Amendments to Regulations for the Government Securities Act of 1986

DEPARTMENT OF THE TREASURY

Office of the Under Secretary for Domestic Finance

17 CFR Parts 404 and 405

RIN 1505-AA53

Amendments to Regulations for the Government Securities Act of

1986

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

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Government Securities Act Amendments of 1993 authorize the

Secretary of the Treasury (Treasury) to prescribe rules requiring

persons holding, maintaining or controlling large positions in to-be-

issued or recently issued Treasury securities to keep records and file

reports of such large positions. The Treasury is issuing this Advance

Notice of Proposed Rulemaking (ANPR) to advise market participants of

our intention to issue large position recordkeeping and reporting

regulations, describe the purposes of, and objectives to be achieved

by, such rules and identify key elements related to any rule proposal.

We invite comments, advice and recommendations from interested parties

regarding how the large position recordkeeping and reporting

requirements should be structured. To assist in the solicitation of

comments and to facilitate in the development of rules, responses to

specific questions are requested.

DATES: Comments must be received on or before April 24, 1995.

ADDRESSES: Comments should be sent to: Government Securities

Regulations Staff, Bureau of the Public Debt, Department of the

Treasury, 999 E Street NW., Room 515, Washington, D.C. 20239-0001.

Comments received will be available for public inspection and copying

at the Treasury Department Library, Room 5030, Main Treasury Building,

1500 Pennsylvania Avenue NW., Washington, D.C. 20220.

FOR FURTHER INFORMATION CONTACT: Ken Papaj (Director) or Don Hammond

(Assistant Director), Government Securities Regulations Staff, at 202-

219-3632. (TDD for the hearing impaired is 202-219-3988.)

SUPPLEMENTARY INFORMATION:

I. Background

The U.S. government securities market is the largest and most

liquid securities market in the world. The enormous liquidity and

pricing efficiency of this market provide incalculable benefits to

other financial markets in the United States, and throughout the world,

by providing a continuous benchmark for interest rates on dollar-

denominated instruments across the maturity spectrum. The government

securities market has consistently demonstrated its ability to absorb

the large amounts of Treasury securities that must be issued to finance

the operations of the U.S. Government in a cost-effective manner for

the taxpayer, which is the market's primary public purpose. However,

certain events that occurred in 1991, specifically a ``short

squeeze''1 in two different Treasury securities led to the

realization that Federal financial regulators need, from time to time,

more information about holdings of very large amounts of Treasury

securities.

\1\A short squeeze can occur when an event unanticipated by

short sellers reduces the supply of securities available in the

marketplace. It can also occur as a result of deliberate behavior by

one or more market participants to restrict the supply of

securities, thereby driving up prices.

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A. Events Giving Rise to Large Position Reporting Authority

The occurrence of short squeezes in the government securities

market in 1991 is discussed in some detail in the Joint Report on the

Government Securities Market (Joint Report).2 While yields of

Treasury securities of similar maturity vary constantly, there were two

instances during the Spring of 1991 in which particular securities

traded well below the corresponding yields for similar securities for

an extended period of time. In the first case, a short squeeze

developed in the two-year note auctioned on April 24, 1991. When the

squeeze first became evident in mid-May, the yield on the April two-

year [[Page 4577]] note had moved considerably out of line from

surrounding market rates, and the notes were ``on special'' in the

repurchase agreement (repo) market.3

\2\Department of the Treasury, Securities and Exchange

Commission and Board of Governors of the Federal Reserve System

Joint Report on the Government Securities Market, January 1992.

\3\ A security is said the be ``on special'' when, due to its

scarcity, a holder can enter into a repo involving that specific

security at a lower rate of interest, and thus a lower financing

cost, than the prevailing or general repo rate.

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The second incident involved the two-year Treasury note auctioned

on May 22, 1991. In that auction, Salomon Brothers Inc. (Salomon), a

major participant in the market, submitted large, aggressive bids for

itself and two of its customers and was awarded a large portion of the

amount sold. As a result of these awards and additional purchases in

the market, there was a concentration of holdings of the May two-year

notes and the prices of the notes in the cash and financing markets

were distorted. At that time, a number of market participants contacted

the Treasury and the Federal Reserve Bank of New York (FRBNY)

expressing concern about a shortage in the May two-year note.4

\4\Information about primary dealers' positions in Treasury

securities is collected routinely by the Federal Reserve Bank of New

York.

