· web viewplease share actual or indicative annual fx volumes by market, broken down between...

STATE OF TENNESSEETREASURY DEPARTMENT

REQUEST FOR PROPOSALS # 30901-40619AMENDMENT # 2FOR GOODS OR INVESTMENT MASTER CUSTODY AND RELATED SERVICES

DATE: January 14, 2019

RFP # 30901-40619 IS AMENDED AS FOLLOWS:

1. This RFP Schedule of Events updates and confirms scheduled RFP dates. Any event, time, or date containing revised or new text is highlighted.

EVENT TIME (central

time zone)

DATE Updated or Confirmed

1. RFP Issued December 10, 2018

Confirmed

2. Disability Accommodation Request Deadline 2:00 p.m. December 13,

2018Confirmed

3. Pre-response Teleconference 10:00 a.m.

December 14, 2018

Confirmed

4. Notice of Intent to Respond Deadline 2:00 p.m. December 17, 2018

Confirmed

5. Written “Questions & Comments” Deadline 2:00 p.m. January 3, 2019 Confirmed

6. State Response to Written “Questions & Comments” January 14, 2019 Confirmed

7. Second & Final Written “Questions & Comments” Deadline 2:00 p.m. January 22, 2019 Confirmed

8. Final State Response to Written “Questions & Comments” January 28, 2019 Confirmed

9. Response Deadline 2:00 p.m. February 7, 2019 Confirmed

10. State Completion of Technical Response Evaluations February 20, 2019 Confirmed

11. State Schedules Respondent Oral Presentations February 21, 2019 Confirmed

12. Respondent Oral Presentations March 4-8, 2019 Confirmed

RFP# 30901-40619 Amendment 2 of 29

13. State Completion of Oral Presentation Evaluations March 11, 2019 Confirmed

14. State Opening & Scoring of Cost Proposals March 12, 2019 Confirmed

15. State Notice of Intent to Award Released andRFP Files Opened for Public Inspection

March 15, 2019Confirmed

16. End of Open File Period March 22, 2019 Confirmed

17. State sends contract to Contractor for signature March 25, 2019 Confirmed

18. Contractor Signature Deadline 2:00 p.m. March 29, 2019 Confirmed

2. State responses to questions and comments in the table below amend and clarify this RFP.

Any restatement of RFP text in the Question/Comment column shall NOT be construed as a change in the actual wording of the RFP document.

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QUESTION / COMMENT STATE RESPONSE

RFP Section 1

Item 1.1

2 1. The RFP states, "The State expects the successful respondent to provide detailed data at the fund/account level, the portfolio level (i.e., all assets of a specific class within a fund/account) and the sub-account level (i.e., all assets in a portfolio tied to a specific strategy)." Please further define the terms “portfolio level” and “sub-account level”.

Are portfolio level details tied to the Fund Type descriptions in the Current Operating Procedures file (Account List tab)? If not, please provide examples of the specific classes the State requires and total number of asset classes in scope.

Please also provide the number of sub-accounts/strategies in each entity.

Is the State seeking values tracked at these levels through plan accounting?

Please provide a schematic of TCRS pooling if plan accounting is currently being utilized.

There are 6 separate master accounts or aggregates for the following plans:

Tennessee Consolidated Retirement System (TCRS)

Tennessee Chairs of Excellence endowment fund (COE)

Tennessee Baccalaureate Education System Trust (BEST) (also known as the College Savings Trust Fund Program, Educational Services Plan)

Tennessee Promise endowment fund (TN Promise)

Tennessee Other Post-Employment Benefit Trust (OPEB)

Tennessee Qualified School Construction Bond program (QSCB)

Each of these master accounts will have many sub-accounts or portfolios generally delineated by asset type. Specifically TCRS has


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Please provide samples of current reporting illustrating these plans, composites and unitization.

a myriad of sub-accounts by asset type and/or strategy which can be aggregated or stand alone for performance. Each sub account will likely hold many securities.All master accounts and sub-accounts require daily accounting and custody services. Each master account, sub-account or aggregate would need accounting, custody and performance reporting available on a daily basis at both a summary and detailed activity level. See tab “FA – 3 Fund List” in the current operating procedures attachment to the RFP.

Currently, TCRS is the only unitized master account. Meaning all accounts under the TCRS master account will be valued daily and the Custodian Bank will calculate a net asset value per share daily by approximately 7 pm. The Tennessee Retiree Group Trust (TRGT) represents the fund in which certain entities may invest. The TRGT assets are comprised of all assets under the TCRS master account. Participating entities will have an equity interest in the TRGT based on the number of shares held. TCRS is both the plan and a majority interest shareholder in TRGT (99.7%). All participants buy and sell shares in the TRGT daily, weekly, and monthly. Each participant’s trade activity in TRGT will need to be captured in an account.

RFP Section 1

Item 1.1

2 2. The RFP states, "The State is requesting unitization and daily valuation services for our managed fund offering to TCRS, plan participants in the State’s defined contribution plan(s) and local governments with closed pension plans." In the pre-bid conference, the State confirmed that DC assets are not in scope. Please clarify if the Contractor would be responsible for unitization of the TGRT or whether the recordkeeper will be performing this

The State of Tennessee is the record keeper for the TRGT and for all plans listed above. A daily reconciliation of the TRGT and each participant at the summary level will be performed between the State and the Custodian Bank selected by this RFP. The Contractor will be responsible for the unitization of the TGRT. The TRGT is offered in the State’s defined contribution (DC) plans alongside traditional mutual funds.


