[Federal Register Volume 61, Number 4 (Friday, January 5, 1996)]
[Proposed Rules]
[Pages 402-406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-134]



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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 356

[Department of the Treasury Circular, Public Debt Series No. 1-93]


Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, 
and Bonds

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

ACTION: Proposed rule.

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SUMMARY: The Department of the Treasury (``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). The proposed amendment defines the term ``investment 
adviser'' and contains a new section on bidding through investment 
advisers. The amendment also makes certain clarifying changes.

DATES: Comments must be submitted on or before March 5, 1996. The 
Department is particularly interested in receiving comments regarding 
alternative methods for obtaining, in the least burdensome manner 
possible, the information needed to ensure that no person or entity 
receive a disproportionate share of the auction.

ADDRESSES: Comments should be sent to: Government Securities 
Regulations Staff, Bureau of the Public Debt, Room 515, E Street 
Building, Washington, D.C. 20239-0001. Comments received will be 
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: Michael W. Sunner, Deputy Assistant 
Commissioner, Office of Financing, 

[[Page 403]]
Bureau of the Public Debt (202) 219-3350, or Margaret Marquette, 
Attorney-Adviser, Office of the Chief Counsel, Bureau of the Public 
Debt (202) 219-3320.

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 book-entry Treasury bills, notes, and bonds. The uniform 
offering circular was originally published on January 5, 1993 (58 FR 
412), as a comprehensive statement of those terms and conditions. 
Amendments to the circular were published on June 3, 1994 (59 FR 
28773), and March 15, 1995 (60 FR 13906). In the time since the rule 
was first published, several questions have arisen about the 
application of the circular in situations where an investment adviser 
formulates a bid or otherwise makes bidding decisions for a managed 
account. As a result, the Department is proposing to define the term 
``investment adviser'' and is setting out the specific terms and 
conditions for bidding through investment advisers.
    31 CFR Part 356 currently does not describe in detail rules 
applying to investment advisers. The preamble to the January 5, 1993, 
rule refers to investment advisers and ``others who bid on behalf of 
their managed investment accounts or other clients,'' stating that an 
investment adviser can bid for its clients in the name of the 
investment adviser or in the names of the clients. The section on net 
long position reporting requires that a special report be provided in 
those cases where an investment adviser controls bids and positions 
exceeding a specified amount.
    The current rule, while allowing investment advisers to bid for 
controlled accounts, does not specify how the various provisions of the 
rule apply with respect to those accounts. In particular, it does not 
address what is meant by the statement in the preamble to the January 
5, 1993, rule that an investment adviser or a managed account is 
considered the ``bidder for all purposes of [the] rule.'' It does not 
make clear to what extent, if any, a managed account must take into 
consideration the bids and position of the person or entity it would 
otherwise be associated with under the bidder definitions contained in 
Appendix A of the rule. It also does not make clear to what extent an 
adviser that manages accounts must take into consideration the bids and 
position of an entity that ``supervises'' the adviser.
    The proposed rule adds, in Sec. 356.2, a definition for the term 
``investment adviser.'' The new definition describes what is meant by 
the term ``investment discretion.'' An entity exercising its authority 
over an account to determine which auctions an account will bid in and 
the quantity of securities to be bid for is an investment adviser for 
purposes of the rule. The definition also clarifies that an adviser 
employed or supervised by an entity is considered to be part of that 
entity, i.e., as if the adviser was an affiliate of the entity under 
the bidder definitions. For example, in the case where an individual 
serves as an investment adviser to a mutual fund and is employed by a 
partnership that advises other mutual funds, it is the partnership, not 
the individual, that is considered the investment adviser for purposes 
of the offering circular.
    Section 356.15 sets out those terms that are unique to bids placed 
through investment advisers. It provides that a controlled account is 
considered to be separate from the person or entity that it would 
otherwise be part of under the bidder definitions. A corporate 
investment account managed by a third party that has investment 
discretion would be a controlled account and, therefore, would not be 
considered to be part of the corporation under the offering circular.
    Section 356.15(a) incorporates a provision found in the preamble to 
the January 5, 1993, rule that an investment adviser may bid for an 
account either in the name of the investment adviser, in which case the 
adviser is considered the bidder, or in the name of the account, in 
which case the account is considered the bidder. This means that, for 
purposes of bidding noncompetitively, an investment adviser that bids 
for its controlled accounts in the name of the adviser is limited to 
the maximum allowed bid and award amount for a noncompetitive bid for 
that auction, e.g., $1 million total in a bill auction. An investment 
adviser that bids noncompetitively for its controlled accounts in the 
names of the accounts may bid for each account for the maximum allowed 
noncompetitive amount, e.g., $1 million for each account in a bill 
auction.
    The proposed rule makes clear, in Sec. 356.15(b), that a controlled 
account is subject to the same bidding restrictions as other bidders 
regardless of whether a bid for the account is in the name of an 
investment adviser or in the name of the account. Specifically, the 
investment adviser may not bid for the account both competitively and 
noncompetitively in the same auction. Also, the account is subject to 
the noncompetitive bidding and award limitations contained in the rule.
    As with the current rule, the proposed rule states that an 
investment adviser must include in its net long position calculation 
those bids and positions it controls in addition to bids and positions 
it would otherwise have to include as a bidder. Unlike the current 
rule, however, the proposed rule provides for the total reportable net 
long position to be reported on the tender rather than in a special 
report to a Federal Reserve Bank.
    A significant change in the proposed rule from the current rule is 
the amount of a net long position that an investment adviser may 
exclude from its net long position calculation. The current rule allows 
the adviser to exclude net long positions less than $500 million for 
certain accounts that are not bid for in an auction. The rule as 
revised would provide for a similar type of exclusion but decreases the 
amount of the exclusion to $10 million. This change is being proposed 
because the Department believes that a lower exclusionary amount is 
necessary to give a more accurate picture of the amount of a security 
controlled by an investment adviser.
    In developing this proposal, the Department considered, as an 
alternative, providing investment advisers an exclusion based on an 
aggregate amount as opposed to separate position amounts in specific 
accounts, e.g., allow an adviser to exclude the net long positions of 
any accounts on whose behalf it is not bidding up to a given aggregate 
amount. For example, if the aggregate net long position of all 
controlled accounts on whose behalf the adviser was not placing 
competitive bids was equal to or less than a designated amount (such as 
$200 million), then that amount could be excluded from its net long 
calculation. However, if the aggregate net long position for these 
accounts exceeded such amount, then the amount in excess of the 
designated amount would have to be included in the net long 
calculation. This alternative was not selected because of a concern 
that it would be more burdensome for advisers with large numbers of 
accounts to determine the total balance of the net long positions of 
all non-bidder accounts than to determine which accounts had net long 
positions in excess of a specified threshold at the cutoff time for 
reporting. Commenters are asked to address this presumption when they 
consider the proposal.
    The Department would welcome any comments on the exclusion 
provisions 

