[Federal Register Volume 61, Number 245 (Thursday, December 19, 1996)]
[Rules and Regulations]
[Pages 66874-66878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32169]
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THRIFT DEPOSITOR PROTECTION OVERSIGHT BOARD
12 CFR Part 1511
Resolution Funding Corporation; Book-Entry Procedure
AGENCY: Thrift Depositor Protection Oversight Board.
ACTION: Final rule.
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SUMMARY: The Thrift Depositor Protection Oversight Board is publishing
final regulations to govern Resolution Funding Corporation book-entry
securities. This action is being taken in conjunction with similar
amendments being made by the Department of the Treasury to the
regulations governing book-entry Treasury securities, and by other
government-sponsored enterprises (GSEs) for securities that are
maintained on the book-entry system operated by the Federal Reserve
Banks. The rules incorporate recent and significant changes in
commercial law addressing
[[Page 66875]]
the holding of securities in book-entry form through financial
intermediaries.
EFFECTIVE DATE: January 1, 1997. The incorporation by reference of
certain publications listed in the regulations is approved by the
Director of the Federal Register as of January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Van B. Jorstad, Acting Executive
Director, Thrift Depositor Protection Oversight Board (202) 622-0462,
or Joan Affleck-Smith, Director, Office of Financial Institutions
Policy, Department of the Treasury (202) 622-2740.
SUPPLEMENTARY INFORMATION: Most government-sponsored enterprises (GSEs)
have regulations governing their book-entry securities maintained in
the Federal Reserve book-entry system that are nearly identical to the
Treasury regulations governing marketable Treasury securities.1 In
1989, the Oversight Board adopted regulations for obligations issued by
the Resolution Funding Corporation 2 which are also modeled on
Treasury regulations. These regulations provide that the Federal
Reserve Banks may issue, service and maintain Resolution Funding
Corporation obligations in book-entry form.3 The regulations also
set forth book-entry procedures including the transfer, pledge, and
servicing of book-entry Resolution Funding Corporation obligations.
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\1\ 31 CFR Part 306, Subpart O.
\2\ 54 FR 41948 (October 13, 1989).
\3\ Section 21B(h)(2) of the Federal Home Loan Bank Act, as
amended (12 U.S.C. 1441b(h)(2)), authorizes the Federal Reserve
Banks to act as depositaries for or fiscal agents or custodians of
the Funding Corporation.
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The current Treasury regulations will be superseded by new
regulations (the ``TRADES regulations'') 4 that will go into
effect on January 1, 1997. As explained below, the TRADES regulations
incorporate recent and significant changes in commercial law addressing
the holding of securities in book-entry form through financial
intermediaries.
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\4\ 61 FR 43626 (August 23, 1996).
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Some commenters on the TRADES regulations were concerned about
coordination among Treasury and GSEs that issue book-entry securities.
The commenters urged simultaneous effectiveness of parallel GSE rules.
Accordingly, the Thrift Depositor Oversight Board (``Oversight Board'')
is issuing revised regulations that will be effective January 1, 1997,
for Resolution Funding Corporation book-entry securities.
Consistent with the approach in the TRADES regulations, the
regulations in this Part contain specific provisions that deal with the
rights and obligations of the Resolution Funding Corporation and the
Federal Reserve Banks with respect to Resolution Funding Corporation
securities and the operation of the book-entry system. The regulations
are also based in large part on Revised Article 8 on Investment
Securities of the Uniform Commercial Code (``Revised Article 8''). The
regulations include certain choice of law rules patterned on Revised
Article 8. In the event the jurisdiction specified under the choice of
law rules has not adopted Revised Article 8, then the law to be applied
is Revised Article 8. At the time of the publication of the final
TRADES rule, 28 states had adopted Revised Article 8.5
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\5\ California has since also adopted Revised Article 8.
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Except with respect to matters related to differences between
Resolution Funding Corporation securities and Treasury
securities,6 the provisions of these rules are the same as the
rules that will apply to Treasury securities. The Oversight Board
intends that the analysis contained in the commentary to the TRADES
final rule, Appendix B to 31 CFR Part 357, and other interpretations of
the TRADES regulations published in the Federal Register, are to be
used in interpreting the regulations in Part 1511.
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\6\ Resolution Funding Corporation securities are not
obligations of, or guaranteed as to principal by, the United States.
See the Offering Circular and Supplements for a more complete
statement of their terms.
