Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds; Regulations Governing Payments by the Automated Clearing House Method on Account of United States Securities

SUMMARY: The Department of the Treasury (``Department'' or

``Treasury'') is issuing in final form an amendment to 31 CFR Part 370

(Regulations Governing Payments by the Automated Clearing House Method

on Account of United States Securities) to permit purchasers of United

States securities, where authorized by the appropriate offering

circular, to pay for their securities by means of a debit entry to

their deposit account by the Automated Clearing House (ACH) method. The

amendment will offer investors an additional means of payment for the

purchase of their securities.

Also, this final rule amends 31 CFR Part 356 (Uniform Offering

Circular for the Sale and Issue of Marketable Book-Entry Treasury

Bills, Notes, and Bonds). The amendment will authorize bidders in

Treasury security auctions to make payment for awarded Treasury

securities by approved electronic means.

EFFECTIVE DATE: October 22, 1996. For purchasers of securities to be

held in the TREASURY DIRECT system, debit ACH will be implemented with

a phased-in approach.

FOR FURTHER INFORMATION CONTACT: Maureen Parker, Director, Division of

Securities Systems, Bureau of the Public Debt, Parkersburg, West

Virginia, 26106-1328, (304) 480-7761 or Susan Klimas, Attorney-Adviser,

Office of the Chief Counsel, Bureau of the Public Debt, (304) 480-5192.

SUPPLEMENTARY INFORMATION:

I. Background

The title of Part 370 is being changed to Regulations Governing the

Transfer of Funds by Electronic Means on Account of United States

Securities, to indicate that the part is intended to provide regulatory

coverage for various methods of payment by electronic means. It is

anticipated that the ACH method will, in the future, be one of several

electronic payment mechanisms for United States securities. Subparts

have been added to part 370 to separate the already-existing credit ACH

regulations, governing payments from the Department to the owner of the

security, from the debit ACH regulations, which will govern the payment

to the Department by the owner for the settlement amount of the

security. The debit ACH regulations provide an additional payment

method, that of a debit entry to the owner's deposit account, using the

ACH method, if authorized by the appropriate offering circular. The

TREASURY DIRECT system will offer debit ACH as an additional method of

payment for the purchase of marketable Treasury securities, as

authorized in the offering circular at 31 CFR Part 356. An

authorization signed by the investor for the debit transaction will be

required. The debit ACH payment option is only available for TREASURY

DIRECT accounts established at least two weeks prior to the scheduled

debit ACH entry.

Although investors may continue to pay for the purchase of their

securities by non-electronic means, the additional method of payment

will benefit investors by permitting them the use of their money until

the debit entry takes place on the settlement date of the Treasury

securities.

31 CFR Part 356, also referred to as the uniform offering circular,

sets out the terms and conditions for the sale and issuance by the

Department to the public of marketable Treasury bills, notes, and

bonds. The uniform offering circular, in conjunction with offering

announcements, represents a comprehensive statement of those terms and

conditions.1

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\1\ The uniform offering circular was published as a final rule

on January 5, 1993 (58 FR 412). Amendments to the circular were

published on June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR

13906), July 16, 1996 (61 FR 37007) and August 23, 1996 (61 FR

43626).

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The Department believes that the future expansion of payment

methods for securities in Treasury auctions to accommodate payment

through electronic means will be beneficial to investors in Treasury

securities and will enhance the efficiency of the Treasury securities

market. Accordingly, Sec. 356.17 of the uniform offering circular has

been amended to allow payment for marketable Treasury securities to be

made by those electronic means approved by the Department (see 31 CFR

Part 370). Also, Sec. 356.25 has been amended to provide that, where

payment is made by authorized electronic means, such payment will be

made on the issue date of the Treasury security by charging the

settlement amount to the account specified by the bidder or the

submitter on behalf of the bidder.

Debit ACH is one such means of electronic payment that the

Department is approving as an option for bidders whose awarded

securities will be held in TREASURY DIRECT. To utilize the debit ACH

payment option for securities to be held in TREASURY DIRECT, a bidder,

or a submitter on behalf of a bidder, will be required to meet the

necessary conditions, and to complete any required authorizations, as

described in part 370.

