Title 31—Money and Finance: Treasury--Volume 1
PART 356—SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS, NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, FISCAL SERVICE SERIES NO. 1-93)
§ 356.0   What authority does the Treasury have to sell and issue securities?
Chapter 31 of Title 31 of the United States Code authorizes the Secretary of the Treasury to issue United States obligations, and to offer them for sale with the terms and conditions that the Secretary prescribes.
§ 356.1   To which securities does this circular apply?
The provisions in this part, including the appendices, and each individual auction announcement govern the sale and issuance of marketable Treasury securities issued on or after March 1, 1993. This part also governs all securities eligible for the STRIPS (Separate Trading of Registered Interest and Principal of Securities) Program (See § 356.31.). In addition, these provisions and the auction announcements govern any other types of securities we may issue under this part.
§ 356.2   What definitions do I need to know to understand this part?
13-week bill means a Treasury bill where the security description is “13-Week Bill” as referenced on the Treasury auction announcement.
Accrued interest means an amount that bidders must pay to us for interest income as part of the settlement amount. Accrued interest compensates us up front for interest that bidders will be paid but did not earn because it is attributable to a period of time prior to the issue date. (See appendix B, section I, paragraph D of this part for additional explanation and examples.)
Adjusted value means, for an interest component stripped from an inflation-protected security, an amount derived by:
(1) Multiplying the semiannual interest rate by the par amount, and then
(2) Multiplying this value by: 100 divided by the Reference CPI of the original issue date (or dated date, when the dated date is different from the original issue date). (See appendix B, section V of this part for an example of how to calculate the adjusted value.)
Auction means a bidding process by which we sell marketable Treasury securities to the public.
Autocharge agreement means an agreement in a format acceptable to Treasury between a submitter or clearing corporation and a depository institution that authorizes us to:
(1) Deliver awarded securities to the book-entry securities account of a designated depository institution in the commercial book-entry system, and
(2) Charge a funds account of a designated depository institution for the settlement amount of the securities.
Bid means an offer to purchase a stated par amount of securities, either competitively or noncompetitively, in an auction.
Bid-to-cover ratio means the total par amount of securities bid for in an auction divided by the total par amount of securities awarded. It excludes bids by, and awards to, the Federal Reserve for its own account.
Bidder, as further defined in appendix A, means a person or an entity that offers to purchase Treasury securities in an auction either directly or through a depository institution or dealer. We may consider two or more persons or entities to be one bidder based on their relationship or their actions in participating in an auction. We consider a controlled account to be a bidder when an investment adviser bids in the name of the controlled account (See § 356.15.).
Bidder Identification Number means a number we assign to each institutional submitter and to certain other bidders. We assign such numbers either to identify certain bidders or to grant separate bidder status to different parts of the same corporate or partnership structure.
Book-entry security means a security that is issued or maintained as an accounting entry or electronic record. ( See § 356.4.)
Business day means any day on which the Federal Reserve Banks are open for business.
Call means the redemption of a security prior to maturity under the terms specified in its auction announcement.
Certificate of indebtedness means a one-day non-interest-bearing security that may be held in TreasuryDirect and that automatically matures and is rolled over each day until its owner requests that it be redeemed.
Clearing corporation means a clearing agency as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(23)). A clearing corporation must be registered with the Securities and Exchange Commission under section 17A of the Securities Exchange Act of 1934 and its rules.
Competitive bid means a bid to purchase a stated par amount of securities at a specified yield, discount rate, or discount margin.
Consumer Price Index (CPI) means the monthly non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers, published by the Bureau of Labor Statistics of the Department of Labor. We use the CPI as the basis for adjusting the principal amounts of inflation-protected securities. (See appendix D.)
Corpus means the principal component of a security that has been stripped of its interest components.
CUSIP number means the unique identifying number assigned to each separate security issue and each separate STRIPS component. CUSIP numbers are provided by the CUSIP Service Bureau of Standard & Poor's Corporation. CUSIP is an acronym for Committee on Uniform Securities Identification Procedures.
Customer means a bidder that directs a depository institution or dealer to submit or forward a bid for a specific amount of securities in a specific auction on the bidder's behalf. Only depository institutions and dealers may submit bids for customers directly to us, or forward them to another depository institution or dealer.
Dated date means the date from which interest accrues for notes and bonds. The dated date and issue date are usually the same. In those cases where interest begins accruing prior to the issue date, however, the dated date will be prior to the issue date. An example is when the dated date is a Saturday and the issue date is the following Monday.
Dealer means an entity that is registered or has given notice of its status as a government securities broker or government securities dealer under Section 15C(a)(1) of the Securities Exchange Act of 1934.
Delivery and payment agreement means a written agreement between a clearing corporation and a submitter, acknowledged by a Federal Reserve Bank, regarding securities awarded to the submitter for its own account. It authorizes us to deliver such securities to, and accept payment from, a depository institution acting on behalf of the clearing corporation under an acknowledged autocharge agreement.
Depository institution means:
(1) An entity described in Section 19(b)(1)(A), excluding subparagraph (vii), of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)).
(2) Any agency or branch of a foreign bank as defined by the International Banking Act of 1978, as amended (12 U.S.C. 3101).
Discount means the difference between par and the price of the security, when the price is less than par. (See appendix B for formulas and examples.)
Discount amount means the discount divided by 100 and multiplied by the par amount. (See appendix B for formulas and examples.)
Discount margin means the margin over the index that equates the present values of the assumed cash flows on a floating rate note to the sum of the price of and accrued interest on the floating rate note. The assumed cash flows are calculated based upon the index rate applicable to the dated date. Bidders in floating rate note auctions bid on the basis of discount margin. (See appendix B.)
