[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Rules and Regulations]
[Pages 48338-48351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23331]



[[Page 48337]]


_______________________________________________________________________

Part IV





Department of the Treasury





_______________________________________________________________________



17 CFR Parts 400 and 420



Government Securities Act Regulations: Large Position Rules; Final Rule

  Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 / 
Rules and Regulations  

[[Page 48338]]



DEPARTMENT OF THE TREASURY

17 CFR Parts 400 and 420

RIN 1505-AA53


Office of the Assistant Secretary for Financial Markets; 
Government Securities Act Regulations: Large Position Rules

AGENCY: Office of the Assistant Secretary for Financial Markets, 
Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Department'' or 
``Treasury'') is publishing final rules that establish a new Part 420 
providing recordkeeping and reporting requirements pertaining to very 
large positions in certain Treasury securities. The regulations are 
promulgated pursuant to the Government Securities Act Amendments of 
1993, which authorized the Secretary of the 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 proposed rules were 
published to solicit public comment on December 18, 1995.
    The recordkeeping rules require any person or entity that controls 
a position equal to or greater than $2 billion in a specific Treasury 
security to maintain and preserve certain records that enable the 
entity to compile, aggregate and report large position information. If 
the Treasury requests large position information, the reporting rules 
require entities to file a large position report with the Federal 
Reserve Bank of New York if their reportable position equals or exceeds 
the large position threshold in a particular Treasury security as 
specified by the Treasury in the notice requesting the large position 
information. The Department's large position rules are intended to 
provide the Treasury and other securities regulators with information 
on concentrations of control that will enable them to understand better 
the possible reasons for apparent significant price distortions and the 
causes of market shortages in certain Treasury securities. Requests by 
the Treasury for this information are expected to be very infrequent.

DATES: The effective date is October 15, 1996. Further dates: See 
Secs. 420.4(a) and 420.5.

FOR FURTHER INFORMATION CONTACT: Ken Papaj, Director, or Kerry Lanham, 
Government Securities Specialist, Bureau of the Public Debt, Department 
of the Treasury, at 202-219-3632.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Authority

    The Government Securities Act Amendments of 1993 (GSAA) 1 
included a provision granting the Department the authority to write 
rules for large position recordkeeping and reporting in certain 
Treasury securities. Specifically, Section 104 of the GSAA, which 
amended Section 15C of the Securities Exchange Act of 1934,2 
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 maintain records and file 
reports regarding such positions.3 The provision was in response 
to certain market events in 1990-91 and is designed to improve the 
information available to the Treasury and other regulators regarding 
very large positions of recently-issued Treasury securities held by 
market participants and to ensure that regulators have the tools 
necessary to understand unusual conditions in the Treasury securities 
market.
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    \1\ Pub. L. 103-202, 107 Stat. 2344 (1993).
    \2\ 15 U.S.C. 78o-5.
    \3\ Pub. L. 103-202, Sec. 104; 107 Stat. 2344, 2346-2348; 15 
U.S.C. 78o-5(f).
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    The GSAA gives the Department wide latitude and discretion in 
determining several key features and conditions that would form the 
underpinnings of the large position recordkeeping and reporting rules. 
Among the most significant of these features are: defining which 
persons (individually or as a group) hold, maintain or control large 
positions; determining the minimum size of positions to be reported; 
determining what constitutes ``control'' for the purposes of the rules; 
prescribing the manner in which positions and accounts are to be 
aggregated; identifying the types of positions to be reported; 
determining the securities that would be subject to the rules; and 
developing the form, manner and timing of reporting. Both the proposed 
and final rules address these points.

B. Participation in Rulemaking Process/Solicitation of Comments

    Throughout the process of developing large position rules, the 
Department has sought the views of the market participants who would be 
directly affected by such regulations. We believed that market 
participant involvement in the rulemaking initiative from its outset 
would facilitate greater understanding of, and support for, the final 
rules when implemented. Due to the potential complexity of the rules 
and the myriad of ways to approach them, we sought advice and initial 
comment on a variety of conceptual approaches to designing a large 
position recordkeeping and reporting system.
    Accordingly, the Department issued an Advance Notice of Proposed 
Rulemaking (ANPR) on January 24, 1995.4 The ANPR addressed several 
key issues, concepts and approaches to be considered in developing 
large position recordkeeping and reporting rules and solicited 
comments, suggestions and recommendations regarding how the 
requirements should be structured. The ANPR also contained a detailed 
historical background that provides a fuller understanding of the 
events and circumstances that resulted in the establishment of this 
regulatory authority, the purposes and objectives to be achieved from 
large position rules, and the Congressional intent behind this 
legislation. The comment period on the ANPR ran through May 24, 
1995.5 In response to the ANPR, the Department received seven 
comment letters which were summarized in the preamble to the proposed 
rules.6 Rather than repeating that information here, readers are 
referred to the proposed rules for a discussion of the comments.
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    \4\ 60 FR 4576 (January 24, 1995).
    \5\ 60 FR 20065 (April 24, 1995).
    \6\ 60 FR 65214 (December 18, 1995).
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C. The Proposed Rules

    The Department published for comment proposed large position 
recordkeeping and reporting rules on December 18, 1995.7 The 
proposed rules were designed to strike a balance between achieving the 
purposes and objectives of the statute and minimizing costs and burdens 
to those entities affected by the regulations. The proposed rules 
required reports to be submitted only in response to a specific request 
by the Treasury for large position information on a particular Treasury 
security issue. Using this approach, reporting would be an infrequent 
event required primarily in response to pricing anomalies in a specific 
Treasury security rather than a regular, on-going process resulting 
from a certain pre-determined large position threshold being exceeded 
in a broader range of securities.
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    \7\ Ibid.
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    The proposed rules provided a minimum large position threshold of 
$2 billion, below which the Treasury would not request large position 
reports.

[[Page 48339]]

As a result, very few entities would be required to file large position 
reports. The proposed recordkeeping requirements would generally not 
apply to any reporting entity (as defined in the rules) that did not 
control a position that equalled or exceeded $2 billion in a Treasury 
security. For those entities currently subject to recordkeeping rules 
of the Securities and Exchange Commission (SEC), the Treasury or the 
bank regulatory agencies, the proposed rules would have imposed only 
minor additional recordkeeping requirements and only if certain 
conditions were present. Finally, the proposed rules incorporated 
several concepts from the Treasury's auction rules (e.g., positions to 
be included in a reportable large position, definition of a reporting 
entity and method of aggregating positions) which have been in effect 
since March 1993 and are understood by many of the major participants 
in the Treasury securities market.8
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    \8\ Uniform Offering Circular for the Sale and Issue of 
Marketable Book-Entry Treasury Bills, Notes, and Bonds; 31 CFR 
Chapter II, Subchapter B, Part 356.
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    In addition to considering the views expressed by the commenters to 
the two rulemaking proposals, Department staff has also consulted with 
various regulatory agencies (i.e., staff of the SEC, the Commodity 
Futures Trading Commission, the Board of Governors of the Federal 
Reserve System and the Federal Reserve Bank of New York (FRBNY)) in 
developing the ANPR, the proposed rules and these final rules.

D. Scope of Large Position Rules

    It is important for all market participants to recognize that large 
position rules create a requirement to maintain records and report 
information about such positions. However, these requirements apply 
only to entities that hold or control (i.e., exercise investment 
discretion over) very large positions, as determined by the Department, 
in specific Treasury security issues. Accordingly, there is no 
obligation on executing brokers and dealers to report large trades nor 
is there an affirmative duty to inform their customers of the large 
position recordkeeping and reporting requirements prescribed by this 
rulemaking.
    The Department emphasizes that large positions are not inherently 
harmful and there is no presumption of manipulative or illegal intent 
on the part of the controlling entity merely because a position is 
large enough to be subject to these rules. In addition, the rules do 
not establish trading or position limits or require the identification 
of large traders or the reporting of large trades. Finally, the GSAA 
specifically provides that the Department 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 under the Freedom of Information Act (FOIA).9
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    \9\ 5 U.S.C. 552(b)(3)(B).
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II. Comments Received in Response to Proposed Rules

    As discussed in the ANPR 10 and the proposed rules,11 the 
Department made the decision, early on, to obtain the views of the 
market participants who would be directly affected by such regulations. 
In the proposed rules, which addressed and incorporated those comments 
received in response to the ANPR, the Department strongly encouraged 
market participants to submit comments, including any suggestions for 
reducing burdens on the industry while still achieving the objective of 
the rules.
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    \10\ See supra note 4.
    \11\ See supra note 6.
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    In response to the proposed rules, the Department received thirteen 
comment letters. The letters were submitted by four trade associations, 
three primary government securities dealers, four bank holding 
companies (including two primary dealers), and one mutual fund 
manager.12 The Department has carefully considered the comments 
that were received, which generally supported the approach and process 
adopted in the proposed rules. Each comment letter did not necessarily 
address all aspects of the proposed rules.
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    \12\ Public Securities Association (two letters); Investment 
Company Institute; British Bankers' Association; London Investment 
Banking Association; Goldman, Sachs & Co.; J.P. Morgan Securities, 
Inc.; HSBC Securities, Inc.; Bank of America; Chemical Banking 
Corporation; Norwest Corporation; BANC ONE Corporation; and Fidelity 
Management & Research Co., respectively.
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    The comments have been summarized and organized into the following 
eight basic categories: Control and the Definition of a Reporting 
Entity; Reporting Threshold; Time Frame for Submitting Reports; 
Reportable Position Components; Report and Recordkeeping 
Certifications; Recordkeeping; Announcement of a Request for Reports; 
and General Commentary.

