Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds

Pennsylvania Avenue, N.W., Washington, D.C. 20220. Persons wishing to

visit the library should call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Michael W. Sunner, Deputy Assistant

Commissioner, Office of Financing,

Bureau of the Public Debt (202) 219-3350, or Margaret Marquette,

Attorney-Adviser, Office of the Chief Counsel, Bureau of the Public

Debt (202) 219-3320.

SUPPLEMENTARY INFORMATION: 31 CFR Part 356, also referred to as the

uniform offering circular, sets out the terms and conditions for the

sale and issuance by the Department of the Treasury to the public of

marketable book-entry Treasury bills, notes, and bonds. The uniform

offering circular was originally published on January 5, 1993 (58 FR

412), as a comprehensive statement of those terms and conditions.

Amendments to the circular were published on June 3, 1994 (59 FR

28773), and March 15, 1995 (60 FR 13906). In the time since the rule

was first published, several questions have arisen about the

application of the circular in situations where an investment adviser

formulates a bid or otherwise makes bidding decisions for a managed

account. As a result, the Department is proposing to define the term

``investment adviser'' and is setting out the specific terms and

conditions for bidding through investment advisers.

31 CFR Part 356 currently does not describe in detail rules

applying to investment advisers. The preamble to the January 5, 1993,

rule refers to investment advisers and ``others who bid on behalf of

their managed investment accounts or other clients,'' stating that an

investment adviser can bid for its clients in the name of the

investment adviser or in the names of the clients. The section on net

long position reporting requires that a special report be provided in

those cases where an investment adviser controls bids and positions

exceeding a specified amount

hers who bid on behalf of

their managed investment accounts or other clients,'' stating that an

investment adviser can bid for its clients in the name of the

investment adviser or in the names of the clients. The section on net

long position reporting requires that a special report be provided in

those cases where an investment adviser controls bids and positions

exceeding a specified amount.

The current rule, while allowing investment advisers to bid for

controlled accounts, does not specify how the various provisions of the

rule apply with respect to those accounts. In particular, it does not

address what is meant by the statement in the preamble to the January

5, 1993, rule that an investment adviser or a managed account is

considered the ``bidder for all purposes of [the] rule.'' It does not

make clear to what extent, if any, a managed account must take into

consideration the bids and position of the person or entity it would

otherwise be associated with under the bidder definitions contained in

Appendix A of the rule. It also does not make clear to what extent an

adviser that manages accounts must take into consideration the bids and

position of an entity that ``supervises'' the adviser.

The proposed rule adds, in Sec. 356.2, a definition for the term

``investment adviser.'' The new definition describes what is meant by

the term ``investment discretion.'' An entity exercising its authority

over an account to determine which auctions an account will bid in and

the quantity of securities to be bid for is an investment adviser for

purposes of the rule. The definition also clarifies that an adviser

employed or supervised by an entity is considered to be part of that

entity, i.e., as if the adviser was an affiliate of the entity under

the bidder definitions

exercising its authority

over an account to determine which auctions an account will bid in and

the quantity of securities to be bid for is an investment adviser for

purposes of the rule. The definition also clarifies that an adviser

employed or supervised by an entity is considered to be part of that

entity, i.e., as if the adviser was an affiliate of the entity under

the bidder definitions. For example, in the case where an individual

serves as an investment adviser to a mutual fund and is employed by a

partnership that advises other mutual funds, it is the partnership, not

the individual, that is considered the investment adviser for purposes

of the offering circular.

Section 356.15 sets out those terms that are unique to bids placed

through investment advisers. It provides that a controlled account is

considered to be separate from the person or entity that it would

otherwise be part of under the bidder definitions. A corporate

investment account managed by a third party that has investment

discretion would be a controlled account and, therefore, would not be

considered to be part of the corporation under the offering circular.

Section 356.15(a) incorporates a provision found in the preamble to

the January 5, 1993, rule that an investment adviser may bid for an

account either in the name of the investment adviser, in which case the

adviser is considered the bidder, or in the name of the account, in

which case the account is considered the bidder. This means that, for

purposes of bidding noncompetitively, an investment adviser that bids

for its controlled accounts in the name of the adviser is limited to

the maximum allowed bid and award amount for a noncompetitive bid for

that auction, e.g., $1 million total in a bill auction. An investment

adviser that bids noncompetitively for its controlled accounts in the

names of the accounts may bid for each account for the maximum allowed

noncompetitive amount, e.g., $1 million for each account in a bill

auction

the name of the adviser is limited to

the maximum allowed bid and award amount for a noncompetitive bid for

that auction, e.g., $1 million total in a bill auction. An investment

adviser that bids noncompetitively for its controlled accounts in the

names of the accounts may bid for each account for the maximum allowed

noncompetitive amount, e.g., $1 million for each account in a bill

auction.