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The apparent short squeeze was serious enough that Treasury

officials informed staff of the Securities and Exchange Commission

(SEC) of possible problems and trading irregularities stemming from the

auction and subsequent trading. Following that notification, the

Treasury and the FRBNY actively monitored the market for the May two-

year notes and the SEC and Justice began investigations. The government

investigations, and Salomon's internal review that was conducted in

response to these investigations, ultimately resulted in a series of

disclosures by Salomon in August 1991 that it had submitted

unauthorized customer bids in several auctions in 1990 and 1991.5

\5\See Salomon Press Releases dated August 9 and 14, 1991.

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The events involving the bidding improprieties of Salomon and the

squeezes of Treasury notes also focused attention on large investment

entities (``hedge funds''\6\ being one of the more prominent types)

that play a major role in the government securities market. Many of

these investment funds, however, are exempt from most types of U.S.

regulatory oversight.

\6\For a detailed discussion of hedge funds, see the Joint

Report, at B-64.

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While large investment funds have regularly placed bids in Treasury

auctions in the past, it was not until late 1990 that these funds began

to be awarded large amounts of securities in Treasury auctions,

suggesting that they had highly leveraged positions. Like most

investors, they typically bid through major primary dealers. The

combined awards of the investment fund and the dealer which submitted

such bids would often represent a significant portion of the publicly

offered amount of securities.

Regulators had little, if any, authority to gain access to

information about the holdings of many major investors. Investment

funds, other than those required to register under the Investment

Company Act, e.g., mutual funds, are not generally subject to SEC

oversight.7 The SEC also has little authority to obtain regular

information on the government securities activities of large investors.

Treasury also has little access to information on their activities,

other than auction-related information. The CFTC is the only regulatory

agency with regular reporting contact with certain large investors.

However, the CFTC's responsibilities extend primarily to the futures

market.

\7\ Most investment interests in investment partnerships are not

registered pursuant to the Securities Act of 1933; hedge fund

structures are such that they claim an exemption from registering as

securities dealers under Section 15(a) of the Securities Exchange

Act of 1934; and a hedge fund is usually structured so as not to be

an investment company under the Investment Company Act of 1940.

However, the anti-fraud provisions of the federal securities laws do

apply to hedge funds whether or not they are registered with the

SEC.

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B. Regulatory Agencies Responses to Market Problems

Beginning in September 1991, the Treasury, the SEC and the Federal

Reserve conducted a thorough examination and review of the government

securities market and published the Joint Report in January 1992. This

report contained many legislative and regulatory recommendations for

strengthening oversight of the market.8 One recommendation, which

is the focus of this advance notice of proposed rulemaking, involved

clarifying and expanding Treasury's authority under the Government

Securities Act of 1986 (GSA) to require reporting by all holders of

large positions in Treasury securities. The Treasury's authority to

prescribe recordkeeping and reporting rules under the GSA, prior to the

amendments of 1993, permitted a large position reporting system

designed to monitor concentrations of positions at government

securities brokers and dealers.

\8\Joint Report at xv-xvi and 6-34.

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The Treasury also took administrative and regulatory actions to

strengthen oversight and surveillance of the market and maintain a

fully competitive auction process.9 A few of the more significant

reforms that are related to the issues addressed in this notice

involved improved surveillance of the market and the establishment of

an automated system of auctioning Treasury securities. A new

surveillance working group (comprised of Treasury, FRBNY, SEC, Federal

Reserve Board, and CFTC officials) was formed to improve surveillance

and strengthen regulatory coordination. FRBNY, acting as Treasury's

fiscal agent, as well as to support their monetary policy operations,

has enhanced and expanded its market oversight efforts for collecting

and analyzing information needed for surveillance purposes. In

addition, the Treasury increased the maximum amount from $1 million to

$5 million for noncompetitive tenders; published a thoroughly revised,

comprehensive Uniform Offering Circular for Treasury securities to

codify and clarify Treasury auction rules; and in August of 1992, began

auctioning 2- and 5-year notes using a single price auction (or so-

called ``Dutch auction'') experiment.

