[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Rules and Regulations]
[Pages 53227-53230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26999]
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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: Final rule.
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SUMMARY: The Farm Credit Administration (FCA), through the FCA Board
(Board), adopts as final with minor technical changes a previously
adopted 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). This action
completes rulemaking 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 action simultaneously finalizes 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).
EFFECTIVE DATE: January 1, 1997, except that the technical amendments
adopted herein are effective 30 days after publication during which
either or both Houses of Congress are in session. A notice of effective
date for the technical amendments will be published in the Federal
Register.
FOR FURTHER INFORMATION CONTACT:
Laurie A. Rea, Senior Policy 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.
[[Page 53228]]
SUPPLEMENTARY INFORMATION:
I. Background
On December 20, 1996, the FCA published interim regulations
completely revising the procedures governing the issuance, maintenance,
and transfer of Farm Credit securities on the Book-entry System (61 FR
67188). The FCA's interim rulemaking followed 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which revised its book-entry regulations to eliminate outdated legal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
made the interim rule effective on January 1, 1997, the same date on
which Treasury's new book-entry regulations became effective. This
coordinated action was designed to avoid market uncertainty and help
ensure a consistent regulatory approach for all users of the Book-entry
System, including Farm Credit System (System) institutions. The interim
rulemaking provided for a post-effective date comment period.
More extensive background on FCA book-entry regulations can be
found in the interim rulemaking document and is not repeated in this
notice of final adoption. A detailed explanation of the rationale and
effect of the Treasury's new book-entry regulations, known by the
acronym ``TRADES'' (Treasury/Reserve Automated Debt Entry System) is
set forth in Treasury's proposed and final rulemaking documents. See 61
FR 8420 (March 4, 1996) and 61 FR 43626 (August 23, 1996). 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 continue 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.
II. Comments and Technical Changes
The FCA received one written comment on the interim regulations.
The Federal Farm Credit Banks Funding Corporation (Funding
Corporation), responding on behalf of the System banks, fully supported
the interim regulations but suggested several technical clarifications.
In addition, the FCA has continued to consult with Treasury, the
Federal Reserve Board, and the Federal Reserve Bank of New York
regarding final implementation of the interim regulations. Treasury
suggested that references to the United States in several sections of
the interim regulations be omitted to avoid any implication that the
United States guarantees Farm Credit securities. Treasury made the same
suggestion to other GSE regulators in connection with their revised
book-entry regulations. The FCA now adopts the interim book-entry
regulations as final, but in response to these comments and
suggestions, makes several minor technical changes in the regulations
as discussed below.
Section 615.5450(h)
The Funding Corporation suggested that the FCA add ``respectively''
after the words ``sections 4.2(c) and 4.2(d)'' to clarify that
consolidated securities are issued under section 4.2(c) and Systemwide
securities are issued under section 4.2(d) of the Farm Credit Act of
1971, as amended (Act) (12 U.S.C. 2155(c)). The final rule incorporates
this suggestion.
Providing for Issuance of Registered Definitive Securities in
Secs. 615.5451(c) and 615.5457(c)
The Funding Corporation noted that there are registered definitive
Farm Credit securities outstanding and that registered definitive
securities may be issued in the future. Thus, the Funding Corporation
suggested that the reference to ``bearer-definitive form'' in
Sec. 615.5451(c) be replaced with a more generic reference to
``definitive form,'' which would encompass both bearer and registered
definitive form. Similarly, the Funding Corporation suggested deletion
of the term ``bearer'' in Sec. 615.5457(c). The FCA agrees that
regulatory references to definitive securities should not be limited to
bearer securities and is adding the phrase ``either registered or''
preceding the term ``bearer'' in both sections. In Sec. 615.5451(c),
this broader language authorizes Farm Credit securities to be issued in
either registered or bearer form, and in Sec. 615.5457(c), it permits
Farm Credit securities being withdrawn from the Book-entry System to be
converted into definitive securities and issued in either registered or
bearer form to the extent permitted by the applicable securities
documentation. As amended, this language is consistent with Treasury's
in 31 CFR 306.117(d).
Section 615.5457(a)
The Funding Corporation requested clarification regarding the
process for withdrawing eligible securities from the Book-entry System.
Specifically, the Funding Corporation asked who requests that the
securities be withdrawn and to whom the request is submitted.
The FCA's regulations on withdrawal of eligible book-entry
securities for conversion to definitive form are modeled after
Treasury's regulations at 31 CFR 306.117. Consistent with the TRADES
regulations, requests for withdrawal and conversion of eligible book-
entry securities could only be made to a Federal Reserve Bank through a
participant as defined in the regulations. Thus an investor's request
for withdrawal and conversion of eligible book-entry securities would
proceed through the chain of the investor's financial intermediaries to
a participant. In turn, the participant would transmit the withdrawal
and conversion request to the Federal Reserve Bank, which would convert
the book-entry securities into definitive securities and deliver them
in accordance with the participant's instructions.
Section 615.5457(d)
The terms of certain issuances of Farm Credit securities provide
for the redemption of such securities, either in whole or in part, at
specified times prior to maturity. Since there may thus be more than
one call date that applies to a particular issue of Farm Credit
securities, the Funding Corporation requested clarification of which
call date applies when requests to withdraw eligible book-entry
securities are made. In response to this comment, the FCA inserts the
term ``the applicable'' preceding the term ``call date'' to clarify
that eligible book-entry securities may be converted to definitive
securities only before the call date applicable to such securities. The
amount of advance notice required for conversion requests to be honored
is controlled by the securities documentation and Federal Reserve Bank
Operating Circulars.