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unitization?

Who is the current recordkeeper and what is their deadline?

Is the recordkeeper tracking ownership interest of TCRS and other participants (including but not limited to defined contribution, Alcoa, City of Franklin, Stabilization Reserve Trust, Higher Education Hybrid Reserve, Local Government Hybrid Reserve, LEA Hybrid Reserve) in the TGRT?

Is the Contractor required to do any tracking or reporting of the participating plan's interest in the TGRT?

Empower is the current record keeper for the DC plans. Empower has a deadline of 6:30 pm central time for unit values.

Empower tracks ownership of individual accounts and the total units involved in the DC program. Other entities involved in the unitization program such as Alcoa, City of Franklin, etc. are tracked through the combined efforts of Treasury’s accounting staff and the Custodian.

RFP Attach-ment 6.2- Section A Item A.12

20 3. What Order Management System does the State utilize?

Bloomberg AIM

RFP Attachment 6.2 – Section B B.17

24 4. How many individual client references does the State require?

What is the maximum allowed number of client references?

The State prefers three (3) references.

B.17 24 5. What does the State consider to be “completed projects”?

The State does not have specific parameters for “completed projects.” The intention is that the project or work be discrete enough to be capable of evaluation by the individual providing the reference.

RFP Attach-ment 6.2 Section C C.3.3

28 6. Are there any special execution processes, e.g. restricted market exceptions, in place with the incumbent custodian? If so, please describe.

The State may provide special instructions regarding execution to the custodian, but these instances are generally rare.


28 7. Does the State plan to use the Contractor or third party dealers for FX services?

The State expects the custodian to repatriate on dividends and interest on a daily basis. However, for other FX services, the State may request quotes from third parties, which may include the custodian.

RFP Attach-

28 8. Would the State consider outsourcing all FX transactions to the Contractor,

Not at this time.


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ment 6.2 Section C C.4.1

including trade-related FX in freely convertible currencies? If so, what would be the determining factors?


28 9. Please share actual or indicative annual FX volumes by market, broken down between custodian flow and third party flow (please indicate notional amounts in US dollar ($) terms).

The vast majority of FX trading for TCRS is at the discretion of the external managers of the international equity funds. These FX transactions would not flow through the custodian account. The custodian for TCRS is expected to repatriate all incoming cash derived from dividends or other sources as TCRS only intends to hold USD at the custodian. TCRS has exposure to several alternative investments that operate in currency other than USD. The custodian would be expected to perform the FX services necessary to ensure that transfers to and from these entities is delivered in the local currency and received in USD. The total FX services performed by the custodian for calendar year 2018 consisted of 198 transactions valued at $514.6 million.

RFP Attach-ment 6.2 SectionC C.4.1

28 10. Please provide an example of an FX transaction report.

See Exhibit A attached to this Amendment 2 to the RFP.


28 11. How does the State typically instruct the incumbent custodian for FX transactions? E.g. FX standing instructions within the security SWIFT message using Tag 11A or stand-alone method (e.g. Fax)

The current custodian requires a letter of direction for any cash movements, including FX transactions. See examples above.


28 12. Are internal portfolio managers and/or external sub-advisors given full discretion when managing the State’s FX needs?

Does discretion vary by asset class, e.g. fixed income, equity, etc.?

Yes, and the discretion does not vary by asset class.

RFP Attach-ment 6.2 Section

28 13. Are there any special pricing arrangements in place with the incumbent custodian? If so, please

No


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C C.4.1 describe.

RFP Attach-ment 6.2 Section C C.7

29 14. Please provide further details on reporting requirements for fund/account in comparison to portfolio and sub-accounts.

Does the Contractor need to provide custom pooling and unitization to the State and recordkeeper on all three levels (account unitization, asset class unitization, strategy unitization) or is TCRS simply looking for ability to download data from the Contractor’s online reporting system and perform analysis through account and security definitions? For example, if the Contractor’s online reporting system had functionality to provide asset classification by security on each account, would this be sufficient to meet this requirement?

At this time the State expects the custodian to provide strategy unitization as described in responses to Questions 1 and 2. The State may later request that the custodian provide asset class unitization as part of the “optional services” which may be provided in accordance with the terms of the Pro Forma Contract.


29 15. Please confirm that plan accounting services are not required and that plan/participant interest is tracked and reported by the recordkeeper.

See responses to Questions 1 and 2 above.


30 16. Please confirm that the State does not require the Contractor to complete a monthly reconciliation between their accounting records and those of the external or internal managers.

The State will require the custodian to complete a monthly reconciliation between its accounting records and those of the external managers.

RFP Attach-ment 6.2 Section C

30 17. Do we understand the State's requirement correctly that, for accounting purposes, the Contractor must include all trades/activity reported up to 4PM CST in that day's NAV and unitized reporting?

The State requires that, for accounting purposes, the custodian must include all trades/activity reported up to 2PM CST in that day’s NAV and unitized reporting.


