[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Rules and Regulations]
[Pages 53227-53230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26999]


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FARM CREDIT ADMINISTRATION

12 CFR Part 615

RIN 3052-AB73


Funding and Fiscal Affairs, Loan Policies and Operations, and 
Funding Operations; Book-Entry Procedures for Farm Credit Securities

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), through the FCA Board 
(Board), adopts as final with minor technical changes a previously 
adopted interim rule that revises procedures governing the issuance, 
maintenance, and transfer of Farm Credit securities on the book-entry 
system of the Federal Reserve Banks (Book-entry System). This action 
completes rulemaking necessary to conform FCA book-entry procedures to 
the recently revised book-entry procedures of the Department of the 
Treasury (Treasury), which regulates the Book-entry System for Treasury 
securities. The action simultaneously finalizes conforming amendments 
in the book-entry regulations governing securities of the Farm Credit 
System Financial Assistance Corporation (FAC) and the Federal 
Agricultural Mortgage Corporation (Farmer Mac).

EFFECTIVE DATE: January 1, 1997, except that the technical amendments 
adopted herein are effective 30 days after publication during which 
either or both Houses of Congress are in session. A notice of effective 
date for the technical amendments will be published in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Senior Policy Analyst, Office of Policy Development and 
Risk Control, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498,
    or
William L. Larsen, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

[[Page 53228]]

SUPPLEMENTARY INFORMATION:

I. Background

    On December 20, 1996, the FCA published interim regulations 
completely revising the procedures governing the issuance, maintenance, 
and transfer of Farm Credit securities on the Book-entry System (61 FR 
67188). The FCA's interim rulemaking followed the action of Treasury, 
which revised its book-entry regulations to eliminate outdated legal 
concepts and incorporate significant changes in commercial and property 
law affecting the holding of securities through financial 
intermediaries. At the request of Treasury, and in coordination with 
other regulators of Government-Sponsored Enterprises (GSEs), the FCA 
made the interim rule effective on January 1, 1997, the same date on 
which Treasury's new book-entry regulations became effective. This 
coordinated action was designed to avoid market uncertainty and help 
ensure a consistent regulatory approach for all users of the Book-entry 
System, including Farm Credit System (System) institutions. The interim 
rulemaking provided for a post-effective date comment period.
    More extensive background on FCA book-entry regulations can be 
found in the interim rulemaking document and is not repeated in this 
notice of final adoption. A detailed explanation of the rationale and 
effect of the Treasury's new book-entry regulations, known by the 
acronym ``TRADES'' (Treasury/Reserve Automated Debt Entry System) is 
set forth in Treasury's proposed and final rulemaking documents. See 61 
FR 8420 (March 4, 1996) and 61 FR 43626 (August 23, 1996). Members of 
the public should refer to Treasury's TRADES rulemaking documentation 
for background on the history and mechanics of the Book-entry System 
and guidance on the general provisions of the book-entry regulations. 
As is its current policy regarding interpretation of book-entry 
regulations, the FCA expects to continue to follow Treasury TRADES 
interpretations and guidance with respect to FCA book-entry regulations 
and will coordinate with Treasury regarding future guidance and any 
necessary changes.

II. Comments and Technical Changes

    The FCA received one written comment on the interim regulations. 
The Federal Farm Credit Banks Funding Corporation (Funding 
Corporation), responding on behalf of the System banks, fully supported 
the interim regulations but suggested several technical clarifications. 
In addition, the FCA has continued to consult with Treasury, the 
Federal Reserve Board, and the Federal Reserve Bank of New York 
regarding final implementation of the interim regulations. Treasury 
suggested that references to the United States in several sections of 
the interim regulations be omitted to avoid any implication that the 
United States guarantees Farm Credit securities. Treasury made the same 
suggestion to other GSE regulators in connection with their revised 
book-entry regulations. The FCA now adopts the interim book-entry 
regulations as final, but in response to these comments and 
suggestions, makes several minor technical changes in the regulations 
as discussed below.

Section 615.5450(h)

    The Funding Corporation suggested that the FCA add ``respectively'' 
after the words ``sections 4.2(c) and 4.2(d)'' to clarify that 
consolidated securities are issued under section 4.2(c) and Systemwide 
securities are issued under section 4.2(d) of the Farm Credit Act of 
1971, as amended (Act) (12 U.S.C. 2155(c)). The final rule incorporates 
this suggestion.

Providing for Issuance of Registered Definitive Securities in 
Secs. 615.5451(c) and 615.5457(c)

    The Funding Corporation noted that there are registered definitive 
Farm Credit securities outstanding and that registered definitive 
securities may be issued in the future. Thus, the Funding Corporation 
suggested that the reference to ``bearer-definitive form'' in 
Sec. 615.5451(c) be replaced with a more generic reference to 
``definitive form,'' which would encompass both bearer and registered 
definitive form. Similarly, the Funding Corporation suggested deletion 
of the term ``bearer'' in Sec. 615.5457(c). The FCA agrees that 
regulatory references to definitive securities should not be limited to 
bearer securities and is adding the phrase ``either registered or'' 
preceding the term ``bearer'' in both sections. In Sec. 615.5451(c), 
this broader language authorizes Farm Credit securities to be issued in 
either registered or bearer form, and in Sec. 615.5457(c), it permits 
Farm Credit securities being withdrawn from the Book-entry System to be 
converted into definitive securities and issued in either registered or 
bearer form to the extent permitted by the applicable securities 
documentation. As amended, this language is consistent with Treasury's 
in 31 CFR 306.117(d).

