[Federal Register Volume 63, Number 18 (Wednesday, January 28, 1998)]
[Rules and Regulations]
[Pages 4185-4187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1958]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR 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)

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the 
Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of the Treasury (``Treasury'' or 
``Department'') is issuing in final form 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 final rule 
incorporates a change in the timeframe for certain restrictions 
pertaining to bidders that bid noncompetitively in Treasury auctions. 
The amendment states that between the date of the offering announcement 
and the time of the official announcement by the Department of the 
auction results, a noncompetitive bidder may not hold, at any time, a 
position for its own account in when-issued trading or in futures or 
forward contracts in the security being auctioned or enter into any 
agreement to purchase or sell or otherwise dispose of the securities it 
is acquiring in the auction.

EFFECTIVE DATE: January 28, 1998.

ADDRESSES: This final rule is available for downloading from the Bureau 
of the Public Debt's Internet site at the following address: 
www.publicdebt.treas.gov. It is also available for public inspection 
and copying at the Treasury Department Library, FOIA Collection, Room 
5030, Main Treasury Building, 1500 Pennsylvania Avenue, N.W., 
Washington, D.C., 20220. Persons wishing to visit the library should 
call (202) 622-0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Kerry Lanham (Acting Director) or Lee 
Grandy (Government Securities Specialist), Bureau of the Public Debt, 
Government Securities Regulations Staff, (202) 219-3632.

SUPPLEMENTARY INFORMATION: 31 CFR Part 356, also referred to as the 
uniform offering circular, sets out the terms and conditions for the 
sale and issuance by the Department of the Treasury to the public of 
marketable Treasury bills, notes, and bonds. The uniform offering 
circular, in conjunction with offering announcements, represents a 
comprehensive statement of those terms

[[Page 4186]]

and conditions. <SUP>1</SUP> This final rule amends paragraph 
356.12(b)(2), ``Additional restrictions,'' and is applicable to bidders 
bidding noncompetitively for their own account in Treasury security 
auctions.
---------------------------------------------------------------------------

    \1\ The 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.
---------------------------------------------------------------------------

    The current rule under paragraph 356.12(b)(2) provides that a 
bidder may not bid noncompetitively for its own account if, in the 
security being auctioned, it holds or has held a position in when-
issued trading or in futures or forward contracts at any time between 
the date of the offering announcement and the designated closing time 
for the receipt of competitive tenders in the auction. Further, the 
paragraph provides that prior to the designated closing time for 
receipt of competitive bids 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.
    The noncompetitive bidding option's objective is to achieve a 
broader distribution of Treasury securities by allowing relatively 
small investors, who may not have current market information, to 
participate successfully in Treasury auctions by providing assurance 
that they can obtain a limited amount of securities without 
competition. As stated in the January 1992 Joint Report on the 
Government Securities Market (``Joint Report''), noncompetitive bidding 
allows the small investor to purchase securities at a current market 
yield by eliminating the risk that a prospective investor might bid a 
yield that is too high and not obtain the securities desired or might 
bid a yield that is too low and pay too much for the securities. 
<SUP>2</SUP> The restriction on noncompetitive bidders under current 
paragraph 356.12(b)(2), which is discussed above, is directed at 
limiting the noncompetitive bidding option to small, less sophisticated 
bidders.
---------------------------------------------------------------------------

    \2\ Department of the Treasury, Securities and Exchange 
Commission, and Board of Governors of the Federal Reserve System, 
Joint Report on the Government Securities Market, (January 1992), p. 
A-2.
---------------------------------------------------------------------------

    The noncompetitive bidding option is not intended to be used as a 
substitute for competitive bidding, which is available to all 
investors. The Joint Report referenced several instances of investors 
using noncompetitive awards for what appeared to be arbitrage purposes 
that went against the spirit of the noncompetitive award system. 
<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ See supra note 2, at p. B-50.
---------------------------------------------------------------------------

