Regulations Governing Book-Entry Federal Home Loan Bank Securities

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 910 and 912

[No. 98-03]

RIN 3069-AA54

Regulations Governing Book-Entry Federal Home Loan Bank

Securities

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board is adopting a final rule

amending its regulations governing procedures for maintaining book-

entry (uncertificated) Federal Home Loan Bank securities within the

Federal Reserve Banks' system of accounts to eliminate the need to

treat such securities as if they were certificated securities and to

conform more closely to the manner in which book-entry securities are

treated under the laws of the majority of states (as set forth in

Article 8 of the Uniform Commercial Code, as revised in 1994).

DATES: This final rule is effective on March 20, 1998.

FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Attorney-Advisor,

Office of General Counsel, 202/408-2932, Federal Housing Finance Board,

1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Background

On December 3, 1996, the Federal Housing Finance Board (Finance

Board) published, and requested public comments on, an interim rule

that amended part 912 of the Finance Board's regulations, which governs

Federal Home Loan Bank (FHLBank) securities maintained in book-entry

(uncertificated) form. 61 FR 64021 (Dec. 3, 1996). The interim final

rule was intended to update part 912 to reflect new developments in

commercial law regarding ownership and other rights in uncertificated

securities and, especially, to parallel the treatment of such

securities under Article 8 of the Uniform Commercial Code (UCC), as

amended in 1994.

Paragraphs (b) and (c) of section 11 of the Federal Home Loan Bank

Act (Bank Act) authorize the Finance Board to issue, upon such terms

and conditions as it may establish, consolidated Federal Home Loan Bank

(FHLBank) debentures or bonds (collectively, ``FHLBank securities''),

which are the joint and several obligations of the twelve regional

FHLBanks. See 12 U.S.C. 1431(b), (c). The Finance Board has set forth

the terms and conditions regarding the issuance of FHLBank securities

in part 910 of its regulations. 12 CFR part 910. Although, under the

Bank Act, the Finance Board is designated as the ``issuer'' of FHLBank

securities, it has delegated this issuance function, along with such

other ministerial functions as the servicing of the FHLBank securities,

to the Office of Finance (OF) (a joint office of the FHLBanks) pursuant

to section 2B(b)(1) of the Bank Act, 12 U.S.C. 1422b(b)(1), part 941 of

the Finance Board's regulations, 12 CFR part 941, and periodic

resolutions of the Board of Directors of the Finance Board.

Since 1977, the OF has issued domestic FHLBank securities

exclusively in ``book-entry'' form; that is, as uncertificated

securities recorded as entries on the computerized system of accounts

maintained by the Federal Reserve Banks (Reserve Banks). Under this

arrangement, the Reserves Banks, acting as fiscal agents of the Finance

Board, the FHLBanks and the OF: issue book-entry FHLBank securities;

maintain related book-entry accounts; pay principal and interest due on

book-entry FHLBank securities; and otherwise service such FHLBank

securities.

Prior to the adoption of the interim final rule in 1996, the rights

and obligations of the FHLBanks, the Reserve Banks, and other persons

with respect to the issuance and servicing of book-entry FHLBank

securities, and the operation of the associated FHLBank book-entry

system, were governed by regulatory text that had been promulgated by

the former Federal Home Loan Bank Board (FHLBB)--the Finance Board's

predecessor as regulator of the FHLBanks in 1973. See 12 CFR 506a

(1974); 38 FR 10969 (May 3, 1973) (proposed rule); 38 FR 26355 (Sept.

20, 1973) (final rule). These regulations, and those of other

government sponsored enterprises (GSEs) having similar book-entry

arrangements with the Reserve Banks, were patterned after former part

306 of the regulations of the Department of Treasury, 31 CFR part 306

(1996), which governed Reserve Bank book-entry procedures for Treasury

securities.

