64528 Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Proposed Rules

1The uniform offering circular was published as

a final rule on January 5, 1993 (58 FR 412). The

circular, as amended, is codified at 31 CFR Part 356.

2To date the Department has issued only

inflation-indexed notes. 31 CFR Part 356 also

accommodates offerings of inflation-indexed bonds,

which the Department intends to begin issuing in

1998.

3 62 FR 846 (January 6, 1997).

4See 31 CFR 356.31(f).

5CPI refers to the non-seasonally adjusted U.S.

City Average All Items Consumer Price Index for

All Urban Consumers published monthly by the

Bureau of Labor Statistics of the U.S. Department

of Labor.

6See 31 CFR Part 356, Appendix B, Section I,

Paragraph B, for a detailed explanation of the

indexing process and application of the index ratio

and reference CPI.

7 If the security’s dated date is different from the

original issue date, then the reference CPI for the

dated date is used. See 31 CFR 356.2 for the

definition of dated date. This preamble discussion

assumes that the original issue date and the dated

date are the same and therefore uses only the term

original issue date.

8 62 FR 846, 848 (January 6, 1997).

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 356

Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds

(Department of the Treasury Circular,

Public Debt Series No. 1–93)

AGENCY: Bureau of the Public Debt,

Fiscal Service, Department of the

Treasury.

ACTION: Proposed rule.

SUMMARY: The Department of the

Treasury (‘‘Treasury’’ or ‘‘Department’’)

is proposing for comment an

amendment to 31 CFR Part 356

(Uniform Offering Circular for the Sale

and Issue of Marketable Book-Entry

Treasury Bills, Notes, and Bonds). This

proposed amendment includes changes

necessary to make fungible stripped

interest components for Treasury

inflation-indexed securities, which the

Department began issuing in January

1997. In addition, the proposed

amendment makes certain technical

clarifications and conforming changes.

DATES: Comments must be received on

or before February 6, 1998.

ADDRESSES: Written comments should

be sent to: Government Securities

Regulations Staff, Bureau of the Public

Debt, 999 E Street N.W., Room 515,

Washington, D.C. 20239–0001.

Comments may also be sent via the

Internet to the Government Securities

Regulations Staff at

govsecreg@bpd.treas.gov. When sending

comments via the Internet, please use an

ASCII file format and provide your full

name and mailing address. Comments

received will be available for public

inspection and downloading from the

Internet and for public inspection and

copying at the Treasury Department

Library, Room 5030, Main Treasury

Building, 1500 Pennsylvania Avenue,

N.W., Washington, D.C. 20220.

This proposed amendment has also

been made available for downloading

from Public Debt’s web site at the

following address:

www.publicdebt.treas.gov.

FOR FURTHER INFORMATION CONTACT: Ken

Papaj (Director), Chuck Andreatta or

Kurt Eidemiller (Government Securities

Specialists), Department of the

Treasury, Bureau of the Public Debt,

Government Securities Regulations Staff

(202) 219–3632.

SUPPLEMENTARY INFORMATION:

I. Background

31 CFR Part 356, also referred to as

the uniform offering circular, sets out

the terms and conditions for the sale

and issuance by the Department of the

Treasury to the public of marketable

Treasury bills, notes, and bonds. The

uniform offering circular, in conjunction

with offering announcements,

represents a comprehensive statement of

those terms and conditions.1

In January 1997, the Department

began issuing a new type of marketable

security, referred to as a Treasury

inflation-indexed security,2 whose

principal value is adjusted for inflation

as measured by the United States

Government.3 The Department believes

the issuance of these new securities will

reduce interest costs to the Treasury

over the long term and broaden the

types of debt instruments available to

investors in U.S. financial markets.

A. Inflation-Indexed STRIPS

Inflation-indexed securities are

eligible for the STRIPS (Separate

Trading of Registered Interest and

Principal of Securities) program

immediately upon their issuance by the

Treasury. STRIPS is the Department’s

program under which eligible securities

are authorized to be separated into

principal and interest components

(interest components are also referred to

as ‘‘TINTS’’). Such components are

maintained in book-entry accounts, and

transferred separately in the Treasury/

Reserve Automated Debt Entry System

(‘‘TRADES’’ or the commercial bookentry system). Unlike TINTS from fixedprincipal securities, interest

components stripped from an inflationindexed security are currently not

fungible (i.e., they are not

interchangeable) with interest

components stripped from a different

inflation-indexed security, even if the

components have the same maturity

(payment) date.4

Making such stripped interest

components fungible (i.e.,

interchangeable and having the same

CUSIP number) is a more complicated

process than it is for fixed-principal

interest components because of the way

in which inflation-indexed securities

adjust for inflation. Interest payments

and the inflation-adjusted principal

amount paid at maturity are calculated

based on the amount of inflation, as

measured by changes in the CPI,5 that

has occurred since the original issue

date of the security.

