[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Rules and Regulations]
[Pages 63944-63949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30499]



[[Page 63943]]

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Part III





Department of Housing and Urban Development





_______________________________________________________________________



1 CFR Part 462



24 CFR Part 81



Federal National Mortgage Association (Fannie Mae) and Federal Home 
Loan Mortgage Corporation (Freddie Mac) Book-Entry Procedures 
Revisions; Interim Rule

  Federal Register / Vol. 61, No. 232 / Monday, December 2, 1996 / 
Rules and Regulations  

[[Page 63944]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

1 CFR Part 462

24 CFR Part 81

[Docket No. FR-4095-I-01]
RIN 2501-AC35


The Secretary of HUD's Regulation of the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac): Book-Entry Procedures

AGENCY: Office of the Secretary, HUD.

ACTION: Interim rule.

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

SUMMARY: This interim rule revises procedures that govern the issuance, 
recordation, and transfer of Federal National Mortgage Association 
(``Fannie Mae'') and Federal Home Loan Mortgage Corporation (``Freddie 
Mac'') (collectively ``Government-Sponsored Enterprises'' or ``GSEs'') 
Securities in the Book-entry System. The rule modifies HUD's current 
book-entry procedures for Fannie Mae to bring them into accord with the 
revised book-entry procedures of the Department of Treasury 
(``Treasury'') published in the Federal Register on August 23, 1996 (61 
FR 43626). This rule also extends these revised book-entry procedures 
to Freddie Mac and supersedes Freddie Mac's current book-entry 
regulations.
    In accordance with Treasury's revised book-entry procedures, this 
rule incorporates recent significant changes in commercial and property 
law, including changes concerning the holding of securities through 
financial intermediaries. This rule replaces existing regulations that 
contain outdated legal concepts. This rule applies to outstanding 
securities.

DATES: Effective date: January 1, 1997.
    Comment due date: Comments must be submitted by January 31, 1997.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Office of the General Counsel, Rules Docket Clerk, 
room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, SW, Washington, DC 20410-0500. Comments should refer to the 
above docket number and title of the rule. Facsimile (FAX) comments are 
not acceptable. A copy of each communication submitted will be 
available for public inspection and copying during regular business 
hours (weekdays 7:30 a.m. to 5:30 p.m. Eastern time) at the above 
address.

FOR FURTHER INFORMATION CONTACT: Janet Tasker, Director, Office of 
Government-Sponsored Enterprises, Room 6154, telephone (202) 708-2224; 
or, for legal questions, Kenneth A. Markison, Assistant General Counsel 
for Government Sponsored Enterprises/RESPA, Office of the General 
Counsel, Room 9262, telephone (202) 708-3137. The address for both of 
these persons is: Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410. A telecommunications device 
for deaf persons (TTY) is available at (202) 708-9300. (The telephone 
numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    Both Fannie Mae and Freddie Mac use the Book-entry System of the 
Federal Reserve Banks to issue, record, and transfer ownership of 
certain of their respective securities. Although the Book-entry System 
was originally designed for Treasury securities, both GSEs have used 
this system under separate sets of regulations dating back to the late 
1970s. Treasury regulations govern the Book-entry System, known as the 
commercial book-entry system, when it is used to issue, record, 
transfer and maintain Treasury securities. Recently, Treasury 
substantially modified its regulations governing Treasury securities 
held in this system to reflect contemporary legal development of the 
Uniform Commercial Code (``UCC''). This regulation conforms the book-
entry regulations applicable to GSE securities to the changes made in 
Treasury's regulations (tailoring the changes to differences in the 
GSEs and GSE Securities), and combines the book-entry regulations 
applicable to both GSEs into a single set of regulations.
    This rule furthers a rulemaking regarding book-entry procedures 
begun with the publication of HUD's proposed rule, 60 FR 9154 (Feb. 16, 
1995), to implement the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 (``FHEFSSA''). As part of that rulemaking, 
HUD proposed to revise the book-entry procedures applicable to Fannie 
Mae, and make the procedures applicable to both GSEs. In comments on 
the proposed rule, however, the GSEs and the Book-Entry Treasury 
Regulations Task Force of the Investment Securities Subcommittee of the 
UCC Committee of the Business Law Section of the American Bar 
Association (``ABA Task Force'') stated that HUD should not revise the 
book-entry procedures in the form proposed in light of continuing work 
on a comprehensive revision of the Treasury's book-entry regulations. 
They urged HUD to wait until Treasury adopted revised book-entry 
regulations, and then to adopt consistent regulations for Book-entry 
GSE Securities. Treasury was, at that time, in the process of 
completing its revision of its book-entry regulations to reflect a 
major revision to Article 8 of the UCC. (Treasury had withdrawn 
proposed changes to its own regulations pending the completion of the 
revisions to Article 8 and conforming revisions to Article 9 of the 
UCC. See 57 FR 12244 (April 9, 1992) and 58 FR 59972 (November 12, 
1993).) The Federal Reserve Bank of New York also urged HUD to delay 
implementation of new book-entry provisions, await Treasury's adoption 
of revised book-entry regulations, and then promulgate consistent 
regulations.
    As indicated in the preamble to HUD's final rule implementing other 
matters pursuant to FHEFSSA, 60 FR 61846, 61885 (December 1, 1995), the 
Secretary decided to postpone making significant revisions to the book-
entry regulations for the GSEs, including establishing uniform book-
entry procedures for both GSEs, pending completion of the revised 
Treasury book-entry regulations. Based on the comments received, the 
Secretary determined that for HUD to act at that time to finalize a 
complete set of regulations for both GSEs, and then shortly to revise 
them, would be inefficient and lead to confusion. In the final rule, 
HUD announced its intention to adopt revised regulations simultaneous 
with Treasury's adoption of a final rule revising its book-entry 
procedures and to make HUD's regulations consistent with Treasury's at 
that time.
    On March 4, 1996 (61 FR 8420), Treasury's Bureau of the Public Debt 
proposed revisions to its book-entry regulations. The purposes of 
Treasury's changes, like the purposes of the changes to HUD's rule 
announced today, were to incorporate recent and significant changes in 
commercial law addressing the holding of securities in book-entry form 
through securities intermediaries and to replace existing regulations 
that contain outdated legal concepts. Treasury received eleven comments 
on its proposed rule. Based on Treasury's proposal, the comments 
received in response, and Treasury's approach to addressing the 
comments in Treasury's August 23, 1996 final rule, and HUD's previously 
announced determination, based on the comments received, to issue 
revised book-entry regulations consistent with Treasury's