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The only notable differences between these regulations and the
TRADES regulations are as follows. First, there is no comparable system
such as ``TREASURY DIRECT,'' 7 for Resolution Funding Corporation
securities. Second, in contrast to Treasury securities, no Resolution
Funding Corporation securities have been issued in registered
definitive or bearer (paper) form. All outstanding Resolution Funding
Corporation securities (referred to as ``bonds'' in the offering
documentation) were issued only in book-entry form and are maintained
on the book-entry system of the Federal Reserve Banks. Third, there are
some variations in terminology.
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\7\ In TREASURY DIRECT, the beneficial owners of Treasury
securities hold their securities directly, on the books of the
issuer (in contrast to holding through a financial intermediary).
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Procedural Requirements
This final rule does not meet the criteria for a ``significant
regulatory action'' pursuant to Executive Order 12866.
The Oversight Board is adopting these regulations as a final rule
effective January 1, 1997. For the following reasons, the Oversight
Board finds that notice and public procedure and a 30-day delayed
effective date are unnecessary, impracticable, and contrary to the
public interest, pursuant to 5 U.S.C. 553(b)(3)(B) and (d)(3). First,
the rule merely conforms the regulations governing book-entry
Resolution Funding Corporation securities to the TRADES regulations
that will govern book-entry Treasury securities. Second, the TRADES
regulations were published in various forms, as a proposed rule four
times and as a final rule once. In each instance, the TRADES
regulations were accompanied by extensive commentary addressing the
background and rule provisions. Third, the comments on the TRADES
regulations urged uniformity in substance and effectiveness for
regulations for GSEs that issue book-entry securities maintained on the
Federal Reserve book-entry system. Fourth, there are compelling reasons
for setting the effective date at January 1, 1997, when the TRADES
regulations and those of the other GSEs will become effective. Having
the rules become effective at different times for securities that are
all maintained and transferred on the book-entry system would be
burdensome and unworkable for market participants.
As no notice of proposed rulemaking is required, the provisions of
the Regulatory Flexibility Act do not apply.
There are no collections of information contained in this final
rule. Therefore, the Paperwork Reduction Act does not apply.
List of Subjects in 12 CFR Part 1511
Bonds, Electronic funds transfer, Federal Reserve System,
Government securities, Incorporation by reference, Securities.
For the reasons set forth in the preamble, Title 12, Chapter XV,
Subchapter B, Part 1511 is revised to read as follows:
PART 1511--BOOK-ENTRY PROCEDURE
Sec.
1511.0 Applicability.
1511.1 Definition of terms.
1511.2 Law governing rights and obligations of the Funding
Corporation and Federal Reserve Banks; rights of any Person against
the Funding Corporation and the Federal Reserve Banks.
1511.3 Law governing other interests.
1511.4 Creation of Participant's Security Entitlement; security
interests.
1511.5 Obligations of Funding Corporation; no adverse claims.
1511.6 Authority of Federal Reserve Banks.
1511.7 Liability of the Funding Corporation and Federal Reserve
Banks.
1511.8 Notice of attachment.
[[Page 66876]]
Authority: 12 U.S.C. 1441b.
Sec. 1511.0 Applicability.
The regulations in this part apply to Book-entry Funding
Corporation Securities.
Sec. 1511.1 Definitions of terms.
In this part, unless the context indicates otherwise:
Act means the Federal Home Loan Bank Act as amended (12 U.S.C. 1421
et seq.).
Adverse Claim means a claim that a claimant has a property interest
in a Book-entry Funding Corporation Security and that it is a violation
of the rights of the claimant for another Person to hold, transfer, or
deal with the Book-entry Funding Corporation Security.
Book-entry Funding Corporation Security means a Funding Corporation
Security in book-entry form that is issued or maintained in the Book-
entry System. Solely for the purposes of this Part, it also means the
separate interest and principal components of a Book-entry Funding
Corporation Security if such security has been divided into such
components as authorized by the Securities Documentation and the
components are maintained separately on the books of one or more
Federal Reserve Banks.
Book-entry System means the automated book-entry system operated by
the Federal Reserve Banks acting as the fiscal agent for the Funding
Corporation, on which Book-entry Funding Corporation Securities are
issued, recorded, transferred and maintained in book-entry form.
Entitlement Holder means a Person to whose account an interest in a
Book-entry Funding Corporation Security is credited on the records of a
Securities Intermediary.
Federal Reserve Bank or Reserve Bank means a Federal Reserve Bank
or Branch.
Federal Reserve Bank Operating Circular means the publication
issued by each Federal Reserve Bank that sets forth the terms and
conditions under which the Reserve Bank maintains book-entry Securities
accounts (including Book-entry Funding Corporation Securities) and
transfers book-entry Securities (including Book-entry Funding
Corporation Securities).
