[Federal Register Volume 61, Number 205 (Tuesday, October 22, 1996)]
[Rules and Regulations]
[Pages 54908-54911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26376]



[[Page 54907]]


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Part III





Department of the Treasury





_______________________________________________________________________



Fiscal Service



_______________________________________________________________________



31 CFR Parts 356 and 370



Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and 
Bonds; Regulations Governing Payments by the Automated Clearing House 
Method on Account of United States Securities; Final Rule

  Federal Register / Vol. 61, No. 205 / Tuesday, October 22, 1996 / 
Rules and Regulations  

[[Page 54908]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Parts 356 and 370


Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, 
and Bonds; Regulations Governing Payments by the Automated Clearing 
House Method on Account of United States Securities

AGENCY: Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Department'' or 
``Treasury'') is issuing in final form an amendment to 31 CFR Part 370 
(Regulations Governing Payments by the Automated Clearing House Method 
on Account of United States Securities) to permit purchasers of United 
States securities, where authorized by the appropriate offering 
circular, to pay for their securities by means of a debit entry to 
their deposit account by the Automated Clearing House (ACH) method. The 
amendment will offer investors an additional means of payment for the 
purchase of their securities.
    Also, this final rule amends 31 CFR Part 356 (Uniform Offering 
Circular for the Sale and Issue of Marketable Book-Entry Treasury 
Bills, Notes, and Bonds). The amendment will authorize bidders in 
Treasury security auctions to make payment for awarded Treasury 
securities by approved electronic means.

EFFECTIVE DATE: October 22, 1996. For purchasers of securities to be 
held in the TREASURY DIRECT system, debit ACH will be implemented with 
a phased-in approach.

FOR FURTHER INFORMATION CONTACT: Maureen Parker, Director, Division of 
Securities Systems, Bureau of the Public Debt, Parkersburg, West 
Virginia, 26106-1328, (304) 480-7761 or Susan Klimas, Attorney-Adviser, 
Office of the Chief Counsel, Bureau of the Public Debt, (304) 480-5192.

SUPPLEMENTARY INFORMATION:

I. Background

    The title of Part 370 is being changed to Regulations Governing the 
Transfer of Funds by Electronic Means on Account of United States 
Securities, to indicate that the part is intended to provide regulatory 
coverage for various methods of payment by electronic means. It is 
anticipated that the ACH method will, in the future, be one of several 
electronic payment mechanisms for United States securities. Subparts 
have been added to part 370 to separate the already-existing credit ACH 
regulations, governing payments from the Department to the owner of the 
security, from the debit ACH regulations, which will govern the payment 
to the Department by the owner for the settlement amount of the 
security. The debit ACH regulations provide an additional payment 
method, that of a debit entry to the owner's deposit account, using the 
ACH method, if authorized by the appropriate offering circular. The 
TREASURY DIRECT system will offer debit ACH as an additional method of 
payment for the purchase of marketable Treasury securities, as 
authorized in the offering circular at 31 CFR Part 356. An 
authorization signed by the investor for the debit transaction will be 
required. The debit ACH payment option is only available for TREASURY 
DIRECT accounts established at least two weeks prior to the scheduled 
debit ACH entry.
    Although investors may continue to pay for the purchase of their 
securities by non-electronic means, the additional method of payment 
will benefit investors by permitting them the use of their money until 
the debit entry takes place on the settlement date of the Treasury 
securities.
    31 CFR Part 356, also referred to as the uniform offering circular, 
sets out the terms and conditions for the sale and issuance by the 
Department to the public of marketable Treasury bills, notes, and 
bonds. The uniform offering circular, in conjunction with offering 
announcements, represents a comprehensive statement of those terms and 
conditions.1
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    \1\ The uniform offering circular was published as a final rule 
on January 5, 1993 (58 FR 412). Amendments to the circular were 
published on June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR 
13906), July 16, 1996 (61 FR 37007) and August 23, 1996 (61 FR 
43626).
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    The Department believes that the future expansion of payment 
methods for securities in Treasury auctions to accommodate payment 
through electronic means will be beneficial to investors in Treasury 
securities and will enhance the efficiency of the Treasury securities 
market. Accordingly, Sec. 356.17 of the uniform offering circular has 
been amended to allow payment for marketable Treasury securities to be 
made by those electronic means approved by the Department (see 31 CFR 
Part 370). Also, Sec. 356.25 has been amended to provide that, where 
payment is made by authorized electronic means, such payment will be 
made on the issue date of the Treasury security by charging the 
settlement amount to the account specified by the bidder or the 
submitter on behalf of the bidder.
    Debit ACH is one such means of electronic payment that the 
Department is approving as an option for bidders whose awarded 
securities will be held in TREASURY DIRECT. To utilize the debit ACH 
payment option for securities to be held in TREASURY DIRECT, a bidder, 
or a submitter on behalf of a bidder, will be required to meet the 
necessary conditions, and to complete any required authorizations, as 
described in part 370.
    Conforming changes are being made to Sec. 356.17 to allow for the 
possibility of various means of electronic payment in the future by 
bidders whose awarded securities are held in the commercial book-entry 
system.2
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    \2\ When the final rule (61 FR 43626) becomes effective, the 
commercial book-entry system will be known as the Treasury/Reserve 
Automated Debt Entry System (TRADES).
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II. Section by Section Summary

