[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24682]
[[Page Unknown]]
[Federal Register: October 6, 1994]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 344
[Department of the Treasury Circular, Public Debt Series No. 3-72]
United States Treasury Certificates of Indebtedness, Treasury
Notes, and Treasury Bonds--State and Local Government Series
AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the
Treasury.
ACTION: Proposed rule.
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SUMMARY: The Department of the Treasury hereby publishes, for comment,
a proposed rule governing United States Treasury Certificates of
Indebtedness, Notes, and Bonds of the State and Local Government
Series. These securities are available for purchase, as provided in
this offering, by State and local governments and certain other
entities with proceeds (or amounts treated as proceeds) which are
subject to yield restrictions or arbitrage rebate requirements under
the Internal Revenue Code. The securities are characterized in the
regulations as time deposit, demand deposit, and special zero interest.
This proposed rulemaking sets out the regulatory requirements which
stem from the Department of the Treasury's new processing environment
for United States Treasury Certificates of Indebtedness, Notes, and
Bonds of the State and Local Government Series (SLGS).
The Bureau of the Public Debt is implementing operational and
regulatory changes expected to benefit investors by providing
streamlined procedures, a centralized processing facility, and improved
customer services.
DATES: Comments must be received on or before October 21, 1994.
ADDRESSES: Comments should be sent to: Division of Special Investments,
Bureau of the Public Debt, 200 Third Street, P.O. Box 1328,
Parkersburg, West Virginia 26106-1328. Comments received will be
available for public inspection and copying at the Treasury Department
Library, FOIA Collection, Room 5030, Main Treasury Building, 1500
Pennsylvania Avenue, NW., Washington, DC 20220. Persons wishing to
visit the library should call (202) 622-0990 for an appointment.
FOR FURTHER INFORMATION CONTACT: Fred Pyatt, Director, Division of
Special Investments, Bureau of the Public Debt (304) 480-7752, Ed
Gronseth, Deputy Chief Counsel, or Jim Kramer-Wilt, Attorney-Adviser,
Office of the Chief Counsel, Bureau of the Public Debt (304) 480-5190.
SUPPLEMENTARY INFORMATION:
I. Background
The proposed rule is a revision of existing regulations codified at
31 CFR part 344, published on July 7, 1989, at 54 FR 28752, with
technical corrections published July 7, 1993, at 58 FR 31908.
In 1992, the Bureau of the Public Debt established the Division of
Special Investments at its offices in Parkersburg, West Virginia (WV).
The primary mission of the Division of Special Investments has been to
provide policy guidance and direction for the State and Local
Government Series securities program. The Division has reviewed the
current processing environment and is implementing operational and
regulatory changes which are expected to benefit investors in United
States Treasury securities of the State and Local Government Series by
providing streamlined procedures, a centralized processing facility,
and improved customer services.
In the current processing environment for State and Local
Government Series securities, the Bureau of the Public Debt has
authorized selected Federal Reserve Banks or Branches, acting as fiscal
agents of the United States, to provide services in connection with the
purchase of, transactions involving, and redemption of, the securities.
Subscriptions for the purchase of State and Local Government Series
securities are accepted at designated Federal Reserve Banks or
Branches, subject to verification by the Bureau of the Public Debt.
Full payment for each subscription must be available in an account for
debit by the Federal Reserve Bank or Branch on or before the date of
issue.
The current processing environment requires that staffing and
technical expertise be maintained at 12 designated Federal Reserve
Banks or Branches to provide unique services in connection with State
and Local Government Series securities. The Bureau of the Public Debt,
Office of Securities and Accounting Services, Division of Special
Investments (hereafter referred to as the Division of Special
Investments) has determined that the volume of transactions in this
securities program does not merit the expense of maintaining technical
expertise at 12 different locations.
The Bureau of the Public Debt has decided to centralize all
issuance, funds collection, and accounting functions for the State and
Local Government Series securities program in the Division of Special
Investments. The responsibility for these functions will be withdrawn
from the designated Federal Reserve Banks beginning on a specific issue
date which will be announced in the final rule. It is anticipated that
this date will be January 3, 1995.
After centralization, Federal Reserve Bank or Branch involvement in
this program will be limited to processing interest and redemption
payments made through reserve account credits for a very small number
of existing securities accounts. This method of payment is limited to
securities for which subscriptions were submitted prior to February 1,
1987. More than 98% of all interest and redemption payments for State
and Local Government Series securities are made by the Automated
Clearing House method (ACH), with credit directed to the owner's
account at a financial institution.
Beginning on the effective date of the final rule, subscriptions
for the purchase of State and Local Government Series securities which
request issuance on or after a designated date will only be accepted by
the Division of Special Investments. Full payment for each subscription
will be submitted by the investor's financial institution on or before
the issue date utilizing the Fedwire funds transfer system which is
available throughout the commercial banking industry. It will no longer
be necessary for investors to deposit the funds in an account subject
to debit by a Federal Reserve Bank or Branch on or before the date of
issue.
This proposed rule change is expected to provide investors in State
and Local Government Series securities with several benefits. Investors
will enjoy a higher level of customer service and more consistent
application of the regulations pertaining to this securities program.
Investors will be dealing directly with staff in the Division of
Special Investments who are trained and skilled in the many unique
aspects of this securities program and whose principal responsibility
it is to manage the State and Local Government Series securities
program.
In addition, United States taxpayers will benefit in terms of the
reduced costs of operating this securities program which will be
realized by centralizing operations within the Division of Special
Investments.
Because the responsibility for all issuance, funds collection, and
accounting functions for the State and Local Government Series
securities program will be withdrawn from the designated Federal
Reserve Banks and because the Division of Special Investments must
assume these operations on or about January 3, 1995, the Bureau of the
Public Debt has determined that a comment period of 15 days is
necessary. This will allow time for comments to be incorporated in a
final rule within operational time constraints. Although most of the
changes in this proposed rule are ministerial in nature (for example,
changes to increase the use of facsimile transmittals and to provide
new addresses), proposed changes concerning amending subscriptions
(Sec. 344.3(b)(3)(iv) and Sec. 344.7(b)) and concerning waivers and
fees associated with the failure to settle subscriptions (Sec. 344.4(b)
and Sec. 344.8(b)) merit special attention.
The Department of the Treasury is also in the process of
considering the revision of the regulations governing the State and
Local Government Series securities program, with a view to increasing
the flexibility of the program. The proposed rule does not include
these types of changes due to the need to adopt the proposed rule very
quickly. Changes to the State and Local Government Series securities
program could include changes in the certification requirements and in
the rules relating to the redemption of SLGS securities before
maturity.
II. Section By Section Summary
Subpart A--General Information
Provisions included in the general information section apply to
time deposit, demand deposit, and special zero interest State and Local
Government Series securities. Proposed changes from the 1989
regulations are as follows:
(1) Section 344.0--The term ``date telecopied'' for material sent
by facsimile equipment is defined as the date transmitted as it appears
on the document received. In the case of other carrier services, the
term ``date-stamp'' is defined as the date affixed by the carrier
service upon the carrier's taking receipt of the material.
(2)-(3) Section 344.1(a) and Section 344.1(b)--The agency's
Parkersburg, WV, address is substituted for its former Washington, DC,
address.
