[Federal Register Volume 61, Number 246 (Friday, December 20, 1996)]
[Rules and Regulations]
[Pages 67188-67195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32310]
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FARM CREDIT ADMINISTRATION
12 CFR Part 615
RIN 3052-AB73
Funding and Fiscal Affairs, Loan Policies and Operations, and
Funding Operations; Book-entry Procedures for Farm Credit Securities
AGENCY: Farm Credit Administration.
ACTION: Interim rule with request for comments.
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SUMMARY: The Farm Credit Administration (FCA) adopts an interim rule
that revises procedures governing the issuance, maintenance, and
transfer of Farm Credit securities on the book-entry system of the
Federal Reserve Banks (Book-entry System). The revisions are necessary
to conform FCA book-entry procedures to the recently revised book-entry
procedures of the Department of the Treasury (Treasury), which
regulates the Book-entry System for Treasury securities. The interim
rule also makes conforming amendments in the book-entry regulations
governing securities of the Farm Credit System Financial Assistance
Corporation (FAC) and the Federal Agricultural Mortgage Corporation
(Farmer Mac).
[[Page 67189]]
The FCA's action follows the action of Treasury, which revised its
book-entry regulations to eliminate outdated legal concepts and
incorporate significant changes in commercial and property law
affecting the holding of securities through financial intermediaries.
At the request of Treasury, and in coordination with other regulators
of Government-Sponsored Enterprises (GSEs), the FCA is making this
interim rule effective on the same date as Treasury's new book-entry
regulations. This coordinated action will avoid market uncertainty and
help ensure a consistent regulatory approach for all users of the Book-
entry System, including Farm Credit System institutions.
EFFECTIVE DATE: January 1, 1997. Written comments must be received on
or before February 18, 1997.
ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio,
Director, Regulation Development Division, Office of Policy Development
and Risk Control, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090 or by facsimile at (703) 734-5784. Comments may
also be submitted via electronic mail to ``[email protected]''. Copies
of all communications received will be available for review by
interested parties in the Office of Policy Development and Risk
Control, Farm Credit Administration.
FOR FURTHER INFORMATION CONTACT:
Michael J. LaVerghetta, Senior Financial Analyst, Office of Policy
Development and Risk Control, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4498, or
William L. Larsen, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
I. Background
A. Current Book-Entry Regulations
The Farm Credit System obtains funds for its lending operations
primarily from the sale of debt securities issued by the Farm Credit
banks through the Federal Farm Credit Banks Funding Corporation
(Funding Corporation). As late as the mid-1970s, Farm Credit securities
were issued exclusively in definitive form (i.e., as paper
certificates). The Federal Reserve Banks acted as the fiscal agent of
the Farm Credit banks for transactions in definitive Farm Credit
securities. Around 1970, however, Treasury began a concerted effort to
convert the holding and issuance of marketable Treasury securities to
book-entry form, with the goals of protecting against loss, theft, and
counterfeit of definitive securities, as well as reducing paperwork and
printing costs. Treasury and the Federal Reserve Banks developed the
Book-entry System for Treasury securities. Access for GSE securities to
the Book-entry System soon followed. The Farm Credit System, along with
other GSEs, joined Treasury in moving toward issuing and maintaining
their securities in book-entry form.
Under the Book-entry System, the Federal Reserve Banks maintain
records of book-entry securities in the names of depository
institutions. The depository institutions keep separate accounts for
securities they own and for those they maintain for investors and other
financial institutions. Book-entry securities are assigned to an
investor's account at the depository institution. Instead of a physical
certificate, the investor receives a confirmation or custody receipt
from his bank or non-bank dealer.
Beginning in 1968, Treasury issued regulations to govern operation
of the Book-entry System and set forth the legal framework for
maintenance and transfer of Treasury securities in the Book-entry
System. Treasury's regulations applied only to Treasury securities, but
the basic book-entry procedures applicable to GSE securities in the
Book-entry System are closely analogous to book-entry procedures for
Treasury securities. Thus, the Treasury regulations at subpart O of 31
CFR part 306 served as the model for the FCA's current book-entry
regulations at 12 CFR part 615, subpart O. The FCA adopted book-entry
regulations in 1977 (42 FR 43824, August 31, 1977). Other GSE
regulators adopted similar regulations. The FCA later adopted
regulations governing the access of FAC and Farmer Mac to the Book-
entry System. (See 12 CFR part 615, subpart R, published at 53 FR
12141, April 13, 1988; 12 CFR 615, subpart S, published at 61 FR 31392,
June 20, 1996.)
B. New Treasury Book-Entry Regulations
On March 4, 1996, Treasury proposed to substantially revise its
book-entry regulations (61 FR 8420). Treasury's action came after years
of study of the legal issues and problems generated when older legal
concepts developed for handling transactions and determining ownership
interests in physical certificates were applied to paperless book-entry
securities often held through a chain of intermediary parties.