    The Department has reexamined the situation where bidders bid 
noncompetitively for their own accounts in an auction and also enter 
into positions in the security being auctioned in the when-issued, 
futures, or forward markets, and has determined that further tightening 
of the noncompetitive bidding restriction is necessary. The Department 
views a bidder in an auction who enters into a position in the when-
issued or futures or forward markets in the same security being 
auctioned, prior to the time of Treasury's announcement of the auction 
results as a sophisticated bidder who should be bidding competitively, 
not noncompetitively.
    Accordingly, paragraph 356.12(b)(2) of the uniform offering 
circular is amended to state that between the date of the offering 
announcement and the time of the official announcement by the 
Department of the auction results, a noncompetitive bidder may not 
hold, at any time, a position for its own account in when-issued 
trading or in futures or forward contracts in the security being 
auctioned or enter into any agreement to purchase or sell or otherwise 
dispose of the securities it is acquiring in the auction. The amended 
paragraph now also states that, for purposes of 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.
    The Department notes that for the purposes of amended paragraph 
356.12(b)(2), the meaning of ``futures contracts'' is different, and 
significantly broader, than it is for the net long position calculation 
purposes pursuant to paragraph 356.13(b) of this part. For net long 
position reporting purposes, ``futures contracts'' encompass only those 
contracts that require delivery of the specific security being 
auctioned. The different meanings of ``futures contracts'' in 
paragraphs 356.12(b) and 356.13(b) reflect the different objectives of 
the two provisions. The net long position reporting requirement in 
section 356.13 is used to enforce Treasury's policy that no bidder in 
an auction of a particular security will have acquired more than 35 
percent of the amount awarded to the public and, accordingly, the focus 
is on control of the specific security being auctioned. This results in 
a narrower approach by excluding futures contracts that are cash-
settled and those requiring delivery of securities other than the 
specific security being auctioned, since these two types of contracts 
do not constitute control of the specific security being auctioned. In 
contrast, the restrictions on noncompetitive bidders at paragraph 
356.12(b)(2) are intended to limit the noncompetitive bidding option to 
small, less sophisticated bidders, and therefore, the restrictions 
encompass a broader range of positions in futures contracts.
    The modifications to paragraph 356.12(b)(2) extend the applicable 
deadline for this noncompetitive bidding restriction to the time of the 
announcement of the auction results, which is later than the designated 
closing time for receipt of competitive tenders in an auction. After 
the conclusion of an auction, the Department makes an official 
announcement of the auction results through a press release. Once 
Treasury announces the auction results, the various electronic 
financial wire services (e.g., Dow Jones, Reuters, Bloomberg, Bridge 
News, Associated Press) quickly disseminate this information, as do 
other major news and financial publications. Thus, a noncompetitive 
bidder that wants to know if the auction results have been announced 
can check for the results over various electronic wire services. Once 
the official announcement by the Department of the auction results is 
released, noncompetitive bidders in that particular auction may enter 
into positions in when-issued trading or in futures or forward 
contracts for the security just auctioned or may enter into agreements 
to purchase or sell or otherwise dispose of the securities acquired in 
the auction.
    The Department also notes that paragraph 356.15(b) of the uniform 
offering circular, which sets out the terms of bidding through 
investment advisers, provides that regardless of whether the bid for a 
controlled account is in the name of the investment adviser or in the 
name of the controlled account, the account is subject to the 
noncompetitive bidding restrictions contained in paragraph 356.12(b). 
This means that the changes contained in this amendment to the uniform 
offering circular apply to bidders in an auction that are bidding 
noncompetitively through an investment adviser, as well as all other 
noncompetitive bidders in the auction.

Procedural Requirements

    This final rule does not meet the criteria for a ``significant 
regulatory action'' pursuant to Executive Order 12866.
    Because this rule relates to public contracts and procedures for 
United States securities, the notice, public comment, and delayed 
effective date

[[Page 4187]]

provisions of the Administrative Procedure Act are inapplicable, 
pursuant to 5 U.S.C. 553(a)(2).
    As no notice of proposed rulemaking is required, the provisions of 
the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.
    There is no new collection of information contained in this final 
rule, and, therefore, the Paperwork Reduction Act does not apply. The 
collections of information of 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.

    For the reasons set forth in the preamble, 31 CFR chapter II, 
subchapter B, part 356, is 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 356.12 is amended by revising paragraph (b)(2) to read 
as follows:


Sec. 356.12  Noncompetitive and competitive bidding.

* * * * *
    (b) * * *
    (2) Additional restrictions. Between the date of the offering 
announcement and the time of the official announcement by the 
Department of the auction results, a noncompetitive bidder may not 
hold, at any time, a position for its own account in when-issued 
trading or in futures or forward contracts in the security being 
auctioned or enter into any agreement to purchase or sell or otherwise 
dispose of the securities it is acquiring in the auction. For purposes 
of 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.
* * * * *
    Dated: January 21, 1998.
Donald V. Hammond,
Acting Fiscal Assistant Secretary.
[FR Doc. 98-1958 Filed 1-27-98; 8:45 am]
BILLING CODE 4810-39-P