[Federal Register Volume 63, Number 44 (Friday, March 6, 1998)]
[Rules and Regulations]
[Pages 11354-11356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5928]



[[Page 11353]]

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Part VI





Department of the Treasury





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Fiscal Service



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31 CFR Part 358



Regulations Governing CUBES (Coupons Under Book-Entry Safekeeping); and 
Bearer Corpora Conversion System (BECCS); Opening of Programs; Final 
Rule and Notice

  Federal Register / Vol. 63, No. 44 / Friday, March 6, 1998 / Rules 
and Regulations  

[[Page 11354]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 358


Regulations Governing CUBES (Coupons Under Book-Entry 
Safekeeping)

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the 
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 the 
CUBES (Coupons Under Book-Entry Safekeeping) program. The amendment 
provides a method to convert United States Treasury bearer securities 
that have been stripped of all non-callable coupons (stripped bearer 
corpora) to book-entry accounts. Stripped bearer corpora will be held 
in BECCS (Bearer Corpora Conversion System). Stripped coupons will 
continue to be held in CUBES. The amendment benefits investors in two 
ways: First, conversion of bearer securities to book-entry form 
provides a safe alternative to storage and accounting burdens 
associated with physical storage, and second, conversion eliminates the 
risk of loss or destruction of physical securities.

EFFECTIVE DATE: March 6, 1998.

FOR FURTHER INFORMATION CONTACT: Maureen Parker, Director, Division of 
Securities Systems, Bureau of the Public Debt (304) 480-7761; 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 CUBES by adding a new program, BECCS, that 
provides for the conversion of United States Treasury stripped bearer 
corpora to book-entry.
    To reflect the expanded scope of part 358, the Department has 
changed its title to Regulations Governing Book-Entry Conversion of 
Detached Bearer Coupons and Bearer Corpora. The amendment does the 
following:
    (a) eliminates the Appendix and moves the terms and conditions 
formerly contained in the Appendix into the part;
    (b) updates the terms and conditions governing conversions of 
coupons that occur after the effective date of this rule;
    (c) provides the terms and conditions for the conversion of bearer 
corpora to BECCS;
    (d) eliminates provisions of the regulations that refer to the 
maintenance of CUBES after conversion; and
    (e) shortens the notice requirement for openings of the CUBES 
program from two months to not less than 30 calendar days.
    Previously, in order to submit bearer coupons for conversion to 
CUBES, a depository institution was required to sign an ``Agreement to 
the Terms and Conditions Governing CUBES''. This rule deletes the 
requirement for individual written agreements. The written agreements 
will continue to apply to the conversion of coupons submitted under 
openings of the CUBES program prior to the effective date of this rule.
    The provisions formerly contained in the written agreement have 
been updated and are now contained in the part. Some of the provisions 
applied to systems which are obsolete, and have been deleted. 
Provisions that applied to the maintenance of CUBES after conversion 
have been eliminated as redundant, since, after conversion to book-
entry, CUBES and BECCS are maintained in the commercial book-entry 
system (also referred to as the Treasury Reserve/Automated Debt Entry 
System or TRADES) governed by the provisions of 31 CFR part 357, 
subpart B. Among the provisions eliminated as redundant are those 
covering the fees for transfers occurring after conversion.
    With BECCS Treasury will accept for conversion United States 
Treasury bearer corpora, extending book-entry conversion to include all 
United States Treasury detached bearer coupons and bearer corpora. A 
bearer corpus that is subject to call and that is submitted with all 
associated callable coupons will be transferable within BECCS. The 
associated callable coupons will be linked with the BECCS security. If 
a callable bearer corpus is submitted minus one or more associated 
callable coupons, the corpus will be converted to a non-transferable 
book-entry security within BECCS, and each callable coupon submitted 
will be converted to a non-transferable coupon within CUBES.
    In the event that the United States suffers a loss as a result of a 
missing callable coupon, the submitting depository institution will be 
required to indemnify the United States against the loss. The 
indemnification will only apply in the event that a security is called. 
Indemnification is consistent with the current policy of redemption of 
called bearer instruments missing associated callable coupons.
    Fees will be charged for the conversion of detached bearer coupons 
and bearer corpora. A notice of applicable fees will be published in 
the Federal Register. A separate fee will be charged for each coupon 
and each corpus conversion transaction processed. A corpus submitted 
with all associated callable coupons will be charged one conversion 
transaction fee. A corpus submitted minus one or more associated 
callable coupons will be charged a transaction fee for the conversion 
of the corpus and a transaction fee for each separate callable coupon 
converted. Each non-callable coupon submitted will be charged a 
conversion transaction fee. The fee for any coupon or corpus that is 
rejected by the Department, for whatever reason, is non-refundable.
    The CUBES system has been in existence for a number of years and 
participants are familiar with the system and its requirements. 
Accordingly, a two month notice is no longer considered necessary. The 
notice requirement for openings of the CUBES and BECCS systems has been 
reduced to not less than 30 calendar days prior to the opening.