30 18. Please confirm that State of Tennessee requires daily performance and compliance reporting for all entities, including TCRS, Chairs of Excellence, Qualified School Construction Bond, Baccalaureate Education System Trust, Tennessee Promise, OPEB, and College Savings Trust Fund Program.

Yes


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RFP Section 6.3

37 19. Would the State be amenable to an alternative pricing hierarchy to the one provided in the RFP if pricing differences are determined to be non-impactful to the current valuation?

No

RFP Attach-ment 6.6

Pro Forma Contract

2 20. The Tennessee Other Post-Employment Benefit Trust (OPEB) and the College Savings Trust Fund Program are referenced in the RFP but are not included in the Current Operating Procedures attachment. Please confirm if these entities are in scope for this RFP. If so, please provide details on the account structure, types of funds, (e.g. commingled vs. separately/internally managed) and type of assets in scope, and whether daily or monthly valuation will be needed for these entities.

Do these entities require daily performance and compliance reporting?

Yes. As indicated by Section A.2. of the Pro Forma Contract, the State may add other Accounts for future investment programs administered by the State. However, at this time, the State does not anticipate that any additional Accounts will require significant amounts of time from the custodian.

RFP Attach-ment 6.6

Pro Forma Contract

4 21. Does the State expect to use cash account balances to offset custodian fees?

No.

RFP Attach-ment 6.6

Pro Forma Contract

8 22. Please provide examples of the custom quarterly account reconciliation, DB tax rate file, KPI reporting, and tax documentation profile?

N/A

RFP Attach-ment 6.6

Pro Forma Contract

N/A 23. Does the “Pro Forma” contract included in the RFP materials reflect the terms of State’s existing contract with its current provider?

Some of the terms of the Pro Forma Contract attached to this RFP are the same as those in the State’s contract with its current custodian, but other terms are different. Some of these changes are due to differences in the State-standard form of contract, and others are due to the State’s changing business needs.

RFP Attach-ment 6.6

N/A 24. How should a respondent address contractual provisions that are not included in the “Pro Forma” contract? Should the respondent provide its

Respondents must provide these requests in the form of questions (not redlines to the contract) as part of the second question and


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Pro Forma Contract

standard contract for the State’s review or attach a list of additional terms?

answer period.

25. Please provide a detailed holdings list (for all entities in scope for this RFP) in Excel format including the following fields: Account Name, Account Number, Security Description, Security Type, Cusip Number, ISIN or Sedol, Market Value, and Country of Settlement. If full holdings details cannot be provided, please detail the number of holdings per entity/account.

See attached Exhibit B attached hereto (Effective Duration Holdings 06.30.2018_Final.xlsx)

26. Please provide annual transaction volumes by country, with transaction type (buy, sells, maturities, redemptions, income, etc.) for all US and non-US activity.

See also Exhibit C attached hereto (Pivot FY18 Data – Update.xlsx).

27. Are derivatives traded in any of the investment manager accounts? If so, what is the volume of trades and number of positions by product type?

During calendar year 2018, there were 610 Fixed Income Derivatives transactions (futures contracts). CDX trading began on November 9, 2018, and there were 22 transactions through December 31, 2018.

28. Please provide account type descriptions for each account within all entities (e.g. commingled vs. separately/internally managed account.)

See the attachments to the Standard Operating Procedures attached to the RFP.

29. Please confirm that there are four plans of participants in TCRS - state employees, higher education employees, teachers, and employees of government entities (local sub-divisions).

Will the Contractor be required to track or report the ownership interest of these plans in the TCRS or will this be handled by the recordkeeper?

For the scope of the services sought under this RFP, TCRS is a single entity. Please also reference the State’s response to Questions # 1 & 2

Current Operating Procedures Technology

N/A 30. In the Current Operating Procedures file on the Technology tab, can the State please clarify the specific data source for each feed (e.g. accounting, custody, performance, compliance)?

The successful custodian will need to provide feeds for performance to Verus, feeds for holdings information to FactSet, compliance feeds to Treasury, and accounting and custody feeds to Treasury (including daily activity and a daily


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31. Do the recipients of each feed require a specific format to receive FTP files?

32. Can the State please provide a sample of the transmission and a requirements document (e.g. BRD) for each?

trial balance). However, this list is subject to change. Treasury would also expect access to a reporting tool that would have the capability to create ad hoc reports with export capabilities.

Yes, each recipient will require a specific format for the feeds. Most of these feeds are well-established formats that follow industry standards.

Tennessee Consolidat-ed Retire-ment System Compre-hensive Annual Financial Report (FY 2017)Financial Section

41 33. In the 2017 Tennessee Consolidated Retirement System Comprehensive Annual Financial Report, the State mentions: ”At year end, the TRGT had uninsured and uncollateralized cash deposits of $31,571,026 in foreign currency held by our master custodian, State Street Bank, in State Street’s name.” Is TRGT/the State currently being paid hard or soft dollar credits on these foreign currency deposits left on State Street’s balance sheet?

Hard dollars

Tennessee Consolidat-ed Retire-ment System Compre-hensive Annual Financial Report (FY 2017)Financial Section

55 34. In the 2017 Tennessee Consolidated Retirement System Comprehensive Annual Financial Report, the State reports “Investment Custodian Fees” of $2,006,081. What services from the incumbent custodian are covered by these fees?