[[Page 404]]
outlined above. It would also welcome any alternative suggestions that 
would allow the Department to obtain the information it needs to ensure 
that no person or entity receive or control a disproportionate share of 
the auction, and to obtain that information in the least burdensome 
manner possible.
    Section 356.15(d) provides that an investment adviser may submit 
bids for its controlled accounts directly to a Federal Reserve Bank or 
the Bureau of the Public Debt or may forward such bids to a depository 
institution or dealer, regardless of whether those bids are in the name 
of the adviser or in the names of the accounts. If a bid is submitted 
directly, the investment adviser is considered the submitter and, 
depending on whether the bid is in the name of the adviser or in the 
name of one of its accounts, the adviser or the account, respectively, 
is considered the bidder. If the adviser forwards a bid for one of its 
controlled accounts to a depository institution or dealer, either the 
adviser or the account is considered a customer of such depository 
institution or dealer depending on whether the bid is in the name of 
the adviser or in the name of the account. In such a case, the adviser 
is not considered an intermediary as defined in Sec. 356.2 of the 
offering circular.
    The provision allowing an adviser to submit or forward bids in the 
names of its controlled accounts is an exception to the restriction 
against anyone other than a depository institution or dealer submitting 
or forwarding bids for others. It is not the Department's intent, 
however, to authorize an investment adviser that does not also meet the 
definition of a depository institution or dealer to submit or forward 
bids for customers. A controlled account is not the same as a customer. 
(See definition of ``customer'' in Sec. 356.2 which refers to directing 
a depository institution or dealer to bid for a specified amount of 
securities in a specific auction.) Accordingly, an investment adviser 
that is not also a depository institution or dealer may submit or 
forward bids only for its own account or for its controlled accounts.

Other Clarifying Changes

    The Department is also taking this opportunity to make other 
clarifying changes to the rule. Section 356.13 has been revised to make 
clear the Department's requirement that, in those cases where a bidder 
has more than one bid, its reportable net long position is to be 
reported in connection with only one of those bids. This requirement is 
to avoid any possible confusion or duplication in net long position 
reporting.
    Section 356.11 has been amended to provide for the use of unique 
numbers assigned to bidders for identification purposes. Additionally, 
Appendix A has been revised to provide that, for purposes of the rule, 
a business trust is considered to be a corporation. Finally, a change 
has been made in the example given in Sec. 356.21 to reflect that 
Treasury bills may now be held in multiples of $1,000.
    The proposed rule contained herein includes a new Sec. 356.15. It 
also amends Secs. 356.2, 356.11, 356.13, 356.21, and 356.22 as well as 
Appendix A to Part 356. Other sections have been renumbered as a result 
of adding the new section Sec. 356.15.

