[Federal Register Volume 60, Number 15 (Tuesday, January 24, 1995)]
[Proposed Rules]
[Pages 4576-4581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1682]
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DEPARTMENT OF THE TREASURY
Office of the Under Secretary for Domestic Finance
17 CFR Parts 404 and 405
RIN 1505-AA53
Amendments to Regulations for the Government Securities Act of
1986
AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Government Securities Act Amendments of 1993 authorize the
Secretary of the Treasury (Treasury) to prescribe rules requiring
persons holding, maintaining or controlling large positions in to-be-
issued or recently issued Treasury securities to keep records and file
reports of such large positions. The Treasury is issuing this Advance
Notice of Proposed Rulemaking (ANPR) to advise market participants of
our intention to issue large position recordkeeping and reporting
regulations, describe the purposes of, and objectives to be achieved
by, such rules and identify key elements related to any rule proposal.
We invite comments, advice and recommendations from interested parties
regarding how the large position recordkeeping and reporting
requirements should be structured. To assist in the solicitation of
comments and to facilitate in the development of rules, responses to
specific questions are requested.
DATES: Comments must be received on or before April 24, 1995.
ADDRESSES: Comments should be sent to: Government Securities
Regulations Staff, Bureau of the Public Debt, Department of the
Treasury, 999 E Street NW., Room 515, Washington, D.C. 20239-0001.
Comments received will be available for public inspection and copying
at the Treasury Department Library, Room 5030, Main Treasury Building,
1500 Pennsylvania Avenue NW., Washington, D.C. 20220.
FOR FURTHER INFORMATION CONTACT: Ken Papaj (Director) or Don Hammond
(Assistant Director), Government Securities Regulations Staff, at 202-
219-3632. (TDD for the hearing impaired is 202-219-3988.)
SUPPLEMENTARY INFORMATION:
I. Background
The U.S. government securities market is the largest and most
liquid securities market in the world. The enormous liquidity and
pricing efficiency of this market provide incalculable benefits to
other financial markets in the United States, and throughout the world,
by providing a continuous benchmark for interest rates on dollar-
denominated instruments across the maturity spectrum. The government
securities market has consistently demonstrated its ability to absorb
the large amounts of Treasury securities that must be issued to finance
the operations of the U.S. Government in a cost-effective manner for
the taxpayer, which is the market's primary public purpose. However,
certain events that occurred in 1991, specifically a ``short
squeeze''1 in two different Treasury securities led to the
realization that Federal financial regulators need, from time to time,
more information about holdings of very large amounts of Treasury
securities.
\1\A short squeeze can occur when an event unanticipated by
short sellers reduces the supply of securities available in the
marketplace. It can also occur as a result of deliberate behavior by
one or more market participants to restrict the supply of
securities, thereby driving up prices.
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A. Events Giving Rise to Large Position Reporting Authority
The occurrence of short squeezes in the government securities
market in 1991 is discussed in some detail in the Joint Report on the
Government Securities Market (Joint Report).2 While yields of
Treasury securities of similar maturity vary constantly, there were two
instances during the Spring of 1991 in which particular securities
traded well below the corresponding yields for similar securities for
an extended period of time. In the first case, a short squeeze
developed in the two-year note auctioned on April 24, 1991. When the
squeeze first became evident in mid-May, the yield on the April two-
year [[Page 4577]] note had moved considerably out of line from
surrounding market rates, and the notes were ``on special'' in the
repurchase agreement (repo) market.3
\2\Department of the Treasury, Securities and Exchange
Commission and Board of Governors of the Federal Reserve System
Joint Report on the Government Securities Market, January 1992.
\3\ A security is said the be ``on special'' when, due to its
scarcity, a holder can enter into a repo involving that specific
security at a lower rate of interest, and thus a lower financing
cost, than the prevailing or general repo rate.