Conforming changes are being made to Sec. 356.17 to allow for the

possibility of various means of electronic payment in the future by

bidders whose awarded securities are held in the commercial book-entry

system.2

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\2\ When the final rule (61 FR 43626) becomes effective, the

commercial book-entry system will be known as the Treasury/Reserve

Automated Debt Entry System (TRADES).

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II. Section by Section Summary

31 CFR Part 356

(1.) Section 356.17 has been amended by adding new paragraphs

(a)(2) and (b)(2) to add payment by authorized electronic means as a

payment option available to bidders in Treasury security auctions. If

the awarded securities are to be held in TREASURY DIRECT, the bidder

must meet certain conditions, and complete any required authorizations,

as provided in 31 CFR part 370. Conforming changes are also made to

paragraphs (a) and (b), and the newly redesignated paragraphs (a)(3)

and (b)(3) of this section.

(2.) Section 356.25 has been amended by adding a new paragraph (b)

which provides that when the method of payment is by authorized

electronic means, the settlement amount will be charged to the

specified account on the issue date of the particular Treasury bill,

note or bond. Conforming changes are also made to paragraph (a) and the

newly redesignated paragraph (c) of this section.

31 CFR Part 370

(1.) The title of this part has been changed from Regulations

Governing Payments by the Automated Clearing House Method on Account of

United States Securities, to Regulations Governing the Transfer of

Funds by Electronic Means on Account of United States Securities. This

change will permit the part to be used in the future for methods of

payment for United States securities by other electronic means in

addition to the ACH method.

(2.) Section 370.0 has been amended to indicate that the

regulations in this

[[Page 54909]]

part apply to the electronic transfer of funds where employed by the

Bureau of the Public Debt (Public Debt) in connection with United

States securities, except where otherwise provided. Previously, the

section indicated that the part applies to the ACH method of payment

where employed by Public Debt in connection with United States

securities. The amendment indicates the potential for the future

expansion of the part should Public Debt choose to use other electronic

means in connection with United States securities.

(3.) Subparts have been added to separate the credit and debit ACH

sections. Subpart A contains general information which will apply to

the entire part.

(4.) Section 370.1 has been amended to redefine several terms used

in the section and to add appropriate definitions. The definition of

deposit account has been expanded from the account maintained at a

financial institution specified by a recipient into which ACH payments

under this part are to be made, to the account into which either

payments or debit entries under this part are to be made.

Entry has been defined as an order or request for the deposit of

money to the deposit account of an owner (a credit entry) or for the

payment of money from the deposit account of an owner (a debit entry).

A definition of payment has been added to clarify that where used

in this part, payment means the transfer of funds from the Department

to the deposit account of the owner. A definition of settlement date

has been added.

(5.) Subpart B has been added to the regulations to indicate that

this subpart contains provisions applicable to payments under the ACH

method, and applies to payments from the Department on account of

United States securities. Sections have been renumbered to fit the new

structure of the part, and to provide space for the addition of future

sections, if necessary.

(6.) Former Sec. 370.2 through and including Sec. 370.11 have been

renumbered as Sec. 370.5 through Sec. 370.14.

(7.) The title of former Sec. 370.12, Other payments, has been

changed to indicate that this section refers to other payments by the

ACH method, and renumbered as Sec. 370.15.

(8.) The former Sec. 370.13, Waiver of regulations, has been moved

to subpart D, and will be renumbered as Sec. 370.30.

(9.) The former Sec. 370.14, Liability of Department and Federal

Reserve Banks, has been renumbered as Sec. 370.16.

(10.) Subpart C has been added to provide a structure to contain

the regulations covering debit entries by the ACH method.

(11.) Section 370.20, Designation of a financial institution to

receive debit ACH entries, provides that an owner of a security shall

designate the financial institution and the deposit account within that

institution which will receive the debit ACH entries. For securities

that will be held in the TREASURY DIRECT system, the designation will

be made using the ACH information provided in the TREASURY DIRECT

tender for the direct deposit of payments for that account. In the

TREASURY DIRECT system, the purchaser must receive the debit entries in

the same deposit account which has been designated to receive payments

of principal and interest from the TREASURY DIRECT system by credit

entries. This means that the purchaser may not designate one account to

receive payments by the ACH method and another account to pay for

securities, but must use the same account for both transactions. The

TREASURY DIRECT account must have been established at least two weeks

prior to the scheduled debit ACH entry. Written authorization for the

debit must be provided by the purchaser.