Section 615.5457(a)

    The Funding Corporation requested clarification regarding the 
process for withdrawing eligible securities from the Book-entry System. 
Specifically, the Funding Corporation asked who requests that the 
securities be withdrawn and to whom the request is submitted.
    The FCA's regulations on withdrawal of eligible book-entry 
securities for conversion to definitive form are modeled after 
Treasury's regulations at 31 CFR 306.117. Consistent with the TRADES 
regulations, requests for withdrawal and conversion of eligible book-
entry securities could only be made to a Federal Reserve Bank through a 
participant as defined in the regulations. Thus an investor's request 
for withdrawal and conversion of eligible book-entry securities would 
proceed through the chain of the investor's financial intermediaries to 
a participant. In turn, the participant would transmit the withdrawal 
and conversion request to the Federal Reserve Bank, which would convert 
the book-entry securities into definitive securities and deliver them 
in accordance with the participant's instructions.

Section 615.5457(d)

    The terms of certain issuances of Farm Credit securities provide 
for the redemption of such securities, either in whole or in part, at 
specified times prior to maturity. Since there may thus be more than 
one call date that applies to a particular issue of Farm Credit 
securities, the Funding Corporation requested clarification of which 
call date applies when requests to withdraw eligible book-entry 
securities are made. In response to this comment, the FCA inserts the 
term ``the applicable'' preceding the term ``call date'' to clarify 
that eligible book-entry securities may be converted to definitive 
securities only before the call date applicable to such securities. The 
amount of advance notice required for conversion requests to be honored 
is controlled by the securities documentation and Federal Reserve Bank 
Operating Circulars.

New Sec. 615.5460(c)

    In response to the Funding Corporation's comment suggesting that 
there should be more explicit authority in the regulations for 
conversion of definitive securities into book-entry securities, the FCA 
has added new Sec. 615.5460(c). New Sec. 615.5460(c) states that 
definitive Farm Credit securities may be converted to book-entry form 
in accordance with the terms of the applicable securities documentation 
and Federal Reserve Bank Operating Circular. This new provision 
complements the existing references in

[[Page 53229]]

Sec. Sec. 615.5456 and 615.5462 to conversion of definitive securities 
to book-entry form.

Regulations Applicable to Securities Converted From Book-Entry to 
Definitive Form

    The Funding Corporation requested clarification as to which of the 
regulations in subpart O of part 615 apply to securities converted from 
book-entry to definitive form. In general, unless limited by their 
terms, the definitions in Sec. 615.5450 apply to definitive securities, 
whether original issue or converted from book-entry. The conversion 
authority in Secs. 615.5456 and 615.5457 covers the conversion process 
and related matters. Because Secs. 615.5461 and 615.5462 apply 
specifically to lost and stolen definitive securities and the 
restrictive endorsement of bearer definitive securities, their 
requirements would apply to definitive securities converted from book-
entry form. Converted securities also are subject to applicable 
securities documentation and any other provisions of law that may be 
applicable to the issuance, maintenance, and transfer of definitive 
securities.
    The Funding Corporation also inquired whether converted securities 
are subject to 31 CFR part 306 of Treasury regulations, which sets 
forth general regulations governing treatment of definitive U.S. 
securities. Farm Credit securities are not U.S. securities and 
therefore are not subject to 31 CFR part 306. However, where 
appropriate and not inconsistent with FCA regulations, the Farm Credit 
banks may specify in their securities documentation that maintenance, 
transfer, and other procedures relating to definitive Farm Credit 
securities will be the same as those applicable to Treasury securities.

References to the United States

    Treasury suggested to the FCA and other GSE regulators that their 
book-entry regulations omit references to the United States wherever 
possible to avoid any potential confusion regarding the liability of 
the United States for GSE securities. For this reason, the FCA is 
removing certain references to the United States in Secs. 615.5452(a), 
615.5454(c), and 615.5455(a). As the preamble to the interim 
regulations noted, any reference in FCA book-entry regulations to the 
United States, the Treasury, or the Federal Reserve Banks is not meant 
to imply any liability of the United States for Farm Credit securities. 
See section 4.4(c) of the Act.

List of Subjects in 12 CFR Part 615

    Accounting, Agriculture, Banks, Banking, Government securities, 
Investments, and Rural areas.

    For the reasons stated in the interim rule release, supplemented by 
the above analysis and discussion, the FCA Board adopts as final with 
technical changes the interim rule amending Part 615 published at 61 FR 
67188, Dec. 20, 1996, governing book-entry procedures for Farm Credit, 
FAC, and Farmer Mac securities. The effective date of this rule remains 
January 1, 1997, except that the technical amendments adopted herein 
are effective 30 days after publication during which either or both 
Houses of Congress are in session. A notice of effective date for the 
technical amendments will be published in the Federal Register.