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The second incident involved the two-year Treasury note auctioned
on May 22, 1991. In that auction, Salomon Brothers Inc. (Salomon), a
major participant in the market, submitted large, aggressive bids for
itself and two of its customers and was awarded a large portion of the
amount sold. As a result of these awards and additional purchases in
the market, there was a concentration of holdings of the May two-year
notes and the prices of the notes in the cash and financing markets
were distorted. At that time, a number of market participants contacted
the Treasury and the Federal Reserve Bank of New York (FRBNY)
expressing concern about a shortage in the May two-year note.4
\4\Information about primary dealers' positions in Treasury
securities is collected routinely by the Federal Reserve Bank of New
York.
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The apparent short squeeze was serious enough that Treasury
officials informed staff of the Securities and Exchange Commission
(SEC) of possible problems and trading irregularities stemming from the
auction and subsequent trading. Following that notification, the
Treasury and the FRBNY actively monitored the market for the May two-
year notes and the SEC and Justice began investigations. The government
investigations, and Salomon's internal review that was conducted in
response to these investigations, ultimately resulted in a series of
disclosures by Salomon in August 1991 that it had submitted
unauthorized customer bids in several auctions in 1990 and 1991.5
\5\See Salomon Press Releases dated August 9 and 14, 1991.
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The events involving the bidding improprieties of Salomon and the
squeezes of Treasury notes also focused attention on large investment
entities (``hedge funds''\6\ being one of the more prominent types)
that play a major role in the government securities market. Many of
these investment funds, however, are exempt from most types of U.S.
regulatory oversight.
\6\For a detailed discussion of hedge funds, see the Joint
Report, at B-64.
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While large investment funds have regularly placed bids in Treasury
auctions in the past, it was not until late 1990 that these funds began
to be awarded large amounts of securities in Treasury auctions,
suggesting that they had highly leveraged positions. Like most
investors, they typically bid through major primary dealers. The
combined awards of the investment fund and the dealer which submitted
such bids would often represent a significant portion of the publicly
offered amount of securities.
Regulators had little, if any, authority to gain access to
information about the holdings of many major investors. Investment
funds, other than those required to register under the Investment
Company Act, e.g., mutual funds, are not generally subject to SEC
oversight.7 The SEC also has little authority to obtain regular
information on the government securities activities of large investors.
Treasury also has little access to information on their activities,
other than auction-related information. The CFTC is the only regulatory
agency with regular reporting contact with certain large investors.
However, the CFTC's responsibilities extend primarily to the futures
market.
\7\ Most investment interests in investment partnerships are not
registered pursuant to the Securities Act of 1933; hedge fund
structures are such that they claim an exemption from registering as
securities dealers under Section 15(a) of the Securities Exchange
Act of 1934; and a hedge fund is usually structured so as not to be
an investment company under the Investment Company Act of 1940.
However, the anti-fraud provisions of the federal securities laws do
apply to hedge funds whether or not they are registered with the
SEC.
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B. Regulatory Agencies Responses to Market Problems
Beginning in September 1991, the Treasury, the SEC and the Federal
Reserve conducted a thorough examination and review of the government
securities market and published the Joint Report in January 1992. This
report contained many legislative and regulatory recommendations for
strengthening oversight of the market.8 One recommendation, which
is the focus of this advance notice of proposed rulemaking, involved
clarifying and expanding Treasury's authority under the Government
Securities Act of 1986 (GSA) to require reporting by all holders of
large positions in Treasury securities. The Treasury's authority to
prescribe recordkeeping and reporting rules under the GSA, prior to the
amendments of 1993, permitted a large position reporting system
designed to monitor concentrations of positions at government
securities brokers and dealers.
\8\Joint Report at xv-xvi and 6-34.
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The Treasury also took administrative and regulatory actions to
strengthen oversight and surveillance of the market and maintain a
fully competitive auction process.9 A few of the more significant
reforms that are related to the issues addressed in this notice
involved improved surveillance of the market and the establishment of
an automated system of auctioning Treasury securities. A new
surveillance working group (comprised of Treasury, FRBNY, SEC, Federal
Reserve Board, and CFTC officials) was formed to improve surveillance
and strengthen regulatory coordination. FRBNY, acting as Treasury's
fiscal agent, as well as to support their monetary policy operations,
has enhanced and expanded its market oversight efforts for collecting
and analyzing information needed for surveillance purposes. In
addition, the Treasury increased the maximum amount from $1 million to
$5 million for noncompetitive tenders; published a thoroughly revised,
comprehensive Uniform Offering Circular for Treasury securities to
codify and clarify Treasury auction rules; and in August of 1992, began
auctioning 2- and 5-year notes using a single price auction (or so-
called ``Dutch auction'') experiment.