[[Page 63945]]

once those were promulgated, HUD developed this interim rule. HUD 
considered Treasury's proposal, the comments received in response 
thereto, and Treasury's final rule as relevant to this interim rule, 
since this rule is closely modelled on Treasury's rule--except 
differences necessitated by distinctions in the GSEs and their GSE 
Securities--and will become effective simultaneously with Treasury's 
rule. In light of the public comments on HUD's February 16, 1995 
proposed revisions to the book-entry procedures and in light of 
Treasury's notice and comment rulemaking and HUD's adaptation of 
Treasury's rule to GSE Securities, HUD is issuing its revisions as an 
interim rule to accompany Treasury's final rule previously published in 
the Federal Register.
    The book-entry rule announced today is identical for both GSEs and 
provides a level playing field for both GSE's securities. To this end, 
this regulation supersedes not only HUD's current book-entry regulation 
for Fannie Mae contained in 24 CFR part 81, subpart H, but also 
supersedes Freddie Mac's current book-entry regulation, codified at 1 
CFR part 462.

II. Analysis of Revisions to Book-Entry Procedures

    Except as is necessary because of differences between the GSEs and 
their securities and Treasury and Treasury securities, HUD's revisions 
to the book-entry procedures applicable to GSEs follow the revisions 
Treasury is making to its book-entry procedures in a final rule 
previously published in the Federal Register. HUD adopts, to the extent 
relevant, the substance of the analysis contained in the commentary to 
Treasury's final rule, which will be codified at 31 CFR Part 357, 
Appendix B of Treasury's regulations. It is HUD's intent that the book-
entry procedures announced today will be interpreted in a manner fully 
consistent and uniform with Treasury's revised book-entry procedures 
and the commentary to Treasury's final rule, except to the extent that 
HUD's rule diverges from Treasury's rule due to the unique nature of 
the GSEs and their securities.
    The book-entry regulation promulgated today shares many major 
similarities with Treasury's regulation of the Treasury/Reserve 
Automated Debt Entry System (``TRADES''). Three of the similarities 
worthy of note are:
     Under both the book-entry regulations applicable to GSE 
securities and Treasury's TRADES regulation, there is federal 
preemption of state law with respect to the rights and obligations of 
the United States and the Federal Reserve Banks. (Additionally, HUD's 
rule provides for federal preemption of state law with respect to the 
rights and obligations of the GSEs.)
     Other than as expressly stated in the rule, no duty exists 
on the part of Treasury, Freddie Mac, Fannie Mae, or the Federal 
Reserve to holders of GSE securities indirectly or through a securities 
intermediary.
     Book-entry GSE Securities may be converted to definitive 
securities only when so permitted in the documents establishing the 
terms of the securities.
    Four significant areas in which HUD's rule differs from Treasury's 
rule, however, are the following:
     Under Treasury regulations, Treasury securities may be 
maintained in either of two book-entry systems--TRADES or TREASURY 
DIRECT. Inasmuch as there is no direct registration and holding of GSE 
Securities at this time, this rule does not establish a system 
analogous to TREASURY DIRECT for GSE Securities.
     The GSEs issue a wide variety of securities, some of which 
are not maintained by the Federal Reserve Banks. GSE Securities not 
maintained by a Federal Reserve Bank are not subject to this book-entry 
regulation and there is no federal preemption by these subpart H 
regulations for such securities. Furthermore, the book-entry regulation 