Treasury's proposal followed the development in 1994 of a revised
version of Article 8 of the Uniform Commercial Code (UCC) designed to
address similar issues and problems for purposes of state commercial
law. Treasury adopted final book-entry regulations on August 16, 1996
(61 FR 43626), effective January 1, 1997.
Treasury's new book-entry regulations are known by the acronym
``TRADES'' (Treasury/Reserve Automated Debt Entry System). In essence,
the TRADES regulations set forth the rights and obligations of various
parties, including investors and securities intermediaries, with
respect to the holding of Treasury securities in the Book-entry System.
The TRADES regulations eliminate the confusing concept central to
earlier book-entry regulations (including the FCA's) known as the
``bearer-definitive fiction.'' The bearer-definitive fiction assumed
that book-entry securities were the equivalent of bearer-definitive
securities (i.e., physical securities in the possession of and payable
to the bearer) for purposes of determining interests in the securities.
In the early years of the Book-entry System, this concept allowed for
the application of existing law to the rights and interests of
investors and other persons in marketable book-entry securities, but
ultimately generated uncertainty in settling ownership interests
because physical certificates do not actually exist for book-entry
securities. The TRADES regulations provide guidance on the application
of state law in choice of law situations, but also clarify that the
interests and obligations of the United States and the Federal Reserve
Banks in relationship to other parties with interests in marketable
Treasury book-entry securities are governed exclusively by Federal law
rather than state law unless otherwise provided.
II. FCA Action on TRADES
A. In General
The FCA supports the Treasury's efforts to clarify and update the
legal structure and mechanics of the Book-entry System to improve
certainty and liquidity in the Government/GSE securities market.
Moreover, the FCA recognizes that book-entry regulations governing Farm
Credit securities must be substantially consistent with TRADES to avoid
confusion in the Government/GSE securities market and ensure a
consistent regulatory approach for users of the Book-entry System. To
this end, the FCA is adopting interim amendments to its book-entry
regulations that conform in all substantive respects with TRADES, but
are customized for applicability to Farm Credit institutions.
[[Page 67190]]
In view of the fundamental similarity of TRADES and FCA book-entry
regulations, the FCA does not believe it is necessary or efficient to
repeat in this rulemaking document the extensive background material
and detailed explanation of the rationale and effect of the TRADES
regulations set forth in Treasury's proposed and final rulemaking
documents, supra. Members of the public should refer to Treasury's
TRADES rulemaking documentation for background on the history and
mechanics of the Book-entry System and guidance on the general
provisions of the book-entry regulations. As is its current policy
regarding interpretation of book-entry regulations, the FCA expects to
follow Treasury TRADES interpretations and guidance with respect to FCA
book-entry regulations and will coordinate with Treasury regarding
future guidance and any necessary changes.
B. Comparison of TRADES and FCA Book-Entry Regulations
The discussion that follows compares the interim regulations
adopted by the FCA and TRADES. Any differences are based on the
distinction between Treasury securities and Farm Credit securities, as
well as on the unique characteristics of the Farm Credit System.
1. General
The TRADES regulations generally refer to the United States or
Treasury as the issuer of Treasury securities. For purposes of the
FCA's adaptation of the TRADES regulations to FCA book-entry
regulations, the FCA has substituted the term ``Farm Credit banks'' as
the issuer and ``Farm Credit securities'' for Treasury securities. Any
reference in FCA book-entry regulations to the United States, the
Treasury, or the Federal Reserve Banks is not meant to imply any
liability of the United States for Farm Credit securities. See section
4.4(c) of the Farm Credit Act of 1971, as amended (Act) (12 U.S.C.
2155(c)). In addition, to avoid potential confusion regarding the
obligation of the Funding Corporation to investors and other parties to
the book-entry process, the FCA has included the Funding Corporation as
an issuer solely for purposes of these book-entry regulations. As a
technical matter, section 4.9 of the Act (12 U.S.C. 2160) assigns the
Funding Corporation the ministerial duty of ``issuing'' Farm Credit
securities as the System's fiscal agent. The FCA concludes that, even
though the Funding Corporation is not an issuer in the conventional
sense of being liable to pay interest and principal on Farm Credit
securities, its extensive involvement in the process of issuance and
maintenance of Farm Credit securities on the Book-entry System requires
that the Funding Corporation be afforded the protections of an issuer
for purposes of determining its rights and obligations with respect to
Farm Credit securities maintained on the Book-entry System.