31 CFR Part 356

    (1.) Section 356.17 has been amended by adding new paragraphs 
(a)(2) and (b)(2) to add payment by authorized electronic means as a 
payment option available to bidders in Treasury security auctions. If 
the awarded securities are to be held in TREASURY DIRECT, the bidder 
must meet certain conditions, and complete any required authorizations, 
as provided in 31 CFR part 370. Conforming changes are also made to 
paragraphs (a) and (b), and the newly redesignated paragraphs (a)(3) 
and (b)(3) of this section.
    (2.) Section 356.25 has been amended by adding a new paragraph (b) 
which provides that when the method of payment is by authorized 
electronic means, the settlement amount will be charged to the 
specified account on the issue date of the particular Treasury bill, 
note or bond. Conforming changes are also made to paragraph (a) and the 
newly redesignated paragraph (c) of this section.

31 CFR Part 370

    (1.) The title of this part has been changed from Regulations 
Governing Payments by the Automated Clearing House Method on Account of 
United States Securities, to Regulations Governing the Transfer of 
Funds by Electronic Means on Account of United States Securities. This 
change will permit the part to be used in the future for methods of 
payment for United States securities by other electronic means in 
addition to the ACH method.
    (2.) Section 370.0 has been amended to indicate that the 
regulations in this

[[Page 54909]]

part apply to the electronic transfer of funds where employed by the 
Bureau of the Public Debt (Public Debt) in connection with United 
States securities, except where otherwise provided. Previously, the 
section indicated that the part applies to the ACH method of payment 
where employed by Public Debt in connection with United States 
securities. The amendment indicates the potential for the future 
expansion of the part should Public Debt choose to use other electronic 
means in connection with United States securities.
    (3.) Subparts have been added to separate the credit and debit ACH 
sections. Subpart A contains general information which will apply to 
the entire part.
    (4.) Section 370.1 has been amended to redefine several terms used 
in the section and to add appropriate definitions. The definition of 
deposit account has been expanded from the account maintained at a 
financial institution specified by a recipient into which ACH payments 
under this part are to be made, to the account into which either 
payments or debit entries under this part are to be made.
    Entry has been defined as an order or request for the deposit of 
money to the deposit account of an owner (a credit entry) or for the 
payment of money from the deposit account of an owner (a debit entry).
    A definition of payment has been added to clarify that where used 
in this part, payment means the transfer of funds from the Department 
to the deposit account of the owner. A definition of settlement date 
has been added.
    (5.) Subpart B has been added to the regulations to indicate that 
this subpart contains provisions applicable to payments under the ACH 
method, and applies to payments from the Department on account of 
United States securities. Sections have been renumbered to fit the new 
structure of the part, and to provide space for the addition of future 
sections, if necessary.
    (6.) Former Sec. 370.2 through and including Sec. 370.11 have been 
renumbered as Sec. 370.5 through Sec. 370.14.
    (7.) The title of former Sec. 370.12, Other payments, has been 
changed to indicate that this section refers to other payments by the 
ACH method, and renumbered as Sec. 370.15.
    (8.) The former Sec. 370.13, Waiver of regulations, has been moved 
to subpart D, and will be renumbered as Sec. 370.30.
    (9.) The former Sec. 370.14, Liability of Department and Federal 
Reserve Banks, has been renumbered as Sec. 370.16.
    (10.) Subpart C has been added to provide a structure to contain 
the regulations covering debit entries by the ACH method.
    (11.) Section 370.20, Designation of a financial institution to 
receive debit ACH entries, provides that an owner of a security shall 
designate the financial institution and the deposit account within that 
institution which will receive the debit ACH entries. For securities 
that will be held in the TREASURY DIRECT system, the designation will 
be made using the ACH information provided in the TREASURY DIRECT 
tender for the direct deposit of payments for that account. In the 
TREASURY DIRECT system, the purchaser must receive the debit entries in 
the same deposit account which has been designated to receive payments 
of principal and interest from the TREASURY DIRECT system by credit 
entries. This means that the purchaser may not designate one account to 
receive payments by the ACH method and another account to pay for 
securities, but must use the same account for both transactions. The 
TREASURY DIRECT account must have been established at least two weeks 
prior to the scheduled debit ACH entry. Written authorization for the 
debit must be provided by the purchaser.
    (12.) Section 370.21, Agreement of the financial institution, 
provides that the acceptance and handling by a financial institution of 
a debit entry constitutes its agreement to this subpart.
    (13.) Section 370.22, Prenotification, provides the procedures for 
prenotification messages for debit ACH, if a prenotification message is 
sent.
    (14.) Section 370.23, Responsibility of financial institution, sets 
forth the responsibilities of the financial institution designated to 
receive a debit entry.
    (15.) Section 370.24, Handling of debit entries by Federal Reserve 
Banks, provides that the Federal Reserve Banks, as the fiscal agents of 
the United States, shall initiate a debit to the owner's account in 
accordance with the instructions of the owner.
    (16.) Section 370.25, Liability of Department and Federal Reserve 
Banks, provides that the Department, which includes the Capital Area 
Servicing Center, and the Federal Reserve Banks shall not be liable for 
any action taken in accordance with the information furnished by the 
owner as to the debit entry.
    (17.) Subpart D has been added to accommodate those provisions 
which apply equally to all subparts contained in this part.
    (18.) Section 370.30, Waiver of regulations, is the former 
Sec. 370.13, which has been moved and renumbered.
    (19.) The former Sec. 370.15 Supplements, amendments or revisions, 
has been redesignated Sec. 370.31. The phrase payments made by ACH has 
been changed to the transfer of funds by electronic means.