The proposed rule makes clear, in Sec. 356.15(b), that a controlled

account is subject to the same bidding restrictions as other bidders

regardless of whether a bid for the account is in the name of an

investment adviser or in the name of the account. Specifically, the

investment adviser may not bid for the account both competitively and

noncompetitively in the same auction. Also, the account is subject to

the noncompetitive bidding and award limitations contained in the rule.

As with the current rule, the proposed rule states that an

investment adviser must include in its net long position calculation

those bids and positions it controls in addition to bids and positions

it would otherwise have to include as a bidder. Unlike the current

rule, however, the proposed rule provides for the total reportable net

long position to be reported on the tender rather than in a special

report to a Federal Reserve Bank.

A significant change in the proposed rule from the current rule is

the amount of a net long position that an investment adviser may

exclude from its net long position calculation. The current rule allows

the adviser to exclude net long positions less than $500 million for

certain accounts that are not bid for in an auction. The rule as

revised would provide for a similar type of exclusion but decreases the

amount of the exclusion to $10 million. This change is being proposed

because the Department believes that a lower exclusionary amount is

necessary to give a more accurate picture of the amount of a security

controlled by an investment adviser

0 million for

certain accounts that are not bid for in an auction. The rule as

revised would provide for a similar type of exclusion but decreases the

amount of the exclusion to $10 million. This change is being proposed

because the Department believes that a lower exclusionary amount is

necessary to give a more accurate picture of the amount of a security

controlled by an investment adviser.

In developing this proposal, the Department considered, as an

alternative, providing investment advisers an exclusion based on an

aggregate amount as opposed to separate position amounts in specific

accounts, e.g., allow an adviser to exclude the net long positions of

any accounts on whose behalf it is not bidding up to a given aggregate

amount. For example, if the aggregate net long position of all

controlled accounts on whose behalf the adviser was not placing

competitive bids was equal to or less than a designated amount (such as

$200 million), then that amount could be excluded from its net long

calculation. However, if the aggregate net long position for these

accounts exceeded such amount, then the amount in excess of the

designated amount would have to be included in the net long

calculation. This alternative was not selected because of a concern

that it would be more burdensome for advisers with large numbers of

accounts to determine the total balance of the net long positions of

all non-bidder accounts than to determine which accounts had net long

positions in excess of a specified threshold at the cutoff time for

reporting. Commenters are asked to address this presumption when they

consider the proposal.

The Department would welcome any comments on the exclusion

provisions

with large numbers of

accounts to determine the total balance of the net long positions of

all non-bidder accounts than to determine which accounts had net long

positions in excess of a specified threshold at the cutoff time for

reporting. Commenters are asked to address this presumption when they

consider the proposal.

The Department would welcome any comments on the exclusion

provisions

outlined above. It would also welcome any alternative suggestions that

would allow the Department to obtain the information it needs to ensure

that no person or entity receive or control a disproportionate share of

the auction, and to obtain that information in the least burdensome

manner possible.

Section 356.15(d) provides that an investment adviser may submit

bids for its controlled accounts directly to a Federal Reserve Bank or

the Bureau of the Public Debt or may forward such bids to a depository

institution or dealer, regardless of whether those bids are in the name

of the adviser or in the names of the accounts. If a bid is submitted

directly, the investment adviser is considered the submitter and,

depending on whether the bid is in the name of the adviser or in the

name of one of its accounts, the adviser or the account, respectively,

is considered the bidder. If the adviser forwards a bid for one of its

controlled accounts to a depository institution or dealer, either the

adviser or the account is considered a customer of such depository

institution or dealer depending on whether the bid is in the name of

the adviser or in the name of the account. In such a case, the adviser

is not considered an intermediary as defined in Sec. 356.2 of the

offering circular.

The provision allowing an adviser to submit or forward bids in the

names of its controlled accounts is an exception to the restriction

against anyone other than a depository institution or dealer submitting

or forwarding bids for others

the adviser or in the name of the account. In such a case, the adviser

is not considered an intermediary as defined in Sec. 356.2 of the

offering circular.