New Sec. 615.5460(c)
In response to the Funding Corporation's comment suggesting that
there should be more explicit authority in the regulations for
conversion of definitive securities into book-entry securities, the FCA
has added new Sec. 615.5460(c). New Sec. 615.5460(c) states that
definitive Farm Credit securities may be converted to book-entry form
in accordance with the terms of the applicable securities documentation
and Federal Reserve Bank Operating Circular. This new provision
complements the existing references in
[[Page 53229]]
Sec. Sec. 615.5456 and 615.5462 to conversion of definitive securities
to book-entry form.
Regulations Applicable to Securities Converted From Book-Entry to
Definitive Form
The Funding Corporation requested clarification as to which of the
regulations in subpart O of part 615 apply to securities converted from
book-entry to definitive form. In general, unless limited by their
terms, the definitions in Sec. 615.5450 apply to definitive securities,
whether original issue or converted from book-entry. The conversion
authority in Secs. 615.5456 and 615.5457 covers the conversion process
and related matters. Because Secs. 615.5461 and 615.5462 apply
specifically to lost and stolen definitive securities and the
restrictive endorsement of bearer definitive securities, their
requirements would apply to definitive securities converted from book-
entry form. Converted securities also are subject to applicable
securities documentation and any other provisions of law that may be
applicable to the issuance, maintenance, and transfer of definitive
securities.
The Funding Corporation also inquired whether converted securities
are subject to 31 CFR part 306 of Treasury regulations, which sets
forth general regulations governing treatment of definitive U.S.
securities. Farm Credit securities are not U.S. securities and
therefore are not subject to 31 CFR part 306. However, where
appropriate and not inconsistent with FCA regulations, the Farm Credit
banks may specify in their securities documentation that maintenance,
transfer, and other procedures relating to definitive Farm Credit
securities will be the same as those applicable to Treasury securities.
References to the United States
Treasury suggested to the FCA and other GSE regulators that their
book-entry regulations omit references to the United States wherever
possible to avoid any potential confusion regarding the liability of
the United States for GSE securities. For this reason, the FCA is
removing certain references to the United States in Secs. 615.5452(a),
615.5454(c), and 615.5455(a). As the preamble to the interim
regulations noted, 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 Act.
List of Subjects in 12 CFR Part 615
Accounting, Agriculture, Banks, Banking, Government securities,
Investments, and Rural areas.
For the reasons stated in the interim rule release, supplemented by
the above analysis and discussion, the FCA Board adopts as final with
technical changes the interim rule amending Part 615 published at 61 FR
67188, Dec. 20, 1996, governing book-entry procedures for Farm Credit,
FAC, and Farmer Mac securities. The effective date of this rule remains
January 1, 1997, except that the technical amendments adopted herein
are effective 30 days after publication during which either or both
Houses of Congress are in session. A notice of effective date for the
technical amendments will be published in the Federal Register.
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, 8.3, 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.
Subpart O--Book-entry Procedures for Farm Credit Securities
2. Section 615.5450 is amended by revising paragraph (h) to read as
follows:
Sec. 615.5450 Definitions.
* * * * *
(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), respectively, of
the Act, or laws repealed thereby.
* * * * *
3. Section 615.5451 is amended by revising paragraph (c) to read as
follows:
Sec. 615.5451 Book-entry and definitive securities.
* * * * *
(c) Consolidated and Systemwide securities also may be issued in
either registered or bearer definitive form.
4. Section 615.5452 is amended by revising the section heading and
the introductory text of paragraphs (a)(1) and (a)(2) to read as
follows:
Sec. 615.5452 Law governing rights and obligations of Federal Reserve
Banks, Farm Credit banks, and Funding Corporation; rights of any person
against Federal Reserve Banks, Farm Credit banks, and Funding
Corporation.
(a) * * *
(1) The rights and obligations of the Farm Credit banks, the
Funding Corporation, and the Federal Reserve Banks with respect to:
* * * * *
(2) The rights of any person, including a participant, against the
Farm Credit banks, the Funding Corporation, and the Federal Reserve
Banks with respect to:
* * * * *
5. Section 615.5454 is amended by revising paragraph (c)(1) to read
as follows:
Sec. 615.5454 Creation of participant's security entitlement; security
interests.
* * * * *
(c)(1) The Farm Credit banks, the Funding Corporation, 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.
* * * * *
6. Section 615.5455 is amended by revising paragraph (a) to read as
follows:
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
[[Page 53230]]
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 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.
* * * * *
7. Section 615.5457 is amended by revising paragraphs (c) and (d)
to read as follows:
Sec. 615.5457 Withdrawal of eligible book-entry securities for
conversion to definitive form.
* * * * *
(c) Farm Credit securities which are to be delivered upon
withdrawal may be issued in either registered or 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 the applicable date of call of
the Farm Credit securities.
8. Section 615.5460 is amended by adding a new paragraph (c) to
read as follows:
Sec. 615.5460 Additional provisions.
* * * * *
(c) Conversion of definitive securities into book-entry securities.
Definitive Farm Credit securities may be converted to book-entry form
in accordance with the terms of the applicable securities documentation
and Federal Reserve Operating Circular.
Dated: October 3, 1997.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 97-26999 Filed 10-10-97; 8:45 am]
BILLING CODE 6705-01-P