[Federal Register Volume 65, Number 178 (Wednesday, September 13, 2000)]
[Rules and Regulations]
[Pages 55400-55424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22531]



[[Page 55399]]

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Part IV





Department of the Treasury





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Fiscal Service



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31 CFR Part 344



U.S. Treasury Securities--State and Local Government Series; Interim 
Rule

  Federal Register / Vol. 65, No. 178 / Wednesday, September 13, 2000 / 
Rules and Regulations  

[[Page 55400]]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 344

[Department of the Treasury Circular, Public Debt Series No. 3-72]


U.S. Treasury Securities--State and Local Government Series

AGENCY: Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION: Interim rule with request for comments.

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SUMMARY: State and Local Government Series (SLGS) securities are 
offered to provide issuers of tax exempt securities with investments 
from any amounts that constitute gross proceeds of an issue, or assist 
in complying with applicable provisions of the Internal Revenue Code 
relating to the tax exemption.
    We're publishing an interim rule amending the rules to allow you to 
submit SLGS subscriptions over the Internet to the Division of Special 
Investments (DSI), Bureau of the Public Debt (Public Debt), Department 
of the Treasury (Treasury).
    Under the Government Paperwork Elimination Act (GPEA), executive 
agencies must generally provide, where practicable, for the optional 
use and acceptance of electronic documents, record keeping and 
signatures by October 2003.
    We are implementing the GPEA by offering SLGSafeSM, a secure site 
where Internet customers can submit subscriptions, change account 
information, and redeem securities.
    We've also rewritten this part in plain language.

DATES: Effective September 13, 2000. To be considered, comments must be 
received on or before November 13, 2000.

ADDRESSES: You can download this interim rule at the following World 
Wide Web address: http://www.publicdebt.treas.gov>. You may also 
inspect and copy this interim rule at: Treasury Department Library, 
Room 1428, Main Treasury Building, 1500 Pennsylvania Ave., NW., 
Washington, DC 20220. Before visiting the library, you must call (202) 
622-0990 for an appointment.
    Submit comments to Howard Stevens, Director, Division of Special 
Investments, Bureau of the Public Debt, Department of the Treasury, 200 
3rd St., P.O. Box 396, Parkersburg, WV 26101-0396 or by e-mail at: 
[email protected]>. See SUPPLEMENTARY INFORMATION for other 
information about electronic filing of comments.

FOR FURTHER INFORMATION CONTACT:
    Technical information: Howard Stevens, Director, Division of 
Special Investments, Bureau of the Public Debt, 200 3rd St., P.O. Box 
396, Parkersburg, WV 26106-0396, (304) 480-7752, 
www.publicdebt.treas.gov/spe/spe.htm> or [email protected]>.
    Legal information: Edward C. Gronseth, Deputy Chief Counsel, Office 
of the Chief Counsel, Bureau of the Public Debt, at (304) 480-3692, 
[email protected]> or Elizabeth S. Gracia, Attorney-Adviser, 
Office of the Chief Counsel, Bureau of the Public Debt, at (304) 480-
3692, [email protected]>.

SUPPLEMENTARY INFORMATION:

I. Electronic Access and Filing of Comments

    You may submit comments by sending electronic mail to: [email protected]">[email protected]>. Please identify the e-mail by the Federal Register 
citation and provide your full name and mailing address. Submitted 
comments will be available for public inspection and copying at DSI and 
the Treasury Library. Comment letters may be downloaded from http://www.publicdebt.treas. gov>.

II. Background

    This interim rule implements the last of a three-step process 
designed to improve the SLGS program. First, we centralized processing 
of SLGS securities in the Division of Special Investments (DSI), Bureau 
of the Public Debt (Public Debt), Department of the Treasury 
(Treasury). We published a final rule accomplishing the consolidation 
in the Federal Register, 60 FR 4502, Jan. 23, 1995.
    Second, we made SLGS more attractive to State and local government 
issuers of debt obligations. After soliciting comments from market 
participants in an Advanced Notice of Proposed Rulemaking, Federal 
Register, 61 FR 19002, April 30, 1996, we published the enhancements in 
the Federal Register, 61 FR 55690, Oct. 28, 1996.
    The third phase, the ability to file electronic subscriptions, was 
announced in a Proposed Rule published in the Federal Register, 61 FR 
39228, 39230, Jul. 26, 1996. This interim rule fulfills the requirement 
under the Government Paperwork Elimination Act (GPEA), Sec. 1701-1710, 
Pub. L. 105-277, 112 Stat. 2681-749 to 2681-751 (44 U.S.C. 3504 note), 
that Executive agencies provide for the option of electronic 
submissions instead of paper. Specifically, the interim rule gives you 
the option of subscribing for SLGS securities electronically over the 
Internet through SLGSafeSM.
    SLGSafe\SM\ is the secure site where Internet customers can submit 
subscriptions, change account information, and redeem securities. As 
further described in the SLGSafe\SM\ Internet User's Guide, owners and 
trustees can redeem, review, and inquire about their SLGS security 
holdings by using SLGSafe\SM\. SLGSafe\SM\ also reduces processing time 
and simplifies the subscription procedure by eliminating the time-
consuming paperwork required to manually complete and submit 
subscription forms. A major benefit is the enhanced retrieval of 
electronically stored information. You can view, download, and print 
reports from your SLGS securities portfolio. For example, SLGSafe\SM\ 
will provide a variety of reports, such as Future Payments by Date, 
Statement of Accounts and Statement of Holdings.
    Before you submit transactions through SLGSafe\SM\, we must approve 
your SLGSafe\SM\ Application for Internet Access. The Secretary of the 
Treasury (the Secretary) has the sole discretion to approve 
applications and to prioritize the enrollment of customers in 
SLGSafe\SM\. We will contact SLGS securities customers to schedule a 
commencement date for SLGSafe\SM\ use. Scheduling will aim to meet our 
goal of completing 50% of SLGS securities transactions electronically 
by September 2000, 85% by September 2001, and 100% by September 2002.
    If your SLGSafe\SM\ Application is approved, each user that you 
designate will receive a digital certificate and an authorization code 
in order to access SLGSafe\SM\. Designated individuals can submit 
subscriptions signed with an electronic signature over the Internet. 
SLGSafe\SM\ transactions constitute electronic messages that are 
governed by this part and 31 CFR part 370.
    This interim rule does not eliminate paper subscriptions. Non-
Internet subscriptions may be sent to us by various methods: fax, 
carrier service, U.S. Postal Service (certified or registered mail), or 
other means. Non-Internet customers will receive transaction 
confirmations by fax only if requested. However, if you take advantage 
of Internet delivery through SLGSafe\SM\, you will receive automatic 
confirmations of activity.
    The Summary of Amendments made in this interim rule, located in 
Section III, lists the amendments by section. Many of the amendments 
are plain

[[Page 55401]]

language clarifications that do not substantively change 31 CFR part 
344, Jul. 1, 1999. Amendments worth highlighting because of their 
substantive impact have been noted.
    We request your comments on SLGSafe\SM\. The ability to accept, 
process and distribute subscription information electronically was 
developed in response to our mutual need to manage book-entry holdings. 
We welcome your input on the functionality of SLGSafe\SM\, including 
the application process, the electronic submission of data and the 
reporting capabilities.
    Executive Order 12866 and the President's memorandum of June 1, 
1998, require us to write this interim rule in plain language. We 
invite your comments on how we can make the final rule easier to 
understand.

III. Summary of Amendments in Part 344

    All of the operating rules in the offering apply to electronic and 
paper transactions alike except for Sec. 344.3, which applies 
exclusively to SLGSafe\SM\ transactions. The ability to conduct 
electronic transactions in SLGSafe\SM\ is the most significant 
revision. For ease of reference, we've summarized other important 
changes from 31 CFR part 344, Jul. 1, 1999, in the following tables:

                     Subpart A--General Information
------------------------------------------------------------------------
                                 Jul. 1, 1999 CFR
     Interim rule CFR sec.             sec.          Summary of change
------------------------------------------------------------------------
344.0.........................  344.0............  We amended the
                                                    section headings of
                                                    the offering to be
                                                    consistent with our
                                                    regulations that
                                                    have been rewritten
                                                    in plain language.
------------------------------------------------------------------------
344.0(b)......................  344.10...........  We provided a
                                                    complete list of the
                                                    types of SLGS
                                                    securities currently
                                                    outstanding. We
                                                    added a reference to
                                                    the date that
                                                    special zero
                                                    interest securities
                                                    were discontinued.
------------------------------------------------------------------------
344.0(c)(1)...................  344.0(c).........  We clarified that the
                                                    denominations for
                                                    time deposit
                                                    securities are
                                                    issued in any whole
                                                    dollar amount
                                                    instead of in
                                                    increments of not
                                                    less than $1.00.
                                                    This is not a
                                                    substantive change.
------------------------------------------------------------------------
344.1.........................  344.0(b),          We consolidated the
                                 344.1(k),          terms used in this
                                 344.5(a)(3)        part into one
                                 (ii), (a)          section. To explain
                                 (4)(ii).           the interaction
                                                    between the
                                                    ``current Treasury
                                                    borrowing rate'' and
                                                    the ``SLGS rate,''
                                                    we revised the
                                                    definition of
                                                    ``current Treasury
                                                    borrowing rate'' and
                                                    added a definition
                                                    for ``SLGS rate.''
                                                    ``Current Treasury
                                                    borrowing rate'' is
                                                    redefined to mean
                                                    ``the prevailing
                                                    market rate, as
                                                    determined by
                                                    Treasury, for a
                                                    Treasury security
                                                    with the specified
                                                    period to maturity''
                                                    instead of the
                                                    applicable rate
                                                    shown in the SLGS
                                                    rate table for the
                                                    day we receive your
                                                    request for early
                                                    redemption, plus
                                                    five basis points.
                                                    ``SLGS rate'' means
                                                    ``the current
                                                    Treasury borrowing
                                                    rate on the day we
                                                    receive your
                                                    subscription, less 5
                                                    basis points, as
                                                    released daily by
                                                    Treasury in a SLGS
                                                    rate table.'' We
                                                    added a definition
                                                    for ``SLGS rate
                                                    table.'' The
                                                    synonymous terms
                                                    ``issuer'' and
                                                    ``government body''
                                                    have been replaced
                                                    with a definition
                                                    for ``issuer.'' We
                                                    also added a
                                                    definition for
                                                    ``we.''
------------------------------------------------------------------------
344.2(a) (2), (n).............  344.1(a), (g),     As for other
                                 (i) (2),           regulations that
                                 344.2(c) (1)-      apply to SLGS
                                 (2), 344.3(b)(3)   securities, part 306
                                 (iv), 344.7(b).    of this subchapter,
                                                    ``General
                                                    Regulations that
                                                    Apply to U.S.
                                                    Treasury
                                                    Securities,''
                                                    previously applied
                                                    to this part to the
                                                    extent applicable.
                                                    Appendix to subpart
                                                    E of part 306 of
                                                    this subchapter is
                                                    now specifically
                                                    cross-referenced at
                                                    Sec.  344.2(a)(2).
                                                    We deleted the cross-
                                                    reference to the
                                                    waiver of
                                                    regulations set
                                                    forth under Sec.
                                                    306.126 of this
                                                    subchapter and added
                                                    a waiver subsection
                                                    at Sec.  344.2(n) of
                                                    this part. The
                                                    applicable payment
                                                    provisions were
                                                    consolidated in 31
                                                    CFR Sec.  344.2(j)
                                                    and 31 CFR part 370.
                                                    Hence, payments are
                                                    no longer subject to
                                                    the payment
                                                    provisions of Sec.
                                                    357 of this
                                                    subchapter. Since
                                                    the incorporated
                                                    regulations easily
                                                    are obtainable in
                                                    public libraries and
                                                    on the Internet, we
                                                    deleted the option
                                                    of writing to us to
                                                    obtain a copy.
------------------------------------------------------------------------
344.2(e)......................  344.1(e).........  We deleted the
                                                    requirement that an
                                                    agent, other than a
                                                    commercial bank,
                                                    must submit evidence
                                                    of its authority to
                                                    act for the issuer.
                                                    However, DSI still
                                                    may request evidence
                                                    of such authority.
------------------------------------------------------------------------
344.2(f)(3) (i)-(v)...........  344.1(f).........  We issued a Final
                                                    Rule, 62 FR 46444,
                                                    Sept. 3, 1997,
                                                    clarifying that SLGS
                                                    securities may not
                                                    be used as cost-free
                                                    interest hedge or
                                                    option for
                                                    speculation in open
                                                    market securities.
                                                    The illustrations of
                                                    permissible and
                                                    impermissible
                                                    transactions that
                                                    were contained
                                                    previously in the
                                                    preamble of the
                                                    Final Rule, 62 FR
                                                    46444-46445, are now
                                                    included in Sec.
                                                    344.2(f)(3)(i)-(v).
------------------------------------------------------------------------

[[Page 55402]]

 
344.2(g)......................  344.4(a), 344.8..  We consolidated the
                                                    payment instructions
                                                    that you must use
                                                    when subscribing for
                                                    SLGS securities.
                                                    Formerly, full
                                                    payment by 3:00
                                                    p.m., Eastern time,
                                                    was requested but
                                                    not required, to
                                                    ensure that
                                                    settlement of the
                                                    securities occurred
                                                    on the issue date.
                                                    We now compel full
                                                    payment by 4:00
                                                    p.m., Eastern time,
                                                    on the issue date.
                                                    For convenience, we
                                                    added a reference to
                                                    Public Debt's
                                                    American Bankers
                                                    Association (ABA)
                                                    Routing Number.
------------------------------------------------------------------------
344.2(h)(2)...................  344.1(i) (2),      Where settlement
                                 344.3(b)(3)        occurs after the
                                 (iv), 344.7(b).    proposed issue date,
                                                    Treasury may
                                                    determine that
                                                    settlement is
                                                    acceptable on an
                                                    exception basis. If
                                                    so, DSI will waive
                                                    the six-month
                                                    penalty and the
                                                    issuer will be
                                                    charged a late
                                                    payment assessment.
                                                    To avoid confusion,
                                                    we eliminated the
                                                    reference to ``late
                                                    payment fees.'' We
                                                    clarified that the
                                                    late payment
                                                    assessment consists
                                                    of accrued interest
                                                    and a $100
                                                    administrative
                                                    charge per
                                                    subscription. This
                                                    is not a substantive
                                                    change.
------------------------------------------------------------------------
344.2(j)......................  344.2(c)(2)......  Since the payment
                                                    method in Sec.
                                                    344.2(j) governs all
                                                    payments that we
                                                    make under this
                                                    part, we placed it
                                                    under the general
                                                    provisions section.
                                                    We will make
                                                    payments by ACH
                                                    unless operational
                                                    considerations
                                                    require alternate
                                                    payment procedures.
                                                    Previously,
                                                    redemptions before
                                                    maturity were made
                                                    by Fedwire.
------------------------------------------------------------------------
344.2(k)......................  344.3(a), (b)(1),  We consolidated
                                 (b)(3), (c),       references to DSI's
                                 344.5(a) (2),      address and fax
                                 344.7(a),          number into one
                                 344.9(b),          paragraph. Only non-
                                 344.11(b).         Internet customers
                                                    submit paper SLGS
                                                    securities
                                                    transactions to
                                                    DSI's business
                                                    address. Unlike
                                                    Internet customers
                                                    who automatically
                                                    receive an
                                                    electronic
                                                    confirmation of
                                                    receipt, under this
                                                    new paragraph Non-
                                                    Internet customers
                                                    will not receive a
                                                    confirmation of
                                                    receipt for
                                                    transactions unless
                                                    requested.
------------------------------------------------------------------------
344.2(l)......................  344.1(h).........  During a debt limit
                                                    contingency, we may
                                                    change or suspend
                                                    the terms and
                                                    conditions of the
                                                    offering, including
                                                    provisions relating
                                                    to redemptions. Used
                                                    in this context,
                                                    ``redemptions'' is
                                                    not intended to
                                                    refer to matured
                                                    securities which
                                                    under Sec.  344.2(i)
                                                    we are obligated to
                                                    pay the principal
                                                    amount and interest
                                                    due. We clarified
                                                    that only ``early''
                                                    redemptions and not
                                                    payment on redeemed,
                                                    matured securities
                                                    are affected during
                                                    a debt limit
                                                    contingency.
------------------------------------------------------------------------
344.2(m) (1)-(2)..............  344.3(b)(3) (iv),  We consolidated in
                                 344.7(b).          Sec.  344.2(m) the
                                                    references to
                                                    Treasury's right to
                                                    reject untimely
                                                    changes in
                                                    subscriptions. We
                                                    amended Sec.
                                                    344.2(m)(1) to add a
                                                    new provision giving
                                                    Treasury the right
                                                    to reject any
                                                    SLGSafe\SM\
                                                    Application. In Sec.
                                                     344.2(m)(2), we
                                                    clarified that the
                                                    right to reject
                                                    transaction requests
                                                    includes electronic
                                                    and paper
                                                    submissions.
------------------------------------------------------------------------
344.2(n)......................  344.1(g), (i)(2),  We added a new
                                 344.3(b)(3)        paragraph that
                                 (iv), 344.7(b).    allows Treasury to
                                                    waive the provisions
                                                    of this part.
                                                    Previously, this
                                                    authority was
                                                    incorporated into
                                                    this part by
                                                    referencing 31 CFR
                                                    306.126, ``Waiver of
                                                    Regulations.'' This
                                                    is not a substantive
                                                    change.
------------------------------------------------------------------------


                                SLGSafeSM
------------------------------------------------------------------------
    Interim rule CFR sec.                  Summary of change
------------------------------------------------------------------------
344.3(a).....................  We added a new section describing
                                SLGSafeSM which allows transactions to
                                be processed over the Internet.
------------------------------------------------------------------------
344.3(b).....................  This new paragraph provides that
                                SLGSafeSM access will be available after
                                we approve your SLGSafeSM Application.
------------------------------------------------------------------------
344.3(c).....................  This new paragraph provides that you can
                                find special terms and conditions
                                relating to SLGSafeSM in the SLGSafeSM
                                Application, SLGSafeSM User
                                Acknowledgment, Public Debt's
                                Certificate Practice Statement, and the
                                SLGSafeSM Internet User's Guide.
------------------------------------------------------------------------
344.3(d).....................  This new paragraph informs that there are
                                five roles that can apply for SLGSafeSM
                                access: owner, trustee, receiving
                                depository financial institution,
                                subscriber, and viewer.
------------------------------------------------------------------------
344.3(e).....................  This new paragraph specifies that your
                                role with regard to each SLGS security
                                determines what functions you can
                                perform in SLGSafeSM. The User's Guide
                                contains a description of each role and
                                its capabilities.
------------------------------------------------------------------------

[[Page 55403]]