The provision allowing an adviser to submit or forward bids in the

names of its controlled accounts is an exception to the restriction

against anyone other than a depository institution or dealer submitting

or forwarding bids for others. It is not the Department's intent,

however, to authorize an investment adviser that does not also meet the

definition of a depository institution or dealer to submit or forward

bids for customers. A controlled account is not the same as a customer.

(See definition of ``customer'' in Sec. 356.2 which refers to directing

a depository institution or dealer to bid for a specified amount of

securities in a specific auction.) Accordingly, an investment adviser

that is not also a depository institution or dealer may submit or

forward bids only for its own account or for its controlled accounts.

Other Clarifying Changes

The Department is also taking this opportunity to make other

clarifying changes to the rule. Section 356.13 has been revised to make

clear the Department's requirement that, in those cases where a bidder

has more than one bid, its reportable net long position is to be

reported in connection with only one of those bids. This requirement is

to avoid any possible confusion or duplication in net long position

reporting.

Section 356.11 has been amended to provide for the use of unique

numbers assigned to bidders for identification purposes. Additionally,

Appendix A has been revised to provide that, for purposes of the rule,

a business trust is considered to be a corporation. Finally, a change

has been made in the example given in Sec. 356.21 to reflect that

Treasury bills may now be held in multiples of $1,000.

The proposed rule contained herein includes a new Sec. 356.15. It

also amends Secs. 356.2, 356.11, 356.13, 356.21, and 356.22 as well as

Appendix A to Part 356

to provide that, for purposes of the rule,

a business trust is considered to be a corporation. Finally, a change

has been made in the example given in Sec. 356.21 to reflect that

Treasury bills may now be held in multiples of $1,000.

The proposed rule contained herein includes a new Sec. 356.15. It

also amends Secs. 356.2, 356.11, 356.13, 356.21, and 356.22 as well as

Appendix A to Part 356. Other sections have been renumbered as a result

of adding the new section Sec. 356.15.

Procedural Requirements

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

regulatory action'' pursuant to Executive Order 12866.

Although this proposed rule is being issued in proposed form to

secure the benefit of public comment, the notice and public procedures

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 provisions of

the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.

The collection of information contained in this proposed rule, in

Sec. 356.15, have been submitted to the Office of Management and Budget

for review under Sec. 3507(d) of the Paperwork Reduction Act of 1995

(44 U.S.C. Chapter 35). Under the Act, an agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a valid OMB control number.

This information is being collected by the Department of the

Treasury in order to determine the amount of a Treasury security

controlled by an investment adviser bidding competitively in an auction

for that security. The information will be used for the purpose of

determining the award to be made as the result of a competitive bid for

a security.

Responses to the collection of information are required in order

for the potential respondent to purchase securities

n order to determine the amount of a Treasury security

controlled by an investment adviser bidding competitively in an auction

for that security. The information will be used for the purpose of

determining the award to be made as the result of a competitive bid for

a security.

Responses to the collection of information are required in order

for the potential respondent to purchase securities. Information

concerning securities holdings and transactions is considered

confidential under Treasury regulations (31 CFR Part 323) and the

Privacy Act. The information may be disclosed to a law enforcement

agency, courts and counsel for litigation purposes, and as otherwise

authorized by law.

Estimated total annual reporting burden: 250 hours.

Estimated average annual burden hours per respondent: 5 hours.

Estimated number of respondents: 50.

Estimated annual frequency of responses: On occasion.

The Department of the Treasury solicits comments on the following

concerning the proposed collection of information:

1. Whether the proposed collection of information is necessary for

the proper performance of the functions of the agency, including

whether the information shall have practical utility;

2. The accuracy of the estimate of the burden of the proposed

collection of information;

3. How to enhance the quality, utility, and clarity of the

information to be collected; and

4. How to minimize the burden of the collection of information on

those who are to respond, including through the use of automated

collection techniques or other forms of information technology.

Comments on the collection of information should be sent to the

Office of Information and Regulatory Affairs of the Office of

Management and Budget, Attention: Desk Officer for Department of the

Treasury/Bureau of the Public Debt, Washington, D.C. 20503, with copies

to the Government Securities Regulations Staff, Bureau of the Public

Debt, at the address previously specified.

List of Subjects in 31 CFR Part 356

ection of information should be sent to the

Office of Information and Regulatory Affairs of the Office of

Management and Budget, Attention: Desk Officer for Department of the

Treasury/Bureau of the Public Debt, Washington, D.C. 20503, with copies

to the Government Securities Regulations Staff, Bureau of the Public

Debt, at the address previously specified.