By 1996, the legal concepts upon which former part 912 were based,

like those underlying the analogous Department of Treasury regulations,

had become outdated. In the early 1970s, when these regulations were

developed, the United States government securities market was in a

state of transition between one in which most securities existed in

definitive form (that is, the traditional certificate) to one in which

securities are maintained almost exclusively within computerized book-

entry systems. Corresponding law (including state laws based on the

UCC) at the time former part 912 was promulgated assumed that

possession and delivery of physical certificates were the key elements

in the securities holding system. This led the Department of Treasury,

the FHLBB, and other GSE regulators to premise their regulations upon

the ``bearer-definitive security fiction,'' which deemed each book-

entry security to be the equivalent of a bearer-definitive security.

The shortcomings of the bearer-definitive security fiction became

increasingly apparent over the years, as the rules based on this

fiction were found to leave many unanswered questions regarding

transactions and rights in book-entry securities.

In addition, the rules proved inadequate to deal with the tiered

system of accounts in which book-entry securities are held. Each

interest in a book-entry security must be credited to the account of a

Reserve Bank ``participant''--that is, an entity having an account with

a Reserve Bank. Persons or entities, including securities broker-

dealers, who wish to acquire an interest in book-entry securities, but

who do not have an account with a Reserve Bank, must do so through a

Reserve Bank participant. Non-participant broker-dealers who deal in

book-entry securities through a participant may, in turn, hold these

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securities for other persons or entities who otherwise lack access to

the securities markets. Accordingly, a Reserve Bank most likely will

have no information regarding the beneficial owners of interests in

book-entry securities, but, instead, will consider the participants in

whose Reserve Bank accounts the book-entry securities are held to be

the ``owners'' of the interests therein.

In 1994, the American Law Institute and the National Conference of

Commissioners on Uniform State Laws ratified a revised version of

Article 8 of the UCC (Revised Article 8), which addresses investment

securities. Thereafter, in 1996, the Department of Treasury amended its

regulations governing the book-entry system for Treasury securities

(called ``Treasury/Reserve Automated Debt Entry System'' or ``TRADES'')

to incorporate many of the concepts regarding transactions and rights

in book-entry securities set forth in Revised Article 8 and to defer to

state law modeled after Revised Article 8 in many circumstances. See 61

FR 43626 (Aug. 23, 1996) (final rule); 61 FR 8420 (Mar. 4, 1996)

(proposed rule). Shortly thereafter, in order to ensure uniformity in

the treatment of book-entry government securities, the regulators of

GSEs that maintain book-entry securities at Reserve Banks also

promulgated new regulations to govern their respective book-entry

systems. These regulations parallel the new TRADES regulation, with

modifications appropriate to the particular GSE and government

securities to which such regulations apply.

As part of this effort, the Finance Board adopted an interim final

rule amending part 912 of its regulations, governing book-entry FHLBank

securities, in December 1996. The Finance Board chose to act through an

interim final rule so that new part 912 would become effective

simultaneously with the new TRADES regulation on January 1, 1997, while

also giving the agency an opportunity to solicit comments from the

public and to give further consideration to some minor issues relating

to various aspects of the rule.

II. Analysis of the Final Rule

The Finance Board received no comments on the interim final rule

and, therefore, has made no changes thereto in response to public

comment. However, pursuant to its own review, the Finance Board has

incorporated some minor clarifications into the final rule without

altering the substance of the regulation. In the final rule,

Sec. 910.3, which cross-references part 912, has been modified to

replace the commas surrounding the phrase ``regarding book-entry

procedure'' with parentheses. This change has been made in order to

make clear that all Department of Treasury regulations governing

transactions in United States securities except those governing book-

entry securities shall apply to FHLBank securities. As this section

appeared in the interim final rule, it was possible to read the first

sentence as providing that the Department of Treasury's regulations

governing book-entry securities were to be incorporated into part 910.