in this subpart H applies only for so long as the GSE security is 
actually on the Book-entry System; this regulation does not apply to 
GSE securities initially issued on the records of a Federal Reserve 
Bank when those securities are taken off the book-entry system and 
converted to definitive form.
     The book-entry regulation applicable to the GSEs 
recognizes that there are variations in documentation that a GSE uses 
depending upon the type of security issued.
     Unlike Treasury securities, GSE Securities may contain an 
express choice of law provision, under which state law is chosen to 
govern the rights and obligations of the GSEs. To the extent the state 
law chosen in the Security Documentation conflicts with the state law 
that would govern under these regulations, the state law selected in 
accordance with this regulation will prevail.

III. Section-by-Section Comparison With Treasury's Model

    This section notes in a section-by-section comparison, other 
differences between this book-entry regulation and Treasury's TRADES 
regulation.

Revisions to 81.2 Definitions

    The rule adds some definitions to Sec. 81.2. These definitions 
correspond to definitions in 31 CFR 357.2, but are tailored to apply to 
the GSEs and their securities. It should be noted that HUD's rule uses 
the terminology ``Book-entry System'' rather than ``TRADES,'' because 
TRADES is Treasury's unique terminology for the system as applied to 
Treasury securities.
    HUD's definition of ``person'' makes clear that it excludes the 
GSEs. In addition, HUD's rule provides a definition of ``Securities 
Documentation.'' Further, HUD intends that the rule's definitions of 
``Book-entry GSE Security'' and ``GSE Security'' refer to the wide 
array of securities and obligations that the GSEs issue.
    The definitions added to Sec. 81.2 are supplemented by a general 
provision, Sec. 81.2(c), which indicates that terms used in subpart H 
that are not defined in part 81 have the meanings set forth in 31 CFR 
357.2. This provision reflects HUD's determination that it is 
unnecessary to define certain terms used in subpart H or used in a 
section of Treasury's rule adopted by cross-reference in subpart H, 
even though those terms are not defined in part 81, because the 
definitions in the Treasury rule are adequate (e.g., ``Security 
Entitlement'').
    This rule also eliminates an outdated provision that formerly 
appeared in the definition of ``Fannie Mae security,'' which excluded 
short-term discount notes and obligations convertible into shares of 
common stock.

Section 81.91

    This section, addressing maintenance of GSE Securities, is modelled 
after 31 CFR 357.0, but is custom-tailored to GSE Securities to reflect 
that GSE Securities need not be maintained in the Book-entry System. 
Some GSE Securities are held in definitive form, either indirectly 
through depositories or intermediaries or directly by the investor in 
TREASURY DIRECT. No system currently exists for GSE Securities that is 
analogous to TREASURY DIRECT.

Section 81.92

    This section, addressing the law governing the rights and 
obligations of the United States, the Federal Reserve Banks, and the 
GSEs, and other interests, is modelled after 31 CFR 357.10 and 357.11. 
One difference between HUD's and Treasury's provisions is that HUD's 
rule recognizes that the GSEs use various forms of documentation to 
establish the terms of

[[Page 63946]]

GSE Securities, depending upon the type of security issued. HUD's rule 
makes clear the way in which such documentation applies to the GSEs and 
their securities.

Section 81.93

    This section, addressing security entitlements and interests, is 
modelled after 31 CFR 357.12. HUD's rule applies these provisions to 
the GSEs and their securities.