This interim rule continues the separate location in 12 CFR part
615, subparts R and S, respectively, of book-entry regulations
applicable to FAC and Farmer Mac. The subpart R and S book-entry
regulations incorporate by reference applicable sections of the 12 CFR
part 615, subpart O book-entry regulations applicable to Farm Credit
banks and the Funding Corporation. While the access of FAC and Farmer
Mac to the Book-entry System clearly makes them issuers for purposes of
the book-entry regulations, the FCA believes it is important to
differentiate FAC and Farmer Mac securities from the Farm Credit
securities that are the joint and several obligations of the Farm
Credit banks. Thus, FAC and Farmer Mac are not identified in
conjunction with the Farm Credit banks and the Funding Corporation as
issuers in subpart O of the interim rule, but rather are treated
separately in subparts R and S.
There are several other general areas in which the FCA's book-entry
regulations diverge from Treasury's book-entry regulations. First,
under Treasury regulations, Treasury securities may be held in book-
entry form by investors who do not choose to hold their book-entry
securities accounts at financial institutions or dealers. Treasury's
book-entry system for these investors is known as TREASURY DIRECT.
Since there is currently no direct registration and holding of Farm
Credit securities, this interim rule does not establish a system
analogous to TREASURY DIRECT for Farm Credit securities.
Second, the Farm Credit banks have authority to issue a wide
variety of securities, some of which are not maintained by the Federal
Reserve Banks. For example, securities issued pursuant to the Global
Debt Program of the Farm Credit banks can be issued through fiscal
agents other than the Federal Reserve Banks. See 12 CFR part 615,
subpart P. Farm Credit securities not maintained by a Federal Reserve
Bank are not subject to these book-entry regulations. Furthermore, the
FCA's book-entry regulations apply only while a Farm Credit security is
on the Book-entry System; this regulation does not apply to Farm Credit
securities initially issued on the Book-entry System but subsequently
converted to definitive form.
Third, FCA's book-entry regulations recognize that there may be
variations in documentation that Farm Credit banks use depending upon
the type of security issued and accordingly contain a broader
definition of securities documentation than Treasury's regulations.
2. Section-by-Section Comparison With Treasury's TRADES
This segment of the preamble provides a section-by-section
comparison between FCA's book-entry regulations and TRADES and explains
several situations unique to the Farm Credit banks and their securities
that are not part of the TRADES regulation. Section references to title
31 of the Code of Federal Regulations (31 CFR) are to Treasury's book-
entry regulations as revised.
Section 615.5450
This section contains definitions applicable to FCA book-entry
regulations. To conform with TRADES, the interim rule revises several
definitions found in current FCA regulations and adds definitions that
correspond to definitions in 31 CFR 357.2 or are custom-tailored to
apply to the Farm Credit banks and their securities. The FCA's rule
uses the terminology ``Book-entry System'' rather than ``TRADES,''
since TRADES is Treasury's unique terminology for the book-entry system
applicable to Treasury securities. Section 615.5450(p) cross-references
the definition of revised Article 8 of the UCC to 31 CFR 357.2.
Section 615.5451
This section addresses Farm Credit banks'' book-entry and
definitive securities. It is adapted from Sec. 615.5450 of current
subpart O and does not have a TRADES counterpart section. Section
615.5451 deletes outmoded specific references to dates of issuance of
Farm Credit banks' securities, denominations in U.S. dollars, and
minimum original maturity requirements. The revisions also provide
that, subject to the approval of the FCA, the Funding Corporation may
issue Farm Credit securities in book-entry or bearer-definitive form in
denominations determined to be appropriate by the Funding Corporation.
Section 615.5452
This section is adapted from 31 CFR 357.10 and covers the law
governing the rights and obligations of the United States, Federal
Reserve Banks, Farm Credit banks, and Funding Corporation,
[[Page 67191]]
as well as the rights of any person against such institutions and the
United States. Through use of the defined term, securities
documentation, the FCA's rule recognizes that the Farm Credit banks may
use various forms of documentation to establish the terms of Farm
Credit securities, depending upon the type of security issued.
Section 615.5453
This section covers the law governing other interests in
securities. Other than the substituted cross-reference to Treasury
regulations, this provision is identical to 31 CFR 357.11.
Section 615.5454
This section addresses security entitlements and security
interests. It is modeled after 31 CFR 357.12. The FCA's rule applies
these provisions to the Farm Credit banks and their securities.
Section 615.5455
This section is modeled after 31 CFR 357.13 and addresses
obligations of the Farm Credit banks. The FCA's rule allows for the
possibility that the Farm Credit banks could make payments with respect
to book-entry securities that might be characterized as other than
principal or interest payments, such as ``yield maintenance premiums.''
Section 615.5456
This section concerns the authority of Federal Reserve Banks. It is
modeled after 31 CFR 357.14. As is permissible under current book-entry
regulations, the FCA's rule specifically authorizes each Federal
Reserve Bank to effect conversions between book-entry securities and
definitive Farm Credit securities where conversion rights are available
pursuant to the applicable securities documentation.