The services covered by these fees include all services required by the custodian during the relevant timeframe.

Tennessee

59 35. In the 2017 Tennessee Consolidated Retirement System Comprehensive

No. The “Custodian” referenced in this Annual Report is the State


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Consolidat-ed Retire-ment System Compre-hensive Annual Financial Report (FY 2017)Financial Section

Annual Financial Report, the State mentions: "The Custodian shall be responsible for the managing and directing the investment of the Group Trust Funds in the same manner as it invests funds of the TCRS." Can the State please further elaborate on this requirement?

Please confirm whether the Tennessee Retiree Group Trust is in scope of this RFP.

Please confirm whether the State of Tennessee is requesting the Contractor to act as a discretionary trustee to any or all of the entities in scope of the RFP.

Treasurer, in his capacity relative to the group trust. The custodian that is the successful respondent to this RFP will not act as discretionary trustee to any of the entities in the scope of the RFP.

Section D.7: Assignment and Subcontracting.

36. Can a definition of “subcontract” be added as follows?:

“Subcontract” shall mean the use by Contractor of any third party, unaffiliated with Contractor, in providing or assisting the Contractor with the provision of any part of the services.

Yes. Accordingly, Section A.2. of the Pro Forma Contract is amended by adding the following as a new subdivision (r):

“For purposes of this Contract, ‘Subcontract’ shall mean the use by Contractor of any third party, unaffiliated with Contractor, in providing or assisting the Contractor with the provision of any part of the services.”

Section D.32: Insurance.

37. Respondent cannot disclose its insurance deductibles nor copies of its insurance policies as they are confidential information. Can these requirements be removed?

Respondent does not control the insurance coverage of its subcontractors, so can this requirement be removed?

Regarding cyber insurance, Respondent is unable to name the State as an additional insured, so can this be removed?

Overall, are the coverages listed able to be negotiated? Not all are consistent with Respondent’s insurance program. A certificate of

(a) No. In order to confirm that coverage is sufficient and that exclusions are appropriate, the State will require certificates of insurance or copies of policies as indicated by Section D.32. of the Pro Forma Contract.

(b) No. If the contractor elects to utilize subcontractors (to the extent permitted by the Pro Forma Contract), the contractor remains responsible for those services and the requisite insurance.

(c) The State understands that contractors will not be able to add the State as an additional insured on a cyberliability policy. Accordingly, the State agrees to


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insurance will be provided to the State listing the relevant current coverages.

amend Section D.32. of the Pro Forma Contract by adding the following sentence to the end of subsection (d):

“Notwithstanding anything in this contract to the contrary, the Contractor shall not be required to add the State as an additional insured on the Contractor’s cyberliability policy.”

Section E.2: Confidentiality.

38. As Respondent cannot customize its information security program by client, Respondent will make its information security team available to discuss its program and controls. Is this sufficient?

No. The State notes that the requirements of Section E.2.a. do not apply to all data which may be exchanged in the course of the contract. These requirements apply to “Confidential State Data,” which is defined as data deemed confidential under state or federal law, rule or regulation.

The State cannot evaluate different information security provisions without reviewing the terms. Respondents may propose revised language (in the form of a question) during the second question and comment period as part of this RFP.

Section E.10: Back-Up and Disaster Recovery.

39. Respondent has its own Business Continuity Plan (“BCP”), a summary of which can be shared with the State. Such BCP has its own Recovery Time Objectives and cannot be customized by client. Can the sharing of the summary of the BCP as well as a commitment to test such BCP annually, satisfy the requirements of the State?

The State cannot evaluate a different Business Continuity Plan without reviewing the terms. Respondents may propose revised language (in the form of a question) for Section E.10. during the second question and comment period as part of this RFP.

40. Please provide the following:

Approximate annual purchase and sale volume by country.

Market values by country. Approximate annual number of

incoming/outgoing wires. Approximate annual number of

OTC derivative purchases and sales.

Approximate annual number of ETF derivative purchases and sales.

See response to question 26 above.


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Number of portfolios for which you will use Compliance monitoring tools

41. In the Fund Type column of the account list provided in the RFP please describe the difference between Real Estate and Real Estate Direct. Do the Real Estate Direct portfolios hold multiple positions?

Real Estate denotes closed-end, private equity style real estate fund investments. Real Estate Direct refers to separate account real estate investments. Each individual property is represented in an account underneath the Separate Account manager’s account. For example, the JP Morgan separate account contains 12 sub-accounts which are each discrete property investments.

There were three errors in the RFP spreadsheet which incorrectly denotes Separate Accounts as fund investments.

Those are:

TCRS Heitman

TCRS AEW

TCRS UBS

42. Please describe the purpose of those accounts listed as Strategic Lending.

“Strategic Lending” is a term coined by staff to denote investments in a discrete asset class characterized by a broad variety of non-investment grade debt related strategies. High-yield bonds and bank loans are examples of the types of investments represented in the class.

TCRS accesses these investments primarily through external relationships, but Staff also manages a small, internally managed fund within this mandate.