Section 81.94

    This section, addressing obligations of GSEs, is modelled after 31 
CFR 357.13. HUD's rule accounts for the possibility that the GSEs could 
make payments with respect to Book-entry GSE Securities that might be 
characterized as other than principal or interest payments.

Section 81.95

    This section, addressing the authority of the Federal Reserve 
Banks, is modelled after 31 CFR 357.14. HUD's rule specifically 
authorizes each Federal Reserve Bank to effect conversions between 
Book-entry GSE Securities and Definitive GSE Securities where 
conversion rights are available pursuant to the applicable Securities 
Documentation.

Section 81.96

    This section, addressing withdrawal of Book-entry GSE Securities 
eligible for conversion to definitive form, is modelled after 31 CFR 
306.117. HUD's rule highlights the requirement that conversion must be 
consistent with the Securities Documentation.

Section 81.97

    This section, addressing waiver of regulations, is modelled after 
31 CFR 357.41. HUD's rule makes clear that the Secretary of HUD may 
waive these regulations. HUD traditionally has consulted with the GSEs 
in the waiver process. In accordance with section 106 of the Department 
of Housing and Urban Development Reform Act of 1989 (42 U.S.C. 
3535(q)), HUD publishes a notice each quarter indicating the waivers of 
regulations granted during that quarter.

Section 81.98

    This section, addressing liability of GSEs and Federal Reserve 
Banks, is modelled after 31 CFR 357.42. HUD's rule reflects that some 
terms such as ``tender'' and ``transactions request form'' used in 
Treasury's rule do not apply to Book-entry GSE Securities.

Section 81.99

    This section is modelled after two Treasury regulations. Subsection 
(a) on additional requirements is modelled after 31 CFR 357.40. 
Subsection (b) on notice of attachment for GSE Securities is modelled 
after 31 CFR 357.44.

Removal of 1 CFR part 462

    Freddie Mac's current book-entry regulation is codified at 1 CFR 
part 462. This regulation was promulgated prior to the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. 
101-73, (August 9, 1989). Section 731(c) of FIRREA accorded the 
Secretary of HUD general regulatory power over Freddie Mac. The 
Secretary's general regulatory power over Freddie Mac is currently 
codified in section 1321 of FHEFSSA (12 U.S.C. 4541).
    Since this regulation applies to both GSEs, it supersedes Freddie 
Mac's current book-entry regulation codified at 1 CFR Part 462. Thus, 
HUD's rule removes Freddie Mac's current book-entry regulation from the 
CFR pursuant to the Secretary's general regulatory power over Freddie 
Mac.

Findings and Certifications

Public Reporting Burden

    This interim rule contains no new information collection 
requirements that would require review by the Office of Management and 
Budget under the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-3520).

Justification for Interim Rule

    As discussed above in the Background section, this rule is 
published as an interim rule based not only on the previous proposed 
rule issued by HUD on February 16, 1995, but also on the proposed and 
final rules issued by Treasury. Treasury's final rule, published on 
August 23, 1996, needed relatively minor adaptations to apply 
appropriately to Fannie Mae and Freddie Mac. This interim rule makes 
those necessary changes.
    The Department generally publishes a rule for public comment before 
issuing a rule for effect, in accordance with its regulations on 
rulemaking in 24 CFR part 10. However, prior public procedure may be 
omitted if HUD determines that it is ``impracticable, unnecessary, or 
contrary to the public interest.'' (24 CFR 10.1) The essence of this 
rule has been the subject of notice and comment in the form of the 
Treasury proposed rule, and comments on HUD's proposed rule recommended 
that HUD's rule follow Treasury's rule. To avoid dislocation in the 
securities market, it is imperative that these regulations take effect 
at the same time as Treasury's final rule, on January 1, 1997. Given 
that Treasury's rule was not published until August 23, 1996, there 
would not have been sufficient time for HUD to go through notice and 
comment rulemaking and then proceed to publish a final rule with a 
January 1, 1997 effective date. Therefore, the Department has 
determined that it is unnecessary and contrary to the public interest 
to undergo separate notice and comment rulemaking on the specifics of 
this adaptation of the Treasury rule before making this rule effective. 
As a result, in accordance with 24 CFR part 10, HUD is publishing this 
interim rule for effect.
    In the interest of obtaining the fullest participation possible in 
determining that the adaptation of Treasury's rule is appropriate, the 
Department does invite public comment on the rule. The comments 
received within the 60-day comment period will be considered during 
development of a final rule that will supersede this interim rule.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so 
doing certifies that this interim rule will not have a significant 
economic impact on a substantial number of small entities. This interim 
rule affects the operation of two entities, Fannie Mae and Freddie Mac, 
neither of which is a small entity.