Section 615.5457
This section addresses withdrawal of eligible book-entry securities
for conversion to definitive form. It is a continuation of existing
authority modeled after 31 CFR 306.117. The FCA's rule requires that
conversion must be consistent with the securities documentation.
Section 615.5458
This provision reserves the right of the FCA to waive requirements
of the book-entry regulations in limited circumstances, such as in
cases of unnecessary hardship, where such action is not inconsistent
with law. It is based on 31 CFR 357.41.
Section 615.5459
This section concerns liability of Farm Credit banks, the Funding
Corporation, and Federal Reserve Banks. It is modeled after 31 CFR
357.42. The FCA's rule reflects that some terms such as ``tender'' and
``transactions request form'' used in Treasury's rule do not apply to
Farm Credit book-entry securities.
Section 615.5460
This section is modeled after two Treasury regulations. Paragraph
(a) regarding additional requirements is modeled after 31 CFR 357.40.
Paragraph (b) regarding notice of attachment for Farm Credit securities
is modeled after 31 CFR 357.44.
Section 615.5461
This section on lost, stolen, and defaced Farm Credit securities
applies to definitive securities. It is redesignated from Sec. 615.5495
of the current FCA regulations. The word ``securities'' is substituted
for the word ``obligations'' to conform with the terminology of the
interim rule. The reference to Treasury is updated.
Section 615.5462
This section on restrictive endorsement of bearer securities is
redesignated from Sec. 615.5498 of the current FCA regulations. The
word ``securities'' is substituted for the word ``obligations'' to
conform with the terminology of the interim rule.
Section 615.5560
This section provides that the core book-entry regulations
contained in 12 CFR part 615, subpart O apply to FAC securities through
incorporation by reference. For purposes of applying Secs. 615.5450 and
615.5452-5460 to FAC securities, the term ``Financial Assistance
Corporation securities'' shall be read for ``Farm Credit securities'',
and ``Financial Assistance Corporation'' shall be read for ``Farm
Credit banks'' and ``Funding Corporation.'' Pursuant to section 6.26(a)
of the Act (12 U.S.C. 2278b-6(a)), FAC's authority to issue securities
expired on September 30, 1992. Accordingly, these book-entry
regulations apply to FAC securities issued before the expiration date.
Section 615.5570
This section provides that the core book-entry regulations
contained in 12 CFR part 615, subpart O apply to Farmer Mac securities
through incorporation by reference. For purposes of applying
Secs. 615.5450 and 615.5452-5460 to Farmer Mac securities, the term
``Farmer Mac securities'' shall be read for ``Farm Credit securities,''
and ``Farmer Mac'' shall be read for ``Farm Credit banks'' and
``Funding Corporation.''
C. Elimination of Certain Provisions Found in Current Regulations
The interim rule eliminates most of the provisions of FCA's current
book-entry regulations. Because a major part of the current regulations
was based on Treasury's book-entry regulations at subpart O of 31 CFR
part 306, which has basically been replaced by TRADES, the FCA has
eliminated Secs. 615.5470, 615.5475, 615.5480, and 615.5485 and
replaced these provisions consistent with the new TRADES regulations.
Section 615.5454 on Liability is being eliminated because it does not
accurately reflect the current law on joint and several liability of
Farm Credit banks for Farm Credit securities as set forth in section
4.4 of the Act, as amended by the Agricultural Credit Act of 1987 (Pub.
L. 100-233, section 303(a)). Sections 615.5490, 615.5492, and 615.5494,
which contain general information on maintenance and servicing of book-
entry securities, have been eliminated because detailed authority for
maintenance and servicing of book-entry securities by the Federal
Reserve Banks is set forth in Sec. 615.5456 of the interim rule and
general information on book-entry procedures is available to investors
in securities documentation.
III. Expedited Proceeding and Effective Date
To prevent any uncertainty and dislocation in the government/GSE
securities market, and in response to public comment received during
the TRADES rulemaking, Treasury has requested that book-entry
regulations compatible with TRADES be effective for the Farm Credit
System and other GSEs on January 1, 1997, simultaneously with TRADES.
To meet this timetable, the FCA has determined that there is good cause
to omit, as neither practicable nor in the public interest,
prepromulgation notice and comment pursuant to section 553(b)(B) of the
Administrative Procedure Act, 5 U.S.C. 551-59, et seq. (APA).
Treasury's final regulation was not published until August 23, 1996,
making a proposed phase for this rulemaking impracticable. Moreover,
since the substance of the FCA's book-entry regulations is based almost
entirely on TRADES, the broad public interest in commenting on book-
entry regulations was met during Treasury's rulemaking. Nonetheless,
the FCA is providing for post-effective public comment by adopting its
revised book-entry regulations on an interim basis. In this way, FCA
book-entry regulations can take full effect simultaneously with the
Treasury's
[[Page 67192]]
TRADES regulations, yet still be subject to comment from the public.