Procedural Requirements

    It has been determined that this final rule does not meet the 
criteria for a ``significant regulatory action,'' as defined in 
Executive Order 12866. Therefore, the regulatory review procedures 
contained therein do not apply.
    This rule relates to matters of public contract and procedures for 
U.S. securities. Accordingly, pursuant to 5 U.S.C. 553(a)(2), the 
notice, public comment and delayed effective date provisions of the 
Administrative Procedure Act do not apply. As no notice of proposed 
rulemaking is required, the provisions of the Regulatory Flexibility 
Act (5 U.S.C. 601, et seq.) do not apply.
    There are no new collections of information contained in this Final 
Rule, and, therefore, the Paperwork Reduction Act (44 U.S.C. 3504(h)) 
does not apply.

List of Subjects in 31 CFR Parts 356 and 370

    Bonds, Federal Reserve System, Government securities, Securities, 
Electronic funds transfer.

    Dated: October 8, 1996.
Gerald Murphy,
Fiscal Assistant Secretary.

    For the reasons set out in the preamble, 31 CFR parts 356 and 370 
are amended as follows:

PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS, 
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT 
SERIES NO. 1-93)

    1. The authority citation for part 356 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

    2. Section 356.17 is amended by revising the introductory text of 
paragraphs (a) and (b), redesignating paragraphs (a)(2) and (b)(2) as 
paragraphs (a)(3) and (b)(3), adding new paragraphs (a)(2) and (b)(2), 
and revising redesignated paragraph (a)(3) and the introductory text of 
paragraph (b)(3) to read as follows:

[[Page 54910]]

Sec. 356.17  Responsibility for payment.