Subpart B--Time Deposit Securities
Time deposit Treasury securities are offered to State and local
government investors to enable these investors to satisfy yield
restrictions prescribed by the Internal Revenue Code and regulations.
Changes from the 1989 regulations are as follows:
(1) Section 344.2(b)--This section would delete reference to the
Federal Reserve Banks as a receiving point for initial subscriptions to
reflect the consolidation of program administration in Parkersburg, WV,
and would expressly allow for sending of initial subscriptions by
facsimile equipment (FAX) or other carriers, in addition to postal
delivery.
(2) Section 344.2(c)(2)--This section would clarify the authority
governing Automated Clearing House payments on account of United States
securities.
(3) Section 344.2(c)(2)(iii)--This section would clarify that
fiscal agency checks, rather than Treasury checks, are an alternative
payment mechanism for securities for which subscriptions were submitted
prior to February 1, 1987.
(4) Section 344.3(a)--This section would delete reference to the
Federal Reserve Banks as the receiving point for subscriptions for
purchase of securities under this offering, as well as the reference to
in person delivery to such Banks, to reflect the consolidation of
program administration in Parkersburg, WV. In addition, this section
would expressly allow for sending of initial subscriptions by facsimile
equipment. Whether subscriptions are sent by FAX, mail or other
carrier, subscribers are encouraged to expedite delivery.
(5) Section 344.3(b)(1)--This section would permit sending of
initial subscriptions by facsimile and other carriers. The Bureau of
the Public Debt is substituted for the Federal Reserve Banks to reflect
the consolidation of program administration in Parkersburg, WV.
(6) Section 344.3(b)(3)--The current rule requires that amendments
to initial subscriptions be filed on or before the issue date. As
proposed, this section would add a 3 p.m., Eastern time, submission
deadline. In addition, this section would permit sending of amendments
to initial subscriptions by facsimile, provided the notification is
clearly identified as an amendment and is immediately followed by the
submission by mail or other carrier of written notification of the
amendment.
(7) Section 344.3(b)(3)(i)--This section would clarify that an
amendment to an initial subscription may not change the issue date to
require issuance earlier than the issue date originally specified. In
this section, the Bureau of the Public Debt is substituted for the
Federal Reserve Banks to reflect the consolidation of program
administration in Parkersburg, WV. The current regulation requires that
changes under this section be submitted no later than one business day
before the originally specified issue date. As proposed, this section
would add a 3 p.m., Eastern time, submission deadline.
(8) Section 344.3(b)(3)(ii) and (iii)--This section would make
technical changes required by the addition of new section
344.3(b)(3)(iv).
(9) Section 344.3(b)(3)(iv)--This new section would govern
amendments to initial subscriptions which are not submitted timely.
Under this proposed new section, where an amendment is not submitted
timely, the Division of Special Investments may determine, pursuant to
the provisions governing waiver of regulations set forth under 31 CFR
306.126, that such an amendment is acceptable on an exception basis.
Where an amendment is determined to be acceptable on an exception
basis, the amended information shall be used as the basis for issuing
the securities, and an administrative fee of $100 per subscription will
be assessed. The Secretary reserves the right to reject amendments
which are not submitted timely.
(10) Section 344.3(c)--In this section, the Bureau of the Public
Debt is substituted for the Federal Reserve Banks to reflect the
consolidation of program administration in Parkersburg, WV. The current
rule requires that a final subscription must be submitted on or before
the issue date. As proposed, this section would add a 3 p.m., Eastern
time, submission deadline. In addition, this proposed section is
updated to reflect sending of a final subscription by facsimile
equipment.
(11) Section 344.3(c)(1)--A typographical error in the current
regulation is corrected.
(12) Section 344.4--The current section is divided into two parts,
(a) and (b).
(13) Section 344.4(a)--This section would require that the issue
date selected by the subscriber must be a business day and would allow
for the sending of initial subscriptions by facsimile or other carrier.
In this section, the Bureau of the Public Debt is substituted for the
Federal Reserve Banks. The current rule requires investors to make
payment by having their financial institution deposit funds in a
reserve account for debit by a Federal Reserve Bank or Branch on or
before the date of issue. Under the proposed section, full payment for
each subscription must be submitted utilizing the Fedwire funds
transfer system.
(14) Section 344.4(b)--The current regulation provides that any
subscriber which fails to make settlement on a subscription once
submitted is ineligible thereafter to subscribe for securities under
this offering for a period of six months. Under the current regulation,
the Commissioner of the Public Debt may determine, given the
circumstances of the case, that the six month penalty need not apply.
As proposed, the Division of Special Investments may determine to waive
the six month penalty, pursuant to the provisions governing waiver of
regulations set forth under 31 CFR 306.126. Where settlement occurs
after the proposed issue date and the Division of Special Investments
determines, pursuant to 31 CFR 306.126, that settlement is acceptable
on an exception basis, the six month penalty will be waived, and the
subscriber shall be subject to a late payment assessment. The
assessment will include payment of an amount equal to the amount of
interest that would have accrued on the securities from the proposed
issue date to the date of settlement, as well as an administrative fee
of $100 per subscription. Assessments under this subsection are due on
demand. Failure to pay an assessment shall render the subscriber
ineligible thereafter to subscribe for securities under this offering
until the assessment is paid.
(15) Section 344.5(b)(2)--This section would add a reference to a
designated Treasury form and delete a reference to wire as an
authorized means of submitting notice for redemption prior to maturity.
The agency's Parkersburg, WV, address is substituted for its former
Washington, DC, address. This proposed section would allow the notice
of redemption to be sent by facsimile or by other carriers. The current
regulation provides that notice of redemption must be received no less
than 15 calendar days before the requested redemption date. However,
owners are encouraged to provide as much notice of redemption as
possible to assure that payment can be timely made. As proposed, this
section would provide that notice be submitted no less than 15 calendar
days and no more than 60 calendar days before the requested redemption
date.
(16) Section 344.5(b)(3)(ii)--The current regulation states that
the applicable rate table for determining the ``current borrowing
rate'' is the one in effect on the day the request for early redemption
is received or, where mailed, the postmark date. This section would
clarify that the applicable rate table is the one in effect on the day
the request for early redemption is telecopied, postmarked, or where
delivered by other carrier, date-stamped.
Subpart C--Demand Deposit Securities
The Tax Reform Act of 1986 imposed arbitrage rebate requirements on
issuers of tax-exempt bonds and directed the Department of the Treasury
to accommodate such requirements by enabling entities to invest
qualifying funds in a Treasury money-market type investment vehicle.
Accordingly, the Department expanded the State and Local Government
Series program, beginning with its 1986 regulations, to include a
demand deposit security offering. This security is not treated as
investment property for purposes of sections 143(g)(3) and 148 of the
Internal Revenue Code and, therefore, enables eligible entities to
invest proceeds of tax-exempt bonds in an obligation which avoids the
earning of arbitrage subject to rebate. Proposed changes from the
current rule are as follows:
(1) Section 344.6(c)--A typographical error in the current
regulation is corrected.
(2) Section 344.7(a)--A typographical error in the current
regulation is corrected, and the Bureau of the Public Debt is
substituted for the Federal Reserve Banks to reflect the consolidation
of program activities in Parkersburg, WV. The current regulation
provides that subscriptions must be received under this section at
least three business days before the issue date, by a 1 p.m., Eastern
time, deadline. The proposed section would clarify that subscriptions
may be submitted by certified or registered mail, or by other carrier.
