[Federal Register Volume 62, Number 171 (Thursday, September 4, 1997)]
[Rules and Regulations]
[Pages 46860-46861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23351]



[[Page 46859]]

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Part III





Department of the Treasury





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Fiscal Service



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31 CFR Part 357



Regulations Governing Book-Entry Treasury Bonds, Notes, and Bills; 
Final Rule

  Federal Register / Vol. 62, No. 171 / Thursday, September 4, 1997 / 
Rules and Regulations  

[[Page 46860]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 357


Regulations Governing Book-Entry Treasury Bonds, Notes and Bills

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 its regulations governing book-
entry Treasury Bonds, Notes and Bills which will offer investors 
holding marketable securities within the TREASURY DIRECT system the 
option of having Treasury, through a designated Federal Reserve Bank, 
acting as fiscal agent of the United States, sell such securities in 
the secondary market. Previously, if investors needed or wanted to sell 
their Treasury securities, they were required to first transfer their 
securities from their TREASURY DIRECT accounts to accounts with 
financial institutions or broker-dealers within TRADES, the commercial 
book-entry system. Investors who did not already have broker-dealer 
accounts established were required to first establish such accounts for 
the transaction. The new service will benefit such investors by 
providing them with the option of having the designated Federal Reserve 
Bank sell the securities and transmit the settlement amounts to the 
investors.

EFFECTIVE DATE: September 4, 1997.

FOR FURTHER INFORMATION CONTACT: Richard Koch, Director, Division of 
Customer Service, Bureau of the Public Debt (304) 480-6748; Susan 
Klimas, Attorney-Adviser, Office of the Chief Counsel, Bureau of the 
Public Debt (304) 480-5192; Edward C. Gronseth, Deputy Chief Counsel, 
Office of the Chief Counsel, Bureau of the Public Debt (304) 480-5192.