Procedural Requirements

    This final rule does not meet the criteria for a ``significant 
regulatory action,'' pursuant to Executive Order 12866.
    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 collections of information contained in this final 
rule. Therefore, the Paperwork Reduction Act does not apply.

List of Subjects in 31 CFR Part 358

    Federal Reserve System, Government securities.

    Dated: March 3, 1998.
Donald V. Hammond,
Acting Fiscal Assistant Secretary.

    For the reasons set out in the preamble, 31 CFR part 358 is revised 
to read as follows:

[[Page 11355]]

PART 358-- REGULATIONS GOVERNING BOOK-ENTRY CONVERSION OF DETACHED 
BEARER COUPONS AND BEARER CORPORA

Sec.
358.0  Applicability.
358.1  Definitions.
358.2  Governing regulations.
358.3  Securities not eligible for conversion.
358.4  Transferability.
358.5  Submissions of detached bearer coupons and bearer corpora.
358.6  Delivery of detached bearer coupons and bearer corpora.
358.7  Fees for conversion transactions.
358.8  Crediting of amounts less than one dollar.
358.9  Authority of depository institution.
358.10  Adjustments to or rejection of securities.
358.11  Audit and verification of securities.
358.12  Separate maintenance of accounts.
358.13  Processing against master accounts.
358.14  Program prohibitions.
358.15  Authority of Federal Reserve Banks.
358.16  Limitation of liability.
358.17  Indemnification.
358.18  Waiver of regulations.
358.19  Supplements, amendments or revisions.

    Authority: 12 U.S.C. 391; 31 U.S.C. Ch. 31.


Sec. 358.0  Applicability.

    (a) These regulations apply to the conversion of United States 
Treasury detached bearer coupons and bearer corpora to book-entry form. 
These instruments are accepted from depository institutions for 
conversion under the Coupons Under Book Entry Safekeeping program 
(CUBES) and Bearer Corpora Conversion System (BECCS) program during 
specified time periods. The Department of the Treasury (Department or 
Treasury) will determine the time periods during which detached bearer 
coupons and bearer corpora will be accepted for conversion into book-
entry form, and the fees applicable to conversion. The time periods and 
fees will be announced in the Federal Register no less than 30 calendar 
days prior to the date such instruments may be presented. Presentment 
shall be to the Federal Reserve Bank of New York in accordance with a 
schedule provided by the Federal Reserve Bank of New York.
    (b) For coupons converted after the effective date of this rule, 
these regulations supersede the terms and conditions governing CUBES 
set forth in the written ``Agreements to the Terms and Conditions 
Governing CUBES'' signed by those depository institutions that 
previously participated in the CUBES program.
    (c) Depository institutions that submit detached bearer coupons and 
bearer corpora are deemed to agree to the terms and conditions set 
forth in this part and any other requirements that may be prescribed by 
the Department or the Federal Reserve Bank of New York.


Sec. 358.1  Definitions.

    In this part, unless the context indicates otherwise:
    BECCS refers to the Treasury's Bearer Corpora Conversion System. A 
BECCS security refers to a United States Treasury definitive bearer 
bond held in BECCS.
    Callable refers to a United States Treasury bond subject to call, 
at the option of the Secretary, before maturity in accordance with the 
terms and conditions of its offering. Coupons associated with a 
callable bond that are due after the date upon which the bond is 
subject to call are callable coupons.
    Corpus (plural corpora) refers to the principal portion of a United 
States Treasury definitive bearer bond.
    Coupon refers to a definitive bearer interest instrument associated 
with a United States Treasury definitive bearer bond.
    CUBES refers to the Treasury's Coupons Under Book-Entry Safekeeping 
program. A CUBES security is a definitive coupon detached from a United 
States Treasury bond and held in CUBES.
    Depository institution means an entity described in section 19(b) 
of the Federal Reserve Act (12 U.S.C. 461(b)).
    Federal Reserve Bank or Reserve Bank means a Federal Reserve Bank 
or Branch.
    Non-callable refers to a United States Treasury bond not subject to 
call before maturity. Non-callable coupons are coupons associated with 
a non-callable bond, and coupons associated with a callable bond that 
are due on or before the date upon which the callable bond is subject 
to call.
    Non-transferable means that the ownership of a security held in 
BECCS or CUBES may not be transferred, pursuant to the provisions of 
section 358.4 of this part.
    Transferable means that the ownership of a security held in BECCS 
or CUBES may be transferred, pursuant to the provisions of Sec. 358.4 
of this part.


