Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Book-entry Procedures for Farm Credit Securities

FARM CREDIT ADMINISTRATION

12 CFR Part 615

RIN 3052-AB73

Funding and Fiscal Affairs, Loan Policies and Operations, and

Funding Operations; Book-entry Procedures for Farm Credit Securities

AGENCY: Farm Credit Administration.

ACTION: Interim rule with request for comments.

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SUMMARY: The Farm Credit Administration (FCA) adopts an interim rule

that revises procedures governing the issuance, maintenance, and

transfer of Farm Credit securities on the book-entry system of the

Federal Reserve Banks (Book-entry System). The revisions are necessary

to conform FCA book-entry procedures to the recently revised book-entry

procedures of the Department of the Treasury (Treasury), which

regulates the Book-entry System for Treasury securities. The interim

rule also makes conforming amendments in the book-entry regulations

governing securities of the Farm Credit System Financial Assistance

Corporation (FAC) and the Federal Agricultural Mortgage Corporation

(Farmer Mac).

[[Page 67189]]

The FCA's action follows the action of Treasury, which revised its

book-entry regulations to eliminate outdated legal concepts and

incorporate significant changes in commercial and property law

affecting the holding of securities through financial intermediaries.

At the request of Treasury, and in coordination with other regulators

of Government-Sponsored Enterprises (GSEs), the FCA is making this

interim rule effective on the same date as Treasury's new book-entry

regulations. This coordinated action will avoid market uncertainty and

help ensure a consistent regulatory approach for all users of the Book-

entry System, including Farm Credit System institutions.

EFFECTIVE DATE: January 1, 1997. Written comments must be received on

or before February 18, 1997.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio,

Director, Regulation Development Division, Office of Policy Development

and Risk Control, Farm Credit Administration, 1501 Farm Credit Drive,

McLean, VA 22102-5090 or by facsimile at (703) 734-5784. Comments may

also be submitted via electronic mail to ``[email protected]''. Copies

of all communications received will be available for review by

interested parties in the Office of Policy Development and Risk

Control, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Michael J. LaVerghetta, Senior Financial Analyst, Office of Policy

Development and Risk Control, Farm Credit Administration, McLean, VA

22102-5090, (703) 883-4498, or

William L. Larsen, Senior Attorney, Office of General Counsel, Farm

Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)

883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

A. Current Book-Entry Regulations

The Farm Credit System obtains funds for its lending operations

primarily from the sale of debt securities issued by the Farm Credit

banks through the Federal Farm Credit Banks Funding Corporation

(Funding Corporation). As late as the mid-1970s, Farm Credit securities

were issued exclusively in definitive form (i.e., as paper

certificates). The Federal Reserve Banks acted as the fiscal agent of

the Farm Credit banks for transactions in definitive Farm Credit

securities. Around 1970, however, Treasury began a concerted effort to

convert the holding and issuance of marketable Treasury securities to

book-entry form, with the goals of protecting against loss, theft, and

counterfeit of definitive securities, as well as reducing paperwork and

printing costs. Treasury and the Federal Reserve Banks developed the

Book-entry System for Treasury securities. Access for GSE securities to

the Book-entry System soon followed. The Farm Credit System, along with

other GSEs, joined Treasury in moving toward issuing and maintaining

their securities in book-entry form.

Under the Book-entry System, the Federal Reserve Banks maintain

records of book-entry securities in the names of depository

institutions. The depository institutions keep separate accounts for

securities they own and for those they maintain for investors and other

financial institutions. Book-entry securities are assigned to an

investor's account at the depository institution. Instead of a physical

certificate, the investor receives a confirmation or custody receipt

from his bank or non-bank dealer.

Beginning in 1968, Treasury issued regulations to govern operation

of the Book-entry System and set forth the legal framework for

maintenance and transfer of Treasury securities in the Book-entry

System. Treasury's regulations applied only to Treasury securities, but

the basic book-entry procedures applicable to GSE securities in the

Book-entry System are closely analogous to book-entry procedures for

Treasury securities. Thus, the Treasury regulations at subpart O of 31

CFR part 306 served as the model for the FCA's current book-entry

regulations at 12 CFR part 615, subpart O. The FCA adopted book-entry

regulations in 1977 (42 FR 43824, August 31, 1977). Other GSE

regulators adopted similar regulations. The FCA later adopted

regulations governing the access of FAC and Farmer Mac to the Book-

entry System. (See 12 CFR part 615, subpart R, published at 53 FR

12141, April 13, 1988; 12 CFR 615, subpart S, published at 61 FR 31392,

June 20, 1996.)

B. New Treasury Book-Entry Regulations

On March 4, 1996, Treasury proposed to substantially revise its

book-entry regulations (61 FR 8420). Treasury's action came after years

of study of the legal issues and problems generated when older legal

concepts developed for handling transactions and determining ownership

interests in physical certificates were applied to paperless book-entry

securities often held through a chain of intermediary parties.

Treasury's proposal followed the development in 1994 of a revised

version of Article 8 of the Uniform Commercial Code (UCC) designed to

address similar issues and problems for purposes of state commercial

law. Treasury adopted final book-entry regulations on August 16, 1996

(61 FR 43626), effective January 1, 1997.