In the final rule, the definition of ``Entitlement Holder'' and

``Participant,'' which are set forth in Sec. 912.1(c) and Sec. 912.1(j)

(designated as Sec. 912.1(h) in the interim final rule), respectively,

have been amended to include FHLBanks, which are permitted by statute

both to hold FHLBank securities and to maintain accounts with a reserve

Bank. See 12 U.S.C. 1431(h), 1435. In the interim final rule, these

definitions encompassed only entities meeting the definition of a

``Person,'' from which the FHLBanks are expressly excluded.

The majority of changes made have been incorporated in order to

reflect more expressly in the regulation the rights and obligations of

the Finance Board as statutory issuer of FHLBank securities and of the

OF as agent for the Finance Board or the FHLBanks with respect to the

securities. In this vein, Sec. 912.1(d) has been amended to make clear

that, under section 11 of the Bank Act, the Finance Board is considered

to be the issuer of FHLBank securities. See 12 U.S.C. 1431. Section

912.1(e) has been amended to refer to the OF, instead of the FHLBanks,

in order make clear that, in issuing and maintaining FHLBank securities

in its book-entry system, a Federal Reserve Bank acts as agent of the

OF which, in turn, acts as agent for the Finance Board or the FHLBanks.

In addition, definitions of ``Finance Board'' and ``Office of Finance''

have been added to Sec. 912.1 to permit the use of these terms within

the substantive portion of the regulation. The definition of ``Office

of Finance'' set forth in Sec. 912.1(i) makes clear that the OF acts as

agent of the Finance Board when it issues book-entry FHLBank

securities, but as agent of the FHLBanks when it performs any functions

relating to the maintenance and servicing of these securities.

Given the complex nature of the statutorily-mandated system under

which FHLBank securities are issued and serviced, the rights and

obligations of the Finance Board, the FHLBanks and the OF may overlap,

or may be at times ambiguous, depending on the function at issue.

Accordingly, all references to rights, obligations, or liabilities

arising in connection with book-entry FHLBank securities which in the

interim final rule referred only to the FHLBanks and the Reserve Banks

have been amended in the final rule to refer to the FHLBanks, the

Finance Board, the OF and the United States, in addition to the Reserve

Banks. These changes affect Sec. 912.1(l) (which was designated as

Sec. 912.1(j) in the interim final rule, defining the term ``person''

to exclude the foregoing entities), Sec. 912.2(a) (specifying the law

governing rights and obligations regarding book-entry FHLBank

securities), Sec. 912.5(a) (addressing obligations arising from the

transfer of interests in book-entry FHLBank securities), and Sec. 912.7

(addressing liabilities arising from transactions in book-entry FHLBank

securities).

In addition, in order to more accurately reflect the fact that the

Reserve Banks deal with the OF--and not directly with the FHLBanks or

the Finance Board (for whom the OF acts as agent)--in matters

concerning the book-entry system, references to dealings with the

Reserve Banks have been amended to refer to the OF, instead of to the

FHLBanks. This change affects Sec. 912.2(a) (addressing procedures

established to govern book-entry transactions) and Sec. 912.6(a)

(addressing the authority of the Reserve Banks as fiscal agents).

Finally, the Finance Board has amended the interim final rule by

adding a new paragraph (a) to Sec. 912.8 and designating the existing

text as Sec. 912.8(b). New Sec. 912.8(a) has been added in order to

conform to common practice among private parties and other GSEs by

authorizing the OF to require an indemnity bond of a party if, in its

judgment, or in the judgment of the Finance Board or FHLBanks, such

action is necessary to protect the interests of any of these entities.

In summary, although the final rule is intended to provide a legal

framework for all book-entry FHLBank securities, it is not a

codification of all laws that could affect interests in book-entry

FHLBank securities. In general, the regulation provides that (with some

exceptions regarding security interests) Federal law will govern the

rights and obligations of the FHLBanks, the Finance Board, the OF, the

United States and the Reserve Banks arising from book-entry FHLBank

securities and the book-entry system, and that state law (to the extent

that states have adopted Revised Article 8) will govern all other

rights and obligations. The regulation also sets forth the substantive

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Federal law that applies to the rights and obligations of the FHLBanks,

the Finance Board, the OF, the United States and the Reserve Banks

arising from book-entry FHLBank securities and the book-entry system.