In addition, the proposed section provides that a subscription may be
submitted by facsimile equipment, at least three business days before
the issue date, provided that the original subscription form is
submitted by mail, or other carrier, and is received by the Bureau of
the Public Debt by 3 p.m., Eastern time, on the issue date.
(3) Section 344.7(b)--Current Sec. 344.7(b) is redesignated
Sec. 344.7(c) and a new Sec. 344.7(b) is added. The current regulation
provides that the principal amount to be invested may be changed
without penalty so long as notice is provided by 1 p.m., Eastern time,
at least one business day before the issue date. The proposed section
provides that the principal amount to be invested may be changed
without penalty on or before the issue date, but no later than 1 p.m.,
Eastern time, on the issue date. This section would allow for sending
of amendments to original subscriptions by facsimile, provided the
notification is clearly identified as an amendment and is immediately
followed by the submission, by mail or other carrier, of written
notification of the amendment. In addition, this section would provide
that, where an amendment is not submitted timely, the Division of
Special Investments may determine, pursuant to the provisions governing
waiver of regulations set forth under 31 CFR 306.126, that such an
amendment is acceptable on an exception basis. Where an amendment is
determined to be acceptable on an exception basis, the amended
information shall be used as the basis for issuing the securities, and
an administrative fee of $100 per subscription will be assessed. The
Secretary reserves the right to reject amendments which are not
submitted timely.
(4) Section 344.7(c)--Current Sec. 344.7(b) is redesignated as
Sec. 344.7(c). A typographical error in current Sec. 344.7(b)(5)(vii)
is corrected.
(5) Section 344.8--The current section is divided into two parts,
(a) and (b).
(6) Section 344.8(a)--In this section, the Bureau of the Public
Debt is substituted for the Federal Reserve Banks to reflect the
consolidation of program activities in Parkersburg, WV. The current
rule requires investors to deposit funds in an account for debit by a
Federal Reserve Bank or Branch on or before the date of issue. As
proposed, this section would require that full payment for each
subscription be submitted utilizing the Fedwire funds transfer system.
(7) Section 344.8(b)--The current regulation provides that any
subscriber which fails to make settlement on a subscription once
submitted is ineligible thereafter to subscribe for securities under
this offering for a period of six months. Under the current regulation,
the Commissioner of the Public Debt may determine, given the
circumstances of the case, that the six month penalty need not apply.
As proposed, the Division of Special Investments may determine to waive
the six month penalty, pursuant to the provisions governing waiver of
regulations set forth under 31 CFR 306.126. Where settlement occurs
after the proposed issue date and the Division of Special Investments
determines, pursuant to 31 CFR 306.126, that such settlement is
acceptable on an exception basis, the six month penalty will be waived,
and the subscriber shall be subject to a late payment assessment. The
assessment will include payment of an amount equal to the amount of
interest that would have accrued on the securities from the proposed
issue date to the date of settlement, as well as an administrative fee
of $100 per subscription. Assessments under this subsection are due on
demand. Failure to pay an assessment shall render the subscriber
ineligible thereafter to subscribe for securities under this offering
until the assessment is paid.
(8) Section 344.9(b)--The Bureau of the Public Debt is substituted
for the Federal Reserve Banks to reflect the consolidation of program
activities in Parkersburg, WV. This section would allow for sending of
the notice of redemption by facsimile or by other carriers. The notice
must show the account number and the tax identification number of the
subscriber. Under this proposed section, the notice must be received at
the Bureau of the Public Debt by 1 p.m., Eastern time, one business day
prior to the requested redemption date.
Subpart D--Special Zero Interest Securities
To give investors flexibility in investing certain proceeds that
may become subject to yield restrictions, a new special zero interest
security was offered for the first time with the 1989 rule. Under the
terms of this offering, subscribers are not required to certify that as
of the date of investment all the proceeds subject to yield
restrictions are being invested in State and Local Government
securities. With exceptions, this offering is the same as that for time
deposit securities. Proposed changes from the 1989 rule are as follows:
(1) Section 344.13--This section would add a reference to a
designated Treasury form and delete a reference to wire as an
authorized means of submitting notice for redemption prior to maturity.
The agency's Parkersburg, WV, address is substituted for its former
Washington, DC, address. In addition, the section would allow for
sending of the notice for redemption by facsimile or by other carriers.
The current regulation provides that notice of redemption must be
received no less than 15 calendar days before the requested redemption
date. However, owners are encouraged to provide as much notice of
redemption as possible to assure that payment can be timely made. Under
this proposed section, notice is to be submitted no less than 15
calendar days and no more than 60 calendar days before the requested
redemption date.
Procedural Requirements
It has been determined that this proposed rule is not a significant
regulatory action as defined in Executive Order 12866. Therefore, an
assessment of anticipated benefits, costs and regulatory alternatives
is not required.
Although this rule is being issued in proposed form to secure the
benefit of public comment, the rule relates to matters of public
contract, as well as the borrowing power and fiscal authority of the
United States. The notice and public procedures requirements of the
Administrative Procedure Act are inapplicable, pursuant to 5 U.S.C.
553(a)(2). As no notice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do
not apply.
The collections of information contained in this regulation have
been previously reviewed and approved by the Office of Management and
Budget, in accordance with the requirements of the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1535-0091. The principal
purpose of the proposed rule is to change the address of the receiving
entity. The revision would not impose a new collection of information
requirement.
List of Subjects in 31 CFR Part 344
Bonds, Government securities, Securities.
Dated: September 30, 1994.
Gerald Murphy,
Fiscal Assistant Secretary.
For the reasons set out in the preamble, 31 CFR Chapter II,
Subchapter B, Part 344 is proposed to be revised to read as follows:
PART 344--REGULATIONS GOVERNING UNITED STATES TREASURY CERTIFICATES
OF INDEBTEDNESS--STATE AND LOCAL GOVERNMENT SERIES, UNITED STATES
TREASURY NOTES--STATE AND LOCAL GOVERNMENT SERIES, AND UNITED
STATES TREASURY BONDS--STATE AND LOCAL GOVERNMENT SERIES
Subpart A--General Information
Sec.
344.0 Offering of securities.
344.1 General provisions.
Subpart B--Time Deposit Securities
344.2 Description of securities.
344.3 Subscription for purchase.
344.4 Issue date and payment.
344.5 Redemption.
Subpart C--Demand Deposit Securities
344.6 Description of Securities.
344.7 Subscription for purchase.
344.8 Issue date and payment.
344.9 Redemption.
Subpart D--Special Zero Interest Securities
344.10 General.
344.11 Description of securities.
344.12 Subscription for purchase.
344.13 Redemption.
Appendix A to Part 344--Early Redemption Market Change Formulas and
Examples
Authority: 31 U.S.C. 3102, et seq.
Subpart A--General Information
Sec. 344.0 Offering of securities.
(a) In order to provide issuers of tax exempt securities with
investments which allow them to comply with yield restriction and
arbitrage rebate provisions of the Internal Revenue Code, the Secretary
of the Treasury offers for sale the following State and Local
Government Series securities:
(1) Time deposit securities:
(i) United States Treasury Certificates of Indebtedness,
(ii) United States Treasury Notes, and
(iii) United States Treasury Bonds.