List of Subjects in 31 CFR Part 356

Bonds, Federal Reserve System, Government securities, Securities.

Dated: December 27, 1995.

Gerald Murphy,

Fiscal Assistant Secretary.

For the reasons set forth in the preamble, 31 CFR Chapter II,

Subchapter B, Part 356, is proposed to be amended as follows:

PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS,

NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT

SERIES NO. 1-93)

1. The authority citation for Part 356 is revised to read as

follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

2. Section 356.2 is amended by adding in alphabetical order the

definition of ``investment adviser'' to read as follows:

Sec. 356.2 Definitions.

* * * * *

Investment adviser means any person or entity that has investment

discretion for or otherwise exercises control over the bids or

positions of a person or entity not considered part of the investment

adviser under the bidder definitions in Appendix A. Investment

discretion includes determining what, how many, and when securities

shall be purchased or sold. A person or entity managing investments for

itself is not considered an investment adviser for such investments.

Where an investment adviser is employed or supervised by an entity, the

investment adviser is considered to be part of that entity.

* * * * *

3. Section 356.11(a)(1) is amended by revising the second sentence

to read as follows:

Sec. 356.11 Submission of bids.

e purchased or sold. A person or entity managing investments for

itself is not considered an investment adviser for such investments.

Where an investment adviser is employed or supervised by an entity, the

investment adviser is considered to be part of that entity.

* * * * *

3. Section 356.11(a)(1) is amended by revising the second sentence

to read as follows:

Sec. 356.11 Submission of bids.

(a) General.

(1) * * * Except as otherwise provided, tenders must be submitted

in an approved format, including the use of preassigned identification

numbers, where applicable. * * *

* * * * *

4. Section 356.13 is amended by removing paragraph (a)(2) and

redesignating paragraph (a)(1) as paragraph (a). The last two sentences

of paragraph (a) are revised to read as follows:

Sec. 356.13 Net long position.

(a) Reporting net long positions. * * * In cases where a bidder

that is required to report the amount of its net long position has more

than one bid, the bidder's total net long position should be reported

in connection with only one bid. A bidder that is a customer must

report its reportable net long position through only one depository

institution or dealer. (See Sec. 356.14(c).)

* * * * *

5. Sections 356.15 and 356.16 are redesignated as Secs. 356.16 and

356.17 respectively and new Sec. 356.15 is added to read as follows:

Sec. 356.15 Bidding through investment advisers.

(a) General. Where bids or positions of a person or entity are

controlled by an investment adviser, such bids or positions are

considered to be a controlled account, separate from the bids and

positions of any person or entity with which they would otherwise be

associated under the bidder definitions in Appendix A. The investment

adviser may bid for controlled accounts by including, in a bid in the

adviser's name, amounts that it is investing for the controlled

accounts. The investment adviser may also bid for controlled accounts

in the names of such accounts

ate from the bids and

positions of any person or entity with which they would otherwise be

associated under the bidder definitions in Appendix A. The investment

adviser may bid for controlled accounts by including, in a bid in the

adviser's name, amounts that it is investing for the controlled

accounts. The investment adviser may also bid for controlled accounts

in the names of such accounts. Where bids are in an investment

adviser's name, the investment adviser is considered the bidder for

such bids and, where bids are in the name of a controlled account, the

named controlled account is considered the bidder, for all purposes of

this Part 356, except as specified in this Sec. 356.15.

(b) Noncompetitive and competitive bidding. Regardless of whether

the bid for a controlled account is in the name of the investment

adviser or in the name of the controlled account, such account may not

be bid for both noncompetitively and competitively in the same auction.

In addition, such account is subject to the noncompetitive bidding

restrictions and award limitations contained in Sec. 356.12(b) and

356.22(a).

(c) Reporting net long positions. In calculating the amount of its

bids and positions for purposes of the net long position reporting

requirement found in Sec. 356.13(a), the investment adviser must

include, in addition to what would otherwise be included for the

investment adviser as a bidder under the bidder definitions, all other

competitive bids and positions controlled by the investment adviser.

