Sale and Issue of Marketable Book-Entry Treasury Bills, Notes and Bonds

DEPARTMENT OF THE TREASURY

Fiscal Service

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

31 CFR Part 356

Sale and Issue of Marketable Book-Entry Treasury Bills, Notes and

Bonds

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the

Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Department'') is issuing in

final form an amendment to 31 CFR part 356, published as a final rule

on January 5, 1993 (58 FR 412). 31 CFR part 356, also referred to as

the uniform offering circular, sets out terms and conditions for the

sale and issue by the Department to the public of marketable book-entry

Treasury bills, notes and bonds. The amendment contained herein allows

for Treasury securities awarded to a submitter that is a member of a

clearing corporation to be delivered to an account of the clearing

corporation at a depository institution, provided the securities are

for the submitter's own account and certain agreements have been

executed by the parties and filed with the appropriate Federal Reserve

Bank. Specifically, this change will enable a clearing corporation to

net securities awarded at an auction to submitters that are its members

with the when-issued and secondary market trades of such members in the

same securities.

EFFECTIVE DATE: June 3, 1994.

FOR FURTHER INFORMATION CONTACT: Don Hammond, Acting Director,

Government Securities Regulations Staff, Bureau of the Public Debt

(202) 219-3632, or Margaret Marquette, Attorney-Adviser, Office of the

Chief Counsel, Bureau of the Public Debt (202) 219-3320. (TDD for

hearing impaired: (202) 219-9274.)

SUPPLEMENTARY INFORMATION:

I. Background and Analysis

Clearing corporations play an increasingly important role in the

clearance and settlement of securities transactions. To date, clearing

corporation involvement in the clearance and settlement of Treasury

securities has been limited to the secondary market. The Department

believes that including Treasury auction purchases in a multilateral

netting system operated by a clearing agency registered with the

Securities and Exchange Commission (``SEC'') can be beneficial to the

efficiency of the government securities market. For example, with

respect to the book-entry system for Treasury securities, it can reduce

the number of securities transfers. In addition, it can enable the

clearing agency to improve its risk management by providing a more

complete picture of its members' positions.

This amendment to the uniform offering circular specifies the

conditions under which Federal Reserve Banks may deliver to an account

of a clearing corporation at a depository institution securities

awarded at auction to submitters that are members of the clearing

corporation. The amendment permits only securities awarded to a

submitter for its own account to be delivered through a clearing

corporation. To qualify as a clearing corporation for purposes of this

rule, an entity must be registered with the SEC as a clearing agency.

Currently, the only SEC-registered clearing agency that nets trades

in Treasury securities is the Government Securities Clearing

Corporation (``GSCC''). GSCC has proposed to net GSCC netting member

auction awards of Treasury securities against their when-issued and

secondary market trades in the same securities. On March 10, 1994, the

SEC published the GSCC's proposed rule amendments necessary to

implement the netting of the proprietary auction awards of its members

(59 FR 11345). The SEC comment period ended on March 31, 1994.

This rule amends Secs. 356.2, 356.11, 356.16, and 356.24 of the

uniform offering circular.

Specifically, in Sec. 356.2, the definition of the term

``autocharge agreement'' has been expanded to allow for an autocharge

between a clearing corporation and a depository institution. In

addition, the term ``clearing corporation'' is defined as a clearing

agency, as defined by Sec. 3 of the Securities Exchange Act of 1934,

that is registered with the SEC.

The term ``delivery and payment agreement'' has also been added to

the definitions in Sec. 356.2. This term refers to an agreement between

a submitter and a clearing corporation authorizing a Federal Reserve

Bank to deliver securities awarded to a submitter to, and accept

payment from, a depository institution for the clearing corporation.

This new agreement is needed to authorize the delivery of securities to

a clearing corporation's account rather than to the submitter's

account. Any existing autocharge agreements between a submitter and a

depository institution will continue to govern delivery and payment for

submitters not taking delivery through a clearing corporation. In

addition, any existing autocharge agreements will continue to govern

the delivery of and payment for securities awarded to customers.

New paragraph 356.11(b)(2) makes clear that for competitive bids

submitted in paper form, a submitter that is a clearing corporation

member and is submitting bids for its own account and for customers

must submit a separate tender for each specific delivery instruction.

This requirement also applies to any other submitter instructing

delivery of awarded securities to more than one account.

New paragraph 356.16(b)(2)(iii) has been added to clarify that, if

awarded securities are to be delivered to an account of a clearing

corporation at a depository institution, a delivery and payment

agreement must be acknowledged by, and on file with, the appropriate

Federal Reserve Bank prior to the submission of a tender for the

securities. By entering into such an agreement, the submitter

authorizes the Federal Reserve Bank to provide to the clearing

corporation notice of the submitter's auction awards. Further, a

clearing corporation entering into delivery and payment agreements with

submitters must have an acknowledged autocharge agreement on file at

the Federal Reserve Bank maintaining the accounts of the clearing

corporation's agent banks. By entering into an autocharge agreement,

the clearing corporation authorizes the Federal Reserve Bank to provide

the depository institution whose funds account will be charged on

issuance notice of certain payment related information for securities

to be delivered.

Finally, paragraph 356.24(a) has been expanded to provide that, if

securities are to be delivered to an account of a clearing corporation

at a depository institution, notice of awards will be provided to the

clearing corporation. Also, paragraph 356.24(c) has been modified to

correspond to the expanded definition of autocharge agreement.

II. Special Analysis

This final rule does not meet the criteria for a ``significant

regulatory action'' pursuant to Executive Order 12866.

Because this rule relates to public contracts and procedures for

United States securities, the notice, public comment, and delayed

effective date provisions of the Administrative Procedure Act are

inapplicable, pursuant to 5 U.S.C. 553(a)(2).

