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: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), through the FCA Board

(Board), adopts as final with minor technical changes a previously

adopted 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). This action

completes rulemaking 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 action simultaneously finalizes 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).

EFFECTIVE DATE: January 1, 1997, except that the technical amendments

adopted herein are effective 30 days after publication during which

either or both Houses of Congress are in session. A notice of effective

date for the technical amendments will be published in the Federal

Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Senior Policy 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.

[[Page 53228]]

SUPPLEMENTARY INFORMATION:

I. Background

On December 20, 1996, the FCA published interim regulations

completely revising the procedures governing the issuance, maintenance,

and transfer of Farm Credit securities on the Book-entry System (61 FR

67188). The FCA's interim rulemaking followed 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which revised its book-entry regulations to eliminate outdated legal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

made the interim rule effective on January 1, 1997, the same date on

which Treasury's new book-entry regulations became effective. This

coordinated action was designed to avoid market uncertainty and help

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

System, including Farm Credit System (System) institutions. The interim

rulemaking provided for a post-effective date comment period.

More extensive background on FCA book-entry regulations can be

found in the interim rulemaking document and is not repeated in this

notice of final adoption. A detailed explanation of the rationale and

effect of the Treasury's new book-entry regulations, known by the

acronym ``TRADES'' (Treasury/Reserve Automated Debt Entry System) is

set forth in Treasury's proposed and final rulemaking documents. See 61

FR 8420 (March 4, 1996) and 61 FR 43626 (August 23, 1996). 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 continue 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.

II. Comments and Technical Changes

The FCA received one written comment on the interim regulations.

The Federal Farm Credit Banks Funding Corporation (Funding

Corporation), responding on behalf of the System banks, fully supported

the interim regulations but suggested several technical clarifications.

In addition, the FCA has continued to consult with Treasury, the

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

regarding final implementation of the interim regulations. Treasury

suggested that references to the United States in several sections of

the interim regulations be omitted to avoid any implication that the

United States guarantees Farm Credit securities. Treasury made the same

suggestion to other GSE regulators in connection with their revised

book-entry regulations. The FCA now adopts the interim book-entry

regulations as final, but in response to these comments and

suggestions, makes several minor technical changes in the regulations

as discussed below.

Section 615.5450(h)

The Funding Corporation suggested that the FCA add ``respectively''

after the words ``sections 4.2(c) and 4.2(d)'' to clarify that

consolidated securities are issued under section 4.2(c) and Systemwide

securities are issued under section 4.2(d) of the Farm Credit Act of

1971, as amended (Act) (12 U.S.C. 2155(c)). The final rule incorporates

this suggestion.

Providing for Issuance of Registered Definitive Securities in

Secs. 615.5451(c) and 615.5457(c)

The Funding Corporation noted that there are registered definitive

Farm Credit securities outstanding and that registered definitive

securities may be issued in the future. Thus, the Funding Corporation

suggested that the reference to ``bearer-definitive form'' in

Sec. 615.5451(c) be replaced with a more generic reference to

``definitive form,'' which would encompass both bearer and registered

definitive form. Similarly, the Funding Corporation suggested deletion

of the term ``bearer'' in Sec. 615.5457(c). The FCA agrees that

regulatory references to definitive securities should not be limited to

bearer securities and is adding the phrase ``either registered or''

preceding the term ``bearer'' in both sections. In Sec. 615.5451(c),

this broader language authorizes Farm Credit securities to be issued in

either registered or bearer form, and in Sec. 615.5457(c), it permits

Farm Credit securities being withdrawn from the Book-entry System to be

converted into definitive securities and issued in either registered or

bearer form to the extent permitted by the applicable securities

documentation. As amended, this language is consistent with Treasury's

in 31 CFR 306.117(d).

Section 615.5457(a)

The Funding Corporation requested clarification regarding the

process for withdrawing eligible securities from the Book-entry System.

Specifically, the Funding Corporation asked who requests that the

securities be withdrawn and to whom the request is submitted.

The FCA's regulations on withdrawal of eligible book-entry

securities for conversion to definitive form are modeled after

Treasury's regulations at 31 CFR 306.117. Consistent with the TRADES

regulations, requests for withdrawal and conversion of eligible book-

entry securities could only be made to a Federal Reserve Bank through a

participant as defined in the regulations. Thus an investor's request

for withdrawal and conversion of eligible book-entry securities would

proceed through the chain of the investor's financial intermediaries to

a participant. In turn, the participant would transmit the withdrawal

and conversion request to the Federal Reserve Bank, which would convert

the book-entry securities into definitive securities and deliver them

in accordance with the participant's instructions.

Section 615.5457(d)

The terms of certain issuances of Farm Credit securities provide

for the redemption of such securities, either in whole or in part, at

specified times prior to maturity. Since there may thus be more than

one call date that applies to a particular issue of Farm Credit

securities, the Funding Corporation requested clarification of which

call date applies when requests to withdraw eligible book-entry

securities are made. In response to this comment, the FCA inserts the

term ``the applicable'' preceding the term ``call date'' to clarify

that eligible book-entry securities may be converted to definitive

securities only before the call date applicable to such securities. The

amount of advance notice required for conversion requests to be honored

is controlled by the securities documentation and Federal Reserve Bank

Operating Circulars.

