General Regulations Governing U.S. Securities

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 306

General Regulations Governing U.S. Securities

AGENCY: Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: We're publishing a final rule to eliminate the reissuance of

bearer securities and to eliminate provisions relating to the handling

of definitive securities by Federal Reserve Banks.

DATES: Effective July 15, 1999.

ADDRESSES: You can download this final rule at the following World Wide

Web address: http://www.publicdebt.treas.gov>. You may also inspect

and copy this final rule at: Treasury Department Library, Freedom of

Information Act (FOIA) Collection, Room 5030, Main Treasury Building,

1500 Pennsylvania Ave., NW., Washington, DC 20220.

Before visiting, you must call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT:

Maureen Parker, Director, Division of Securities Systems,

Office of Securities and Accounting Services, Bureau of the Public

Debt, at (304) 480-7761 or [email protected]>.

Susan J. Klimas, Attorney-Adviser, Office of the Chief

Counsel, Bureau of the Public Debt, at (304) 480-3688 or

[email protected]>.

Edward C. Gronseth, Deputy Chief Counsel, Bureau of the

Public Debt, at (304)480-5192 or [email protected]>.

SUPPLEMENTARY INFORMATION: This rule eliminates the reissue of bearer

securities. We have removed language referring to the reissue of bearer

securities in various sections of part 306. We have added specific

language:

to Sec. 306.17 to eliminate the reissue of registered

securities into bearer form;

To Sec. 306.19 to eliminate denominational exchange of

bearer securities; and

[[Page 38125]]

To Sec. 306.117 to eliminate the conversion of securities

from book-entry form into bearer form.

We stopped offering bearer securities on original issue after

December 31, 1982, in response to the Tax Equity and Fiscal

Responsibility Act (TEFRA), which prohibited the original issuance of

bearer certificates after 1982. TEFRA was designed, in large part, to

improve compliance with tax laws and to reduce the opportunity for

illegal activities associated with bearer securities. However, we have

continued to reissue bearer securities for denominational exchange, for

the exchange of registered securities into bearer form, and for the

conversion of certain book-entry securities into bearer form.

The number of securities in physical form and related transactions

have decreased significantly over the past few years. However, the per

transaction costs have increased substantially due to relatively fixed

overhead costs. There are currently 17 bond issues remaining that can

be held in bearer form. In 1989, we reissued approximately 4,900 bearer

certificates; by 1998, we reissued only 66 certificates, for the

benefit of only three investors. We reissued 56 of the certificates to

two investors who have repeatedly requested bearer certificates over

the past several years. Although we reissue only a minimal number of

bearer certificates each year, we continue to incur the expense of

maintaining an inventory of unissued bearer stock. Clearly, the

elimination of bearer reissues impacts only a minimal number of

investors. We have conducted a very expensive operation for a few

customers a year.

A United States security is a contract between the owner and the

United States. The terms of the contract consist of the authorizing

statutes, regulations, and applicable circulars. Therefore, any change

to the regulations is a change to the terms of the contract. Section

306.127 provides that existing rights that holders of securities have

acquired under the regulations may not be limited or restricted.

Section 306.128 provides that amendments may be made to the regulations

with respect to securities. Thus, the existing contract contemplates

that changes can be made to the regulations.

We believe that our core obligations are to make payment on the

security on the date due, and to pay interest when due. We are clearly

not attempting to avoid these fundamental obligations by eliminating

bearer reissuance. The proposed changes are not fundamental, as the

liability of the parties is not changed as a result. The owner of a

bearer certificate may continue to hold the bearer certificate until

maturity and collect interest on the security. The owner of a

definitive security wanting reissue into bearer form will have other

options available. Both bearer and registered owners who desire an

engraved paper certificate can have a security reissued in registered

form. Bearer and registered securities can also be converted to book-

entry form in TRADES or TreasuryDirect. An eligible security withdrawn

from TRADES or TreasuryDirect may be reissued in registered form.

We have concluded that the elimination of bearer reissues is the

type of change that is permissible to make. The elimination of bearer

reissues, while not mandated by TEFRA, is consistent with the

Congressional intent in its enactment. Given the cost-effectiveness of

this new way of doing business and the available alternatives to

continue to obtain securities in certificate form, we believe we are

justified in making this change.

We have also eliminated any mention of the handling of definitive

securities by Federal Reserve Banks. This operation will be

consolidated and handled solely by Public Debt at its Parkersburg, WV

office for reasons of economy. In addition, Sec. 306.28 has been

deleted, since Treasury bonds eligible for payment of estate taxes (so-

called Flower Bonds) are no longer offered and the last eligible issue

has reached maturity.