Although the CPI is announced

monthly, a unique ‘‘reference CPI’’ can

be calculated for any particular date

using an interpolative process described

in Appendix B of the uniform offering

circular.6 Each inflation-indexed

security has a unique reference CPI

value applicable to the security’s

original issue date.7 This is the starting

point for measuring inflation for the

period the security is outstanding. To

calculate interest payments or the

principal value at maturity of an

inflation-indexed security, the par

amount is adjusted for inflation by

application of an ‘‘index ratio,’’ which

is the ratio of the reference CPI

applicable to the interest payment or

maturity date divided by the reference

CPI applicable to the original issue date.

Stripped principal and interest

components with the same maturity

date that are created from securities

with different issue dates have different

index ratios at maturity. This makes

providing for fungibility of the interest

components somewhat complicated.

Due to this complexity, inflationindexed interest components were not

made fungible when the securities were

first offered in January 1997. As a result,

while the rules currently permit

inflation-indexed securities to be

stripped into separate principal and

interest components, interest

components from the outstanding 5-year

and 10-year inflation-indexed notes are

not fungible even though some

components would have the same

maturity (payment) date. In the

preamble to the final rule amendments

to accommodate inflation-indexed

securities, the Department stated that it

would ‘‘continue to work on making

interest components fungible in a

manner that is operationally feasible.’’8

The Department recognizes that making

stripped inflation-indexed interest

components fungible is important to
Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Proposed Rules 64529

9 In this example, a holder of $1 million of the

fully-constituted security would receive an interest

payment of $18,040.05.

10To date, the interest (coupon) rates on the two

issues of Treasury inflation-indexed notes have

been 33⁄8% and 35⁄8%.

11 31 CFR Part 356, Exhibit C includes a table that

provides, for each interest rate from 1⁄8% to 20%,

the corresponding minimum par amount of the

fully-constituted security required to produce

TINTS that are in multiples of $1,000.

developing a liquid market for these

components.

Over the last several months, the

Department has worked with market

participants to develop a methodology

that will enable interest components

stripped from different inflationindexed securities to be fungible. The

Department requests comments from

market participants on the following

proposed methodology and any related

aspects of this proposal. Specifically,

comments are requested on any

operational issues, including the time

needed to make any necessary

automated system changes, and the

extent to which making inflationindexed TINTS fungible would help in

the continued development of a liquid

market for inflation-indexed securities.

B. Proposed Methodology for Fungible

Inflation-Indexed STRIPS

To make TINTS from different

inflation-indexed securities fungible,

the TINTS would be converted to a

common reference CPI value of 100.

This would be accomplished by

calculating an ‘‘adjusted value’’ (see

sections 356.2 and 356.31(c) of the

proposed rule). The adjusted value of

each TINT would be calculated by

multiplying the par amount of the

inflation-indexed security to be stripped

by the security’s semiannual interest

rate, and then multiplying this amount

by the ratio of 100 divided by the

reference CPI for the security’s original

issue date. For example, an inflationindexed security with a par amount of

$1 million, an interest rate of 31⁄2%, and

an issue-date reference CPI of 162.00000

would have an adjustment factor for

each TINT of $1 million × (0.035)/2 ×

(100/162), or $10,802.47. Inflationindexed TINTS would be maintained in

accounts and transferred at their

‘‘adjusted value.’’ This is in contrast to

stripped principal components, which

would be maintained and transferred at

their par amount.

All inflation-indexed TINTS with the

same maturity date would have the

same CUSIP number, regardless of the

underlying inflation-indexed security

from which the interest components

were stripped. Such TINTS would be

considered to be the same security and

would therefore be fungible. Fungibility

would apply to TINTS only; stripped

principal components would not be

fungible. TINTS from inflation-indexed

securities would not be fungible with

any interest components stripped from

fixed-principal securities.