The external relationships range from traditional separately managed accounts to closed-ended private partnerships.


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43. What is the average cash balance invested in your current custodians STIF offering?

The goal each day is to invest all cash that is in the custody account. The STIF is not part of the active allocation strategy. On rare occasions, there will be a sum sufficient placed into the STIF to clear activity when the State is closed but banks operate. These times are extremely rare. So, the average balance in the STIF account is effectively zero.

44. Please confirm the vendor for general ledger used by the State

The State currently utilizes the Oracle Peoplesoft enterprise GL as well as an internal (Treasury Only) GL Sage/Abila. The custodian bank is not required to provide an interface to either GL application. However, the custodian bank will be required to provide a monthly GL summary by plan which the state will incorporate into our dual GL processes after subsequent reconciliation.

45. Please confirm custom general ledger report / download, and will be required for all plans

Yes

46. Please confirm all custom processes being provided by your current custodian are disclosed in

the Current Operating Procedures provided with this RFP

Yes.

47. What tracking elements are included and/or required in the KPI reporting?

The State needs more information to respond to this question. Please refer to the section of the relevant section of the RFP or Pro Forma Contract containing this requirement.

48. Please provide samples of the required data feeds listed on the Technology tab of the Current Operation Procedures RFP 30901-40619 document

See response to Question 30 above.

49. Who is the current recordkeeper used by the State? Please confirm the separate DC plans utilize the same

Yes. Empower Retirement.


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recordkeepers

50. Does the recordkeeper(s) have daily trading responsibilities for the investment funds?

No

51. We note Torrey Cove is used as a third party vendor. Do they or another firm provide analytics and reporting for private markets data? Do you rely on the custodian for any analytics/reporting for private market investments?

Yes. Accordingly, the State does not rely on the custodian for analytics/reporting for private market investments.

52. What software tools, if any, do you use in house to track, analyze and report on the private markets assets, e.g., Excel, Burgiss Private i, Investran, eFront, Solovis, Caissa, Dynamo, Parilux, other software vendors.

Excel and eFront

53. Can you please expand on your requirement for Contractual Settlement Date in the US market?

Treasury expects to perform a settlement with the custodian at the beginning of each working day that will include good funds for all anticipated activity for that day. Treasury cannot operate on actual receipt of funds due to the timing of the receipt of funds from the various sources throughout the day.

54. Does your requirement for Contractual Settlement Date in the US market include all asset types, including US side of currency swaps, futures, and incoming wire transfers?

Yes; contractual settlement includes all anticipated activity due to settle on any given date.

55. Would the State’s requirement for contractual settlement date be met if proceeds from trades are made available to the State on contractual settlement date?

Yes

56. Approximately how many security movements (by Market/Country) does your custodian process on an annual basis to support your third party lending arrangement.

During the most recent 12 month period, there were 47,055 US Loan and Return transactions, 1,993 International Market Loan and Return transactions, and 1 Emerging Market transaction, for a grand total of 49,049 transactions.

57. Please indicate whether the number of movements in response to the

No. The transaction report does not include movements for


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previous question are also included in our previous request for total annual purchases and sales

securities lending.

58. Section B General Qualifications and Experience Items -B.17 (p. 25/26) - Please clarify what is meant by the request for references from three (3) completed projects

See the response to Question 5 above.

59. Section D. (p. 36) - Please confirm that no information should be included in our RFP response for the Oral Presentation.

No information about your oral presentation should be included in the RFP response. The oral presentation is a separately evaluated item.

60. Section A.9 (p. 9 of the contract) - Please confirm the role of the client and their responsibilities in order for the contractor to carry out their responsivities mentioned in Tax Reclaim Services.

The Custodian Bank is responsible for managing the tax reclaim process on behalf of the State in all jurisdictions. This includes identifying taxes paid that are eligible for reclaim, obtaining and providing the necessary forms to the State, assisting the state in properly completing the necessary tax reclaim forms, timely filing the forms with the proper authorities in those jurisdictions, and monitoring the process to ensure ultimate receipt of those reclaimed funds.

The State’s responsibility is to sign and return the forms to the custodian bank timely, along with any required documentation to justify our eligibility to reclaim those taxes and provide for the payment of any necessary filing fees.

61. Section A.9 (p. 9 of the contract) Please confirm the dependencies by jurisdiction of investment for Tax Reclaim Services.

See response to Question 60 above.

Section A.2.d(5)

2 62. Please confirm that the language in Section E.7 supersedes the language in this section to the extent of any conflict between the two sections.

The language in Section A.2.d(5) supersedes the language in Section E.7. to the extent of any conflict between the two (2) sections.

Section A.2.d(7)

2-3 63. It is market standard for subcustodians and depositories to have a certain rights of security interest and lien on

The State declines to make this requested change to the Pro Forma Contract. The existing


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account assets. Vendor proposes to modify the lien language below to add those exceptions and have the provision read:

The Contractor will authorize the holding of Securities and/or cash by a foreign bank or foreign securities depository (in which Securities are held for the account of either the Contractor or a foreign bank acting as its subcustodian) only (i) to the extent that Securities and cash are not subject to any right, charge, security interest, lien or claim of any kind in favor of such bank or securities depository, except for a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of a foreign bank arising under bankruptcy, insolvency, or similar laws, and (ii) to the extent that beneficial ownership of such Securities and cash is freely transferable without the payment of money or value. Any costs, fees or expenses associated with the safekeeping and servicing of the Securities and/or cash by a foreign bank or foreign securities depository, other than those expenses specifically set forth in Section C.5 below, shall be the responsibility of the Contractor.

language in Section A.2.d(7) is very similar to provisions that have been in the State’s master custodian contracts for many years.