The most prominent aspect of the substantive law set forth therein is

that none of the aforementioned entities is liable to persons having or

claiming interests in book-entry securities that are below the

participant level in the tiered system of ownership; that is, the

FHLBanks, the Finance Board, the OF, the United States and the Reserve

Banks need only recognize Reserve Bank participants as holders of

interests in book-entry FHLBank securities.

III. Procedural Requirements

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

regulatory action'' under Executive Order 12866.

Because the Finance Board adopted the changes to Sec. 910.3 and

part 912 in the form of an interim final rule and not as a proposed

rule, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601,

et seq., do not apply.

There are no collections of information contained in this final

rule. Therefore, the Paperwork Reduction Act of 1995, 44 U.S.C. 3501,

et seq., does not apply.

List of Subjects

12 CFR Part 910

Federal home loan banks, Government securities.

12 CFR Part 912

Federal home loan banks, Federal Reserve System, Government

securities, electronic funds transfer.

Accordingly, the Federal Housing Finance Board hereby amends title

12, chapter IX of the Code of Federal Regulations, as follows:

PART 910--CONSOLIDATED BONDS AND DEBENTURES

1. The authority citation for part 910 continues to read as

follows:

Authority: 12 U.S.C. 1422b, 1431.

2. Section 910.3 is revised to read as follows:

Sec. 910.3 Transactions in consolidated bonds.

The general regulations of the Department of Treasury now or

hereafter in force governing transactions in United States securities,

except 31 CFR part 357 (regarding book-entry procedure), are hereby

incorporated into this part, so far as applicable and as necessarily

modified to relate to consolidated Federal Home Loan Bank bonds, as the

regulations of the Board for similar transactions in consolidated

Federal Home Loan Bank bonds. The book-entry procedure for consolidated

Federal Home Loan Bank bonds is contained in part 912 of this

subchapter.

3. Part 912 is revised to read as follows:

PART 912--BOOK-ENTRY PROCEDURE FOR FEDERAL HOME LOAN BANK

SECURITIES

Sec.

912.1 Definitions.

912.2 Law governing rights and obligations of Federal Home Loan

Banks, Finance Board, Office of Finance, United States and Federal

Reserve Banks; rights of any Person against Federal Home Loan Banks,

Finance Board, Office of Finance, United States and Federal Reserve

Banks.

912.3 Law governing other interests.

912.4 Creation of Participant's Security Entitlement; security

interests.

912.5 Obligations of Federal Home Loan Banks and the Office of

Finance; no Adverse Claims.

912.6 Authority of Federal Reserve Banks.

912.7 Liability of Federal Home Loan Banks, Finance Board, Office

of Finance and Federal Reserve Banks.

912.8 Additional requirements; notice of attachment for Book-entry

Federal Home Loan Bank Securities.

912.9 Reference to certain Department of Treasury commentary and

determinations.

912.10 Obligations of United States with respect to Federal Home

Loan Bank Securities.

Authority: 12 U.S.C. 1422a, 1422b, 1431, 1435.

Sec. 912.1 Definitions.

For purposes of this part, unless the context otherwise requires or

indicates:

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

interest in a Book-entry Federal Home Loan Bank 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 Federal Home Loan Bank Security means a Federal Home

Loan Bank Security maintained in the book-entry system of the Federal

Reserve Banks.

(c) Entitlement Holder means a Person or a Federal Home Loan Bank

to whose account an interest in a Book-entry Federal Home Loan Bank

Security is credited on the records of a Securities Intermediary.

(d) Federal Home Loan Bank Security means a consolidated bond,

debenture, note, or other obligation of the Federal Home Loan Bank

issued by the Finance Board under authority of section 11 of the

Federal Home Loan Bank Act (12 U.S.C. 1431).