The FCA will consider comments received during a 60-day comment period
and issue a subsequent notice of finalization.
In taking this interim action, the FCA is adopting an effective
date for the regulations that is less than 30 days after publication in
the Federal Register. The necessity that FCA make its book-entry
regulations effective simultaneously with Treasury's provides good
cause, in accordance with section 553(d) of the APA, to adopt an
accelerated effective date. Finally, consistent with the reasons for
its expedited actions under the APA, the FCA finds cause under section
5.17(c)(2) of the Act to make these regulations effective prior to the
expiration of the 30-day Congressional notice and waiting period for
final agency regulatory action.
IV. Regulatory Philosophy
The adoption of these interim regulations is consistent with the
FCA's Policy Statement on Regulatory Philosophy. See 60 FR 26034 (May
16, 1995). The interim regulations eliminate outdated book-entry
regulations without unnecessary burden or cost. Moreover, the FCA's
action is consistent with similar actions taken by Treasury and other
GSE regulators. Consistent book-entry regulations should promote
investor confidence in Farm Credit securities.
List of Subjects in 12 CFR Part 615
Accounting, Agriculture, Banks, Banking, Government securities,
Investments, and Rural areas.
For the reasons stated in the preamble, part 615 of chapter VI,
title 12 of the Code of Federal Regulations is amended to read as
follows:
PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,
AND FUNDING OPERATIONS
1. The authority citation for part 615 continues to read as
follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5,
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17,
6.20, 6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit
Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076,
2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243,
2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-
7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233,
101 Stat. 1568, 1608; sec. 105 of Pub. L. 104-105, 110 Stat. 162,
163-64.
2. Subpart O of part 615 is revised to read as follows:
Subpart O--Book-Entry Procedures for Farm Credit Securities
Sec.
615.5450 Definitions.
615.5451 Book-entry and definitive securities.
615.5452 Law governing rights and obligations of United States,
Federal Reserve Banks, Farm Credit banks, and Funding Corporation;
rights of any person against United States, Federal Reserve Banks,
Farm Credit banks, and Funding Corporation.
615.5453 Law governing other interests.
615.5454 Creation of participant's security entitlement; security
interests.
615.5455 Obligations of the Farm Credit banks and the Funding
Corporation; no adverse claims.
615.5456 Authority of Federal Reserve Banks.
615.5457 Withdrawal of eligible book-entry securities for
conversion to definitive form.
615.5458 Waiver of regulations.
615.5459 Liability of Farm Credit banks, Funding Corporation and
Federal Reserve Banks.
615.5460 Additional provisions.
615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit
securities, including coupons.
615.5462 Restrictive endorsement of bearer securities.
Subpart O--Book-Entry Procedures for Farm Credit Securities
Sec. 615.5450 Definitions.
In this subpart, unless the context otherwise requires or
indicates:
(a) Adverse claim means a claim that a claimant has a property
interest in a security and that it is a violation of the rights of the
claimant for another person to hold, transfer, or deal with the
security.
(b) Book-entry security means a Farm Credit security issued or
maintained in the Book-entry System.
(c) Book-entry System means the automated book-entry system
operated by the Federal Reserve Banks, acting as the fiscal agent for
the Farm Credit banks, through which book-entry securities are issued,
recorded, transferred and maintained in book-entry form.
(d) Definitive Farm Credit security means a Farm Credit security in
engraved or printed form, or that is otherwise represented by a
certificate.
(e) Eligible book-entry security means a book-entry security issued
or maintained in the Book-entry System, which by the terms of its
securities documentation, is eligible to be converted from book-entry
into definitive form.
(f) Entitlement Holder means a person to whose account an interest
in a book-entry security is credited on the records of a securities
intermediary.
(g) Farm Credit banks means one or more Farm Credit Banks,
agricultural credit banks, and banks for cooperatives.
(h) Farm Credit securities means consolidated notes, bonds,
debentures, or other similar obligations of the Farm Credit banks and
Systemwide notes, bonds, debentures, or similar obligations of the Farm
Credit banks issued under sections 4.2(c) and 4.2(d) of the Act, or
laws repealed thereby.
(i) Federal Reserve Bank means a Federal Reserve Bank or Branch
acting as agent for the Farm Credit banks and the Funding Corporation.
(j) Federal Reserve Bank Operating Circular means the publication
issued by each Federal Reserve Bank that sets forth the terms and
conditions under which the Federal Reserve Bank maintains book-entry
securities accounts and transfers book-entry securities.
(k) Funding Corporation means the Federal Farm Credit Banks Funding
Corporation established pursuant to section 4.9 of the Act, which
issues Farm Credit securities on behalf of the Farm Credit banks.