While we have written the preamble in plain language, we did not

write this rule in plain language, because we are in the process of

rewriting part 306 in its entirety to conform to plain language

requirements. We welcome any comments or suggestions relating to our

plain language rewrite of part 306.

Procedural Requirements

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

regulatory action,'' as defined in Executive Order 12866. Therefore,

the regulatory review procedures contained therein do not apply.

This final rule relates to matters of public contract and

procedures for United States securities. The notice and public

procedures and delayed effective date requirements of the

Administrative Procedure Act are inapplicable pursuant to 5 U.S.C.

553(a)(2).

As no notice of proposed rulemaking is required, the Regulatory

Flexibility Act (5 U.S.C. 601, et seq.) does not apply.

We ask for no new collections of information in this final rule.

Therefore, the Paperwork Reduction Act (44 U.S.C. 3507) does not apply.

List of Subjects in 31 CFR part 306

Bonds, Government Securities, Federal Reserve System, Securities.

For the reasons set forth in the preamble, 31 CFR part 306 is

amended as follows:

PART 306--REGULATIONS GOVERNING U.S. SECURITIES

1. The authority citation for part 306 continues to read as

follows:

Authority: 31 U.S.C. chapter 31; 5 U.S.C. 301; and 12 U.S.C.

391.

2. Revise Sec. 306.1 to read as follows:

Sec. 306.1 Official agencies.

The Bureau of the Public Debt of the Department of the Treasury is

charged with matters relating to transactions in securities.

Correspondence concerning transactions in securities and requests for

appropriate forms may be addressed to the Division of Customer Service,

Parkersburg, WV 26102.

3. Amend Sec. 306.2 by revising paragraph (c) to read as follows:

Sec. 306.2 Definitions of words and terms as used in these

regulations.

* * * * *

(c) Bureau refers to the Bureau of the Public Debt, Division of

Customer Service, Parkersburg, WV 26102.

* * * * *

4. Revise Sec. 306.3 to read as follows:

Sec. 306.3 Transportation charges and risks in the shipment of

securities.

The following guidelines apply to the transportation of reissued

securities or securities presented for authorized transactions:

(a) The securities may be presented in person by the owner or the

owner's agent.

(b) If securities are not presented in person, shipment of the

securities is at the owner's risk and expense.

(c) Reissued securities will be delivered by certified mail or by

other means, at the risk of the registered owner and at the expense of

the Department.

Sec. 306.12 [Amended]

5. Amend Sec. 306.12 by removing the comma after the word

``Bureau'', and by removing the words ``a Federal Reserve bank or

branch''.

6. Amend Sec. 306.15 as follows:

a. Revise paragraph (a) to read as set forth below.

b. Amend the fourth sentence of paragraph (b) by removing the words

``or exchange for coupon securities''.

c. Amend the fifth sentence of paragraph (b) by removing the words

``or exchange for bearer securities''.

[[Page 38126]]

d. Revise paragraph (b)(2) to read as set forth below.

Sec. 306.15 Transfers and exchanges of securities--closed periods.

(a) General. The transfer of registered securities should be made

by assignment in accordance with subpart F of this part. Transferable

registered securities are eligible for denominational exchange.

Specific instructions for issuance and delivery of the new securities,

signed by the owner or his authorized representative, must accompany

the securities presented. (Form PD 3905 or PD 1827, as appropriate, may

be used.) Denominational exchanges may be made at any time. Securities

presented for transfer must be received by the Bureau not less than 1

full month before the date on which the securities mature or become

redeemable pursuant to a call for redemption before maturity. Any

security so presented which is received too late to comply with this

provision will be accepted for payment only.

* * * * *

(2) Payment of principal will be made to the assignee under a

proper assignment of the securities.

7. Revise Sec. 306.17 to read as follows:

Sec. 306.17 Exchanges of registered securities for coupon securities.

Exchanges of registered securities for bearer securities are not

permitted.

8. Revise Sec. 306.19 to read as follows:

Sec. 306.19 Denominational exchanges of coupon securities.

Denominational exchanges of bearer securities are not permitted.

9. Amend Sec. 306.23 as follows:

a. Revise paragraph (c) to read as set forth below.

b. Amend paragraph (g) in the heading by removing the word

``definitive'' and adding in its place the word ``registered'', and by

removing the words ``or bearer'' in the second sentence.

Sec. 306.23 Securities eligible to be held in the TreasuryDirect Book-

entry Securities System.