By converting to adjusted values, all

inflation-indexed TINTS having the

same maturity date would become

fungible. They would be bought and

sold on the basis of their adjusted

values, regardless of the underlying

security from which they were stripped.

Similarly, for purposes of reconstituting

an inflation-indexed security from its

separate stripped unmatured interest

and principal components, an investor

could obtain any needed TINTS at the

adjusted value required for the

particular inflation-indexed security to

be reconstituted. For example, to

reconstitute $1 million of an inflationindexed security with an interest rate of

31⁄2% and an issue-date reference CPI of

162.00000, a holder would submit to the

Federal Reserve Bank of New York the

principal component and all unmatured

TINTS, each TINT having an adjusted

value of $1 million × (0.035)/2 × (100/

162), or $10,802.47.

When a TINT matures, its payment

amount would be calculated by

multiplying the adjusted value by the

reference CPI for the maturity date,

divided by 100. For example, for an

adjusted value of $10,802.47 and a

maturity-date reference CPI of

167.00000, the payment amount would

be $10,802.47 × (167/100), or

$18,040.12. The end result is that a

holder of an inflation-indexed TINT

stripped from a security of a given par

amount would receive, except for a

possible slight difference due to

rounding procedures, a payment

amount at maturity that is the same as

the interest payment received by a

holder of a fully-constituted security of

the same par amount.9

C. Payment Differences

The possible difference in payment

amount between a stripped interest

component and an interest payment

from a fully-constituted security results

primarily from rounding the index ratio.

The size of the differences is a function

of both the interest rate of the fullyconstituted security and the level of the

CPI on the payment date. These

differences are quite small. For example,

for an inflation-indexed security with an

interest (coupon) rate of 4% or less 10

and a reference CPI of 200 or less on the

payment date, the maximum payment

difference per $1 million of par is $0.11

(higher or lower). Over a range of

securities offerings, these payment

differences generally would be revenue

neutral—they would benefit neither the

Treasury nor STRIPS investors. Further,

revising Treasury’s rounding

conventions would require market

participants and the Department to

modify their automated systems to

accommodate this change. Since the

payment differences are de minimis and

revenue neutral, the costs of such

systems changes would outweigh their

benefits. Therefore, the Department has

determined not to change its current

rounding conventions to eliminate these

differences.

D. Minimum and Multiple Amounts for

Stripping

In order to make the calculation of

adjusted values and payment amounts

for inflation-indexed TINTS as precise

as possible, adjusted values would be

calculated—and transferred and

maintained—to the penny (e.g.,

$10,802.47). Therefore, in effect there

would be no required multiple amounts

for inflation-indexed TINTS. This is in

contrast to fixed-principal TINTS,

which must be transferred and

maintained in multiple amounts of

$1,000. Some market participants that

plan to participate in the inflationindexed STRIPS market might need to

modify their automated systems to

accommodate holding Treasury

securities to the penny (i.e., to two

decimal places).

The minimum par amount of a fullyconstituted inflation-indexed security

that could be submitted to the Federal

Reserve Bank of New York for stripping

would be $1,000, with any larger

amounts in multiples of $1,000. Except

for the requirement that they be

expressed to the penny, there would be

no required minimum adjusted value for

the resulting TINTS. This is in contrast

to minimum and multiple stripping

requirements for fixed-principal

securities, under which, for any given

interest rate, the fully-constituted

security must be submitted in a specific

minimum and multiple par amount in

order to produce TINTS that are

themselves in minimum and multiple

amounts of $1,000.11

No changes are being proposed at this

time to the current STRIPS program for

fixed-principal securities. However, the

Department will consider at a later date

the desirability of making changes to the

minimum and multiple requirements for

fixed-principal TINTS similar to the

proposed requirements for inflationindexed TINTS, i.e., discontinuing the

$1,000 minimum-to-hold and multiple

requirement, and permitting fixedprincipal TINTS to be held in amounts

to the penny.
64530 Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Proposed Rules

12 62 FR 846, 849 (January 6, 1997).