(l) Funds Account means a reserve and/or clearing account at a
Federal Reserve Bank to which debits or credits are posted for
transfers against payment, book-entry securities transaction fees, or
principal and interest payments.
(m) Participant means a person that maintains a participant's
securities account with a Federal Reserve Bank.
(n) Participant's Securities Account means an account in the name
of a participant at a Federal Reserve Bank to which book-entry
securities held for a participant are or may be credited.
(o) Person means an individual, corporation, company, governmental
entity, association, firm, partnership, trust, estate, representative
and any other similar organization, but does not mean the United
States, a Farm Credit bank, the Funding Corporation or a Federal
Reserve Bank.
(p) Revised Article 8 means Uniform Commercial Code, Revised
Article 8, Investment Securities (with Conforming and Miscellaneous
Amendments to Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text, and
has the same meaning as in 31 CFR 357.2.
(q) Securities Documentation means the applicable statement of
terms, trust indenture, securities agreement, offering circular or
other documents establishing the terms of a book-entry security.
(r) Securities Intermediary means:
(1) A person that is registered as a ``clearing agency'' under the
Federal
[[Page 67193]]
securities laws; a Federal Reserve Bank; any other person that provides
clearance or settlement services with respect to a book-entry security
that would require it to register as a clearing agency under the
Federal securities laws but for an exclusion or exemption from the
registration requirement, if its activities as a clearing corporation,
including promulgation of rules, are subject to regulation by a Federal
or State governmental authority; or
(2) A person (other than an individual, unless such individual is
registered as a broker or dealer under the Federal securities laws)
including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that
capacity.
(s) Security means a Farm Credit security as defined in paragraph
(h) of this section.
(t) Security Entitlement means the rights and property interest of
an entitlement holder with respect to a book-entry security.
(u) State means any State of the United States, the District of
Columbia, Puerto Rico, the Virgin Islands, or any other territory or
possession of the United States.
(v) Transfer Message means an instruction of a participant to a
Federal Reserve Bank to effect a transfer of a book-entry security
maintained in the Book-entry System, as set forth in Federal Reserve
Bank Operating Circulars.
Sec. 615.5451 Book-entry and definitive securities.
Subject to subpart C of this part:
(a) Farm Credit banks operating under the same title of the Act may
issue consolidated securities in book-entry form.
(b) Farm Credit banks may issue Systemwide securities in book-entry
form.
(c) Consolidated and Systemwide securities also may be issued in
bearer-definitive form.
Sec. 615.5452 Law governing rights and obligations of United States,
Federal Reserve Banks, Farm Credit banks, and Funding Corporation;
rights of any person against United States, Federal Reserve Banks, Farm
Credit banks, and Funding Corporation.
(a) Except as provided in paragraph (b) of this section, the
following are governed solely by the regulations contained in this
subpart O, the securities documentation, and Federal Reserve Bank
Operating Circulars:
(1) The rights and obligations of the United States, the Farm
Credit banks, the Funding Corporation, and the Federal Reserve Banks
with respect to:
(i) A book-entry security or security entitlement, and
(ii) The operation of the Book-entry System as it applies to Farm
Credit securities; and
(2) The rights of any person, including a participant, against the
United States, the Farm Credit banks, the Funding Corporation, and the
Federal Reserve Banks with respect to:
(i) A book-entry security or security entitlement, and
(ii) The operation of the Book-entry System as it applies to Farm
Credit 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. 615.5454(c)(1)
of this subpart, 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. 615.5454(c)(1)of this subpart, is governed by the law determined
in the manner specified in Sec. 615.5453 of this subpart.
(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 (see 31 CFR 357.2) 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.
Sec. 615.5453 Law governing other interests.
(a) To the extent not inconsistent with these regulations, the law
(not including the conflict-of-law rules) of a securities
intermediary's jurisdiction governs:
(1) The acquisition of a security entitlement from the securities
intermediary;
(2) The rights and duties of the securities intermediary and
entitlement holder arising out of a security entitlement;
(3) Whether the securities intermediary owes any duties to an
adverse claimant to a security entitlement;
(4) Whether an adverse claim can be asserted against a person who
acquires a security entitlement from the securities intermediary or a
person who purchases a security entitlement or interest therein from an
entitlement holder; and
(5) Except as otherwise provided in paragraph (c) of this section,
the perfection, effect of perfection or non-perfection and priority of
a security interest in a security entitlement.
(b) The following rules determine a ``securities intermediary's
jurisdiction'' for purposes of this section:
(1) If an agreement between the securities intermediary and its
entitlement holder specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the securities
intermediary's jurisdiction.
(2) If an agreement between the securities intermediary and its
entitlement holder does not specify the governing law as provided in
paragraph (b)(1) of this section, but expressly specifies that the
securities account is maintained at an office in a particular
jurisdiction, that jurisdiction is the securities intermediary's
jurisdiction.
