[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Rules and Regulations]
[Pages 8057-8062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4070]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 32 / Wednesday, February 18, 1998 / 
Rules and Regulations  

[[Page 8057]]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 910 and 912

[No. 98-03]
RIN 3069-AA54


Regulations Governing Book-Entry Federal Home Loan Bank 
Securities

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board is adopting a final rule 
amending its regulations governing procedures for maintaining book-
entry (uncertificated) Federal Home Loan Bank securities within the 
Federal Reserve Banks' system of accounts to eliminate the need to 
treat such securities as if they were certificated securities and to 
conform more closely to the manner in which book-entry securities are 
treated under the laws of the majority of states (as set forth in 
Article 8 of the Uniform Commercial Code, as revised in 1994).

DATES: This final rule is effective on March 20, 1998.

FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Attorney-Advisor, 
Office of General Counsel, 202/408-2932, Federal Housing Finance Board, 
1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 3, 1996, the Federal Housing Finance Board (Finance 
Board) published, and requested public comments on, an interim rule 
that amended part 912 of the Finance Board's regulations, which governs 
Federal Home Loan Bank (FHLBank) securities maintained in book-entry 
(uncertificated) form. 61 FR 64021 (Dec. 3, 1996). The interim final 
rule was intended to update part 912 to reflect new developments in 
commercial law regarding ownership and other rights in uncertificated 
securities and, especially, to parallel the treatment of such 
securities under Article 8 of the Uniform Commercial Code (UCC), as 
amended in 1994.
    Paragraphs (b) and (c) of section 11 of the Federal Home Loan Bank 
Act (Bank Act) authorize the Finance Board to issue, upon such terms 
and conditions as it may establish, consolidated Federal Home Loan Bank 
(FHLBank) debentures or bonds (collectively, ``FHLBank securities''), 
which are the joint and several obligations of the twelve regional 
FHLBanks. See 12 U.S.C. 1431(b), (c). The Finance Board has set forth 
the terms and conditions regarding the issuance of FHLBank securities 
in part 910 of its regulations. 12 CFR part 910. Although, under the 
Bank Act, the Finance Board is designated as the ``issuer'' of FHLBank 
securities, it has delegated this issuance function, along with such 
other ministerial functions as the servicing of the FHLBank securities, 
to the Office of Finance (OF) (a joint office of the FHLBanks) pursuant 
to section 2B(b)(1) of the Bank Act, 12 U.S.C. 1422b(b)(1), part 941 of 
the Finance Board's regulations, 12 CFR part 941, and periodic 
resolutions of the Board of Directors of the Finance Board.
    Since 1977, the OF has issued domestic FHLBank securities 
exclusively in ``book-entry'' form; that is, as uncertificated 
securities recorded as entries on the computerized system of accounts 
maintained by the Federal Reserve Banks (Reserve Banks). Under this 
arrangement, the Reserves Banks, acting as fiscal agents of the Finance 
Board, the FHLBanks and the OF: issue book-entry FHLBank securities; 
maintain related book-entry accounts; pay principal and interest due on 
book-entry FHLBank securities; and otherwise service such FHLBank 
securities.
    Prior to the adoption of the interim final rule in 1996, the rights 
and obligations of the FHLBanks, the Reserve Banks, and other persons 
with respect to the issuance and servicing of book-entry FHLBank 
securities, and the operation of the associated FHLBank book-entry 
system, were governed by regulatory text that had been promulgated by 
the former Federal Home Loan Bank Board (FHLBB)--the Finance Board's 
predecessor as regulator of the FHLBanks in 1973. See 12 CFR 506a 
(1974); 38 FR 10969 (May 3, 1973) (proposed rule); 38 FR 26355 (Sept. 
20, 1973) (final rule). These regulations, and those of other 
government sponsored enterprises (GSEs) having similar book-entry 
arrangements with the Reserve Banks, were patterned after former part 
306 of the regulations of the Department of Treasury, 31 CFR part 306 
(1996), which governed Reserve Bank book-entry procedures for Treasury 
securities.
    By 1996, the legal concepts upon which former part 912 were based, 
like those underlying the analogous Department of Treasury regulations, 
had become outdated. In the early 1970s, when these regulations were 
developed, the United States government securities market was in a 
state of transition between one in which most securities existed in 
definitive form (that is, the traditional certificate) to one in which 
securities are maintained almost exclusively within computerized book-
entry systems. Corresponding law (including state laws based on the 
UCC) at the time former part 912 was promulgated assumed that 
possession and delivery of physical certificates were the key elements 
in the securities holding system. This led the Department of Treasury, 
the FHLBB, and other GSE regulators to premise their regulations upon 
the ``bearer-definitive security fiction,'' which deemed each book-
entry security to be the equivalent of a bearer-definitive security. 
The shortcomings of the bearer-definitive security fiction became 
increasingly apparent over the years, as the rules based on this 
fiction were found to leave many unanswered questions regarding 
transactions and rights in book-entry securities.
    In addition, the rules proved inadequate to deal with the tiered 
system of accounts in which book-entry securities are held. Each 
interest in a book-entry security must be credited to the account of a 
Reserve Bank ``participant''--that is, an entity having an account with 
a Reserve Bank. Persons or entities, including securities broker-
dealers, who wish to acquire an interest in book-entry securities, but 
who do not have an account with a Reserve Bank, must do so through a 
Reserve Bank participant. Non-participant broker-dealers who deal in 
book-entry securities through a participant may, in turn, hold these