(2) Demand deposit securities--United States Treasury Certificates
of Indebtedness.
(3) Special zero interest securities:
(i) United States Treasury Certificates of Indebtedness.
(ii) United States Treasury Notes.
(b) As appropriate, the definitions of terms used in this Part 344
are those found in the relevant portions of the Internal Revenue Code
and regulations. The term ``government body'' refers to issuers of
State or local government bonds described in section 103 of the
Internal Revenue Code, as well as to any other entity subject to the
yield restrictions in sections 141-150 of the Internal Revenue Code, or
the arbitrage rebate requirements in section 143(g)(3) or 148 of the
Internal Revenue Code. The term ``postmark date'' refers to the date
affixed by the U.S. Postal Service, not to a postage meter date. The
``date telecopied'' for material sent by facsimile equipment is the
date transmitted as it appears on the document received. The term
``date-stamp'' refers to the date affixed by the carrier service upon
the carrier's taking receipt of the material.
(c) This offering will continue until terminated by the Secretary
of the Treasury.
Sec. 344.1 General provisions.
(a) Regulations. United States Treasury State and Local Government
Series securities shall be subject to the general regulations with
respect to United States securities, which are set forth in the
Department of the Treasury Circular No. 300 (31 CFR part 306), to the
extent applicable. Copies of the circular may be obtained from the
Bureau of the Public Debt, Forms Management--Room 301, 200 Third
Street, PO Box 396, Parkersburg, WV 26102-0396, or a Federal Reserve
Bank or Branch.
(b) Issuance. The securities will be issued in book-entry form on
the books of the Department of the Treasury, Bureau of the Public Debt,
Parkersburg, WV 26102-0396. Transfer of securities by sale, exchange,
assignment or pledge, or otherwise will not be permitted.
(c) Transfers. Securities held in an account of any one type, i.e.,
time deposit, demand deposit, or special zero interest, may not be
transferred within that account or to an account of any other type.
(d) Fiscal agents. Selected Federal Reserve Banks and Branches, as
fiscal agents of the United States, may be designated to perform such
services as may be requested of them by the Secretary of the Treasury
in connection with the purchase of, transactions involving, and
redemption of, the securities.
(e) Authority of subscriber. Where a commercial bank submits an
initial or final subscription on behalf of a government body, it must
certify that it is acting under the latter's specific authorization;
ordinarily, evidence of such authority will not be required.
Subscriptions submitted by an agent other than a commercial bank must
be accompanied by evidence of the agent's authority to act. Such
evidence must describe the nature and scope of the agent's
authorization, must specify the legal authority under which the agent
was designated, and must relate by its terms to the investment action
being undertaken. Subscriptions unsupported by such evidence will not
be accepted.
(f) Reservations. Transaction requests, including requests for
subscription and redemption, will not be accepted if unsigned,
inappropriately completed, or not timely submitted. The Secretary of
the Treasury reserves the right:
(1) To reject any application for the purchase of securities under
this offering;
(2) To refuse to issue any such securities in any case or any
class(es) of cases; and
(3) To revoke the issuance of any security, and to declare the
subscriber ineligible thereafter to subscribe for securities under this
offering, if any security is issued on the basis of an improper
certification or other misrepresentation by the subscriber, other than
as the result of an inadvertent error, if the Secretary deems such
action to be in the public interest.
(4) Any of these actions shall be final. The authority of the
Secretary to waive regulations under 31 CFR 306.126 applies to this
Part 344.
(g) Debt limit contingency. The Department of the Treasury reserves
the right to change or suspend the terms and conditions of this
offering, including provisions relating to subscriptions for, and
issuance of, securities, interest payments, redemptions, and rollovers,
as well as notices relating hereto, at any time the Secretary
determines that issuance of obligations sufficient to conduct the
orderly financing operations of the United States cannot be made
without exceeding the statutory debt limit. Announcement of such
changes shall be provided by such means as the Department deems
appropriate.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Subpart B--Time Deposit Securities
Sec. 344.2 Description of securities.
(a) Terms.
(1) Certificates of Indebtedness. The certificates will be issued
in a minimum amount of $1,000, or in any larger amount, in multiples of
$100, with maturity periods fixed by the government body, from 30
calendar days up to and including one year, or for any intervening
period.
(2) Notes. The notes will be issued in a minimum amount of $1,000,
or in any larger amount, in multiples of $100, with maturity periods
fixed by the government body, from one year and one day up to and
including 10 years, or for any intervening period.
(3) Bonds. The bonds will be issued in a minimum amount of $1,000,
or in any larger amount, in multiples of $100, with maturity periods
fixed by the government body, from 10 years and one day up to and
including 30 years, or for any intervening period.
(b) Interest rate. Each security shall bear such rate of interest
as the government body shall designate, but the rate shall not exceed
the maximum interest rate. The applicable maximum interest rates for
each day shall equal rates shown in a table (Form PD 4262), which will
be released to the public by 10 a.m., Eastern time, each business day.
If the Treasury finds that due to circumstances beyond its control the
rates will not be available to the public by 10 a.m., Eastern time, on
any given business day, it will provide an immediate announcement of
that fact and advise that the applicable interest for the last
preceding business day shall apply. The applicable rate table for any
subscription is the one in effect on the date the initial subscription
is telecopied, if transmitted by facsimile equipment, postmarked, if
mailed, or carrier date-stamped, if the initial subscription is
delivered by other carrier. Subscriptions telecopied, postmarked, or
date-stamped on a non-business day will be subject to those interest
rates which are in effect for the next business day. The rates
specified in the tables are one-eighth of one percent below the then
current estimated Treasury borrowing rate for a security of comparable
maturity.
(c) Payment.
(1) Interest computation and payment dates. Interest on a
certificate will be computed on an annual basis and will be paid at
maturity with the principal. Interest on a note or bond will be paid
semiannually. The subscriber will specify the first interest payment
date, which must occur any time between 30 days and one year of the
date of issue, and the final interest payment date must coincide with
the maturity date of the security. Interest for other than a full
semiannual interest period is computed on the basis of a 365-day or
366-day year (for certificates) and on the basis of the exact number of
days in the half-year (for notes and bonds). See appendix to subpart E
of part 306 of this chapter for rules regarding computation of
interest.
(2) Method of payment. For securities for which subscriptions are
submitted on or after February 1, 1987, payment will only be made by
the Automated Clearing House method (ACH) for the owner's account at a
financial institution designated by the owner. To the extent
applicable, provisions of Sec. 357.26 on ``Payments,'' as set forth in
31 CFR part 357 and provisions of 31 CFR part 370, shall govern ACH
payments made under this offering. For securities for which
subscriptions were submitted prior to February 1, 1987, payment will be
made:
(i) By a direct credit to a Federal Reserve Bank or Branch for the
account of the financial institution servicing the investor; or
(ii) By ACH for the owner's account at a financial institution; or
(iii) By fiscal agency check; or
(iv) In accordance with other prior arrangements made by the
subscriber with the Bureau of the Public Debt.
Sec. 344.3 Subscription for purchase.
(a) Subscription requirements. Subscriptions for purchase of
securities under this offering must be submitted to the Division of
Special Investments, Bureau of the Public Debt, 200 Third Street, PO
Box 396, Parkersburg, WV 26102-0396. Initial and final subscriptions
may be submitted by facsimile equipment at (304) 480-6818, by mail, or
by other carrier. All subscriptions submitted by mail, whether initial
or final, should be sent by certified or registered mail.