\9\See Joint Report, at xiii-xv, for a description of the

administrative and regulatory actions taken by the regulatory

agencies.

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C. Congressional Response to Market Problems--Government Securities Act

Amendments of 1993

The short squeezes of the Spring of 1991 and the revelations in

August 1991 of wrongdoing by Salomon in the purchase and sale of

Treasury securities occurred during a period when Congress was

considering government securities legislation to, among other things,

reauthorize Treasury's rulemaking authority under the GSA, which was

set to expire on October 1, 1991.10 These events in the government

securities market sparked an extensive review of the operations of the

market and the need for additional reforms to strengthen its

regulation. Numerous Congressional committee hearings and legislative

mark-up sessions were held in both the Senate and House of

Representatives from May 1991 through the Fall of 1993.

\10\ Treasury's rulemaking authority did expire and it was

without such authority from October 1, 1991, until December 17,

1993, when the Government Securities Act Amendments of 1993 (P.L.

103-202, 107 Stat. 2344 (1993)) was signed into law.

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Although, as noted, the Treasury instituted several reforms in

response to the Salomon violations and short squeezes, the Treasury

also requested expanded and strengthened regulatory power over the

government securities market which was realized in the Government

Securities Act Amendments of 1993 (GSAA), which [[Page 4578]] was

signed into law by President Clinton on December 17, 1993. One of the

major provisions of the GSAA authorizes the Treasury to write rules for

large position reporting.11 This provision is intended to improve

the information available to regulators regarding very large positions

of recently issued Treasury securities held by market participants and

to assure that regulators have the tools necessary to monitor the

Treasury securities market.

\11\In addition to large position reporting, some of the key

provisions of the GSAA are: Permanent reauthorization of Treasury's

rulemaking authority; authorization to prescribe sales practice

rules for the government securities market; increased authority to

the SEC to prevent fraudulent and manipulative acts and practices;

prohibition on false and misleading statements in government

securities offerings; and authority to the SEC to receive records of

government securities transactions for trade reconstruction

purposes.

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Section 104 of the GSAA, which amended Section 15C of the

Securities Exchange Act of 1934, authorizes the Treasury to adopt rules

requiring specified persons holding, maintaining, or controlling large

positions in to-be-issued or recently issued Treasury securities to

file reports regarding such positions.12 As explained in a floor

statement on this legislation, this grant of authority ``* * * rests on

the belief that the Secretary of the Treasury is well positioned to

determine whether large position reporting is necessary and appropriate

in order to monitor the impact in the Treasury securities market of

concentrations of positions and to assist the SEC in its enforcement of

the Exchange Act. It is our expectation that substantial deference will

be accorded to any determination that Treasury makes in this

regard.''13

\12\ P.L. 103-202, Sec. 104; 15 U.S.C. 78o-5(f).

\13\ Floor statement on S. 422, The Government Securities Act

Amendments of 1993, representing the views of the Chairman and

Ranking Minority Member of the House Committee on Energy and

Commerce and the Chairman and Ranking Minority Member of the House

Subcommittee on Telecommunications and Finance, Congressional

Record, (November 22, 1993) at H. 10967. For other legislative

history, see S. Rpt. 103-109 (July 27, 1993); Congressional Record

(July 27, 1993) at S. 9863-9866; H. Rpt. 103-255 (September 23,

1993); and Congressional Record (October 5, 1993) at H. 7390-7405.

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Unless otherwise specified by the Treasury, the large position

reports are to be filed with the FRBNY, acting as Treasury's agent.

Such reports will in turn be provided to the SEC by the FRBNY. The

legislation also authorizes Treasury to prescribe recordkeeping rules

for holders of large positions to ensure that they can comply with the

reporting requirements. It also permits the Treasury to exempt,

consistent with the public interest and the protection of investors,

any person or class of persons, or any transaction or class of

transactions, from the large position reporting rules. The legislation

grants Treasury flexibility and discretion in determining the key

requirements and features to be addressed in the rules--defining which

persons (individually or as a group) hold positions; the size and types

of positions to be reported; the securities to be covered; the

aggregation of positions and accounts; and the form, manner and timing

of reporting.