* * * * *

(c) Procedure for conversion of bearer security. To convert a

bearer security to TREASURY DIRECT, the owner must present it to the

Department of the Treasury, accompanied by a request for conversion,

which must include the information needed for establishing a TREASURY

DIRECT account, unless such account has been previously established,

and is identified by its number in the request.

* * * * *

Sec. 306.24 [Amended]

10. Amend Sec. 306.24 by removing the word ``definitive'' and

adding in its place the word ``registered'' in the first sentence.

11. Amend Sec. 306.25 as follows:

a. Revise the third sentence of paragraph (a) to read as set forth

below.

b. Remove and reserve footnote 4 in paragraph (a).

Sec. 306.25 Presentation and surrender.

(a) * * * Registered and bearer securities should be presented and

surrendered for redemption to the Bureau. * * *

* * * * *

12. Revise Sec. 306.26 to read as follows:

Sec. 306.26 Redemption of registered securities at maturity, upon

prior call, or for prerefunding or advance refunding.

Registered securities presented and surrendered for redemption at

maturity or pursuant to a call for redemption before maturity need not

be assigned, unless the owner desires that payment be made to some

other person, in which case assignments should be made to ``The

Secretary of the Treasury for redemption for the account of (inserting

name and address of person to whom payment is to be made). Specific

instructions for the issuance and delivery of the redemption check,

signed by the owner or his authorized representative, must accompany

the securities, unless included in the assignment. (Form PD 3905 may be

used.) Payment of the principal will be made by check drawn on the

United States Treasury to the order of the persons entitled and mailed

in accordance with the instructions received. Securities presented for

prerefunding or advance refunding should be assigned as provided in the

prerefunding or advance refunding offer.

13. Amend Sec. 306.27 by revising the last sentence to read as

follows:

Sec. 306.27 Redemption of bearer securities at maturity, upon prior

call, or for advance refunding or prerefunding.

* * * Under appropriate circumstances, payment to a financial

institution for detached past due coupons may be made by crediting the

amount of the proceeds to the account maintained by the financial

institution at the Federal Reserve bank of its district.

Sec. 306.28 [Removed]

14. Remove Sec. 306.28.

15. Amend Sec. 306.37 by revising paragraph (d) to read as follows:

Sec. 306.37 Interest on registered securities.

* * * * *

(d) Nonreceipt, loss, theft, or destruction of interest checks. If

an interest check is not received within a reasonable period after an

interest payment date, or if a check is lost, stolen, or destroyed

after receipt, notification should be sent to the Bureau of the Public

Debt, Division of Customer Service, Parkersburg, WV 26102. Notification

should include the name and address of the owner, his taxpayer

identifying number, and the serial number, denomination, and title of

the security upon which the interest was payable. If the check is

subsequently received or recovered, the Bureau should be notified.

16. Amend Sec. 306.38 by revising the second sentence to read as

follows:

Sec. 306.38 Interest on bearer securities.

* * * Such coupons are payable at participating Federal Reserve

banks or by the Bureau. * * *

Sec. 306.40 [Amended]

17. Amend Sec. 306.40 by adding a period after the word ``Bureau''

in the second sentence and by removing the words ``a Federal Reserve

bank or Branch''.

Sec. 306.41 [Amended]

18. Amend Sec. 306.41 by removing the words ``to the Secretary of

the Treasury for exchange for coupon securities,''.

Sec. 306.43 [Amended]

19. Amend Sec. 306.43 by removing the words ``or a Federal Reserve

bank or branch'' from the third sentence.

Sec. 306.56 [Amended]

20. Amend Sec. 306.56 by removing the words ``or exchanged for

coupon bonds'' from the first sentence of paragraph (a).

21. Amend Sec. 306.56 by removing the words ``bearer securities

or'' from the last sentence of paragraph (b).

Sec. 306.57 [Amended]

22. Amend Sec. 306.57 by removing the words ``or exchange for

bearer securities,'' from paragraph (c)(1).

23. Amend Sec. 306.117 as follows:

a. Revise the heading to read as set forth below.

b. Remove the words ``A Reserve Bank'' from paragraph (b) and add

the words ``Public Debt'' in their place, and remove the word

``definitive'' and add in its place the word ``registered''.

c. Revise paragraph (d) to read as set forth below.

Sec. 306.117 Withdrawal of eligible book-entry Treasury securities for

conversion to registered form.

* * * * *

[[Page 38127]]

(d) Treasury securities which are to be delivered upon withdrawal

may be issued in registered form, to the extent permitted by the

applicable offering circular.

Dated: June 28, 1999.

Donald V. Hammond,

Fiscal Assistant Secretary.

[FR Doc. 99-18060 Filed 7-14-99; 8:45 am]

BILLING CODE 4810-39-P