(b) Initial subscriptions. (1) An initial subscription, either on a
designated Treasury form or in letter form, stating the principal
amount to be invested and the issue date, must be telecopied,
postmarked, or where delivered by other carrier, must be date-stamped
at least 15 calendar days before issue date. For example, if the
securities are to be issued on March 16, the subscription must be
telecopied, postmarked, or date-stamped no later than March 1. If the
initial subscription is in letter form, it should read substantially as
follows:
To: Bureau of the Public Debt
Pursuant to the provisions of Department of the Treasury Circular,
Public Debt Series No. 3-72, current revision, the undersigned hereby
subscribes for United States Treasury Time Deposit Securities--State
and Local Government Series, to be issued as entries on the books of
the Bureau of the Public Debt, Department of the Treasury, in the total
amount and with the issue date shown below, which date is at least 15
calendar days after the date of this subscription:
Principal Amount
$---------------------------------------------------------------------
Issue Date
----------------------------------------------------------------------
The undersigned agrees that the final subscription and payment will
be submitted on or before the issue date.
(Tax I.D. Number of State or local government body or other entity
eligible to purchase State and Local Government Series securities)
(Name of State or local government body or other entity eligible to
purchase State and Local Government Series securities)
----------------------------------------------------------------------
(Date)
by---------------------------------------------------------------------
(Signature and Title)
(2) The provisions set out in paragraph (e) of Sec. 344.1, dealing
with the authority of the subscriber to act on behalf of a government
body, and in Sec. 344.4, relating to the failure to complete a
subscription, apply to initial, as well as final subscriptions.
(3) An initial subscription may be amended on or before the issue
date, but no later than 3 p.m., Eastern time, on the issue date.
Notification may be telecopied by facsimile equipment to the Bureau of
the Public Debt at (304) 480-6818 provided the request is clearly
identified as an amendment and is immediately followed by the
submission, by mail or other carrier, of written notification.
Amendments to initial subscriptions are acceptable with the following
exceptions:
(i) The issue date may not be changed to require issuance earlier
than the issue date originally specified or to require issuance more
than seven calendar days later than originally specified. If such
change is made, notification should be provided to the Bureau of the
Public Debt as soon as possible, but no later than 3 p.m., Eastern
time, one business day before the originally specified issue date;
(ii) The aggregate amount may not be changed by more than the ten
percent limitation set out in paragraph (c) of this section;
(iii) An interest rate may not be changed to a rate that exceeds
the maximum interest rate in the table that was in effect on the date
the initial subscription was submitted; and
(iv) Where an amendment is not submitted timely, the Division of
Special Investments may determine, pursuant to the provisions governing
waiver of regulations set forth under 31 CFR 306.126, that such an
amendment is acceptable on an exception basis. Where an amendment is
determined to be acceptable on an exception basis, the amended
information shall be used as the basis for issuing the securities, and
an administrative fee of $100 per subscription will be assessed. The
Secretary reserves the right to reject amendments which are not
submitted timely.
(4) No initial subscription will be required where a final
subscription is received or postmarked at least 15 calendar days before
the issue date. Such final subscription will be treated as the initial
subscription for purposes of determining the applicable interest rate
table (see Sec. 344.2(b)), and may be amended on or before the issue
date, subject to the exceptions in paragraph (b)(3) of this section.
(c) Final subscriptions. A final subscription must be received by
the Bureau of the Public Debt on or before the issue date, but no later
than 3 p.m., Eastern time, on the issue date. The final subscription
may be telecopied by facsimile equipment to the Bureau of the Public
Debt at (304) 480-6818 provided the facsimile is properly identified as
a final subscription and is immediately followed by the submission of
the original subscription form by mail or other carrier. The final
subscription must be for a total principal amount that is no more than
ten percent above or below the aggregate principal amount specified in
the initial subscription. The final subscription, dated and signed by
an official authorized to make the purchase and showing the taxpayer
identification number of the beneficial owner, must be accompanied by a
copy of the initial subscription, where applicable. The various
maturities, interest rates, and semiannual interest payment dates (in
the case of notes and bonds), must be specified in the final
subscription, as well as the title(s) of the designated official(s)
authorized to request early redemption. Final subscriptions submitted
for certificates, notes and bonds must separately itemize securities of
each maturity and each interest rate. The final subscription must
contain a certification by the subscriber that, as of the date of
investment (without regard to any temporary period of no longer than 30
days):
(1) The total investment consists only of proceeds (including
amounts treated as proceeds) of a tax-exempt bond issue which are
subject to yield restrictions under sections 141-150 of the Internal
Revenue Code during the entire period of investment;
(2) The total investment is not less than all of such proceeds
except for--
(i) An amount not to exceed $100, and
(ii) Amounts required for payment due less than 30 days from the
date of issue;
(3) None of the proceeds submitted in payment is derived (directly
or indirectly) from the redemption before maturity of other securities
of the State and Local Government Series; and
(4)(i) No portion of the investment is being made (directly or
indirectly) with amounts that are to be used to discharge a tax-exempt
bond issue and that are derived or are to be derived (directly or
indirectly) from the sale of escrowed open market securities, the
proceeds of which were to be used to discharge a tax-exempt bond issue;
or
(ii) Although a portion of the investment is being made (directly
or indirectly) with amounts that are to be used to discharge a tax-
exempt bond issue and that are derived or are to be derived (directly
or indirectly) from the sale of escrowed open market securities, the
proceeds of which were to be used to discharge a tax-exempt bond issue,
the composite yield to maturity of all investments being purchased with
such amounts does not exceed the composite yield to maturity of the
securities that were sold, based on the price at which they were sold.
(5) Where proceeds are subject to yield restrictions for a limited
period of time, under paragraph (c)(1) of this section, no investment
of such proceeds beyond such period may be made. For example, if a
reserve fund of a refunding issue is subject to yield restrictions for
a period of four years, the securities purchased as an investment of
the reserve fund may not have a maturity longer than four years. With
respect to obligations described in section 103 of the Internal Revenue
Code issued after January 31, 1987, paragraph (c)(2) of this section is
satisfied only if on the date of investment, all the proceeds of the
issue which are subject to yield restrictions are invested in State and
Local Government Series securities. Paragraph (c)(2) of this section
does not apply to purpose investments, such as mortgage notes or
student loan obligations. Transferred proceeds of the tax exempt bond
issue that were proceeds of another issue shall not be treated as
proceeds for purposes of paragraph (c)(2) of this section if no portion
of the total investment consists of such proceeds. See Sec. 344.1(f) as
to improper certifications.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Sec. 344.4 Issue date and payment.
(a) General. The subscriber shall fix the issue date of each
security in the initial subscription. The issue date must be a business
day and may not exceed by more than 60 calendar days either the date
the initial subscription was telecopied to the Bureau of the Public
Debt or, where mailed, the postmark date, or where delivered by other
carrier, the carrier date-stamp thereof. Full payment for each
subscription must be submitted by the Fedwire funds transfer system
with credit directed to the Treasury's General Account. Full payment
should be submitted by 3 p.m., Eastern time, to ensure that settlement
on the securities occurs on the date of issue.