A. Control and the Definition of a Reporting Entity

    Eight comment letters specifically addressed this issue. While the 
comments were generally in agreement with the definition of control as 
proposed, the concept of control premised on an entity's investment 
discretion, and defining a reporting entity or a separate reporting 
entity under a requested ``carve out'' in conformity with the single 
bidder process in the uniform offering circular, four letters had 
specific recommendations.
    One commenter expressed concern about the timing and aggregation 
requirements given the definitions of ``control'' and ``entity'' and 
believed that it would be difficult to aggregate all of its holdings 
within the proposed reporting time frame. This commenter recommended 
that the definition of ``reporting entity'' be limited to a legal 
entity that exercises independent investment discretion, believing that 
if a narrower definition were adopted then their concerns would be 
eliminated. The second commenter, while agreeing with the concept of 
control premised on investment discretion, suggested that a participant 
be allowed to exclude from its reportable position those securities for 
which the entity has investment discretion but which do not exceed a 
minimum threshold. This approach, which would be similar to the net 
long position reporting requirement in the uniform offering circular, 
permits bidders to exclude amounts in non-bidding controlled accounts 
under a certain threshold from their reporting requirement. This 
commenter asserted that this exclusion would significantly alleviate 
the burden in tracking amounts of the security subject to investment 
discretion.
    The third letter, in specifically commenting on the application for 
separate reporting status, similar to the separate bidder application 
incorporated in the uniform offering circular, recommended that 
Appendix A of the rules be changed to encompass organizational 
components previously recognized under the uniform offering circular's 
definition. The fourth commenter expressed concern with the various 
distinctions being drawn among reporting entities, aggregating entities 
and separate reporting entities, stating that this will cause a myriad 
of problems for complex and changing financial services businesses. The 
commenter proposed that a narrower reporting population be defined, 
such as those business units which are the primary bidders for, and 
proprietary traders in, U.S. government securities. Within these 
groups, the commenter suggested excluding those securities that are not 
held for proprietary trading. This commenter further suggested an 
alternative approach which would not require the aggregation of 
positions, where the different business units within a firm are clearly 
independent,

[[Page 48340]]

while excluding all business units where securities are held as long-
term investments.

B. Reporting Threshold

    Seven letters directly addressed the proposed $2 billion minimum 
large position threshold. Two of the seven commenters believed this 
threshold to be an appropriate level, with one of these commenters 
suggesting that the rules specifically provide that the threshold be 
raised from time to time based on market developments. Three other 
commenters stated that by including gross financing positions in the 
total reportable position, all primary dealers and large market 
participants would trigger the $2 billion threshold and effectively be 
required to report their positions in all instances, due to their 
matched repo book and other financing activity, thereby resulting in 
numerous reports. Given these large matched book positions, one of the 
three commenters advocated that this threshold be increased to $5 
billion, while another suggested that the reportable position be based 
on the participant's net financing position. The third commenter, while 
also advocating a significant increase in the threshold, went further 
by recommending two other alternative approaches. In the first 
approach, the $2 billion threshold would be triggered by the aggregate 
of the net trading position and the net fails position, excluding the 
gross financing position. The second alternative approach would provide 
participants with the option of netting the gross par amounts of 
securities received in financing transactions against the gross par 
amount of securities delivered with the same term to the same 
counterparty. In both approaches, the commenter stated that this would 
only be to determine if a firm had crossed the threshold. Once it was 
determined that the firm was subject to reporting, then its gross 
financing positions would be reported to provide for a full range of 
large position information.
    The sixth letter, focusing on those large firms that operate in 
foreign markets, represented that even if the normal activity of a 
participant was below the threshold, if the participant was a part of a 
group of affiliates, it may be subject to the reporting rules. The 
commenter went on to state that foreign affiliates, however minimal 
their activity, would need to report information to the designated 
filing entity unless they qualified for, and received, separate 
reporting status. This commenter, and a seventh commenter which 
supported increasing the minimum threshold, suggested that the process 
could be simplified by setting a minimum threshold for each aggregating 
entity below which the entity's position would not need to be included 
in the reporting entity's report.

C. Time Frame for Submitting Reports

    Only one of the thirteen comment letters did not specifically 
address the subject of the proposed reporting time frame in which 
reports must be submitted once an announcement for large position 
information on a particular security is made by the Treasury. All 
twelve letters basically stated that the proposed one and one-half 
business day time frame was too short given the enormity of the data 
that would need to be gathered, reviewed and aggregated. These letters 
suggested that a longer period would seem more appropriate based on the 
effort required to compile the information, the fact that current 
requirements do not require holdings to be aggregated at a reporting 
level, and the time needed for participants with large international 
presences to gather the data from worldwide affiliates, especially 
given the different time zones. One commenter recommended extending 
this turnaround time to at least three business days. Others suggested 
four or five business days while several commenters recommended that a 
minimum of ten business days would be appropriate. Commenters noted 
that a turnaround time frame of ten business days is the same as that 
for large position rules in place for the equities securities market 
(i.e., 13d filings) and is the same as that for the SEC's proposed 
large trader reporting rules.
    One of the commenters, while not recommending a specific time 
frame, suggested that even a ten business day turnaround would be 
insufficient. This letter proposed several alternatives to balance the 
need to collect information quickly and the burdens on the reporting 
entity. The commenter suggested that an initial or ``first cut'' report 
of summary positions be prepared which would contain less precise 
information. Possible alternatives would be to subsequently provide a 
breakdown of the various components upon request; or, accept an initial 
report with only trading, reverse repo, and securities borrowed 
positions, with additional information to follow in a longer time 
frame; or, permit U.S.-based entities to report first, with information 
regarding foreign holdings to follow upon request; or, permit filing of 
partial reports to address situations where an aggregating entity does 
not have its reportable position ready in time.
    Another commenter, while recommending a time frame of not less than 
ten business days if the reportable position includes all securities 
received in pledge and in other collateralized transactions, also 
advocated the implementation of a phased reporting system where 
participants would provide certain information in less than ten 
business days, with the balance of the required information to be 
provided by the tenth business day. This commenter went on to state 
that many participants would be able to report their net trading 
positions for all aggregating entities within five to seven business 
days. One commenter requested that the final rule specifically provide 
that the reporting entities could amend a filing if the original 
reported information was inaccurate.

D. Reportable Position Components

    Eleven of the thirteen comment letters addressed the subject of the 
composition of a reportable position. Certain commenters generally 
supported including in the total reportable position the selected 
components as proposed, such as net forward and net fails positions. 
However, the majority of commenters objected to how certain aspects of 
the net trading and gross financing positions were to be included or 
whether they should even be included in the total reportable position. 
For example, two commenters specifically objected to a separate 
reporting of the net trading position components since, as stated by 
one of these commenters, separate reporting serves no useful purpose 
because all these positions represent control. Both commenters stated 
that the positions should be reported as of trade date, not settlement 
date. These same commenters stated that those securities received under 
overnight repos should be excluded from the reporting and recordkeeping 
obligations since investment advisers do not exercise effective control 
over them, they are not rehypothecated, and a significant portion of 
these transactions are tri-party repos where the counterparties 
typically have the right of substitution.
    The inclusion of securities received in pledge as collateral for 
margin loans, swap transactions, and other collateralized credit 
extended in the gross financing position generated the most comments 
from those that addressed the reportable position's components. Nine 
comment letters responded similarly that these pledged securities 
should be excluded from being reported in the gross financing position. 
The commenters stressed there are minimal policy benefits to be

[[Page 48341]]

derived by including them and that this information would be of 
marginal utility. The inclusion of these securities is based on the 
premise that the pledgee maintains control. However, the commenters 
stated that firms do not control those securities received in pledge 
since the pledgor often has the right to substitute them in accordance 
with the market practice of pledging general collateral rather than 
specific securities identified by particular CUSIPs (i.e., a unique 
identifying number assigned to each separate security issue and 
separate STRIPS component). The letters also stressed that most firms 
or market participants do not have a systematic method for aggregating 
these positions firm-wide and do not possess the operational capacity 
or systems to track those securities pledged by CUSIP. It was argued 
that it would be prohibitively expensive to design and implement 
systems and procedures to track these pledged securities by CUSIP. Two 
letters, in particular, stressed that if these securities received in 
pledge and securities in other collateralized transactions were to be 
included in the final rules then market participants should continue to 
be provided the option to exclude the securities collateral over which 
the pledgor retains the right to substitute or which is subject to 
third party custodial relationships. Further, the amount of such 
exclusions should not be required to be reported separately in a 
memorandum entry in the report. One letter stated that the rules should 
allow for the netting of repos and reverse repos when the counterparty 
is a primary government securities dealer.
    Two commenters requested further clarification on different 
position components. One of the letters stated that while fails should 
be included in a reportable position, the rules should clarify that 
fails are not included in the calculation for the cash/immediate net 
settled position. The second letter requested clarification on the 
treatment of forward start repos and reverse repos, believing that they 
should be included in the gross financing position. This commenter also 
requested clarification that fails to receive or fails to deliver would 
not be included in the cash/immediate net settled position since this 
would avoid double counting in the reports. This letter suggested that 
fails be treated similarly to forwards and that fails should be able to 
be netted with other components as either a positive or negative 
number. This commenter suggested amending the proposed rules to permit 
net fails to be less than zero.

E. Report and Recordkeeping Certifications

    Six letters specifically commented on the proposed report and 
recordkeeping certifications and essentially objected to, or would find 
problematic, the requirement that only certain senior executives would 
be permitted to sign the report and certify the adequacy of the 
reporting entity's recordkeeping system. It was recommended that the 
rules be broadened to provide that others, such as the chief legal or 
compliance officers, or individuals authorized by the designated filing 
entity, be able to sign the reports and recordkeeping certifications. 
This approach would be consistent with the requirement under Section 13 
of the Securities Exchange Act of 1934.
    Three letters, in particular, expressed concern about the 
obligations and responsibilities with respect to the certifications 
that must be given by the designated filing entity on behalf of the 
reporting entity and its aggregating entities. It was recommended that 
the certifications in the final rules specifically permit the 
designated filing entity to rely on certifications or other reasonable 
bases of evidence of the accuracy of the information as provided by the 
aggregating entities.