Discount rate means a rate of return, on an annual basis, on bills held until they mature. The discount rate is expressed in percentage terms and based on a 360-day year. It is also referred to as the “bank discount rate.” (See appendix B for formulas and examples.)
Funds account means a cash account maintained by a depository institution at a Federal Reserve Bank.
Index means the Consumer Price Index for inflation-protected securities. For floating rate notes, the index is the highest accepted discount rate on 13-week bills determined by Treasury auctions of those securities.
Index rate means the simple-interest money market yield, computed on an actual/360 basis and rounded to nine decimal places, from the highest accepted discount rate of a 13-week bill auction as announced in the Treasury auction results. ( See appendix B for methods and examples for computing the index rate.)
Index ratio means, for an inflation-protected security, the Reference CPI of a particular date divided by the Reference CPI of the original issue date. (When the dated date is different from the original issue date, the denominator of the index ratio is the Reference CPI of the dated date rather than that of the original issue date.)
Inflation-adjusted principal means, for an inflation-protected security, the value of the security derived by multiplying the par amount by the applicable index ratio as described in appendix B, section I, paragraph B.
Interest rate means the annual percentage rate of interest paid on the par amount (or the inflation-adjusted principal) of a specific issue of notes or bonds. (See appendix B for methods and examples of interest calculations on notes and bonds.)
Intermediary means a depository institution or dealer that forwards bids for customers to another depository institution or dealer. An intermediary does not submit bids directly to us.
Issue date means the date specified in the auction announcement on which we issue a security as an obligation of the United States. Interest normally begins to accrue on a security's issue date.
Marketable security means a security that may be bought, sold and transferred in the secondary market.
Maturity date means the date on which a security becomes due and payable, and ceases to earn interest. The maturity date is specified in the auction announcement.
Minimum to bid means the smallest amount of a security that may be bid for in an auction as stated in the auction announcement.
Multiple to bid means the smallest additional amount of a security that may be bid for in an auction as stated in the auction announcement.
Multiple-price auction means an auction in which each successful competitive bidder pays the price equivalent to the yield, discount rate, or discount margin that it bid.
Noncompetitive bid means, for a single-price auction, a bid to purchase a stated par amount of securities at the highest yield, discount rate, or discount margin awarded to competitive bidders. For a multiple-price auction, a noncompetitive bid means a bid to purchase securities at the weighted average yield, discount rate, or discount margin of awards to competitive bidders.
Offering amount means the par amount of securities we are offering to the public for purchase in an auction, as specified in the auction announcement.
Par means a price of 100. (See appendix B.)
Par amount means the stated value of a security at original issuance.
Person means a natural person.
Premium means the difference between par and the price of the security, when the price is greater than par.
Premium amount means the premium divided by 100 and multiplied by the par amount.
Price means the price of a security per 100 dollars of its stated value as calculated using the formulas in appendix B.
Real yield means, for an inflation-protected security, the yield based on the payment stream in constant dollars. In other words, the real yield is the yield in the absence of inflation.
Reference CPI (Ref CPI) means, for an inflation-protected security, the index number applicable to a given date. (See appendix B, section I, paragraph B.)
Reopening means the auction of an additional amount of an outstanding security.
Security means a Treasury bill, note, or bond, each as described in this part. Security also means any other obligation we issue that is subject to this part according to its auction announcement. Security includes an interest or principal component under the STRIPS program, as well as a certificate of indebtedness.
Settlement means final and complete payment for securities awarded in an auction and delivery of those securities.
Settlement amount means the total of the par amount of securities awarded, less any discount amount or plus any premium amount, and plus any accrued interest. For inflation-protected securities, the settlement amount also includes any inflation adjustment when such securities are reopened or when the dated date is different from the issue date.
Single-price auction means an auction in which all successful bidders pay the same price regardless of the yields, discount rates, or discount margins they each bid.
Spread means the fixed amount over the life of a floating rate note that is added to the index rate in order to determine the interest rate of the floating rate note. The spread will be determined in the auction of a new floating rate note and is expressed in tenths of a basis point ( i.e. , to three decimals). Additionally, the spread will be equal to the high discount margin at the time a new floating rate note is auctioned.
STRIPS (Separate Trading of Registered Interest and Principal of Securities) means our program under which eligible securities are authorized to be separated into principal and interest components, and transferred separately. These components are maintained and transferred in the commercial book-entry system.
Submitter means a person or entity submitting bids directly to us for its own account, for customer accounts, or both. Only depository institutions and dealers are permitted to submit bids for customer accounts. We permit investment advisers to submit bids on behalf of controlled accounts.
TINT means an interest component from a stripped security.
We (or “us”) means the Secretary of the Treasury and his or her delegates, including the Department of the Treasury, Bureau of the Fiscal Service, and their representatives. The term also includes Federal Reserve Banks acting as fiscal agents of the United States.
Weighted-average means the average of the yields, discount rates, or discount margins at which we award securities to competitive bidders in multiple-price auctions weighted by the par amount of securities allotted at each yield, discount rate, or discount margin.
Yield means the annualized rate of return to maturity on a non-indexed security. Yield is expressed as a percentage. For an inflation-protected security, yield means the real yield. Yield is also referred to as “yield to maturity.” (See appendix B.)
You means a prospective bidder in an auction.
§ 356.3   What is the role of the Federal Reserve Banks in this process?
The Treasury Department authorizes Federal Reserve Banks, as fiscal agents of the United States, to perform all activities necessary to carry out the provisions of this part, any auction announcements, and applicable regulations.
§ 356.4   What are the book-entry systems in which auctioned Treasury securities may be issued or maintained?
We issue marketable Treasury securities into the commercial book-entry system and into accounts maintained directly on the records of the Department of the Treasury (“securities held directly with Treasury”).