(b) Noncompliance. The penalty imposed on any subscriber which
fails to make settlement on a subscription once submitted shall be to
render the subscriber ineligible thereafter to subscribe for securities
under this offering for a period of six months, beginning on the date
the subscription is withdrawn or the proposed issue date, whichever
occurs first. The Division of Special Investments may determine to
waive the six month penalty, pursuant to the provisions governing
waiver of regulations set forth under 31 CFR 306.126. Where settlement
occurs after the proposed issue date and the Division of Special
Investments determines, pursuant to 31 CFR 306.126, that settlement is
acceptable on an exception basis, the six month penalty will be waived,
and the subscriber shall be subject to a late payment assessment. The
assessment will include payment of an amount equal to the amount of
interest that would have accrued on the securities from the proposed
issue date to the date of settlement, as well as an administrative fee
of $100 per subscription. Assessments under this subsection are due on
demand. Failure to pay an assessment shall render the subscriber
ineligible thereafter to subscribe for securities under this offering
until the assessment is paid.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Sec. 344.5 Redemption.
(a) General. A security may not be called for redemption by the
Secretary of the Treasury prior to maturity. Upon the maturity of a
security, the Department will make payment of the principal amount and
interest due to the owner thereof. A security scheduled for redemption
on a non-business day will be redeemed on the next business day.
(b) Before maturity.
(1) In general. A security may be redeemed at the owner's option no
earlier than 25 calendar days after the issue date in the case of a
certificate, and one year after the issue date in the case of a note or
bond. Partial redemptions may be requested in multiples of $100;
however, an account balance of less than $1,000 will be redeemed in
total.
(2) Notice. Notice of redemption prior to maturity must be
submitted, either on a designated Treasury form or by letter, by the
official(s) authorized to redeem the securities, as shown on the final
subscription form, to the Division of Special Investments, Bureau of
the Public Debt, 200 Third Street, PO Box 396, Parkersburg, WV 26102-
0396. The notice may be submitted by facsimile equipment to the Bureau
of the Public Debt at (304) 480-6818, by mail, or by other carrier. The
notice must show the account number, the maturities of the securities
to be redeemed, and the tax identification number of the subscriber.
The notice of redemption must be telecopied, postmarked, or where
delivered by other carrier, must be date-stamped no less than 15
calendar days before the requested redemption date, but no more than 60
calendar days before the requested redemption date. A notice of
redemption prior to maturity may not be cancelled.
(3) Redemption proceeds--Subscriptions on or after September 1,
1989. For securities subscribed for on or after September 1, 1989, the
amount of the redemption proceeds is calculated as follows:
(i) Interest. If a security is redeemed before maturity on a date
other than a scheduled interest payment date, interest will be paid for
the fractional interest period since the last interest payment date.
(ii) Market charge. An amount shall be deducted from the redemption
proceeds in all cases where the current borrowing rate of the
Department of the Treasury for the remaining period to original
maturity of the security prematurely redeemed exceeds the rate of
interest originally fixed for such security. The amount shall be the
present value of the future increased borrowing cost to the Treasury.
The annual increased borrowing cost for each interest period is
determined by multiplying the principal by the difference between the
two rates. For notes and bonds, the increased borrowing cost for each
remaining interest period to original maturity is determined by
dividing the annual cost by two. For certificates, the increased
borrowing cost for the remaining period to original maturity is
determined by multiplying the annual cost by the number of days
remaining until original maturity divided by the number of days in the
calendar year. Present value shall be determined by using the current
borrowing rate as the discount factor. The term ``current borrowing
rate'' means the applicable rate shown in the table of maximum interest
rates payable on United States Treasury securities--State and Local
Government Series--for the day the request for early redemption is
telecopied, postmarked, or where delivered by other carrier, date-
stamped, plus one-eighth of one percentage point. Where redemption is
requested as of a date less than 30 calendar days before the original
maturity date, such applicable rate is the rate shown for a security
with a maturity of 30 days. The market charge for bonds, notes, and
certificates of indebtedness can be computed by use of the formulas in
Appendix A to this part.
(4) Redemption proceeds--Subscriptions from December 28, 1976
through August 31, 1989. For securities subscribed for from December
28, 1976 through August 31, 1989, the amount of the redemption proceeds
is calculated as follows:
(i) Interest. Interest for the entire period the security was
outstanding shall be recalculated on the basis of the lesser of the
original interest rate at which the security was issued, or the
interest rate that would have been set at the time of the initial
subscription had the term for the security been for the shorter period.
If a note or bond is redeemed before maturity on a date other than a
scheduled interest payment date, no interest will be paid for the
fractional interest period since the last interest payment date.
(ii) Overpayment of interest. If there have been overpayments of
interest, as determined under paragraph (b)(4)(i) of this section,
there shall be deducted from the redemption proceeds the aggregate
amount of such overpayments, plus interest, compounded semiannually,
thereon from the date of each overpayment to the date of redemption.
The interest rate to be used in calculating the interest on the
overpayment shall be one-eighth of one percent above the maximum rate
that would have applied to the initial subscription had the term of the
security been for the shorter period.
(iii) Market charge. An amount shall be deducted from the
redemption proceeds in all cases where the current borrowing rate of
the Department of the Treasury for the remaining period to original
maturity of the security prematurely redeemed exceeds the rate of
interest originally fixed for such security. The amount shall be
calculated using the formula in paragraph (b)(3)(ii) of this section.
(5) Redemption proceeds--Subscriptions on or before December 27,
1976. (i) For securities subscribed for on or before December 27, 1976,
the amount of the redemption proceeds is calculated as follows.
(ii) The interest for the entire period the security was
outstanding shall be recalculated on the basis of the lesser of the
original interest rate at which the security was issued, or an adjusted
interest rate reflecting both the shorter period during which the
security was actually outstanding and a penalty. The adjusted interest
rate is the Treasury rate which would have been in effect on the date
of issuance for a marketable Treasury certificate, note, or bond
maturing on the quarterly maturity date prior to redemption (in the
case of certificates), or on the semiannual maturity period prior to
redemption (in the case of notes and bonds), reduced in either case by
a penalty which shall be the lesser of:
(A) One-eighth of one percent times the number of months from the
date of issuance to original maturity, divided by the number of full
months elapsed from the date of issue to redemption, or
(B) One-fourth of one percent.
There shall be deducted from the redemption proceeds, if necessary, any
overpayment of interest resulting from previous payments made at a
higher rate based on the original longer period to maturity.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Subpart C--Demand Deposit Securities
Sec. 344.6 Description of securities.
(a) Terms. The securities are defined as one-day certificates of
indebtedness. The securities will be issued in a minimum of $1,000 and
any increment above that amount. Each subscription will be established
as a unique account. Securities will be automatically rolled over each
day unless redemption is requested.
(b) Interest rate. (1) Each security shall bear a variable rate of
interest based on an adjustment of the average yield for three-month
Treasury bills at the most recent auction. A new rate will be effective
on the first business day following the regular auction of three-month
Treasury bills and will be shown in the table (Form PD 4262), available
to the public on such business day. Interest will be accrued and added
to the principal daily. Interest will be computed on the balance of the
principal, plus interest accrued through the immediately preceding day.
(2)(i) The annualized effective demand deposit rate in decimals,
designated ``I'' in Equation 1 is calculated as:
I=[(100/P)Y/DTM-1] (1-MTR)-TAC
(Equation 1)
where
P=The average auction price for the Treasury bill, per hundred, to
three decimal places.