[[Page 8058]]

securities for other persons or entities who otherwise lack access to 
the securities markets. Accordingly, a Reserve Bank most likely will 
have no information regarding the beneficial owners of interests in 
book-entry securities, but, instead, will consider the participants in 
whose Reserve Bank accounts the book-entry securities are held to be 
the ``owners'' of the interests therein.
    In 1994, the American Law Institute and the National Conference of 
Commissioners on Uniform State Laws ratified a revised version of 
Article 8 of the UCC (Revised Article 8), which addresses investment 
securities. Thereafter, in 1996, the Department of Treasury amended its 
regulations governing the book-entry system for Treasury securities 
(called ``Treasury/Reserve Automated Debt Entry System'' or ``TRADES'') 
to incorporate many of the concepts regarding transactions and rights 
in book-entry securities set forth in Revised Article 8 and to defer to 
state law modeled after Revised Article 8 in many circumstances. See 61 
FR 43626 (Aug. 23, 1996) (final rule); 61 FR 8420 (Mar. 4, 1996) 
(proposed rule). Shortly thereafter, in order to ensure uniformity in 
the treatment of book-entry government securities, the regulators of 
GSEs that maintain book-entry securities at Reserve Banks also 
promulgated new regulations to govern their respective book-entry 
systems. These regulations parallel the new TRADES regulation, with 
modifications appropriate to the particular GSE and government 
securities to which such regulations apply.
    As part of this effort, the Finance Board adopted an interim final 
rule amending part 912 of its regulations, governing book-entry FHLBank 
securities, in December 1996. The Finance Board chose to act through an 
interim final rule so that new part 912 would become effective 
simultaneously with the new TRADES regulation on January 1, 1997, while 
also giving the agency an opportunity to solicit comments from the 
public and to give further consideration to some minor issues relating 
to various aspects of the rule.

