[Federal Register Volume 66, Number 38 (Monday, February 26, 2001)]
[Proposed Rules]
[Pages 11548-11549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4647]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / 
Proposed Rules  

[[Page 11548]]



DEPARTMENT OF THE TREASURY

Office of the Under Secretary for Domestic Finance

17 CFR Part 450

RIN 1505-AA82


Government Securities Act Regulations: Definition of Government 
Securities

AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.

ACTION: Proposed rule.

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SUMMARY: The Department of the Treasury (``Treasury,'' ``We,'' or 
``Us'') is publishing for comment a proposed amendment to the 
regulations issued under the Government Securities Act of 1986, as 
amended (``GSA''). Section 208 of the Gramm-Leach-Bliley Act amended 
the definition of the term ``government securities'' in the Securities 
Exchange Act of 1934, as it applies to a bank, to include qualified 
Canadian government obligations. To conform to this change in 
definition, we are proposing a technical amendment to Part 450 of the 
GSA regulations governing depository institutions' government 
securities holdings in custody for customers.

DATES: Submit comments on or before March 28, 2001.

ADDRESSES: You may send us hard copy comments at: Government Securities 
Regulations Staff, Bureau of the Public Debt, 999 E Street NW., Room 
315, Washington, DC 20239-0001. You may also send us comments by e-mail 
at [email protected]. When sending comments by e-mail, please use 
an ASCII file format and provide your full name and mailing address. 
Comments received will be available for downloading from the Internet 
and for public inspection and copying at the Treasury Department 
Library, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue, 
N.W., Washington, D.C. 20220. To visit the library, call (202) 622-0990 
for an appointment. This proposed amendment is also available for 
downloading from Public Debt's web site at the following address: 
www.publicdebt.treas.gov.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena (Executive Director), 
Lee Grandy (Associate Director), or Deidere Brewer (Government 
Securities Specialist), Bureau of the Public Debt, Government 
Securities Regulations Staff, (202) 691-3632 or e-mail us at 
[email protected].

SUPPLEMENTARY INFORMATION: This proposed rule deals with the recent 
change in definition of ``government securities'' in the Securities 
Exchange Act of 1934 (``the Exchange Act'') to include certain Canadian 
government obligations, as applied to banks. This statutory change 
affects two groups of GSA regulations--Subchapter A (17 CFR Parts 400-
449), issued under Title I of the GSA, and Subchapter B (17 CFR Part 
450), issued under Title II of the GSA--which we discuss separately. 
Because the statutory change is picked up automatically in Subchapter 
A, we are not proposing any regulatory change to Subchapter A. We are 
proposing a technical and clarifying change to Subchapter B.

Subchapter A

    Title I of the Government Securities Act of 1986 \1\ (Section 15C 
of the Exchange Act) requires ``government securities brokers'' and 
``government securities dealers'' (which may include banks) to provide 
notice to their regulators and comply with the requirements prescribed 
by Treasury in 17 CFR, Subchapter A, Parts 400-449. Among those 
requirements is compliance with rules in Subchapter B (Part 450).\2\
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    \1\ Pub. L. No. 99-571, 100 Stat. 3208 (1986).
    \2\ See 17 CFR 403.5(a), (d)(1)(vi).
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    Part 401 provides a series of exemptions for financial 
institutions. These exemptions include limited government securities 
brokerage and government securities dealer activities and certain 
repurchase transactions with customers. Thus, even if a financial 
institution does not provide notice as a government securities broker 
or dealer, it may be subject to Subchapter A by virtue of its reliance 
on the exemptions in Subchapter A. One of the conditions of these 
exemptions is that a financial institution must comply with the 
requirements in Subchapter B (Part 450).
    The GSA amended the Exchange Act by adding a definition of the term 
``government securities'' at section 3(a)(42) of the Exchange Act.\3\ 
In Subchapter A of the implementing regulations for the GSA,\4\ we 
defined ``government securities'' at Sec. 400.3(m)\5\ as having the 
meaning set out in section 3(a)(42) of the Exchange Act.
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    \3\ 15 U.S.C. 78c(a)(42).
    \4\ 52 FR 27910 (July 24, 1987).
    \5\ 17 CFR 400.3(m).
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    Section 208 of Title II, Subtitle A of the Gramm-Leach-Bliley Act 
\6\ (the ``G-L-B Act'') amended the definition of ``government 
securities'' in the Exchange Act by adding a new subparagraph (E) at 
section 3(a)(42). The amendment provides that ``government securities'' 
means ``for purposes of section 15, 15C and 17A as applied to a bank, a 
qualified Canadian government obligation as defined in section 5136 of 
the Revised Statutes of the United States.'' As background, section 
5136 of the National Banking Act was amended as a result of the U.S. 
Canada Free Trade Agreement.\7\ The legislative history shows that the 
U.S., in return for certain commitments made by Canada, agreed to 
permit U.S., Canadian and other foreign banks to deal in, underwrite, 
and purchase obligations backed by the Government of Canada or its 
political subdivisions.\8\
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    \6\ Gramm-Leach-Bliley Act sec. 208; Pub. L. No. 106-102, 113 
Stat. 1338 (1999).
    \7\ U.S. Canada Free Trade Agreement sec. 308; Pub. L. No. 100-
449, 102 Stat. 1877 (1988).
    \8\ S. Rep. No. 100-509, at 67 (1988) reprinted in 1988 
U.S.C.C.A.N. 2395, 2462.
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    Because section 400.3(m) of the regulations currently defines 
``government securities'' to have the meaning set out at section 
3(a)(42) of the Exchange Act, the statutory change to include certain 
Canadian government obligations will now be automatically incorporated 
without requiring a technical change. Any U.S. banks that transact 
business in qualified Canadian government obligations, but not U.S. 
government securities, may now be subject to the GSA regulations 
(including the exemptions). U.S. banks currently transacting business 
in U.S. government securities are already subject to the GSA 
regulations. We invite comments on the impact on banks of this change 
in definition of the term

[[Page 11549]]

``government securities'' to include qualified Canadian government 
obligations, specifically whether particular requirements in the GSA 
regulations would raise operational issues of which we are unaware.