Treasury's new book-entry regulations are known by the acronym

``TRADES'' (Treasury/Reserve Automated Debt Entry System). In essence,

the TRADES regulations set forth the rights and obligations of various

parties, including investors and securities intermediaries, with

respect to the holding of Treasury securities in the Book-entry System.

The TRADES regulations eliminate the confusing concept central to

earlier book-entry regulations (including the FCA's) known as the

``bearer-definitive fiction.'' The bearer-definitive fiction assumed

that book-entry securities were the equivalent of bearer-definitive

securities (i.e., physical securities in the possession of and payable

to the bearer) for purposes of determining interests in the securities.

In the early years of the Book-entry System, this concept allowed for

the application of existing law to the rights and interests of

investors and other persons in marketable book-entry securities, but

ultimately generated uncertainty in settling ownership interests

because physical certificates do not actually exist for book-entry

securities. The TRADES regulations provide guidance on the application

of state law in choice of law situations, but also clarify that the

interests and obligations of the United States and the Federal Reserve

Banks in relationship to other parties with interests in marketable

Treasury book-entry securities are governed exclusively by Federal law

rather than state law unless otherwise provided.

II. FCA Action on TRADES

A. In General

The FCA supports the Treasury's efforts to clarify and update the

legal structure and mechanics of the Book-entry System to improve

certainty and liquidity in the Government/GSE securities market.

Moreover, the FCA recognizes that book-entry regulations governing Farm

Credit securities must be substantially consistent with TRADES to avoid

confusion in the Government/GSE securities market and ensure a

consistent regulatory approach for users of the Book-entry System. To

this end, the FCA is adopting interim amendments to its book-entry

regulations that conform in all substantive respects with TRADES, but

are customized for applicability to Farm Credit institutions.

[[Page 67190]]

In view of the fundamental similarity of TRADES and FCA book-entry

regulations, the FCA does not believe it is necessary or efficient to

repeat in this rulemaking document the extensive background material

and detailed explanation of the rationale and effect of the TRADES

regulations set forth in Treasury's proposed and final rulemaking

documents, supra. Members of the public should refer to Treasury's

TRADES rulemaking documentation for background on the history and

mechanics of the Book-entry System and guidance on the general

provisions of the book-entry regulations. As is its current policy

regarding interpretation of book-entry regulations, the FCA expects to

follow Treasury TRADES interpretations and guidance with respect to FCA

book-entry regulations and will coordinate with Treasury regarding

future guidance and any necessary changes.

B. Comparison of TRADES and FCA Book-Entry Regulations

The discussion that follows compares the interim regulations

adopted by the FCA and TRADES. Any differences are based on the

distinction between Treasury securities and Farm Credit securities, as

well as on the unique characteristics of the Farm Credit System.

1. General

The TRADES regulations generally refer to the United States or

Treasury as the issuer of Treasury securities. For purposes of the

FCA's adaptation of the TRADES regulations to FCA book-entry

regulations, the FCA has substituted the term ``Farm Credit banks'' as

the issuer and ``Farm Credit securities'' for Treasury securities. Any

reference in FCA book-entry regulations to the United States, the

Treasury, or the Federal Reserve Banks is not meant to imply any

liability of the United States for Farm Credit securities. See section

4.4(c) of the Farm Credit Act of 1971, as amended (Act) (12 U.S.C.

2155(c)). In addition, to avoid potential confusion regarding the

obligation of the Funding Corporation to investors and other parties to

the book-entry process, the FCA has included the Funding Corporation as

an issuer solely for purposes of these book-entry regulations. As a

technical matter, section 4.9 of the Act (12 U.S.C. 2160) assigns the

Funding Corporation the ministerial duty of ``issuing'' Farm Credit

securities as the System's fiscal agent. The FCA concludes that, even

though the Funding Corporation is not an issuer in the conventional

sense of being liable to pay interest and principal on Farm Credit

securities, its extensive involvement in the process of issuance and

maintenance of Farm Credit securities on the Book-entry System requires

that the Funding Corporation be afforded the protections of an issuer

for purposes of determining its rights and obligations with respect to

Farm Credit securities maintained on the Book-entry System.

This interim rule continues the separate location in 12 CFR part

615, subparts R and S, respectively, of book-entry regulations

applicable to FAC and Farmer Mac. The subpart R and S book-entry

regulations incorporate by reference applicable sections of the 12 CFR

part 615, subpart O book-entry regulations applicable to Farm Credit

banks and the Funding Corporation. While the access of FAC and Farmer

Mac to the Book-entry System clearly makes them issuers for purposes of

the book-entry regulations, the FCA believes it is important to

differentiate FAC and Farmer Mac securities from the Farm Credit

securities that are the joint and several obligations of the Farm

Credit banks. Thus, FAC and Farmer Mac are not identified in

conjunction with the Farm Credit banks and the Funding Corporation as

issuers in subpart O of the interim rule, but rather are treated

separately in subparts R and S.

There are several other general areas in which the FCA's book-entry

regulations diverge from Treasury's book-entry regulations. First,

under Treasury regulations, Treasury securities may be held in book-

entry form by investors who do not choose to hold their book-entry

securities accounts at financial institutions or dealers. Treasury's

book-entry system for these investors is known as TREASURY DIRECT.

Since there is currently no direct registration and holding of Farm

Credit securities, this interim rule does not establish a system

analogous to TREASURY DIRECT for Farm Credit securities.