(a) The commercial book-entry system. When depository institutions or dealers submit bids for Treasury securities in an auction, securities awarded as a result of those bids are generally held in the commercial book-entry system. Specifically, we maintain book-entry accounts in the National Book-Entry System ® (“NBES”) for Federal Reserve Banks, depository institutions, and other authorized entities, such as government and international agencies and foreign central banks. In their accounts, depository institutions maintain securities held for their own account and for the accounts of others. The accounts held for others include those of other depository institutions and dealers, which may, in turn, maintain accounts for others.
(b) Securities held directly with Treasury. Account holders maintain accounts in a book-entry system directly on the records of the Department of the Treasury. Securities held directly with Treasury are subject to the terms and conditions in this part, the auction announcement, and the regulations governing the system in which the securities are held. ( See subtitle B, chapter II of this title.)
§ 356.5   What types of securities does the Treasury auction?
We offer securities under this part exclusively in book-entry form and as direct obligations of the United States issued under Chapter 31 of Title 31 of the United States Code. When we issue additional securities with the same CUSIP number as outstanding securities, we consider them to be the same securities as the outstanding securities.
(a) Treasury bills. (1) Are issued at a discount or at par, depending upon the auction results;
(2) Are redeemed at their par amount at maturity; and
(3) Have maturities of not more than one year.
(b) Treasury notes —(1) Treasury non-indexed 1 notes.
1 We use the term “non-indexed” in this part to distinguish such notes and bonds from “inflation-protected securities” and “floating rate notes.” We refer to non-indexed notes and non-indexed bonds as “notes” and “bonds” in official Treasury publications, such as auction announcements and auction results, as well as in auction systems.
(i) Are issued with a stated rate of interest to be applied to the par amount;
(ii) Have interest payable semiannually;
(iii) Are redeemed at their par amount at maturity;
(iv) Are sold at discount, par, or premium, depending upon the auction results; and
(v) Have maturities of at least one year, but of not more than ten years.
(2) Treasury inflation-protected notes. (i) Are issued with a stated rate of interest to be applied to the inflation-adjusted principal on each interest payment date;
(ii) Have interest payable semiannually;
(iii) Are redeemed at maturity at their inflation-adjusted principal, or at their par amount, whichever is greater;
(iv) Are sold at discount, par, or premium, depending on the auction results (See appendix B for price and interest payment calculations and appendix C for Investment Considerations.); and
(v) Have maturities of at least one year, but not more than ten years.
(vi) Are only reopened as scheduled or announced.
(3) Treasury floating rate notes. (i) Are issued with a stated spread to be added to the index rate for daily interest accrual throughout each interest payment period;
(ii) Have a zero-percent minimum daily interest accrual rate;
(iii) Have interest payable quarterly;
(iv) Are redeemed at their par amount at maturity;
(v) Are sold at discount, par, or premium depending on the auction results (See appendix B for price and interest payment calculations and appendix C for Investment Considerations.); and
(vi) Have maturities of at least one year, but not more than ten years.
(c) Treasury bonds —(1) Treasury non-indexed bonds. (i) Are issued with a stated rate of interest to be applied to the par amount;
(ii) Have interest payable semiannually;
(iii) Are redeemed at their par amount at maturity;
(iv) Are sold at discount, par, or premium, depending on the auction results; and
(v) Have maturities of more than ten years.
(2) Treasury inflation-protected bonds. (i) Are issued with a stated rate of interest to be applied to the inflation-adjusted principal on each interest payment date;
(ii) Have interest payable semiannually;
(iii) Are redeemed at maturity at their inflation-adjusted principal, or at their par amount, whichever is greater;
(iv) Are sold at discount, par, or premium, depending on the auction results; and
(v) Have maturities of more than ten years. (See appendix B for price and interest payment calculations and appendix C for Investment Considerations.)
(vi) Are only reopened as scheduled or announced.
§ 356.10   What is the purpose of an auction announcement?
By issuing an auction announcement, we provide public notice of the sale of bills, notes, and bonds. The auction announcement lists the specifics of each auction, e.g., offering amount, term and type of security, CUSIP number, and issue and maturity dates. The auction announcement and this part, including the Appendices, specify the terms and conditions of sale. If anything in the auction announcement differs from this part, the auction announcement will control. If you intend to bid, you should read the applicable auction announcement along with this part.
§ 356.11   How are bids submitted in an auction?
(a) General. (1) All bids must be submitted using an approved method, which depends on the system into which the awarded securities will be issued. ( See § 356.4.)  The approved submission methods for these respective systems are explained in this section. A bidder must provide its assigned bidder identification numbers if it has been assigned one. We have the option of accepting or rejecting incomplete bids.
(2) We must receive competitive and noncompetitive bids prior to their respective closing times, which are stated in the auction announcement. We will not include late bids in the auction. For bids other than those submitted on paper forms, our computer time stamp will establish the receipt time. You are bound by your bids after the closing time.
(3) We are not responsible for any delays, errors, or omissions. We are not responsible for any failures or disruptions of equipment or communications facilities used for participating in Treasury auctions.
(4) Submitters are responsible for bids submitted using computer equipment on their premises, whether or not such bids are authorized.
(b) Commercial book-entry system. (1) If you are a submitter and the awarded securities are to be issued in the commercial book-entry system, you must submit bids using one of our approved electronic methods except for contingency situations.
(2) You must have an agreement on file with us under which you agree to our terms and conditions for access to our system for participating in our auctions.
(3) In contingency situations, such as a power outage, we may accept bids by a telephone call to designated Treasury employees if you submit them prior to the relevant bidding deadline.
(c) Securities held directly with Treasury. You must submit your bids in accordance with the regulations governing the system in which the security will be held. You may reinvest the proceeds of a maturing security held directly with Treasury as permitted by the system in which it is held.