* * * * *
    (a) TREASURY DIRECT. For securities to be held in TREASURY DIRECT, 
payment of the par amount and announced accrued interest, if any, must 
be submitted with the tender unless other provisions have been made, 
such as payment by an authorized electronic means providing for 
immediately available funds or payment by charge to the funds account 
of a depository institution.
* * * * *
    (2) Payment by authorized electronic means. Payment may be made by 
electronic means approved by the Department, provided the bidder, or 
the submitter on behalf of the bidder, has met the necessary conditions 
and has satisfactorily completed any required authorizations for such 
means of payment, in accordance with 31 CFR part 370.
    (3) Authorized charge to a funds account. If a depository 
institution or dealer submits a tender for a TREASURY DIRECT bidder and 
payment is not submitted with the tender or made by an authorized 
electronic means, an authorization from a depository institution to 
charge the institution's funds account at a Federal Reserve Bank must 
be on file with the Bank to which the tender was submitted.
    (b) Commercial book-entry system. For securities to be held in the 
commercial book-entry system, payment of the par amount and announced 
accrued interest, if any, must be submitted with the tender unless 
other provisions have been made, such as by payment by an authorized 
electronic means providing for immediately available funds or by charge 
to the funds account of a depository institution.
* * * * *
    (2) Payment by authorized electronic means. Payment may be made by 
electronic means approved by the Department, provided the bidder, or 
the submitter on behalf of the bidder, has met the necessary 
conditions, and has satisfactorily completed any required 
authorizations, for such means of payment.
    (3) Authorized charge to a funds account. Where payment is not 
submitted with the tender or made by an authorized electronic means, an 
authorization to charge the funds account of a depository institution 
must be provided as follows.
* * * * *
    3. Section 356.25 is amended by redesignating paragraph (b) as 
paragraph (c), adding a new paragraph (b), and revising the 
introductory text of paragraphs (a) and (c), to read as follows:


Sec. 356.25  Payment for awarded securities.

* * * * *
    (a) Payment with tender. When payment is made with the tender as 
provided for in Sec. 356.17 (a)(1) and (b)(1), settlement is 
accomplished as follows:
* * * * *
    (b) Payment by authorized electronic means. Where the method of 
payment is by an authorized electronic means as provided for in 
Sec. 356.17 (a)(2) or (b)(2), the settlement amount will be charged to 
the specified account on the issue date.
    (c) Payment by authorized charge to a funds account. Where the 
submitter's method of payment is an authorized charge to the funds 
account of a depository institution as provided for in Secs. 356.17 
(a)(3) or (b)(3), the settlement amount will be charged to the 
specified funds account on the issue date.
* * * * *

PART 370--REGULATIONS GOVERNING THE TRANSFER OF FUNDS BY ELECTRONIC 
MEANS ON ACCOUNT OF UNITED STATES SECURITIES

    1. The authority citation for part 370 continues to read as 
follows:

    Authority: 31 U.S.C. Chapter 31.

    2. The heading of Part 370 is revised to read as set forth above.
    3. Section 370.0 is revised to read as follows:


Sec. 370.0  Applicability.

    The regulations in this part apply to the transfer of funds by 
electronic means where employed by the Bureau of the Public Debt in 
connection with United States securities, except as otherwise provided.
    4. Sections 370.1 through 370.4 are designated as Subpart A and a 
heading for subpart A is added to read as follows:

Subpart A--General Information

    5. Section 370.1 is amended by revising the definitions for deposit 
account, financial institution, and owner, and adding definitions for 
entry, payment, and settlement date to read as follows:


Sec. 370.1  Definitions.

* * * * *
    Deposit account means the account maintained at a financial 
institution specified by a recipient into which ACH credit or debit 
entries under this part are to be made.
    Entry means an order or request for the deposit of money to the 
deposit account of an owner (a credit entry) or for the payment of 
money from the deposit account of an owner (a debit entry).
    Financial institution means, for purposes of this part, an 
institution which processes the transfer of funds by authorized 
electronic means.
    Owner means the individual(s) or entity in whose name(s) a security 
is registered and who is authorized under the appropriate subparts of 
this title to request that the security be transferred, reissued, 
reinvested, exchanged or paid.
    Payment means, for the purpose of this part, the deposit of money 
from the Department to the deposit account of the owner.
* * * * *
    Settlement Date means the date an exchange of funds with respect to 
an entry is reflected on the books of the Federal Reserve Bank(s). The 
settlement date will in most cases be the same as the issue date of a 
security held in the TREASURY DIRECT system.
* * * * *


Secs. 370.13 and 370.15  [Redesignated]

    6. Sections 370.13 and 370.15 are redesignated as Secs. 370.30 and 
370.31.


Secs. 370.2-370.12 and 370.14  [Redesignated]

    7. Section 370.14 is redesignated as section 370.16; sections 370.2 
through 370.12 are redesignated as sections 370.5 through 370.15 
respectively.
    8. The heading of the newly redesignated section 370.15 is revised 
as set forth below:


Sec. 370.15  Other payments by the ACH method.

* * * * *
    9. Newly redesignated sections 370.5 through 370.16 are designated 
as Subpart B and a heading for subpart B is added to read as follows:

Subpart B--Credit ACH Entries

    10. Subpart C is added to read as follows:

Subpart C--Debit ACH Entries

Sec.
370.20  Designation of a financial institution to receive debit ACH 
entries.
370.21  Agreement of the financial institution.
370.22  Prenotification.
370.23  Responsibility of financial institution.
370.24  Handling of debit entries by Federal Reserve Banks.
370.25  Liability of Department and Federal Reserve Banks.