 
344.3(f).....................  Before performing any functions, you must
                                apply for access to SLGSafeSM by
                                following the steps in this new
                                paragraph.
------------------------------------------------------------------------
344.3(g).....................  This new paragraph explains that the
                                Secretary has the sole discretion to
                                approve SLGSafeSM Applications. After
                                your SLGSafeSM Application is approved,
                                the users that you authorized on the
                                SLGSafeSM Application to submit
                                transactions on your behalf will receive
                                a digital certificate and an
                                authorization code. Upon approval of the
                                application, your existing portfolio of
                                securities will be accessed through
                                SLGSafeSM.
------------------------------------------------------------------------
344.3(h).....................  All authorized users must agree to the
                                conditions of use in this new paragraph.
------------------------------------------------------------------------
344.3(i).....................  This new paragraph explains that Internet
                                customers submit transactions to the
                                designated Internet address. Internet
                                customers will receive automatic
                                confirmations of SLGSafeSM transactions.
                                The electronic confirmation shows the
                                date and time that the electronic
                                message you sent was processed by Public
                                Debt's Application server.
------------------------------------------------------------------------


                   Subpart B--Time Deposit Securities
------------------------------------------------------------------------
                                 Jul. 1, 1999 CFR
     Interim rule CFR sec.             sec.          Summary of change
------------------------------------------------------------------------
344.4(b)(2)...................  344.2(b).........  We added a new
                                                    sentence in Sec.
                                                    344.4(b)(2) on the
                                                    applicability of the
                                                    SLGS rate table to
                                                    SLGSafeSM
                                                    subscriptions. Under
                                                    Sec.  344.3(i), we
                                                    explain that Public
                                                    Debt's Application
                                                    server determines
                                                    when we receive all
                                                    electronic messages
                                                    sent via the
                                                    Internet. If you are
                                                    an Internet
                                                    customer, you can
                                                    verify that you
                                                    locked in a
                                                    particular SLGS rate
                                                    by reviewing the
                                                    automatic
                                                    confirmation notice.
                                                    It shows the date
                                                    and time Public
                                                    Debt's Application
                                                    server received your
                                                    electronic message.
------------------------------------------------------------------------
344.4(b)(3) (i)-(ii)..........  344.2(b) (1),      The applicable SLGS
                                 (b)(2).            rate table is
                                                    available either on
                                                    the Internet or by
                                                    telephoning DSI. We
                                                    deleted the
                                                    reference to posting
                                                    the rate table on
                                                    Commerce
                                                    Department's
                                                    Economic Bulletin
                                                    Board. We've
                                                    discontinued
                                                    providing the rate
                                                    table on an
                                                    automated fax.
------------------------------------------------------------------------
344.4(c)......................  344.2(c)(1)......  We clarified that the
                                                    first interest
                                                    payment date must be
                                                    at least thirty days
                                                    but less than or
                                                    equal to one year
                                                    from the issue date.
                                                    This is not a
                                                    substantive change.
------------------------------------------------------------------------
    344.5(a)..................  344.3(b) (1),      For non-Internet
                                 (b)(3), 344.3(c).  customers, we
                                                    eliminated the
                                                    requirement that a
                                                    faxed initial
                                                    subscription,
                                                    amendment or final
                                                    subscription be
                                                    followed by a mailed
                                                    original
                                                    subscription or
                                                    amendment.
------------------------------------------------------------------------
344.5(b)(2)...................  344.3(b)(1)......  We named the
                                                    electronic and paper
                                                    Treasury forms used
                                                    to send initial time
                                                    deposit
                                                    subscriptions.
------------------------------------------------------------------------
344.5(c)(1)...................  344.3(c).........  We named the
                                                    electronic and paper
                                                    time deposit
                                                    Treasury forms used
                                                    to send final
                                                    subscriptions. We
                                                    eliminated the
                                                    requirement that a
                                                    final subscription
                                                    state the title of
                                                    the designated
                                                    official(s)
                                                    authorized to
                                                    request early
                                                    redemption.
------------------------------------------------------------------------
344.5(c)(2) (vi)..............  344.3(c).........  Although the
                                                    prohibition against
                                                    payment of a final
                                                    subscription with
                                                    proceeds of early
                                                    redeemed SLGS
                                                    securities
                                                    subscribed on or
                                                    before December 27,
                                                    1976, remains, the
                                                    requirement that a
                                                    subscriber submit a
                                                    statement about the
                                                    proceeds in the
                                                    final time deposit
                                                    subscription is
                                                    removed.
------------------------------------------------------------------------
344.5(c)(3)...................  .................  We added a new
                                                    provision to clarify
                                                    that changes to
                                                    final subscriptions
                                                    are allowed before
                                                    issuance of the SLGS
                                                    securities. Changes
                                                    to final
                                                    subscriptions are
                                                    made in the same
                                                    manner as changes to
                                                    initial
                                                    subscriptions under
                                                    Sec.  344.5(b)(4)(i)
                                                    -(iv). This is not a
                                                    substantive change.
------------------------------------------------------------------------
                                344.3(b)(2)......  We eliminated this
                                                    paragraph as
                                                    repetitious because
                                                    the provisions set
                                                    out in Sec.
                                                    344.2(e), dealing
                                                    with the authority
                                                    of the subscriber to
                                                    act on behalf of the
                                                    issuer, and in Sec.
                                                    344.2(h), relating
                                                    to the penalty for
                                                    failure to complete
                                                    a subscription, are
                                                    located in the
                                                    general provisions
                                                    section of this part
                                                    which applies to
                                                    initial and final
                                                    subscriptions.
------------------------------------------------------------------------

[[Page 55404]]

 
344.6(a)(1)...................  344.5(a)(1)......  A 15-day zero percent
                                                    certificate of
                                                    indebtedness is
                                                    ineligible for early
                                                    redemption. You may
                                                    redeem a zero
                                                    percent certificate
                                                    of indebtedness with
                                                    a maturity of 16 to
                                                    29 days no earlier
                                                    than fifteen days
                                                    after the issue date
                                                    (instead of fifteen
                                                    days before the
                                                    scheduled maturity
                                                    date as formerly
                                                    required).
------------------------------------------------------------------------
344.6(b)......................  344.5(a)(1)......  Partial redemptions
                                                    of time deposit SLGS
                                                    securities
                                                    previously accepted
                                                    in any amount can
                                                    now only be
                                                    requested in whole
                                                    dollar increments.
                                                    The requirement that
                                                    a security balance
                                                    of less than $1,000
                                                    must be redeemed in
                                                    total has not
                                                    changed.
------------------------------------------------------------------------
344.6(c)......................  344.5(a)(2)......  We clarified that
                                                    notices of early
                                                    redemption of time
                                                    deposit SLGS
                                                    securities must be
                                                    submitted
                                                    electronically or in
                                                    paper form. We
                                                    deleted the
                                                    requirement that the
                                                    official providing
                                                    notice be named on
                                                    the final
                                                    subscription form.
                                                    However, the
                                                    requirement that
                                                    notice be provided
                                                    by an authorized
                                                    official remains.
------------------------------------------------------------------------
344.6(e)(2)...................  344.5(a)(4) (ii).  We amended the next
                                                    to last sentence in
                                                    Sec.  344.6(e)(2)
                                                    pertaining to the
                                                    applicable interest
                                                    rate that applies
                                                    when redemption is
                                                    requested on a date
                                                    less than thirty
                                                    days before the
                                                    original maturity
                                                    date. For greater
                                                    accuracy, this
                                                    sentence is amended
                                                    to reflect that the
                                                    rate is that of a
                                                    one month security
                                                    as listed on the
                                                    SLGS rate table
                                                    issued on the day
                                                    redemption is
                                                    requested (and not
                                                    the rate shown for a
                                                    security with a
                                                    maturity of thirty
                                                    days as formerly
                                                    stated.) Also, for
                                                    certificates of
                                                    indebtedness
                                                    subscribed from
                                                    September 1, 1989,
                                                    through October 27,
                                                    1996, we deleted the
                                                    instructions for
                                                    determining the
                                                    market charge since
                                                    all certificates of
                                                    indebtedness issued
                                                    during this time
                                                    frame have matured.
------------------------------------------------------------------------
344.6(g)(1)...................  344.5(a)(6) (i)..  Since certificates of
                                                    indebtedness and
                                                    notes subscribed for
                                                    on or before
                                                    December 27, 1976,
                                                    have matured, we
                                                    deleted the
                                                    instructions for
                                                    calculating the
                                                    adjusted interest
                                                    rate for these
                                                    securities.
------------------------------------------------------------------------


                  Subpart C--Demand Deposit Securities
------------------------------------------------------------------------
                                 Jul. 1, 1999 CFR
     Interim rule CFR sec.             sec.          Summary of change
------------------------------------------------------------------------
344.8(b)(1)...................  344.7(a).........  We named the
                                                    electronic and paper
                                                    Treasury forms used
                                                    to send demand
                                                    deposit
                                                    subscriptions.
------------------------------------------------------------------------
344.8(b)(3), 344.9(c).........  344.7(b).........  Changes to
                                                    subscriptions and
                                                    notices of
                                                    redemption are now
                                                    due at DSI by 3:00
                                                    p.m., Eastern time
                                                    instead of 1:00
                                                    p.m., Eastern time.
------------------------------------------------------------------------
344.9(c)......................  344.9(b).........  We named the
                                                    electronic and paper
                                                    Treasury forms used
                                                    to make a notice of
                                                    redemption of demand
                                                    deposit SLGS
                                                    securities. We
                                                    deleted the
                                                    requirement that the
                                                    official providing
                                                    notice be named on
                                                    the final
                                                    subscription form.
                                                    However, the
                                                    requirement that
                                                    notice be provided
                                                    by an authorized
                                                    official remains.
                                                    For consistency with
                                                    the cancellation
                                                    provision at Sec.
                                                    344.6(c) for time
                                                    deposit and special
                                                    zero interest
                                                    securities, we added
                                                    a requirement that
                                                    notices of
                                                    redemption for
                                                    demand deposit
                                                    securities cannot be
                                                    canceled.
------------------------------------------------------------------------


