[Federal Register Volume 66, Number 101 (Thursday, May 24, 2001)]
[Rules and Regulations]
[Pages 28654-28655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-13138]


=======================================================================
-----------------------------------------------------------------------

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: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of the Treasury (``Treasury,'' ``We,'' or 
``Us'') is issuing in final form an 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 with this change in definition, we are issuing 
a technical amendment to Part 450 of the GSA regulations governing 
depository institutions' government securities holdings in custody for 
customers.

EFFECTIVE DATE: May 24, 2001.

ADDRESSES: You may download the final rule from Treasury's Bureau of 
the Public Debt website 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), 
Lee Grandy (Associate Director), or Deidere Brewer (Government 
Securities Specialist), Bureau of the Public Debt, Government 
Securities Regulations Staff, (202) 691-3632.

SUPPLEMENTARY INFORMATION: This final 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. On February 26, 2001 (66 
FR 11548), we published a proposed amendment to Part 450 of the GSA 
regulations. No comment letters were received. Therefore, we have 
decided to adopt the amendment unchanged from its proposed form. 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 making any regulatory change to Subchapter A. 
We are making 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\
---------------------------------------------------------------------------

    \1\ Pub. L. 99-571, 100 Stat. 3208 (1986).
    \2\ See 17 CFR 403.5(a), (d)(1)(vi).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78c(a)(42).
    \4\ 52 FR 27910 (July 24, 1987).
    \5\ 17 CFR 400.3(m).
---------------------------------------------------------------------------

    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 sections 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.''
---------------------------------------------------------------------------

    \6\ Gramm-Leach-Bliley Act sec. 208; Pub. L. No. 106-102, 113 
Stat. 1338 (1999).
---------------------------------------------------------------------------

    Because Sec. 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.

[[Page 28655]]

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) financial institution government securities brokers and dealers (as 
required by the rules in Subchapter A), and (b) exempt financial 
institutions (also as required by the rules in Subchapter A), 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 changing the definition of ``government securities'' in 
Sec. 450.2(e) to take this into account. Section 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 now include 
qualified Canadian government obligations. Section 450.2(e)(2) of the 
definition is narrower and does not include qualified Canadian 
government obligations. It is 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, 
Sec. 450.2(e)(1)(i) and (e)(1)(ii) will extend the requirements of 
subchapter B to institutions holding qualified Canadian government 
obligations for customer accounts.
    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. To minimize the period during which the 
amended regulation is not in effect and to encourage timely compliance 
by entities that may now be subject to our regulations, Treasury finds 
good cause exists as required under the Administrative Procedures Act 
(5 U.S.C. 553(d)) to make this final amendment to the GSA regulations 
effective on May 24, 2001.

Special Analysis

    The final rule only makes 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. Therefore, the final 
rule is not a ``significant regulatory action'' for the purposes of 
Executive Order 12866.
    For the same reason it is hereby certified pursuant to the 
Regulatory Flexibility Act (5 U.S.C. 601, et. seq) that this final rule 
will not have a significant economic impact on a substantial number of 
small entities. Accordingly, 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 amend 17 CFR part 450 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:

------------------------------------------------------------------------
                If . . .                            Then . . .
------------------------------------------------------------------------
(1)(i) A depository institution is a     ``Government securities'' means
 government securities broker and         those obligations described in
 dealer as defined in sections 3(a)(43)   subparagraphs (A), (B), (C),
 and 3(a)(44) of the Securities           or (E) of section 3(a)(42) of
 Exchange Act of 1934 (15 U.S.C.          the Securities Exchange Act of
 78c(a)(43)-(44)).                        1934 (15 U.S.C. 78c(a)(42)(A)-
                                          (C), (E))
------------------------------------------------------------------------
(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))
------------------------------------------------------------------------
(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))
------------------------------------------------------------------------

* * * * *

    Dated: May 18, 2001.
Donald V. Hammond,
Acting Under Secretary, Domestic Finance.
[FR Doc. 01-13138 Filed 5-23-01; 8:45 am]
BILLING CODE 4810-39-P