F. Recordkeeping

    Five letters directly addressed the proposed recordkeeping 
requirements. Two of these letters objected to applying the rules to 
those entities that had a large position at any time during the two-
year period ending ninety days after publication of the final rules 
since the reviews of records to determine whether a large position was 
held would be an extensive, time consuming, and very costly process and 
would amount to a retroactive application of a new requirement. It was 
recommended that if this requirement were retained, entities be given 
the option of certifying or notifying the FRBNY that the holding of a 
large position is based on the entity's general knowledge of past 
investment and trading activities, without actually reviewing their 
records to document this fact. Another two letters specifically 
commented on the imposition of a significant recordkeeping burden on 
unregulated aggregating entities. Both letters stressed the view that 
this additional compliance burden, with these unregulated firms having 
to design and implement recordkeeping systems, may cause certain 
entities to either re-evaluate or curtail their participation in the 
Treasury market. One letter suggested that these unregulated entities 
be excluded from these requirements.

G. Announcement of a Request for Reports

    Five letters addressed the issue that the Treasury would annually 
test the reporting of large positions by requesting reports. Four 
letters recommended that when this request for large position 
information is made, the Treasury should notify market participants 
that it is a test. This is because some participants will assume that 
all such requests are real and their reactions may create price 
anomalies where none existed. One letter, in particular, stressed that 
advising market participants that the request is a test would not cause 
firms to be less diligent in complying with the rules and that firms 
would in every case have a legal obligation to submit the required 
information in a timely and accurate manner.
    One letter recommended that the start of the response period, in 
which the reports would be required to be submitted, should be 
triggered by publication of the announcement in the Federal Register, 
which would provide more certainty than a press release, that the 
notice was received. Another letter, from a trade association, 
suggested that while they support the issuance of a press release and 
publication in the Federal Register, they would also like to be 
immediately notified when the release is provided to third party wire 
services so that they can redistribute the notice to their members.

H. General Commentary

    Nine of the thirteen comment letters expressed general support for 
the proposed rules and the desired effect to prevent and detect market 
manipulation. Specifically, the letters supported the approach taken in 
providing for a $2 billion reporting threshold, an on-demand reporting 
system where reports are required to be submitted in response to 
infrequent requests, and relying on records that are already required 
to be maintained. Three of the nine letters stated that certain 
features of the proposed rules would be overly burdensome and pose 
compliance problems.
    One commenter agreed that the proposed rules strike the appropriate 
balance between achieving the purposes of the statute and minimizing 
the costs to the affected entities. Another commenter, while generally 
supportive, strongly objected to the Treasury reserving the right to 
collect information on securities issues that are older than those 
specified, since accommodating

[[Page 48342]]

historical information requests would impose significant cost burdens 
and business disruptions. A third commenter suggested that the FRBNY 
adopt an appendix to the final rules that would identify acceptable 
submission methods. A fourth commenter reiterated the view it expressed 
in response to the ANPR that the particular features of the Treasury 
bill market make it difficult to accumulate a concentration in these 
issues. A fifth commenter stated that the final rules should explicitly 
include a provision providing that any information required to be kept 
or reported will be exempt from FOIA and provided confidential 
treatment given its concern that the Treasury, in following up on a 
report, would seek the names of its advisory clients. This same 
commenter also stated that it does not believe that the GSAA provides 
the Treasury with the authority to request information on securities 
issues older than those defined as recently-issued and, therefore, this 
provision should be eliminated.
    Three commenters opposed the application of the large position 
rules to foreign firms. One letter expressed the commenter's belief 
that there are complications for those firms operating in foreign 
markets and that the proposed rules raise concerns about the potential 
effect on the liquidity of the government securities market. This 
commenter stated that the recordkeeping requirements and open-ended 
obligation to file large position reports could make Treasury 
securities less attractive to foreign participants, many of whom 
structure their business so as not to bring themselves under direct 
U.S. regulation. This letter further urged that the issuance of the 
final rules be delayed until the Treasury is absolutely certain that 
these rules meet the stated goal. Another commenter, in addition to 
expressing concerns with compliance costs (particularly for major 
European financial conglomerates), raised the issue of the extension of 
extra-territorial regulation by U.S. authorities. It was this 
commenter's belief that the extra-territorial application of the rules 
would be unwarranted in principle and unworkable in practice and would 
``aggravate problems over the trade in services.'' The commenter 
suggested that an alternative approach would be to rely more on 
memoranda of understanding (MOUs) with European supervisors and less on 
regulations. This letter further questioned the enforcement capacity 
with which U.S. authorities would have to enforce the regulations 
outside national jurisdiction, in the context of large foreign 
conglomerates. To this extent, the commenter recommended a narrower 
definition of the reporting population.
    A third commenter stated that the extra-territorial scope of the 
large position rules should be modified, particularly with respect to 
firms domiciled in countries where foreign regulators have MOUs with 
U.S. authorities. This commenter stated that the Treasury should 
explore the possibility of obtaining large position information from 
the foreign regulatory authorities rather than directly from the firms. 
It was represented that this process would ``build on * * * the 
increasing and important trend of enhancing cooperation between 
regulators in the securities markets * * *.'' This commenter further 
stated that large position reporting may not be needed at all for firms 
based in foreign jurisdictions which have rules in place to prohibit 
market manipulation.

III. Section-by-Section Analysis of Changes in Response to Comments

A. Section 420.1--Applicability

    In preparing the applicability section of the final rules, one 
change was made from the proposed rules. The change provides a total 
exemption from the large position rules to foreign central banks, 
foreign governments and international monetary authorities (e.g., World 
Bank) (collectively, foreign official organizations). The proposed 
rules had provided these entities a partial exemption from the rules 
limited to the portion of their positions maintained at the FRBNY. In 
response to the ANPR, the Treasury had received comments (from the 
FRBNY and the Investment Company Institute) on the regulatory treatment 
of these organizations and public comment was specifically requested on 
the approach taken in the proposed rules. No further comments were 
received.
    The Department has determined to grant the foreign official 
organizations a total exemption after careful consideration of the 
costs and benefits resulting from subjecting them to large position 
rules. The Treasury believes that attempting to regulate these entities 
would create significant potential legal and practical problems. 
Additionally, for the infrequent occasion when foreign official 
organizations may control a large position in a Treasury security, this 
information is likely to be available from other sources. Accordingly, 
the Treasury perceives very little benefit to be obtained from 
regulating the foreign official organizations in relation to the costs 
that would be incurred. It is for this reason that they are being 
granted a full exemption.
    The exemption provided to foreign official organizations does have 
one limitation. To the extent that such an organization has an 
ownership interest in an entity that engages primarily in commercial 
transactions (e.g., a nationalized commercial bank), the exemption does 
not extend to that entity. This limitation is designed to provide 
equivalent treatment to all commercial market participants regardless 
of their ownership structure.
    Three commenters objected to the applicability of the rules to 
foreign firms (i.e., foreign private financial enterprises). Two argued 
that the extra-territorial application of the rules by U.S. regulators 
would be either unwarranted in principle and unworkable in practice or 
unnecessary for many foreign firms since they are already subject to 
the rules of their domestic supervisor prohibiting market manipulation. 
The commenters recommended that, in lieu of an extra-territorial 
application of the rules, Treasury: (1) Rely more on MOUs with foreign 
regulators to obtain needed information, and (2) define a narrower 
reporting population for the rules (e.g., only business units that are 
primary bidders for, and proprietary traders in, Treasury securities).
    Treasury has considered the problems related to the ability of U.S. 
regulators to obtain large position information from foreign investors. 
As a result, Treasury expects that U.S. regulators will continue to 
cooperate with foreign securities regulators through MOUs and other 
means when and if such actions become necessary. It is impractical to 
exempt foreign investors from the large position rules since the 
potential exists for these entities to amass large positions in 
Treasury securities, and further, the granting of such an exemption 
could cause U.S.-based entities to move their securities holdings 
overseas to foreign firms. Accordingly, the Treasury has decided to 
retain the requirement that foreign private financial enterprises be 
subject to the large position rules.
    The commenters also asserted that compliance costs for foreign 
firms--especially European financial conglomerates--would be 
considerable. The Treasury believes that the changes made to the 
proposed rules, as explained in the remainder of this section of the 
preamble, together with the fact that the on-demand reporting system 
does not require aggregation of positions on a daily basis, will 
facilitate the ability of affected firms, including foreign firms, to 
comply with the rules

[[Page 48343]]

without incurring substantial compliance costs.