(3) If an agreement between the securities intermediary and its
entitlement holder does not specify a jurisdiction as provided in
paragraph (b)(1) or (b)(2) of this section, the securities
intermediary's jurisdiction is the jurisdiction in which is located the
office identified in an account statement as the office serving the
entitlement holder's account.
(4) If an agreement between the securities intermediary and its
entitlement holder does not specify a jurisdiction as provided in
paragraph (b)(1) or (b)(2) of this section and an account statement
does not identify an office serving the entitlement holder's account as
provided in paragraph (b)(3) of this section, the securities
intermediary's jurisdiction is the jurisdiction in which is located the
chief executive office of the securities intermediary.
(c) Notwithstanding the general rule in paragraph (a)(5) of this
section, the law (but not the conflict-of-law rules) of the
jurisdiction in which the person creating a security interest is
located governs whether and how the security interest may be perfected
automatically or by filing a financing statement.
(d) If the jurisdiction specified in paragraph (b) of this section
is a State that has not adopted revised Article 8 (see 31 CFR 357.2),
then the law for the matters specified in paragraph (a) of this section
shall be the law of that State as though revised Article 8 had been
adopted by that State. For purposes of the application of the matters
specified in paragraph (a) of this section, the Federal Reserve Bank
maintaining the securities account is a clearing corporation, and the
participant's interest in a book-entry security is a security
entitlement.
[[Page 67194]]
Sec. 615.5454 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 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 Federal 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) The Farm Credit banks, the Funding Corporation, 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 Farm
Credit bank, the Funding Corporation, 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. 615.5452(b) or Sec. 615.5453 of this subpart. The perfection,
effect of perfection or non-perfection and priority of a security
interest are governed by that 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 that law,
including with respect to the effect of perfection and priority of the
security interest. A Federal Reserve Bank Operating Circular shall be
treated as a rule adopted by a clearing corporation for such purposes.
Sec. 615.5455 Obligations of the Farm Credit banks and the Funding
Corporation; 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. 615.5454(c)(1), for the purposes of this subpart O, the Farm
Credit banks, the Funding Corporation and the Federal Reserve Banks
shall treat the participant to whose securities account an interest in
a book-entry 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. The Federal Reserve Banks, the
United States, the Farm Credit banks, and the Funding Corporation are
not liable to a person asserting or having an adverse claim to a
security entitlement or to a book-entry security in a participant's
securities account, including any such claim arising as a result of the
transfer or disposition of a book-entry 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 Farm Credit banks and the Funding
Corporation to make payments (including payments of interest and
principal) with respect to book-entry securities is discharged at the
time payment in the appropriate amount is made as follows:
(1) Interest or other payments on book-entry securities are either
credited by a Federal Reserve Bank to a funds account maintained at the
Federal Reserve Bank or otherwise paid as directed by the participant.
(2) Book-entry 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 the
Federal Reserve Bank or otherwise paying such principal and interest as
directed by the participant. No action by the participant is required
in connection with the redemption of a book-entry security.
Sec. 615.5456 Authority of Federal Reserve Banks.
(a) Each Federal Reserve Bank is hereby authorized as fiscal agent
of the Farm Credit banks and the Funding Corporation to perform
functions with respect to the issuance of book-entry securities offered
and sold by the Farm Credit banks and the Funding Corporation to which
this subpart applies, in accordance with the terms of the securities
documentation and the provisions of this subpart:
(1) To service and maintain book-entry securities in accounts
established for such purposes;
(2) To make payments of principal and interest, as directed by the
Farm Credit banks and the Funding Corporation;
(3) To effect transfer of book-entry securities between
participants' securities accounts as directed by the participants;
(4) To effect conversions between book-entry securities and
definitive Farm Credit 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 Farm Credit banks and the Funding Corporation.
(b) Each Federal Reserve Bank may issue Operating Circulars not
inconsistent with this subpart, governing the details of its handling
of book-entry securities, security entitlements, and the operation of
the Book-entry System under this subpart.
Sec. 615.5457 Withdrawal of eligible book-entry securities for
conversion to definitive form.
(a) Eligible book-entry securities may be withdrawn from the Book-
entry System by requesting delivery of like definitive Farm Credit
securities.
(b) A Federal Reserve Bank shall, upon receipt of appropriate
instructions to withdraw eligible book-entry securities from book-entry
in the Book-entry System, convert such securities into definitive Farm
Credit securities and deliver them in accordance with such
instructions.
[[Page 67195]]
(c) Farm Credit securities which are to be delivered upon
withdrawal may be issued in bearer form, to the extent permitted by the
applicable securities documentation.