               Subpart D--Special Zero Interest Securities
------------------------------------------------------------------------
                                 Jul. 1, 1999 CFR
     Interim rule CFR sec.             sec.          Summary of change
------------------------------------------------------------------------
344.6(a), 344.11..............  344.5(a)(1),       Section 344.11
                                 344.11(a).         corrects an internal
                                                    inconsistency
                                                    between former 31
                                                    CFR 344.5(a)(1) and
                                                    344.11(a). To
                                                    determine how long a
                                                    special zero
                                                    interest note must
                                                    be held, Sec.
                                                    344.11 now refers to
                                                    Sec.  344.6(a).
                                                    Section 344.6(a)(3)
                                                    provides that a note
                                                    can be redeemed at
                                                    the owner's option
                                                    no earlier than 30
                                                    days (instead of one
                                                    year as stated in
                                                    former Sec.
                                                    344.11(a)) after the
                                                    issue date.
------------------------------------------------------------------------


[[Page 55405]]


                         Appendices to Part 344
------------------------------------------------------------------------
                                 Jul. 1, 1999 CFR
     Interim rule CFR sec.             sec.          Summary of change
------------------------------------------------------------------------
Appendix A....................  Appendix A.......  The text of Appendix
                                                    A provides early
                                                    redemption market
                                                    charge formulas and
                                                    examples for
                                                    subscriptions from
                                                    December 28, 1976,
                                                    through October 27,
                                                    1996. We corrected
                                                    the heading of
                                                    Appendix A by
                                                    deleting the former
                                                    reference to
                                                    September 1, 1989,
                                                    and inserting
                                                    December 28, 1976.
------------------------------------------------------------------------
Appendices A, B...............  Appendices A, B..  We corrected a
                                                    typographical error
                                                    by substituting
                                                    ``an'' with ``an''
                                                    in section (a) of
                                                    Appendices A and B.
------------------------------------------------------------------------

IV. Procedural Requirements

A. Executive Order 12866

    This interim rule is not a significant regulatory action as defined 
in Executive Order 12866, dated September 30, 1993, and is not a major 
rule under 5 U.S.C. 804. Therefore, an assessment of anticipated 
benefits, costs, and regulatory alternatives is not required.

B. Regulatory Flexibility Act

    This interim rule relates to matters of public contract and 
procedures for United States securities. The notice and public 
procedures requirements of the Administrative Procedure Act, 5 U.S.C. 
553(a)(2), are inapplicable. Since a notice of proposed rulemaking is 
not required, the provisions of the Regulatory Flexibility Act, 5 
U.S.C. 601 et seq., do not apply.

C. Paperwork Reduction Act

    This interim rule does not alter the collection of information 
previously reviewed and approved by the Office of Management and 
Budget, under the requirements of the Paperwork Reduction Act, 44 
U.S.C. 3507, under control number 1535-0091.

D. Determination to Issue an Interim Rule

    Because this interim rule relates to matters of public contract and 
procedures for United States securities, a Notice of Proposed 
Rulemaking (NPRM) is not required by 5 U.S.C. 553. In addition, we find 
under 5 U.S.C. 553(b)(B) that there is good cause why a NPRM is 
unnecessary and contrary to the public interest. First, the electronic 
subscription feature was announced in a Proposed Rule published in the 
Federal Register 61 FR 39228, 39230, Jul. 26, 1996. Second, the 
SLGSafeSM database system requires us to perform research on 
existing SLGS securities portfolios to prepare the data for use in 
SLGSafeSM. Therefore, the Secretary will prioritize the 
approval of SLGSafeSM Applications and the enrollment of 
customers based on this operational need. Third, this interim rule 
includes an opportunity for written comments. We would also like to 
take the opportunity provided by the interim rule to request comments 
specifically on whether the interim rule is written in plain language.
    We find under 5 U.S.C. 553(d)(3) good cause for making the interim 
rule effective immediately because of our plan to enroll customers by 
staggering the approval of SLGSafeSM Applications in order 
to meet our goal of having 100% SLGSafeSM transactions by 
September 2002. Furthermore, it will not require an increase in cost or 
administrative burden. Lastly, it will allow us to provide improved 
services to our customers. After reviewing public comments, we will 
issue a final rule.

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Securities.


    For the reasons set forth in the preamble, we revise 31 CFR part 
344 to read as follows:

PART 344--U.S. TREASURY SECURITIES--STATE AND LOCAL GOVERNMENT 
SERIES

Subpart A--General Information
Sec.
344.0   What does this part cover?
344.1   What special terms do I need to know to understand this 
part?
344.2   What general provisions apply to SLGS securities?

SLGSafeSM

344.3   What special provisions apply to SLGSafeSM 
Internet transactions?
Subpart B--Time Deposit Securities
344.4   What are Time Deposit securities?
344.5   How do I subscribe for Time Deposit securities?
344.6   How do I redeem a Time Deposit security before maturity?
Subpart C--Demand Deposit Securities
344.7   What are Demand Deposit securities?
344.8   How do I subscribe for Demand Deposit securities?
344.9   How do I redeem a Demand Deposit security?
Subpart D--Special Zero Interest Securities
344.10   What are Special Zero Interest securities?
344.11   How do I redeem a Special Zero Interest security before 
maturity?

Appendix A to Part 344--Early Redemption Market Charge Formulas and 
Examples for Subscriptions From December 28, 1976, Through October 27, 
1996

Appendix B to Part 344--Formula for Determining Redemption Value for 
Securities Subscribed for and Early-Redeemed On or After October 28, 
1996

    Authority: 26 U.S.C. 141 note; 31 U.S.C. 3102.

Subpart A--General Information


Sec. 344.0  What does this part cover?

    (a) What is the purpose of the SLGS securities offering? The 
Secretary of the Treasury (the Secretary) offers for sale State and 
Local Government Series (SLGS) securities to provide issuers of tax 
exempt securities with investments from any amounts that:
    (1) Constitute gross proceeds of an issue; or
    (2) Assist in complying with applicable provisions of the Internal 
Revenue Code relating to the tax exemption.
    (b) What types of SLGS securities are governed by this part? This 
part governs the following SLGS securities:

----------------------------------------------------------------------------------------------------------------
                                                                United States
                                                                   Treasury      United States    United States
                       SLGS securities                         certificates of   Treasury notes   Treasury bonds
                                                                 indebtedness
----------------------------------------------------------------------------------------------------------------
(1) Time Deposit.............................................               X                X                X
----------------------------------------------------------------------------------------------------------------

[[Page 55406]]

 
(2) Demand Deposit...........................................               X   ...............  ...............
----------------------------------------------------------------------------------------------------------------
(3) Special Zero Interest (Discontinued offering on October                 X                X   ...............
 28, 1996)...................................................
----------------------------------------------------------------------------------------------------------------

    (c) In what denominations are SLGS securities issued? SLGS 
securities are issued in the following denominations:
    (1) Time deposit securities--a minimum amount of $1,000, or in any 
larger whole dollar amount; and
    (2) Demand deposit securities--a minimum amount of $1,000, or in 
any larger amount, in any increment.
    (d) For how long is the offering in effect? The offering continues 
until terminated by the Secretary.


Sec. 344.1  What special terms do I need to know to understand this 
part?

    As appropriate, the definitions of terms used in this part are 
those found in the relevant portions of the Internal Revenue Code and 
the Income tax regulations.
    Business Day(s) means Federal business day(s).
    Current Treasury borrowing rate means the prevailing market rate, 
as determined by Treasury, for a Treasury security with the specified 
period to maturity.
    Day(s) means calendar day(s).
    Issuer refers to the Government body that issues State or local 
government bonds described in section 103 of the Internal Revenue Code.
    Public Debt's website refers to 
http://www.publicdebt.treas.gov/spe/spe.htm>.
    SLGS rate means the current Treasury borrowing rate on the day we 
receive your subscription, less 5 basis points, as released daily by 
Treasury in a SLGS rate table.
    SLGS rate table means a compilation of SLGS rates available for a 
given day.
    ``We,'' ``us,'' or ``the Secretary'' refers to the Secretary and 
the Secretary's delegates at the Department of the Treasury (Treasury), 
Bureau of the Public Debt (Public Debt), and Division of Special 
Investments (DSI). The term also extends to any fiscal or financial 
agent acting on behalf of the United States when designated to act by 
the Secretary or the Secretary's delegates.


Sec. 344.2  What general provisions apply to SLGS securities?