Second, the Farm Credit banks have authority to issue a wide

variety of securities, some of which are not maintained by the Federal

Reserve Banks. For example, securities issued pursuant to the Global

Debt Program of the Farm Credit banks can be issued through fiscal

agents other than the Federal Reserve Banks. See 12 CFR part 615,

subpart P. Farm Credit securities not maintained by a Federal Reserve

Bank are not subject to these book-entry regulations. Furthermore, the

FCA's book-entry regulations apply only while a Farm Credit security is

on the Book-entry System; this regulation does not apply to Farm Credit

securities initially issued on the Book-entry System but subsequently

converted to definitive form.

Third, FCA's book-entry regulations recognize that there may be

variations in documentation that Farm Credit banks use depending upon

the type of security issued and accordingly contain a broader

definition of securities documentation than Treasury's regulations.

2. Section-by-Section Comparison With Treasury's TRADES

This segment of the preamble provides a section-by-section

comparison between FCA's book-entry regulations and TRADES and explains

several situations unique to the Farm Credit banks and their securities

that are not part of the TRADES regulation. Section references to title

31 of the Code of Federal Regulations (31 CFR) are to Treasury's book-

entry regulations as revised.

Section 615.5450

This section contains definitions applicable to FCA book-entry

regulations. To conform with TRADES, the interim rule revises several

definitions found in current FCA regulations and adds definitions that

correspond to definitions in 31 CFR 357.2 or are custom-tailored to

apply to the Farm Credit banks and their securities. The FCA's rule

uses the terminology ``Book-entry System'' rather than ``TRADES,''

since TRADES is Treasury's unique terminology for the book-entry system

applicable to Treasury securities. Section 615.5450(p) cross-references

the definition of revised Article 8 of the UCC to 31 CFR 357.2.

Section 615.5451

This section addresses Farm Credit banks'' book-entry and

definitive securities. It is adapted from Sec. 615.5450 of current

subpart O and does not have a TRADES counterpart section. Section

615.5451 deletes outmoded specific references to dates of issuance of

Farm Credit banks' securities, denominations in U.S. dollars, and

minimum original maturity requirements. The revisions also provide

that, subject to the approval of the FCA, the Funding Corporation may

issue Farm Credit securities in book-entry or bearer-definitive form in

denominations determined to be appropriate by the Funding Corporation.

Section 615.5452

This section is adapted from 31 CFR 357.10 and covers the law

governing the rights and obligations of the United States, Federal

Reserve Banks, Farm Credit banks, and Funding Corporation,

[[Page 67191]]

as well as the rights of any person against such institutions and the

United States. Through use of the defined term, securities

documentation, the FCA's rule recognizes that the Farm Credit banks may

use various forms of documentation to establish the terms of Farm

Credit securities, depending upon the type of security issued.

Section 615.5453

This section covers the law governing other interests in

securities. Other than the substituted cross-reference to Treasury

regulations, this provision is identical to 31 CFR 357.11.

Section 615.5454

This section addresses security entitlements and security

interests. It is modeled after 31 CFR 357.12. The FCA's rule applies

these provisions to the Farm Credit banks and their securities.

Section 615.5455

This section is modeled after 31 CFR 357.13 and addresses

obligations of the Farm Credit banks. The FCA's rule allows for the

possibility that the Farm Credit banks could make payments with respect

to book-entry securities that might be characterized as other than

principal or interest payments, such as ``yield maintenance premiums.''

Section 615.5456

This section concerns the authority of Federal Reserve Banks. It is

modeled after 31 CFR 357.14. As is permissible under current book-entry

regulations, the FCA's rule specifically authorizes each Federal

Reserve Bank to effect conversions between book-entry securities and

definitive Farm Credit securities where conversion rights are available

pursuant to the applicable securities documentation.

Section 615.5457

This section addresses withdrawal of eligible book-entry securities

for conversion to definitive form. It is a continuation of existing

authority modeled after 31 CFR 306.117. The FCA's rule requires that

conversion must be consistent with the securities documentation.

Section 615.5458

This provision reserves the right of the FCA to waive requirements

of the book-entry regulations in limited circumstances, such as in

cases of unnecessary hardship, where such action is not inconsistent

with law. It is based on 31 CFR 357.41.

Section 615.5459

This section concerns liability of Farm Credit banks, the Funding

Corporation, and Federal Reserve Banks. It is modeled after 31 CFR

357.42. The FCA's rule reflects that some terms such as ``tender'' and

``transactions request form'' used in Treasury's rule do not apply to

Farm Credit book-entry securities.

Section 615.5460

This section is modeled after two Treasury regulations. Paragraph

(a) regarding additional requirements is modeled after 31 CFR 357.40.

Paragraph (b) regarding notice of attachment for Farm Credit securities

is modeled after 31 CFR 357.44.

Section 615.5461

This section on lost, stolen, and defaced Farm Credit securities

applies to definitive securities. It is redesignated from Sec. 615.5495

of the current FCA regulations. The word ``securities'' is substituted

for the word ``obligations'' to conform with the terminology of the

interim rule. The reference to Treasury is updated.

Section 615.5462

This section on restrictive endorsement of bearer securities is

redesignated from Sec. 615.5498 of the current FCA regulations. The

word ``securities'' is substituted for the word ``obligations'' to

conform with the terminology of the interim rule.