Environmental Impact

    This interim rule is exempt from the requirement for an 
environmental assessment under section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332), in accordance with 
HUD regulations at 24 CFR 50.19(c)(1), as revised by a final rule on 
September 27, 1996 (61 FR 50919). In accordance with 24 CFR 50.19(a), 
other Federal environmental laws, as described in 24 CFR 50.4, are not 
applicable to this interim rule.

Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that this interim 
rule's preemption of State law to the extent that it applies the newly 
revised Article 8 of the Uniform Commercial Code has sufficient effect 
on States to require consideration of the impact of the rule under the 
Order. The General Counsel has assessed this preemption in light of the 
principles, criteria, and requirements of the Executive Order and 
determined that it is not inconsistent with them. The policy does not 
impose additional costs or burdens on the States

[[Page 63947]]

and it does not affect the States' ability to discharge traditional 
State governmental functions.
    This rule makes explicit the preemption applicable to the rights 
and obligations of the United States, the Federal Reserve Banks, and 
the GSEs that was implicit under the prior rule. The rule continues to 
accommodate State law, to the maximum extent possible, given market 
methodologies. Ultimately, as States proceed to adopt the revised 
Article 8, the rule will provide no greater preemption of State law 
than under the prior rule.
    The rule is justified, despite the preemption it effects, by the 
fact that the preemption is no greater than necessary to accommodate 
the nationwide application of the rule and the nationwide market for 
the GSE Securities, as was the preemption under the book-entry rules 
this rule replaces. It should be noted that section 304(d) of the 
Fannie Mae Charter Act (12 U.S.C. 1719(d)) and section 306(g) of the 
Freddie Mac Act (12 U.S.C. 1455(f)) specifically provide for the 
exemption of GSE securities from State securities registration 
requirements (as well as the registration requirements of the 
Securities and Exchange Commission). See also 15 U.S.C. 77r-1.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this interim rule does not 
have potential for significant impact on family formation, maintenance, 
and general well-being, and, thus, is not subject to review under the 
order. No significant change in existing HUD policies or programs will 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.

Unfunded Mandates Reform Act

    The Secretary, in accordance with the Unfunded Mandates Reform Act 
of 1995, 2 U.S.C. 1532, has reviewed this interim rule before 
publication and by approving it certifies that this interim rule does 
not impose a Federal mandate that will result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year.

Catalog

    There is no Catalog of Federal Domestic Assistance number for the 
program affected by this interim rule.

List of Subjects

1 CFR Part 462

    Accounting, Banks, Banking, Securities.

24 CFR Part 81

    Accounting, Federal Reserve System, Mortgages, Reporting and 
recordkeeping requirements, Securities.

    Accordingly, for the reasons set out in the preamble, under the 
authority of 42 U.S.C. 3535(d), part 462 of title 1 of the Code of 
Federal Regulations and part 81 of title 24 of the Code of Federal 
Regulations are amended as follows:

TITLE 1--GENERAL PROVISIONS

CHAPTER IV--MISCELLANEOUS AGENCIES

PART 462--FEDERAL HOME LOAN MORTGAGE CORPORATION (BOOK-ENTRY 
REGULATIONS)

    1. 1 CFR part 462 is removed.

TITLE 24--DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

PART 81--THE SECRETARY OF HUD'S REGULATION OF THE FEDERAL NATIONAL 
MORTGAGE ASSOCIATION (FANNIE MAE) AND THE FEDERAL HOME LOAN 
MORTGAGE CORPORATION (FREDDIE MAC)

    2. The authority citation for Part 81 continues to read as follows:

    Authority: 12 U.S.C. 1451 et seq., 1716-1723h, and 4501-4641; 42 
U.S.C. 3535(d) and 3601-3619.

    3. In Sec. 81.2, paragraph (b) is amended by adding the following 
definitions, in appropriate alphabetical order location, and by adding 
a new paragraph (c), to read as follows:


Sec. 81.2  Definitions.