    (a) What other regulations apply to SLGS securities? SLGS 
securities are subject to:
    (1) The electronic transactions and funds transfers provisions for 
United States securities, part 370 of this subchapter, ``Electronic 
Transactions and Funds Transfers Related to U.S. Securities'', and
    (2) The Appendix to subpart E to part 306 of this subchapter, for 
rules regarding computation of interest.
    (b) Where are SLGS securities held? SLGS securities are issued in 
book-entry form on the books of the Department of the Treasury, Bureau 
of the Public Debt, Division of Special Investments, Parkersburg, WV.
    (c) Besides DSI, do any other entities administer SLGS securities? 
The Secretary may designate selected Federal Reserve Banks and 
Branches, as fiscal agents of the United States, to perform services 
relating to SLGS securities.
    (d) Can SLGS securities be transferred? No. SLGS securities held in 
an account of any one type, i.e., time deposit, demand deposit, or 
special zero interest, cannot be transferred within that account, or to 
an account of any other type. Transfer of securities by sale, exchange, 
assignment, pledge, or otherwise is not permitted.
    (e) How does a bank or other agent certify its authority? When a 
commercial bank or other agent submits an initial or final subscription 
on behalf of the issuer, it certifies that it is acting under the 
issuer's specific authorization. Ordinarily, evidence of such authority 
is not required.
    (f) What transactions are not permitted? The following is a 
nonexclusive list of impermissible transactions:
    (1) It is impermissible to subscribe for SLGS securities for 
deposit in a defeasance escrow of fund if at any time between the close 
of business on the date of subscription and the close of business on 
the date of issue, the amount of SLGS securities subscribed for, plus 
the amount of any other securities already in such escrow or fund, plus 
the amount of other securities the issuer has acquired, or has the 
right to acquire for deposit in an escrow or fund, exceeds the total 
amount of securities needed to fund such escrow or fund.
    (2) For paragraph (f)(1) of this section, do not include in the 
computation any securities held in the escrow or fund that are not 
subject to an agreement conditioned on changes in the interest rate on 
open market Treasury securities on or before the issue date of the SLGS 
securities. An adjustment in the subscription amount under 
Sec. 344.5(b)(4)(ii) will not in and of itself make the transaction 
impermissible.
    (3) The following examples illustrate certain permissible and 
impermissible practices:
    (i) In order to fund an escrow for an advance refunding, the issuer 
simultaneously enters into a purchase contract for open market 
securities and subscribes for SLGS securities, such that either 
purchase is sufficient to pay the cash flows on the outstanding bonds 
to be refunded but together, the purchases are greatly in excess of the 
amount necessary to pay the cash flows. The issuer plans that, if 
interest rates decline during the period between the date of 
subscribing for SLGS securities and the requested date of issuance of 
SLGS securities, the issuer will enter into an offsetting agreement to 
sell the open market securities and use the bond proceeds to purchase 
SLGS securities to fund the escrow. If, however, interest rates do not 
decline in that period, the issuer plans to use the bond proceeds to 
purchase the open market securities to fund the escrow and cancel the 
SLGS securities subscription. This arrangement in effect allows the 
SLGS program to provide a cost-free option to the issuer. This 
transaction is prohibited.
    (ii) The existing escrow for an advance refunding contains open 
market securities which produce a negative arbitrage. In order to 
reduce or eliminate this negative arbitrage, the issuer subscribes for 
SLGS securities at a yield higher than the yield on the existing 
escrow, but less than the permitted yield. At the same time, the issuer 
agrees to sell the open market securities in the existing escrow to a 
third party and use the proceeds to purchase SLGS securities if 
interest rates decline between the date of subscribing for SLGS 
securities and the requested date of issuance of SLGS securities. The 
issuer and the third party further agree that if interest rates 
increase during this period, the issuer will cancel the SLGS securities

[[Page 55407]]

subscription. This arrangement in effect allows the SLGS program to 
provide a cost-free option to the issuer. This transaction is 
prohibited.
    (iii) Under the same facts as in paragraph (f)(3)(ii) of this 
section, except that in this case, the agreement entered into by the 
issuer with a third party to sell the open market securities in order 
to obtain funds to purchase SLGS securities is not conditioned upon 
changes in interest rates on Treasury securities. No option is created. 
This transaction is permissible.
    (iv) The issuer subscribes for SLGS securities fifteen days before 
the settlement date of its bonds at the maximum rates on such day, but 
the resulting yield in the escrow is less than the permitted yield. The 
rates on the SLGS securities rise over the next few days, and, within 
the time periods permitted for cancellation of a subscription under 
Sec. 344.5(b)(1) and Sec. 344.8(b)(2), the issuer cancels the earlier 
subscription and resubscribes at the higher rates. This transaction is 
permissible.
    (v) The issuer holds a portfolio of open market securities in an 
account that produces negative arbitrage. In order to reduce or 
eliminate this negative arbitrage, the issuer subscribes for SLGS 
securities for purchase in sixty days. At the same time, the issuer 
sells an option to purchase the portfolio of open market securities. If 
interest rates increase, the holder of the option will not exercise its 
option and the issuer will cancel the SLGS securities subscription. On 
the other hand, if interest rates decline, the option holder will 
exercise the option and the issuer will use the proceeds to purchase 
SLGS securities. This arrangement uses the SLGS program to provide the 
issuer with a cost-free option. This transaction is prohibited.
    (g) When and how do I pay for SLGS securities? You must submit full 
payment for each subscription to DSI by 4:00 p.m., Eastern time, on the 
issue date. Submit payments by the Fedwire funds transfer system with 
credit directed to the Treasury's General Account. For these 
transactions, Public Debt's ABA Routing Number is 051036476.
    (h) What happens if I do not settle on a subscription? The penalty 
imposed for failure to make settlement on a subscription that you 
submit but do not timely cancel will be to render you ineligible to 
subscribe for SLGS securities for six months, beginning on the date the 
subscription is withdrawn or the proposed issue date, whichever occurs 
first.
    (1) Upon whom is the penalty imposed? If you are the issuer, the 
penalty is imposed on you unless you provide the Taxpayer 
Identification Number of the conduit borrower that is the actual party 
failing to make settlement of a subscription. If you provide the 
Taxpayer Identification Number for the conduit borrower, the six-month 
penalty will be imposed on the conduit borrower.
    (2) What occurs if Treasury exercises the option to waive the 
penalty? If you settle after the proposed issue date and we determine 
that settlement is acceptable on an exception basis, we will waive 
under Sec. 344.2(n) the six-month penalty under paragraph (h) of this 
section. You shall be charged a late payment assessment. The late 
payment assessment equals the amount of interest that would have 
accrued on the SLGS securities from the proposed issue date to the date 
of settlement plus an administrative fee of $100 per subscription. Late 
payment assessments are due on demand.
    (i) What happens at redemption? Treasury cannot call a security for 
redemption before maturity. Upon the maturity of a security, we will 
pay the owner the principal amount and interest due. A security 
scheduled for maturity on a non-business day will be redeemed on the 
next business day.
    (j) How will I receive payment? We will make payment by the 
Automated Clearing House (ACH) method for the owner's account at a 
financial institution as designated by the owner. We may use substitute 
payment procedures, instead of ACH, if we consider it to be necessary. 
Any such action is final.
    (k) If I am not an Internet customer, how do I submit transactions 
to DSI? Non-Internet customers may submit transactions by fax at (304) 
480-6818, or by carrier service, U.S. Postal Service (certified or 
registered mail), or other means, to the Bureau of the Public Debt, 
Division of Special Investments, 200 3rd St., P.O. Box 396, 
Parkersburg, WV 26106-0396. Unless requested, DSI will not send a 
confirmation of receipt to non-Internet customers.
    (l) Will the offering be changed during a debt limit contingency? 
We reserve the right to change or suspend the terms and conditions of 
the offering, including provisions relating to subscriptions for, and 
issuance of, SLGS securities, interest payments, early redemptions, 
rollovers, and notices, at any time the Secretary determines that the 
issuance of obligations sufficient to conduct the orderly financing 
operations of the United States cannot be made without exceeding the 
statutory debt limit. We will announce such changes by any means the 
Secretary deems appropriate.
    (m) What transaction requests are unacceptable? A decision to 
reject an unacceptable transaction request is in our sole discretion 
and is final. Although we may waive the right to reject transactions 
under Sec. 344.2(n), Treasury reserves the right:
    (1) To reject any SLGSafeSM Application for Internet 
Access;
    (2) To reject any electronic or paper transaction request 
(including requests for subscription and redemption, and changes to 
subscriptions) that is unsigned, inappropriately completed, or untimely 
submitted;
    (3) To refuse to issue any SLGS securities in any case or class of 
cases; and
    (4) To revoke the issuance of any SLGS securities and to declare 
the subscriber ineligible thereafter to subscribe for securities under 
the offering if the Secretary deems that such action is in the public 
interest and any security is issued on the basis of an improper 
certification or other misrepresentation (other than as the result of 
an inadvertent error) or there is an impermissible transaction under 
Sec. 344.2(f).
    (n) Are there any situations in which Treasury may waive these 
regulations? We reserve the right, at our discretion, to waive or 
modify any provision of these regulations in any case or class of 
cases. We may do so if such action is not inconsistent with law and 
will not subject the United States to substantial expense or liability.

SLGSafeSM


Sec. 344.3  What special provisions apply to SLGSafeSM 
Internet transactions?