\9\See Joint Report, at xiii-xv, for a description of the
administrative and regulatory actions taken by the regulatory
agencies.
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C. Congressional Response to Market Problems--Government Securities Act
Amendments of 1993
The short squeezes of the Spring of 1991 and the revelations in
August 1991 of wrongdoing by Salomon in the purchase and sale of
Treasury securities occurred during a period when Congress was
considering government securities legislation to, among other things,
reauthorize Treasury's rulemaking authority under the GSA, which was
set to expire on October 1, 1991.10 These events in the government
securities market sparked an extensive review of the operations of the
market and the need for additional reforms to strengthen its
regulation. Numerous Congressional committee hearings and legislative
mark-up sessions were held in both the Senate and House of
Representatives from May 1991 through the Fall of 1993.
\10\ Treasury's rulemaking authority did expire and it was
without such authority from October 1, 1991, until December 17,
1993, when the Government Securities Act Amendments of 1993 (P.L.
103-202, 107 Stat. 2344 (1993)) was signed into law.
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Although, as noted, the Treasury instituted several reforms in
response to the Salomon violations and short squeezes, the Treasury
also requested expanded and strengthened regulatory power over the
government securities market which was realized in the Government
Securities Act Amendments of 1993 (GSAA), which [[Page 4578]] was
signed into law by President Clinton on December 17, 1993. One of the
major provisions of the GSAA authorizes the Treasury to write rules for
large position reporting.11 This provision is intended to improve
the information available to regulators regarding very large positions
of recently issued Treasury securities held by market participants and
to assure that regulators have the tools necessary to monitor the
Treasury securities market.
\11\In addition to large position reporting, some of the key
provisions of the GSAA are: Permanent reauthorization of Treasury's
rulemaking authority; authorization to prescribe sales practice
rules for the government securities market; increased authority to
the SEC to prevent fraudulent and manipulative acts and practices;
prohibition on false and misleading statements in government
securities offerings; and authority to the SEC to receive records of
government securities transactions for trade reconstruction
purposes.
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Section 104 of the GSAA, which amended Section 15C of the
Securities Exchange Act of 1934, authorizes the Treasury to adopt rules
requiring specified persons holding, maintaining, or controlling large
positions in to-be-issued or recently issued Treasury securities to
file reports regarding such positions.12 As explained in a floor
statement on this legislation, this grant of authority ``* * * rests on
the belief that the Secretary of the Treasury is well positioned to
determine whether large position reporting is necessary and appropriate
in order to monitor the impact in the Treasury securities market of
concentrations of positions and to assist the SEC in its enforcement of
the Exchange Act. It is our expectation that substantial deference will
be accorded to any determination that Treasury makes in this
regard.''13
\12\ P.L. 103-202, Sec. 104; 15 U.S.C. 78o-5(f).
\13\ Floor statement on S. 422, The Government Securities Act
Amendments of 1993, representing the views of the Chairman and
Ranking Minority Member of the House Committee on Energy and
Commerce and the Chairman and Ranking Minority Member of the House
Subcommittee on Telecommunications and Finance, Congressional
Record, (November 22, 1993) at H. 10967. For other legislative
history, see S. Rpt. 103-109 (July 27, 1993); Congressional Record
(July 27, 1993) at S. 9863-9866; H. Rpt. 103-255 (September 23,
1993); and Congressional Record (October 5, 1993) at H. 7390-7405.
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Unless otherwise specified by the Treasury, the large position
reports are to be filed with the FRBNY, acting as Treasury's agent.
Such reports will in turn be provided to the SEC by the FRBNY. The
legislation also authorizes Treasury to prescribe recordkeeping rules
for holders of large positions to ensure that they can comply with the
reporting requirements. It also permits the Treasury to exempt,
consistent with the public interest and the protection of investors,
any person or class of persons, or any transaction or class of
transactions, from the large position reporting rules. The legislation
grants Treasury flexibility and discretion in determining the key
requirements and features to be addressed in the rules--defining which
persons (individually or as a group) hold positions; the size and types
of positions to be reported; the securities to be covered; the
aggregation of positions and accounts; and the form, manner and timing
of reporting.
