5. it is not paying any fee or other compensation to Deutsche Bank Securities Inc. or its affiliates for the provision of investment advice in connection with the Transaction or service relationship; and

  6. it is “independent” (as that term is used in 29 C.F.R. 2510.3-21(c)(1)) of DB.

 

 

 

Footnotes:

1 Including a fiduciary to an investment contract, product or entity that holds “plan assets,” such as a bank collective fund and certain private unregistered funds with “significant” Plan participation.

2 DB will also not be assessing the suitability of any given Transaction to any Plan.

3 If you are not the Plan fiduciary responsible for procuring the services described herein, please forward these disclosures to the named fiduciary of the Plan. If these disclosures do not apply to you or the Plan(s) you represent, you may consider the information reflected herein as you wish, but you need not take any action.

4 For example, we may serve as broker, dealer, futures commission merchant (“FCM”), research provider, placement agent, remarketer or remarketing agent, underwriter, investment banker, commodity trading advisor, municipal advisor, market maker, prime broker, introducing broker, clearing broker, lending agent, securities lending agent, trader, and liquidity provider.

5 See, for example, https://www.db.com/usa/docs/dbsi-annual-client-disclosure.pdf ; https://www.db.com/usa/docs/db-fi-client-disclosure_022017.pdf ; https://www.db.com/usa/docs/dbsi-fcm-specific-disclosure.pdf.

6 https://www2.isda.org/functional-areas/legal-and-documentation/disclosures/cftc-disclosure-documents ; https://fia.org/sites/default/files/content_attachments/FCM-Conflicts-Disclosure-Statement-071312.pdf ; and http:www.sifma.org/services/standard-forms-and-documentation/municipal-securities-markets .

7 In connection with securities trades, DB may also charge a fee – commonly called an “SEC fee,” “Section 31 Transaction Fee” or “Regulatory Transaction Fee” – to recoup fees paid by DB to regulators or self-regulatory organizations (“SROs”). To see the current SEC rates, go to (www.sec.gov/divisions/marketreg/mrfreqreq.shtml) and click on the most recent “Fee Rate Advisory” under “Section 31 Fees.” In connection with securities trades, DB may charge a “Trading Activity Fee” to recoup fees charged by Financial Industry Regulatory Authority, Inc. (“FINRA”) to cover its cost of supervising and regulating financial institutions. To see the current FINRA rates, go to: http://www.finra.org/Industry/Regulation/Guidance/P122279 ; http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4694\.

8 In connection with futures trades, DB, in its capacity as FCM, may charge an “NFA fee” to recoup fees paid by DB to the National Futures Association (“NFA”) to cover the costs of supervising and regulating financial institutions. To see the current NFA rates, go to: http://www.nfa.futures.org/nfa-faqs/nfa-assessment-fees_faqs/assessment-fees/index.HTML#q1 . In connection with listed options trades, DB may also charge an “Options Regulatory Fee” (“ORF”) to recoup fees paid by DB to exchanges to cover the costs of supervising and regulating the options market. The fees are reflected in a separate fee disclosure provided to the Plan or its agent.

9 For more information, you should consult the Plan’s prime brokerage account agreement and related prime brokerage documentation, any applicable fee schedule, any other related Transaction agreements (e.g., an MSLA or an MRA), any trade confirmations and DB’s ERISA Section 408(b)(2) disclosure available at https://www.db.com/usa/erisa.html.

10 We may also charge a fee to recoup regulatory and central counterparty (“CCP”)-related costs in connection with clearing OTC derivatives. Applicable charges are disclosed on the trade confirm or in the Plan’s client agreement or related fee disclosure or on the CCP’s website.

11 DB’s Form 606 appears under DB’s name on the following website: https://vrs.vista-one-solutions.com/sec606rule.aspx.

12 For more information, you should consult your underlying agreement (including any relevant addenda thereto) and related disclosures, any applicable fee schedule, any trade confirmations and DB’s ERISA Section 408(b)(2) disclosure available at https://www.db.com/usa/erisa.html.

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Last Update: June 7, 2017
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