To provide the reader with a sense of the Congressional intent and

importance associated with large position reporting, the following are

excerpts from House Report 103-255.14

\14\ House Committee on Energy and Commerce, Report to Accompany

H.R. 618, H.R. Rep. No. 103-255, 103d Cong., 1st Sess. (September

23, 1993), at 24, 25 and 44.

In order to monitor developments in the Treasury securities

marketplace and better police against fraud or manipulation, the

Committee believes that the government needs surveillance tools

similar to those employed in other financial markets. One of the

more useful tools that regulators in the commodities and equities

market[s] currently have is the ability to obtain information

regarding the trading activities of major market participants. In

the government securities market, no similar statutory authority has

existed which would authorize federal regulators to require all

market participants to make information available regarding large

positions being assumed in the marketplace, and currently government

securities brokers and dealers only report such information on a

voluntary basis.

* * * The purpose of such reporting would be similar to the

purpose of the position reporting that is done in the commodity

futures market--it would enable government agencies to monitor

market developments, particularly those associated with concentrated

positions.

* * * Large position reporting also would be useful in assuring

that regulators can monitor the positions of major market

participants other than government securities brokers and dealers

under certain circumstances. In particular, it will provide

assurance that the government can compel disclosure of position

information when necessary from all large market participants,

including a group of relatively unregulated entities called 'hedge

funds'.

* * * The Committee expects the Secretary to take into account

the costs and burdens of the reporting requirement to the investor

and its shareholders or beneficial owners as well as the impact on

the efficiency and liquidity of the Treasury market. The Committee

also expects that in prescribing such rules, the Secretary will

consider the views of, and consult with, the Commission, the Federal

Reserve Board, and the Federal Reserve Bank of New York.

The Treasury intends to prescribe large position reporting rules

that meet the intent of Congress, are not overly burdensome or costly,

do not impair the liquidity of the market and do not increase borrowing

costs to the Federal government. Accordingly, the Treasury is

soliciting input from market participants and other interested parties,

and requesting answers to the specific questions set out below, as to

how large position rules should be structured.

D. Large Position and Large Trader Reporting in Other Markets

Large position and/or large trader reporting rules are currently in

place or being developed in several other U.S. markets (e.g., futures

and equity markets). Readers may wish to familiarize themselves with

these large trader and large position reporting requirements in order

to better understand how such reporting systems operate and to assist

the reader in commenting on this notice.

CFTC rules require position reporting by a variety of entities or

groups--commodity brokers, contract markets and traders.15 The

CFTC regulations require reports when individuals or groups acquire

specified levels of futures and options positions in the commodity

markets. The levels are determined by the CFTC and there are different

amounts for each targeted commodity area.

\15\ 17 CFR Parts 15.00-18.06.

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The Market Reform Act of 199016 authorized the SEC to create a

large trader recordkeeping and reporting system for publicly traded

equities and options on equities. The SEC proposed a large trader

reporting rule on August 22, 1991, and reproposed it on February 9,

1994.17

\16\ P.L. No. 101-432, 104 Stat. 963 (1990).

\17\ Securities Exchange Act Release No. 29593 (August 22,

1991), 56 FR 42550 (August 28, 1991); and Securities Exchange Act

Release No. 33608 (February 9, 1994), 59 FR 7917 (February 17,

1994).

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Under the proposed SEC rules, these large traders would be required

to report certain information to the SEC and would be assigned large

trader identification numbers to provide to each brokerage firm where

the traders have accounts. The firms would then be required to

maintain, and to report to the SEC on request, records of transactions

by large traders.

Large position reporting rules are currently in place in the equity

securities market. The SEC requires owners that, directly or

indirectly, acquire beneficial control of more than five percent of a

class of a corporation's equity securities to make a public disclosure

of this information.18 The [[Page 4579]] beneficial owner must

file its report within 10 business days with the SEC, the issuer and

the exchange on which the securities are traded.