To provide the reader with a sense of the Congressional intent and
importance associated with large position reporting, the following are
excerpts from House Report 103-255.14
\14\ House Committee on Energy and Commerce, Report to Accompany
H.R. 618, H.R. Rep. No. 103-255, 103d Cong., 1st Sess. (September
23, 1993), at 24, 25 and 44.
In order to monitor developments in the Treasury securities
marketplace and better police against fraud or manipulation, the
Committee believes that the government needs surveillance tools
similar to those employed in other financial markets. One of the
more useful tools that regulators in the commodities and equities
market[s] currently have is the ability to obtain information
regarding the trading activities of major market participants. In
the government securities market, no similar statutory authority has
existed which would authorize federal regulators to require all
market participants to make information available regarding large
positions being assumed in the marketplace, and currently government
securities brokers and dealers only report such information on a
voluntary basis.
* * * The purpose of such reporting would be similar to the
purpose of the position reporting that is done in the commodity
futures market--it would enable government agencies to monitor
market developments, particularly those associated with concentrated
positions.
* * * Large position reporting also would be useful in assuring
that regulators can monitor the positions of major market
participants other than government securities brokers and dealers
under certain circumstances. In particular, it will provide
assurance that the government can compel disclosure of position
information when necessary from all large market participants,
including a group of relatively unregulated entities called 'hedge
funds'.
* * * The Committee expects the Secretary to take into account
the costs and burdens of the reporting requirement to the investor
and its shareholders or beneficial owners as well as the impact on
the efficiency and liquidity of the Treasury market. The Committee
also expects that in prescribing such rules, the Secretary will
consider the views of, and consult with, the Commission, the Federal
Reserve Board, and the Federal Reserve Bank of New York.
The Treasury intends to prescribe large position reporting rules
that meet the intent of Congress, are not overly burdensome or costly,
do not impair the liquidity of the market and do not increase borrowing
costs to the Federal government. Accordingly, the Treasury is
soliciting input from market participants and other interested parties,
and requesting answers to the specific questions set out below, as to
how large position rules should be structured.
D. Large Position and Large Trader Reporting in Other Markets
Large position and/or large trader reporting rules are currently in
place or being developed in several other U.S. markets (e.g., futures
and equity markets). Readers may wish to familiarize themselves with
these large trader and large position reporting requirements in order
to better understand how such reporting systems operate and to assist
the reader in commenting on this notice.
CFTC rules require position reporting by a variety of entities or
groups--commodity brokers, contract markets and traders.15 The
CFTC regulations require reports when individuals or groups acquire
specified levels of futures and options positions in the commodity
markets. The levels are determined by the CFTC and there are different
amounts for each targeted commodity area.
\15\ 17 CFR Parts 15.00-18.06.
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The Market Reform Act of 199016 authorized the SEC to create a
large trader recordkeeping and reporting system for publicly traded
equities and options on equities. The SEC proposed a large trader
reporting rule on August 22, 1991, and reproposed it on February 9,
1994.17
\16\ P.L. No. 101-432, 104 Stat. 963 (1990).
\17\ Securities Exchange Act Release No. 29593 (August 22,
1991), 56 FR 42550 (August 28, 1991); and Securities Exchange Act
Release No. 33608 (February 9, 1994), 59 FR 7917 (February 17,
1994).
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Under the proposed SEC rules, these large traders would be required
to report certain information to the SEC and would be assigned large
trader identification numbers to provide to each brokerage firm where
the traders have accounts. The firms would then be required to
maintain, and to report to the SEC on request, records of transactions
by large traders.
Large position reporting rules are currently in place in the equity
securities market. The SEC requires owners that, directly or
indirectly, acquire beneficial control of more than five percent of a
class of a corporation's equity securities to make a public disclosure
of this information.18 The [[Page 4579]] beneficial owner must
file its report within 10 business days with the SEC, the issuer and
the exchange on which the securities are traded.