B. Section 420.2--Definitions

    Comments were received on paragraph 420.1(d) of the proposed rules, 
which reserves the Treasury's right to collect information on certain 
Treasury securities which do not meet the regulatory definition of 
``recently-issued'' but reporting on them would be consistent with the 
purposes of the GSAA. The commenters believed that such a reservation 
of rights was beyond the scope of the Treasury's authority. The purpose 
of the provision was to provide notice to market participants that, 
while the definition of ``recently-issued'' narrowed the routine 
coverage of the large position rules to a small universe of securities, 
the authority provided to the Treasury by the GSAA is broad enough to 
be applied to a larger group of securities and that, in certain rare 
circumstances, the Treasury may choose to invoke this broader 
authority. Treasury continues to hold this view.
    After consideration of these comments, and to make clear that 
``recently-issued'' is not limited by statute to the two or three most 
recent issues of a security, the Department has removed paragraph 
420.1(d) but revised the definition of ``recently-issued'' in paragraph 
420.2(g) of the final rules. The revision adds a new subparagraph (5) 
to the definition of ``recently-issued'' to include Treasury security 
issues older than those specified in subparagraphs 420.2(g)(1) and (2) 
where the large position information is necessary and appropriate for 
monitoring the impact of concentrations of positions in Treasury 
securities. As discussed in the preamble to the proposed rule,13 
the Treasury believes that this authority to request large position 
information on older security issues would only be used in exceptional 
circumstances. One example is the April and May 1991 two-year Treasury 
note squeeze situations in which these securities remained of concern 
to the Treasury beyond the time that would otherwise have been covered 
by the definition of ``recently-issued'' in subparagraphs 420.2(g) (1) 
and (2). It is not the Department's intention to gather information on 
securities that have been outstanding for an extended period of time.
---------------------------------------------------------------------------

    \13\ 60 FR 65214, 65217 (December 18, 1995).
---------------------------------------------------------------------------

    The definition of gross financing position, paragraph 420.2(c), was 
the subject of a number of comments principally on two different 
aspects of the proposed definition; the inclusion of securities 
collateral and the scope of the optional exclusion. As previously 
described in Section II.D., many commenters were particularly concerned 
about the broad scope of the definition of the gross financing 
position. As proposed, the gross financing position included amounts of 
a security received from any financing transaction, including 
collateral for commercial loans or financial derivatives. Commenters 
represented that compliance with the extensive reach of this position 
component would be unduly burdensome and for a large, diversified 
reporting entity could not be calculated within the provided reporting 
time frame. Some of the commenters stated that in order to calculate 
the gross financing position they would have to develop automated 
systems at substantial cost. The commenters did not object to the 
treatment of security financing transactions such as reverse repurchase 
agreements and bonds borrowed.
    After reviewing the comments, the Department has determined to 
limit the scope of the gross financing position. Specifically, all 
commercial lending transactions that include Treasury securities as 
collateral will be excluded from the gross financing position. These 
transactions include financings such as lines of credit, general 
purpose business loans and other securitized loans unrelated to 
activities in the financial markets. This change should greatly 
simplify the computation of the gross financing position for entities 
such as large commercial banks that extend secured commercial credit 
from a large number of locations and do not maintain a centralized 
register of the specific collateral for these transactions.
    In preparing the final rules, the Treasury carefully considered the 
commenters' further objections to the inclusion of securities received 
as collateral for financial derivatives such as swap agreements. The 
commenters represented that since these activities are generally 
conducted in unregulated affiliates of regulated entities, there are 
few standardized systems for tracking the specific collateral obtained 
and that creating an obligation to determine whether a specific 
security is held as collateral in a very short time frame, even on an 
on-demand basis, would require the development of extremely expensive 
automated systems. The Department weighed these arguments against the 
potential importance of this information in ascertaining control of a 
particular security and decided that the benefits of including them 
were greater than the burdens to market participants. Factors affecting 
this decision were the growing popularity of collateral structures for 
financial derivatives, the practical similarities between these 
structures and reverse repos and bonds borrowed transactions, as well 
as the fact that large market participants that would be affected by 
the large position rules already have non-integrated systems for 
tracking this collateral to conduct daily mark-to-market calculations 
and to determine the sufficiency of the collateral. Additionally, as is 
discussed later in the preamble, the Department has also determined to 
extend the reporting time frame. Accordingly, a Treasury security that 
has been received as collateral for a financial derivative transaction 
or other securities transaction (e.g., margin loan) must be included in 
the gross financing position.
    In response to the proposed rules, commenters also noted that the 
optional exclusion provided in the definition of gross financing 
position for transactions in which securities were transferred without 
effective control was restricted to only some financing transactions. 
The Department is sympathetic to this concern and is revising the 
definition in paragraph 420.2(c) in the final rules to permit the 
optional exclusion to be available on the same terms for any collateral 
transaction in which securities are received. The circumstances in 
which control is deemed to not exist--the right to substitute 
securities, a third party custodial relationship or hold-in-custody 
agreements--remain unchanged from the proposal. Extension of the 
exclusion to all components of the gross financing position should 
further mitigate the impact of including financial derivatives 
collateral in the definition since many of these agreements provide for 
the right to substitute securities.
    As a clarifying point in response to one commenter, the Department 
notes that forward start reverse repo transactions are to be included 
in the gross financing position just as forward settling trades are in 
the net trading position.
    While the Department is not revising the definition in paragraph 
420.2(d) of large position threshold, it emphasizes that the $2 billion 
level is only an absolute minimum reporting level. The Treasury wishes 
to reiterate that, while the $2 billion threshold triggers the 
recordkeeping requirements pursuant to section 420.4, no reporting 
burden is created until the Treasury issues a notice for information on 
a specific security. The Treasury envisions that the level specified in 
any actual request for large position information would most likely be 
significantly in excess of $2 billion and would, therefore, affect

[[Page 48344]]

only a small number of entities. Accordingly, no change is being made 
to the definition.
    Comments were specifically requested on the treatment of fails in 
the composition of a reportable position. The only negative comments 
received on this component suggested that the net fails position be 
permitted to be a negative number. The Department has decided to retain 
the current restriction that the net fails position should be reported 
as zero if it is negative. Fails to deliver that exceed fails to 
receive should not be used to reduce the size of a reportable position 
because their size is, to a great extent, controllable by the reporting 
entity. The Department also wishes to clarify that fails are not to be 
included in the net trading position and, therefore, are not double 
counted in computing a reportable position.
    In paragraph 420.2(f), the definition of net trading position, the 
Department requested comment on the proposed treatment of forward 
settling positions. The comments that were received on this issue were 
supportive of the proposed treatment. Accordingly, no change has been 
made to the treatment of forward settling positions in the net trading 
position. As a reminder, all the components of a reportable position 
are to be computed on a trade date basis.
    One commenter requested that the criteria for designation of a 
separate reporting entity within the definition of a reporting entity, 
paragraph 420.2(i) and Appendix A, be modified to parallel more closely 
the criteria for designation as a separate bidder in the uniform 
offering circular. 14 Specifically, the commenter asked that 
organizational components within an entity be permitted to establish 
themselves as separate reporting entities as they are permitted to be 
separate bidders in the uniform offering circular. To ensure 
consistency between the uniform offering circular and the large 
position rules, the Department has made a clarifying change to the term 
aggregating entity as defined in paragraph 420.2(a) and as used in 
Appendix A of the large position rules. These revisions clarify that an 
organizational component (e.g., a bank trust department) falls within 
the definition of aggregating entity and may be recognized as a 
separate reporting entity. Appendix A has been further revised to 
clarify that any entity, including an organizational component thereof, 
that has already received recognition from the Treasury as a separate 
bidder in Treasury auctions pursuant to the uniform offering circular 
is also recognized as a separate reporting entity without requesting 
such status. However, the separate reporting entity must continue to 
abide by the conditions set out in the uniform offering circular that 
are required for recognition as a single bidder, which parallel the 
conditions set out in Appendix A of the large position rules for 
recognition as a separate reporting entity.
---------------------------------------------------------------------------

    \14\ 31 CFR 356 Appendix A.
---------------------------------------------------------------------------

C. Section 420.3--Reporting

1. On-Demand Reporting System
    The on-demand reporting system approach that the Treasury proposed 
for filing large position reports received overwhelming support from 
the commenters. In an on-demand reporting system, large position 
reports are required to be prepared and filed only in response to a 
notice from the Treasury requesting large position information on a 
specific issue of a Treasury security by those reporting entities whose 
positions exceeded the large position reporting threshold specified in 
the notice.
    Nine of the twelve organizations that submitted comment letters 
addressed the on-demand reporting requirement and all of them supported 
the proposed reporting method in which large position reports would be 
submitted only in response to a specific, infrequent request by the 
Treasury. The commenters agreed with the Treasury's assessment that an 
on-demand reporting system would be significantly less costly and 
burdensome than a regular reporting system. An on-demand system would 
target the reporting to a specific issue of a Treasury security in 
response to price distortions or market anomalies, while still 
achieving the legislative and policy goals of strengthening the ability 
of the regulatory agencies to deter possible manipulation of the 
Treasury securities market. Thus, the on-demand approach is essential 
to the Treasury's overall commitment to design rules that strike an 
appropriate balance between achieving the purposes and objectives of 
the statute and minimizing costs and burdens to those entities affected 
by the regulations. Accordingly, the on-demand reporting requirement in 
paragraph 420.3(a) is being adopted without change from the proposed 
rules.
2. Notice Requesting Large Position Reports
    Another of the provisions of paragraph 420.3(a) identifies the 
information that will be provided in the notice that will be issued by 
the Treasury (i.e., press release and subsequent Federal Register 
notice) requesting the preparation and submission of large position 
reports. Paragraph 420.3(a) is being modified to indicate that the 
notice will also contain, where applicable, identification of the 
STRIPS principal component that is related to the specific Treasury 
security issue for which large position information is being requested. 
This information is being added because the STRIPS principal component, 
which must be reported as part of the net trading position, has a 
different security description and CUSIP number from the related 
Treasury note or bond that would be the subject of the Treasury's 
request for information.
    The preamble discussion to the proposed rules indicated that the 
Treasury notice requesting large position information would be provided 
to major news and financial publications and electronic financial wire 
services for subsequent dissemination, and published in the Federal 
Register.15 This procedure was proposed because we believe that 
the press release requesting large position information would be given 
wide and timely distribution without undue delay in the same manner as 
Treasury offering announcements and auction results. However, the 
Public Securities Association (PSA) has expressed concern about relying 
on the press for notification of the large position information request 
and that some entities may not have access to the particular wire 
service carrying the notice. For these reasons, the PSA has requested 
that the Treasury provide it with a facsimile copy of the notice so 
that the PSA can immediately notify its members of the reporting 
obligation. To facilitate broad and timely dissemination of the notice, 
Treasury will provide the PSA with a copy of the press release at the 
time it is issued. The Treasury will similarly make a copy of the 
notice available to other industry or trade associations at their 
request.
---------------------------------------------------------------------------

    \15\ Since the Federal Register is the designated federal 
publication for providing official notice, publishing the Treasury 
notice in that publication is legally sufficient for ``constructive 
notice'' of the request.
---------------------------------------------------------------------------