Procedural Requirements

    This proposed rule does not meet the criteria for a ``significant 
regulatory action'' pursuant to Executive Order 12866.
    Although this proposed 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).
    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.
    The collection of information contained in this proposed rule, in 
Sec. 356.15, have been submitted to the Office of Management and Budget 
for review under Sec. 3507(d) of the Paperwork Reduction Act of 1995 
(44 U.S.C. Chapter 35). Under the 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.
    This information is being collected by the Department of the 
Treasury in order to determine the amount of a Treasury security 
controlled by an investment adviser bidding competitively in an auction 
for that security. The information will be used for the purpose of 
determining the award to be made as the result of a competitive bid for 
a security.
    Responses to the collection of information are required in order 
for the potential respondent to purchase securities. Information 
concerning securities holdings and transactions is considered 
confidential under Treasury regulations (31 CFR Part 323) and the 
Privacy Act. The information may be disclosed to a law enforcement 
agency, courts and counsel for litigation purposes, and as otherwise 
authorized by law.
    Estimated total annual reporting burden: 250 hours.
    Estimated average annual burden hours per respondent: 5 hours.
    Estimated number of respondents: 50.
    Estimated annual frequency of responses: On occasion.
    The Department of the Treasury solicits comments on the following 
concerning the proposed collection of information:
    1. Whether the proposed collection of information is necessary for 
the proper performance of the functions of the agency, including 
whether the information shall have practical utility;
    2. The accuracy of the estimate of the burden of the proposed 
collection of information;
    3. How to enhance the quality, utility, and clarity of the 
information to be collected; and
    4. How to minimize the burden of the collection of information on 
those who are to respond, including through the use of automated 
collection techniques or other forms of information technology.
    Comments on the collection of information should be sent to the 
Office of Information and Regulatory Affairs of the Office of 
Management and Budget, Attention: Desk Officer for Department of the 
Treasury/Bureau of the Public Debt, Washington, D.C. 20503, with copies 
to the Government Securities Regulations Staff, Bureau of the Public 
Debt, at the address previously specified.

List of Subjects in 31 CFR Part 356

    Bonds, Federal Reserve System, Government securities, Securities.

    Dated: December 27, 1995.
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 is revised 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 ``investment adviser'' to read as follows: 

[[Page 405]]



Sec. 356.2  Definitions.

* * * * *
    Investment adviser means any person or entity that has investment 
discretion for or otherwise exercises control over the bids or 
positions of a person or entity not considered part of the investment 
adviser under the bidder definitions in Appendix A. Investment 
discretion includes determining what, how many, and when securities 
shall be purchased or sold. A person or entity managing investments for 
itself is not considered an investment adviser for such investments. 
Where an investment adviser is employed or supervised by an entity, the 
investment adviser is considered to be part of that entity.
* * * * *
    3. Section 356.11(a)(1) is amended by revising the second sentence 
to read as follows:


Sec. 356.11  Submission of bids.

    (a) General.
    (1) * * * Except as otherwise provided, tenders must be submitted 
in an approved format, including the use of preassigned identification 
numbers, where applicable. * * *
* * * * *
    4. Section 356.13 is amended by removing paragraph (a)(2) and 
redesignating paragraph (a)(1) as paragraph (a). The last two sentences 
of paragraph (a) are revised to read as follows:


Sec. 356.13  Net long position.

    (a) Reporting net long positions. * * * In cases where a bidder 
that is required to report the amount of its net long position has more 
than one bid, the bidder's total net long position should be reported 
in connection with only one bid. A bidder that is a customer must 
report its reportable net long position through only one depository 
institution or dealer. (See Sec. 356.14(c).)
* * * * *
    5. Sections 356.15 and 356.16 are redesignated as Secs. 356.16 and 
356.17 respectively and new Sec. 356.15 is added to read as follows:


Sec. 356.15  Bidding through investment advisers.