    (a) What is SLGSafeSM? SLGSafeSM is a secure 
Internet site on the World Wide Web through which you can submit SLGS 
securities transactions. SLGSafeSM Internet transactions 
constitute electronic messages under 31 CFR part 370.
    (b) When can I subscribe using SLGSafeSM? You will be 
able to submit SLGSafeSM transactions to DSI after we 
approve your SLGSafeSM Application under Sec. 344.3(g).
    (c) What special terms and conditions apply to 
SLGSafeSM? The following terms and conditions, which may 
change from time to time, apply to SLGSafeSM transactions 
and are downloadable from Public Debt's website:
    (1) SLGSafeSM Application for Internet Access and 
SLGSafeSM User Acknowledgment;
    (2) Public Debt's Certificate Practice Statement; and

[[Page 55408]]

    (3) SLGSafeSM Internet User's Guide.
    (d) Who can apply for SLGSafeSM access? There are five 
roles in SLGSafeSM: owner, trustee, receiving depository 
financial institution, subscriber, and viewer. If you are an owner of 
SLGS securities or act as a trustee, receiving depository financial 
institution or subscriber, you can apply to DSI for authorization to 
send electronic messages through SLGSafeSM. If you are an 
owner or trustee, you can authorize your SLGS securities holdings to be 
accessed by any other viewer who applies for SLGSafeSM 
access.
    (e) What SLGSafeSM functions can I perform in each role? 
The role that you play in SLGSafeSM shall determine the 
functions that you will be allowed to perform. An explanation of the 
roles and functions is outlined in the SLGSafeSM Internet User's Guide.
    (f) How do I apply for access to SLGSafeSM? You must 
apply for SLGSafeSM access before performing any Internet 
functions. To apply for SLGSafeSM Internet access, you must:
    (1) Submit to DSI a completed Treasury form, PD F 4144-5, 
SLGSafeSM Application for Internet Access;
    (2) Appoint a SLGSafeSM Access Administrator and a 
backup administrator who certify that the information on the 
SLGSafeSM Application is accurate;
    (3) Ensure only authorized users are reflected on the 
SLGSafeSM Application; and
    (4) Await our written approval of your SLGSafeSM 
Application before you, or anyone acting on your behalf, uses an 
electronic connection to access any of our services or to send any 
electronic messages.
    (g) How is my SLGSafeSM Application approved? The 
Secretary has the sole discretion to determine the priority of approval 
of SLGSafeSM Applications. Upon receipt of your 
SLGSafeSM Application, we will review your 
SLGSafeSM Application and send to you either an approval or 
rejection notice. If we approve your SLGSafeSM Application, 
we will:
    (1) Issue a digital certificate with an associated authorization 
code to each user you authorize on your approved application; and
    (2) Provide access to your existing portfolio of SLGS securities, 
if any, to enable you to access the SLGS securities through 
SLGSafeSM.
    (h) What are the conditions of SLGSafeSM use? If you are 
designated as an authorized user on a SLGSafeSM Application 
that we've approved, you must:
    (1) Sign, and send to DSI, a User Acknowledgment regarding the use 
of the digital certificate and authorization code;
    (2) Have and maintain the compatibility of your computer(s) and 
associated equipment and software so that you can send electronic 
messages and permit us to send an automatic confirmation receipt of 
each transaction, and any other information, to you on a timely basis 
throughout the day;
    (3) Assume the sole responsibility and the entire risk of use and 
operation of your electronic connection;
    (4) Agree that we may act on any electronic message that we 
authenticate as yours under Public Debt's Certificate Practice 
Statement, and any other Certificate Policy that Treasury may issue, to 
the same extent as if we had received a written instruction bearing the 
signature of your duly authorized officer;
    (5) Submit electronic messages exclusively through 
SLGSafeSM unless you:
    (i) Are unable to do so; and
    (ii) Notify us before submitting transactions by other means; and
    (6) Agree to submit transactions by other means if we notify you 
that problems with hardware, software or data transmission delays, or 
any other reason, prevent our sending or receiving electronic messages.
    (i) If I am an Internet customer, how do I submit transactions 
using SLGSafeSM to DSI? Internet customers must submit 
transactions to DSI through the SLGSafeSM Internet site at 
Public Debt's website. If your electronic message is accepted, we will 
send automatically an electronic confirmation to you. You can use the 
confirmation notice to verify the date and time that Public Debt's 
Application server received the electronic message that you submitted.

Subpart B--Time Deposit Securities


Sec. 344.4  What are Time Deposit securities?

    Time deposit securities are issued as certificates of indebtedness, 
notes and bonds.
    (a) What are the terms of maturity? The issuer must fix the 
maturity periods for time deposit securities, which are issued as 
follows:

------------------------------------------------------------------------
                                            Maturity range
   Time deposit securities   -------------------------------------------
                                      From           Up to and including
------------------------------------------------------------------------
Certificates of Indebtedness  15 days.............  1 year.
 that bear no.
interest....................
------------------------------------------------------------------------
Certificates of Indebtedness  30 days.............  1 year.
------------------------------------------------------------------------
Notes.......................  1 year and 1 day....  10 years.
------------------------------------------------------------------------
Bonds.......................  10 years and 1 day..  40 years; provided
                                                     that for any
                                                     subscription for a
                                                     bond exceeding 30
                                                     years, the maximum
                                                     available rate must
                                                     be the rate on a 30-
                                                     year bond.
------------------------------------------------------------------------

    (b) How are SLGS rates determined? For each security, the issuer 
shall designate an interest rate that does not exceed the maximum 
interest rate shown in the daily SLGS rate table as defined in 
Sec. 344.1.
    (1) When is the SLGS rate table released? We release the SLGS rate 
table to the public by 10:00 a.m., Eastern time, each business day. If 
we find that due to circumstances beyond our control the SLGS rate 
table is not available at that time on any given business day, the SLGS 
rate table for the preceding business day applies.
    (2) How do I lock in a SLGS rate? The applicable daily SLGS rate 
table for a non-Internet subscription is the one in effect on the date 
the initial subscription is faxed, postmarked, or carrier date stamped. 
The applicable daily SLGS rate table for a SLGSafeSM Internet initial 
subscription is the one in effect on the date shown on Public Debt's 
Application server.

[[Page 55409]]

    (3) Where can I find the SLGS rate table? The SLGS rate table can 
be obtained:
    (i) On the Internet at Public Debt's website; or
    (ii) By calling DSI at (304) 480-7752.
    (c) How are interest computation and payment dates determined? 
Interest on a certificate of indebtedness is computed on an annual 
basis and is paid at maturity with the principal. Interest on a note or 
bond is paid semi-annually. The issuer specifies the first interest 
payment date, which must be at least thirty days and less than or equal 
to one year, from the date of issue. The final interest payment date 
must coincide with the maturity date of the security. Interest for 
other than a full interest period is computed on the basis of a 365-day 
or 366-day year (for certificates of indebtedness) and on the basis of 
the exact number of days in the half-year (for notes and bonds). See 
the Appendix to subpart E of part 306 of this subchapter for rules 
regarding computation of interest.


Sec. 344.5  How do I subscribe for Time Deposit securities?

    (a) Where do I submit transactions? All subscriptions for purchase, 
cancellation requests, changes to initial or final subscriptions and 
notices of redemption must be sent to DSI.
    (b) What requirements apply to initial subscriptions?
    (1) When is my initial subscription or cancellation due in DSI? The 
subscriber must fix the issue date of each security in the initial 
subscription. The issue date must be a business day. The issue date 
cannot be more than sixty days after the date DSI receives the initial 
subscription. To determine when you must send an initial subscription 
or cancellation request, follow this table:

------------------------------------------------------------------------
                  If:                                 Then:
------------------------------------------------------------------------
(i) The subscription is for:...........  DSI must receive an initial
                                          subscription (or you can
                                          cancel it without penalty):
------------------------------------------------------------------------
(A) $10 million or less, or............  at least 5 days before the
                                          issue date of the
                                          subscription.
------------------------------------------------------------------------
(B) Over $10 million...................  at least 7 days before the
                                          issue date of the
                                          subscription.
------------------------------------------------------------------------
(ii) The 5th or 7th day before the       DSI must receive the
 issue date is a non-business day.        cancellation request on the
                                          preceding business day.
------------------------------------------------------------------------
(iii) DSI receives an initial            DSI will not accept an initial
 subscription more than 60 days before    subscription.
 the issue date.
------------------------------------------------------------------------

    Example to paragraph (b)(1): If SLGS securities totaling $10 
million or less will be issued on March 16th, DSI must receive the 
initial subscription no later than March 11th. If SLGS securities 
totaling more than $10 million will be issued on March 16th, DSI 
must receive the initial subscription no later than March 9th.

    (2) What form is used to submit an initial subscription? An initial 
subscription must be submitted on an electronic or paper Treasury form, 
PD F 4144, ``Subscription for Purchase and Issue of U.S. Treasury 
Securities State and Local Government Series Time Deposit.''
    (3) Can I submit a letter instead of an initial subscription form? 
Yes. If you do not have an initial subscription form under paragraph 
(b)(2) of this section, then submit a letter to DSI that contains the 
following information:
    (i) The total principal amount;
    (ii) The issue date;
    (iii) The name and the Taxpayer Identification Number of issuer 
eligible to purchase SLGS securities;
    (iv) The date; and
    (v) The signature and title of an official authorized to purchase 
SLGS securities.
    (4) How do I change an initial subscription? You can change an 
initial subscription on or before the issue date, but not later than 
3:00 p.m., Eastern time, on the issue date. Changes to an initial 
subscription are acceptable with the following exceptions:
    (i) You cannot change the issue date to require issuance earlier 
than the issue date originally specified. The issue date can be changed 
up to seven days after the original issue date. If you make such a 
change, you should notify DSI as soon as possible, but no later than 
3:00 p.m., Eastern time, one business day before the original issue 
date;
    (ii) You may change the aggregate principal amount specified in the 
initial subscription up to $10 million or ten percent, whichever is 
greater;
    (iii) You can change an interest rate provided it does not exceed 
the maximum interest rate in the SLGS rate table that was in effect for 
a security of comparable maturity on the date the initial subscription 
was submitted (unless the issuer obtains a higher rate by canceling and 
resubscribing in compliance with this section); and
    (iv) If you submit an untimely change, Treasury, in its sole 
discretion, can accept the change on an exception basis under 
Sec. 344.2(n). Whether we accept the change before or after the issue 
date, the amended information will be applied to the securities. The 
six-month penalty will be imposed under Sec. 344.2(h). If Treasury 
waives the six-month penalty, you will be charged a late payment 
assessment under Sec. 344.2(h)(2).
    (5) When is an initial subscription not required? No initial 
subscription is required when a final subscription is received at least 
five days before the issue date for subscriptions of $10 million or 
less and at least seven days before the issue date for subscriptions of 
over $10 million. Such final subscription is treated as the initial 
subscription for purposes of determining the applicable SLGS rate table 
under Sec. 344.4(b).
    (c) What requirements apply to final subscriptions?
    (1) What form is used to submit a final subscription? You must 
submit an electronic or paper Treasury form, PD F 4144 ``Subscription 
for Purchase and Issue of U.S. Treasury Securities State and Local 
Government Series Time Deposit,'' as a final subscription.
    (2) What information must be contained on the final subscription? 
The final subscription must:
    (i) be dated and signed by an official authorized to make the 
purchase;
    (ii) include the Taxpayer Identification Number of the issuer;
    (iii) be accompanied with a copy of the initial subscription (or if 
a SLGSafeSM subscription, the Treasury case number) where 
applicable;
    (iv) separately itemize securities by the various maturities, 
interest rates, and first interest payment dates (in the case of notes 
and bonds);