\18\ 15 U.S.C. 78m(d), SEC Rule 13D, 17 CFR 240.13d-1--240.13d-
102.
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In addition, the FRBNY requires primary dealers in Treasury
securities to submit several position reports on a regular basis. These
include weekly reports of positions (with separate reporting for each
when-issued and recently issued security), cumulative transactions, and
financing transactions (repos, reverse repos, securities borrowed and
lent, collateralized loans and matched-book transactions) and a daily
report of when-issued transactions.
II. Purposes, Objectives and Features of Treasury Large Position Rules
The Treasury actively supported large position reporting during the
legislative process that resulted in the passage of the GSAA and is
committed to implementation of rules that make sense from both a
regulatory and market efficiency perspective. As the agency of the
Federal government most concerned with minimizing the interest cost on
the public debt, Treasury believes that the U.S. is best served by an
efficient and liquid market for Treasury securities that is not
overburdened with regulation but, at the same time, is not viewed as
being subject to manipulation.
Large position rulemaking is a complex and important task. For
example, defining a ``reporting entity'' (i.e., persons holding,
maintaining or controlling large positions) or determining what
constitutes a position in a Treasury security will be very difficult
given the many issues that need to be considered. Although everyone
would likely agree that a position would include securities owned by
and in the possession or control of the reporting entity, there are
many views as to whether, and if so how, repos, reverse repos, when-
issued trades, futures, forwards, options, bonds borrowed and fails
should be included in a position. Determining how to treat repos and
reverse repos is likely to be particularly complex, given the potential
for duplicate reporting of the same security in both counterparties'
positions, and the difficulty of defining control for different types
of repo arrangements, such as tri-party repos.
Treasury plans to take a measured approach in exercising its large
position reporting authority, including the related recordkeeping
requirements, and to actively involve market participants in the
rulemaking process. Treasury will take into consideration the costs to
market participants, the potential impact on the efficiency and
liquidity of the market for Treasury securities and any implications on
the Federal government's cost of borrowing.
The principal purpose of large position reporting is to enable
Treasury and the other regulators to better understand the possible
reasons for apparent significant price distortions in to-be-issued and
recently issued Treasury securities. This information would enable
policymakers to make better decisions concerning any possible
government actions that might be taken in response to apparent price
anomalies. The ability to identify concentrations of ownership and to
obtain information on large positions being held or controlled in to-
be-issued or recently issued Treasury securities is important in
enabling regulators responsible for market surveillance and enforcement
to understand the causes of market shortages.
Another important goal of large position reporting is to assist
securities regulators in conducting market surveillance. The enactment
of this authority was largely based on a belief that the government
needs surveillance tools, similar to those employed in other financial
markets, in order to monitor developments in the Treasury securities
market and to better police against fraud and manipulation. Information
about large positions may be critical to the SEC in carrying out its
enforcement duties under the federal securities laws. Large position
reporting will also enable regulators to monitor the positions of major
market participants other than government securities brokers and
dealers (e.g., large investment funds that are largely unregulated,
custodians, and foreign and domestic customers) under certain
circumstances.
Large position records and reports could also provide regulatory
agencies early warning of potential market problems. If a problem
develops, such records and reports could assist regulators in, and
reduce the cost of, any investigation.
It is important to recognize that large position reporting merely
creates a requirement to maintain records and report information about
such positions. Large positions are not inherently harmful and there is
no presumption of manipulative or illegal intent solely because a
position is large enough to be subject to reporting rules that may be
prescribed by the Treasury. Additionally, there is no intention of
establishing trading or position limits as part of any rulemaking. Nor
is the Treasury planning to institute a recordkeeping and reporting
system that would require the identification of large traders or the
reporting of large trades.
The statutory provision regarding the minimum size of a position
subject to reporting is meant to ensure that the minimum size will be
large enough to require reports only of positions that could be used to
significantly affect the market for a particular security. It is
Treasury's current view that the size of a reportable position would
most likely be in the billions of dollars and much larger than the
reporting thresholds in the futures market. As a result, it is expected
that very few entities would likely have to file large position
reports.