§ 356.12   What are the different types of bids and do they have specific requirements or restrictions?
(a) General. All bids must state the par amount of securities bid for and must equal or exceed the minimum to bid amount stated in the auction announcement. Bids in larger amounts must be in the multiple stated in the auction announcement.
(b) Noncompetitive bids —(1) Maximum bid. You may not bid noncompetitively for more than $10 million. The maximum bid limitation does not apply if you are bidding solely through a request to reinvest the proceeds of a maturing security held directly with Treasury, which is a noncompetitive bid.
(2) Additional restrictions. You may not bid noncompetitively in an auction in which you are bidding competitively. You may not bid noncompetitively if, in the security being auctioned, you hold a position in when-issued trading or in futures or forward contracts at any time between the date of the auction announcement and the time we announce the auction results. During this same timeframe, a noncompetitive bidder may not enter into any agreement to purchase or sell or otherwise dispose of the securities it is acquiring in the auction. For this paragraph, futures contracts include those:
(i) That require delivery of the specific security being auctioned;
(ii) For which the security being auctioned is one of several securities that may be delivered; or
(iii) That are cash-settled.
(c) Competitive bids —(1) Bid format —(i) Treasury bills. A competitive bid must show the discount rate bid, expressed with three decimals in .005 increments. The third decimal must be either a zero or a five, for example, 5.320 or 5.325. We will treat any missing decimals as zero, for example, a bid of 5.32 will be treated as 5.320. The rate bid may be a positive number or zero.
(ii) Treasury non-indexed securities. A competitive bid must show the yield bid, expressed with three decimals, for example, 4.170. We will treat any missing decimals as zero, for example, a bid of 4.1 will be treated as 4.100. The yield bid may be a positive number or zero.
(iii) Treasury inflation-protected securities. A competitive bid must show the real yield bid, expressed with three decimals, for example, 3.070. We will treat any missing decimals as zero, for example, a bid of 3 will be treated as 3.000. The real yield may be a positive number, a negative number, or zero.
(iv) Treasury floating rate notes. A competitive bid must show the discount margin bid, expressed as a percentage with three decimals, for example, 0.290 percent. We will treat any missing decimals as zero, for example, a bid of 0.29 will be treated as 0.290. The discount margin bid may be positive, negative, or zero.
(2) Maximum recognized bid. There is no limit on the maximum dollar amount that you may bid for competitively, either at a single yield, discount rate, or discount margin, or at different yields, discount rates, or discount margins. However, a competitive bid at a single yield, discount rate, or discount margin that exceeds 35 percent of the offering amount will be reduced to that amount. For example, if the offering amount is $10 billion, the maximum bid amount we will recognize at any one yield, discount rate, or discount margin from any bidder is $3.5 billion. (See § 356.22 for award limitations.)
(3) Additional restrictions. You may not bid competitively in an auction in which you are bidding noncompetitively. You may not bid competitively for securities to be held directly with Treasury.
§ 356.13   When must I report my net long position and how do I calculate it?
(a) Net long position reporting threshold. (1) If you are bidding competitively in an auction, you must report your net long position when the total of your bids plus your net long position in the security being auctioned equals or exceeds the net long position reporting threshold ( See table.). We will specify this threshold in the auction announcement for each security (See § 356.10.). The threshold is typically 35 percent of the offering amount, but we may state a different threshold in the auction announcement. To see whether you must report your net long position, follow this table:
(2) Also, if you have more than one bid in an auction and you must report either your net long position or a zero, you must report that figure only once. Finally, if you are a customer and must report either your net long position or a zero, you must report that figure through only one depository institution or dealer. (See § 356.14(d).)
(b) “As of” time for calculating net long position. You must calculate your net long position as of one half-hour prior to the closing time for receipt of competitive bids.
(c) Components of the net long position. Except as modified in paragragh (d) of this section, your net long position is the sum total of the par amounts of:
(1) Your holdings of outstanding securities with the same CUSIP number as the security being auctioned;
(2) Your holdings of STRIPS principal components of the security being auctioned, and;
(3) Your positions, in the security being auctioned, in:
(i) When-issued trading, including when-issued trading positions of the STRIPS principal components;
(ii) Futures contracts that require delivery of the specific security being auctioned (but not futures contracts for which the security being auctioned is one of several securities that may be delivered, and not futures contracts that are cash-settled); and
(iii) Forward contracts that require delivery of the specific security being auctioned or of the STRIPS principal component of that security.
(d) Calculating the net long position in a reopening. In a reopening (additional issue) of an outstanding security, you may subtract the exclusion amount stated in the auction announcement from:
(1) Your holdings of the outstanding securities (paragraph (c)(1) of this section) combined with
(2) Your holdings of STRIPS principal components of the security being auctioned (paragraph (c)(2) of this section). We will specify the amount of holdings that you may exclude from the net long position calculation in the auction announcement. You may not take the exclusion if your combined holdings are zero or less. The exclusion is optional, but if you take the exclusion, you must include any holdings that exceed the exclusion amount in calculating your net long position. If the exclusion amount is greater than your combined holdings (paragraphs (c)(1) and (2) of this section), you may calculate the combined holdings as zero, but they cannot be included in the calculation as a negative number.
§ 356.14   What are the requirements for submitting bids for customers?
(a) Institutions that may submit bids for customers. Only depository institutions or dealers may submit bids for customers ( see definitions at § 356.2), or for customers of intermediaries, under the requirements set out in this section. If a bid fulfills a guarantee to sell to a customer a specified amount of securities at the price determined in the auction, then the bid is a bid of that customer.
(b) Payment. Submitters must remit payment for bids they submit on behalf of customers, including customers of intermediaries, that result in awards of securities in the auction.