In addition, because this rule is in the public interest, expedites

the handling and processing of government securities, offers a new

option for delivery and payment of securities, and does not adversely

affect holders of government securities, the Department has determined

not to publish the rule for public comment and to make the rule

effective immediately upon publication.

As 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 in 31 CFR Part 356

Bonds, Federal Reserve System, Government securities, Securities.

For the reasons set forth in the preamble, 31 CFR Chapter II,

subchapter B, part 356, is hereby amended as follows:

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)

1. The authority citation for part 356 continues to read as

follows:

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

2. The heading for part 356 is revised as set forth above.

3. Section 356.2 is amended by revising the definition of

``Autocharge agreement'' and adding in alphabetical order the

definitions of ``Clearing corporation'' and ``Delivery and payment

agreement'' to read as follows:

Sec. 356.2 Definitions.

* * * * *

Autocharge agreement means a written agreement between a submitter

and a depository institution or between a clearing corporation and a

depository institution, acknowledged by a Federal Reserve Bank, which

authorizes a Federal Reserve Bank to deliver securities awarded at

auction to the book-entry account of the depository institution or,

when authorized, to a TREASURY DIRECT account, and to charge a funds

account of the depository institution for the settlement amount of the

securities. (See exhibit B for a sample autocharge agreement between a

submitter and a depository institution.)

* * * * *

Clearing corporation means a clearing agency as defined in Section

3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(23)) that is

registered with the Securities and Exchange Commission pursuant to

Section 17A of the Securities Exchange Act of 1934 and the rules

thereunder.

* * * * *

Delivery and payment agreement means a written agreement between a

clearing corporation and a submitter, acknowledged by a Federal Reserve

Bank, authorizing the Federal Reserve Bank, with respect to securities

awarded to the submitter for its own account, to deliver such

securities to, and accept payment from, a depository institution acting

on behalf of the clearing corporation pursuant to an acknowledged

autocharge agreement.

* * * * *

4. Section 356.11 is amended by redesignating paragraphs (b)(2) and

(b)(3) as (b)(3) and (b)(4) and adding a new paragraph (b)(2) to read

as follows:

Sec. 356.11 Submission of bids.

* * * * *

(b) * * *

(2) For competitive bids, if securities are to be delivered to more

than one account, a separate paper tender must be submitted for each

delivery instruction specified.

* * * * *

5. Section 356.16 is amended by revising paragraph (b)(2)(ii) and

adding a new paragraph (b)(2)(iii) to read as follows:

Sec. 356.16 Responsibility for payment.

* * * * *

(b) * * *

(2) * * *

(ii) A submitter that chooses not to pay by charge to its funds

account or a submitter that does not have a funds account must, prior

to the submission of a tender, have an acknowledged autocharge

agreement on file at the Federal Reserve Bank to which the tender is

submitted. By submitting a tender for securities to be paid for under

such autocharge agreement, the submitter authorizes the Federal Reserve

Bank to provide, to the depository institution whose funds account will

be charged under the agreement, notice of the total par amount of, and

price to be charged for, securities awarded as a result of the

submitter's tender.

(iii) In addition, a submitter that is a member of a clearing

corporation may instruct that delivery and payment be made through the

clearing corporation for securities awarded to the submitter for its

own account, provided that the following requirements are met:

(A) The submitter must, prior to the submission of a tender for

such securities, have a delivery and payment agreement with the

clearing corporation acknowledged by, and on file at, the Federal

Reserve Bank to which the tender is submitted. By entering into such an

agreement, the submitter authorizes the Federal Reserve Bank to provide

to the clearing corporation notice of the par amounts of, prices to be

charged for, and total payment amounts for, securities awarded to the

submitter for its own account.

(B) An autocharge agreement between the clearing corporation and

the depository institution must, prior to the submission of a tender

for such securities, be acknowledged by, and on file at, the Federal

Reserve Bank servicing the depository institution. By entering into

such an agreement, the clearing corporation authorizes the Federal

Reserve Bank to which the tender is submitted to provide, to the

depository institution whose funds account will be charged under the

agreement, notice of the total aggregate par amount of, prices to be

charged for, and total payment amounts for, securities to be delivered

to the clearing corporation's designated account at the depository

institution.

* * * * *

6. Section 356.24 is amended by revising paragraphs (a) and (c) to

read as follows:

Sec. 356.24 Notice of awards; confirmations.

(a) Notice of awards--(1) Notice to submitters. Notice of awards

will be provided by a Federal Reserve Bank or the Department to

submitters of successful competitive bids. Submitters of noncompetitive

bids will be notified only when the price to be paid by noncompetitive

bidders is over par or if noncompetitive bids are not accepted in full.

(2) Notice to clearing corporation. If awarded securities are to be

delivered pursuant to a delivery and payment agreement, notice of the

awards also will be provided by a Federal Reserve Bank or the

Department to the clearing corporation that is a party to such

agreement.

* * * * *

(c) Confirmation of award and settlement amount to a depository

institution having an autocharge agreement with a submitter or a

clearing corporation. Not later than the day after each auction, the

appropriate Federal Reserve Bank will notify each depository

institution that has entered into an autocharge agreement with either a

submitter or a clearing corporation as to the amount to be charged to

the institution's funds account at the Federal Reserve Bank on the

issue date.

* * * * *

7. The title to Exhibit B to Part 356 is revised to read as

follows:

Exhibit B to Part 356. Sample Autocharge Agreement To Deliver and

Charge for Securities Awarded in Department of the Treasury Auctions

(Submitter and Depository Institution).

* * * * *

Dated: May 11, 1994.

Gerald Murphy,

Fiscal Assistant Secretary.

[FR Doc. 94-13621 Filed 6-1-94; 8:45 am]

BILLING CODE 4810-39-P