Section 615.5560

This section provides that the core book-entry regulations

contained in 12 CFR part 615, subpart O apply to FAC securities through

incorporation by reference. For purposes of applying Secs. 615.5450 and

615.5452-5460 to FAC securities, the term ``Financial Assistance

Corporation securities'' shall be read for ``Farm Credit securities'',

and ``Financial Assistance Corporation'' shall be read for ``Farm

Credit banks'' and ``Funding Corporation.'' Pursuant to section 6.26(a)

of the Act (12 U.S.C. 2278b-6(a)), FAC's authority to issue securities

expired on September 30, 1992. Accordingly, these book-entry

regulations apply to FAC securities issued before the expiration date.

Section 615.5570

This section provides that the core book-entry regulations

contained in 12 CFR part 615, subpart O apply to Farmer Mac securities

through incorporation by reference. For purposes of applying

Secs. 615.5450 and 615.5452-5460 to Farmer Mac securities, the term

``Farmer Mac securities'' shall be read for ``Farm Credit securities,''

and ``Farmer Mac'' shall be read for ``Farm Credit banks'' and

``Funding Corporation.''

C. Elimination of Certain Provisions Found in Current Regulations

The interim rule eliminates most of the provisions of FCA's current

book-entry regulations. Because a major part of the current regulations

was based on Treasury's book-entry regulations at subpart O of 31 CFR

part 306, which has basically been replaced by TRADES, the FCA has

eliminated Secs. 615.5470, 615.5475, 615.5480, and 615.5485 and

replaced these provisions consistent with the new TRADES regulations.

Section 615.5454 on Liability is being eliminated because it does not

accurately reflect the current law on joint and several liability of

Farm Credit banks for Farm Credit securities as set forth in section

4.4 of the Act, as amended by the Agricultural Credit Act of 1987 (Pub.

L. 100-233, section 303(a)). Sections 615.5490, 615.5492, and 615.5494,

which contain general information on maintenance and servicing of book-

entry securities, have been eliminated because detailed authority for

maintenance and servicing of book-entry securities by the Federal

Reserve Banks is set forth in Sec. 615.5456 of the interim rule and

general information on book-entry procedures is available to investors

in securities documentation.

III. Expedited Proceeding and Effective Date

To prevent any uncertainty and dislocation in the government/GSE

securities market, and in response to public comment received during

the TRADES rulemaking, Treasury has requested that book-entry

regulations compatible with TRADES be effective for the Farm Credit

System and other GSEs on January 1, 1997, simultaneously with TRADES.

To meet this timetable, the FCA has determined that there is good cause

to omit, as neither practicable nor in the public interest,

prepromulgation notice and comment pursuant to section 553(b)(B) of the

Administrative Procedure Act, 5 U.S.C. 551-59, et seq. (APA).

Treasury's final regulation was not published until August 23, 1996,

making a proposed phase for this rulemaking impracticable. Moreover,

since the substance of the FCA's book-entry regulations is based almost

entirely on TRADES, the broad public interest in commenting on book-

entry regulations was met during Treasury's rulemaking. Nonetheless,

the FCA is providing for post-effective public comment by adopting its

revised book-entry regulations on an interim basis. In this way, FCA

book-entry regulations can take full effect simultaneously with the

Treasury's

[[Page 67192]]

TRADES regulations, yet still be subject to comment from the public.

The FCA will consider comments received during a 60-day comment period

and issue a subsequent notice of finalization.

In taking this interim action, the FCA is adopting an effective

date for the regulations that is less than 30 days after publication in

the Federal Register. The necessity that FCA make its book-entry

regulations effective simultaneously with Treasury's provides good

cause, in accordance with section 553(d) of the APA, to adopt an

accelerated effective date. Finally, consistent with the reasons for

its expedited actions under the APA, the FCA finds cause under section

5.17(c)(2) of the Act to make these regulations effective prior to the

expiration of the 30-day Congressional notice and waiting period for

final agency regulatory action.

IV. Regulatory Philosophy

The adoption of these interim regulations is consistent with the

FCA's Policy Statement on Regulatory Philosophy. See 60 FR 26034 (May

16, 1995). The interim regulations eliminate outdated book-entry

regulations without unnecessary burden or cost. Moreover, the FCA's

action is consistent with similar actions taken by Treasury and other

GSE regulators. Consistent book-entry regulations should promote

investor confidence in Farm Credit securities.

List of Subjects in 12 CFR Part 615

Accounting, Agriculture, Banks, Banking, Government securities,

Investments, and Rural areas.

For the reasons stated in the preamble, part 615 of chapter VI,

title 12 of the Code of Federal Regulations is amended to read as

follows:

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,

AND FUNDING OPERATIONS

1. The authority citation for part 615 continues to read as

follows:

Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5,

2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17,

6.20, 6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit

Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076,

2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243,

2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-

7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233,

101 Stat. 1568, 1608; sec. 105 of Pub. L. 104-105, 110 Stat. 162,

163-64.

2. Subpart O of part 615 is revised to read as follows:

Subpart O--Book-Entry Procedures for Farm Credit Securities

Sec.

615.5450 Definitions.

615.5451 Book-entry and definitive securities.

615.5452 Law governing rights and obligations of United States,

Federal Reserve Banks, Farm Credit banks, and Funding Corporation;

rights of any person against United States, Federal Reserve Banks,

Farm Credit banks, and Funding Corporation.