E. Index Contingencies

The CPI is expressed in relative terms

in relation to a particular time base

reference period for which the level is

set at 100. The current CPI reference

period is 1982–84. The Department

understands that, sometime during the

next two years, the Bureau of Labor

Statistics (BLS) plans to rebase the CPI

to a 1993–95 base period. Once this new

base period goes into effect, subsequent

issuances of Treasury inflation-indexed

securities would be issued using the

new base period. In other words, the

reference CPI of the original issue date

will reflect the new reference period

and thus will generally be a lower

number than the issue-date reference

CPIs of those inflation-indexed

securities issued prior to the effective

date of the new base reference period.

When this new reference period goes

into effect, Treasury understands that

BLS will continue to publish CPI figures

for the 1982–84 base period as well as

publish figures for the new 1993–95

base period. Interest payments, and

principal payments at maturity, for

unstripped inflation-indexed securities

issued while the 1982–84 base period

was in effect will continue to be

calculated using reference CPI numbers

derived from this base period.

Allowing inflation-indexed TINTS

issued during one base reference period

to be fungible with those issued during

other base reference periods could

enhance their liquidity. Fungibility

could be achieved through, for example,

the use of a conversion factor that

would, in effect, transform the adjusted

values of all inflation-indexed TINTS

with 1982–84 base-period reference

CPIs to values based on the 1993–95

base period. However, such a process

would likely result in additional

payment differences of a similar nature

and magnitude as those described

previously. As was the case with those

payment differences, payment

differences caused by the transformation

of adjusted values to a new base period

would generally be revenue neutral over

a range of securities offerings. Since, for

each rebasing, there would be a onetime conversion for those outstanding

inflation-indexed securities, Treasury

would provide this conversion factor to

market participants so that they could

modify their systems accordingly. The

CPI has been rebased approximately

every 10 years so, during the maturity

period of a 30-year inflation-indexed

bond, rebasing could occur two or three

times. The Department solicits comment

from market participants on whether the

benefits of increased supply, and thus

additional liquidity, of specific fungible

inflation-indexed TINTS would justify

the cost and inconvenience of having

additional small payment discrepancies,

possible automated system changes to

accommodate a conversion factor, and

increased complexity of the rules.

A different index contingency would

occur if the Treasury were to replace the

CPI with a different measure of inflation

for the purpose of indexing securities

because the CPI was discontinued or

‘‘fundamentally’’ altered as described in

the preamble to the final rule

amendment to accommodate inflationindexed securities.12 The Department is

not aware of any plans to discontinue or

fundamentally change the CPI, but it is

important for market participants to

understand the effect that such an event

would have on outstanding inflationindexed securities. The Department has

determined that TINTS stripped from

inflation-indexed securities issued

under different indices would not be

fungible.

F. Fungibility of TINTS Created Prior to

Effective Date of Amendment

As of October 31, 1997, none of the

currently outstanding inflation-indexed

securities has been stripped. If these

securities were to be stripped prior to

the effective date of a final rule making

inflation-indexed TINTS fungible, the

resulting TINTS would be converted to

fungible TINTS since it is the

Department’s goal, where possible, to

make all TINTS from inflation-indexed

securities fungible. Specifically, if a

market participant decides to strip an

inflation-indexed security prior to the

effective date for making STRIPS

fungible, Treasury will convert any

outstanding inflation-indexed TINTS by

retiring them and issuing new fungible

inflation-indexed TINTS. If necessary,

Treasury will provide public notice

informing participants of the effective

conversion date. Also, detailed

instructions regarding the conversion to

fungible STRIPS will be provided.

G. Taxation

There are no new tax issues related to

making inflation-indexed TINTS

fungible. The tax treatment as noted in

current 31 CFR 356.32 applies.

II. Section-by-Section Analysis

This proposed amendment, when

finalized, would include the necessary

revisions to make fungible the stripped

interest components of marketable

Treasury inflation-indexed securities.

This rule would amend sections 356.2

and 356.31 and add a new section IV to

Appendix B of the uniform offering

circular.

A. Section 356.2—Definitions

The term adjusted value has been

added to the listing of definitions in

§ 356.2. This term refers specifically to

interest components stripped from

inflation-indexed securities.

B. Section 356.31—STRIPS

Changes have been made to § 356.31

to reflect the STRIPS program more

completely. The section has been

reorganized to distinguish more clearly

the features of fixed-principal STRIPS

from inflation-indexed STRIPS. Most of

the significant modifications to this

section have been made in paragraph

(c), which only discusses inflationindexed securities.