    (a) General. Where bids or positions of a person or entity are 
controlled by an investment adviser, such bids or positions are 
considered to be a controlled account, separate from the bids and 
positions of any person or entity with which they would otherwise be 
associated under the bidder definitions in Appendix A. The investment 
adviser may bid for controlled accounts by including, in a bid in the 
adviser's name, amounts that it is investing for the controlled 
accounts. The investment adviser may also bid for controlled accounts 
in the names of such accounts. Where bids are in an investment 
adviser's name, the investment adviser is considered the bidder for 
such bids and, where bids are in the name of a controlled account, the 
named controlled account is considered the bidder, for all purposes of 
this Part 356, except as specified in this Sec. 356.15.
    (b) Noncompetitive and competitive bidding. 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, such account may not 
be bid for both noncompetitively and competitively in the same auction. 
In addition, such account is subject to the noncompetitive bidding 
restrictions and award limitations contained in Sec. 356.12(b) and 
356.22(a).
    (c) Reporting net long positions. In calculating the amount of its 
bids and positions for purposes of the net long position reporting 
requirement found in Sec. 356.13(a), the investment adviser must 
include, in addition to what would otherwise be included for the 
investment adviser as a bidder under the bidder definitions, all other 
competitive bids and positions controlled by the investment adviser. 
The investment adviser may exclude any net long position less than $10 
million of any nonproprietary controlled account unless the adviser is 
placing a competitive bid for that account either in the name of the 
investment adviser or in the name of the account. However, if any net 
long position less than $10 million of any nonproprietary account not 
being bid for is excluded, then all net short positions less than $10 
million of nonproprietary accounts not being bid for must also be 
excluded. Regardless of whether the investment adviser bids in its own 
name or in the name of its controlled accounts, if the net long 
position is reportable, it must be reported as a total in connection 
with only one bid.
    (d) Submitting bids for controlled accounts. Notwithstanding the 
definition of submitter found in Sec. 356.2, and the restriction 
against submitting bids for others found in Sec. 356.14, an investment 
adviser may submit bids, whether in the adviser's own name or in the 
names of its controlled accounts, directly to a Federal Reserve Bank or 
the Bureau of the Public Debt, in which case the investment adviser is 
considered a submitter. In the alternative, the investment adviser may 
forward such bids to a depository institution or dealer.
    (e) Certifications. By bidding for a controlled account, an 
investment adviser is deemed to have certified that it is in compliance 
with this Part and the offering announcement governing the sale and 
issue of the security. Further, the investment adviser is deemed to 
have certified that the information provided on the tender or provided 
to a submitter or intermediary with regard to bids for controlled 
accounts is accurate and complete.
    (f) Proration of awards. In auctions where bids at the highest 
accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of 
this Part, investment advisers that submit bids for controlled accounts 
in the names of such accounts are responsible for prorating awards for 
their controlled accounts at the same percentage as that announced by 
the Department. The same prorating rules apply to controlled accounts 
as apply to submitters. See Sec. 356.21 of this Part.
    6. Section 356.21 is amended by revising paragraph (a) to read as 
follows:


Sec. 356.21  Proration of awards.

    (a) Awards to submitters. In auctions where bids at the highest 
accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of 
this Part, the Federal Reserve Banks are responsible for prorating 
awards for submitters at the percentage announced by the Department. 
For example, if 80% is the announced percentage at the highest yield or 
discount rate, then each bid at that rate or yield shall be awarded 80% 
of the amount bid. Hence, a bid for $100,000 at the highest accepted 
yield or discount rate would be awarded $80,000. In all cases, awards 
will be for, at least, the minimum to hold, and awards must be in an 
appropriate multiple to hold. Awards at the highest accepted yield or 
rate are adjusted upwards, if necessary, to an appropriate multiple to 
hold. For example, Treasury bills may be issued with a minimum to hold 
of $10,000 and multiples of $1,000. Where an $18,000 bid is accepted at 
the high discount rate, and the percent awarded at the high discount 
rate was 88%, the award to that bidder would be $16,000, representing 
an upward adjustment from $15,840 ($18,000 x .88) to an appropriate 
multiple to hold. If tenders at the highest accepted rate were prorated 
at, for example, a rate of 4%, the award for a $100,000 bid would be 
$10,000, instead of $4,000, in order to meet the minimum to hold for a 
bill issue.
* * * * *
    7. Section 356.22(b) is amended by revising the last sentence to 
read as follows: 

[[Page 406]]



Sec. 356.22  Limitation on auction awards.

* * * * *
    (b) Awards to competitive bidders. * * * When the bids and net long 
positions of more than one person or entity must be combined as 
required by Sec. 356.15(c), such combined amount will be used for the 
purpose of this award limitation.
    8. Appendix A to Part 356 is amended by adding to section (a) a new 
paragraph between the second and third paragraphs of the introductory 
text to read as follows:

Appendix A to Part 356

* * * * *
    (a) Corporation--
* * * * *
    For the purpose of this Part, a business trust, such as a 
Massachusetts business trust or a Delaware business trust, is 
considered to be a corporation.
* * * * *
[FR Doc. 96-134 Filed 1-4-96; 8:45 am]
BILLING CODE 4810-35-P