[Federal Register Volume 65, Number 214 (Friday, November 3, 2000)]
[Rules and Regulations]
[Pages 66174-66175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28280]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Parts 306 and 356

[Department of the Treasury Circular, Public Debt Series No. 1-93]


Marketable Book-Entry Treasury Bills, Notes, and Bonds; Minimum 
Par Amounts Required for STRIPS

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

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Treasury,'' ``We,'' or 
``Us'' is issuing in final form amendments to 31 CFR part 306 (General 
Regulations Governing U.S. Securities) and 31 CFR part 356 (Uniform 
Offering Circular for the Sale and Issue of Marketable Book-Entry 
Treasury Bills, Notes, and Bonds). The purpose of these amendments is 
to simplify and enhance market participants' ability to strip Treasury 
fixed-principal securities. ``Stripping'' a security means to separate 
it into its principal and interest components. The amendment modifies 
the minimum and multiple amounts that are required to strip Treasury 
fixed-principal securities by setting them each at $1,000. It also 
eliminates the multiple requirement for the interest components that 
result from stripping, in effect making Treasury fixed-principal 
securities strippable ``to the penny.'' Further, the amendment 
eliminates Exhibit C of this part, ``Minimum Par Amounts for Fixed-
Principal STRIPS,'' since this table will no longer be necessary. 
Finally, the amendment provides us the flexibility to designate a 
Treasury note or bond as strippable even if the note or bond was not 
originally designated as strippable by its offering announcement. This 
flexibility will allow us to make eligible for stripping outstanding 
five-year Treasury notes issued prior to September 30, 1997.

EFFECTIVE DATE: March 1, 2001, except for the amendment of 
Sec. 356.31(a), which is effective November 3, 2000.

ADDRESSES: You may download this final rule from the Bureau of the 
Public Debt's Internet site at the following address: 
www.publicdebt.treas.gov. It is also available for public inspection 
and copying at the Treasury Department Library, Room 1428, Main 
Treasury Building, 1500 Pennsylvania Avenue, NW., Washington, DC, 
20220. To visit the library, call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena (Executive Director) 
or Chuck Andreatta (Senior Financial Advisory), Bureau of the Public 
Debt, Government Securities Regulations Staff, (202) 691-3632, or e-
mail us at [email protected].

SUPPLEMENTARY INFORMATION: 31 CFR part 356, also referred to as the 
uniform offering circular, sets out the terms and conditions for the 
sale and issuance to the public of marketable Treasury bills, notes, 
and bonds.\1\ The uniform offering circular, in conjunction with 
offering announcements, represents a comprehensive statement of these 
terms and conditions.\2\ This final rule modifies Sec. 356.31, which 
pertains to STRIPS (Separate Trading of Registered Interest and 
Principal of Securities). It also eliminates Exhibit C (``Minimum Par 
Amounts for Fixed-Principal STRIPS''). In addition, this rule amends 31 
CFR 306.128, which pertains to Treasury's discretion to supplement, 
amend, or revise regulations governing U.S. securities.
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    \1\ Includes both fixed-principal and inflation-indexed Treasury 
securities.
    \2\ The uniform offering circular was published as a final rule 
on January 5, 1993 (58 FR 412). The circular, as amended, is 
codified at 31 CFR part 356.
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Stripping Treasury Securities ``To the Penny''

    The STRIPS program, which began in January 1985, allows holders of 
book-entry (electronic) Treasury notes and bonds to separate those 
securities into their separate principal and interest components. These 
components can then be held and traded separately as zero-coupon 
securities. The interest components (``TINTs''), but not the principal 
components, are fungible (interchangeable). This means that TINTs with 
the same maturity date have the same identifying CUSIP number 
regardless of the underlying security from which they were stripped. 
Securities with the same CUSIP number are considered to be the same 
security.
    Since its implementation, the STRIPS program has required that the 
par amount of a fully constituted Treasury fixed-principal \3\ security 
to be stripped must be an amount that, based on the stated interest 
rate of the security, will produce a TINT of $1,000 or a multiples of 
$1,000. Any amount greater than this par amount must be in a multiple 
of that amount. Once a book-entry security has been separated, each 
interest and principal component can then be maintained and transferred 
in multiples of $1,000. This $1,0000 minimum and multiple requirement 
conforms with the minimum and multiple requirement of fully constituted 
Treasury notes and bonds.
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    \3\ We use the term ``fixed-principal'' to distinguish such 
securities from Treasury ``inflated-indexed'' securities, whose 
principal amounts are adjusted periodically for inflation.
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    The $1,000 multiple requirement for the TINTs, however, results in 
a wide disparity in the par amounts of fully constituted (unstripped) 
securities with different interest rates that are needed to produce 
TINTs in multiples of $1,000. For example, a note or bond with an 
interest rate of 6\1/8\ percent requires a minimum of $1,600,000 of the 
fully constituted security for stripping in order for the resulting 
TINTs to be in a multiple of $1,000. In this example, the resulting 
TINTs have payment amounts of $49,000. By contrast, a note or bond with 
an interest rate of 6\1/4\ percent requires only a minimum par amount 
of $32,000 to be stripped, with resulting TINTs of $1,000, which is the 
minimum amounts for TINTs.
    When we implemented a process to make TINTs from inflation-indexed 
securities fungible on March 31, 1999,\4\