(12.) Section 370.21, Agreement of the financial institution,

provides that the acceptance and handling by a financial institution of

a debit entry constitutes its agreement to this subpart.

(13.) Section 370.22, Prenotification, provides the procedures for

prenotification messages for debit ACH, if a prenotification message is

sent.

(14.) Section 370.23, Responsibility of financial institution, sets

forth the responsibilities of the financial institution designated to

receive a debit entry.

(15.) Section 370.24, Handling of debit entries by Federal Reserve

Banks, provides that the Federal Reserve Banks, as the fiscal agents of

the United States, shall initiate a debit to the owner's account in

accordance with the instructions of the owner.

(16.) Section 370.25, Liability of Department and Federal Reserve

Banks, provides that the Department, which includes the Capital Area

Servicing Center, and the Federal Reserve Banks shall not be liable for

any action taken in accordance with the information furnished by the

owner as to the debit entry.

(17.) Subpart D has been added to accommodate those provisions

which apply equally to all subparts contained in this part.

(18.) Section 370.30, Waiver of regulations, is the former

Sec. 370.13, which has been moved and renumbered.

(19.) The former Sec. 370.15 Supplements, amendments or revisions,

has been redesignated Sec. 370.31. The phrase payments made by ACH has

been changed to the transfer of funds by electronic means.

Procedural Requirements

It has been determined that this final rule does not meet the

criteria for a ``significant regulatory action,'' as defined in

Executive Order 12866. Therefore, the regulatory review procedures

contained therein do not apply.

This rule relates to matters of public contract and procedures for

U.S. securities. Accordingly, pursuant to 5 U.S.C. 553(a)(2), the

notice, public comment and delayed effective date provisions of the

Administrative Procedure Act do not apply. 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.

There are no new collections of information contained in this Final

Rule, and, therefore, the Paperwork Reduction Act (44 U.S.C. 3504(h))

does not apply.

List of Subjects in 31 CFR Parts 356 and 370

Bonds, Federal Reserve System, Government securities, Securities,

Electronic funds transfer.

Dated: October 8, 1996.

Gerald Murphy,

Fiscal Assistant Secretary.

For the reasons set out in the preamble, 31 CFR parts 356 and 370

are 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.; 12 U.S.C. 391.

2. Section 356.17 is amended by revising the introductory text of

paragraphs (a) and (b), redesignating paragraphs (a)(2) and (b)(2) as

paragraphs (a)(3) and (b)(3), adding new paragraphs (a)(2) and (b)(2),

and revising redesignated paragraph (a)(3) and the introductory text of

paragraph (b)(3) to read as follows:

[[Page 54910]]

Sec. 356.17 Responsibility for payment.

* * * * *

(a) TREASURY DIRECT. For securities to be held in TREASURY DIRECT,

payment of the par amount and announced accrued interest, if any, must

be submitted with the tender unless other provisions have been made,

such as payment by an authorized electronic means providing for

immediately available funds or payment by charge to the funds account

of a depository institution.

* * * * *

(2) Payment by authorized electronic means. Payment may be made by

electronic means approved by the Department, provided the bidder, or

the submitter on behalf of the bidder, has met the necessary conditions

and has satisfactorily completed any required authorizations for such

means of payment, in accordance with 31 CFR part 370.

(3) Authorized charge to a funds account. If a depository

institution or dealer submits a tender for a TREASURY DIRECT bidder and

payment is not submitted with the tender or made by an authorized

electronic means, an authorization from a depository institution to

charge the institution's funds account at a Federal Reserve Bank must

be on file with the Bank to which the tender was submitted.

(b) Commercial book-entry system. For securities to be held in the

commercial book-entry system, payment of the par amount and announced

accrued interest, if any, must be submitted with the tender unless

other provisions have been made, such as by payment by an authorized

electronic means providing for immediately available funds or by charge

to the funds account of a depository institution.

