ERISA Section 408(b)(2) Disclosure for Global Banking and Markets

Bank of America, N.A.

BofA Securities, Inc.

Merrill Lynch Professional Clearing Corp.

Merrill Lynch Valuations LLC

Subsidiaries of Bank of America Corporation (BAC) and their relevant affiliates

 

What is the purpose of this disclosure document?

 Many of our clients are, or act on behalf of, pension plans governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or similar laws. ERISA requires that all service arrangements with ERISA plans satisfy certain minimum regulatory requirements. Often service arrangements are structured to comply with the minimum requirements contained in section 408(b)(2) of ERISA. U.S. Department of Labor ("DOL") rules under that section provide that certain service providers must furnish disclosures about their services and compensation arrangements to the responsible plan fiduciary of their ERISA plan clients. This document is intended to consolidate those disclosures, many of which are available in existing documents that have already been made available to all of our clients. If you need another copy of such existing documents, please contact us.

 

How do I use this disclosure document?

 This disclosure relates to all relevant lines of business and products in our Global Banking & Markets (GBAM) business segment. GBAM provides a variety of services to its institutional investor clients in support of their investing and trading activities. Other BAC business segments (including Global Wealth & Investment Management) may have other arrangements with plan clients that this document does not address and those segments may also be providing required disclosures. If you have questions or need further information regarding arrangements with plan clients in such other business segments, please contact your BAC representative for those arrangements. This disclosure sets forth each category of required information separately for each GBAM line of business. If you believe this disclosure is applicable to you or a plan client for whom you are a responsible fiduciary, you should review the portions of the disclosure that relate to the service(s) that we provide to the plan client. If you are not the responsible fiduciary, please forward this disclosure to the appropriate responsible fiduciary of the plan client.

 

 In addition, if you are a client of an introducing broker, you should contact your introducing broker for any required disclosures.

Cash Equity Securities

 

BofA Securities, Inc. ("BofA Securities") may provide execution services as a broker in connection with the purchase and sale of equity securities executed on an agency basis.

 

Futures

As further described in a plan client's Institutional Futures Client Account Agreement or similar agreement and any Futures Client Account Application, disclosure statements, and notices (collectively, the "Futures Agreement"), BofA Securities may provide services as either an executing broker and/or clearing broker in connection with the purchase and sale of Futures Contracts (as that term is defined in the Futures Agreement).

 

Prime Brokerage

As further described in a plan client's Prime Brokerage Account Agreement (the "PB Agreement"), Merrill Lynch Professional Clearing Corp. ("MLPCC"), Bank of America, N.A. and their affiliates may provide a range of services, including custodial services and executing and settling securities and other transactions on an agency basis on the plan client's behalf (as a broker, clearing agent or both).

 

In addition, Bank of America, N.A. or one of its affiliates may provide an FX prime brokerage facility to a plan client.

 

OTC Clearing

As further described in a plan client's Futures Agreement as supplemented by the Cleared Derivatives Transactions Addendum (the "Cleared Derivatives Addendum") BofA Securities may act as a clearing member in connection with certain over the counter derivatives transactions.

 

Global Transaction Services (GTS)

Bank of America N.A. and affiliates of BAC may provide an extensive range of depository, corporate treasury and related banking products and services. The services we provide to a plan client will be described in one or more documents that have been previously provided, which may include a Deposit Agreement and Disclosures document, an Authorization and Agreement for Treasury Services and accompanying Treasury Services Terms and Conditions Booklet and/or similar documents.

 

PriceServe/Valuation Services

As further described in a plan client's Subscriber Agreement for PriceServe, Merrill Lynch Valuations LLC may make available certain valuation data with respect to certain securities, loans, derivatives and other financial instruments. In addition, Merrill Lynch Valuations LLC or one of its affiliates may provide valuation services as further described in the applicable agreement with a plan client.

All Lines of Business

We do not expect to provide services to plan clients as either a fiduciary (as that term is defined in ERISA) or as an investment adviser registered under either the Investment Adviser Act of 1940 or any state law.

Cash Equity Securities

We charge a commission for trades that we execute as broker for your account on an agency basis. The total amount of the brokerage commission will be confirmed in writing after the trade is executed. Commissions charged for equity securities trades vary but generally do not exceed $0.05 per share transacted.