[[Page 55410]]

    (v) not be more than $10 million or ten percent, whichever is 
greater, above or below the aggregate principal amount specified in the 
initial subscription; and
    (vi) not be paid with proceeds that are derived, directly or 
indirectly, from the redemption before maturity of SLGS securities 
subscribed for on or before December 27, 1976.
    (3) How do I change a final subscription? You can change a final 
subscription on or before the issue date in the same fashion as you 
change an initial subscription under Sec. 344.5(b)(4)(i)-(iv).
    (4) When must I send a final subscription? DSI must receive a final 
subscription on or before the issue date, but not later than 3:00 p.m., 
Eastern time, on the issue date.


Sec. 344.6  How do I redeem a Time Deposit security before maturity?

    (a) What is the minimum time a security must be held? To determine 
how long you must hold a security, follow this table:

------------------------------------------------------------------------
                                           then, at the owner's option,
        If the security is . . .         the security can be redeemed no
                                                earlier than . . .
------------------------------------------------------------------------
(1) A zero percent certificate of        15 days after the issue date.
 indebtedness of 16 to 29 days.
------------------------------------------------------------------------
(2) A certificate of indebtedness of 30  25 days after the issue date.
 days or more.
------------------------------------------------------------------------
(3) A note or bond.....................  30 days after the issue date.
------------------------------------------------------------------------

    (b) Can I request partial redemption of a security balance? You may 
request partial redemptions in any whole dollar amount; however, a 
security balance of less than $1,000 must be redeemed in total.
    (c) Do I have to submit a notice of early redemption? Yes. An 
official authorized to redeem the securities before maturity must 
submit an electronic or paper notice of redemption. The notice must 
show the Taxpayer Identification Number of the issuer, the Treasury 
case number, the security number and the dollar amount of the 
securities to be redeemed. DSI must receive the notice no less than 10 
days and no more than 60 days before the requested redemption date. You 
cannot cancel the notice.
    (d) How do I calculate the amount of redemption proceeds for 
subscriptions on or after October 28, 1996? For securities subscribed 
for on or after October 28, 1996, the amount of the redemption proceeds 
is calculated as follows:
    (1) Interest. If a security is redeemed before maturity on a date 
other than a scheduled interest payment date, Treasury pays interest 
for the fractional interest period since the last interest payment 
date.
    (2) Redemption value. The remaining interest and principal payments 
are discounted by the current Treasury borrowing rate for the remaining 
term to maturity of the security redeemed. This may result in a premium 
or discount to the issuer depending on whether the current Treasury 
borrowing rate is unchanged, lower, or higher than the stated interest 
rate of the early-redeemed SLGS securities. There is no market charge 
for the redemption of zero interest time deposit SLGS securities 
subscribed for on or after October 28, 1996. Redemption proceeds in the 
case of a zero-interest security are a return of the principal 
invested. The formulas for calculating the redemption value under this 
paragraph, including examples of the determination of premiums and 
discounts, are set forth in Appendix B of this part.
    (e) How do I calculate the amount of redemption proceeds for 
subscriptions from September 1, 1989, through October 27, 1996? For 
securities subscribed for from September 1, 1989, through October 27, 
1996, the amount of the redemption proceeds is calculated as follows:
    (1) Interest. If a security is redeemed before maturity on a date 
other than a scheduled interest payment date, Treasury pays interest 
for the fractional interest period since the last interest payment 
date.
    (2) Market charge. An amount shall be deducted from the redemption 
proceeds if the current Treasury borrowing rate for the remaining 
period to original maturity exceeds the rate of interest originally 
fixed for such security. The amount shall be the present value of the 
future increased borrowing cost to the Treasury. The annual increased 
borrowing cost for each interest period is determined by multiplying 
the principal by the difference between the two rates. For notes and 
bonds, the increased borrowing cost for each remaining interest period 
to original maturity is determined by dividing the annual cost by two. 
Present value is determined by using the current Treasury borrowing 
rate as the discount factor. When you request a redemption date that is 
less than thirty days before the original maturity date, we will apply 
the rate of a one month security as listed on the SLGS rate table 
issued on the day you make a redemption request. The market charge 
under this paragraph can be computed by using the formulas in Appendix 
A of this part.
    (f) How do I calculate the amount of redemption proceeds for 
subscriptions from December 28, 1976, through August 31, 1989? For 
securities subscribed for from December 28, 1976, through August 31, 
1989, the amount of the redemption proceeds is calculated as follows:
    (1) Interest. Interest for the entire period the security was 
outstanding shall be recalculated if the original interest rate of the 
security is higher than the interest rate that would have been set at 
the time of the initial subscription had the term of the security been 
for the shorter period. If this results in an overpayment of interest, 
we will deduct from the redemption proceeds the aggregate amount of 
such overpayments, plus interest, compounded semi-annually thereon, 
from the date of each overpayment to the date of redemption. The rate 
used in calculating the interest on the overpayment will be one-eighth 
of one percent above the maximum rate that would have applied to the 
initial subscription had the term of the security been for the shorter 
period. If a note or bond is redeemed before maturity on a date other 
than a scheduled interest payment date, no interest is paid for the 
fractional interest period since the last interest payment date.
    (2) Market charge. An amount shall be deducted from the redemption 
proceeds in all cases where the current Treasury borrowing rate for the 
remaining period to original maturity of the security prematurely 
redeemed exceeds the rate of interest originally fixed for such 
security. You can compute the market charge under this paragraph by 
using the formulas in Appendix A of this part.
    (g) How do I calculate the amount of redemption proceeds for 
subscriptions on or before December 27, 1976? For bonds subscribed for 
on or before December 27, 1976, the amount of the

[[Page 55411]]

redemption proceeds is calculated as follows.
    (1) Interest. The interest for the entire period the bond was 
outstanding shall be re-calculated if the original interest rate at 
which the bond was issued is higher than an adjusted interest rate 
reflecting both the shorter period during which the bond was actually 
outstanding and a penalty. The adjusted interest rate is the Treasury 
rate which would have been in effect on the date of issue for a 
marketable Treasury bond maturing on the semi-annual maturity period 
before redemption reduced by a penalty which must be the lesser of:
    (i) One-eighth of one percent times the number of months from the 
date of issuance to original maturity, divided by the number of full 
months elapsed from the date of issue to redemption; or
    (ii) One-fourth of one percent.
    (2) Deduction. We will deduct from the redemption proceeds, if 
necessary, any overpayment of interest resulting from previous payments 
made at a higher rate based on the original longer period to maturity.

Subpart C--Demand Deposit Securities


Sec. 344.7  What are Demand Deposit securities?

    Demand deposit securities are one-day certificates of indebtedness 
that are automatically rolled over each day until you request 
redemption.
    (a) How is a Demand Deposit account established? Each demand 
deposit subscription will establish a unique account.
    (b) How are interest rates determined? Each security shall bear a 
variable rate of interest based on an adjustment of the average yield 
for three-month Treasury bills at the most recent auction. A new rate 
is effective on the first business day following the regular auction of 
three-month Treasury bills and is shown in the SLGS rate table. 
Interest is accrued and added to the principal daily. Interest is 
computed on the balance of the principal, plus interest accrued through 
the preceding day.
    (1) How is the interest rate calculated?
    (i) First, you calculate the annualized effective demand deposit 
rate in decimals, designated ``I'' in Equation 1, as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE00.000

    (ii) Then, you calculate the daily factor for the demand deposit 
rate as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE00.001

    (2) Where can I find additional information? Information on the 
estimated average marginal tax rate and costs for administering demand 
deposit SLGS securities, both to be determined by Treasury from time to 
time, will be published in the Federal Register.
    (c) What happens to demand deposit securities during a Debt Limit 
Contingency? At any time the Secretary determines that issuance of 
obligations sufficient to conduct the orderly financing operations of 
the United States cannot be made without exceeding the statutory debt 
limit, we will invest any unredeemed demand deposit securities in 
special ninety-day certificates of indebtedness. Funds invested in the 
ninety-day certificates of indebtedness earn simple interest equal to 
the daily factor in effect at the time demand deposit security issuance 
is suspended, multiplied by the number of days outstanding. When 
regular Treasury borrowing operations resume, the ninety-day 
certificates of indebtedness, at the owner's option, are:
    (1) Payable at maturity;

[[Page 55412]]

    (2) Redeemable before maturity, provided funds are available for 
redemption; or
    (3) Reinvested in demand deposit securities.


