46860 Federal Register / Vol. 62, No. 171 / Thursday, September 4, 1997 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 357

Regulations Governing Book-Entry

Treasury Bonds, Notes and Bills

AGENCY: Bureau of the Public Debt,

Fiscal Service, Treasury.

ACTION: Final rule.

SUMMARY: The Department of the

Treasury (Department or Treasury) is

issuing in final form an amendment to

its regulations governing book-entry

Treasury Bonds, Notes and Bills which

will offer investors holding marketable

securities within the TREASURY

DIRECT system the option of having

Treasury, through a designated Federal

Reserve Bank, acting as fiscal agent of

the United States, sell such securities in

the secondary market. Previously, if

investors needed or wanted to sell their

Treasury securities, they were required

to first transfer their securities from

their TREASURY DIRECT accounts to

accounts with financial institutions or

broker-dealers within TRADES, the

commercial book-entry system.

Investors who did not already have

broker-dealer accounts established were

required to first establish such accounts

for the transaction. The new service will

benefit such investors by providing

them with the option of having the

designated Federal Reserve Bank sell

the securities and transmit the

settlement amounts to the investors.

EFFECTIVE DATE: September 4, 1997.

FOR FURTHER INFORMATION CONTACT:

Richard Koch, Director, Division of

Customer Service, Bureau of the Public

Debt (304) 480–6748; Susan Klimas,

Attorney-Adviser, Office of the Chief

Counsel, Bureau of the Public Debt (304)

480–5192; Edward C. Gronseth, Deputy

Chief Counsel, Office of the Chief

Counsel, Bureau of the Public Debt (304)

480–5192.

SUPPLEMENTARY INFORMATION: This final

rule amends the general regulations

governing book-entry Treasury Bonds,

Notes and Bills to offer TREASURY

DIRECT investors the service of selling

their unmatured marketable securities

in the secondary market. At the request

of the investor, the securities will be

transferred to the designated Federal

Reserve Bank, acting as fiscal agent of

the United States, to be sold on behalf

of the investor. This will enhance

customer service to TREASURY DIRECT

investors who do not already have an

account established with a financial

institution or broker-dealer and who

wish to liquidate some or all of their

securities. In addition, legal

representatives and heirs of a decedent

with securities held in TREASURY

DIRECT who may wish to sell the

securities would not have the added

burden of establishing a broker-dealer

account.

Investors wishing to use the new

service will authorize Treasury to

transfer their securities to the

designated Federal Reserve Bank to be

sold on their behalf. Once all evidence

which may be required to support such

a transfer is received and approved, the

securities will be transferred to the

Federal Reserve Bank. Generally, on the

same day that the Federal Reserve Bank

receives the securities, the Federal

Reserve Bank will make a reasonable

effort to obtain three price quotes from

dealers and will enter into an agreement

to sell the securities to the dealer with

the highest price quote for next day

settlement. The day that the agreement

to sell the securities is entered into is

referred to as the trade date. If the

Federal Reserve Bank is unable to obtain

at least one price quote for the security,

the security will be returned to the

TREASURY DIRECT account of the

investor on the next full business day

following the receipt of the securities by

the Federal Reserve Bank, and the

investor will be notified. On the next

full business day after the trade date, the

settlement amount will be released

electronically by the Federal Reserve

Bank to the account at the financial

institution which the investor has

previously designated to receive

TREASURY DIRECT payments. The

electronic payments will be by the

Automated Clearing House method, as

provided in this part. A confirmation

will be sent to the investor by the

Federal Reserve Bank upon the

completion of the transaction. Because

the Federal Reserve Bank enters into an

agreement to sell the securities on the

same day that it receives the securities,

the authorization of the investor for the

transfer and sale of the securities

becomes irrevocable when the transfer

from the TREASURY DIRECT account of

the owner to the Federal Reserve Bank

is made.