\18\ 15 U.S.C. 78m(d), SEC Rule 13D, 17 CFR 240.13d-1--240.13d-

102.

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In addition, the FRBNY requires primary dealers in Treasury

securities to submit several position reports on a regular basis. These

include weekly reports of positions (with separate reporting for each

when-issued and recently issued security), cumulative transactions, and

financing transactions (repos, reverse repos, securities borrowed and

lent, collateralized loans and matched-book transactions) and a daily

report of when-issued transactions.

II. Purposes, Objectives and Features of Treasury Large Position Rules

The Treasury actively supported large position reporting during the

legislative process that resulted in the passage of the GSAA and is

committed to implementation of rules that make sense from both a

regulatory and market efficiency perspective. As the agency of the

Federal government most concerned with minimizing the interest cost on

the public debt, Treasury believes that the U.S. is best served by an

efficient and liquid market for Treasury securities that is not

overburdened with regulation but, at the same time, is not viewed as

being subject to manipulation.

Large position rulemaking is a complex and important task. For

example, defining a ``reporting entity'' (i.e., persons holding,

maintaining or controlling large positions) or determining what

constitutes a position in a Treasury security will be very difficult

given the many issues that need to be considered. Although everyone

would likely agree that a position would include securities owned by

and in the possession or control of the reporting entity, there are

many views as to whether, and if so how, repos, reverse repos, when-

issued trades, futures, forwards, options, bonds borrowed and fails

should be included in a position. Determining how to treat repos and

reverse repos is likely to be particularly complex, given the potential

for duplicate reporting of the same security in both counterparties'

positions, and the difficulty of defining control for different types

of repo arrangements, such as tri-party repos.

Treasury plans to take a measured approach in exercising its large

position reporting authority, including the related recordkeeping

requirements, and to actively involve market participants in the

rulemaking process. Treasury will take into consideration the costs to

market participants, the potential impact on the efficiency and

liquidity of the market for Treasury securities and any implications on

the Federal government's cost of borrowing.

The principal purpose of large position reporting is to enable

Treasury and the other regulators to better understand the possible

reasons for apparent significant price distortions in to-be-issued and

recently issued Treasury securities. This information would enable

policymakers to make better decisions concerning any possible

government actions that might be taken in response to apparent price

anomalies. The ability to identify concentrations of ownership and to

obtain information on large positions being held or controlled in to-

be-issued or recently issued Treasury securities is important in

enabling regulators responsible for market surveillance and enforcement

to understand the causes of market shortages.

Another important goal of large position reporting is to assist

securities regulators in conducting market surveillance. The enactment

of this authority was largely based on a belief that the government

needs surveillance tools, similar to those employed in other financial

markets, in order to monitor developments in the Treasury securities

market and to better police against fraud and manipulation. Information

about large positions may be critical to the SEC in carrying out its

enforcement duties under the federal securities laws. Large position

reporting will also enable regulators to monitor the positions of major

market participants other than government securities brokers and

dealers (e.g., large investment funds that are largely unregulated,

custodians, and foreign and domestic customers) under certain

circumstances.

Large position records and reports could also provide regulatory

agencies early warning of potential market problems. If a problem

develops, such records and reports could assist regulators in, and

reduce the cost of, any investigation.

It is important to recognize that large position reporting merely

creates a requirement to maintain records and report information about

such positions. Large positions are not inherently harmful and there is

no presumption of manipulative or illegal intent solely because a

position is large enough to be subject to reporting rules that may be

prescribed by the Treasury. Additionally, there is no intention of

establishing trading or position limits as part of any rulemaking. Nor

is the Treasury planning to institute a recordkeeping and reporting

system that would require the identification of large traders or the

reporting of large trades.

The statutory provision regarding the minimum size of a position

subject to reporting is meant to ensure that the minimum size will be

large enough to require reports only of positions that could be used to

significantly affect the market for a particular security. It is

Treasury's current view that the size of a reportable position would

most likely be in the billions of dollars and much larger than the

reporting thresholds in the futures market. As a result, it is expected

that very few entities would likely have to file large position

reports.