* * * * *
    Book-entry GSE Security means a GSE Security issued or maintained 
in the Book-entry System.
    Book-entry System means the automated book-entry system operated by 
the Federal Reserve Banks acting as the fiscal agent for the GSEs, on 
which Book-entry GSE Securities are issued, recorded, transferred and 
maintained in book-entry form.
* * * * *
    Definitive GSE Security means a GSE Security in engraved or printed 
form, or that is otherwise represented by a certificate.
* * * * *
    Eligible Book-entry GSE Security means a Book-entry GSE Security 
issued or maintained in the Book-entry System which by the terms of its 
Security Documentation is available in either definitive or book-entry 
form.
    Entitlement Holder means a Person to whose account an interest in a 
Book-entry GSE Security is credited on the records of a Securities 
Intermediary.
* * * * *
    Federal Reserve Bank Operating Circular means the publication 
issued by each Federal Reserve Bank that sets forth the terms and 
conditions under which the Reserve Bank maintains book-entry Securities 
accounts (including Book-entry GSE Securities) and transfers book-entry 
Securities (including Book-entry GSE Securities).
* * * * *
    GSE Security means any security or obligation of Fannie Mae or 
Freddie Mac issued under its respective Charter Act in the form of a 
Definitive GSE Security or a Book-entry GSE Security.
* * * * *
    Person, as used in subpart H, means and includes an individual, 
corporation, company, governmental entity, association, firm, 
partnership, trust, estate, representative, and any other similar 
organization, but does not mean or include the United States, a GSE, or 
a Federal Reserve Bank.
    Revised Article 8 has the same meaning as in 31 CFR 357.2.
* * * * *
    Security means any mortgage participation certificate, note, bond, 
debenture, evidence of indebtedness, collateral-trust certificate, 
transferable share, certificate of deposit for a security, or, in 
general, any interest or instrument commonly known as a ``security.''
    Securities documentation means the applicable statement of terms, 
trust indenture, securities agreement or other documents establishing 
the terms of a Book-entry GSE Security.
* * * * *
    Transfer message means an instruction of a Participant to a Federal 
Reserve Bank to effect a transfer of a Book-entry Security (including a 
Book-entry GSE Security) maintained in the Book-entry System, as set 
forth in Federal Reserve Bank Operating Circulars.
* * * * *
    (c) Subpart H terms. Unless the context requires otherwise, terms 
used in subpart H of this part that are not defined in this part, have 
the meanings as set forth in 31 CFR 357.2. Definitions and terms used 
in 31 CFR part 357 should read as though modified to effectuate their 
application to the GSEs.
    4. Subpart H is revised to read as follows:

[[Page 63948]]

Subpart H--Book-Entry Procedures

Sec.
81.91  Maintenance of GSE Securities.
81.92  Law governing rights and obligations of United States, 
Federal Reserve Banks, and GSEs; rights of any Person against United 
States, Federal Reserve Banks, and GSEs; Law governing other 
interests.
81.93  Creation of Participant's Security Entitlement; security 
interests.
81.94  Obligations of GSEs; no adverse claims.
81.95  Authority of Federal Reserve Banks.
81.96  Withdrawal of Eligible Book-entry GSE Securities for 
conversion to definitive form.
81.97  Waiver of regulations.
81.98  Liability of GSEs and Federal Reserve Banks.
81.99  Additional provisions.

Subpart H--Book-Entry Procedures


Sec. 81.91  Maintenance of GSE Securities.

    A GSE Security may be maintained in the form of a Definitive GSE 
Security or a Book-entry GSE Security. A Book-entry GSE Security shall 
be maintained in the Book-entry System.


Sec. 81.92  Law governing rights and obligations of United States, 
Federal Reserve Banks, and GSEs; rights of any Person against United 
States, Federal Reserve Banks, and GSEs; Law governing other interests.