615.5453 Law governing other interests.

615.5454 Creation of participant's security entitlement; security

interests.

615.5455 Obligations of the Farm Credit banks and the Funding

Corporation; no adverse claims.

615.5456 Authority of Federal Reserve Banks.

615.5457 Withdrawal of eligible book-entry securities for

conversion to definitive form.

615.5458 Waiver of regulations.

615.5459 Liability of Farm Credit banks, Funding Corporation and

Federal Reserve Banks.

615.5460 Additional provisions.

615.5461 Lost, stolen, destroyed, mutilated or defaced Farm Credit

securities, including coupons.

615.5462 Restrictive endorsement of bearer securities.

Subpart O--Book-Entry Procedures for Farm Credit Securities

Sec. 615.5450 Definitions.

In this subpart, unless the context otherwise requires or

indicates:

(a) Adverse claim means a claim that a claimant has a property

interest in a security and that it is a violation of the rights of the

claimant for another person to hold, transfer, or deal with the

security.

(b) Book-entry security means a Farm Credit security issued or

maintained in the Book-entry System.

(c) Book-entry System means the automated book-entry system

operated by the Federal Reserve Banks, acting as the fiscal agent for

the Farm Credit banks, through which book-entry securities are issued,

recorded, transferred and maintained in book-entry form.

(d) Definitive Farm Credit security means a Farm Credit security in

engraved or printed form, or that is otherwise represented by a

certificate.

(e) Eligible book-entry security means a book-entry security issued

or maintained in the Book-entry System, which by the terms of its

securities documentation, is eligible to be converted from book-entry

into definitive form.

(f) Entitlement Holder means a person to whose account an interest

in a book-entry security is credited on the records of a securities

intermediary.

(g) Farm Credit banks means one or more Farm Credit Banks,

agricultural credit banks, and banks for cooperatives.

(h) Farm Credit securities means consolidated notes, bonds,

debentures, or other similar obligations of the Farm Credit banks and

Systemwide notes, bonds, debentures, or similar obligations of the Farm

Credit banks issued under sections 4.2(c) and 4.2(d) of the Act, or

laws repealed thereby.

(i) Federal Reserve Bank means a Federal Reserve Bank or Branch

acting as agent for the Farm Credit banks and the Funding Corporation.

(j) Federal Reserve Bank Operating Circular means the publication

issued by each Federal Reserve Bank that sets forth the terms and

conditions under which the Federal Reserve Bank maintains book-entry

securities accounts and transfers book-entry securities.

(k) Funding Corporation means the Federal Farm Credit Banks Funding

Corporation established pursuant to section 4.9 of the Act, which

issues Farm Credit securities on behalf of the Farm Credit banks.

(l) Funds Account means a reserve and/or clearing account at a

Federal Reserve Bank to which debits or credits are posted for

transfers against payment, book-entry securities transaction fees, or

principal and interest payments.

(m) Participant means a person that maintains a participant's

securities account with a Federal Reserve Bank.

(n) Participant's Securities Account means an account in the name

of a participant at a Federal Reserve Bank to which book-entry

securities held for a participant are or may be credited.

(o) Person means an individual, corporation, company, governmental

entity, association, firm, partnership, trust, estate, representative

and any other similar organization, but does not mean the United

States, a Farm Credit bank, the Funding Corporation or a Federal

Reserve Bank.

(p) Revised Article 8 means Uniform Commercial Code, Revised

Article 8, Investment Securities (with Conforming and Miscellaneous

Amendments to Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text, and

has the same meaning as in 31 CFR 357.2.

(q) Securities Documentation means the applicable statement of

terms, trust indenture, securities agreement, offering circular or

other documents establishing the terms of a book-entry security.

(r) Securities Intermediary means:

(1) A person that is registered as a ``clearing agency'' under the

Federal

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securities laws; a Federal Reserve Bank; any other person that provides

clearance or settlement services with respect to a book-entry security

that would require it to register as a clearing agency under the

Federal securities laws but for an exclusion or exemption from the

registration requirement, if its activities as a clearing corporation,

including promulgation of rules, are subject to regulation by a Federal

or State governmental authority; or

(2) A person (other than an individual, unless such individual is

registered as a broker or dealer under the Federal securities laws)

including a bank or broker, that in the ordinary course of its business

maintains securities accounts for others and is acting in that

capacity.

(s) Security means a Farm Credit security as defined in paragraph

(h) of this section.

(t) Security Entitlement means the rights and property interest of

an entitlement holder with respect to a book-entry security.

(u) State means any State of the United States, the District of

Columbia, Puerto Rico, the Virgin Islands, or any other territory or

possession of the United States.

(v) Transfer Message means an instruction of a participant to a

Federal Reserve Bank to effect a transfer of a book-entry security

maintained in the Book-entry System, as set forth in Federal Reserve

Bank Operating Circulars.

Sec. 615.5451 Book-entry and definitive securities.

Subject to subpart C of this part:

(a) Farm Credit banks operating under the same title of the Act may

issue consolidated securities in book-entry form.

(b) Farm Credit banks may issue Systemwide securities in book-entry

form.

(c) Consolidated and Systemwide securities also may be issued in

bearer-definitive form.

Sec. 615.5452 Law governing rights and obligations of United States,

Federal Reserve Banks, Farm Credit banks, and Funding Corporation;

rights of any person against United States, Federal Reserve Banks, Farm

Credit banks, and Funding Corporation.