The GSAA specifically provides that the Treasury shall not be

compelled to disclose publicly any information required to be kept or

reported for large position reporting. In particular, such information

is exempt from disclosure pursuant to Exemption 3 of the Freedom of

Information Act.\19\

\19\ 5 U.S.C. 552.

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The Treasury contemplates granting exemptions from the large

position recordkeeping and reporting rules for foreign central bank,

foreign government and official international financial institution

holdings at the FRBNY.

III. Specific Considerations and Questions

The Treasury welcomes comments, reactions and suggestions on the

above issues. Additionally, advice and recommendations regarding an

approach and structure for a large position recordkeeping and reporting

system that meet the purposes, objectives and features addressed above

are invited from all interested persons. Specifically, in developing

such recommendations, suggestions and advice, commenters are requested

to consider the following questions.

A. Reporting Entities--Persons holding, maintaining or controlling

large positions, as yet to be defined, are reporting entities. The

questions in this section are directed toward determining which

entities should be affected by the regulations. In particular, the

questions focus on how affiliated entities are to be treated, what

entities should be exempt and whether classes of entities may warrant

special treatment.

1. How should we define a ``reporting entity''? Should it be

similar to the definition of a bidder in Treasury's rules governing the

sale and issue of Treasury bills, notes and bonds (i.e., Uniform

Offering Circular at 31 CFR Part 356)?

2. What aggregation rules should apply for affiliated entities?

Assuming there are aggregation rules, should there be an exception for

affiliates that cannot or do not share information? For example, how

should different funds [[Page 4580]] within a mutual fund family be

treated? Should customer securities that are subject to a broker-

dealer's investment discretion be included? Should any exception be the

same as the exception provided for in Appendix A to the Uniform

Offering Circular?

3. Should reporting entities that are foreign-based be treated

differently than domestic entities given the potential enforcement

difficulty and geographic separation? Are any exemptions needed for

foreign-based entities regarding items such as affiliation rules,

location of records, form of reporting, or reporting time frames? What

would be the complications of requiring foreign-based entities to

comply with such rules as if they were U.S. domestic entities?

4. What exemptions should be considered beyond any for foreign

central banks, foreign governments and official international financial

institutions holding at the FRBNY?

B. What constitutes ``control''? For the purposes of this ANPR,

``control'' includes the statutory terms ``holding'' and

``maintaining''. The following questions are designed to provide

guidance on when these three statutory conditions may be met.

1. Is control evidenced by beneficial ownership, investment

discretion, custody or any combination of the three? Is there the

possibility of extensive double counting? If so, is it a problem?

2. Should custodial accounts for which the custodian has no

investment discretion be the reporting responsibility of the custodian,

the customer or both? If the custodian is responsible for reporting,

should all custody holdings in a specific security be aggregated, or

should the threshold amount established for reporting be applied

individually to each customer?

C. What securities should be covered and what size is ``large''?

The questions in this section seek guidance on the securities to which

the rule should apply and how to determine the reporting threshold.

1. How long should a security be outstanding before it is no longer

considered recently issued? Should the reopening date of notes and

bonds that are reopened by the Treasury, be the date from which

``recent'' is measured?

2. Should any securities be excluded, e.g., Treasury bills, due to

the cost/complexity of calculating a position in them versus the

expected benefits of reporting?

3. How should the ``large'' threshold be determined--a percentage

of the issue? A standard dollar amount? Should different classes of

securities--notes vs. bonds, short-term notes vs. intermediate notes--

have different definitions of ``large''? Should there be a different

reporting threshold for pre- and post-issuance? Should there be a

different reporting threshold for securities reopened by the Treasury?

D. What transactions should be included in a ``position''?

1. Should the definition of ``position'' developed for this

rulemaking be consistent with the definition of ``net long position''

in the Uniform Offering Circular? If they are generally consistent, the

following questions should be considered as possible exceptions.

2. How should when-issued positions in outstanding securities with

the same CUSIP be treated (i.e., reopenings)?

3. How should financing transactions, such as repurchase and

reverse repurchase agreements, dollar rolls and bonds borrowed, be

treated in defining a position? Should more than one counterparty to

the transaction be required to include the transaction in its position?