* * * * *

(2) Payment by authorized electronic means. Payment may be made by

electronic means approved by the Department, provided the bidder, or

the submitter on behalf of the bidder, has met the necessary

conditions, and has satisfactorily completed any required

authorizations, for such means of payment.

(3) Authorized charge to a funds account. Where payment is not

submitted with the tender or made by an authorized electronic means, an

authorization to charge the funds account of a depository institution

must be provided as follows.

* * * * *

3. Section 356.25 is amended by redesignating paragraph (b) as

paragraph (c), adding a new paragraph (b), and revising the

introductory text of paragraphs (a) and (c), to read as follows:

Sec. 356.25 Payment for awarded securities.

* * * * *

(a) Payment with tender. When payment is made with the tender as

provided for in Sec. 356.17 (a)(1) and (b)(1), settlement is

accomplished as follows:

* * * * *

(b) Payment by authorized electronic means. Where the method of

payment is by an authorized electronic means as provided for in

Sec. 356.17 (a)(2) or (b)(2), the settlement amount will be charged to

the specified account on the issue date.

(c) Payment by authorized charge to a funds account. Where the

submitter's method of payment is an authorized charge to the funds

account of a depository institution as provided for in Secs. 356.17

(a)(3) or (b)(3), the settlement amount will be charged to the

specified funds account on the issue date.

* * * * *

PART 370--REGULATIONS GOVERNING THE TRANSFER OF FUNDS BY ELECTRONIC

MEANS ON ACCOUNT OF UNITED STATES SECURITIES

1. The authority citation for part 370 continues to read as

follows:

Authority: 31 U.S.C. Chapter 31.

2. The heading of Part 370 is revised to read as set forth above.

3. Section 370.0 is revised to read as follows:

Sec. 370.0 Applicability.

The regulations in this part apply to the transfer of funds by

electronic means where employed by the Bureau of the Public Debt in

connection with United States securities, except as otherwise provided.

4. Sections 370.1 through 370.4 are designated as Subpart A and a

heading for subpart A is added to read as follows:

Subpart A--General Information

5. Section 370.1 is amended by revising the definitions for deposit

account, financial institution, and owner, and adding definitions for

entry, payment, and settlement date to read as follows:

Sec. 370.1 Definitions.

* * * * *

Deposit account means the account maintained at a financial

institution specified by a recipient into which ACH credit or debit

entries under this part are to be made.

Entry means an order or request for the deposit of money to the

deposit account of an owner (a credit entry) or for the payment of

money from the deposit account of an owner (a debit entry).

Financial institution means, for purposes of this part, an

institution which processes the transfer of funds by authorized

electronic means.

Owner means the individual(s) or entity in whose name(s) a security

is registered and who is authorized under the appropriate subparts of

this title to request that the security be transferred, reissued,

reinvested, exchanged or paid.

Payment means, for the purpose of this part, the deposit of money

from the Department to the deposit account of the owner.

* * * * *

Settlement Date means the date an exchange of funds with respect to

an entry is reflected on the books of the Federal Reserve Bank(s). The

settlement date will in most cases be the same as the issue date of a

security held in the TREASURY DIRECT system.

* * * * *

Secs. 370.13 and 370.15 [Redesignated]

6. Sections 370.13 and 370.15 are redesignated as Secs. 370.30 and

370.31.

Secs. 370.2-370.12 and 370.14 [Redesignated]

7. Section 370.14 is redesignated as section 370.16; sections 370.2

through 370.12 are redesignated as sections 370.5 through 370.15

respectively.

8. The heading of the newly redesignated section 370.15 is revised

as set forth below:

Sec. 370.15 Other payments by the ACH method.

* * * * *

9. Newly redesignated sections 370.5 through 370.16 are designated

as Subpart B and a heading for subpart B is added to read as follows:

Subpart B--Credit ACH Entries

10. Subpart C is added to read as follows:

Subpart C--Debit ACH Entries

Sec.

370.20 Designation of a financial institution to receive debit ACH

entries.