SUPPLEMENTARY INFORMATION: This final rule amends the general 
regulations governing book-entry Treasury Bonds, Notes and Bills to 
offer TREASURY DIRECT investors the service of selling their unmatured 
marketable securities in the secondary market. At the request of the 
investor, the securities will be transferred to the designated Federal 
Reserve Bank, acting as fiscal agent of the United States, to be sold 
on behalf of the investor. This will enhance customer service to 
TREASURY DIRECT investors who do not already have an account 
established with a financial institution or broker-dealer and who wish 
to liquidate some or all of their securities. In addition, legal 
representatives and heirs of a decedent with securities held in 
TREASURY DIRECT who may wish to sell the securities would not have the 
added burden of establishing a broker-dealer account.
    Investors wishing to use the new service will authorize Treasury to 
transfer their securities to the designated Federal Reserve Bank to be 
sold on their behalf. Once all evidence which may be required to 
support such a transfer is received and approved, the securities will 
be transferred to the Federal Reserve Bank. Generally, on the same day 
that the Federal Reserve Bank receives the securities, the Federal 
Reserve Bank will make a reasonable effort to obtain three price quotes 
from dealers and will enter into an agreement to sell the securities to 
the dealer with the highest price quote for next day settlement. The 
day that the agreement to sell the securities is entered into is 
referred to as the trade date. If the Federal Reserve Bank is unable to 
obtain at least one price quote for the security, the security will be 
returned to the TREASURY DIRECT account of the investor on the next 
full business day following the receipt of the securities by the 
Federal Reserve Bank, and the investor will be notified. On the next 
full business day after the trade date, the settlement amount will be 
released electronically by the Federal Reserve Bank to the account at 
the financial institution which the investor has previously designated 
to receive TREASURY DIRECT payments. The electronic payments will be by 
the Automated Clearing House method, as provided in this part. A 
confirmation will be sent to the investor by the Federal Reserve Bank 
upon the completion of the transaction. Because the Federal Reserve 
Bank enters into an agreement to sell the securities on the same day 
that it receives the securities, the authorization of the investor for 
the transfer and sale of the securities becomes irrevocable when the 
transfer from the TREASURY DIRECT account of the owner to the Federal 
Reserve Bank is made.
    The customer agrees to accept the price received by the Federal 
Reserve Bank from the dealer selected as having the highest price 
quote. The Department and the Federal Reserve Bank are not liable for 
changes in market conditions which may affect the price received by the 
investor, or any loss which the investor may incur as a result of the 
transaction or the failure of the Federal Reserve Bank to complete the 
transaction. The settlement amount, also referred to as the net amount 
on the confirmation, may be less than the par amount of the security. 
Such settlement amount is derived by taking the par amount of the 
security (that is, the stated value of the security at original 
issuance), multiplying that amount by the price, adding any interest 
which may have accrued, and subtracting the transaction fee. For 
inflation indexed securities, the settlement amount will also include 
any applicable inflation adjustment, as provided in 31 CFR part 356.
    A transaction fee will be charged for each security sold on behalf 
of the investor. For purposes of computing the transaction fee, a 
security is considered as any amount within a TREASURY DIRECT account 
which is identified by a separate CUSIP number. Thus, if an investor 
has several holdings within a TREASURY DIRECT account of varying 
amounts, but all are identified by the same CUSIP number, and all are 
transferred in one transaction, only one transaction fee will be 
charged, since the holdings are considered as one security. If the 
investor has several holdings within a TREASURY DIRECT account, each 
with a different CUSIP number, then a separate transaction fee will be 
charged for each holding, as each holding with a separate CUSIP number 
is considered a separate security. If an investor has two TREASURY 
DIRECT accounts, and each account has a security with a CUSIP identical 
to the security in the other account, then two transaction fees will be 
charged, since each security within each account is considered a 
separate security. If the Federal Reserve Bank is unable to complete 
the sale of the security, no transaction fee will be charged. The 
transaction fee will be deducted prior to the Federal Reserve Bank 
initiating the payment of the settlement amount to the investor's 
account at the financial institution designated to receive TREASURY 
DIRECT payments. The amount of the transaction fee will be published by 
notice in the Federal Register.
    The Department has reserved the right to terminate the service at 
any time at its discretion without prior notice.
    The TREASURY DIRECT rules found in subpart C of this part apply to 
the transaction, rather than the TRADES rules found in subpart B.
    Several definitions have been added to the part to further clarify 
the process.

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

[[Page 46861]]

procedures contained therein do not apply.
    This final 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, therefore, the Paperwork Reduction Act (44 U.S.C. 3507) does not 
apply.

List of Subjects in 31 CFR Part 357

    Banks, Banking, Bonds, Federal Reserve System, Government 
securities.

    Dated: August 20, 1997.
Gerald Murphy,
Fiscal Assistant Secretary.

    For the reasons set out in the preamble, 31 CFR part 357 is amended 
as follows:

PART 357--GENERAL REGULATIONS GOVERNING BOOK-ENTRY TREASURY BONDS, 
NOTES AND BILLS

    1. The authority citation for part 357 continues to read as 
follows:

    Authority: 31 U.S.C. Chapter 31, 5 U.S.C. 301 and 12 U.S.C. 391.

    2. Section 357.22 is amended by redesignating paragraphs (b) 
through (e) as (c) through (f), respectively, and adding a new 
paragraph (b), as follows:


Sec. 357.22  Transfers.