(a) Except as provided in paragraph (b) of this section, the

following are governed solely by the regulations contained in this

subpart O, the securities documentation, and Federal Reserve Bank

Operating Circulars:

(1) The rights and obligations of the United States, the Farm

Credit banks, the Funding Corporation, and the Federal Reserve Banks

with respect to:

(i) A book-entry security or security entitlement, and

(ii) The operation of the Book-entry System as it applies to Farm

Credit securities; and

(2) The rights of any person, including a participant, against the

United States, the Farm Credit banks, the Funding Corporation, and the

Federal Reserve Banks with respect to:

(i) A book-entry security or security entitlement, and

(ii) The operation of the Book-entry System as it applies to Farm

Credit securities.

(b) A security interest in a security entitlement that is in favor

of a Federal Reserve Bank from a participant and that is not recorded

on the books of a Federal Reserve Bank pursuant to Sec. 615.5454(c)(1)

of this subpart, is governed by the law (not including the conflict-of-

law rules) of the jurisdiction where the head office of the Federal

Reserve Bank maintaining the participant's securities account is

located. A security interest in a security entitlement that is in favor

of a Federal Reserve Bank from a person that is not a participant, and

that is not recorded on the books of a Federal Reserve Bank pursuant to

Sec. 615.5454(c)(1)of this subpart, is governed by the law determined

in the manner specified in Sec. 615.5453 of this subpart.

(c) If the jurisdiction specified in the first sentence of

paragraph (b) of this section is a State that has not adopted revised

Article 8 (see 31 CFR 357.2) then the law specified in paragraph (b) of

this section shall be the law of that State as though revised Article 8

had been adopted by that State.

Sec. 615.5453 Law governing other interests.

(a) To the extent not inconsistent with these regulations, the law

(not including the conflict-of-law rules) of a securities

intermediary's jurisdiction governs:

(1) The acquisition of a security entitlement from the securities

intermediary;

(2) The rights and duties of the securities intermediary and

entitlement holder arising out of a security entitlement;

(3) Whether the securities intermediary owes any duties to an

adverse claimant to a security entitlement;

(4) Whether an adverse claim can be asserted against a person who

acquires a security entitlement from the securities intermediary or a

person who purchases a security entitlement or interest therein from an

entitlement holder; and

(5) Except as otherwise provided in paragraph (c) of this section,

the perfection, effect of perfection or non-perfection and priority of

a security interest in a security entitlement.

(b) The following rules determine a ``securities intermediary's

jurisdiction'' for purposes of this section:

(1) If an agreement between the securities intermediary and its

entitlement holder specifies that it is governed by the law of a

particular jurisdiction, that jurisdiction is the securities

intermediary's jurisdiction.

(2) If an agreement between the securities intermediary and its

entitlement holder does not specify the governing law as provided in

paragraph (b)(1) of this section, but expressly specifies that the

securities account is maintained at an office in a particular

jurisdiction, that jurisdiction is the securities intermediary's

jurisdiction.

(3) If an agreement between the securities intermediary and its

entitlement holder does not specify a jurisdiction as provided in

paragraph (b)(1) or (b)(2) of this section, the securities

intermediary's jurisdiction is the jurisdiction in which is located the

office identified in an account statement as the office serving the

entitlement holder's account.

(4) If an agreement between the securities intermediary and its

entitlement holder does not specify a jurisdiction as provided in

paragraph (b)(1) or (b)(2) of this section and an account statement

does not identify an office serving the entitlement holder's account as

provided in paragraph (b)(3) of this section, the securities

intermediary's jurisdiction is the jurisdiction in which is located the

chief executive office of the securities intermediary.

(c) Notwithstanding the general rule in paragraph (a)(5) of this

section, the law (but not the conflict-of-law rules) of the

jurisdiction in which the person creating a security interest is

located governs whether and how the security interest may be perfected

automatically or by filing a financing statement.

(d) If the jurisdiction specified in paragraph (b) of this section

is a State that has not adopted revised Article 8 (see 31 CFR 357.2),

then the law for the matters specified in paragraph (a) of this section

shall be the law of that State as though revised Article 8 had been

adopted by that State. For purposes of the application of the matters

specified in paragraph (a) of this section, the Federal Reserve Bank

maintaining the securities account is a clearing corporation, and the

participant's interest in a book-entry security is a security

entitlement.

[[Page 67194]]

Sec. 615.5454 Creation of participant's security entitlement; security

interests.

(a) A participant's security entitlement is created when a Federal

Reserve Bank indicates by book entry that a book-entry security has

been credited to a participant's securities account.

(b) A security interest in a security entitlement of a participant

in favor of the United States to secure deposits of public money,

including without limitation deposits to the Treasury tax and loan

accounts, or other security interest in favor of the United States that

is required by Federal statute, regulation, or agreement, and that is

marked on the books of a Federal Reserve Bank is thereby effected and

perfected, and has priority over any other interest in the securities.

Where a security interest in favor of the United States in a security

entitlement of a participant is marked on the books of a Federal

Reserve Bank, such Federal Reserve Bank may rely, and is protected in

relying, exclusively on the order of an authorized representative of

the United States directing the transfer of the security. For purposes

of this paragraph, an ``authorized representative of the United

States'' is the official designated in the applicable regulations or

agreement to which a Federal Reserve Bank is a party, governing the

security interest.