Y=365 if the year following issue date does not contain a leap year day
and 366 if it does contain a leap year day.
DTM=The number of days from date of issue to maturity for the auctioned
Treasury bill.
MTR=Estimated average marginal tax rate, in decimals, of purchasers of
short-term tax exempt bonds.
TAC=Treasury administrative costs, in decimals.
(ii) The daily factor for the demand deposit rate is then
calculated as:
DDR=(1+I)1/Y-1
(Equation 2)
(3) Information as to the estimated average marginal tax rate and
costs for administering the demand deposit State and Local Government
Series securities program, both to be determined by Treasury from time
to time, will be published in the Federal Register.
(c) Payment. Interest earned on the securities will be added to the
principal and will be reinvested daily until redemption. At any time
the Secretary determines that issuance of obligations sufficient to
conduct the orderly financing operations of the United States cannot be
made without exceeding the statutory debt limit, the Department will
invest any unredeemed demand deposit securities in special 90-day
certificates of indebtedness. These 90-day certificates will be payable
at maturity, but redeemable before maturity, provided funds are
available for redemption, or reinvested in demand deposit securities
when regular Treasury borrowing operations resume, both at the owner's
option. Funds invested in the 90-day certificates of indebtedness will
earn simple interest equal to the daily factor in effect at the time
demand deposit security issuance is suspended, multiplied by the number
of days outstanding.
Sec. 344.7 Subscription for purchase.
(a) Subscription requirements. Subscriptions for purchase of
securities under this offering must be submitted to the Division of
Special Investments, Bureau of the Public Debt, 200 Third Street, PO
Box 396, Parkersburg, WV 26102-0396. Subscriptions must be submitted on
a designated Treasury form, must specify the principal amount to be
invested and the issue date, and must be signed by an official
authorized to make the purchase. The Bureau of the Public Debt must
receive the subscription at least three business days before the issue
date. The subscription may be submitted by certified or registered
mail, or by other carrier. The subscription may also be submitted by
facsimile equipment at (304) 480-6818, at least three business days
before the issue date, provided that the original subscription form is
submitted by mail, or by other carrier, and is received by the Division
of Special Investments by 3 p.m., Eastern time, on the issue date.
(b) Amending subscriptions. The principal amount to be invested may
be changed without penalty on or before the issue date, but no later
than 1 p.m. Eastern time, on the issue date. Notification may be
telecopied by facsimile equipment to the Division of Special
Investments at (304) 480-6818, provided the request is clearly
identified as an amendment and is immediately followed by the
submission, by mail or other carrier, of written notification. Where an
amendment is not submitted timely, the Division of Special Investments
may determine, pursuant to the provisions governing waiver of
regulations set forth under 31 CFR 306.126, that such an amendment is
acceptable on an exception basis. Where an amendment is determined to
be acceptable on an exception basis, the amended information shall be
used as the basis for issuing the securities, and an administrative fee
of $100 per subscription will be assessed. The Secretary reserves the
right to reject amendments which are not submitted timely.
(c) Certification. By completing the subscription form, subscribers
certify to the following:
(1) Neither the aggregate issue price nor the stated redemption
price at maturity of the bonds that are part of the tax-exempt issue
exceeds $35 million. Issue price and stated redemption price at
maturity have the meanings given such terms in sections 1273 and 1274
of the Internal Revenue Code;
(2) No portion of the tax-exempt bond issue has been or will be
issued or permitted to remain outstanding, and the expenditure of gross
proceeds of the tax-exempt bond issue has not and will not be delayed,
for the principal purpose of investing in demand deposit securities;
(3) Only eligible gross proceeds of the tax-exempt bond issue have
been and will be submitted in payment for demand deposit securities.
Eligible gross proceeds are all gross proceeds of the tax-exempt bond
issue except--
(i) Gross proceeds of an advance refunding issue to be used to
discharge another issue;
(ii) Gross proceeds accumulated in a reserve or replacement fund
(other than a bona fide debt service or reasonably required reserve or
replacement fund); and
(iii) Solely for purposes of this paragraph (c)(3), gross proceeds
previously invested at any time pursuant to any exception in paragraph
(c)(5) of this section, other than paragraph (c)(5)(vi) (Exception 6)
(relating to amounts of less than $25,000) and paragraph (c)(5)(viii)
(Exception 8) (relating to inadvertent error).
(4) At least 25 percent of the eligible gross proceeds received
from the sale of the tax-exempt bond issue have been or will be
invested in demand deposit securities within three business days of the
date of receipt thereof;
(5) All eligible gross proceeds of the tax-exempt bond issue have
been and will be invested within four business days of the date of
receipt thereof in demand deposit securities (principal repayments on
purpose investments are treated as gross proceeds received on the date
of repayment). This paragraph (c)(5) shall not apply to gross proceeds
that are at all times (prior to the date of expenditure thereof)
invested pursuant to one of the exceptions:
(i) Exception 1. Gross proceeds that are invested solely in
investments the earnings on which are not subject to rebate under
section 148(f) or 143(g)(3) of the Internal Revenue Code (whichever
applies).
(ii) Exception 2. Gross proceeds that are invested in obligations
the earnings on which are not reasonably expected to be subject to
rebate by reason of section 148(f)(4)(A)(ii) (relating to certain bona
fide debt service funds) of the Internal Revenue Code or section
148(f)(4)(B) (relating to exception for temporary investments) of the
Internal Revenue Code.
(iii) Exception 3. Gross proceeds that are not reasonably expected
to be gross proceeds of the tax-exempt bond issue for more than seven
business days.
(iv) Exception 4. Gross proceeds that are part of a reasonably
required reserve or replacement fund (other than a bona fide debt
service fund) for the tax-exempt bond issue.
(v) Exception 5. Gross proceeds that are invested in taxable
obligations, but only if the yield on each obligation (computed
separately and on the basis of an arm's length purchase price) is no
higher than the yield on the tax-exempt bond issue.
(vi) Exception 6. Eligible gross proceeds that are not invested in
one-day certificates of indebtedness or pursuant to paragraphs
(c)(5)(i-v) (Exceptions 1 through 5), but only if the total amount of
such eligible gross proceeds on any particular day is less than
$25,000. This paragraph (c)(5)(vi) (Exception 6) shall not apply to
gross proceeds that are part of a reasonably required reserve or
replacement fund (other than a bona fide debt service fund).
(vii) Exception 7. Gross proceeds that are not invested pursuant to
paragraph (c)(5)(iv) (Exception 4) or paragraph (c)(5)(vi) (Exception
6), and that are invested in any taxable obligation the yield on which
is higher than the yield on the tax-exempt bond issue, but only if
taxable obligations described in paragraph (c)(5)(v) (Exception 5), and
the tax-exempt obligations described in (c)(5)(i) (Exception 1) are not
available for investment (for example, because market interest rates
are too high and statutory or indenture restrictions prevent
investments in tax-exempt obligations).
(viii) Exception 8. Gross proceeds that are not invested in demand
deposit securities due to an inadvertent error.
(6) See Sec. 344.1(f) as to improper certifications.
Sec. 344.8 Issue date and payment.