3. Information Required in Large Position Reports
--Net Trading Position
    Paragraph 420.3(c), together with Appendix B, details the specific 
information that must be provided in the large position information 
reports. In the proposed rules, paragraph 420.3(c)(1) identified the 
specific component positions of the total reportable position that must 
be reported by the reporting entity. For the

[[Page 48345]]

net trading position, which is one of three positions that constitute 
the total reportable position, the proposed rules required each of the 
following five components to be listed in the large position report: 
(1) Cash/immediate net settled positions; (2) net when-issued positions 
for to-be-issued and reopened issues; (3) net forward settling 
positions, including next day settling positions; (4) net positions in 
futures contracts that require delivery of the specific security; and 
(5) net holdings of STRIPS principal components of the security.
    Two commenters objected to the requirement that each of the five 
components of the net trading position be reported separately since the 
only difference among these items is their settlement date. One of 
these commenters also stated that the separate reporting of the net 
holdings of STRIPS principal components of a security does not appear 
to be necessary. In response to the comments and also to reduce the 
amount of information that must be included in the large position 
report, we are revising the final rules to eliminate the separate 
reporting of the five components that comprise the net trading 
position. Reporting only the total net trading position, rather than 
each of the five components, is also consistent with the way the net 
long position is reported under the Treasury's auction rules.16 
Accordingly, paragraph 420.3(c)(1) has been revised to require a 
reporting entity to report only its net trading position, gross 
financing position, net fails position and the total reportable 
position, which is the sum of the three positions. However, Treasury or 
FRBNY staff may require, as a follow-up inquiry pursuant to paragraph 
420.3(e), a reporting entity to provide the amount of each component 
that constitutes the net trading position. Reporting entities must make 
good faith efforts to respond to such inquiries and provide any 
additional information requested in a timely manner.
---------------------------------------------------------------------------

    \16\ 31 CFR 356.13(b).
---------------------------------------------------------------------------

--Gross Financing Position
    The gross financing position is the second of three positions 
constituting the total reportable position that must be included in the 
large position report pursuant to paragraph 420.3(c)(1) of the final 
rules. As discussed at length in Sections II.D. and III.B. of this 
preamble, the gross financing position was the subject of extensive 
comments regarding the inclusion of securities collateral in the 
position, the scope of the voluntary exclusion that permitted firms to 
reduce the gross financing position by the amount of securities 
received over which they did not have effective control, and the 
requirement to report the amount of the voluntary exclusion as a 
memorandum entry. Section III.B. discusses how the definition of gross 
financing position is being modified to narrow the scope of 
transactions that are covered and how the voluntary exclusion is being 
expanded to cover all components in the gross financing position. No 
changes to paragraph 420.3(c)(1) are necessary to address these issues.
    However, the Treasury has changed the provision in paragraph 
420.3(c)(2) of the proposed rules that would have required the amount 
of the voluntary exclusion to be reported. Entities that would have 
taken advantage of the voluntary exclusion would have been required to 
report the amount of the exclusion in Memorandum #2. The Treasury 
agrees with the commenters who stated that requiring this memorandum 
entry would impose additional burdens, thus negating the benefits that 
would be derived from exercising the voluntary exclusion. As a result, 
the Treasury is revising paragraph 420.3(c)(2) in the final rules by 
deleting the requirement to report Memorandum #2--the amount excluded 
from the gross financing position--in the large position report.
--Net Fails Position
    Regarding the net fails position, which is the third component of 
the total reportable position, two commenters requested clarification 
that fails should not be included in the cash/immediate net settled 
position component of the net trading position. The Department concurs 
with the views expressed by the commenters and reiterates the 
clarification it made in the preamble to the proposed rules that 
positions remaining unsettled after their scheduled settlement date are 
not to be included in the computation of the net trading position. As 
discussed earlier, the final rules adopt without change the treatment 
of the net fails position as proposed, i.e., net fails must be reported 
either as a positive number or zero.
--Trade Date Reporting
    Paragraph 420.3(c)(3) has been revised with technical and 
conforming changes. Language has been added to this provision to state 
explicitly that all position amounts on the large position report 
should be reported on a trade date basis. Since two commenters stated 
that positions should be reported as of trade date rather than 
settlement date, we believe this revision to the final rules will 
eliminate any confusion or misunderstanding regarding this issue.
    A conforming change is also being made to paragraph 420.3(c)(3) to 
reflect that the net trading position should be reported as one net 
number rather than reporting each of the five net trading position 
elements. See the discussion above in the section entitled Net Trading 
Position.
--Supplemental Information
    As described in the proposed rules, paragraph 420.3(e) requires 
that a reporting entity provide, in response to a request from the 
FRBNY or the Treasury, information in support of its large position 
report. Such a request could include the detail on the five components 
of a net trading position. Examples of other information that may be 
requested include the terms of repurchase agreements involving the 
security, such as rate and maturity, as well as transaction volume for 
the reported security.
4. Report Signatories and Certifications
    In the proposed rules, paragraph 420.3(c)(5) provided a listing of 
the administrative information that must be included in the large 
position report, the individuals authorized to sign the report, and the 
required certification language attesting to the accuracy and 
completeness of the report and to compliance by the reporting entity 
with the large position rules under this part. A number of commenters 
recommended that the list of those individuals authorized to sign the 
large position reports be expanded to include other officials and 
further that authority to sign be permitted to be delegated to other 
individuals. Additionally, many commenters requested that the 
certification language be changed to permit the designated filing 
entity to rely on certifications or other reasonable bases of evidence 
received from the aggregating entities regarding the accuracy and 
completeness of the large position information provided by the 
aggregating entities.
    In response to these comments, the Department is liberalizing and 
providing greater flexibility for the signatory and certification 
requirements. Paragraph 420.3(c)(5) as it appeared in the proposed 
rules is being separated into two paragraphs. New paragraph 420.3(c)(5) 
lists the specific administrative information that must be provided in 
the large position report without any substantive change from the 
proposal.
    New paragraph 420.3(c)(6) lists the individuals authorized to sign 
the large position reports and provides the specific certification 
language that must be included in each report. This

[[Page 48346]]

provision is being revised in the final rules by adding the chief 
compliance officer and chief legal officer to the list of officials 
authorized to sign the large position reports. In broadening the list 
of authorizing officials, the Department believes affected firms will 
have greater flexibility to determine the appropriate signatory for a 
particular report.
    New paragraph 420.3(c)(6) also contains a provision requiring two 
certification statements. The first certification statement requires 
the person signing the large position report to certify that the 
information contained in the report with respect to the designated 
filing entity is accurate and complete. This is consistent with the 
certification in the proposed rules. However, the certification 
language regarding (i) the accuracy and completeness of the large 
position information related to the other aggregating entities and (ii) 
compliance by the reporting entity, including all aggregating entities, 
with the large position recordkeeping and reporting rules has been 
modified to permit such certifications based on lesser standards of 
assurance. The final rule language will enable the signatories to make 
the required certifications based on a standard of reasonable inquiry 
and best knowledge and belief. Such an approach permits the authorized 
official to rely on certifications, schedules or other reasonable bases 
of evidence that the aggregating entities provide to the designated 
filing entity pertaining to their holdings of large positions and 
compliance with the rules.
    This certification approach adopted in the final rules is similar 
to that used by the SEC regarding reports filed under Sections 13(d) 
and 13(g) of the Securities Exchange Act of 1934.17
---------------------------------------------------------------------------

    \17\ 17 CFR 240.13d-1; 240.13d-101; 240.13d-102, item 10; 15 
U.S.C. 78m(d), 78m(g).
---------------------------------------------------------------------------

5. Reporting Time Frame
    Twelve of the thirteen comment letters objected to the one and one-
half business day reporting time frame in the proposed rules and 
recommended longer time frames ranging from three to ten business days. 
In addition, two commenters recommended a phased reporting approach 
with staggered deadlines for different types of positions.
    The Department is extending the time frame for filing the large 
position reports from one and one-half to three and one-half business 
days as prescribed in new paragraph 420.3(c)(7). Accordingly, reports 
must be received by 12:00 noon Eastern time at the FRBNY, Market 
Reports Division, on the fourth business day after the issuance of the 
Treasury press release requesting large position information.
    The Department is sympathetic to the concerns expressed by the 
commenters regarding the time and effort that will be needed to 
compile, aggregate and file the large position reports, particularly 
where reporting entities have a large number of aggregating entities, 
including foreign affiliates. To be weighed against these concerns is 
the need that the report be filed relatively quickly in order to 
accomplish its purpose. However, we believe that the significant 
changes that have been made in the final rules--revising the definition 
of gross financing position to exclude securities received as 
collateral for commercial loans; expanding the voluntary exclusion for 
the gross financing position to cover securities received on any 
component of the position; eliminating the requirement to report as a 
memorandum entry the amount of the voluntary exclusion; eliminating the 
need to report separately each of the five components of the net 
trading position; and expanding the flexibility regarding the signatory 
and certification requirements--will reduce the burdens associated with 
meeting the three and one-half business day reporting requirement.
    The Department also wants to clarify a misunderstanding on the part 
of some commenters that the large position rules impose an on-going 
aggregation requirement. Neither the proposed rules nor these final 
rules impose a daily aggregation requirement for large position 
information. The Department adopted the on-demand method of reporting 
specifically to avoid requiring entities to redesign or develop systems 
that would summarize, compile and aggregate large position information 
on a daily basis. While all aggregating entities subject to the rules 
must make records of their transactions on a daily basis, only the 
designated filing entities are required to have a process to aggregate 
the large position information on behalf of the reporting entity, and 
then only in response to a specific request from the Treasury for large 
position reports. The Department is not persuaded that the rules 
require firms to develop system interfaces or integrated systems to 
compile and aggregate the required large position information.
    The Department did not adopt the recommendation for a phased 
reporting system. We believe such a system would impose unnecessary 
administrative burdens and add unneeded complexity to the reporting 
process.
6. Report Media
    In response to a request for clarification, paragraph 420.3(d) has 
been revised to indicate that facsimile and delivered hard copy reports 
are the acceptable media for the large position reports. Reporting 
entities should contact the FRBNY staff to work out arrangements if 
they wish to submit the reports in a different type of media.
7. Testing of Large Position Reporting System
    The Department reiterates its intention to test the accuracy and 
reliability of the large position reporting system by requesting large 
position reports at least annually, regardless of market conditions for 
a particular security. Many commenters expressed concerns that, by the 
Treasury not disclosing that a request for large position information 
is a test, the market will assume the request is real and may react 
negatively, thus creating price anomalies where none existed. While the 
Department may announce a test as such, we intend to preserve our 
policy prerogative to request large position information without 
stating that the request is a test. The Department appreciates and 
understands these concerns but believes that the market should be able 
to discern, based on the market prices for the security issue selected 
for the test, that the request for large position information is only a 
test.

