[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]
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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.
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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. 1 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.
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\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.
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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.
2 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.
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\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.
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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.
3
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\3\ See supra note 2, at p. B-50.
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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