(a) General. The subscriber shall fix the issue date on the
subscription, the issue date to be a business day at least three
business days after receipt of the subscription by the Division of
Special Investments. Full payment for each subscription must be
submitted by the Fedwire funds transfer system with credit directed to
the Treasury's General Account. Full payment should be submitted by 3
p.m., Eastern time, to ensure that settlement on the securities occurs
on the date of issue.
(b) Noncompliance. The penalty imposed on any subscriber which
fails to make settlement on a subscription once submitted shall be to
render the subscriber ineligible thereafter to subscribe for securities
under this offering for a period of six months, beginning on the date
the subscription is withdrawn or the proposed issue date, whichever
occurs first. The Division of Special Investments may determine to
waive the six month penalty, pursuant to the provisions governing
waiver of regulations set forth under 31 CFR 306.126. Where settlement
occurs after the proposed issue date and the Division of Special
Investments determines, pursuant to 31 CFR 306.126, that settlement is
acceptable on an exception basis, the six month penalty will be waived,
and the subscriber shall be subject to a late payment assessment. The
assessment will include payment of an amount equal to the amount of
interest that would have accrued on the securities from the proposed
issue date to the date of settlement, as well as an administrative fee
of $100 per subscription. Assessments under this subsection are due on
demand. Failure to pay an assessment shall render the subscriber
ineligible thereafter to subscribe for securities under this offering
until the assessment is paid.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Sec. 344.9 Redemption.
(a) General. A security may be redeemed at the owner's option,
provided a request for redemption is received not less than one
business day prior to the requested redemption date. Partial
redemptions may be requested; however, an account balance of less than
$1,000 will be redeemed in total. Payment will be made by crediting the
reserve account maintained at the Federal Reserve Bank or Branch by the
financial institution servicing the account owner.
(b) Notice. Notice of redemption must be submitted, either on a
designated Treasury form or by letter, by the official(s) authorized to
redeem the securities, as shown on the subscription form, to the
Division of Special Investments, Bureau of the Public Debt, 200 Third
Street, PO Box 396, Parkersburg, WV 26102-0396. The notice may be
submitted by facsimile equipment to the Bureau of the Public Debt at
(304) 480-6818, by mail, or by other carrier. The notice must show the
account number and the tax identification number of the subscriber. The
notice of redemption must be received at the Bureau of the Public Debt
by 1 p.m., Eastern time, one business day prior to the requested
redemption date.
(c) Certification. By completing the redemption form, subscribers
certify to the fact that the proceeds to be received will be expended
within one day of receipt thereof for the purpose for which the tax-
exempt bond was issued.
Subpart D--Special Zero Interest Securities
Sec. 344.10 General.
Provisions of subpart B of this part (Time Deposit Securities)
apply except as specified in subpart D of this part.
Sec. 344.11 Description of securities.
(a) Terms. Only certificates of indebtedness and notes are offered.
(1) Certificates of Indebtedness. The certificates will be issued
in a minimum amount of $1,000, or in any larger amount, in multiples of
$100, with maturity periods fixed by the government body, from 30
calendar days up to and including one year, or for any intervening
period.
(2) Notes. The notes will be issued in a minimum amount of $1,000,
or in any larger amount, in multiples of $100, with maturity periods
fixed by the government body, from one year and one day up to and
including 10 years, or for any intervening period.
(b) Interest rate. Each security shall bear no interest.
Sec. 344.12 Subscription for purchase.
In lieu of the certification under Sec. 344.3(c), the final
subscription must contain a certification by the subscriber that:
(a) The total investment consists only of original or investment
proceeds of a tax-exempt bond issue that are subject to yield
restrictions under sections 141-150 of the Internal Revenue Code;
(b) None of the original proceeds of the tax-exempt bond issue were
subject to arbitrage yield restrictions under section 148 of the
Internal Revenue Code on the date of receipt thereof; and
(c) None of the proceeds submitted in payment are proceeds of an
advance refunding issue to be used to discharge another issue or part
of a reserve or replacement fund for the advance refunding issue.
Sec. 344.13 Redemption.
(a) General. Provisions of Sec. 344.5(a) apply.
(b) Before maturity.
(1) In general. A security may be redeemed at the owner's option no
earlier than 25 calendar days after the issue date in the case of a
certificate and one year after the issue date in the case of a note. No
market charge or penalty shall apply in the case of the redemption of a
special zero interest security before maturity.
(2) Notice. Notice of redemption prior to maturity must be
submitted, either on a designated Treasury form or by letter, by the
official(s) authorized to redeem the securities, as shown on the final
subscription form, to the Division of Special Investments, Bureau of
the Public Debt, 200 Third Street, PO Box 396, Parkersburg, WV 26102-
0396. The notice may be submitted by facsimile equipment to the Bureau
of the Public Debt at (304) 480-6818, by mail, or by other carrier. The
notice must show the account number, the maturities of the securities
to be redeemed, and the tax identification number of the subscriber.
The notice of redemption must be telecopied, postmarked, or where
delivered by other carrier, must be date-stamped no less than 15
calendar days before the requested redemption date, but no more than 60
calendar days before the requested redemption date. A notice of
redemption prior to maturity cannot be cancelled.
(Approved by the Office of Management and Budget under control
number 1535-0091)
Appendix A to Part 344--Early Redemption Market Change Formulas and
Examples
A. The amount of the market charge for bonds and notes can be
determined through use of the following formula:
TP06OC94.000
where
M=market charge
b=increased annual borrowing cost (i.e., principal multiplied by the
excess of the current borrowing rate for the period from redemption
to original maturity of note or bond over the rate for the security)
r=number of days from redemption to beginning of next semiannual
interest period
s=number of days in current semiannual period
i=current borrowing rate for period from redemption to maturity
(expressed in decimals)
n=number of remaining full semiannual periods to the original
maturity date
TP06OC94.001
TP06OC94.002
B. The application of this formula may be illustrated by the
following example:
(1) Assume that a $600,000 note is issued on July 1, 1985, to
mature on July 1, 1995. Interest is payable at a rate of 8% on
January 1 and July 1.
(2) Assume that the note is redeemed on February 1, 1989, and
that the current borrowing rate for Treasury at that time for the
remaining period of 6 years and 150 days is 11%.
(3) The increased annual borrowing cost is $18,000.
($600,000)x(11%-8%)
(4) The market charge is computed as follows:
TP06OC94.003
TP06OC94.004
TP06OC94.005
TP06OC94.006
TP06OC94.007
TP06OC94.008
C. The amount of the market charge for certificates can be
determined through use of the following formula:
TP06OC94.009
where
M=market charge
b=increased borrowing cost for full period
r=number of days from redemption date to original maturity date
s=number of days in current annual period (365 or 366)
i=current borrowing rate expressed in decimals (discount factor)
D. The application of this formula may be illustrated by the
following example:
(1) Assume that a $50,000 certificate is issued on March 1,
1987, to mature on November 1, 1987. Interest is payable at a rate
of 10%.
(2) Assume that the certificate is redeemed on July 1, 1987, and
that the current borrowing cost to Treasury for the 123-day period
from July 1, 1987, to November 1, 1987, is 11.8%.
(3) The increased annual borrowing cost is $900. ($50,000-11.8%-
10%)
(4) The market charge is computed as follows:
TP06OC94.010
TP06OC94.011
TP06OC94.012
[FR Doc. 94-24682 Filed 10-5-94; 8:45 am]
BILLING CODE 4810-39-P