Should contract terms, such as maturity, right to substitute, tri-party

relationships and termination notice, be considered?

4. Should large short positions be included in ``position''? What

amount of netting should be permitted or should gross long (short)

positions be reported?

5. Should forward contracts, options, futures, and open fails be

included? Should some of these items only be included under certain

circumstances? For example, only include written (sold) options or only

include fails to deliver but not fails to receive. If so, what might

these circumstances be?

6. Should the various components of a large position, such as

outright holdings, repos, forward contracts, etc., be separately

identified in any required reports?

E. Recordkeeping.

1. What records should be kept by a reporting entity? Should the

recordkeeping requirement be dependent on whether the reporting entity

is regulated? Should the reporting entity keep copies only of any

reports it has filed, or, in addition, documents and other records

sufficient to reconstruct the size of its position?

2. Should there be a requirement to maintain a calculation/

worksheet supporting the determination of a large position by detailing

the elements comprising any large positions?

3. How long should large position calculations and supporting

records be retained?

4. Should the records be kept in a standardized format? Would a

requirement to maintain records in electronic form be feasible and

practical?

5. Should unregulated entities be required to submit some form of

independent verification that they have in place an appropriate record

maintenance system, e.g., an accountant's letter?

F. Reporting.

1. Should the reporting requirement be automatic, whereby the

reporting entity would file a report any time it has reached the

threshold for a particular issue?

2. If reports are periodic at the request of the Treasury, what

mechanism should be used to communicate a request to the market? How

can it be assured that a potential ``reporting entity'' receives notice

of the request for a report? How much lead time would be necessary to

assure that everyone who needs to get the notice will receive it?

3. Would it be reasonable for a reporting entity to comply with a

request for a large position report on the business day immediately

following receipt of the request? If not, what would be a reasonable

time period?

4. Should requests for reports follow a sequential process whereby

dealers and custodians would be asked to report initially followed,

where appropriate, by a more targeted follow-up as to specific

customers? For example, an initial report indicates that custodian A

has 75% of an issue. A subsequent request is made only to the

custodian's customers to determine if any of them have large positions.

5. Is there a need for the reports to be filed using a standardized

format? If so, should they be made in machine readable form?

6. Is there a reason for the Secretary to specify that reports

would be submitted to parties other than the FRBNY?

7. Should a request for reports on a specific security be: (i) a

one-time request (snapshot as of a given date); (ii) an initial report

with a continuing obligation to report subsequent significant changes

until further notice; or (iii) an individually specified request (i.e.,

report on any large positions in a specific security for the next 6

business days)?

8. Should there be a responsibility for a broker-dealer to report

the name of any customer whose trading activity in the specified

security may indicate that the customer could be a holder of a large

position even if the customer does not hold such a position at the

broker-dealer?

G. Implementation. [[Page 4581]]

1. How much lead-time is necessary for market participants to be

able to comply with such a new regulation?

Treasury staff consulted with staff of the SEC, Federal Reserve

Board, FRBNY and CFTC in developing the questions that are contained in

this ANPR. As the rulemaking process continues in the months ahead, we

will continue to solicit the views of these agencies, share information

with them and include them in the deliberative process.

The preliminary views expressed in this notice may change in light

of comments received. In any case, the Treasury will publish proposed

large position reporting rules for public comment after we have had an

opportunity to review the comments that we receive in response to this

ANPR.

List of Subjects

17 CFR Part 404

Banks, banking, Brokers, Government securities, Reporting and

recordkeeping requirements.

17 CFR Part 405

Brokers, Government securities, Reporting and recordkeeping

requirements.

Authority: Sec. 101, Pub.L. 99-571, 100 Stat. 3209; Sec. 4(b),

Pub.L. 101-432, 104 Stat. 963; Sec. 102, Sec. 106, Pub.L. 103-202,

107 Stat. 2344 (15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(4)).

Dated: January 17, 1995.

Frank N. Newman,

Deputy Secretary.

[FR Doc. 95-1682 Filed 1-23-95; 8:45 am]

BILLING CODE 4810-39-P