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    (b) Transfer to Federal Reserve Bank for sale of securities in the 
secondary market.
    (1) Upon authorization by the investor, an unmatured security may 
be transferred to a Federal Reserve Bank acting as the designated 
fiscal agent of the United States, to be sold on behalf of the 
investor.
    (2) Definitions. In this section, unless the context indicates 
otherwise:
    Dealer means an entity that is registered or has given notice of 
its status as a government securities broker or government securities 
dealer, pursuant to Section 15C(a)(1) of the Securities Exchange Act of 
1934.
    Par amount means the stated value of a security at original 
issuance.
    Price means the dollar amount to be paid for a security expressed 
as a percent of its current par amount.
    Security means any amount held in a TREASURY DIRECT account which 
is represented by a separate CUSIP number.
    Settlement amount, also referred to as net amount, is the amount 
deposited by the Federal Reserve Bank to the account of the investor at 
the financial institution designated by the investor to receive 
TREASURY DIRECT payments. This amount is equal to the par amount of the 
securities multiplied by the price, plus any accrued interest, and less 
the transaction fee. For inflation indexed securities, the settlement 
amount also includes any applicable inflation adjustment, as provided 
in 31 CFR Part 356. The settlement amount may be less than the par 
amount of the security.
    Settlement date is the date the settlement amount is released to 
the account at the financial institution designated by the investor for 
receipt of TREASURY DIRECT payments.
    Trade date means the date on which the Federal Reserve Bank enters 
into an agreement with a dealer for the sale of the security.
    Yield, also referred to as yield to maturity, means the annualized 
rate of return to maturity on a fixed principal security expressed as a 
percentage. For an inflation-indexed security, yield means real yield, 
as defined in 31 CFR part 356.
    (3) Procedure. On an approved Treasury form, the owner must 
authorize a transfer of the security from the investor's TREASURY 
DIRECT account to the designated Federal Reserve Bank, and authorize 
the Federal Reserve Bank to sell the security. Rules in subpart C of 
this part governing the transfer of securities will apply to the 
transfer of the security to the Federal Reserve Bank. Generally, on the 
day that the security is transferred to the Federal Reserve Bank, the 
Federal Reserve Bank will make reasonable efforts to obtain a price 
quote from at least three dealers, and will enter into an agreement to 
sell the security to the dealer with the highest price quote for next 
day settlement. What constitutes reasonable effort shall be determined 
solely by the Federal Reserve Bank. On the next full business day after 
the trade date, the settlement amount shall be released by direct 
deposit (electronic funds transfer), as provided in Sec. 357.26 of this 
part, to the account at the financial institution designated by the 
investor to accept TREASURY DIRECT payments, except when the Department 
determines that extraordinary circumstances exist that require payment 
by other means. In the event that the Federal Reserve Bank is unable to 
obtain at least one price quote for the security, the security will be 
returned to the TREASURY DIRECT account of the investor on the next 
full business day following the receipt of the securities by the 
Federal Reserve Bank, and the Federal Reserve Bank will notify the 
investor.
    (4) Confirmation. The Federal Reserve Bank will send a confirmation 
of the sale to the investor upon completion of the transaction. Such 
confirmation will include such information as price, trade date, 
settlement date, settlement amount, also referred to as net amount, 
transaction fee, and yield to maturity.
    (5) Price. By authorizing the transfer and sale of the securities, 
the investor agrees to accept the price received by the Federal Reserve 
Bank from the dealer selected as having the highest price quote.
    (6) Transaction Fee. A transaction fee shall be charged for each 
security sold on behalf of the investor. If the Federal Reserve Bank is 
unable to complete the sale of the security, no fee will be charged. By 
authorizing the sale of the security, the investor authorizes the 
Federal Reserve Bank to withhold the transaction fee prior to the 
Federal Reserve Bank initiating the payment of the settlement amount to 
the account at the financial institution designated by the investor to 
receive TREASURY DIRECT payments. The amount of the transaction fee 
will be published by notice in the Federal Register.
    (7) Termination. This service may be terminated at anytime without 
prior notice at the discretion of the Department.
    (8) Rights. The provisions applicable to TREASURY DIRECT 
transactions in subpart C shall apply to this section. The provisions 
applicable to transactions in TRADES in subpart B shall not apply to 
this section.
    (9) Irrevocability. The authorization of the investor for the 
transfer and sale of the securities shall be irrevocable when the 
transfer from the TREASURY DIRECT account of the investor to the 
account at the Federal Reserve Bank is effected.
    (10) Liability. The Department and the designated Federal Reserve 
Bank shall not be liable for changes in market conditions affecting the 
price received for the security, or for any loss which the investor may 
incur as a result of the transaction or the inability of the Federal 
Reserve Bank to complete the transaction.
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[FR Doc. 97-23351 Filed 9-2-97; 8:45 am]
BILLING CODE 4810-39-P