Specifically, new paragraph (c)(1)

provides that the minimum and

multiple par amount of an inflationindexed security that may be stripped

would be $1,000. New paragraph (c)(2),

except for a revised title, is essentially

the same as current paragraph (e), since

the treatment of principal components

stripped from inflation-indexed

securities does not change under this

proposal. New paragraph (c)(3)

describes the calculation of the adjusted

value for interest components; clarifies

that interest components stripped from

inflation-indexed securities would be

maintained and transferred at their

adjusted value; describes the fungibility

of these components; and explains how

the payment amount would be

calculated from the adjusted value. New

paragraph (d), which discusses

reconstitution, is essentially the same as

current paragraph (g) except that the

sentence stating that interest

components stripped from inflationindexed securities are not

interchangeable has been deleted. New

paragraph (e) is the same as current

paragraph (h).

C. Appendix B to Part 356

A new Section IV has been added to

Appendix B to provide the formulas and

an example for calculating the adjusted

value and the payment amount for

inflation-indexed TINTS. The previous

Section IV has been renumbered as

Section V.

D. Exhibit C to Part 356

The title of Exhibit C has been revised

to indicate that the exhibit, which

contains minimum par amounts of

securities for stripping at various

interest rates, applies only to fixedprincipal STRIPS.
Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Proposed Rules 64531

III. Procedural Requirements

This proposed rule does not meet the

criteria for a ‘‘significant regulatory

action’’ pursuant to Executive Order

12866. Although this rule is being

issued in proposed form to secure the

benefit of public comment, the notice

and public procedures requirements of

the Administrative Procedure Act are

inapplicable, pursuant to 5 U.S.C.

553(a)(2). Since 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 is no new collection of

information contained in this proposed

rule and, therefore, the Paperwork

Reduction Act does not apply. The

collections of information in 31 CFR

Part 356 have been previously approved

by the Office of Management and

Budget under section 3507(d) of the

Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 35) under control

number 1535–0112. Under this Act, an

agency may not conduct or sponsor, and

a person is not required to respond to,

a collection of information unless it

displays a valid OMB control number.

List of Subjects in 31 CFR Part 356

Bonds, Federal Reserve System,

Government securities, Securities.

Dated: December 1, 1997.

Gerald Murphy,

Fiscal Assistant Secretary.

For the reasons set forth in the

preamble, 31 CFR Chapter II,

Subchapter B, Part 356, is proposed to

be amended as follows:

PART 356—SALE AND ISSUE OF

MARKETABLE BOOK-ENTRY

TREASURY BILLS, NOTES, AND

BONDS (DEPARTMENT OF THE

TREASURY CIRCULAR, PUBLIC DEBT

SERIES NO. 1–93)

1. The authority citation for part 356

continues to read as follows:

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

seq.; 12 U.S.C. 391.

2. Section 356.2 is amended by

adding in alphabetical order the

definition of ‘‘Adjusted value’’ to read

as follows:

§ 356.2 Definitions.

* * * * *

Adjusted value means, for an interest

component stripped from an inflationindexed security, an amount 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

(or dated date, when the dated date is

different from the original issue date).

(See Appendix B, Section IV, to this part

for an example of how to calculate the

adjusted value for interest components

stripped from an inflation-indexed

security.)

* * * * *

3. Section 356.31 is revised to read as

follows:

§ 356.31 STRIPS.

(a) General. A note or bond may be

designated in the offering

announcement as eligible for the

STRIPS program. At the option of the

holder, and generally at any time from

its issue date until its call or maturity,

any such security may be ‘‘stripped,’’

i.e., divided into separate principal and

interest components. A short or long

first interest payment and all interest

payments within a callable period are

not eligible to be stripped from the

principal component. The CUSIP

numbers and payment dates for the

principal and interest components are

provided in the offering announcement

if not previously announced.

(b) Treasury fixed-principal

securities—(1) Minimum par amounts

required for STRIPS. For a fixedprincipal security to be stripped into the

components described above, the par

amount of the security must be in an

amount that, based on its interest rate,

will produce a semiannual interest

payment in a multiple of $1,000. Exhibit

C to this part provides the minimum par

amounts required to strip a fixedprincipal security at various interest

rates, as well as the corresponding

interest payments. Amounts greater than

the minimum par amount must be in

multiples of that amount. The minimum

par amount required to strip a particular

security will be provided in the press

release announcing the auction results.