[[Page 66175]]

it was necessary for us to convert the payment values of the TINTs to 
``adjust values,'' which could be maintained and transferred ``to the 
penny.'' At that time, we stated that we would ``consider at a later 
date the desirability of making changes to the minimum and multiple 
requirements for fixed-principal TINTs, * * * and permitting fixed-
principal TINTs to be held in amounts to the penny.'' \5\
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    \4\ 63 FR 35782 (June 30, 1998).
    \5\ 63 FR 35783 (June 30, 1998).
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    On November 1, 2000, we announced that, effective March 1, 2001, we 
will be changing the minimum and multiple requirements for stripping 
Treasury fixed-principal securities. We have decided to make these 
changes because elimination of the $1,000 minimum and multiple 
requirements will make stripping easier. Market participants will no 
longer be required to deliver fully constituted securities in widely 
different amounts depending on the interest rate of the underlying 
security. By simplifying the requirements for STRIPS, our goal is to 
enhance the liquidity and efficiency of the STRIPS market.

Increasing the Number of Strippable Securities

    Enhancing the liquidity of the STRIPS market is also our objective 
in modifying the STRIPS rules to permit us to designate a note or bond 
as strippable even if the note or bond was not originally designated as 
strippable by its offering announcement. When the STRIPS program was 
first implemented in 1985, only Treasury notes and bonds with 
maturities of 10 years or longer were eligible for stripping. At that 
time there was little market interest in stripping securities with 
maturities less than 10 years.
    By 1997, however, interest in stripping shorter-term Treasury notes 
had developed. Consequently, on September 17, 1997, we announced that 
all Treasury notes issued on or after September 30, 1997, were eligible 
for STRIPS.
    Because Treasury securities currently can be made eligible for 
STRIPS only by being designated as such in their offering 
announcements, we have not been able to make eligible for stripping 
outstanding shorter-term (five-year) notes that were issued prior to 
September 30, 1997. This amendment to the uniform offering circular 
will allow us to do so. As a result, we plan to announce that we are 
making eligible for stripping five-year notes issued prior to September 
30, 1997, thereby allowing for an increase in the supply of TINTs that 
mature in the next two years.

Amendments, Revisions, and Deletions

    Accordingly, we are amending the uniform offering circular's 
general paragraph on STRIPS, 356.31(a), so that we may designate 
Treasury notes and bonds as being eligible for stripping at a later 
date if they were not designated as being eligible in their offering 
announcement. We are also amending paragraph 356.31(b)(1), which 
provides the minimum par amount and multiple requirements for stripping 
Treasury fixed-principal securities, so that they may be stripped to 
the penny. We are also amending 31 CFR 306.128 in order to allow 
outstanding Treasury notes and bonds that we issued prior to the 
effective date of the uniform offering circular, March 1, 1993, to also 
be stripped to the penny. As a result of these amendments, we are 
removing Exhibit C to the uniform offering circular because this table 
is no longer necessary.
    We are issuing this amendment in final form rather than proposed 
form in order to more quickly simplify and expand the STRIPS market. In 
addition, there is no negative impact on the holders of the issues of 
the securities affected. This change provides an additional feature 
that should enhance the marketability of these issues.

Procedural Requirements

    This final rule is not a ``significant regulatory action'' under 
Executive Order 12866. The notice and public procedures and delayed 
effective date requirements of the Administrative Procedure Act also do 
not apply, under 5 U.S.C. 553(a)(2).
    Since no notice of proposed rulemaking is required, the provisions 
of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.

List of Subjects

    Bonds, Federal Reserve System, Government securities, Securities.

    For the reasons stated in the preamble, we amend 31 CFR Chapter II, 
Subchapter B, as follows:

PART 306--GENERAL REGULATIONS GOVERNING U.S. SECURITIES

    1. The authority citation for part 306 continues to read as 
follows:

    Authority: 31 U.S.C. Chapter 31; 5 U.S.C. 301; 12 U.S.C. 391.

    2. Revise Sec. 306.128 to read as follows:


Sec. 306.128  Supplements, amendments or revisions.

    The Secretary of the Treasury may at any time, or from time to 
time, prescribe additional supplemental, amendatory or revised 
regulations with respect to U.S. securities. The Secretary also may 
lower the minimum and multiple requirements for stripping marketable 
Treasury notes and bonds issued prior to March 1, 1993, through an 
announcement as provided in Sec. 356.31 of this title.

PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS, 
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT 
SERIES NO. 1-93)

    3. The authority citation for part 356 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

    4. Amend Sec. 356.31 as set forth below:
    a. Revise the first sentence in paragraph (a), and
    b. Revise paragraph (b)(1) to read as follows:


Sec. 356.31  STRIPS.

    (a) General. A note or bond may be designated in the offering 
announcement, or later by announcement by Treasury, as eligible for the 
STRIPS program. * * *
    (b) Treasury fixed-principal securities--(1) Minimum par amounts 
required for STRIPS. The minimum par amount of a fixed-principal 
security that may be stripped into the components described in 
paragraph (a) of this section is $1,000. Any par amount to be stripped 
above $1,000 must be in a multiple of $1,000.
* * * * *

Exhibit C to Part 356 [Removed]

    5. Remove Exhibit C to Part 356.

    Dated: October 31, 2000.
Donald V. Hammond,
Fiscal Assistant Secretary.
[FR Doc. 00-28280 Filed 11-1-00; 8:45 am]
BILLING CODE 4810-39-P