(e) Federal Reserve Bank means a Federal Reserve Bank or branch,

acting as fiscal agent for the Office of Finance, unless otherwise

indicated.

(f) 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.

(g) Finance Board means the Federal Housing Finance Board.

(h) 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.

(i) Office of Finance means the Office of Finance established under

part 941 of this chapter, acting as agent of the Finance Board in all

matters relating to the issuance of Book-entry Federal Home Loan Bank

Securities, or as agent of the Federal Home Loan Banks in the

performance of all other necessary and proper functions relating to

Book-entry Federal Home Loan Bank Securities, including the payment of

principal and interest due thereon.

(j) Participant means a Person or a Federal Home Loan Bank that

maintains a Participant's Securities Account with a Federal Reserve

Bank.

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

of a Participant at a Federal Reserve Bank to which Book-entry Federal

Home Loan Bank Securities held for a Participant are or may be

credited.

(l) Person means and includes an individual, corporation, company,

governmental entity, association, firm, partnership, trust, estate,

representative, and any other similar organization, but does not mean

or include a Federal Home Loan Bank, the Finance Board, the Office of

Finance, the United States, or a Federal Reserve Bank.

(m) 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.

Copies of this publication are available from the Executive Office of

the American Law Institute, 4025 Chestnut Street, Philadelphia, PA

19104, and the National Conference of Commissioners on Uniform State

Laws, 676 North St. Clair Street, Suite 1700, Chicago, IL 60611.

(n) 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 Federal

Home Loan Bank 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, it 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.

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

an Entitlement Holder with respect to a Book-entry Federal Home Loan

Bank Security.

(p) 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.

(q) Transfer Message means an instruction of a Participant to a

Federal Reserve Bank to effect a transfer of a Book-entry Federal Home

Loan Bank Security, as set forth in Federal Reserve Bank Operating

Circulars.

Sec. 912.2 Law governing rights and obligations of Federal Home Loan

Banks, Finance Board, Office of Finance, United States and Federal

Reserve Banks; rights of any Person against Federal Home Loan Banks,

Finance Board, Office of Finance, United States and Federal Reserve

Banks.

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

and obligations of the Federal Home Loan Banks, the Finance Board, the

Office of Finance, the United States and the Federal Reserve Banks with

respect to: A Book-entry Federal Home Loan Bank Security or Security

Entitlement and the operation of the Book-entry system, as it applies

to Federal Home Loan Bank Securities; and the rights of any Person,

including a Participant, against the Federal Home Loan Banks, the

Finance Board, the Office of Finance, the United States and the Federal

Reserve Banks with respect to: A Book-entry Federal Home Loan Bank

Security or Security Entitlement and the operation of the Book-entry

system, as it applies to Federal Home Loan Bank Securities; are

governed solely by regulations of the Finance Board, including the

regulations of this part 912, the applicable offering notice,

applicable procedures established by the Office of Finance, and Federal

Reserve Bank Operating Circulars.

(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. 912.4(c)(1), 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. 912.4(c)(1), is governed by the law determined in the manner

specified in Sec. 912.3.

(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, then the law specified in the first sentence of paragraph

(b) of this section shall be the law of that State as though Revised

Article 8 had been adopted by that State.

Sec. 912.3 Law governing other interests.

(a) To the extent not inconsistent with this part 912, 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, 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 Federal Home Loan Bank Book-entry Security is a Security

Entitlement.

Sec. 912.4 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 Federal Home

Loan Bank 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

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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 (b), 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 Federal Home Loan Banks, the Finance Board, the Office

of Finance, 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 a Security Entitlement 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 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 in a Security Entitlement, 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. 912.2(b) or Sec. 912.3. 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. 912.5 Obligations of the Federal Home Loan Banks and the Office

of Finance; 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. 912.4(c)(1), for the purposes of this part 912, the Federal Home