II. Analysis of the Final Rule

    The Finance Board received no comments on the interim final rule 
and, therefore, has made no changes thereto in response to public 
comment. However, pursuant to its own review, the Finance Board has 
incorporated some minor clarifications into the final rule without 
altering the substance of the regulation. In the final rule, 
Sec. 910.3, which cross-references part 912, has been modified to 
replace the commas surrounding the phrase ``regarding book-entry 
procedure'' with parentheses. This change has been made in order to 
make clear that all Department of Treasury regulations governing 
transactions in United States securities except those governing book-
entry securities shall apply to FHLBank securities. As this section 
appeared in the interim final rule, it was possible to read the first 
sentence as providing that the Department of Treasury's regulations 
governing book-entry securities were to be incorporated into part 910.
    In the final rule, the definition of ``Entitlement Holder'' and 
``Participant,'' which are set forth in Sec. 912.1(c) and Sec. 912.1(j) 
(designated as Sec. 912.1(h) in the interim final rule), respectively, 
have been amended to include FHLBanks, which are permitted by statute 
both to hold FHLBank securities and to maintain accounts with a reserve 
Bank. See 12 U.S.C. 1431(h), 1435. In the interim final rule, these 
definitions encompassed only entities meeting the definition of a 
``Person,'' from which the FHLBanks are expressly excluded.
    The majority of changes made have been incorporated in order to 
reflect more expressly in the regulation the rights and obligations of 
the Finance Board as statutory issuer of FHLBank securities and of the 
OF as agent for the Finance Board or the FHLBanks with respect to the 
securities. In this vein, Sec. 912.1(d) has been amended to make clear 
that, under section 11 of the Bank Act, the Finance Board is considered 
to be the issuer of FHLBank securities. See 12 U.S.C. 1431. Section 
912.1(e) has been amended to refer to the OF, instead of the FHLBanks, 
in order make clear that, in issuing and maintaining FHLBank securities 
in its book-entry system, a Federal Reserve Bank acts as agent of the 
OF which, in turn, acts as agent for the Finance Board or the FHLBanks. 
In addition, definitions of ``Finance Board'' and ``Office of Finance'' 
have been added to Sec. 912.1 to permit the use of these terms within 
the substantive portion of the regulation. The definition of ``Office 
of Finance'' set forth in Sec. 912.1(i) makes clear that the OF acts as 
agent of the Finance Board when it issues book-entry FHLBank 
securities, but as agent of the FHLBanks when it performs any functions 
relating to the maintenance and servicing of these securities.
    Given the complex nature of the statutorily-mandated system under 
which FHLBank securities are issued and serviced, the rights and 
obligations of the Finance Board, the FHLBanks and the OF may overlap, 
or may be at times ambiguous, depending on the function at issue. 
Accordingly, all references to rights, obligations, or liabilities 
arising in connection with book-entry FHLBank securities which in the 
interim final rule referred only to the FHLBanks and the Reserve Banks 
have been amended in the final rule to refer to the FHLBanks, the 
Finance Board, the OF and the United States, in addition to the Reserve 
Banks. These changes affect Sec. 912.1(l) (which was designated as 
Sec. 912.1(j) in the interim final rule, defining the term ``person'' 
to exclude the foregoing entities), Sec. 912.2(a) (specifying the law 
governing rights and obligations regarding book-entry FHLBank 
securities), Sec. 912.5(a) (addressing obligations arising from the 
transfer of interests in book-entry FHLBank securities), and Sec. 912.7 
(addressing liabilities arising from transactions in book-entry FHLBank 
securities).
    In addition, in order to more accurately reflect the fact that the 
Reserve Banks deal with the OF--and not directly with the FHLBanks or 
the Finance Board (for whom the OF acts as agent)--in matters 
concerning the book-entry system, references to dealings with the 
Reserve Banks have been amended to refer to the OF, instead of to the 
FHLBanks. This change affects Sec. 912.2(a) (addressing procedures 
established to govern book-entry transactions) and Sec. 912.6(a) 
(addressing the authority of the Reserve Banks as fiscal agents).
    Finally, the Finance Board has amended the interim final rule by 
adding a new paragraph (a) to Sec. 912.8 and designating the existing 
text as Sec. 912.8(b). New Sec. 912.8(a) has been added in order to 
conform to common practice among private parties and other GSEs by 
authorizing the OF to require an indemnity bond of a party if, in its 
judgment, or in the judgment of the Finance Board or FHLBanks, such 
action is necessary to protect the interests of any of these entities.
    In summary, although the final rule is intended to provide a legal 
framework for all book-entry FHLBank securities, it is not a 
codification of all laws that could affect interests in book-entry 
FHLBank securities. In general, the regulation provides that (with some 
exceptions regarding security interests) Federal law will govern the 
rights and obligations of the FHLBanks, the Finance Board, the OF, the 
United States and the Reserve Banks arising from book-entry FHLBank 
securities and the book-entry system, and that state law (to the extent 
that states have adopted Revised Article 8) will govern all other 
rights and obligations. The regulation also sets forth the substantive

[[Page 8059]]

Federal law that applies to the rights and obligations of the FHLBanks, 
the Finance Board, the OF, the United States and the Reserve Banks 
arising from book-entry FHLBank securities and the book-entry system. 
The most prominent aspect of the substantive law set forth therein is 
that none of the aforementioned entities is liable to persons having or 
claiming interests in book-entry securities that are below the 
participant level in the tiered system of ownership; that is, the 
FHLBanks, the Finance Board, the OF, the United States and the Reserve 
Banks need only recognize Reserve Bank participants as holders of 
interests in book-entry FHLBank securities.