 

Futures

We will generally receive a commission with respect to any trade for which we act as broker or clearing broker. The commissions and any other similar charges a plan client pays will be set forth in the Futures Agreement (including any fee schedule related thereto) or otherwise provided in writing (including electronically) to you.

 

Prime Brokerage

We will generally receive a fee or commission with respect to any securities or other trades executed on an agency basis for which we act as broker or clearing agent. Any fees, commissions and any other similar charges that a plan client pays will be set forth in its PB Agreement (including any fee schedule related thereto) or otherwise provided in writing (including electronically) to you.

 

As described in the PB Agreement, we may also hire subcustodians. The principal subcustodians are the Depository Trust Company (acting together with its clearing affiliates, the National Securities Clearing Corporation and Fixed Income Clearing Corporation), The Options Clearing Corporation and Euroclear Bank SA/NV, which, by their breadth are able to hold the substantial majority of positions that we maintain for our clients. The aforesaid subcustodians provide significant operational efficiencies at reasonable cost, which, together with their extensive Participant (i.e., member) network makes them, in essence, industry utilities ("Industry Custodian"). There are an assortment of fees that are charged by subcustodians for particular services rendered in various jurisdictions. The charges appearing on the client's account statements are inclusive of subcustodian fees. The principal fees charged by subcustodians are basic custody fees and transaction fees.

 

The Industry Custodians have published rates for their services and do not negotiate rates individually with Participants. Further information regarding the schedule of fees for the Industry Custodians can be found at the following websites:

 

Depository Trust Company

http://www.dtcc.com/products/documentation/dtcfeeguide.pdf

Options Clearing Corporation

http://www.optionsclearing.com/membership/schedule-of-fees/

Euroclear Bank SA/NV

https://www.euroclear.com/site/publishedFile/MA0007_tcm86-109030.pdf&action=dload

You should check these websites for periodic updates.

 

In addition, other subcustodians (generally banks) are employed for certain specialized securities and other investment instruments and for holdings in certain jurisdictions outside the United States. For the most part, subcustodians that are not Industry Custodians are retained to hold securities that are ineligible to be held by Industry Custodians. These subcustodians (other than Industry Custodians) will be compensated based on rates negotiated on an arm's length basis as set forth in the respective custody agreements with the sub-custodians and which apply generally to our clients. Should you require further information regarding subcustodians please contact us.

 

In addition, with respect to a plan client's FX prime brokerage facility, we will generally receive a fee for executing transactions as described in a letter of understanding with the plan client or as otherwise provided in writing (including electronically) to you.

 

OTC Clearing

 We will generally receive a commission with respect to any trade for which we act as clearing member. The commissions and any other similar charges will be set forth in the Futures Agreement as supplemented by the Cleared Derivatives Addendum (including any fee schedule related thereto) or otherwise provided in writing (including electronically) to you.

 

Global Transaction Services (GTS)

When a pension client opens an account, it will receive a fee schedule listing the charges for our services. As described in your fee schedule, for analyzed accounts we employ an analysis system whereby clients receive earnings credit against our fees that depend on the amount of cash held on deposit in the accounts. Alternatively, a pension client may open an interest bearing account whereby the amount of cash held on deposit earns a variable rate of interest.

 

PriceServe/Valuation Services

Our fees will be set forth on the fee schedule in an exhibit to your Subscriber Agreement for PriceServe or in the applicable agreement/fee schedule for other valuation services.

Cash Equity Securities

The following arrangements and practices may constitute indirect compensation:

 

In connection with executing transactions in the marketplace, we route orders to national securities exchanges, alternative trading systems, electronic communications networks, and broker-dealers ("Market Centers"). Certain of these Market Centers offer monetary credits for orders that provide liquidity and assess charges for orders that take liquidity. Whether a Market Center offers us a net credit or assesses us a net charge is determined based on the overall volume of business that we transact with the applicable Market Center over a given period (typically a month) and is not individually based on the activity of any particular account. In addition, we participate in the options order flow programs that are sponsored by various options exchanges and approved by the Securities and Exchange Commission ("SEC"). These exchange-sponsored programs offer payments for listed option orders that are directed to such options markets. When handling equity security orders, we pursue different execution strategies across multiple Market Centers consistent with our best execution obligation, taking into account market conditions, client instructions, liquidity dynamics and price improvement opportunities. These Market Centers competitively employ different and frequently revised pricing schedules with respect to charges, credits and other payments. As a result, it is not possible to predict with reasonable certainty the amount of indirect compensation, if any, that may be received with respect to your particular orders.