D. Section 420.4--Recordkeeping

    The recordkeeping rules require large position holders to make and 
preserve records related to large position reporting requirements. The 
final recordkeeping rules contain minor modifications to the proposed 
rules, reflecting the Treasury's review of issues raised in the comment 
letters.
    The proposed recordkeeping rules required, among other things, that 
each designated filing entity, in instances where its reporting entity 
controlled a reportable position of at least $2 billion in any Treasury 
security during the prior two-year period ending 90 days after 
publication of the final rule, submit a letter to the FRBNY 
``certifying'' that the designated filing entity had or would have by 
the effective date a recordkeeping system capable of making, verifying 
the accuracy of, and preserving the requisite records. (A technical 
change has been made in these final rules regarding this letter. 
Pursuant to section 420.4(a)(2) of the final large position rules, the 
letter must now be submitted to the Treasury's Bureau of the Public 
Debt, rather than to the FRBNY.)

[[Page 48347]]

    Four commenters objected to this requirement. Three commenters 
asserted that the provision, which effectively required certain firms 
to review positions dating back two years, was unduly time-consuming 
and costly since such information could not be readily collected and 
aggregated. The third commenter objected on the grounds that certain 
entities, particularly banks, are not required to maintain securities-
related records that cover all Treasury securities held as collateral 
(e.g., collateral received to secure extensions of credit) and are not 
required to maintain records by CUSIP. In addition, three commenters 
stated that the designated filing entity should not be expected to 
certify the accuracy of the records of other aggregating entities 
within the reporting entity.
    The Treasury believes that relatively few entities will be subject 
to the recordkeeping rules because few entities hold, have held, or 
expect to hold reportable positions equal to or greater than $2 
billion. Nevertheless, in order to ease the burden on, and costs to, 
the firms that will be subject to the rules when they become effective, 
the final recordkeeping rules eliminate the requirement that an 
affected designated filing entity make a certification in its letter to 
the Bureau of the Public Debt. Instead, paragraph 420.4(a)(2) of the 
final rules requires the designated filing entity to ``state'' in its 
letter that it has in place or will have in place a recordkeeping 
system to meet the requirements of the rules. Further, the final rules 
clarify the distinction between the designated filing entity's 
recordkeeping system requirements and those of the other aggregating 
entities in the reporting entity; each letter to the Bureau of the 
Public Debt now must also contain a statement that, after reasonable 
inquiry and to the best of its knowledge and belief, the designated 
filing entity ``represents'' that its aggregating entities also have in 
place or will have in place specified recordkeeping systems. In 
determining whether to submit a letter and to have the required 
recordkeeping systems in place by the effective date, a designated 
filing entity can now make such determinations as a result of a 
reasonable bases of evidence, or its general knowledge, of the 
magnitude of its own positions and those of its aggregating entities 
over the two-year time frame. These changes allow firms to avoid the 
time and cost of conducting a detailed review of their positions 
covering the prior two-year time period.
    Further, as described in Section III.C. of this preamble, the final 
rules substantially reduce the amount of information required to be 
reported pertaining to certain kinds of collateral received to secure 
extensions of credit (e.g., collateral for commercial loans). This 
change obviates the need to maintain information on some of the 
securities collateral about which one commenter expressed concerns.
    Section III.C. also discussed the reasons for incorporating into 
the final reporting rules an expansion of categories of officials who 
are authorized to sign and certify the reports. Using the same 
rationale, the final recordkeeping rules in paragraph 420.4(a)(3) 
provide that the same expanded list of officials of the designated 
filing entity are authorized to sign the letter to the Bureau of the 
Public Debt.
    The final recordkeeping rules include two additional changes from 
the proposed rules. In the event that a designated filing entity 
obtains any certifications or schedules from its aggregating entities 
pertaining to their holdings of a reportable position, paragraphs 
420.4(b)(2) and 420.4(c)(2)(ii) require the designated filing entity to 
maintain copies of such certifications or schedules.
    The Treasury emphasizes that, although the final recordkeeping 
rules impose a modest amount of new requirements, particularly with 
regard to entities that are not currently subject to federal securities 
recordkeeping rules, the new requirements are not expected to 
necessitate significant automation or administrative expenses for the 
affected firms. As discussed in the preamble to the proposed rules, 
Treasury places a great deal of importance on minimizing the compliance 
burden on all affected entities, including unregulated ones. As a 
result, Treasury intentionally avoided imposing the vast majority of 
the requirements contained in SEC Rule 17a-3 18 on the unregulated 
entities. Instead, Treasury selected the most basic record (similar to 
the blotter requirement of SEC Rule 17a-3) that would be crucial to 
documenting and preparing large position reports without imposing a 
burden on the few unregulated firms that are likely to be subject to 
the recordkeeping requirements. It is our understanding that such 
investors already maintain records capturing most or all of the 
information required by the recordkeeping rules.
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17a-3.
---------------------------------------------------------------------------

E. Section 420.5--Effective Date

    Section 420.5 sets out the effective date for both the 
recordkeeping and reporting provisions of the large position rules. The 
rules provide for a delayed effective date approximately six months 
after the date of this publication. This period of time is provided to 
give affected entities sufficient time to make the necessary 
preparations for compliance. Only paragraph 420.4(a) is not subject to 
this date but instead contains its own specific dates for compliance.

F. Appendix B to Part 420--Sample Large Position Report

    The sample large position report in Appendix B has been shortened 
to conform to the changes in paragraph 420.3(c) of the final reporting 
rules. Refer to Section III.C. of this preamble for an explanation of 
the changes.

IV. Special Analysis

    The rules do not meet the criteria for a ``significant regulatory 
action'' pursuant to Executive Order 12866.
    In the preamble to the proposed rules, pursuant to the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), the Department certified that 
these amendments, if adopted, would not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis was not prepared. The proposed and 
final rules establish a minimum large position threshold of $2 billion 
which assures market participants that the Treasury would not request 
large position reports below that minimum amount. The Department 
continues to believe that there are no small entities that will control 
positions of $2 billion or greater in any Treasury security. Based on 
this fact and its review of the final rules being adopted herein, and 
since no comments were received related to this particular issue, the 
Department has concluded there is no reason to alter the previous 
certification.
    The collections of information contained in the final regulations 
have been reviewed and approved by the Office of Management and Budget 
under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35) under Control Number 1535-0089. Under the Act, an agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless it displays a valid OMB control 
number.
    The information is being collected by the Department to enable the 
Treasury and other regulators to understand better the possible reasons 
for any apparent significant price distortions and the possible causes 
of market shortages in certain Treasury securities. The collection of 
information will help

[[Page 48348]]

ensure that the Treasury securities market remains liquid and 
efficient, and is not viewed as subject to manipulation. The final 
rules apply to nearly all market participants controlling large 
positions as defined in the rules. Per paragraph 420.3(c), it is a 
mandatory requirement that reporting entities with reportable positions 
that equal or exceed the specified threshold in a Treasury notice 
respond through their designated filing entities by filing a report in 
the required format and within the specified reporting time frame. The 
GSAA provides that the Department shall not be compelled to disclose 
publicly any information required to be kept or reported for large 
position reporting. Such information is exempt from disclosure under 
FOIA.\19\
---------------------------------------------------------------------------

    \19\ See supra note 9.
---------------------------------------------------------------------------

    Estimated total annual reporting and recordkeeping burden: 4,940 
hours.
    Estimated annual number of recordkeepers: 100.
    Estimated annual number of respondents: 10.
    Estimated annual frequency of response: On occasion.
    Comments on the accuracy of the estimate for this collection of 
information or suggestions to reduce the burden should be sent to the 
Office of Information and Regulatory Affairs of the Office of 
Management and Budget, Attention: Desk Officer for Department of the 
Treasury, Washington, D.C., 20503; with copies to the Government 
Securities Regulations Staff, Bureau of the Public Debt, Room 515, 999 
E Street, NW., Washington, D.C. 20239-0001.

List of Subjects

17 CFR Part 400

    Administrative practice and procedure, Banks, banking, Brokers, 
Government securities, Reporting and recordkeeping requirements.

17 CFR Part 420

    Foreign investments in U.S., Government securities, Investments, 
Reporting and recordkeeping requirements.
    For the reasons set out in the preamble, 17 CFR Chapter IV, 
subchapter A is amended as follows:

PART 400--RULES OF GENERAL APPLICATION

    1. The authority citation for part 400 is revised to read as 
follows:

    Authority: 15 U.S.C. 78o-5.

    2. In Sec. 400.1, paragraph (e) is added as follows:


Sec. 400.1  Scope of regulations.