Sec. 344.8  How do I subscribe for Demand Deposit securities?

    (a) Where do I submit transactions? All subscriptions for purchase, 
cancellation requests, changes to subscriptions and notices of 
redemption must be sent to DSI.
    (b) What requirements apply to subscriptions?
    (1) What form is used to submit a subscription? You must submit an 
electronic or paper Treasury form, PD F 5237, ``Subscription for 
Purchase of U.S. Treasury Securities State and Local Government Series 
One-Day Certificate of Indebtedness Demand Deposit.''
    (2) When is my subscription or cancellation request due in DSI? To 
determine when you must send a subscription or cancellation request, 
follow this table:

------------------------------------------------------------------------
                  If:                                 Then:
------------------------------------------------------------------------
(i) The subscription is for:...........  DSI must receive a subscription
                                          (or you can cancel it without
                                          penalty):
------------------------------------------------------------------------
(A) $10 million or less, or............  at least 5 days before the
                                          issue date of the
                                          subscription.
------------------------------------------------------------------------
(B) Over $10 million...................  at least 7 days before the
                                          issue date of the
                                          subscription.
------------------------------------------------------------------------
(ii) The 5th or 7th day before the       DSI must receive the
 issue date is a non-business day * * *.  cancellation request on the
                                          preceding business day.
------------------------------------------------------------------------
(iii) DSI receives a subscription more   DSI will not accept a
 than 60 days before the issue date * *   subscription.
 *.
------------------------------------------------------------------------

    (3) How do I change a subscription? You can change the principal 
amount to be invested without penalty on or before the issue date, but 
no later than 3:00 p.m., Eastern time, on the issue date. If you submit 
an untimely change, Sec. 344.5(b)(4)(iv) applies.
    (4) What information must be contained on the subscription? The 
subscription must:
    (i) Be dated and signed by an official authorized to make the 
purchase;
    (ii) Include the Taxpayer Identification Number of the issuer; and
    (iii) Specify the principal amount to be invested and the issue 
date.


Sec. 344.9  How do I redeem a Demand Deposit security?

    To redeem a demand deposit security, follow this section.
    (a) When must I notify DSI to redeem a security? To determine when 
you must notify us, follow this table:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
A security can be redeemed at the        for redemptions of * * *
 owner's option, if DSI receives a
 request for redemption not less than *
 * *.
------------------------------------------------------------------------
(1) 1 business day before the requested  $10 million or less.
 redemption date.
------------------------------------------------------------------------
(2) 3 business days before the           more than $10 million.
 requested redemption date.
------------------------------------------------------------------------

    (b) Can I request partial redemption of a security balance? You may 
request partial redemptions in any amount. If your account balance is 
less than $1,000, it must be redeemed in total.
    (c) Do I have to submit a notice of redemption? Yes. An official 
authorized to redeem the securities must submit an electronic or paper 
Treasury form PD F 5238, ``Request for Redemption of U.S. Treasury 
Securities State and Local Government Series One-Day Certificate of 
Indebtedness Demand Deposit.'' The notice must show the Taxpayer 
Identification Number of the issuer, the Treasury case number, the 
security number and the dollar amount of the securities to be redeemed. 
DSI must receive the notice by 3:00 p.m., Eastern time on the required 
day. You cannot cancel the notice.

Subpart D--Special Zero Interest Securities


Sec. 344.10  What are Special Zero Interest securities?

    Special zero interest securities were issued as certificates of 
indebtedness and notes. Provisions of subpart B of this part (Time 
Deposit Securities) apply except as specified in subpart D of this 
part. Special zero interest securities were discontinued on October 28, 
1996. The only zero interest securities available after October 28, 
1996, are zero interest time deposit securities that are subject to 
subpart B of this part.


Sec. 344.11  How do I redeem a Special Zero Interest Security before 
maturity?

    Follow the provisions of Sec. 344.6(a)-(g) except that no market 
charge or penalty will apply when you redeem a special zero interest 
security before maturity.

Appendix A to Part 344--Early Redemption Market Charge Formulas and 
Examples for Subscriptions From December 28, 1976, Through October 27, 
1996

    (a) The amount of the market charge for bonds and notes 
subscribed for before October 28, 1996 can be determined by the 
following formula:

[[Page 55413]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.002

    (b) The application of this formula can be illustrated by the 
following example:
    (1) Assume that a $600,000 note is issued on July 1, 1985, to 
mature on July 1, 1995. Interest is payable at a rate of 8% on 
January 1 and July 1.
    (2) Assume that the note is redeemed on February 1, 1989, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 6 years and 150 days is 11%.
    (3) The increased annual borrowing cost is $18,000. 
($600,000)x(11%-8%)
    (4) The market charge is computed as follows:

[[Page 55414]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.003

[GRAPHIC] [TIFF OMITTED] TR13SE00.004

    (c) The amount of the market charge for certificates of 
indebtedness subscribed for before October 28, 1996 can be 
determined by the following formula:

[[Page 55415]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.005

    (d) The application of this formula can be illustrated by the 
following example:
    (1) Assume that a $50,000 certificate of indebtedness is issued 
on March 1, 1987, to mature on November 1, 1987. Interest is payable 
at a rate of 10%.
    (2) Assume that the certificate of indebtedness is redeemed on 
July 1, 1987, and that the current borrowing cost to Treasury for 
the 123-day period from July 1, 1987, to November 1, 1987, is 11.8%.
    (3) The increased annual borrowing cost is $900. ($50,000) x 
(11.8%-10%)
    (4) The market charge is computed as follows:
    [GRAPHIC] [TIFF OMITTED] TR13SE00.006
    
Appendix B to Part 344--Formula for Determining Redemption Value for 
Securities Subscribed for and Early-Redeemed On or After October 28, 
1996

    (a) This formula results in a premium or discount to the issuer 
depending on whether the current Treasury borrowing rate at the time 
of early redemption is lower or higher than the stated interest rate 
of the early-redeemed SLGS security. The total redemption value for 
bonds and notes can be determined by the following two steps. First, 
calculate accrued interest payable in accordance with 
Sec. 344.6(d)(1) using the following formula:
[GRAPHIC] [TIFF OMITTED] TR13SE00.007

Second, calculate the redemption value per Sec. 344.6(d)(2) using 
the following formula:

[[Page 55416]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.008

    (b) The application of this formula can be illustrated by the 
following examples:
    (1) The first example is for a redemption at a premium.
    (i) Assume that an $800,000 2-year note is issued on December 
10, 1996, to mature on December 10, 1998. Interest is payable at a 
rate of 7% on June 10 and December 10.
    (ii) Assume that the note is redeemed on October 21, 1997, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 1 year and 50 days is 6.25%.
    (iii) The redemption value is computed as follows. First, the 
accrued interest payable is calculated as:

[[Page 55417]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.009

[GRAPHIC] [TIFF OMITTED] TR13SE00.010

    Then, the redemption value is calculated as:

[[Page 55418]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.011

    (2) The second example is for a redemption at a discount and it 
uses the same assumptions as the first example, except the current 
Treasury borrowing cost is assumed to be 8.00%:
    (i) Assume that an $800,000 2-year note is issued on December 
10, 1996, to mature on December 10, 1998. Interest is payable at a 
rate of 7% on June 10 and December 10.
    (ii) Assume that the note is redeemed on October 21, 1997, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 1 year and 50 days is 8.00%.
    (iii) The redemption value is computed as follows.
    First, the accrued interest payable is calculated as:

[[Page 55419]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.012

    Then, the redemption value is calculated as:
    [GRAPHIC] [TIFF OMITTED] TR13SE00.013
    

[[Page 55420]]


[GRAPHIC] [TIFF OMITTED] TR13SE00.014

    (c) The total redemption value for certificates of indebtedness 
can be determined by the following two steps. First, calculate 
accrued interest payable in accordance with Sec. 344.6(d)(1) using 
the following formula:
[GRAPHIC] [TIFF OMITTED] TR13SE00.015

    Second, calculate the redemption value per Sec. 344.6(d)(2) 
using the following equation:

[[Page 55421]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.016

    (d) The application of this formula can be illustrated by the 
following examples.
    (1) First, for a redemption at a premium:
    (i) Assume that a $300,000 security is issued on December 5, 
1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% 
is payable at maturity.
    (ii) Assume that the security is redeemed on April 9, 1997, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 26 days is 4.00%.
    (iii) The redemption value is computed as follows.
    First, the accrued interest payable is calculated as:
    [GRAPHIC] [TIFF OMITTED] TR13SE00.017
    

[[Page 55422]]


    Then, the redemption value is calculated as:
    [GRAPHIC] [TIFF OMITTED] TR13SE00.018
    
    [GRAPHIC] [TIFF OMITTED] TR13SE00.019
    
    (2) Secondly, for a redemption at a discount:
    (i) Assume that a $300,000 security is issued on December 5, 
1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% 
is payable at maturity.
    (ii) Assume that the security is redeemed on April 9, 1997, and 
that the current borrowing rate for Treasury at that time for the 
remaining period of 26 days is 6.25%.
    (iii) The redemption value is computed as follows.
    First, the accrued interest payable is calculated as:

[[Page 55423]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.020

    Then, the redemption value is calculated as:

[[Page 55424]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.021


    Dated: August 28, 2000.
Donald V. Hammond,
Fiscal Assistant Secretary.
[FR Doc. 00-22531 Filed 9-12-00; 8:45 am]
BILLING CODE 4810-39-C