(d) All requests for withdrawal of eligible book-entry securities
must be made prior to the maturity or date of call of the Farm Credit
securities.
Sec. 615.5458 Waiver of regulations.
The Farm Credit Administration reserves the right, in the Farm
Credit Administration's discretion, to waive any provision(s) of the
regulations in this subpart in any case or class of cases for the
convenience of the Farm Credit banks and the Funding Corporation 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 Farm Credit Administration is satisfied that
such action will not subject the Farm Credit banks and the Funding
Corporation to any substantial expense or liability.
Sec. 615.5459 Liability of Farm Credit banks, Funding Corporation and
Federal Reserve Banks.
The Farm Credit banks, the Funding Corporation, and the Federal
Reserve Banks may rely on the information provided in a transfer
message or other transaction documentation, and are not required to
verify the information. The Farm Credit banks, the Funding Corporation,
and the Federal Reserve Banks shall not be liable for any action taken
in accordance with the information set out in the transfer message,
other transaction documentation, or evidence submitted in support
thereof.
Sec. 615.5460 Additional provisions.
(a) Additional requirements. In any case or any class of cases
arising under the regulations in this subpart, the Farm Credit banks
and the Funding Corporation may require such additional evidence and a
bond of indemnity, with or without surety, as may in the judgment of
the Farm Credit banks and the Funding Corporation be necessary for the
protection of the interests of the Farm Credit banks and the Funding
Corporation.
(b) Notice of attachment for Farm Credit securities in the 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.
Sec. 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm
Credit securities, including coupons.
(a) Relief on the account of the loss, theft, destruction,
mutilation, or defacement of any definitive consolidated or Systemwide
securities of the Farm Credit banks and coupons of such securities may
be granted on the same basis and to the same extent as relief may be
granted under the statutes of the United States and the regulations of
the Department of the Treasury on the account of the loss, theft,
destruction, mutilation, or defacement of United States securities and
coupons of such securities.
(b) Applicants for relief under paragraph (a) of this section,
shall present claims and proof of loss:
(1) To the Division of Special Investments, Bureau of the Public
Debt, P.O. Box 396, Parkersburg, WV 26102-0396, in the case of
consolidated or Systemwide securities of the Farm Credit banks issued
prior to May 1, 1978; or
(2) To the Federal Farm Credit Banks Funding Corporation, 10
Exchange Place, Suite 1401, Jersey City, NJ 07302, in the case of
consolidated or Systemwide securities issued on or after May 1, 1978.
Sec. 615.5462 Restrictive endorsement of bearer securities.
When consolidated and Systemwide bearer securities of the Farm
Credit banks are being presented to Federal Reserve Banks, for
redemption, exchange, or conversion to book entry, such securities may
be restrictively endorsed. The restrictive endorsement shall be placed
thereon in substantially the same manner and with the same effects as
prescribed in United States Treasury Department regulations, now or
hereafter in force, governing like transactions in United States bonds;
and consolidated or Systemwide securities of the Farm Credit banks so
endorsed shall be prepared for shipment and shipped in the manner
prescribed in such regulations for United States bearer securities.
(See 31 CFR part 328.)
Subpart R--Farm Credit System Financial Assistance Corporation
Securities
3. Section 615.5560 is amended by revising paragraph (c) to read as
follows:
Sec. 615.5560 Book-entry Procedure for Farm Credit System Financial
Assistance Corporation Securities.
* * * * *
(c) Financial Assistance Corporation securities shall be governed
by Secs. 615.5450, and 615.5452 through 615.5460. In interpreting those
sections for purposes of this subpart, unless the context requires
otherwise, the term ``Financial Assistance Corporation securities''
shall be read for ``Farm Credit securities,'' and ``Financial
Assistance Corporation'' shall be read for ``Farm Credit banks'' and
``Funding Corporation.'' These terms shall be read as though modified
where necessary to effectuate the application of the designated
sections of subpart O of this part to the Financial Assistance
Corporation.
Subpart S--Federal Agricultural Mortgage Corporation Securities
4. Section 615.5570 is amended by revising paragraph (c) to read as
follows:
Sec. 615.5570 Book-entry procedures for Federal Agricultural Mortgage
Corporation Securities.
* * * * *
(c) Farmer Mac securities shall be governed by Secs. 615.5450, and
615.5452 through 615.5460. In interpreting those sections for purposes
of this subpart, unless the context requires otherwise, the term
``Farmer Mac securities'' shall be read for ``Farm Credit securities,''
and ``Farmer Mac'' shall be read for ``Farm Credit banks'' and
``Funding Corporation.'' These terms shall be read as though modified
where necessary to effectuate the application of the designated
sections of subpart O of this part to Farmer Mac.
Dated: December 12, 1996.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 96-32310 Filed 12-19-96; 8:45 am]
BILLING CODE 6705-01-P