Subchapter B

    As noted above, Subchapter A of the regulations requires 
institutions subject to Subchapter A (i.e., government securities 
brokers and dealers and exempt institutions) to also comply with the 
rules in Subchapter B. In addition, under Title II of the GSA (31 
U.S.C. 3121(h), 9110) depository institutions that are not government 
securities brokers or dealers and that hold government securities for 
the account of customers must comply with the rules prescribed by 
Treasury in 17 CFR, Subchapter B, Part 450. Thus, there are three 
categories of institutions that must follow the rules in Subchapter B--
(a) (as required by the rules in Subchapter A), financial institution 
government securities brokers and dealers and (b) (also as required by 
the rules in Subchapter A), exempt financial institutions, and (c) 
depository institutions that are not government securities brokers or 
dealers and that hold government securities for the account of 
customers.
    Because two of these categories of institutions ((a) and (b)) are 
based on one statutory authority (Title I of the GSA), and the third 
category ((c)) is based on another statutory authority (Title II of the 
GSA), we are proposing a revised regulatory definition of ``government 
securities'' at section 450.2(e) that takes this into account. Proposed 
Sec. 450.2(e)(1), the definition applicable to institutions that are 
required under the rules in Subchapter A to follow the Subchapter B 
rules, will include qualified Canadian government obligations. Proposed 
Sec. 450.2(e)(2) of the definition is narrower and does not include 
qualified Canadian government obligations. It would be applicable to 
institutions that are required to follow the Subchapter B rules solely 
because of the requirements of Title II of the GSA.
    Therefore, for institutions required to follow the rules in 
Subchapter B as a result of the requirements of Subchapter A, proposed 
Sec. 450.2(e)(1)(i) and (e)(1)(ii) would extend the requirements of 
Subchapter B to institutions holding qualified Canadian government 
obligations for customer accounts.
    Based on our consultation with staff of the bank regulatory 
agencies, we understand this proposed change in the definition of 
``government securities'' would not have a material impact on banks. 
They are not aware of situations in which banks in the U.S. are 
handling qualified Canadian government obligations for customers. 
Therefore, we believe this conforming amendment would not have more 
than a minimal effect on banks.
    The G-L-B Act was enacted on November 12, 1999. The effective date 
of Subtitle A of Title II of the G-L-B Act is 18 months after 
enactment, or May 12, 2001. Accordingly, after we consider all comments 
received in response to this proposed amendment, we intend to issue a 
final amendment to the GSA regulations that will be effective May 12, 
2001.

Special Analysis

    The proposed rule would only make a technical amendment to the GSA 
regulations to conform to a change in definition of the term 
``government securities'' made by the G-L-B Act. Based on the very 
limited impact of the proposed amendment, it is our view that the 
proposed regulations are not a ``significant regulatory action'' for 
the purposes of Executive Order 12866.
    For the same reasons, we certify under the Regulatory Flexibility 
Act (5 U.S.C. 601, et seq.) that the proposed regulations, if adopted, 
will not have a significant economic impact on a substantial number of 
small entities. As a result, a regulatory flexibility analysis is not 
required.

List of Subjects in 17 CFR Part 450

    Banks, banking, Government securities, Reporting and recordkeeping 
requirements.
    For the reasons stated in the preamble, we propose to amend 17 CFR 
Part 450 to read as follows:

PART 450--CUSTODIAL HOLDINGS OF GOVERNMENT SECURITIES BY DEPOSITORY 
INSTITUTIONS

    1. The authority citation for Part 450 is revised to read as 
follows:

    Authority: Sec. 201, Pub. L. 99-571, 100 Stat. 3222-23 (31 
U.S.C. 3121, 9110); Sec. 101, Pub. L. 99-571, 100 Stat. 3208 (15 
U.S.C. 78o-5(b)(1)(A), (b)(4), (b)(5)(B)).

    2. Section 450.2 is amended by revising paragraph (e) to read as 
follows:


Sec. 450.2  Definitions.

* * * * *
    (e) Government securities means:

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                If . . .                            Then . . .
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(1)(i) A depository institution is a     ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), (C),
 3(a)(44) of the Securities Exchange      or (E) of section 3(a)(42) of
 Act of 1934 (15 U.S.C. 78c(a)(43)-       the Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E)).
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(ii) A depository institution is exempt  ``Government securities'' means
 under Part 401 of this chapter from      those obligations described in
 the requirements of Subchapter A.        subparagraphs (A), (B), (C),
                                          or (E) of section 3(a)(42) of
                                          the Securities Exchange Act of
                                          1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E)).
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(2) A depository institution is not a    ``Government securities'' means
 government securities broker or dealer   those obligations described in
 as defined in sections 3(a)(43) and      subparagraphs (A), (B), or (C)
 3(a)(44) of the Securities Exchange      of section 3(a)(42) of the
 Act of 1934 (15 U.S.C. 78c(a)(43)-       Securities Exchange Act of
 (44)).                                   1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C)).
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* * * * *

    Dated: February 21, 2001.
Donald V. Hammond,
Acting Under Secretary, Domestic Finance.
[FR Doc. 01-4647 Filed 2-23-01; 8:45 am]
BILLING CODE 4810-39-P