(c) Identifying customers. Submitters must provide the names of customers whenever they submit bids for them. Submitters must provide the names of their direct customers as well as customers of any intermediaries who are forwarding customer bids. For individuals, submitters must provide the customer's full name (first and last). For institutional customers, submitters must provide the name of the institution, and the bidder identification number if the customer provides it. For trusts or other fiduciary estates (See appendix A.), submitters must provide on the customer list:
(1) The full name or title of the trustee or fiduciary;
(2) A reference to the document creating the trust or fiduciary estate with date of execution; and
(3) The employer identification number (not social security number) of the trust or fiduciary estate. We do not consider trusts to be a separate bidder that have not been assigned, or that do not provide, an employer identification number.
(d) Competitive customer bids. For each customer competitive bid, the submitter must provide the customer's name, the amount bid, and the yield, discount rate, or discount margin. The submitter or intermediary must also report the net long position amount if the customer provides it. The submitter must inform a customer of the net long position reporting requirement (See § 356.13.) if the customer is bidding for $100 million or more of securities. If the submitter's or intermediary's personnel know that the customer's position information is not correct, the submitter or intermediary may not submit the customer's bid.
(e) Noncompetitive customer bids. For each noncompetitive bid, the submitter must provide the customer's name and the amount bid. Submitters may either provide the customer's name with the bid or, if the list of customers is lengthy, the submitter may provide a summary bid amount covering all noncompetitive customers. If it provides a summary bid amount, the submitter must transmit the list of individual customers and their bid amounts by close of business on the auction day. However, the submitter must be able to provide the customer list details by the noncompetitive bidding deadline if requested.
§ 356.15   What rules apply to bids submitted by investment advisers?
(a) General. The auction rules that apply to investment advisers are determined by the relationship between “investment advisers” and “controlled accounts.” An investment adviser means any person or entity that has investment discretion for the bids or positions of a different person or entity (a controlled account). A person or entity has investment discretion if it determines what, how many, and when securities will be purchased or sold on behalf of another person or entity. We consider a person that is employed or supervised by an investment adviser to be part of that investment adviser. We also consider the bids or positions of controlled accounts to be separate from the bids or positions of the person or entity with which they would otherwise be associated under the bidder categories in appendix A of this part.
(b) Bidding options. (1) An investment adviser has two options for whose name to use when bidding on behalf of controlled accounts.
(2) Using the first option (paragraph (b)(1)(i)), an investment advisor could bid noncompetitively up to the noncompetitive bidding limit only for itself, as a single bidder. Using the second option (paragraph (b)(1)(ii)), an investment adviser could bid noncompetitively for each separately named controlled account up to the noncompetitive bidding limit. The investment adviser could also bid noncompetitively in its own name in the same auction up to the noncompetitive bidding limit. An investment adviser may not bid for a controlled account both noncompetitively and competitively in the same auction. If an investment adviser is bidding competitively in the name of a controlled account, the controlled account is subject to the award limitations of § 356.22(b).
(c) Reporting net long positions. If it is bidding competitively, an investment adviser must calculate the amount of its bids and positions for purposes of the net long position reporting requirement found in § 356.13(a). In addition to its own competitive bids and positions, the investment adviser must also include in the calculation all other competitive bids and positions that it controls. If the net long position is reportable, the investment adviser must report it as a total in connection with only one bid as stated in § 356.13(a). This requirement applies regardless of whether the investment adviser bids in its own name or in the name of its controlled accounts. The following table shows which positions an investment adviser must include to determine whether it meets the net long position reporting threshold in § 356.13(a). If an investment adviser does meet the reporting threshold, the table also shows which positions must be included in, and which may be excluded from, the net long position calculation.
(d) Certifications. When an investment adviser bids for a controlled account, we deem the investment adviser to have certified that it is complying with this part and the auction announcement for the security. Further, we deem the investment adviser to have certified that the information it provided about bids for controlled accounts is accurate and complete.
(e) Proration of awards. Investment advisers that submit competitive bids in the names of controlled accounts are responsible for prorating any awards at the highest accepted yield, discount rate, or discount margin using the same percentage that we announce.See § 356.21 for examples of how to prorate.
§ 356.16   Do I have to make any certifications?
(a) Submitters. If you submit bids or other information in an auction, we deem you to have certified that:
(1) You are in compliance with this part and the auction announcement;
(2) The information provided with regard to any bids for your own account is accurate and complete; and
(3) The information provided with regard to any bids for customers accurately and completely reflects information provided by your customers or intermediaries.
(b) Intermediaries. If you forward bids in an auction, we deem you to have certified that:
(1) You are in compliance with this part and the applicable auction announcement; and
(2) That the information you provided to a submitter or other intermediary with regard to bids for customers accurately and completely reflects information provided by those customers or intermediaries.
(c) Customers. By bidding for a security as a customer we deem you to have certified that:
(1) You are in compliance with this part and the auction announcement and;
(2) The information you provided to the submitter or intermediary in connection with the bid is accurate and complete.
§ 356.17   How and when do I pay for securities awarded in an auction?
(a) General. By bidding in an auction, you agree to pay the settlement amount for any securities awarded to you. (See § 356.25.) For notes and bonds, the settlement amount may include a premium amount, accrued interest, and, for inflation-protected securities, an inflation adjustment.
(b) Securities held directly with Treasury. You must pay for your awarded securities by a debit entry to a deposit account that you are authorized to debit or by using the redemption proceeds of your certificate of indebtedness. Payment by debit entry occurs on the settlement date for the actual settlement amount due. ( See § 356.25.)
(c) Commercial book-entry system. Unless you make other provisions, payment of the settlement amount must be by charge to the funds account of a depository institution at a Federal Reserve Bank.