The customer agrees to accept the

price received by the Federal Reserve

Bank from the dealer selected as having

the highest price quote. The Department

and the Federal Reserve Bank are not

liable for changes in market conditions

which may affect the price received by

the investor, or any loss which the

investor may incur as a result of the

transaction or the failure of the Federal

Reserve Bank to complete the

transaction. The settlement amount, also

referred to as the net amount on the

confirmation, may be less than the par

amount of the security. Such settlement

amount is derived by taking the par

amount of the security (that is, the

stated value of the security at original

issuance), multiplying that amount by

the price, adding any interest which

may have accrued, and subtracting the

transaction fee. For inflation indexed

securities, the settlement amount will

also include any applicable inflation

adjustment, as provided in 31 CFR part

356.

A transaction fee will be charged for

each security sold on behalf of the

investor. For purposes of computing the

transaction fee, a security is considered

as any amount within a TREASURY

DIRECT account which is identified by

a separate CUSIP number. Thus, if an

investor has several holdings within a

TREASURY DIRECT account of varying

amounts, but all are identified by the

same CUSIP number, and all are

transferred in one transaction, only one

transaction fee will be charged, since

the holdings are considered as one

security. If the investor has several

holdings within a TREASURY DIRECT

account, each with a different CUSIP

number, then a separate transaction fee

will be charged for each holding, as

each holding with a separate CUSIP

number is considered a separate

security. If an investor has two

TREASURY DIRECT accounts, and each

account has a security with a CUSIP

identical to the security in the other

account, then two transaction fees will

be charged, since each security within

each account is considered a separate

security. If the Federal Reserve Bank is

unable to complete the sale of the

security, no transaction fee will be

charged. The transaction fee will be

deducted prior to the Federal Reserve

Bank initiating the payment of the

settlement amount to the investor’s

account at the financial institution

designated to receive TREASURY

DIRECT payments. The amount of the

transaction fee will be published by

notice in the Federal Register.

The Department has reserved the right

to terminate the service at any time at

its discretion without prior notice.

The TREASURY DIRECT rules found

in subpart C of this part apply to the

transaction, rather than the TRADES

rules found in subpart B.

Several definitions have been added

to the part to further clarify the process.

Procedural Requirements

It has been determined that this final

rule does not meet the criteria for a

‘‘significant regulatory action,’’ as

defined in Executive Order 12866.

Therefore, the regulatory review
Federal Register / Vol. 62, No. 171 / Thursday, September 4, 1997 / Rules and Regulations 46861

procedures contained therein do not

apply.

This final rule relates to matters of

public contract and procedures for U.S.

securities. Accordingly, pursuant to 5

U.S.C. 553(a)(2), the notice, public

comment and delayed effective date

provisions of the Administrative

Procedure Act do not apply. 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.

There are no new collections of

information contained in this final rule,

therefore, the Paperwork Reduction Act

(44 U.S.C. 3507) does not apply.

List of Subjects in 31 CFR Part 357

Banks, Banking, Bonds, Federal

Reserve System, Government securities.

Dated: August 20, 1997.

Gerald Murphy,

Fiscal Assistant Secretary.

For the reasons set out in the

preamble, 31 CFR part 357 is amended

as follows:

PART 357—GENERAL REGULATIONS

GOVERNING BOOK-ENTRY

TREASURY BONDS, NOTES AND

BILLS

1. The authority citation for part 357

continues to read as follows:

Authority: 31 U.S.C. Chapter 31, 5 U.S.C.

301 and 12 U.S.C. 391.

2. Section 357.22 is amended by

redesignating paragraphs (b) through (e)

as (c) through (f), respectively, and

adding a new paragraph (b), as follows:

§ 357.22 Transfers.

* * * * *

(b) Transfer to Federal Reserve Bank

for sale of securities in the secondary

market.

(1) Upon authorization by the

investor, an unmatured security may be

transferred to a Federal Reserve Bank

acting as the designated fiscal agent of

the United States, to be sold on behalf

of the investor.

(2) Definitions. In this section, unless

the context indicates otherwise:

Dealer means an entity that is

registered or has given notice of its

status as a government securities broker

or government securities dealer,

pursuant to Section 15C(a)(1) of the

Securities Exchange Act of 1934.

Par amount means the stated value of

a security at original issuance.

Price means the dollar amount to be

paid for a security expressed as a

percent of its current par amount.

