[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
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Jul. 1, 1999 CFR
Interim rule CFR sec. sec. Summary of change
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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.
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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.
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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.''
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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).
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[[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