(1) A submitter that does not have a funds account at a Federal Reserve Bank or that chooses not to pay by charge to its own funds account must have an approved autocharge agreement on file with us before submitting any bids. Any depository institution whose funds account will be charged under an autocharge agreement will receive advance notice from us of the total par amount of, and price to be charged for, securities awarded as a result of the submitter's bids.
(2) A submitter that is a member of a clearing corporation may instruct that delivery and payment be made through the clearing corporation for securities awarded to the submitter for its own account. To do this, the following requirements must be met prior to submitting any bids:
(i) We must have acknowledged and have on file an autocharge agreement between the clearing corporation and a depository institution. By entering into such an agreement, the clearing corporation authorizes us to provide aggregate par and price information to the depository institution whose funds account will be charged under the agreement. The clearing corporation is responsible for remitting payment for auction awards of the clearing corporation member.
(ii) We must have acknowledged and have on file a delivery and payment agreement between the submitter and the clearing corporation. By entering into such an agreement, the submitter authorizes us to provide award and payment information to the clearing corporation.
§ 356.20   How does the Treasury determine auction awards?
(a) Determining the range and amount of accepted competitive bids —(1) Accepting bids. First we accept in full all non-competitive bids that were submitted by the noncompetitive bidding deadline. After the closing time for receipt of competitive bids we start accepting those at the lowest yields, discount rates, or discount margins, through successively higher yields, discount rates, or discount margins, up to the amount required to meet the offering amount. When necessary, we prorate bids at the highest accepted yield, discount rate, or discount margin as described below. If the amount of noncompetitive bids would absorb all or most of the offering amount, we will accept competitive bids in an amount sufficient to provide a fair determination of the yield, discount rate, or discount margin for the securities we are auctioning.
(2) Accepting bids at the high yield, discount rate, or discount margin. Generally, the total amount of bids at the highest accepted yield, discount rate, or discount margin exceeds the offering amount remaining after we accept the noncompetitive bids and the competitive bids at the lower yields, discount rates, or discount margins. In order to keep the total amount of awards as close as possible to the announced offering amount, we award a percentage of the bids at the highest accepted yield, discount rate, or discount margin. We derive the percentage by dividing the remaining par amount needed to fill the offering amount by the par amount of the bids at the high yield, discount rate, or discount margin and rounding up to the next hundredth of a whole percentage point, for example, 17.13%.
(b) Determining the interest rate for new non-indexed and inflation-protected note and bond issues. If a Treasury non-indexed or inflation-protected note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent, and successful bidders' award prices will be calculated accordingly. ( See appendix B to this part for formulas.)
(1) Single-price auctions. The interest rate we establish produces the price closest to, but not above, par when evaluated at the yield of awards to successful competitive bidders.
(2) Multiple-price auctions. The interest rate we establish produces the price closest to, but not above, par when evaluated at the weighted-average yield of awards to successful competitive bidders.
(c) Determining the interest rate for floating rate notes. The interest rate will be the spread plus the index rate (as it may be adjusted on the calendar day following each auction of 13-week bills) subject to a minimum daily interest accrual rate of zero percent.
(d) Determining purchase prices for awarded securities. We round price calculations to six decimal places on the basis of price per hundred, for example, 99.954321 (See appendix B to this part).
(1) Single-price auctions. We award securities to both noncompetitive and competitive bidders at the price equivalent to the highest accepted yield, discount rate, or discount margin at which bids were accepted. For inflation-protected securities, the price for awarded securities is the price equivalent to the highest accepted real yield.
(2) Multiple-price auctions —(i) Competitive bids. We award securities to competitive bidders at the price equivalent to each yield, discount rate, or discount margin at which their bids were accepted.
(ii) Noncompetitive bids. We award securities to noncompetitive bidders at the price equivalent to the weighted average yield, discount rate, or discount margin of accepted competitive bids.
§ 356.21   How are awards at the high yield, discount rate, or discount margin calculated?
(a) Awards to submitters. We generally prorate bids at the highest accepted yield, discount rate, or discount margin under § 356.20(a)(2) of this part. For example, if 80.15% is the announced percentage at the highest yield, discount rate, or discount margin, we award 80.15% of the amount of each bid at that yield, discount rate, or discount margin. A bid for $100 million at the highest accepted yield, discount rate, or discount margin would be awarded $80,150,000 in this example. We always make awards for at least the minimum to bid, and above that amount we make awards in the appropriate multiple to bid. For example, Treasury bills may be issued with a minimum to bid of $100 and multiples to bid of $100. Say we accept an $18,000 bid at the high discount rate, and the percent awarded at the high discount rate is 88.27%. We would award $15,900 to that bidder, which is an upward adjustment from $15,888.60 ($18,000 × .8827) to the nearest multiple of $100. If we were to award 4.65% of bids at the highest accepted rate, for example, the award for a $100 bid at that rate would be $100, rather than $4.65, in order to meet the minimum to bid for a bill issue.
(b) Awards to customers. The same prorating rules apply to customers as apply to submitters. Depository institutions and dealers, whether submitters or intermediaries, are responsible for prorating awards for their customers at the same percentage that we announce. For example, if 80.15% is the announced percentage at the highest yield, discount rate, or discount margin, then each customer bid at that yield, discount rate, or discount margin must be awarded 80.15%.
§ 356.22   Does the Treasury have any limitations on auction awards?
(a) Awards to noncompetitive bidders. The maximum award to any noncompetitive bidder is $10 million. This limit does not apply to bidders bidding solely through a request to reinvest the proceeds of a maturing security held directly with Treasury.
(b) Awards to competitive bidders. The maximum award is 35 percent of the offering amount less the bidder's net long position as reportable under § 356.13. For example, in a note auction with a $10 billion offering amount, and therefore a maximum award of $3.5 billion, a bidder with a reported net long position of $1 billion could receive a maximum auction award of $2.5 billion. When the bids and net long positions of more than one person or entity must be combined, as is the case with investment advisers and controlled accounts (See § 356.15(c).), we will use this combined amount for the purpose of this 35 percent award limit.