The GSAA specifically provides that the Treasury shall not be
compelled to disclose publicly any information required to be kept or
reported for large position reporting. In particular, such information
is exempt from disclosure pursuant to Exemption 3 of the Freedom of
Information Act.\19\
\19\ 5 U.S.C. 552.
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The Treasury contemplates granting exemptions from the large
position recordkeeping and reporting rules for foreign central bank,
foreign government and official international financial institution
holdings at the FRBNY.
III. Specific Considerations and Questions
The Treasury welcomes comments, reactions and suggestions on the
above issues. Additionally, advice and recommendations regarding an
approach and structure for a large position recordkeeping and reporting
system that meet the purposes, objectives and features addressed above
are invited from all interested persons. Specifically, in developing
such recommendations, suggestions and advice, commenters are requested
to consider the following questions.
A. Reporting Entities--Persons holding, maintaining or controlling
large positions, as yet to be defined, are reporting entities. The
questions in this section are directed toward determining which
entities should be affected by the regulations. In particular, the
questions focus on how affiliated entities are to be treated, what
entities should be exempt and whether classes of entities may warrant
special treatment.
1. How should we define a ``reporting entity''? Should it be
similar to the definition of a bidder in Treasury's rules governing the
sale and issue of Treasury bills, notes and bonds (i.e., Uniform
Offering Circular at 31 CFR Part 356)?
2. What aggregation rules should apply for affiliated entities?
Assuming there are aggregation rules, should there be an exception for
affiliates that cannot or do not share information? For example, how
should different funds [[Page 4580]] within a mutual fund family be
treated? Should customer securities that are subject to a broker-
dealer's investment discretion be included? Should any exception be the
same as the exception provided for in Appendix A to the Uniform
Offering Circular?
3. Should reporting entities that are foreign-based be treated
differently than domestic entities given the potential enforcement
difficulty and geographic separation? Are any exemptions needed for
foreign-based entities regarding items such as affiliation rules,
location of records, form of reporting, or reporting time frames? What
would be the complications of requiring foreign-based entities to
comply with such rules as if they were U.S. domestic entities?
4. What exemptions should be considered beyond any for foreign
central banks, foreign governments and official international financial
institutions holding at the FRBNY?
B. What constitutes ``control''? For the purposes of this ANPR,
``control'' includes the statutory terms ``holding'' and
``maintaining''. The following questions are designed to provide
guidance on when these three statutory conditions may be met.
1. Is control evidenced by beneficial ownership, investment
discretion, custody or any combination of the three? Is there the
possibility of extensive double counting? If so, is it a problem?
2. Should custodial accounts for which the custodian has no
investment discretion be the reporting responsibility of the custodian,
the customer or both? If the custodian is responsible for reporting,
should all custody holdings in a specific security be aggregated, or
should the threshold amount established for reporting be applied
individually to each customer?
C. What securities should be covered and what size is ``large''?
The questions in this section seek guidance on the securities to which
the rule should apply and how to determine the reporting threshold.
1. How long should a security be outstanding before it is no longer
considered recently issued? Should the reopening date of notes and
bonds that are reopened by the Treasury, be the date from which
``recent'' is measured?
2. Should any securities be excluded, e.g., Treasury bills, due to
the cost/complexity of calculating a position in them versus the
expected benefits of reporting?
3. How should the ``large'' threshold be determined--a percentage
of the issue? A standard dollar amount? Should different classes of
securities--notes vs. bonds, short-term notes vs. intermediate notes--
have different definitions of ``large''? Should there be a different
reporting threshold for pre- and post-issuance? Should there be a
different reporting threshold for securities reopened by the Treasury?
D. What transactions should be included in a ``position''?
1. Should the definition of ``position'' developed for this
rulemaking be consistent with the definition of ``net long position''
in the Uniform Offering Circular? If they are generally consistent, the
following questions should be considered as possible exceptions.
2. How should when-issued positions in outstanding securities with
the same CUSIP be treated (i.e., reopenings)?
3. How should financing transactions, such as repurchase and
reverse repurchase agreements, dollar rolls and bonds borrowed, be
treated in defining a position? Should more than one counterparty to
the transaction be required to include the transaction in its position?