Loan Banks, the Office of Finance and the Federal Reserve Banks shall

treat the Participant to whose Securities Account an interest in a

Book-entry Federal Home Loan Bank 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 the Security,

notwithstanding any information or notice to the contrary. Neither the

Federal Home Loan Banks, the Finance Board, the Office of Finance, the

United States, nor the Federal Reserve Banks are liable to a Person

asserting or having an Adverse Claim to a Security Entitlement or to a

Book-entry Federal Home Loan Bank Security in a Participant's

Securities Account, including any such claim arising as a result of the

transfer or disposition of a Book-entry Federal Home Loan Bank 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 Federal Home Loan Banks and the Office of

Finance to make payments of interest and principal with respect to

Book-entry Federal Home Loan Bank Securities is discharged at the time

payment in the appropriate amount is made as follows:

(1) Interest on Book-entry Federal Home Loan Bank Securities is

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 Federal Home Loan Bank Securities are paid, either

at maturity or upon redemption, 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 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 payment of a Book-entry Federal Home Loan Bank Security,

unless otherwise expressly required.

Sec. 912.6 Authority of Federal Reserve Banks.

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

of the Office of Finance: to perform functions with respect to the

issuance of Book-entry Federal Home Loan Bank Securities, in accordance

with the terms of the applicable offering notice and with procedures

established by the Office of Finance; to service and maintain Book-

entry Federal Home Loan Bank Securities in accounts established for

such purposes; to make payments of principal, interest and redemption

premium (if any), as directed by the Office of Finance; to effect

transfer of Book-entry Federal Home Loan Bank Securities between

Participants' Securities Accounts as directed by the Participants; and

to perform such other duties as fiscal agent as may be requested by the

Office of Finance.

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

inconsistent with this part 912, governing the details of its handling

of Book-entry Federal Home Loan Bank Securities, Security Entitlements,

and the operation of the Book-entry system under this part 912.

Sec. 912.7 Liability of Federal Home Loan Banks, Finance Board, Office

of Finance and Federal Reserve Banks.

The Federal Home Loan Banks, the Finance Board, the Office of

Finance and the Federal Reserve Banks may rely on the information

provided in a tender, transaction request form, other transaction

documentation, or Transfer Message, and are not required to verify the

information. Neither the Federal Home Loan Banks, the Finance Board,

the Office of Finance, the United States, nor the Federal Reserve Banks

shall be liable for any action taken in accordance with the information

set out in a tender, transaction request form, other transaction

documentation, or Transfer Message, or evidence submitted in support

thereof.

Sec. 912.8 Additional requirements; notice of attachment for Book-

entry Federal Home Loan Bank Securities.

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

arising under the regulations in this part 912, the Office of Finance

may require such additional evidence and a bond of indemnity, with or

without surety, as may in its judgment, or in the judgment of the

Federal Home Loan Banks or the Finance Board, be necessary for the

protection of the interests of the Federal

[[Page 8062]]

Home Loan Banks, the Finance Board, the Office of Finance or the United

States.

(b) Notice of attachment. 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. The regulations in

this part 912 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. 912.9 Reference to certain Department of Treasury commentary and

determinations.

(a) The Department of Treasury TRADES Commentary (31 CFR part 357,

appendix B) addressing the Department of Treasury regulations governing

book-entry procedure for Treasury Securities is hereby referenced, so

far as applicable and as necessarily modified to relate to Book-entry

Federal Home Loan Bank Securities, as an interpretive aid to this part

912.

(b) Determinations of the Department of Treasury regarding whether

a State shall be considered to have adopted Revised Article 8 for

purposes of 31 CFR part 357, as published in the Federal Register or

otherwise, shall also apply to this part 912.

Sec. 912.10 Obligations of United States with respect to Federal Home

Loan Bank Securities.

Federal Home Loan Bank Securities are not obligations of the United

States and are not guaranteed by the United States.

By the Board of Directors of the Federal Housing Finance Board

Dated: January 21, 1998.

Bruce A. Morrison,

Chairman.

[FR Doc. 98-4070 Filed 2-17-98; 8:45 am]

BILLING CODE 6725-01-U