§ 356.23   How are the auction results announced?
(a) After the conclusion of the auction, we will make the auction results available on our website at http://www.treasurydirect.gov.
(b) The auction results will include such information as:
(1) The amounts of bids we accepted and the amount of securities we awarded;
(2) The range of accepted yields, discount rates, or discount margins.
(3) The proration percentage;
(4) The interest rate for a note or bond;
(5) A breakdown of the amounts of noncompetitive and competitive bids we accepted from, and awarded to, the public;
(6) The amounts of bids tendered and accepted from the Federal Reserve Banks for their own accounts;
(7) The bid-to-cover ratio; and
(8) Other information that we may decide to include.
§ 356.24   Will I be notified directly of my awards and, if I am submitting bids for others, do I have to provide confirmations?
(a) Notice of awards —(1) Notice to submitters. We will provide notice to all submitters letting them know whether their bids were successful or not.
(2) Notice to clearing corporations. If we are to deliver awarded securities under a delivery and payment agreement, we will provide notice of the awards to the clearing corporation that is a party to the agreement.
(b) Notification of awards to customers. If you are a submitter for customers, you are responsible for notifying them of their awards. You are also responsible for notifying any intermediaries that forwarded successful bids to you. Similarly, an intermediary is responsible for providing notification of any awards to its customers and any intermediaries from whom it received bids.
(c) Notification of awards and settlement amounts to a depository institution having an autocharge agreement with a submitter or a clearing corporation. We will provide notice to each depository institution that has entered into an autocharge agreement with a submitter or a clearing corporation of the amount to be charged, on the issue date, to the institution's funds account at the Federal Reserve Bank servicing the institution. We will provide this notification no later than the day after the auction.
(d) Customer confirmation —(1) Customer requirements —(i) When and how must a customer confirm its awards? Any customer awarded a par amount of $2 billion or more in an auction must send us a confirmation in written form or via e-mail containing the information in paragraph (d)(1)(ii) of this section. The confirmation must be sent no later than 10 a.m. Eastern Time on the next business day following the auction. If sent in written form, the confirmation must be signed by the customer or authorized representative. Confirmations sent by e-mail must be sent by the customer or authorized representative. Confirmations signed or sent by an authorized representative must include the capacity in which the representative is acting.
(ii) What must the customer include in its confirmation? The information the customer must provide is:
(A) A confirmation of the awarded bid(s), including the name of each submitter that submitted the bid(s) on the customer's behalf, and
(B) A statement indicating whether the customer had a reportable net long position as defined in § 356.13. If a position had to be reported, the statement must provide the amount of the position and the name of the submitter that the customer requested to report the position.
(2) Submitter or intermediary requirements. A submitter or intermediary submitting or forwarding bids for a customer must notify the customer of the customer confirmation reporting requirement if we award the customer $2 billion or more as a result of those bids.
§ 356.25   How does the settlement process work?
Securities bought in the auction must be paid for by the issue date. The payment amount for awarded securities will be the settlement amount as defined in § 356.2. (See formulas in appendix B.) There are several ways to pay for securities:
(a) Payment by debit entry to a deposit account. If you are paying by debit entry to a deposit account as provided for in § 356.17(b), we will charge the settlement amount to the specified account on the issue date.
(b) Payment by authorized charge to a funds account. Where the submitter's method of payment is an authorized charge to the funds account of a depository institution as provided for in § 356.17(c), we will charge the settlement amount to the specified funds account on the issue date.
(c) Payment through a certificate of indebtedness. If you are paying with the redemption proceeds of your certificate of indebtedness as provided for in § 356.17(b), we will redeem the certificate of indebtedness for the settlement amount of the security and apply the proceeds on the issue date.
§ 356.30   When does the Treasury pay principal and interest on securities?
(a) General. We will pay principal on bills, notes, and bonds on the maturity date as specified in the auction announcement. Interest on bills consists of the difference between the discounted amount paid by the investor at original issue and the par value we pay to the investor at maturity. Interest on notes and bonds accrues from the dated date. Interest is payable on a semiannual or quarterly basis on the interest payment dates specified in the auction announcement through the maturity date. If any principal or interest payment date is a Saturday, Sunday, or other day on which the Federal Reserve System is not open for business, we will make the payment (without additional interest) on the next business day. If a bond is callable, we will pay the principal prior to maturity if we call it under its terms, which include providing appropriate public notice.
(b) Treasury inflation-protected securities. (1) This table explains the amount that we will pay to holders of inflation-protected securities at maturity.
(2) Regardless of whether or not we pay an additional amount, we will base the final interest payment on the inflation-adjusted principal at maturity.
(c) Discharge of payment obligations —(1) The commercial book-entry system. We discharge our payment obligations when we credit payment to the account maintained at a Federal Reserve Bank for a depository institution or other authorized entity, or when we make payment according to the instructions of the person or entity maintaining the account. Further, we do not have any obligations to any person or entity that does not have an account with a Federal Reserve Bank. We also will not recognize the claims of any person or entity:
(i) That does not have an account at a Federal Reserve Bank, or
(ii) With respect to any accounts not maintained at a Federal Reserve Bank.
(2) Securities held directly with Treasury. We discharge our payment obligations when we make payment to a depository institution for credit to the account specified by the owner of the security, when we make payment for a certificate of indebtedness to be issued and held in the owner's account, or when we make payment according to the instructions of the security's owner or the owner's legal representative.
§ 356.31   How does the STRIPS program work?