Sec. 358.2  Governing regulations.

    CUBES and BECCS securities are deemed to be securities for purposes 
of, and upon their conversion to book-entry are governed by, subparts 
A, B, and D of part 357 of this chapter. Notwithstanding the provisions 
of part 357 of this chapter, certain CUBES and BECCS securities are 
non-transferable, pursuant to Sec. 358.4 of this part.


Sec. 358.3  Securities not eligible for conversion.

    (a) Detached bearer coupons and bearer corpora that are submitted 
within 30 days of their maturity date or, if the call provision has 
been invoked, within 30 days of their call date, will not be accepted 
for conversion.
    (b) Bearer corpora with a maturity date on or before November 15, 
1998, will not be accepted for conversion.


Sec. 358.4  Transferability.

    In order for a callable corpus to be eligible for conversion to a 
transferable BECCS security all associated callable coupons must be 
submitted with the corpus. These callable coupons will be linked with 
the corpus within BECCS when converted. Once the coupons are linked to 
the corpus, they may not be separately transferred. If all of the 
callable coupons associated with the corpus are not submitted with the 
corpus, the corpus will be converted to a non-transferable BECCS 
security, and the remaining callable coupons submitted with the corpus 
will be converted to individual non-transferable CUBES securities. A 
corpus that is not subject to call will be converted to a transferable 
BECCS security. Non-callable coupons will be converted to transferable 
CUBES securities.


Sec. 358.5  Submissions of detached bearer coupons and bearer corpora.

    (a) Detached bearer coupons and bearer corpora must be submitted to 
the Federal Reserve Bank of New York in accordance with Federal Reserve 
Bank of New York procedures and must be accompanied by an approved 
form, executed by an authorized officer of the submitting depository 
institution.
    (b) Until verified by the Department, submitted detached bearer 
coupons and bearer corpora will be subject to rejection or adjustment.


Sec. 358.6  Delivery of detached bearer coupons and bearer corpora.

    The depository institution shall bear the expense and assume the 
risk of loss associated with the delivery of the detached bearer 
coupons and bearer corpora to the Federal Reserve Bank of New York. The 
United States shall bear the expense and assume the risk of loss 
associated with the delivery of the submitted detached bearer coupons 
and bearer corpora between the Federal Reserve Bank of New York and the 
Department. The depository institution shall bear the expense and 
assume the risk of loss associated with the delivery of any detached 
bearer coupons and bearer corpora that are returned to the depository 
institution.

[[Page 11356]]

Sec. 358.7  Fees for conversion transactions.

    The depository institution will pay a fee for each CUBES and BECCS 
conversion transaction processed. The fees for conversion transactions 
will be published in the Federal Register prior to the start of the 
initial conversion period. A corpus subject to call that is submitted 
with all of its associated callable coupons will be considered a single 
conversion transaction and will be charged a single fee. If one or more 
of the associated callable coupons are not submitted with the corpus, 
the conversion of each callable coupon submitted and the corpus will be 
considered a separate conversion transaction and will be charged a 
separate fee. Each non-callable coupon submitted will be considered a 
separate conversion transaction and will be charged a separate fee. The 
fee for any conversion transaction that is rejected by the Department 
for any reason is non-refundable.


Sec. 358.8  Crediting of amounts less than one dollar.

    Upon the conversion of coupons to CUBES, amounts of less than one 
dollar in the aggregate per CUBES CUSIP will not be credited to the 
account of the depository institution.


Sec. 358.9  Authority of depository institution.