Section A.9

8-9 64. Vendor proposes to exclude tax reclaims below a de minimis amount of $200 and have the provision read:

The Contractor shall provide to the State tax reclaim services described in [PAGENUMBERS FROM SUCCESSFUL PROPOSAL WHICH RESPOND TO SECTION C.3.1 OF THE RFP ATTACHMENT 6.2] of the Contractor’s Proposal. The Contractor shall pay,or cause to be paid, all legally applicable taxes and levies in the nature of taxes imposed on the property in the Custody Accounts by any governmental authority. Subject to the provision by the State of the appropriate documentation, upon

No. The State does not agree to have a de minimis amount for tax reclaims.


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which the Contractor may rely without further inquiry, the Contractor shall monitor tax liability and actively manage tax exemption and collection processing, including endeavoring to obtain all recoverable tax exemptions, privileges or other benefits, including reclaiming and recovering any withholding tax, as soon as possible following the reclamation date except for such claimsbelow Contractor’s de minimis provisions relating to the recoverability of tax notified to the State from time to time and shall, unless otherwise directed by the State, execute any tax reclaim forms, declarations, affidavits, or certificates of ownership which may be necessary in connection therewith. The Contractor will support tax reclaim receivable reporting on adaily basis.

Section A.16

12 65. Vendor proposes to add a materiality threshold to the State’s right to require Vendor to assign additional personnel to the State’s account, and have the provision read:

The Contractor shall provide sufficient staffing, through both personnel solely dedicated to this Contract and otherwise, to provide the service level described in this Contract (including the SOP the Contractor’s response seeking this Contract). The Contractor shall provide a minimum of two (2) full time staff dedicated solely to the State’s account and responsible for coordinating and/or delivering the services sought under this RFP for the duration of this Contract. The parties acknowledge that during the Term of this Contract these individuals may change, and the Contractor shall provide for their replacement with staff of similar knowledge and experience to perform those same duties. The State reserves the right to require the Contractor to assign additional personnel to the State’s account if the Contractor fails to meet any of its material obligations under this Contract.

The State agrees to make this requested change. Accordingly, Section A.16 of the Pro Forma Contract is amended by deleting the language in the section in its entirety and replacing it with the following, so that, as amended, the section shall read:

The Contractor shall provide sufficient staffing, through both personnel solely dedicated to this Contract and otherwise, to provide the service level described in this Contract (including the SOP the Contractor’s response seeking this Contract). The Contractor shall provide a minimum of two (2) full time staff dedicated solely to the State’s account and responsible for coordinating and/or delivering the services sought under this RFP for the duration of this Contract. The parties acknowledge that during the Term of this Contract these individuals may change, and the Contractor shall provide for their replacement with staff of similar knowledge and experience to perform those same duties. The State reserves the right to require


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the Contractor to assign additional personnel to the State’s account if the Contractor fails to meet any of its material obligations under this Contract.

Section D.5

16 66. Vendor proposes to change the notice period to 60 days andhave the provision read:

The State may terminate this Contract for convenience without cause and for any reason. The State shall give the Contractor at least sixty (60) days written notice before the termination date. The Contractor shall be entitled to compensation for all conforming goods delivered and accepted by the State or for satisfactory, authorized services completed as of the termination date. In no event shall the State be liable to the Contractor for compensation for any goods neither requested nor accepted by the State or for any services neither requested by the State nor satisfactorily performed by the Contractor. In no event shall the State’s exercise of its right to terminate this Contract for convenience relieve the Contractor of any liability to the State for any damages or claims arising under this Contract

No. This is language from the State’s standard contract, and the State is unable to make this requested change.

Section D.10.c

17 67. Vendor would like to understand what type of records the State envisions Vendor should keep (in order to comply with this section) and proposes to clarify that it will maintain the records required by this section for key personnel used in the performance of the Contract, and have the provision read:

The Contractor shall maintain records for all key personnel used in the performance of this Contract. Contractor’s records shall be subject to review and random inspection at any reasonable time upon reasonable notice by the State.

The State expects the Contractor to keep records sufficient for the State to evaluate the Contractor’s compliance with this section of the Contract.

Section D.18

18 68. Vendor proposes to make the first two sentences of Section D.17

No. The State is unable to make this requested change.