[[Page 54911]]

Sec. 370.20  Designation of a financial institution to receive debit 
ACH entries.

    The purchaser of a security shall designate a financial institution 
to receive debit ACH entries and shall identify the deposit account to 
which the debit entries are to be received, by written authorization, 
or by an authorization similarly authenticated by the purchaser, in a 
manner approved by the Department. The purchaser of a security to be 
held in TREASURY DIRECT must receive debit ACH entries in the same 
deposit account designated to receive TREASURY DIRECT payments by the 
ACH method. Such TREASURY DIRECT account must have been established at 
least two weeks prior to the scheduled debit ACH entry and must be an 
account which is capable of receiving debit entries. The authorization 
of the purchaser shall not be recurring, that is, it shall be effective 
for one debit transaction only.


Sec. 370.21  Agreement of the financial institution.

    A financial institution's acceptance and handling of a debit entry 
made with respect to a security covered by this subpart shall 
constitute its agreement to the provisions of this subpart.


Sec. 370.22  Prenotification.

    (a) General. The Department may send a prenotification message to 
the financial institution designated to receive debit ACH entries to 
confirm the accuracy of the account information furnished by an owner, 
or other person or entity entitled to make the designation, and to 
advise the financial institution that such account has been so 
designated. Prenotification messages may be sent at any time prior to 
the first debit ACH entry. The prenotification message shall contain 
the ABA routing/transit number of the financial institution designated 
to receive the debit entry, as well as a depositor name reference, 
deposit account number, and type or classification of account at such 
institution.
    (b) Response to prenotification. The financial institution must 
respond to the prenotification message within eight calendar days after 
the date of receipt, if the information as to the account number and/or 
the type of account contained in the message does not agree with the 
records of the financial institution, or if the financial institution 
for any other reason has questions about the forthcoming debit entry, 
including its ability to debit the account in accordance with this 
subpart. Upon receipt of a response to the prenotification message, the 
Department or the Federal Reserve Bank, as appropriate, will correct 
the debit instructions and send another prenotification message, or 
contact the owner for further instructions.
    (c) Effect of failure to reject. If a financial institution does 
not reject or otherwise respond to a prenotification message within the 
specified time period, the financial institution shall be deemed to 
have accepted the prenotification and to have warranted to the 
Department or the Federal Reserve Bank that the information as to the 
deposit account number and/or the type of account contained in the 
message is accurate as of the time of such prenotification.


Sec. 370.23  Responsibility of financial institution.

    A financial institution which receives a debit entry on behalf of 
its customer must:
    (a) Debit the customer's account on the settlement date. If the 
financial institution is unable to debit the designated account, it 
shall return the entry by no later than the next business day after 
receipt, with an electronic message or other response explaining the 
reason for the return.
    (b) Promptly notify the appropriate Federal Reserve Bank or the 
Capital Area Servicing Center when the designated account has been 
closed, or when it is on notice of the death or legal incapacity (as 
determined under applicable State law) of any individual named on such 
account, or when it is on notice of the dissolution of a corporation in 
whose name the deposit account is held.


Sec. 370.24  Handling of debit entries by Federal Reserve Banks.

    Each Federal Reserve Bank, as fiscal agent of the United States, 
shall initiate the debit entry in accordance with the information 
furnished by the owner.


Sec. 370.25  Liability of Department and Federal Reserve Banks.

    The Department and the Federal Reserve Banks will rely on the 
information provided by the owner, or other person or entity entitled 
to make the designation, concerning the financial institution or 
deposit account designated to receive the debit entry, and are not 
required to verify this information. The Department and the Federal 
Reserve Banks shall not be liable for any action taken in accordance 
with the information so furnished.
    11. Newly redesignated section 370.31 is revised to read as 
follows:


Sec. 370.31  Supplements, amendments or revisions.

    The Secretary may, at any time, prescribe additional supplemental, 
amendatory or revised regulations with respect to the transfer of funds 
by electronic means.
    12. Newly redesignated sections 370.30 and 370.31 are designated as 
Subpart D and a heading for Subpart D is added to read as follows:

Subpart D--Additional Provisions

[FR Doc. 96-26376 Filed 10-21-96; 8:45 am]
BILLING CODE 4810-39-W