E8-5713. Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds-Minimum and Multiple Amounts Eligible for STRIPS, Legacy Treasury Direct, and Certification Requirements

AGENCY:

Bureau of the Public Debt, Fiscal Service, Treasury.

ACTION:

Final rule.

SUMMARY:

The Department of the Treasury (“Treasury” or “We”) is issuing in final form amendments to the Uniform Offering Circular for the Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds. The first change lowers the minimum and multiple par amounts of Treasury marketable notes, bonds, and Treasury inflation-protected securities (TIPS) that may be stripped from $1,000 to $100. The second change eliminates the provisions allowing depository institutions and dealers to submit customer bids in Treasury marketable securities auctions for securities that will be held in Legacy Treasury Direct. The third change eliminates the requirement that submitters that submit bids by computer provide a written certification that they are in compliance with the auction rules. Finally, this final rule adds technical clarification to the calculation of accrued interest for Treasury bonds and notes.

DATES:

Effective Date: This rule is effective on March 20, 2008.

Applicability Date: The changes to 31 CFR 356.31 apply to all Treasury marketable securities eligible for stripping (notes, bonds, plus TIPS issued after January 15, 1985) outstanding on and after April 7, 2008.

Applicability Date: The change to 31 CFR Part 356, Appendix B, Section I, Paragraph C applies to all Treasury notes, bonds, and TIPS issued on or after the date of the first Treasury marketable securities auction with a $100 minimum purchase amount announced through an offering announcement.

Applicability Date: The changes to 31 CFR 356.2, 356.4, 356.16, 356.17 and 356.25 apply to all auctions of Treasury marketable securities beginning with the first Treasury marketable securities auction with a $100 minimum purchase amount announced through an offering announcement.

ADDRESSES:

You may download this final rule from the Bureau of the Public Debt's Web site at http://www.treasurydirect.gov or from the Electronic Code of Federal Regulations (e-CFR) Web site at http://www.gpoaccess.gov/​ecfr. It is also available for public inspection and copying at the Treasury Department Library, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. To visit the library, call [phone] for an appointment.

FOR FURTHER INFORMATION CONTACT:

Lori Santamorena (Executive Director), Chuck Andreatta (Associate Director), or Aaron Gregg (Government Securities Specialist), Bureau of the Public Debt, Government Securities Regulations Staff, [phone] or e-mail us at [e-mail]. Policy Information: Karthik Ramanathan (Director), Department of the Treasury, Office of Debt Management, [phone] or e-mail at [e-mail].

SUPPLEMENTARY INFORMATION:

The Uniform Offering Circular (UOC), in conjunction with the announcement for each auction, provides the terms and conditions for the sale and issuance to the public of marketable Treasury bills, notes, bonds and TIPS.^[1]

This final rule revises 31 CFR 356.31 of the UOC, which describes the terms and conditions for STRIPS (Separate Trading of Registered Interest and Principal of Securities). The STRIPS program allows holders of book-entry (electronic) Treasury notes, bonds, and TIPS to separate those securities into their separate principal and interest components. Holders then can hold or trade these components separately as zero-coupon securities. Currently, the minimum par amount of notes, bonds, and TIPS that may be stripped is $1,000,^[2] and any higher par amount to be stripped must be in a multiple of $1,000.

On August 1, 2007, Treasury announced that it was considering lowering the minimum and multiple par amounts that bidders may bid for in Treasury marketable securities auctions from $1,000 to $100 to put Treasury securities within the reach of all individual investors.^[3] On October 31, 2007, Treasury announced that it will lower the minimum purchase amounts for Treasury auctions from $1,000 to $100 after the release of the new auction processing system.^[4] This will also allow holders to hold and transfer all outstanding Treasury bills, notes, bonds, and TIPS in minimum and multiple par amounts of $100. The announced change does not require a change to the UOC because it will be incorporated in each auction announcement.^[5]

This final rule makes the minimum and multiple par amounts of Treasury notes, bonds, and TIPS eligible to be stripped consistent with the lower minimum and multiple par amounts that bidders may bid for in marketable Treasury securities auctions. The change to the minimum and multiple par amounts eligible to be stripped (31 CFR 356.31) will apply on April 7, 2008, and thereafter to all outstanding Treasury marketable securities eligible for stripping (notes, bonds, plus TIPS issued after January 15, 1985).

The final rule also eliminates the provisions allowing depository institutions and dealers to submit customer bids in Treasury marketable securities auctions for securities that will be held in Legacy Treasury Direct (31 CFR 356.2, 356.4, 356.17, and 356.25). This functionality is not available in the new Treasury Automated Auction Processing System (TAAPS). Our experience has been that the volume of such bids has been so low that it does not justify continuing to provide the service in the new TAAPS. Investors will still be able to submit their own bids directly to Legacy Treasury Direct.