III. Procedural Requirements

    This final rule does not meet the criteria for a ``significant 
regulatory action'' under Executive Order 12866.
    Because the Finance Board adopted the changes to Sec. 910.3 and 
part 912 in the form of an interim final rule and not as a proposed 
rule, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601, 
et seq., do not apply.
    There are no collections of information contained in this final 
rule. Therefore, the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, 
et seq., does not apply.

List of Subjects

12 CFR Part 910

    Federal home loan banks, Government securities.

12 CFR Part 912

    Federal home loan banks, Federal Reserve System, Government 
securities, electronic funds transfer.

    Accordingly, the Federal Housing Finance Board hereby amends title 
12, chapter IX of the Code of Federal Regulations, as follows:

PART 910--CONSOLIDATED BONDS AND DEBENTURES

    1. The authority citation for part 910 continues to read as 
follows:

    Authority: 12 U.S.C. 1422b, 1431.

    2. Section 910.3 is revised to read as follows:


Sec. 910.3  Transactions in consolidated bonds.

    The general regulations of the Department of Treasury now or 
hereafter in force governing transactions in United States securities, 
except 31 CFR part 357 (regarding book-entry procedure), are hereby 
incorporated into this part, so far as applicable and as necessarily 
modified to relate to consolidated Federal Home Loan Bank bonds, as the 
regulations of the Board for similar transactions in consolidated 
Federal Home Loan Bank bonds. The book-entry procedure for consolidated 
Federal Home Loan Bank bonds is contained in part 912 of this 
subchapter.
    3. Part 912 is revised to read as follows:

PART 912--BOOK-ENTRY PROCEDURE FOR FEDERAL HOME LOAN BANK 
SECURITIES

Sec.
912.1  Definitions.
912.2  Law governing rights and obligations of Federal Home Loan 
Banks, Finance Board, Office of Finance, United States and Federal 
Reserve Banks; rights of any Person against Federal Home Loan Banks, 
Finance Board, Office of Finance, United States and Federal Reserve 
Banks.
912.3  Law governing other interests.
912.4  Creation of Participant's Security Entitlement; security 
interests.
912.5  Obligations of Federal Home Loan Banks and the Office of 
Finance; no Adverse Claims.
912.6  Authority of Federal Reserve Banks.
912.7  Liability of Federal Home Loan Banks, Finance Board, Office 
of Finance and Federal Reserve Banks.
912.8  Additional requirements; notice of attachment for Book-entry 
Federal Home Loan Bank Securities.
912.9  Reference to certain Department of Treasury commentary and 
determinations.
912.10  Obligations of United States with respect to Federal Home 
Loan Bank Securities.

    Authority: 12 U.S.C. 1422a, 1422b, 1431, 1435.


Sec. 912.1  Definitions.