370.21 Agreement of the financial institution.

370.22 Prenotification.

370.23 Responsibility of financial institution.

370.24 Handling of debit entries by Federal Reserve Banks.

370.25 Liability of Department and Federal Reserve Banks.

[[Page 54911]]

Sec. 370.20 Designation of a financial institution to receive debit

ACH entries.

The purchaser of a security shall designate a financial institution

to receive debit ACH entries and shall identify the deposit account to

which the debit entries are to be received, by written authorization,

or by an authorization similarly authenticated by the purchaser, in a

manner approved by the Department. The purchaser of a security to be

held in TREASURY DIRECT must receive debit ACH entries in the same

deposit account designated to receive TREASURY DIRECT payments by the

ACH method. Such TREASURY DIRECT account must have been established at

least two weeks prior to the scheduled debit ACH entry and must be an

account which is capable of receiving debit entries. The authorization

of the purchaser shall not be recurring, that is, it shall be effective

for one debit transaction only.

Sec. 370.21 Agreement of the financial institution.

A financial institution's acceptance and handling of a debit entry

made with respect to a security covered by this subpart shall

constitute its agreement to the provisions of this subpart.

Sec. 370.22 Prenotification.

(a) General. The Department may send a prenotification message to

the financial institution designated to receive debit ACH entries to

confirm the accuracy of the account information furnished by an owner,

or other person or entity entitled to make the designation, and to

advise the financial institution that such account has been so

designated. Prenotification messages may be sent at any time prior to

the first debit ACH entry. The prenotification message shall contain

the ABA routing/transit number of the financial institution designated

to receive the debit entry, as well as a depositor name reference,

deposit account number, and type or classification of account at such

institution.

(b) Response to prenotification. The financial institution must

respond to the prenotification message within eight calendar days after

the date of receipt, if the information as to the account number and/or

the type of account contained in the message does not agree with the

records of the financial institution, or if the financial institution

for any other reason has questions about the forthcoming debit entry,

including its ability to debit the account in accordance with this

subpart. Upon receipt of a response to the prenotification message, the

Department or the Federal Reserve Bank, as appropriate, will correct

the debit instructions and send another prenotification message, or

contact the owner for further instructions.

(c) Effect of failure to reject. If a financial institution does

not reject or otherwise respond to a prenotification message within the

specified time period, the financial institution shall be deemed to

have accepted the prenotification and to have warranted to the

Department or the Federal Reserve Bank that the information as to the

deposit account number and/or the type of account contained in the

message is accurate as of the time of such prenotification.

Sec. 370.23 Responsibility of financial institution.

A financial institution which receives a debit entry on behalf of

its customer must:

(a) Debit the customer's account on the settlement date. If the

financial institution is unable to debit the designated account, it

shall return the entry by no later than the next business day after

receipt, with an electronic message or other response explaining the

reason for the return.

(b) Promptly notify the appropriate Federal Reserve Bank or the

Capital Area Servicing Center when the designated account has been

closed, or when it is on notice of the death or legal incapacity (as

determined under applicable State law) of any individual named on such

account, or when it is on notice of the dissolution of a corporation in

whose name the deposit account is held.

Sec. 370.24 Handling of debit entries by Federal Reserve Banks.

Each Federal Reserve Bank, as fiscal agent of the United States,

shall initiate the debit entry in accordance with the information

furnished by the owner.

Sec. 370.25 Liability of Department and Federal Reserve Banks.

The Department and the Federal Reserve Banks will rely on the

information provided by the owner, or other person or entity entitled

to make the designation, concerning the financial institution or

deposit account designated to receive the debit entry, and are not

required to verify this information. The Department and the Federal

Reserve Banks shall not be liable for any action taken in accordance

with the information so furnished.

11. Newly redesignated section 370.31 is revised to read as

follows:

Sec. 370.31 Supplements, amendments or revisions.

The Secretary may, at any time, prescribe additional supplemental,

amendatory or revised regulations with respect to the transfer of funds

by electronic means.

12. Newly redesignated sections 370.30 and 370.31 are designated as

Subpart D and a heading for Subpart D is added to read as follows:

Subpart D--Additional Provisions

[FR Doc. 96-26376 Filed 10-21-96; 8:45 am]

BILLING CODE 4810-39-W