Security means any amount held in a

TREASURY DIRECT account which is

represented by a separate CUSIP

number.

Settlement amount, also referred to as

net amount, is the amount deposited by

the Federal Reserve Bank to the account

of the investor at the financial

institution designated by the investor to

receive TREASURY DIRECT payments.

This amount is equal to the par amount

of the securities multiplied by the price,

plus any accrued interest, and less the

transaction fee. For inflation indexed

securities, the settlement amount also

includes any applicable inflation

adjustment, as provided in 31 CFR Part

356. The settlement amount may be less

than the par amount of the security.

Settlement date is the date the

settlement amount is released to the

account at the financial institution

designated by the investor for receipt of

TREASURY DIRECT payments.

Trade date means the date on which

the Federal Reserve Bank enters into an

agreement with a dealer for the sale of

the security.

Yield, also referred to as yield to

maturity, means the annualized rate of

return to maturity on a fixed principal

security expressed as a percentage. For

an inflation-indexed security, yield

means real yield, as defined in 31 CFR

part 356.

(3) Procedure. On an approved

Treasury form, the owner must

authorize a transfer of the security from

the investor’s TREASURY DIRECT

account to the designated Federal

Reserve Bank, and authorize the Federal

Reserve Bank to sell the security. Rules

in subpart C of this part governing the

transfer of securities will apply to the

transfer of the security to the Federal

Reserve Bank. Generally, on the day that

the security is transferred to the Federal

Reserve Bank, the Federal Reserve Bank

will make reasonable efforts to obtain a

price quote from at least three dealers,

and will enter into an agreement to sell

the security to the dealer with the

highest price quote for next day

settlement. What constitutes reasonable

effort shall be determined solely by the

Federal Reserve Bank. On the next full

business day after the trade date, the

settlement amount shall be released by

direct deposit (electronic funds

transfer), as provided in § 357.26 of this

part, to the account at the financial

institution designated by the investor to

accept TREASURY DIRECT payments,

except when the Department determines

that extraordinary circumstances exist

that require payment by other means. In

the event that the Federal Reserve Bank

is unable to obtain at least one price

quote for the security, the security will

be returned to the TREASURY DIRECT

account of the investor on the next full

business day following the receipt of the

securities by the Federal Reserve Bank,

and the Federal Reserve Bank will

notify the investor.

(4) Confirmation. The Federal Reserve

Bank will send a confirmation of the

sale to the investor upon completion of

the transaction. Such confirmation will

include such information as price, trade

date, settlement date, settlement

amount, also referred to as net amount,

transaction fee, and yield to maturity.

(5) Price. By authorizing the transfer

and sale of the securities, the investor

agrees to accept the price received by

the Federal Reserve Bank from the

dealer selected as having the highest

price quote.

(6) Transaction Fee. A transaction fee

shall be charged for each security sold

on behalf of the investor. If the Federal

Reserve Bank is unable to complete the

sale of the security, no fee will be

charged. By authorizing the sale of the

security, the investor authorizes the

Federal Reserve Bank to withhold the

transaction fee prior to the Federal

Reserve Bank initiating the payment of

the settlement amount to the account at

the financial institution designated by

the investor to receive TREASURY

DIRECT payments. The amount of the

transaction fee will be published by

notice in the Federal Register.

(7) Termination. This service may be

terminated at anytime without prior

notice at the discretion of the

Department.

(8) Rights. The provisions applicable

to TREASURY DIRECT transactions in

subpart C shall apply to this section.

The provisions applicable to

transactions in TRADES in subpart B

shall not apply to this section.

(9) Irrevocability. The authorization of

the investor for the transfer and sale of

the securities shall be irrevocable when

the transfer from the TREASURY

DIRECT account of the investor to the

account at the Federal Reserve Bank is

effected.

(10) Liability. The Department and the

designated Federal Reserve Bank shall

not be liable for changes in market

conditions affecting the price received

for the security, or for any loss which

the investor may incur as a result of the

transaction or the inability of the

Federal Reserve Bank to complete the

transaction.

* * * * *

[FR Doc. 97–23351 Filed 9–2–97; 8:45 am]

BILLING CODE 4810–39–P