    For purposes of this part, unless the context otherwise requires or 
indicates:
    (a) Adverse Claim means a claim that a claimant has a property 
interest in a Book-entry Federal Home Loan Bank 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 Federal Home Loan Bank Security means a Federal Home 
Loan Bank Security maintained in the book-entry system of the Federal 
Reserve Banks.
    (c) Entitlement Holder means a Person or a Federal Home Loan Bank 
to whose account an interest in a Book-entry Federal Home Loan Bank 
Security is credited on the records of a Securities Intermediary.
    (d) Federal Home Loan Bank Security means a consolidated bond, 
debenture, note, or other obligation of the Federal Home Loan Bank 
issued by the Finance Board under authority of section 11 of the 
Federal Home Loan Bank Act (12 U.S.C. 1431).
    (e) Federal Reserve Bank means a Federal Reserve Bank or branch, 
acting as fiscal agent for the Office of Finance, unless otherwise 
indicated.
    (f) 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.
    (g) Finance Board means the Federal Housing Finance Board.
    (h) 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.
    (i) Office of Finance means the Office of Finance established under 
part 941 of this chapter, acting as agent of the Finance Board in all 
matters relating to the issuance of Book-entry Federal Home Loan Bank 
Securities, or as agent of the Federal Home Loan Banks in the 
performance of all other necessary and proper functions relating to 
Book-entry Federal Home Loan Bank Securities, including the payment of 
principal and interest due thereon.
    (j) Participant means a Person or a Federal Home Loan Bank that 
maintains a Participant's Securities Account with a Federal Reserve 
Bank.
    (k) Participant's Securities Account means an account in the name 
of a Participant at a Federal Reserve Bank to which Book-entry Federal 
Home Loan Bank Securities held for a Participant are or may be 
credited.
    (l) Person 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 a Federal Home Loan Bank, the Finance Board, the Office of 
Finance, the United States, or a Federal Reserve Bank.
    (m) 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. 
Copies of this publication are available from the Executive Office of 
the American Law Institute, 4025 Chestnut Street, Philadelphia, PA 
19104, and the National Conference of Commissioners on Uniform State 
Laws, 676 North St. Clair Street, Suite 1700, Chicago, IL 60611.
    (n) Securities Intermediary means:
    (1) A Person that is registered as a ``clearing agency'' under the 
federal

[[Page 8060]]

securities laws; a Federal Reserve Bank; any other person that provides 
clearance or settlement services with respect to a Book-entry Federal 
Home Loan Bank 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, it 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.
    (o) Security Entitlement means the rights and property interest of 
an Entitlement Holder with respect to a Book-entry Federal Home Loan 
Bank Security.
    (p) 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.
    (q) Transfer Message means an instruction of a Participant to a 
Federal Reserve Bank to effect a transfer of a Book-entry Federal Home 
Loan Bank Security, as set forth in Federal Reserve Bank Operating 
Circulars.


Sec. 912.2  Law governing rights and obligations of Federal Home Loan 
Banks, Finance Board, Office of Finance, United States and Federal 
Reserve Banks; rights of any Person against Federal Home Loan Banks, 
Finance Board, Office of Finance, United States and Federal Reserve 
Banks.

    (a) Except as provided in paragraph (b) of this section, the rights 
and obligations of the Federal Home Loan Banks, the Finance Board, the 
Office of Finance, the United States and the Federal Reserve Banks with 
respect to: A Book-entry Federal Home Loan Bank Security or Security 
Entitlement and the operation of the Book-entry system, as it applies 
to Federal Home Loan Bank Securities; and the rights of any Person, 
including a Participant, against the Federal Home Loan Banks, the 
Finance Board, the Office of Finance, the United States and the Federal 
Reserve Banks with respect to: A Book-entry Federal Home Loan Bank 
Security or Security Entitlement and the operation of the Book-entry 
system, as it applies to Federal Home Loan Bank Securities; are 
governed solely by regulations of the Finance Board, including the 
regulations of this part 912, the applicable offering notice, 
applicable procedures established by the Office of Finance, and Federal 
Reserve Bank Operating Circulars.
    (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. 912.4(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. 912.4(c)(1), is governed by the law determined in the manner 
specified in Sec. 912.3.
    (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 the first sentence of paragraph 
(b) of this section shall be the law of that State as though Revised 
Article 8 had been adopted by that State.


Sec. 912.3  Law governing other interests.

    (a) To the extent not inconsistent with this part 912, 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, 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 Federal Home Loan Bank Book-entry Security is a Security 
Entitlement.