New Sec. 615.5460(c)

In response to the Funding Corporation's comment suggesting that

there should be more explicit authority in the regulations for

conversion of definitive securities into book-entry securities, the FCA

has added new Sec. 615.5460(c). New Sec. 615.5460(c) states that

definitive Farm Credit securities may be converted to book-entry form

in accordance with the terms of the applicable securities documentation

and Federal Reserve Bank Operating Circular. This new provision

complements the existing references in

[[Page 53229]]

Sec. Sec. 615.5456 and 615.5462 to conversion of definitive securities

to book-entry form.

Regulations Applicable to Securities Converted From Book-Entry to

Definitive Form

The Funding Corporation requested clarification as to which of the

regulations in subpart O of part 615 apply to securities converted from

book-entry to definitive form. In general, unless limited by their

terms, the definitions in Sec. 615.5450 apply to definitive securities,

whether original issue or converted from book-entry. The conversion

authority in Secs. 615.5456 and 615.5457 covers the conversion process

and related matters. Because Secs. 615.5461 and 615.5462 apply

specifically to lost and stolen definitive securities and the

restrictive endorsement of bearer definitive securities, their

requirements would apply to definitive securities converted from book-

entry form. Converted securities also are subject to applicable

securities documentation and any other provisions of law that may be

applicable to the issuance, maintenance, and transfer of definitive

securities.

The Funding Corporation also inquired whether converted securities

are subject to 31 CFR part 306 of Treasury regulations, which sets

forth general regulations governing treatment of definitive U.S.

securities. Farm Credit securities are not U.S. securities and

therefore are not subject to 31 CFR part 306. However, where

appropriate and not inconsistent with FCA regulations, the Farm Credit

banks may specify in their securities documentation that maintenance,

transfer, and other procedures relating to definitive Farm Credit

securities will be the same as those applicable to Treasury securities.

References to the United States

Treasury suggested to the FCA and other GSE regulators that their

book-entry regulations omit references to the United States wherever

possible to avoid any potential confusion regarding the liability of

the United States for GSE securities. For this reason, the FCA is

removing certain references to the United States in Secs. 615.5452(a),

615.5454(c), and 615.5455(a). As the preamble to the interim

regulations noted, 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 Act.

List of Subjects in 12 CFR Part 615

Accounting, Agriculture, Banks, Banking, Government securities,

Investments, and Rural areas.

For the reasons stated in the interim rule release, supplemented by

the above analysis and discussion, the FCA Board adopts as final with

technical changes the interim rule amending Part 615 published at 61 FR

67188, Dec. 20, 1996, governing book-entry procedures for Farm Credit,

FAC, and Farmer Mac securities. The effective date of this rule remains

January 1, 1997, except that the technical amendments adopted herein

are effective 30 days after publication during which either or both

Houses of Congress are in session. A notice of effective date for the

technical amendments will be published in the Federal Register.

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, 8.3, 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.

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

2. Section 615.5450 is amended by revising paragraph (h) to read as

follows:

Sec. 615.5450 Definitions.

* * * * *

(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), respectively, of

the Act, or laws repealed thereby.

* * * * *

3. Section 615.5451 is amended by revising paragraph (c) to read as

follows:

Sec. 615.5451 Book-entry and definitive securities.

* * * * *

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

either registered or bearer definitive form.

4. Section 615.5452 is amended by revising the section heading and

the introductory text of paragraphs (a)(1) and (a)(2) to read as

follows:

Sec. 615.5452 Law governing rights and obligations of Federal Reserve

Banks, Farm Credit banks, and Funding Corporation; rights of any person

against Federal Reserve Banks, Farm Credit banks, and Funding

Corporation.

(a) * * *

(1) The rights and obligations of the Farm Credit banks, the

Funding Corporation, and the Federal Reserve Banks with respect to:

* * * * *

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

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

Banks with respect to:

* * * * *

5. Section 615.5454 is amended by revising paragraph (c)(1) to read

as follows:

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

interests.

* * * * *

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

* * * * *

6. Section 615.5455 is amended by revising paragraph (a) to read as

follows:

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

[[Page 53230]]

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 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.

* * * * *

7. Section 615.5457 is amended by revising paragraphs (c) and (d)

to read as follows:

Sec. 615.5457 Withdrawal of eligible book-entry securities for

conversion to definitive form.

* * * * *

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

withdrawal may be issued in either registered or 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 the applicable date of call of

the Farm Credit securities.

8. Section 615.5460 is amended by adding a new paragraph (c) to

read as follows:

Sec. 615.5460 Additional provisions.

* * * * *

(c) Conversion of definitive securities into book-entry securities.

Definitive Farm Credit securities may be converted to book-entry form

in accordance with the terms of the applicable securities documentation

and Federal Reserve Operating Circular.

Dated: October 3, 1997.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 97-26999 Filed 10-10-97; 8:45 am]

BILLING CODE 6705-01-P