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mutual/equal and therefore include them in Section D.18, and have the provision read:

The Contractor shall have no liability except as specifically provided in this Contract. In no event will the Contractor be liable to the State or any other party for any lost revenues, lost profits, loss of business, decrease in the value of any Securities or cash position, time, goodwill, or any indirect, special, incidental, punitive, exemplary or consequential damages of any nature, whether based on warranty, contract, statute, regulation, tort (including but not limited to negligence), or any other legal theory that may arise under this Contract or otherwise. In accordance with Tenn. Code Ann. § 12-3-701, the Contractor’s liability for all claims arising under this Contract shall be limited to an amount equal to two (2) times the Maximum Liability amount detailed in Section C.1. and as may be amended, PROVIDED THAT in no event shall this Section limit the liability of the5 Contractor for: (i) intellectual property or any Contractor indemnity obligations provided for in Section D.19 for infringement for third-party intellectual property rights; (ii) any claims covered by any specific provision in the Contract providing for liquidated damages; or (iii) any claims for intentional torts, criminal acts, fraudulent conduct, or acts or omissions that result in personal injuries or death.

Section D.19

18 69. Vendor does not agree to indemnify its clients for indirectclaims and proposes the provision read:

The Contractor agrees to indemnify and hold harmless the State of Tennessee as well as its officers, agents, and employees from and against any and all claims, liabilities, losses, and causes of action which may arise, accrue, or result to any person, firm, corporation, or other entity which may be injured or

No. This is language from the State’s standard contract, and the State is unable to make this requested change.


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damaged as a direct result of negligent acts, omissions, or willful misconduct on the part of the Contractor, its employees, or any person acting for or on its or their behalf relating to this Contract. The Contractor further agrees it shall be liable for the reasonable cost of attorneys for the State to enforce the terms of this Contract.

In the event of any suit or claim, the Parties shall give each other immediate notice and provide all necessary assistance to respond. The failure of the State to give notice shall only relieve the Contractor of its obligations under this Section to the extent that the Contractor can demonstrate actual prejudice arising from the failure to give notice. This Section shall not grant the Contractor, through its attorneys, the right to represent the State in any legal matter, as the right to represent the State is governed by Tenn. Code Ann. § 8-6-106.

Section E.2.b

24-25

70. This section does not allow Vendor the ability to disclose the State’s information in connection with its provision of services or if Vendor required disclosures by a court of competent jurisdiction or an appropriately empowered governmental agency. Vendor proposes the provision read:

Strict standards of confidentiality of records and information shall be maintained in accordance with applicable state and federal law. All material and information, regardless of form, medium or method of communication, provided to the Contractor by the State or acquired by the Contractor on behalf of the State shall be regarded as confidential information in accordance with the provisions of applicable state and federal law, state and federal rules and regulations, departmental policy, and ethical standards. Such confidential information shall not be disclosed except in connection with

The State agrees to make this requested change. Accordingly, Section E.2.b. of the Pro Forma Contract is amended by deleting the language in the section in its entirety and replacing it with the following language, so that, as amended, the section shall read:

Strict standards of confidentiality of records and information shall be maintained in accordance with applicable state and federal law. All material and information, regardless of form, medium or method of communication, provided to the Contractor by the State or acquired by the Contractor on behalf of the State shall be regarded as confidential information in accordance with the provisions of applicable state and federal law, state and federal rules and


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the provision of services hereunder, and all necessary steps shall be taken by the Contractor to safeguard the confidentiality of such material or information in conformance with applicable state and federal law, state and federal rules and regulations, departmental policy, and ethical standards

The Contractor’s obligations under this section do not apply to information in the public domain; entering the public domain but not from a breach by the Contractor of this Contract; previously possessed by the Contractor without written obligations to the State to protect it; acquired by the Contractor without written restrictions against disclosure from a third party which, to the Contractor’s knowledge, is free to disclose the information; independently6 developed by the Contractor without the use of the State’s information; required to be disclosed by a court of competent jurisdiction or an appropriately empowered governmental agency; or, disclosed by the State to others without restrictions against disclosure. Nothing in this paragraph shall permit Contractor to disclose any information that is confidential under federal or state law or regulations, regardless of whether it has been disclosed or made available to the Contractor due to intentional or negligent actions or inactions of agents of the State or third parties.

It is expressly understood and agreed that the obligations set forth in this section shall survive the termination of this Contract.

regulations, departmental policy, and ethical standards. Such confidential information shall not be disclosed except in connection with the provision of services hereunder, and all necessary steps shall be taken by the Contractor to safeguard the confidentiality of such material or information in conformance with applicable state and federal law, state and federal rules and regulations, departmental policy, and ethical standards

The Contractor’s obligations under this section do not apply to information in the public domain; entering the public domain but not from a breach by the Contractor of this Contract; previously possessed by the Contractor without written obligations to the State to protect it; acquired by the Contractor without written restrictions against disclosure from a third party which, to the Contractor’s knowledge, is free to disclose the information; independently developed by the Contractor without the use of the State’s information; required to be disclosed by a court of competent jurisdiction or an appropriately empowered governmental agency; or, disclosed by the State to others without restrictions against disclosure. Nothing in this paragraph shall permit Contractor to disclose any information that is confidential under federal or state law or regulations, regardless of whether it has been disclosed or made available to the Contractor due to intentional or negligent actions or inactions of agents of the State or third parties.

It is expressly understood and


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agreed that the obligations set forth in this section shall survive the termination of this Contract.

Section E.5

25 71. Please confirm the language in this section supersedes the language in

72. Section D.7 to the extent of any conflict in the two provisions

Section E.5. deals with changes in ownership, and section D.7. concerns assignment and contracting. The State does not envision a conflict between those two (2) sections.