Sec. 912.4  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 Federal Home 
Loan Bank 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

[[Page 8061]]

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 (b), 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 Federal Home Loan Banks, the Finance Board, the Office 
of Finance, 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 a Security Entitlement 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 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 in a Security Entitlement, 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. 912.2(b) or Sec. 912.3. 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. 912.5  Obligations of the Federal Home Loan Banks and the Office 
of Finance; 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. 912.4(c)(1), for the purposes of this part 912, the Federal Home 
Loan Banks, the Office of Finance and the Federal Reserve Banks shall 
treat the Participant to whose Securities Account an interest in a 
Book-entry Federal Home Loan Bank 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 the Security, 
notwithstanding any information or notice to the contrary. Neither the 
Federal Home Loan Banks, the Finance Board, the Office of Finance, the 
United States, nor the Federal Reserve Banks are liable to a Person 
asserting or having an Adverse Claim to a Security Entitlement or to a 
Book-entry Federal Home Loan Bank Security in a Participant's 
Securities Account, including any such claim arising as a result of the 
transfer or disposition of a Book-entry Federal Home Loan Bank 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 Federal Home Loan Banks and the Office of 
Finance to make payments of interest and principal with respect to 
Book-entry Federal Home Loan Bank Securities is discharged at the time 
payment in the appropriate amount is made as follows:
    (1) Interest on Book-entry Federal Home Loan Bank Securities is 
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 Federal Home Loan Bank Securities are paid, either 
at maturity or upon redemption, 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 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 payment of a Book-entry Federal Home Loan Bank Security, 
unless otherwise expressly required.


Sec. 912.6  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Office of Finance: to perform functions with respect to the 
issuance of Book-entry Federal Home Loan Bank Securities, in accordance 
with the terms of the applicable offering notice and with procedures 
established by the Office of Finance; to service and maintain Book-
entry Federal Home Loan Bank Securities in accounts established for 
such purposes; to make payments of principal, interest and redemption 
premium (if any), as directed by the Office of Finance; to effect 
transfer of Book-entry Federal Home Loan Bank Securities between 
Participants' Securities Accounts as directed by the Participants; and 
to perform such other duties as fiscal agent as may be requested by the 
Office of Finance.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this part 912, governing the details of its handling 
of Book-entry Federal Home Loan Bank Securities, Security Entitlements, 
and the operation of the Book-entry system under this part 912.


Sec. 912.7  Liability of Federal Home Loan Banks, Finance Board, Office 
of Finance and Federal Reserve Banks.

    The Federal Home Loan Banks, the Finance Board, the Office of 
Finance and the Federal Reserve Banks may rely on the information 
provided in a tender, transaction request form, other transaction 
documentation, or Transfer Message, and are not required to verify the 
information. Neither the Federal Home Loan Banks, the Finance Board, 
the Office of Finance, the United States, nor the Federal Reserve Banks 
shall be liable for any action taken in accordance with the information 
set out in a tender, transaction request form, other transaction 
documentation, or Transfer Message, or evidence submitted in support 
thereof.


Sec. 912.8  Additional requirements; notice of attachment for Book-
entry Federal Home Loan Bank Securities.

    (a) Additional requirements. In any case or any class of cases 
arising under the regulations in this part 912, the Office of Finance 
may require such additional evidence and a bond of indemnity, with or 
without surety, as may in its judgment, or in the judgment of the 
Federal Home Loan Banks or the Finance Board, be necessary for the 
protection of the interests of the Federal

[[Page 8062]]

Home Loan Banks, the Finance Board, the Office of Finance or the United 
States.
    (b) Notice of attachment. 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. The regulations in 
this part 912 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. 912.9  Reference to certain Department of Treasury commentary and 
determinations.

    (a) The Department of Treasury TRADES Commentary (31 CFR part 357, 
appendix B) addressing the Department of Treasury regulations governing 
book-entry procedure for Treasury Securities is hereby referenced, so 
far as applicable and as necessarily modified to relate to Book-entry 
Federal Home Loan Bank Securities, as an interpretive aid to this part 
912.
    (b) Determinations of the Department of Treasury regarding whether 
a State shall be considered to have adopted Revised Article 8 for 
purposes of 31 CFR part 357, as published in the Federal Register or 
otherwise, shall also apply to this part 912.


Sec. 912.10  Obligations of United States with respect to Federal Home 
Loan Bank Securities.

    Federal Home Loan Bank Securities are not obligations of the United 
States and are not guaranteed by the United States.

    By the Board of Directors of the Federal Housing Finance Board

    Dated: January 21, 1998.
Bruce A. Morrison,
Chairman.
[FR Doc. 98-4070 Filed 2-17-98; 8:45 am]
BILLING CODE 6725-01-U