(2) Principal components. Principal

components stripped from fixedprincipal securities are maintained in

accounts, and transferred, at their par

amount. The principal components have

a CUSIP number that is different from

the CUSIP number of the fullyconstituted (unstripped) security.

(3) Interest components. Interest

components stripped from fixedprincipal securities are maintained in

accounts, and transferred, at their

original payment value, which is

derived by applying the semiannual

interest rate to the par amount. When an

interest component is created, the

interest payment date becomes the

maturity date for the component. All

such components with the same

maturity date have the same CUSIP

number, regardless of the underlying

security from which the interest

payments were stripped. All interest

components have CUSIP numbers that

are different from the CUSIP number of

any fully-constituted security and any

principal component.

(c) Treasury inflation-indexed

securities. (1) Minimum par amounts

required for STRIPS. The minimum par

amount of an inflation-indexed security

that may be stripped into the

components described in paragraph (a)

of this section is $1,000. Any par

amount to be stripped above $1,000

must be in a multiple of $1,000.

(2) Principal components. Principal

components stripped from inflationindexed securities are maintained in

accounts, and transferred, at their par

amount. At maturity, the holder will

receive the inflation-adjusted principal

value or the par amount, whichever is

greater. (See § 356.30.) The principal

components have a CUSIP number that

is different from the CUSIP number of

the fully-constituted (unstripped)

security.

(3) Interest components. Interest

components stripped from inflationindexed securities are maintained in

accounts, and transferred, at their

adjusted value, which 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

(or dated date, when the dated date is

different from the original issue date).

See Appendix B, Section IV, to this part

for an example of how to calculate an

adjusted value. When an interest

component is created, the interest

payment date becomes the maturity date

for the component. All such

components with the same maturity

date have the same CUSIP number,

regardless of the underlying security

from which the interest payments were

stripped. All interest components have

CUSIP numbers that are different from

the CUSIP number of any fullyconstituted security and any principal

component. 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 IV, to this part for

an example of how to calculate an

actual payment amount from an

adjusted value.

(d) Reconstituting a security. Stripped

interest and principal components may

be reconstituted, i.e., restored to 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. Interest

components stripped from inflation64532 Federal Register / Vol. 62, No. 235 / Monday, December 8, 1997 / Proposed Rules

indexed securities are different from

interest components stripped from

fixed-principal securities and,

accordingly, are not interchangeable for

reconstitution purposes.

(e) Applicable regulations. Unless

otherwise provided in this part, notes

and bonds stripped into their STRIPS

components are governed by subparts A,

B, and D of part 357 of this chapter.

4. Appendix B to part 356 is amended

by revising the list of section headings

at the beginning of the appendix to read

as follows:

Appendix B to Part 356—Formulas and

Tables

I. Computation of Interest on Treasury Bonds

and Notes.

II. Formulas for Conversion of FixedPrincipal Security Yields to Equivalent

Prices.

III. Formulas for Conversion of InflationIndexed Security Yields to Equivalent

Prices.

IV. Computation of Adjusted Values and

Payment Amounts for Stripped InflationIndexed Interest Components.

V. Computation of Purchase Price, Discount

Rate, and Investment Rate (CouponEquivalent Yield) for Treasury Bills.

* * * * *

5. Appendix B to Part 356 is amended

by redesignating Section IV as Section V

and adding a new Section IV to read as

follows:

* * * * *

IV. Computation of Adjusted Values and

Payment Amounts for Stripped InflationIndexed Interest Components

Note: Valuing an interest component

stripped from an inflation-indexed security at

its adjusted value enables this interest

component to be interchangeable (fungible)

with other interest components that have the

same maturity date, regardless of the

underlying inflation-indexed security from

which the interest components were

stripped. The adjusted value provides for

fungibility of these various interest

components when buying, selling, or

transferring them, or when reconstituting an

inflation-indexed security.