* * * * *
    (e) Section 104 of the Government Securities Act Amendments of 1993 
(Pub. L. 103-202, 107 Stat. 2344) amended Section 15C of the Act (15 
U.S.C. 78o-5) by adding a new subsection (f), authorizing the Secretary 
of the Treasury to adopt rules to require specified persons holding, 
maintaining or controlling a large position in to-be-issued or 
recently-issued Treasury securities to report such a position and make 
and keep records related to such a position. Part 420 of this 
subchapter contains the rules governing large position reporting.
    3. Part 420 is added to read as follows:

PART 420--LARGE POSITION REPORTING

Sec.
420.1  Applicability.
420.2  Definitions.
420.3  Reporting.
420.4  Recordkeeping.
420.5  Effective Date.
Appendix A to Part 420--Separate Reporting Entity.
Appendix B to Part 420--Sample Large Position Report.

    Authority: 15 U.S.C. 78o-5(f).


Sec. 420.1  Applicability.

    (a) This part, including the Appendices, is applicable to all 
persons that participate in the government securities market, 
including, but not limited to: government securities brokers and 
dealers, depository institutions that exercise investment discretion, 
registered investment companies, registered investment advisers, 
pension funds, hedge funds and insurance companies that may control a 
reportable position in a recently-issued marketable Treasury bill, note 
or bond as those terms are defined in Sec. 420.2.
    (b) Notwithstanding paragraph (a) of this section, foreign central 
banks, foreign governments and international monetary authorities are 
exempt from this part. This exemption is not applicable to a broker, 
dealer, financial institution or other entity that engages primarily in 
commercial transactions and that may be owned in whole or in part by a 
foreign government.
    (c) Notwithstanding paragraph (a) of this section, Federal Reserve 
Banks are exempt from this part for the portion of any reportable 
position they control for their own account.


Sec. 420.2  Definitions.

    For the purposes of this part:
    (a) ``Aggregating entity'' means a single entity (e.g., a parent 
company, affiliate, or organizational component) that is combined with 
other entities, as specified in paragraph (i) of this section, to form 
a reporting entity. In those cases where an entity has no affiliates, 
the aggregating entity is the same as the reporting entity.
    (b) ``Control'' means having the authority to exercise investment 
discretion over the purchase, sale, retention or financing of specific 
Treasury securities. Only one entity should be considered to have 
investment discretion over a particular position.
    (c) ``Gross financing position'' is the sum of the gross par 
amounts of a security issue received from financing transactions, 
including reverse repurchase transactions and bonds borrowed, and as 
collateral for financial derivatives and other securities transactions 
(e.g., margin loans). In calculating the gross financing position, a 
reporting entity may not net its positions against repurchase 
transactions, securities loaned, or securities pledged as collateral 
for financial derivatives and other securities transactions. However, a 
reporting entity may elect to reduce its gross financing position by 
the par amount of the security received in transactions: in which the 
counterparty retains the right to substitute securities; that are 
subject to third party custodial relationships; or that are hold-in-
custody agreements.
    (d) ``Large position threshold'' means, with respect to a 
reportable position, the dollar par amount such position must equal or 
exceed in order for a reporting entity to be required to submit a large 
position report. The large position threshold will be announced by the 
Department and may vary with each notice of request to report large 
position information and with each specified Treasury security. 
However, under no circumstances will a large position threshold be less 
than $2 billion.
    (e) ``Net fails position'' is the net par amount of ``fails to 
receive'' less ``fails to deliver'' in the same security. The net fails 
position, as reported, may not be less than zero.
    (f) ``Net trading position'' is the net sum of the following 
respective positions in the specific security issue:
    (1) Cash/immediate net settled positions;
    (2) Net when-issued positions;
    (3) Net forward positions, including next-day settling;
    (4) Net futures contract positions that require delivery of the 
specific security; and
    (5) Net holdings of STRIPS principal components of the security.

[[Page 48349]]

    (g) ``Recently-issued'' means:
    (1) With respect to Treasury securities that are issued quarterly 
or more frequently, the three most recent issues of the security (e.g., 
in early April, the January, February, and March 2-year notes).
    (2) With respect to Treasury securities that are issued less 
frequently than quarterly, the two most recent issues of the security.
    (3) With respect to a reopened security, the entire issue of a 
reopened security (older and newer portions) based on the date the new 
portion of the reopened security is issued by the Department (or for 
when-issued securities, the scheduled issue date).
    (4) For all Treasury securities, a security announced to be issued 
or auctioned but unissued (when-issued), starting from the date of the 
issuance announcement. The most recent issue of the security is the one 
most recently announced.
    (5) Treasury security issues other than those specified in 
paragraphs (g)(1) and (2) of this section, provided that such large 
position information is necessary and appropriate for monitoring the 
impact of concentrations of positions in Treasury securities.
    (h) ``Reportable position'' is the sum of the net trading 
positions, gross financing positions and net fails positions in a 
specified issue of Treasury securities collectively controlled by a 
reporting entity.
    (i) ``Reporting entity'' means any corporation, partnership, person 
or other entity and its affiliates, as further provided herein. For the 
purposes of this definition, an affiliate is any: entity that is more 
than 50% owned, directly or indirectly, by the aggregating entity or by 
any other affiliate of the aggregating entity; person or entity that 
owns, directly or indirectly, more than 50% of the aggregating entity; 
person or entity that owns, directly or indirectly, more than 50% of 
any other affiliate of the aggregating entity; or entity, a majority of 
whose board of directors or a majority of whose general partners are 
directors or officers of the aggregating entity or any affiliate of the 
aggregating entity.
    (1) Subject to the conditions prescribed in Appendix A, one or more 
aggregating entities, either separately or together with one or more 
other aggregating entities, may be recognized as a separate reporting 
entity.
    (2) Notwithstanding this definition, any persons or entities that 
intentionally act together with respect to the investing in, retention 
of, or financing of, Treasury securities are considered, collectively, 
to be one reporting entity.


Sec. 420.3  Reporting.

    (a) A reporting entity is subject to the reporting requirements of 
this section only when its reportable position equals or exceeds the 
large position threshold specified by the Department for a specific 
Treasury security issue. The Department shall provide notice of such 
threshold by issuance of a press release and subsequent publication of 
the notice in the Federal Register. Such notice will identify the 
Treasury security issue to be reported (including, where applicable, 
identification of the related STRIPS principal component); the date or 
dates (as of close of business) for which the large position 
information must be reported; and the applicable large position 
threshold for that issue. It is the responsibility of a reporting 
entity to take reasonable actions to be aware of such a notice.
    (b) A reporting entity shall select one entity from among its 
aggregating entities (i.e., the designated filing entity) as the entity 
designated to compile and file a report on behalf of the reporting 
entity. The designated filing entity shall be responsible for filing 
any large position reports in response to a notice issued by the 
Department and for maintaining the additional records prescribed in the 
applicable paragraph of Sec. 420.4.
    (c)(1) In response to a notice issued under paragraph (a) of this 
section requesting large position information, a reporting entity with 
a reportable position that equals or exceeds the specified large 
position threshold stated in the notice shall compile and report the 
amounts of the reporting entity's reportable position in the order 
specified, as follows:
    (i) net trading position;
    (ii) gross financing position;
    (iii) net fails position; and
    (iv) total reportable position.
    (2) The large position report should include the following 
additional memorandum item: a total that includes the amounts of 
securities delivered through repurchase agreements, securities loaned, 
and as collateral for financial derivatives and other securities 
transactions. This total should not be reflected in the gross financing 
position.
    (3) An illustration of a sample report is contained in Appendix B. 
The net trading position shall be one net number and reported as the 
applicable positive or negative number (or zero). The gross financing 
position and net fails position should each be reported as a single 
entry. If the amount of the net fails position is zero or less, report 
zero. All position amounts should be reported on a trade date basis and 
at par in millions of dollars.
    (4) All positions must be reported as of the close of business of 
the reporting date(s) specified in the notice.
    (5) Each submitted large position report must include the following 
administrative information in addition to the reportable position: the 
name of the reporting entity, the address of the principal place of 
business, the name and address of the designated filing entity, the 
Treasury security that is being reported, the CUSIP number for the 
security being reported, the report date or dates for which information 
is being reported, the date the report was submitted, the name and 
telephone number of the person to contact regarding information 
reported, and the name and position of the authorized individual 
submitting this report.
    (6) The large position report must be signed by one of the 
following: the chief compliance officer; chief legal officer; chief 
financial officer; chief operating officer; chief executive officer; or 
managing partner or equivalent. The designated filing entity must also 
include in the report, immediately preceding the signature, a statement 
of certification as follows:

    By signing below, I certify that the information contained in 
this report with regard to the designated filing entity is accurate 
and complete. Further, after reasonable inquiry and to the best of 
my knowledge and belief, I certify: (i) That the information 
contained in this report with regard to any other aggregating 
entities is accurate and complete; and (ii) that the reporting 
entity, including all aggregating entities, is in compliance with 
the requirements of 17 CFR Part 420.

    (7) The report must be filed before noon Eastern time on the fourth 
business day following issuance of the press release.
    (d) A report to be filed pursuant to paragraph (c) of this section 
will be considered filed when received by the Federal Reserve Bank of 
New York, Market Reports Division. The report may be filed with the 
Federal Reserve Bank of New York by facsimile or delivered hard copy. 
The Federal Reserve Bank of New York may in its discretion also 
authorize additional means of reporting.
    (e) A reporting entity that has filed a report pursuant to 
paragraph (c) of this section shall, at the request of the Department 
or the Federal Reserve Bank of New York, timely provide any 
supplemental information pertaining to such report.

(Approved by the Office of Management and Budget under control 
number 1535-0089)

[[Page 48350]]

Sec. 420.4  Recordkeeping.