(c)(1) The Farm Credit banks, the Funding Corporation, the United

States, and the Federal Reserve Banks have no obligation to agree to

act on behalf of any person or to recognize the interest of any

transferee of a security interest or other limited interest in favor of

any person except to the extent of any specific requirement of Federal

law or regulation or to the extent set forth in any specific agreement

with the Federal Reserve Bank on whose books the interest of the

participant is recorded. To the extent required by such law or

regulation or set forth in an agreement with a Federal Reserve Bank, or

the Federal Reserve Bank Operating Circular, a security interest in a

security entitlement that is in favor of a Federal Reserve Bank, a Farm

Credit bank, the Funding Corporation, or a person may be created and

perfected by a Federal Reserve Bank marking its books to record the

security interest. Except as provided in paragraph (b) of this section,

a security interest in a security entitlement marked on the books of a

Federal Reserve Bank shall have priority over any other interest in the

securities.

(2) In addition to the method provided in paragraph (c)(1) of this

section, a security interest, including a security interest in favor of

a Federal Reserve Bank, may be perfected by any method by which a

security interest may be perfected under applicable law as described in

Sec. 615.5452(b) or Sec. 615.5453 of this subpart. The perfection,

effect of perfection or non-perfection and priority of a security

interest are governed by that applicable law. A security interest in

favor of a Federal Reserve Bank shall be treated as a security interest

in favor of a clearing corporation in all respects under that law,

including with respect to the effect of perfection and priority of the

security interest. A Federal Reserve Bank Operating Circular shall be

treated as a rule adopted by a clearing corporation for such purposes.

Sec. 615.5455 Obligations of the Farm Credit banks and the Funding

Corporation; no adverse claims.

(a) Except in the case of a security interest in favor of the

United States or a Federal Reserve Bank or otherwise as provided in

Sec. 615.5454(c)(1), for the purposes of this subpart O, the Farm

Credit banks, the Funding Corporation and the Federal Reserve Banks

shall treat the participant to whose securities account an interest in

a book-entry security has been credited as the person exclusively

entitled to issue a transfer message, to receive interest and other

payments with respect thereof and otherwise to exercise all the rights

and powers with respect to such security, notwithstanding any

information or notice to the contrary. The Federal Reserve Banks, the

United States, the Farm Credit banks, and the Funding Corporation are

not liable to a person asserting or having an adverse claim to a

security entitlement or to a book-entry security in a participant's

securities account, including any such claim arising as a result of the

transfer or disposition of a book-entry security by a Federal Reserve

Bank pursuant to a transfer message that the Federal Reserve Bank

reasonably believes to be genuine.

(b) The obligation of the Farm Credit banks and the Funding

Corporation to make payments (including payments of interest and

principal) with respect to book-entry securities is discharged at the

time payment in the appropriate amount is made as follows:

(1) Interest or other payments on book-entry securities are either

credited by a Federal Reserve Bank to a funds account maintained at the

Federal Reserve Bank or otherwise paid as directed by the participant.

(2) Book-entry securities are redeemed in accordance with their

terms by a Federal Reserve Bank withdrawing the securities from the

participant's securities account in which they are maintained and by

either crediting the amount of the redemption proceeds, including both

principal and interest, where applicable, to a funds account at the

Federal Reserve Bank or otherwise paying such principal and interest as

directed by the participant. No action by the participant is required

in connection with the redemption of a book-entry security.

Sec. 615.5456 Authority of Federal Reserve Banks.

(a) Each Federal Reserve Bank is hereby authorized as fiscal agent

of the Farm Credit banks and the Funding Corporation to perform

functions with respect to the issuance of book-entry securities offered

and sold by the Farm Credit banks and the Funding Corporation to which

this subpart applies, in accordance with the terms of the securities

documentation and the provisions of this subpart:

(1) To service and maintain book-entry securities in accounts

established for such purposes;

(2) To make payments of principal and interest, as directed by the

Farm Credit banks and the Funding Corporation;

(3) To effect transfer of book-entry securities between

participants' securities accounts as directed by the participants;

(4) To effect conversions between book-entry securities and

definitive Farm Credit securities with respect to those securities as

to which conversion rights are available pursuant to the applicable

securities documentation; and

(5) To perform such other duties as fiscal agent as may be

requested by the Farm Credit banks and the Funding Corporation.

(b) Each Federal Reserve Bank may issue Operating Circulars not

inconsistent with this subpart, governing the details of its handling

of book-entry securities, security entitlements, and the operation of

the Book-entry System under this subpart.

Sec. 615.5457 Withdrawal of eligible book-entry securities for

conversion to definitive form.

(a) Eligible book-entry securities may be withdrawn from the Book-

entry System by requesting delivery of like definitive Farm Credit

securities.

(b) A Federal Reserve Bank shall, upon receipt of appropriate

instructions to withdraw eligible book-entry securities from book-entry

in the Book-entry System, convert such securities into definitive Farm

Credit securities and deliver them in accordance with such

instructions.

[[Page 67195]]

(c) Farm Credit securities which are to be delivered upon

withdrawal may be issued in bearer form, to the extent permitted by the

applicable securities documentation.

(d) All requests for withdrawal of eligible book-entry securities

must be made prior to the maturity or date of call of the Farm Credit

securities.