 

In accordance with SEC Rule 606, we disclose, on a quarterly basis, the top Market Centers to which we route customer orders for execution. Please see our disclosure at
http://www.ml.com/index.asp?id=7695_8425_8016_7296#sec_order_execution for details concerning our order routing practices and a description of the material aspects of our relationships with Market Centers. In general, we expect annually to incur charges (rather than receive credits) across Market Centers on a net basis with respect to the aggregate business we transact over such period. Further information on the charge/credit schedules for Market Centers can be found at the following websites:

 

Options

BATS and BATS Y: http://batstrading.com/FeeSchedule

CBSX: http://www.cboe.com/publish/cbsxfeeschedule/cbsxfeeschedule.pdf

CHX: http://www.chx.com/content/participant_information/Rules_Fee_schedule.html

EDGA: http://www.directedge.com/Membership/FeeSchedule/EDGAFeeSchedule.aspx

EDGX: http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx

NASDAQ, NASDAQ BX, NASDAQ PSX: http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2

NSX: http://www.nsx.com/content/nsx-fee-schedule

NYSE: http://usequities.nyx.com/markets/nyse-equities/trading-fees

NYSE AMEX: http://usequities.nyx.com/markets/nyse-amex-equities/trading-fees

NYSE ARCA: http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees

 

Cash Equities (Other than Options)

BATS: http://www.batstrading.com/FeeSchedule

BOX: http://www.bostonoptions.com/pdf/BOX_Fee_Schedule.pdf

CBOE: http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf

C2: http://www.cboe.com/publish/C2FeeSchedule/C2FeeSchedule.pdf

ISE: http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf

NASDAQ OMX PHLX: http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf

NASDAQ OMX: http://www.nasdaqtrader.com/Micro.aspx?id=OptionsPricing

NYSE ARCA: http://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_arca_options_fee_schedule_may_08_12.pdf

NYSE AMEX: http://www.nyse.com/pdfs/NYSEAmex_Options_Fee_Schedule.pdf
 

You should check these websites for periodic updates.
 

Futures

The following arrangements and practices may constitute indirect compensation:

 

• As disclosed in the Futures Agreement, in conjunction with clearing or execution services we provide to plan clients, we may, in some circumstances, direct orders to unaffiliated market makers, other executing firms, individual floor brokers or floor brokerage groups for execution. When such unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Any price concessions or volume discounts we receive are passed on to our clients. Furthermore, in general, we do not expect to receive any refunds, rebates or similar payments from such venues. We will, however, receive a $0.50/contract rebate from ICE Futures U.S. for a three month period ending August 31, 2012 for the clearing of newly-listed grain futures.
• As described in the Futures Agreement, a plan client may have granted us the right to pledge, re-pledge, hypothecate, re-hypothecate, engage in repurchase or reverse repurchase transactions with respect to, invest or loan, either separately or with the property of other clients, to either ourselves as broker or to others, any securities or other property held by us on margin for their accounts or as margin or collateral for futures contracts. Because Commodity Futures Trading Commission ("CFTC") Regulation 1.25 (which may be amended by the CFTC from time to time) currently limits the instruments in which we can invest collateral to certain U.S. and U.S. agency obligations, municipal securities, bank CDs, commercial paper and corporate notes/bonds fully guaranteed by the U.S. and money market mutual funds, the return that we may earn by investing that collateral will be limited by the nature of those instruments, the returns of which will vary and are generally dependent on prevailing interest rates.

 

Prime Brokerage

The following arrangements and practices may constitute indirect compensation:

 

• As described in the PB Agreement, a plan client may have granted us the right, among other things, to pledge, repledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of the Collateral (as defined in the PB Agreement). In exercising such rights, we will use the Collateral up to the maximum allowable level permitted under U.S. Federal securities laws, that is employing Collateral having a value of up to 140% of your debit balance. Such use may include the sale of any such Collateral up to the amount described above. Cash balances, commonly termed "free credit balances," are not entitled to receive interest unless individually negotiated by the client (which will be reflected in the client's agreement or some other communication between the parties). SEC rules provide a formula that dictates the amount of cash that is required to be segregated and held at a bank for clients as a whole.
  
