From: Arau, Jose [Jose_Arau@CalPERS.CA.GOV]
Sent: Tuesday, December 10, 2002 5:23 PM
To: 'rule-comments@sec.gov'
Cc: White, Ted; Kiefer, Dan; Forrest, Kelly; Hammer, Jennifer; Wood,
Christy; Anson, Mark; Ishii, Curtis
Subject: File S7-41-02; proposed securities lending exemption

CalPERS, a $125 billion public pension fund, is in support of the proposed
exemption from the definitions of "broker" and "dealer" for banks engaging
in securities lending transactions pursuant to new Exchange Act Rule 15a-11
[17 CFR 240.15a-11].

We believe that banks engaging in securities lending transactions, whether
they are custodial banks or non-custodial banks, are already sufficiently
regulated by the banking authorities (Comptroller of the Currency, Federal
Reserve Board, the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation, and/or the regulation and oversight of state bank
regulators).

Since securities lending by custodial banks had already been exempted from
broker/dealer registration [Exchange Act Section 3(a)(4)(B)(viii)], not to
exempt non-custodial banks from registration would have created a duality in
regulation for the same business. This would have put non-custodial banks at
a competitive disadvantage and it would have created a dichotomy in the
third party business of custodial banks, which would have to be conducted
through a broker/dealer subsidiary.

As a supplier of securities for lending, CalPERS believes that a leveling of
the playing field for non-custodial banks should lead to increased
competition between custodial and non-custodial banks, expanded liquidity,
greater trading efficiencies,  and lower borrowing and execution costs.   

As a major institutional investor, CalPERS believes the limitation of the
exemption to "qualified investors" ensures that the regulatory gap between
banking law (concerned about bank solvency) and securities law (concerned
about investor protection) has been successfully narrowed.

In summary, CalPERS supports the proposed exemption.

Please let me know if you need more information.

Jose Arau, CFA
Principal Investment Officer
Corporate Governance Unit