(a) General. Notes or bonds (other than Treasury floating rate notes) may be “stripped”—divided into separate principal and interest components. These components must be maintained in the commercial book-entry system. Stripping is done at the option of the holder, and may occur at any time from issuance until maturity. We provide the CUSIP numbers and payment dates for the principal and interest components in auction announcements and on our Web site at http://www.treasurydirect.gov.
(b) Treasury non-indexed securities (notes and bonds other than Treasury inflation-protected securities or Treasury floating rate notes) —(1) Minimum par amounts required for STRIPS. The minimum par amount of a non-indexed security that may be stripped is $100. Any par amount to be stripped above $100 must be in a multiple of $100.
(2) Principal components. Principal components stripped from non-indexed securities are maintained in accounts, and transferred, at their par amount. They have a CUSIP number that is different from the CUSIP number of the fully constituted (unstripped) security.
(3) Interest components. Interest components stripped from non-indexed securities have the following features:
(i) They are maintained in accounts, and transferred, at their original payment value, which is derived by multiplying the semiannual interest rate and the par amount;
(ii) Their interest payment date becomes the maturity date for the component;
(iii) All interest components with the same maturity date have the same CUSIP number, regardless of the underlying security from which the interest payments were stripped, and therefore are fungible (interchangeable).
(iv) the CUSIP numbers of interest components are different from the CUSIP numbers of principal components and fully constituted securities, even if they have the same maturity date, and therefore are not fungible.
(c) Treasury inflation-protected securities —(1) Minimum par amounts required for STRIPS. The minimum par amount of an inflation-protected security that may be stripped is $100. Any par amount to be stripped above $100 must be in a multiple of $100.
(2) Principal components. Principal components stripped from inflation-protected securities are maintained in accounts, and transferred, at their par amount. At maturity, the holder will receive the inflation-adjusted principal or the par amount, whichever is greater. (See § 356.30.) A principal component has a CUSIP number that is different from the CUSIP number of the fully constituted (unstripped) security.
(3) Interest components —(i) Adjusted value. Interest components stripped from inflation-protected securities are maintained in accounts, and transferred, at their adjusted value. This value is derived by multiplying the semiannual interest rate by the par amount and then multiplying this value by: 100 divided by the Reference CPI of the original issue date. (The dated date is used instead of the original issue date when the dates are different.) See appendix B, section V of this part for an example of how to do this calculation.
(ii) CUSIP numbers. When an interest payment is stripped from an inflation-protected security, the interest payment date becomes the maturity date for the component. All interest components with the same maturity date have the same CUSIP number, regardless of the underlying security from which the interest payments were stripped. Such interest components are fungible (interchangeable). The CUSIP numbers of interest components are different from the CUSIP numbers of principal components and fully constituted securities, even if they have the same maturity date.
(iii) Payment at maturity. At maturity, the payment to the holder will be derived by multiplying the adjusted value of the interest component by the Reference CPI of the maturity date, divided by 100. See appendix B, section V of this part for an example of how to do this calculation.
(iv) Rebasing of the CPI. If the CPI is rebased to a different time base reference period (See appendix D.), the adjusted values of all outstanding inflation-protected interest components will be converted to adjusted values based on the new base reference period. At that time, we will publish information that describes how this conversion will occur. After rebasing, any interest components created from a security that was issued during a prior base reference period will be issued with adjusted values calculated using reference CPIs under the most-recent base reference period.
(d) Reconstituting a security. Stripped interest and principal components may be reconstituted, that is, put back together into their fully constituted form. A principal component and all related unmatured interest components, in the appropriate minimum or multiple amounts or adjusted values, must be submitted together for reconstitution. Because inflation-protected interest components are different from non-indexed interest components, they are not interchangeable for reconstitution purposes.
(e) Applicable regulations. Subparts A, B, and D of part 357 of this chapter govern notes and bonds stripped into their STRIPS components, unless we state differently in this part.
§ 356.32   What tax rules apply?
(a) General. Securities issued under this part are subject to all applicable taxes imposed under the Internal Revenue Code of 1986, or its successor. Under section 3124 of title 31, United States Code, the securities are exempt from taxation by a State or political subdivision of a State, except for State estate or inheritance taxes and other exceptions as provided in that section.
(b) Treasury inflation-protected securities. Special federal income tax rules for inflation-protected securities, including stripped inflation-protected principal and interest components, are set forth in Internal Revenue Service regulations.
(c) Treasury floating rate notes. Special federal income tax rules for floating rate notes are set forth in Internal Revenue Service regulations.
§ 356.33   Does the Treasury have any discretion in the auction process?
(a) We have the discretion to:
(1) Accept, reject, or refuse to recognize any bids submitted in an auction;
(2) Award more or less than the amount of securities specified in the auction announcement;
(3) Waive any provision of this part for any bidder or submitter; and
(4) Change the terms and conditions of an auction.
(b) Our decisions under this part are final. We will provide a public notice if we change any auction provision, term, or condition.
(c) We reserve the right to modify the terms and conditions of new securities and to depart from the customary pattern of securities offerings at any time.
§ 356.34   What could happen if someone does not fully comply with the auction rules or fails to pay for securities?
(a) General. If a person or entity fails to comply with any of the auction rules in this part, we will consider the circumstances and take what we deem to be appropriate action. This could include barring the person or entity from participating in future auctions under this part. We also may refer the matter to an appropriate regulatory agency.
(b) Liquidated damages. If you fail to pay for awarded securities in a timely manner, we may require you to pay liquidated damages of up to one percent of the par amount of securities we awarded to you. Our use of this liquidated damages remedy does not preclude us from using any other appropriate remedy.
§ 356.35   Who approved the information collections?
The Office of Management and Budget approved the collections of information contained in §§ 356.11, 356.12, 356.13, 356.14, and 356.15 and in appendix A of this part under control number 1535-0112.