[Federal Register Volume 77, Number 110 (Thursday, June 7, 2012)]
[Rules and Regulations]
[Pages 33634-33635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13779]


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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: Final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
final rule to revise the regulations governing State and Local 
Government Series (SLGS) securities. SLGS securities are non-marketable 
Treasury securities that are only available for purchase by issuers of 
tax-exempt securities. Current financial market conditions have 
resulted in extraordinarily low yields in the secondary market for some 
marketable Treasury securities. As a result, rates applicable to non-
marketable State and Local Government Series (SLGS) securities sold to 
issuers of tax-exempt securities could be negative. To prevent this, 
Treasury is instituting a floor on the daily SLGS rate, by amending the 
definition of ``SLGS rate'' and the definition of the ``annualized 
effective Demand Deposit rate'' for Demand Deposit SLGS securities. 
Additionally, Treasury is revising the definition of ``Y'' in the 
annualized effective Demand Deposit rate calculation formula to clarify 
the calculation method to be used during a year that contains a leap 
day.

DATES: This final rule is effective June 7, 2012.

ADDRESSES: You can download this Final Rule at the following Internet 
addresses: http://www.publicdebt.treas.gov, http://www.gpo.gov, or 
http://www.regulations.gov. It is also available for public inspection 
and copying at the Treasury Department Library, 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: Debra Hines, Assistant Commissioner, 
Office of the Assistant Commissioner for Public Debt Accounting, Bureau 
of the Public Debt, at (304) 480-5101 or [email protected], Edward 
Gronseth, Deputy Chief Counsel, Elizabeth Spears, Senior Attorney, or 
Brian Metz, Attorney-Adviser, Office of the Chief Counsel, Bureau of 
the Public Debt at (304) 480-8692.

SUPPLEMENTARY INFORMATION: The SLGS program assists state and local 
government issuers and other entities in complying with the yield 
restriction and rebate requirements applicable to tax-exempt bonds 
under the Internal Revenue Code. The SLGS rate on Time Deposit SLGS 
securities is derived from

[[Page 33635]]

the Treasury yield curve, less Treasury's administrative costs. As 
Treasury's costs of administering the SLGS program have decreased so 
has the amount of the differential that exists between the SLGS rate 
and the Treasury borrowing rate. The differential was last changed in a 
2005 Final Rule (70 FR 37904, June 30, 2005) when Treasury lowered the 
SLGS rate from 5 basis points below the current Treasury borrowing 
rates to 1 basis point below current Treasury borrowing rates.
    In this rule, Treasury revises the definition of ``SLGS rate'' and 
``annualized effective Demand Deposit rate'' to address the current 
extremely low yield environment. The revised definitions will prevent 
the calculation of the rates for SLGS securities from resulting in 
negative rates. No change is being made to Treasury's administrative 
costs. Additionally, to add clarification to part 344, Treasury revises 
the definition of ``Y'' in the annualized effective Demand Deposit rate 
calculation formula to clarify the calculation method to be used during 
a year that contains a leap day. This revision should not affect 
issuers' practices and systems.
    While the formula for calculating the rate for Demand Deposit SLGS 
securities remains unchanged under Sec.  344.7(a), the definition of 
``annualized effective Demand Deposit rate'' is being amended. This has 
the effect of preventing the calculation of the rate for Demand Deposit 
SLGS securities from resulting in a negative rate. Demand Deposit SLGS 
securities will continue to bear a rate of interest based on an 
adjustment of the average yield for three-month (13-week) Treasury 
bills at the most recent auction. A new rate will be effective on the 
first business day following the regular auction of 13-week Treasury 
bills and will continue to be shown in the SLGS rate table. Lastly, 
Treasury's administrative costs for administering Demand Deposit SLGS 
securities remain unchanged under Sec.  344.7(a)(2).

Procedural Requirements

    Executive Order 12866. This final rule is not a significant 
regulatory action pursuant to Executive Order 12866, dated September 
30, 1993.
    Administrative Procedure Act (APA). Because this rule relates to 
United States securities, which are contracts between Treasury and the 
owner of the security, this rule falls within the contract exception to 
the APA, 5 U.S.C. 553(a)(2). As a result, the notice, public comment, 
and delayed effective date provisions of the APA are inapplicable to 
this rule.
    Regulatory Flexibility Act. The provisions of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., do not apply to this rule 
because, pursuant to 5 U.S.C. 553(a)(2), it is not required to be 
issued with notice and opportunity for public comment.
    Paperwork Reduction Act (PRA). We ask for no collections of 
information in this final rule. Therefore, the Paperwork Reduction Act 
(44 U.S.C. 3501 et seq.) does not apply.
    Congressional Review Act (CRA). This rule is not a major rule 
pursuant to the CRA, 5 U.S.C. 801 et seq., because it is a minor 
amendment that is not expected to lead to any of the results listed in 
5 U.S.C. 804(2). This rule will take effect upon publication in the 
Federal Register, after we submit a copy of it to Congress and the 
Comptroller General.

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Reporting and recordkeeping 
requirements.

    Accordingly, for the reasons set forth in the preamble, Treasury 
amends 31 CFR part 344 as follows:

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

0
1. The authority citation for part 344 continues to read as follows:

    Authority: 26 U.S.C. 141 note; 31 U.S.C. 3102, 3103, 3104, and 
3121.


0
2. Amend Sec.  344.1 by revising the definition of ``SLGS rate,'' to 
read as follows:


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

* * * * *
    SLGS rate means the current Treasury borrowing rate, less one basis 
point, as released daily by Treasury in a SLGS rate table. If the 
current Treasury borrowing rate, together with the one basis point 
adjustment, results in a negative rate, such corresponding SLGS rate 
will be set at zero.
* * * * *

0
3. Amend Sec.  344.7 by:
0
a. Revising paragraph (a) introductory text; and
0
b. Revising ``I'' and ``Y'' in Equation 1 in paragraph (a)(1)(i) to 
read as follows:


Sec.  344.7  What are Demand Deposit securities?

* * * * *
    (a) How is the rate for Demand Deposit securities determined? Each 
security shall bear a rate of interest based on an adjustment of the 
average yield for 13-week Treasury bills at the most recent auction. A 
new annualized effective Demand Deposit rate and daily factor for the 
Demand Deposit rate are effective on the first business day following 
the regular auction of 13-week Treasury bills and are 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) * * *
    (i) * * *

(Equation 1)
* * * * *
I = Annualized effective Demand Deposit rate in decimals. If the 
rate is determined to be negative, such rate will be reset to zero.
* * * * *
Y = 365 (if the year following issue date of the 13-week Treasury 
bill does not contain a leap year day) or 366 (if the year following 
issue date of the 13-week Treasury bill does contain a leap year 
day).
* * * * *

Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2012-13779 Filed 6-6-12; 8:45 am]
BILLING CODE 4810-39-P