Section E.7

25-26

73. Vendor would like to confirm that the language in this section supersedes the language in Section A.2.d(5) to the extent of any conflict in the two provisions, and also proposes (as previously proposed) to limit its losses to direct losses and to add other exclusions to those set forth in this section, and have the provision read:

The Contractor shall be liable to the State for any loss suffered by the State as a direct result of the Contractor's fraud, negligence, or willful misconduct in performing or failing to perform its duties as set out herein and as provided in Section A.2. hereof, including, but not limited to, any loss occasioned by reason of negligence of or robbery, burglary or theft by its employees. Notwithstanding the foregoing, the Contractor shall not be liable for any loss to the State which is due to causes outside the control of the Contractor, or the entity having possession or custody of the Securities or cash as provided in Section A.2. hereof, and which could not be avoided by the exercise of due care. Such causes include, but are not limited to, losses resulting from nationalization, expropriation, currency restrictions, act of war or terrorism, riot, revolution, act of God or other similar events or acts. Such causes shall also include losses resulting from (i) any clearinghouse or depository utilized by the Contraction in connection with the provision of services hereunder or (ii) the acts or omissions of any broker or other agent engaged by the State or any investment manager in connection

The language in Section A.2.d(5) supersedes the language in Section E.7. to the extent of any conflict between the two (2) sections. In addition, the State does not agree to make the requested change.


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with the provision of services hereunder.

74. Section A.2. of the Pro Forma Contract is amended by adding the following as new subdivision (r):

Subcontracts. For purposes of this Contract, “Subcontract” shall mean the use by Contractor of any third party, unaffiliated with Contractor, in providing or assisting the Contractor with the provision of any part of the services.”

75. Section A.16. of the Pro Forma Contract is amended by deleting the language in the subsection in its entirety and replacing it with the following, so that, as amended, the subsection shall read:

The Contractor shall provide sufficient staffing, through both personnel solely dedicated to this Contract and otherwise, to provide the service level described in this Contract (including the SOP the Contractor’s response seeking this Contract). The Contractor shall provide a minimum of two (2) full time staff dedicated solely to the State’s account and responsible for coordinating and/or delivering the services sought under this RFP for the duration of this Contract. The parties acknowledge that during the Term of this Contract these individuals may change, and the Contractor shall provide for their replacement with staff of similar knowledge and experience to perform those same duties. The State reserves the right to require the Contractor to assign additional personnel to the State’s account if the Contractor fails to meet any of its material obligations under this Contract.

76. Section D.32.d. of the Pro Forma Contract is amended by deleting the language in the subsection in its entirety and replacing it with the following, so that, as amended, the subsection shall read:

Cyberliability Insurance. The Contractor shall maintain cyberliability insurance, including privacy breach response and network asset protection, with a limit of not less than five mission dollars ($5,000,000) aggregate. The State shall be notified immediately if 50% of the required insurance aggregate limit is encumbered. The Contractor’s obligation to obtain the insurance does not waive or release the Contractor’s liabilities or indemnification obligations under this Contract. Notwithstanding anything in this Contract to the contrary, the Contractor shall not be required to add the State as an additional insured on the Contractor’s cyberliability policy.”

77. Section E.2.b. of the Pro Forma Contract is amended by deleting the language in the subsection in its entirety and replacing it with the following, so that, as amended, the subsection shall read:

Strict standards of confidentiality of records and information shall be maintained in accordance with applicable state and federal law. All material and information, regardless of form, medium or method of communication, provided to the Contractor by the State or acquired by the Contractor on behalf of the State shall be regarded as confidential information in accordance with the provisions of applicable state and federal law, state and federal rules and regulations, departmental policy, and ethical standards. Such confidential information shall not be disclosed except in connection with the provision of services hereunder, and all necessary steps shall be taken by the Contractor to


safeguard the confidentiality of such material or information in conformance with applicable state and federal law, state and federal rules and regulations, departmental policy, and ethical standards

The Contractor’s obligations under this section do not apply to information in the public domain; entering the public domain but not from a breach by the Contractor of this Contract; previously possessed by the Contractor without written obligations to the State to protect it; acquired by the Contractor without written restrictions against disclosure from a third party which, to the Contractor’s knowledge, is free to disclose the information; independently developed by the Contractor without the use of the State’s information; required to be disclosed by a court of competent jurisdiction or an appropriately empowered governmental agency; or, disclosed by the State to others without restrictions against disclosure. Nothing in this paragraph shall permit Contractor to disclose any information that is confidential under federal or state law or regulations, regardless of whether it has been disclosed or made available to the Contractor due to intentional or negligent actions or inactions of agents of the State or third parties.It is expressly understood and agreed that the obligations set forth in this section shall survive the termination of this Contract.

78. RFP Amendment Effective Date . The revisions set forth herein shall be effective upon release. All other terms and conditions of this RFP not expressly amended herein shall remain in full force and effect.


EXHIBIT A

See attached (FX Transaction Report)


EXHIBIT B

See attached (Effective Duration Holdings 06.30.2018_Final.xlsx)


EXHIBIT C

See attached (Pivot FY18 Data – Update.xlsx)


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