    (a)(1) Notwithstanding the provisions of paragraphs (b) and (c) of 
this section, an aggregating entity must make and maintain records 
pursuant to this part as of its effective date, but only if the 
aggregating entity has controlled a portion of its reporting entity's 
reportable position in any Treasury security when such reportable 
position of the reporting entity has equaled or exceeded the minimum 
large position threshold specified in Sec. 420.2(d) (i.e., $2 billion) 
during the prior two-year period ending December 11, 1996. Subsequent 
to the effective date, an aggregating entity that controls a portion of 
its reporting entity's reportable position in a recently-issued 
Treasury security, when such reportable position of the reporting 
entity equals or exceeds the minimum large position threshold, shall be 
responsible for making and maintaining the records prescribed in this 
section.
    (2) In the case of a reporting entity whose reportable position in 
any Treasury security has equaled or exceeded the minimum large 
position threshold during the prior two-year period ending December 11, 
1996, each such reporting entity's designated filing entity shall 
submit a letter to the Government Securities Regulations Staff, Bureau 
of the Public Debt, 999 E Street, N.W., Room 515, Washington, DC 20239, 
stating that the designated filing entity has in place, or will have in 
place by the effective date, a recordkeeping system (including policies 
and procedures) capable of making, verifying the accuracy of, and 
preserving the records required pursuant to this section. The letter 
shall further state that, after reasonable inquiry and to the best of 
its knowledge and belief, the designated filing entity represents that 
all other aggregating entities have in place, or will have in place by 
the effective date, a system (including policies and procedures) 
capable of making, verifying the accuracy of, and preserving the 
records required pursuant to this section.
    (3) The letter specified in paragraph (a)(2) of this section must 
be signed by one of the following: the chief compliance officer; chief 
legal officer; chief financial officer; chief operating officer; chief 
executive officer; or managing partner or equivalent. The letter must 
be received by the Bureau of the Public Debt no later than January 21, 
1997.
    (b) Records to be made and preserved by entities that are subject 
to the recordkeeping provisions of the Commission, the Department, or 
the appropriate regulatory agencies for financial institutions. As an 
aggregating entity, compliance by a registered broker or dealer, 
registered government securities broker or dealer, noticed financial 
institution, depository institution that exercises investment 
discretion, registered investment adviser, or registered investment 
company with the applicable recordkeeping provisions of the Commission, 
the Department, or the appropriate regulatory agencies for financial 
institutions shall constitute compliance with this section, provided 
that if such entity is also the designated filing entity it:
    (1) Makes and keeps copies of all large position reports filed 
pursuant to this part;
    (2) Makes and keeps supporting documents or schedules used to 
compute data for the large position reports filed pursuant to this 
part, including any certifications or schedules it receives from 
aggregating entities pertaining to their holdings of a reportable 
position;
    (3) Makes and keeps a chart showing the organizational entities 
that are aggregated (if applicable) in determining a reportable 
position; and
    (4) With respect to recordkeeping preservation requirements that 
contain more than one retention period, preserves records required by 
paragraphs (b)(1)-(3) of this section for the longest record retention 
period of applicable recordkeeping provisions.
    (c) Records to be made and kept by other entities. (1) An 
aggregating entity that is not subject to the provisions of paragraph 
(b) of this section shall make and preserve a journal, blotter, or 
other record of original entry containing an itemized record of all 
transactions that fall within the definition of a reportable position, 
including information showing the account for which such transactions 
were effected and the following information pertaining to the 
identification of each instrument: the type of security, the par 
amount, the CUSIP number, the trade date, the maturity date, the type 
of transaction (e.g., a reverse repurchase agreement), and the name or 
other designation of the person from whom sold or purchased.
    (2) If such aggregating entity is also the designated filing 
entity, then in addition, it shall make and preserve the following 
records:
    (i) Copies of all large position reports filed pursuant to this 
part;
    (ii) Supporting documents or schedules used to compute data for the 
large position reports filed pursuant to this part, including any 
certifications or schedules it receives from aggregating entities 
pertaining to their holdings of a reportable position; and
    (iii) A chart showing the organizational entities that are 
aggregated (if applicable) in determining a reportable position.
    (3) With respect to the records required by paragraphs (c) (1) and 
(2) of this section, each such aggregating entity shall preserve such 
records for a period of not less than six years, the first two years in 
an easily accessible place. If an aggregating entity maintains its 
records at a location other than its principal place of business, the 
aggregating entity must maintain an index that states the location of 
the records, and such index must be easily accessible at all times.

    (Approved by the Office of Management and Budget under control 
number 1535-0089)


Sec. 420.5  Effective Date.

    The provisions of this part, except for Sec. 420.4(a), shall be 
first effective on March 31, 1997.

Appendix A to Part 420--Separate Reporting Entity

    Subject to the following conditions, one or more aggregating 
entity(ies) (e.g., parent, subsidiary, or organizational component) in 
a reporting entity, either separately or together with one or more 
other aggregating entity(ies), may be recognized as a separate 
reporting entity. All of the following conditions must be met for such 
entity(ies) to qualify for recognition as a separate reporting entity:
    (1) Such entity(ies) must be prohibited by law or regulation from 
exchanging, or must have established written internal procedures (i.e., 
Chinese walls) designed to prevent the exchange of information related 
to transactions in Treasury securities with any other aggregating 
entity;
    (2) Such entity(ies) must not be created for the purpose of 
circumventing these large position reporting rules;
    (3) Decisions related to the purchase, sale or retention of 
Treasury securities must be made by employees of such entity(ies). 
Employees of such entity(ies) who make decisions to purchase or dispose 
of Treasury securities must not perform the same function for other 
aggregating entities; and
    (4) The records of such entity(ies) related to the ownership, 
financing, purchase and sale of Treasury securities must be maintained 
by such entity(ies). Those records must be identifiable--separate and 
apart from similar records for other aggregating entities.

[[Page 48351]]

    To obtain recognition as a separate reporting entity, each 
aggregating entity or group of aggregating entities must request such 
recognition from the Department pursuant to the procedures outlined in 
paragraph 400.2(c) of this title. Such request must provide a 
description of the entity or group and its position within the 
reporting entity, and provide the following certification:
    ``[Name of the entity(ies)] hereby certifies that to the best of 
its knowledge and belief it meets the conditions for a separate 
reporting entity as described in Appendix A to 17 CFR Part 420. The 
above named entity also certifies that it has established written 
policies or procedures, including ongoing compliance monitoring 
processes, that are designed to prevent the entity or group of entities 
from:
    ``(1) Exchanging any of the following information with any other 
aggregating entity (a) positions that it holds or plans to trade in a 
Treasury security; (b) investment strategies that it plans to follow 
regarding Treasury securities; and (c) financing strategies that it 
plans to follow regarding Treasury securities, or
    ``(2) In any way intentionally acting together with any other 
aggregating entity with respect to the purchase, sale, retention or 
financing of Treasury securities.
    ``The above-named entity agrees that it will promptly notify the 
Department in writing when any of the information provided to obtain 
separate reporting entity status changes or when this certification is 
no longer valid.''
    Any entity, including any organizational component thereof, that 
previously has received recognition as a separate bidder in Treasury 
auctions from the Department pursuant to 31 CFR Part 356 is also 
recognized as a separate reporting entity without the need to request 
such status, provided such entity continues to be in compliance with 
the conditions set forth in Appendix A of 31 CFR Part 356.

Appendix B to Part 420--Sample Large Position Report

              Formula for Determining a Reportable Position             
          [$ Amounts in millions at par value as of trade date]         
                                                                        
                                                                        
                                                                        
Security Being Reported........................             ____________
Date For Which Information is Being Reported...             ____________
1. Net Trading Position (Total of cash/                                 
 immediate net settled positions; net when-                             
 issued positions; net forward positions,                               
 including next day settling; net futures                               
 contracts that require delivery of the                                 
 specific security; and net holdings of STRIPS                          
 principal components of the security.)........             ____________
2. Gross Financing Position (Total of                                   
 securities received through reverse repos                              
 (including forward settling reverse repos),                            
 bonds borrowed, financial derivative                                   
 transactions and as collateral for other                               
 securities transactions which total may be                             
 reduced by the optional exclusion described in                         
 Sec.  420.2(c).)..............................         + $ ____________
3. Net Fails Position (Fails to receive less                            
 fails to deliver. If equal to or less than                             
 zero, report 0.)..............................         + $ ____________
4. Total Reportable Position...................         = $ ____________
Memorandum: Report one total which includes the gross par amounts of    
 securities delivered through repurchase agreements, securities loaned, 
 and as collateral for financial derivatives and other securities       
 transactions. Not to be included in item #2 (Gross Financing Position) 
 as reported above.                                                     
                                                          $ ____________
                                                                        
         Administrative Information To Be Provided in the Report        
                                                                        
Name of Reporting Entity:                                               
Address of Principal Place of Business:                                 
Name and Address of the Designated Filing Entity:                       
Treasury Security Reported on:                                          
CUSIP Number:                                                           
Date or Dates for Which Information Is Being Reported:                  
Date Report Submitted:                                                  
Name and Telephone Number of Person to Contact Regarding Information    
 Reported:                                                              
Name and Position of Authorized Individual Submitting this Report (Chief
 Compliance Officer; Chief Legal Officer; Chief Financial Officer; Chief
 Operating Officer; Chief Executive Officer; or Managing Partner or     
 Equivalent of the Designated Filing Entity Authorized to Sign Such     
 Report on Behalf of the Entity):                                       
Statement of Certification: ``By signing below, I certify that the      
 information contained in this report with regard to the designated     
 filing entity is accurate and complete. Further, after reasonable      
 inquiry and to the best of my knowledge and belief, I certify: (i) that
 the information contained in this report with regard to any other      
 aggregating entities is accurate and complete; and (ii) that the       
 reporting entity, including all aggregating entities, is in compliance 
 with the requirements of 17 CFR Part 420.''                            
Signature of Authorized Person Named Above:                             
                                                                        

    Dated: August 14, 1996.
Darcy Bradbury,
Assistant Secretary (Financial Markets).
[FR Doc. 96-23331 Filed 9-11-96; 8:45 am]
BILLING CODE 4810-39-P