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

    1. The authority citation for part 615 continues to read as 
follows:

    Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm 
Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 
2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 
2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 
2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of 
Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart O--Book-entry Procedures for Farm Credit Securities

    2. Section 615.5450 is amended by revising paragraph (h) to read as 
follows:


Sec. 615.5450  Definitions.

* * * * *
    (h) Farm Credit securities means consolidated notes, bonds, 
debentures, or other similar obligations of the Farm Credit banks and 
Systemwide notes, bonds, debentures, or similar obligations of the Farm 
Credit banks issued under sections 4.2(c) and 4.2(d), respectively, of 
the Act, or laws repealed thereby.
* * * * *
    3. Section 615.5451 is amended by revising paragraph (c) to read as 
follows:


Sec. 615.5451  Book-entry and definitive securities.

* * * * *
    (c) Consolidated and Systemwide securities also may be issued in 
either registered or bearer definitive form.
    4. Section 615.5452 is amended by revising the section heading and 
the introductory text of paragraphs (a)(1) and (a)(2) to read as 
follows:


Sec. 615.5452  Law governing rights and obligations of Federal Reserve 
Banks, Farm Credit banks, and Funding Corporation; rights of any person 
against Federal Reserve Banks, Farm Credit banks, and Funding 
Corporation.

    (a) * * *
    (1) The rights and obligations of the Farm Credit banks, the 
Funding Corporation, and the Federal Reserve Banks with respect to:
* * * * *
    (2) The rights of any person, including a participant, against the 
Farm Credit banks, the Funding Corporation, and the Federal Reserve 
Banks with respect to:
* * * * *
    5. Section 615.5454 is amended by revising paragraph (c)(1) to read 
as follows:


Sec. 615.5454  Creation of participant's security entitlement; security 
interests.

* * * * *
    (c)(1) The Farm Credit banks, the Funding Corporation, and the 
Federal Reserve Banks have no obligation to agree to act on behalf of 
any person or to recognize the interest of any transferee of a security 
interest or other limited interest in favor of any person except to the 
extent of any specific requirement of Federal law or regulation or to 
the extent set forth in any specific agreement with the Federal Reserve 
Bank on whose books the interest of the participant is recorded. To the 
extent required by such law or regulation or set forth in an agreement 
with a Federal Reserve Bank, or the Federal Reserve Bank Operating 
Circular, a security interest in a security entitlement that is in 
favor of a Federal Reserve Bank, a Farm Credit bank, the Funding 
Corporation, or a person may be created and perfected by a Federal 
Reserve Bank marking its books to record the security interest. Except 
as provided in paragraph (b) of this section, a security interest in a 
security entitlement marked on the books of a Federal Reserve Bank 
shall have priority over any other interest in the securities.
* * * * *
    6. Section 615.5455 is amended by revising paragraph (a) to read as 
follows:


Sec. 615.5455  Obligations of the Farm Credit banks and the Funding 
Corporation; no adverse claims.

    (a) Except in the case of a security interest in favor of the 
United States or a Federal Reserve Bank or otherwise as provided in 
Sec. 615.5454(c)(1), for the

[[Page 53230]]

purposes of this subpart O, the Farm Credit banks, the Funding 
Corporation and the Federal Reserve Banks shall treat the participant 
to whose securities account an interest in a book-entry security has 
been credited as the person exclusively entitled to issue a transfer 
message, to receive interest and other payments with respect thereof 
and otherwise to exercise all the rights and powers with respect to 
such security, notwithstanding any information or notice to the 
contrary. The Federal Reserve Banks, the Farm Credit banks, and the 
Funding Corporation are not liable to a person asserting or having an 
adverse claim to a security entitlement or to a book-entry security in 
a participant's securities account, including any such claim arising as 
a result of the transfer or disposition of a book-entry security by a 
Federal Reserve Bank pursuant to a transfer message that the Federal 
Reserve Bank reasonably believes to be genuine.
* * * * *
    7. Section 615.5457 is amended by revising paragraphs (c) and (d) 
to read as follows:


Sec. 615.5457  Withdrawal of eligible book-entry securities for 
conversion to definitive form.

* * * * *
    (c) Farm Credit securities which are to be delivered upon 
withdrawal may be issued in either registered or bearer form, to the 
extent permitted by the applicable securities documentation.
    (d) All requests for withdrawal of eligible book-entry securities 
must be made prior to the maturity or the applicable date of call of 
the Farm Credit securities.
    8. Section 615.5460 is amended by adding a new paragraph (c) to 
read as follows:


Sec. 615.5460  Additional provisions.

* * * * *
    (c) Conversion of definitive securities into book-entry securities. 
Definitive Farm Credit securities may be converted to book-entry form 
in accordance with the terms of the applicable securities documentation 
and Federal Reserve Operating Circular.

    Dated: October 3, 1997.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 97-26999 Filed 10-10-97; 8:45 am]
BILLING CODE 6705-01-P