[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]



=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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