    (a) Submission of detached bearer coupons and bearer corpora to the 
Federal Reserve Bank of New York for conversion to book-entry accounts 
under the CUBES and BECCS programs constitutes a representation by the 
depository institution that it has authority to convert the coupons and 
corpora to book-entry form.
    (b) Neither the Department nor the Federal Reserve Bank of New York 
shall be liable if the depository institution has no authority to 
convert the detached bearer coupons and bearer corpora to book-entry 
form or to take other actions in respect to book-entry accounts in 
CUBES and BECCS.
    (c) Neither the Department nor the Federal Reserve Bank of New York 
shall be liable for any loss incurred by the depository institution 
which may result from the failure of the depository institution to 
properly follow the procedures provided by the Federal Reserve Bank of 
New York.


Sec. 358.10  Adjustments to or rejection of securities.

    In the event that the Department makes an adjustment to or rejects 
all or part of the submitted securities, the Federal Reserve Bank of 
New York will instruct the depository institution to transfer CUBES or 
BECCS securities of the same payment date and face value from the 
depository institution's account to the Federal Reserve Bank of New 
York. If no such CUBES or BECCS securities exist in the depository 
institution's account, the Federal Reserve Bank of New York will 
instruct the depository institution as to how an adjustment will be 
made. In the event that the depository institution fails to comply with 
the instructions of the Federal Reserve Bank of New York within five 
(5) business days of receipt of the instructions, the Federal Reserve 
Bank of New York reserves the right to debit the master account of the 
depository institution for the face value of the rejected detached 
bearer coupons and bearer corpora. By the submission of the detached 
bearer coupons and bearer corpora, the depository institution is deemed 
to agree to this debit.


Sec. 358.11  Audit and verification of securities.

    After processing and initial verification, the Federal Reserve Bank 
of New York will credit the securities accepted to the depository 
institution's book-entry account, establishing a securities entitlement 
in TRADES pursuant to 31 CFR part 357 subpart B. Final verification by 
the Department will be accomplished within ten (10) business days of 
receipt of the detached bearer coupons and bearer corpora at the 
Department. The depository institution shall not trade in the 
securities prior to final verification. If at any time after this ten 
(10) day period the Department determines that the security was 
improperly credited to the CUBES or BECCS account of the depository 
institution, such as in the case of a previously undetected counterfeit 
security, the Department reserves the right to adjust the CUBES or 
BECCS account.


Sec. 358.12  Separate maintenance of accounts.

    CUBES and BECCS accounts will be maintained separately from 
accounts maintained in Treasury's STRIPS (Separate Trading of 
Registered Interest and Principal of Securities) program.


Sec. 358.13  Processing against master accounts.

    The depository institution agrees that all charges associated with 
its CUBES and BECCS accounts, including the conversion fee, will be 
processed against its master account on the books of a Federal Reserve 
Bank.


Sec. 358.14  Program prohibitions.

    Once detached bearer coupons and bearer corpora have been converted 
to book-entry form, reconversion to physical form is prohibited. The 
reconstitution of a BECCS security with CUBES securities or any 
combination of Treasury obligations is prohibited.


Sec. 358.15  Authority of Federal Reserve Banks.

    The Federal Reserve Bank of New York is hereby authorized as fiscal 
agent of the United States to perform functions with respect to this 
part.


Sec. 358.16  Limitation of liability.

    Except as otherwise provided by regulation, circular, or written 
agreement, the Federal Reserve Bank of New York shall be liable in 
connection with any action taken or omission by it only for its failure 
to exercise ordinary care. In no event shall the Federal Reserve Bank 
of New York or the Department have or assume any responsibility to any 
party except the sending and receiving depository institutions involved 
in a CUBES or BECCS transaction. In no event shall the Federal Reserve 
Bank of New York or the Department assume any responsibility, in 
connection with a CUBES or BECCS transaction, for the insolvency, 
neglect, misconduct, mistake or default of another bank or person, 
including the immediate participants.


Sec. 358.17  Indemnification.

    The submitting depository institution shall indemnify the United 
States against any loss which may occur as a result of the conversion 
of a bearer corpus missing one or more associated callable coupons.


Sec. 358.18  Waiver of regulations.

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


Sec. 358.19  Supplements, amendments or revisions.

    The Secretary may, at any time, prescribe additional supplemental, 
amendatory or revised regulations with respect to CUBES and BECCS.

[FR Doc. 98-5928 Filed 3-5-98; 8:45 am]
BILLING CODE 4810-39-P