    (a) Except as provided in paragraph (b) of this section, the 
following rights and obligations are governed solely by the Book-entry 
regulations contained in this subpart H, the Securities Documentation 
(but not including any choice of law provisions in such documentation), 
and Federal Reserve Bank Operating Circulars:
    (1) The rights and obligations of the United States, a GSE and the 
Federal Reserve Banks with respect to:
    (i) A Book-entry GSE Security or Security Entitlement; and
    (ii) The operation of the Book-entry System as it applies to GSE 
Securities; and
    (2) The rights of any Person, including a Participant, against the 
United States, a GSE and the Federal Reserve Banks with respect to:
    (i) A Book-entry GSE Security or Security Entitlement; and
    (ii) The operation of the Book-entry System applicable to GSE 
Securities;
    (b) A security interest in a Security Entitlement that is in favor 
of a Federal Reserve Bank from a Participant and that is not recorded 
on the books of a Federal Reserve Bank pursuant to Sec. 81.93(c)(1), is 
governed by the law (not including the conflict-of-law rules) of the 
jurisdiction where the head office of the Federal Reserve Bank 
maintaining the Participant's Securities Account is located. A security 
interest in a Security Entitlement that is in favor of a Federal 
Reserve Bank from a Person that is not a Participant, and that is not 
recorded on the books of a Federal Reserve Bank pursuant to 
Sec. 81.93(c)(1), is governed by the law determined in the manner 
specified in paragraph (d) of this section.
    (c) If the jurisdiction specified in the first sentence of 
paragraph (b) of this section is a State that has not adopted Revised 
Article 8, then the law specified in paragraph (b) of this section 
shall be the law of that State as though Revised Article 8 had been 
adopted by that State.
    (d) To the extent not otherwise inconsistent with this subpart H, 
and notwithstanding any provision in the Security Documentation setting 
forth a choice of law, the provisions set forth in 31 CFR 357.11 
regarding law governing other interests apply and shall be read as 
though modified to effectuate the application of 31 CFR 357.11 to the 
GSEs.


Sec. 81.93  Creation of Participant's Security Entitlement; security 
interests.

    (a) A Participant's Security Entitlement is created when a Federal 
Reserve Bank indicates by book-entry that a Book-entry GSE Security has 
been credited to a Participant's Securities Account.
    (b) A security interest in a Security Entitlement of a Participant 
in favor of the United States to secure deposits of public money, 
including without limitation deposits to the Treasury tax and loan 
accounts, or other security interest in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the securities. 
Where a security interest in favor of the United States in a Security 
Entitlement of a Participant is marked on the books of a Federal 
Reserve Bank, such Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the security. For purposes of this 
paragraph, an ``authorized representative of the United States'' is the 
official designated in the applicable regulations or agreement to which 
a Federal Reserve Bank is a party, governing the security interest.
    (c)(1) A GSE, the United States, and the Federal Reserve Banks have 
no obligation to agree to act on behalf of any Person or to recognize 
the interest of any transferee of a security interest or other limited 
interest in favor of any Person except to the extent of any specific 
requirement of Federal law or regulation or to the extent set forth in 
any specific agreement with the Federal Reserve Bank on whose books the 
interest of the Participant is recorded. To the extent required by such 
law or regulation or set forth in an agreement with a Federal Reserve 
Bank, or the Federal Reserve Bank Operating Circular, a security 
interest in a Security Entitlement that is in favor of a Federal 
Reserve Bank, a GSE, or a Person may be created and perfected by a 
Federal Reserve Bank marking its books to record the security interest. 
Except as provided in paragraph (b) of this section, a security 
interest in a Security Entitlement marked on the books of a Federal 
Reserve Bank shall have priority over any other interest in the 
securities.
    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest, including a security interest in favor of 
a Federal Reserve Bank, may be perfected by any method by which a 
security interest may be perfected under applicable law as described in 
Sec. 81.92(b) or (d). The perfection, effect of perfection or non-
perfection and priority of a security interest are governed by such 
applicable law. A security interest in favor of a Federal Reserve Bank 
shall be treated as a security interest in favor of a clearing 
corporation in all respects under such law, including with respect to 
the effect of perfection and priority of such security interest. A 
Federal Reserve Bank Operating Circular shall be treated as a rule 
adopted by a clearing corporation for such purposes.


Sec. 81.94  Obligations of GSEs; no adverse claims.

    (a) Except in the case of a security interest in favor of the 
United States or a Federal Reserve Bank or otherwise as provided in 
Sec. 81.93(c)(1), for the purposes of this subpart H, the GSE and the 
Federal Reserve Banks shall treat the Participant to whose Securities 
Account an interest in a Book-entry GSE Security has been credited as 
the person exclusively entitled to issue a Transfer Message, to receive 
interest and other payments with respect thereof and otherwise to 
exercise all the rights and powers with respect to such Security, 
notwithstanding any information or notice to the contrary. Neither the 
Federal Reserve Banks, the United States, nor a GSE is liable to a 
Person asserting or having an adverse claim to a Security Entitlement 
or to a Book-entry GSE Security in a Participant's Securities Account, 
including any such claim arising as a result of the transfer