The investment adviser may exclude any net long position less than $10

million of any nonproprietary controlled account unless the adviser is

placing a competitive bid for that account either in the name of the

investment adviser or in the name of the account. However, if any net

long position less than $10 million of any nonproprietary account not

being bid for is excluded, then all net short positions less than $10

million of nonproprietary accounts not being bid for must also be

excluded

controlled account unless the adviser is

placing a competitive bid for that account either in the name of the

investment adviser or in the name of the account. However, if any net

long position less than $10 million of any nonproprietary account not

being bid for is excluded, then all net short positions less than $10

million of nonproprietary accounts not being bid for must also be

excluded. Regardless of whether the investment adviser bids in its own

name or in the name of its controlled accounts, if the net long

position is reportable, it must be reported as a total in connection

with only one bid.

(d) Submitting bids for controlled accounts. Notwithstanding the

definition of submitter found in Sec. 356.2, and the restriction

against submitting bids for others found in Sec. 356.14, an investment

adviser may submit bids, whether in the adviser's own name or in the

names of its controlled accounts, directly to a Federal Reserve Bank or

the Bureau of the Public Debt, in which case the investment adviser is

considered a submitter. In the alternative, the investment adviser may

forward such bids to a depository institution or dealer.

(e) Certifications. By bidding for a controlled account, an

investment adviser is deemed to have certified that it is in compliance

with this Part and the offering announcement governing the sale and

issue of the security. Further, the investment adviser is deemed to

have certified that the information provided on the tender or provided

to a submitter or intermediary with regard to bids for controlled

accounts is accurate and complete.

ed account, an

investment adviser is deemed to have certified that it is in compliance

with this Part and the offering announcement governing the sale and

issue of the security. Further, the investment adviser is deemed to

have certified that the information provided on the tender or provided

to a submitter or intermediary with regard to bids for controlled

accounts is accurate and complete.

(f) Proration of awards. In auctions where bids at the highest

accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of

this Part, investment advisers that submit bids for controlled accounts

in the names of such accounts are responsible for prorating awards for

their controlled accounts at the same percentage as that announced by

the Department. The same prorating rules apply to controlled accounts

as apply to submitters. See Sec. 356.21 of this Part.

6. Section 356.21 is amended by revising paragraph (a) to read as

follows:

Sec. 356.21 Proration of awards.

(a) Awards to submitters. In auctions where bids at the highest

accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of

this Part, the Federal Reserve Banks are responsible for prorating

awards for submitters at the percentage announced by the Department.

For example, if 80% is the announced percentage at the highest yield or

discount rate, then each bid at that rate or yield shall be awarded 80%

of the amount bid. Hence, a bid for $100,000 at the highest accepted

yield or discount rate would be awarded $80,000. In all cases, awards

will be for, at least, the minimum to hold, and awards must be in an

appropriate multiple to hold. Awards at the highest accepted yield or

rate are adjusted upwards, if necessary, to an appropriate multiple to

hold. For example, Treasury bills may be issued with a minimum to hold

of $10,000 and multiples of $1,000

accepted

yield or discount rate would be awarded $80,000. In all cases, awards

will be for, at least, the minimum to hold, and awards must be in an

appropriate multiple to hold. Awards at the highest accepted yield or

rate are adjusted upwards, if necessary, to an appropriate multiple to

hold. For example, Treasury bills may be issued with a minimum to hold

of $10,000 and multiples of $1,000. Where an $18,000 bid is accepted at

the high discount rate, and the percent awarded at the high discount

rate was 88%, the award to that bidder would be $16,000, representing

an upward adjustment from $15,840 ($18,000 x .88) to an appropriate

multiple to hold. If tenders at the highest accepted rate were prorated

at, for example, a rate of 4%, the award for a $100,000 bid would be

$10,000, instead of $4,000, in order to meet the minimum to hold for a

bill issue.

* * * * *

7. Section 356.22(b) is amended by revising the last sentence to

read as follows:

Sec. 356.22 Limitation on auction awards.

* * * * *

(b) Awards to competitive bidders. * * * When the bids and net long

positions of more than one person or entity must be combined as

required by Sec. 356.15(c), such combined amount will be used for the

purpose of this award limitation.

8. Appendix A to Part 356 is amended by adding to section (a) a new

paragraph between the second and third paragraphs of the introductory

text to read as follows:

Appendix A to Part 356

* * * * *

(a) Corporation--

* * * * *

For the purpose of this Part, a business trust, such as a

Massachusetts business trust or a Delaware business trust, is

considered to be a corporation.

* * * * *

[FR Doc. 96-134 Filed 1-4-96; 8:45 am]

BILLING CODE 4810-35-P