• Also, see the above disclosures relating to our Cash Equity Securities and Futures businesses, as those disclosures may apply equally to the extent we execute equity securities or futures trades in connection with a plan client's prime brokerage arrangement.

 

OTC Clearing

The following arrangements and practices may constitute indirect compensation:

 

• As described in the Futures Agreement, plan clients may have granted us the right to pledge, re-pledge, hypothecate, re-hypothecate, engage in repurchase or reverse repurchase transactions with respect to, invest or loan, either separately or with the property of other clients, to either ourselves as broker or to others, any securities or other property held by us on margin for their accounts or as margin or collateral therefor. Because CFTC Regulation 1.25 (which may be amended by the CFTC from time to time) currently limits the instruments in which we can invest collateral to certain U.S. and U.S. agency obligations, municipal securities, bank CDs, commercial paper and corporate notes/bonds fully guaranteed by the U.S. and money market mutual funds, the return that we may earn by investing that collateral will be limited by the nature of those instruments, the returns of which will vary and are generally dependent on prevailing interest rates.
• In connection with the development, establishment and maintenance of, and/or participation in, various swap clearinghouses, exchanges, execution facilities, or similar derivative trading platforms or systems ("Platforms"), we may be eligible for revenue/profit sharing, rebates, credits, fee waivers, caps/floors or discounts, or similar payments, arrangements, benefits or incentives which may be determined by a variety of factors including, for example, the volume of transactions we submit for clearing or trading through the Platform, whether a certain threshold level of fees are received by the Platform in connection with our trades, and/or the total amount of earnings by the Platform over a given period. The specific arrangements and eligibility criteria vary from Platform to Platform and are not generally based solely on an individual client's trade. As a result, it is not possible to predict with reasonable certainty the amount of indirect compensation, if any, that may be received with respect to a particular client's trade.

 

Additional disclosure with respect to material conflicts of interest is set forth in the Futures Agreement.

 

Global Transaction Services (GTS)

The following arrangements and practices may constitute indirect compensation:

 

We may receive revenue sharing or similar fees from money market mutual funds that we make available to our clients as cash management products. Any such fees generally range up to 10 basis points of the amount invested.

 

If a plan client sends a payment denominated in U.S. dollars to an account denominated in a foreign currency, under certain circumstances an intermediary bank or receiving bank may convert the payment into the applicable foreign currency and we may receive compensation from such a bank in connection with the conversion.

 

PriceServe/Valuation Services

We do not reasonably expect to receive any indirect compensation.

 

All Lines of Business

Our internal policies prohibit our employees from accepting gifts or entertainment from ERISA fiduciaries or their representatives or on account of any ERISA plan. Thus, we do not reasonably expect to receive any gifts or entertainment or similar items that would constitute indirect compensation.

All Lines of Business

Any BAC entity that performs a service for, or transacts with, a plan client's account may share some or all of its fees or other remuneration with other BAC affiliates that assist in providing that service or transaction. For example, when a plan client executes a trade on a non-U.S. exchange, the U.S. BAC entity directly servicing the plan client may share a portion of its commission with the non-U.S. BAC affiliate that actually executed the transaction on the non-U.S. exchange. These sharing arrangements are generally structured and performed on an arm's length basis.

All Lines of Business

Except with respect to GTS where certain products elected by a client may contain an early withdrawal or termination fee (which is disclosed in the applicable product documents), we will not receive any compensation for the termination of a plan client's relationship other than the payment of commissions, fees or costs that have been incurred but not yet paid.

 

Special note regarding Form 5500

Based on Q&A 3&4 of the U.S. Department of Labor's FAQs About The 2009 Form 5500 Schedule C, we generally expect any compensation we may receive in connection with any services that we may provide to pension plans subject to ERISA to constitute ordinary operating expenses for Form 5500 purposes. Ordinary operating expenses do not constitute indirect compensation that is reportable on Form 5500. Thus, we do not expect to receive any compensation that is reportable for Form 5500 purposes.

 

Disclaimer

The DOL rules that describe the forgoing disclosures are complex and often ambiguous in their application to many arrangements described herein. These rules are also the subject of continuing DOL guidance. We have prepared the foregoing disclosures in good faith and with reasonable diligence. To the extent we have referenced agreements or other documents herein, you should review those agreements or other documents in full, as they may contain additional information that may be relevant to required disclosures under the DOL rules.