[[Page 63949]]

or disposition of a Book-entry GSE Security by a Federal Reserve Bank 
pursuant to a Transfer Message that the Federal Reserve Bank reasonably 
believes to be genuine.
    (b) The obligation of the GSE to make payments (including payments 
of interest and principal) with respect to Book-entry GSE Securities is 
discharged at the time payment in the appropriate amount is made as 
follows:
    (1) Interest or other payments on Book-entry GSE Securities is 
either credited by a Federal Reserve Bank to a Funds Account maintained 
at such Bank or otherwise paid as directed by the Participant.
    (2) Book-entry GSE Securities are redeemed in accordance with their 
terms by a Federal Reserve Bank withdrawing the securities from the 
Participant's Securities Account in which they are maintained and by 
either crediting the amount of the redemption proceeds, including both 
principal and interest, where applicable, to a Funds Account at such 
Bank or otherwise paying such principal and interest as directed by the 
Participant. No action by the Participant ordinarily is required in 
connection with the redemption of a Book-entry GSE Security.


Sec. 81.95  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the GSEs to perform the following functions with respect to the 
issuance of Book-entry GSE Securities offered and sold by a GSE to 
which this subpart H applies, in accordance with the Securities 
Documentation, Federal Reserve Bank Operating Circulars, this subpart 
H, and procedures established by the Secretary consistent with these 
authorities:
    (1) To service and maintain Book-entry GSE Securities in accounts 
established for such purposes;
    (2) To make payments with respect to such securities, as directed 
by the GSE;
    (3) To effect transfer of Book-entry GSE Securities between 
Participants' Securities Accounts as directed by the Participants;
    (4) To effect conversions between Book-entry GSE Securities and 
Definitive GSE Securities with respect to those securities as to which 
conversion rights are available pursuant to the applicable Securities 
Documentation; and
    (5) To perform such other duties as fiscal agent as may be 
requested by the GSE.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this subpart H, governing the details of its handling 
of Book-entry GSE Securities, Security Entitlements, and the operation 
of the book-entry system under this subpart H.


Sec. 81.96  Withdrawal of Eligible Book-entry GSE Securities for 
conversion to definitive form.

    (a) Eligible Book-entry GSE Securities may be withdrawn from the 
Book-entry System by requesting delivery of like Definitive GSE 
Securities.
    (b) A Reserve bank shall, upon receipt of appropriate instructions 
to withdraw Eligible Book-entry GSE Securities from book-entry in the 
Book-entry System, convert such securities into Definitive GSE 
Securities and deliver them in accordance with such instructions. No 
such conversion shall affect existing interests in such GSE Securities.
    (c) All requests for withdrawal of Eligible Book-entry GSE 
Securities must be made prior to the maturity or date of call of the 
securities.
    (d) GSE Securities which are to be delivered upon withdrawal may be 
issued in either registered or bearer form, to the extent permitted by 
the applicable offering circular.


Sec. 81.97  Waiver of regulations.

    The Secretary reserves the right in the Secretary's discretion, to 
waive any provision(s) of these regulations in any case or class of 
cases for the convenience of a GSE, the United States, or in order to 
relieve any person(s) of unnecessary hardship, if such action is not 
inconsistent with law, does not adversely affect any substantial 
existing rights, and the Secretary is satisfied that such action will 
not subject a GSE or the United States to any substantial expense or 
liability.


Sec. 81.98  Liability of GSEs and Federal Reserve Banks.

    A GSE and the Federal Reserve Banks may rely on the information 
provided in a Transfer Message, and are not required to verify the 
information. A GSE and the Federal Reserve Banks shall not be liable 
for any action taken in accordance with the information set out in a 
Transfer Message, or evidence submitted in support thereof.


Sec. 81.99  Additional provisions.

    (a) Additional requirements. In any case or any class of cases 
arising under these regulations, a GSE may require such additional 
evidence and a bond of indemnity, with or without surety, as may in the 
judgment of the GSE be necessary for the protection of the interests of 
the GSE.
    (b) Notice of attachment for GSE Securities in Book-entry system. 
The interest of a debtor in a Security Entitlement may be reached by a 
creditor only by legal process upon the Securities Intermediary with 
whom the debtor's securities account is maintained, except where a 
Security Entitlement is maintained in the name of a secured party, in 
which case the debtor's interest may be reached by legal process upon 
the secured party. These regulations do not purport to establish 
whether a Federal Reserve Bank is required to honor an order or other 
notice of attachment in any particular case or class of cases.

    Dated: November 6, 1996.
Henry G. Cisneros,
Secretary.
[FR Doc. 96-30499 Filed 11-29-96; 8:45 am]
BILLING CODE 4210-32-P