Definitions

C=the regular annual interest rate, payable

semiannually, e.g., 3.625% (the decimal

equivalent of a 3–5⁄8% interest rate)

Par=par amount of the security to be stripped

Ref CPIIssue Date=reference CPI for the original

issue date (or dated date, when the dated

date is different from the original issue

date) of the underlying (unstripped)

security

Ref CPIDate=reference CPI for the maturity

date of the interest component

AV=adjusted value of the interest component

PA=payment amount at maturity by Treasury

Formulas

AV=Par (C/2)(100/Ref CPIIssue Date) (rounded

to 2 decimals with no intermediate

rounding)

PA=AV (Ref CPIDate/100) (rounded to 2

decimals with no intermediate rounding)

Example. A 10-year inflation-indexed note

paying 31⁄2% interest is issued on January 15,

1999, with the second interest payment on

January 15, 2000. The Ref CPI on January 15,

1999 (Ref CPIIssue Date) is 174.62783, and the

Ref CPI on January 15, 2000 (Ref CPIDate) is

179.86159. Calculate the adjusted value and

the payment amount at maturity of the

interest component.

Definitions

C=3.50%

Par=$1,000,000

Ref CPIIssue Date=174.62783

Ref CPIDate=179.86159

Resolution

For a par amount of $1 million, the

adjusted value of each stripped interest

component is $1,000,000 (.035/2)(100/

174.62783), or $10,021.31 (no intermediate

rounding).

For an interest component maturing on

January 15, 2000, the payment amount is

$10,021.31×(179.86159/100), or $18,024.49

(no intermediate rounding).

* * * * *

6. Exhibit C to Part 356 is amended

by revising the heading to read as

follows:

Exhibit C to Part 356—Minimum Par

Amounts for Fixed-Principal STRIPS

* * * * *

[FR Doc. 97–31953 Filed 12–5–97; 8:45 am]

BILLING CODE 4810–39–P

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 51

[FRL–5930–6]

RIN 2060–AG88

Preparation, Adoption, and Submittal

of State Implementation Plans;

Appendix M, Test Method 207

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Proposed rule and notice of

public hearing.

SUMMARY: The purpose of this proposed

rule is to add a validated stationary

source test method for the measurement

of isocyanate emissions from stationary

sources to the Code of Federal

Regulations. This method, validated

according to EPA Method 301 criteria,

would be used to reliably collect and

analyze gaseous isocyanate emissions

from stationary sources such as flexible

foam manufacturers, automobile paint

spray booths, and the pressed board

industry. Specifically, methylene

diphenyl diisocyanate (MDI), methyl

isocyanate (MI), hexamethylene 1,6-

diisocyanate (HDI), and 2,4-toluene

diisocyanate (TDI) are the gaseous

pollutants in source emissions to be

measured. The test method is entitled,

‘‘A Method for Measuring Isocyanates in

Stationary Source Emissions,’’ and will

be added to 40 CFR Part 51, Appendix

M, as Test Method 207. This method

will provide a tool for state and local

governments, representatives of private

industry, and the U.S. Government to

reliably monitor stationary sources for

isocyanate emissions with a validated

stationary source method. Additionally,

this method will allow the U.S.

Environmental Protection Agency to

comply with the requirements of the

Clean Air Act Amendments of 1990 for

monitoring these hazardous air

pollutants. Prior to the development of

this method, no other ‘‘validated’’

method has been available to monitor

these highly reactive hazardous

emissions. Isocyanates are used

extensively in the production of

polyurethane materials such as flexible

foam, enamel wire coatings, paint

formulations, and in binders for the

pressed board industry. A public

hearing will be held, if requested, to

provide interested persons an

opportunity for oral presentation of

data, views, or arguments concerning

the proposed method.

DATES: Comments. Comments must be

received on or before February 23, 1998.

Public Hearing. If anyone contacts

EPA requesting to speak at a public

hearing by December 29, 1997, a public

hearing will be held January 22, 1998

beginning at 10:00 a.m. Persons

interested in attending the hearing

should call the contact mentioned under

ADDRESSES to verify that a meeting will

be held.

Request to Speak at Hearing. Persons

wishing to present oral testimony must

contact EPA by December 29, 1997.

ADDRESSES: Comments. Comments

should be submitted (in duplicate if

possible) to: Central Docket Section

(Mail Code: 6102), Attention: Docket

Number A–96–06, U.S. Environmental

Protection Agency, Room M–1500, First

Floor, Waterside Mall, 401 M Street,

S.W., Washington, D.C. 20460.

Public Hearing. If anyone contacts

EPA requesting a public hearing, it will

be held at EPA’s Emission Measurement

Center, Research Triangle Park, North

Carolina. Persons interested in attending

the hearing or wishing to present oral

testimony should notify Frank Wilshire,

Methods Branch (MD–44), Air