Should contract terms, such as maturity, right to substitute, tri-party
relationships and termination notice, be considered?
4. Should large short positions be included in ``position''? What
amount of netting should be permitted or should gross long (short)
positions be reported?
5. Should forward contracts, options, futures, and open fails be
included? Should some of these items only be included under certain
circumstances? For example, only include written (sold) options or only
include fails to deliver but not fails to receive. If so, what might
these circumstances be?
6. Should the various components of a large position, such as
outright holdings, repos, forward contracts, etc., be separately
identified in any required reports?
E. Recordkeeping.
1. What records should be kept by a reporting entity? Should the
recordkeeping requirement be dependent on whether the reporting entity
is regulated? Should the reporting entity keep copies only of any
reports it has filed, or, in addition, documents and other records
sufficient to reconstruct the size of its position?
2. Should there be a requirement to maintain a calculation/
worksheet supporting the determination of a large position by detailing
the elements comprising any large positions?
3. How long should large position calculations and supporting
records be retained?
4. Should the records be kept in a standardized format? Would a
requirement to maintain records in electronic form be feasible and
practical?
5. Should unregulated entities be required to submit some form of
independent verification that they have in place an appropriate record
maintenance system, e.g., an accountant's letter?
F. Reporting.
1. Should the reporting requirement be automatic, whereby the
reporting entity would file a report any time it has reached the
threshold for a particular issue?
2. If reports are periodic at the request of the Treasury, what
mechanism should be used to communicate a request to the market? How
can it be assured that a potential ``reporting entity'' receives notice
of the request for a report? How much lead time would be necessary to
assure that everyone who needs to get the notice will receive it?
3. Would it be reasonable for a reporting entity to comply with a
request for a large position report on the business day immediately
following receipt of the request? If not, what would be a reasonable
time period?
4. Should requests for reports follow a sequential process whereby
dealers and custodians would be asked to report initially followed,
where appropriate, by a more targeted follow-up as to specific
customers? For example, an initial report indicates that custodian A
has 75% of an issue. A subsequent request is made only to the
custodian's customers to determine if any of them have large positions.
5. Is there a need for the reports to be filed using a standardized
format? If so, should they be made in machine readable form?
6. Is there a reason for the Secretary to specify that reports
would be submitted to parties other than the FRBNY?
7. Should a request for reports on a specific security be: (i) a
one-time request (snapshot as of a given date); (ii) an initial report
with a continuing obligation to report subsequent significant changes
until further notice; or (iii) an individually specified request (i.e.,
report on any large positions in a specific security for the next 6
business days)?
8. Should there be a responsibility for a broker-dealer to report
the name of any customer whose trading activity in the specified
security may indicate that the customer could be a holder of a large
position even if the customer does not hold such a position at the
broker-dealer?
G. Implementation. [[Page 4581]]
1. How much lead-time is necessary for market participants to be
able to comply with such a new regulation?
Treasury staff consulted with staff of the SEC, Federal Reserve
Board, FRBNY and CFTC in developing the questions that are contained in
this ANPR. As the rulemaking process continues in the months ahead, we
will continue to solicit the views of these agencies, share information
with them and include them in the deliberative process.
The preliminary views expressed in this notice may change in light
of comments received. In any case, the Treasury will publish proposed
large position reporting rules for public comment after we have had an
opportunity to review the comments that we receive in response to this
ANPR.
List of Subjects
17 CFR Part 404
Banks, banking, Brokers, Government securities, Reporting and
recordkeeping requirements.
17 CFR Part 405
Brokers, Government securities, Reporting and recordkeeping
requirements.
Authority: Sec. 101, Pub.L. 99-571, 100 Stat. 3209; Sec. 4(b),
Pub.L. 101-432, 104 Stat. 963; Sec. 102, Sec. 106, Pub.L. 103-202,
107 Stat. 2344 (15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(4)).
Dated: January 17, 1995.
Frank N. Newman,
Deputy Secretary.
[FR Doc. 95-1682 Filed 1-23-95; 8:45 am]
BILLING CODE 4810-39-P