This final rule also eliminates the requirement that submitters that submit bids by computer provide a written certification that they are in compliance with the auction rules, because it is unnecessary in view of other requirements. The current UOC states that, by submitting bids or other information in an auction, submitters are deemed to have certified that they are in compliance with the auction rules; that the information provided regarding any bids for their own account is accurate and complete; and that the information provided with regard to any bids for customers accurately and completely reflects information provided by those customers or their intermediaries (31 CFR 356.16(a)). The new TAAPS will also state on the login screen that, by bidding in an auction, bidders are certifying that they will comply with the auction rules.

In addition, this final rule adds language to Appendix B, Section I, Paragraph C of the UOC to specify how we calculate accrued interest for a par amount of securities less than $1,000.

Procedural Requirements

This final rule is not a significant regulatory action for purposes of E.O. 12866. The notice and public procedures requirements of the Administrative Procedure Act do not apply, under 5 U.S.C. 553(a)(2).

Since a notice of proposed rulemaking is not required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.

List of Subjects in 31 CFR Part 356

• Bonds
• Federal Reserve System
• Government Securities
• Securities

For the reasons stated in the preamble, 31 CFR 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. Amend § 356.2 to revise the definition of “Autocharge agreement” to read as follows:

§ 356.2

What definitions do I need to know to understand this part?

* * * * *

Autocharge agreement means an agreement in a format acceptable to Treasury between a submitter or clearing corporation and a depository institution that authorizes us to:

(1) Deliver awarded securities to the book-entry securities account of a designated depository institution in the commercial book-entry system, and

(2) Charge a funds account of a designated depository institution for the settlement amount of the securities.

* * * * *

3. Amend § 356.4 to revise paragraph (c) as follows:

§ 356.4

What are the book-entry systems in which auctioned Treasury securities may be issued?

* * * * *

(c) Legacy Treasury Direct. In this system, we maintain the book-entry securities of account holders directly on the records of the Bureau of the Public Debt, Department of the Treasury. Bids for securities to be held in Legacy Treasury Direct are submitted directly to us. From time to time, Treasury may announce that certain securities to be offered will not be eligible for purchase or holding in Legacy Treasury Direct.

§ 356.16

[Amended]

4. In § 356.16, remove paragraph (a)(4).

5. Amend § 356.17 to revise paragraph (c)(1) to read as follows:

§ 356.17

How and when do I pay for securities awarded in an auction?

* * * * *

(c) * * *

(1) Bidding and payment by computer or by telephone. If you are bidding by computer or by telephone, you must pay for any securities awarded to you by debit entry to a deposit account.

* * * * *

6. Amend § 356.25 to revise paragraph (b) to read as follows:

§ 356.25

How does the settlement process work?

* * * * *

(b) Payment by authorized charge to a funds account. Where the submitter's method of payment is an authorized charge to the funds account of a depository institution as provided for in § 356.17 (d), we will charge the settlement amount to the specified funds account on the issue date.

* * * * *

7. Amend § 356.31 to revise paragraphs (b)(1) and (c)(1) to read as follows:

§ 356.31

How does the STRIPS program work?

* * * * *

(b) * * *

(1) Minimum par amounts required for STRIPS. The minimum par amount of a fixed-principal security that may be stripped is $100. Any par amount to be stripped above $100 must be in a multiple of $100.

* * * * *

(c) * * *

(1) Minimum par amounts required for STRIPS. The minimum par amount of an inflation-protected security that may be stripped is $100. Any par amount to be stripped above $100 must be in a multiple of $100.

* * * * *

8. Amend Appendix B to part 356 by revising Section I, Paragraph C, Subparagraph 4, to read as follows:

Appendix B to Part 356—Formulas and Tables

* * * * *

C. Accrued Interest

* * * * *

4. We round all accrued interest computations to five decimal places for a $1,000 par amount, using normal rounding procedures. We calculate accrued interest for a par amount of securities greater than $1,000 by applying the appropriate multiple to accrued interest payable for a $1,000 par amount, rounded to five decimal places. We calculate accrued interest for a par amount of securities less than $1,000 by applying the appropriate fraction to accrued interest payable for a $1,000 par amount, rounded to five decimal places.

* * * * *

Gary Grippo,

Acting Fiscal Assistant Secretary.

Footnotes

1.  The Uniform Offering Circular was first published as a final rule on January 5, 1993 (58 FR 412). The circular, as amended, is codified at 31 CFR part 356. A final rule converting the UOC to plain language and making certain other minor changes was published on July 28, 2004 (69 FR 45202).

2.  See 65 FR 66174 (November 3, 2000) for a previous UOC amendment to minimum and multiple par amounts that may be stripped.

3.  See August 2007 Quarterly Refunding Statement by Anthony W. Ryan, Treasury Assistant Secretary for Financial Markets (August 1, 2007) http://www.treas.gov/​press/​releases/​hp515.htm.

4.  See November 2007 Quarterly Refunding Statement by Anthony W. Ryan, Treasury Assistant Secretary for Financial Markets (October 31, 2007) http://www.treas.gov/​press/​releases/​hp655.htm.

5.  See 31 CFR 356.2, which defines “minimum to bid” and “multiple to bid” as “the smallest amount of a security that may be bid for in an auction as stated in the auction announcement” and “the smallest additional amount of a security that may be bid for in an auction as stated in the auction announcement,” respectively.