Sec. 615.5458 Waiver of regulations.

The Farm Credit Administration reserves the right, in the Farm

Credit Administration's discretion, to waive any provision(s) of the

regulations in this subpart in any case or class of cases for the

convenience of the Farm Credit banks and the Funding Corporation or in

order to relieve any person(s) of unnecessary hardship, if such action

is not inconsistent with law, does not adversely affect any substantial

existing rights, and the Farm Credit Administration is satisfied that

such action will not subject the Farm Credit banks and the Funding

Corporation to any substantial expense or liability.

Sec. 615.5459 Liability of Farm Credit banks, Funding Corporation and

Federal Reserve Banks.

The Farm Credit banks, the Funding Corporation, and the Federal

Reserve Banks may rely on the information provided in a transfer

message or other transaction documentation, and are not required to

verify the information. The Farm Credit banks, the Funding Corporation,

and the Federal Reserve Banks shall not be liable for any action taken

in accordance with the information set out in the transfer message,

other transaction documentation, or evidence submitted in support

thereof.

Sec. 615.5460 Additional provisions.

(a) Additional requirements. In any case or any class of cases

arising under the regulations in this subpart, the Farm Credit banks

and the Funding Corporation may require such additional evidence and a

bond of indemnity, with or without surety, as may in the judgment of

the Farm Credit banks and the Funding Corporation be necessary for the

protection of the interests of the Farm Credit banks and the Funding

Corporation.

(b) Notice of attachment for Farm Credit securities in the Book-

entry System. The interest of a debtor in a security entitlement may be

reached by a creditor only by legal process upon the securities

intermediary with whom the debtor's securities account is maintained,

except where a security entitlement is maintained in the name of a

secured party, in which case the debtor's interest may be reached by

legal process upon the secured party. These regulations do not purport

to establish whether a Federal Reserve Bank is required to honor an

order or other notice of attachment in any particular case or class of

cases.

Sec. 615.5461 Lost, stolen, destroyed, mutilated or defaced Farm

Credit securities, including coupons.

(a) Relief on the account of the loss, theft, destruction,

mutilation, or defacement of any definitive consolidated or Systemwide

securities of the Farm Credit banks and coupons of such securities may

be granted on the same basis and to the same extent as relief may be

granted under the statutes of the United States and the regulations of

the Department of the Treasury on the account of the loss, theft,

destruction, mutilation, or defacement of United States securities and

coupons of such securities.

(b) Applicants for relief under paragraph (a) of this section,

shall present claims and proof of loss:

(1) To the Division of Special Investments, Bureau of the Public

Debt, P.O. Box 396, Parkersburg, WV 26102-0396, in the case of

consolidated or Systemwide securities of the Farm Credit banks issued

prior to May 1, 1978; or

(2) To the Federal Farm Credit Banks Funding Corporation, 10

Exchange Place, Suite 1401, Jersey City, NJ 07302, in the case of

consolidated or Systemwide securities issued on or after May 1, 1978.

Sec. 615.5462 Restrictive endorsement of bearer securities.

When consolidated and Systemwide bearer securities of the Farm

Credit banks are being presented to Federal Reserve Banks, for

redemption, exchange, or conversion to book entry, such securities may

be restrictively endorsed. The restrictive endorsement shall be placed

thereon in substantially the same manner and with the same effects as

prescribed in United States Treasury Department regulations, now or

hereafter in force, governing like transactions in United States bonds;

and consolidated or Systemwide securities of the Farm Credit banks so

endorsed shall be prepared for shipment and shipped in the manner

prescribed in such regulations for United States bearer securities.

(See 31 CFR part 328.)

Subpart R--Farm Credit System Financial Assistance Corporation

Securities

3. Section 615.5560 is amended by revising paragraph (c) to read as

follows:

Sec. 615.5560 Book-entry Procedure for Farm Credit System Financial

Assistance Corporation Securities.

* * * * *

(c) Financial Assistance Corporation securities shall be governed

by Secs. 615.5450, and 615.5452 through 615.5460. In interpreting those

sections for purposes of this subpart, unless the context requires

otherwise, the term ``Financial Assistance Corporation securities''

shall be read for ``Farm Credit securities,'' and ``Financial

Assistance Corporation'' shall be read for ``Farm Credit banks'' and

``Funding Corporation.'' These terms shall be read as though modified

where necessary to effectuate the application of the designated

sections of subpart O of this part to the Financial Assistance

Corporation.

Subpart S--Federal Agricultural Mortgage Corporation Securities

4. Section 615.5570 is amended by revising paragraph (c) to read as

follows:

Sec. 615.5570 Book-entry procedures for Federal Agricultural Mortgage

Corporation Securities.

* * * * *

(c) Farmer Mac securities shall be governed by Secs. 615.5450, and

615.5452 through 615.5460. In interpreting those sections for purposes

of this subpart, unless the context requires otherwise, the term

``Farmer Mac securities'' shall be read for ``Farm Credit securities,''

and ``Farmer Mac'' shall be read for ``Farm Credit banks'' and

``Funding Corporation.'' These terms shall be read as though modified

where necessary to effectuate the application of the designated

sections of subpart O of this part to Farmer Mac.

Dated: December 12, 1996.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 96-32310 Filed 12-19-96; 8:45 am]

BILLING CODE 6705-01-P