Funding Corporation means the Resolution Funding Corporation
established pursuant to section 21B(b) of the Act.
Funding Corporation Security or Security means a Funding
Corporation bond, note, debenture and similar obligations issued under
section 21B of the Act.
Funds Account means a reserve and/or clearing account at a Federal
Reserve Bank to which debits or credits are posted for transfers
against payment, book-entry securities transaction fees, or principal
and interest payments.
Participant means a Person that maintains a Participant's
Securities Account with a Federal Reserve Bank.
Participant's Securities Account means an account in the name of a
Participant at a Federal Reserve Bank to which Book-entry Funding
Corporation Securities held for a Participant are or may be credited.
Person means and includes an individual, corporation, company,
governmental entity, association, firm, partnership, trust, estate,
representative, and any other similar organization, but does not mean
or include the United States, the Funding Corporation, or a Federal
Reserve Bank.
Revised Article 8 means Uniform Commercial Code, Revised Article 8,
Investment Securities (with Conforming and Miscellaneous Amendments to
Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text. Revised Article 8
of the Uniform Commercial Code is incorporated by reference in this
Part pursuant to 5 U.S.C. 552(a) and 1 CFR Part 51. Article 8 was
adopted by the American Law Institute and the National Conference of
Commissioners on Uniform State laws and approved by the American Bar
Association on February 14, 1995. Copies of this publication are
available from the Executive Office of the American Law Institute, 4025
Chestnut Street, Philadelphia, PA 19104, and the National Conference of
Commissioners on Uniform State Laws, 676 North St. Clair Street, Suite
1700, Chicago, IL 60611. Copies are also available for public
inspection at the Department of the Treasury Library, Room 5030, main
Treasury Building, 1500 Pennsylvania Avenue, NW., Washington DC 20220,
and in the Office of the Federal Register, 800 North Capitol St., NW.,
Suite 700, Washington DC.
Securities Documentation means the applicable offering circular,
supplement, or other documents establishing the terms of a Book-entry
Funding Corporation Security.
Securities Intermediary means:
(1) A Person that is registered as a ``clearing agency'' under the
Federal securities laws; a Federal Reserve Bank; any other Person that
provides clearance or settlement services with respect to a Book-entry
Funding Corporation Security that would require it to register as a
clearing agency under the Federal securities laws but for an exclusion
or exemption from the registration requirement, if its activities as a
clearing corporation, including promulgation of rules, are subject to
regulation by a Federal or State governmental authority; or
(2) A Person (other than an individual, unless such individual is
registered as a broker or dealer under the federal securities laws)
including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that
capacity.
Security Entitlement means the rights and property interest of an
Entitlement Holder with respect to a Book-entry Funding Corporation
Security.
State means any State of the United States, the District of
Columbia, Puerto Rico, the Virgin Islands, or any other territory or
possession of the United States.
Transfer message means an instruction of a Participant to a Federal
Reserve Bank to effect a transfer of a Book-entry Funding Corporation
Security, as set forth in Federal Reserve Bank Operating Circulars.
Sec. 1511.2 Law governing rights and obligations of the Funding
Corporation and Federal Reserve Banks; rights of any Person against the
Funding Corporation and the Federal Reserve Banks.
(a) Except as provided in paragraph (b) of this section, the
following are governed solely by the regulations contained in this part
1511, the Securities Documentation and Federal Reserve Bank Operating
Circulars:
(1) The rights and obligations of the Funding Corporation and the
Federal Reserve Banks with respect to:
(i) A Book-entry Funding Corporation Security or Security
Entitlement; and
(ii) The operation of the Book-entry System as it applies to
Funding Corporation Securities; and
(2) The rights of any Person, including a Participant, against the
Funding Corporation and the Federal Reserve Banks with respect to:
(i) A Book-entry Funding Corporation Security or Security
Entitlement; and
(ii) The operation of the Book-entry System as it applies to
Funding Corporation Securities.
(b) A security interest in a Security Entitlement that is in favor
of a Federal Reserve Bank from a Participant and that is not recorded
on the books of a Federal Reserve Bank pursuant to Sec. 1511.4(c)(1),
is governed by the law (not including the conflict-of-law rules) of the
jurisdiction where the head office of the Federal Reserve Bank
maintaining the Participant's Securities Account is located. A security
interest in a Security Entitlement that is in favor of a Federal
[[Page 66877]]
Reserve Bank from a Person that is not a Participant, and that is not
recorded on the books of a Federal Reserve Bank pursuant to
Sec. 1511.4(c)(1), is governed by the law determined in the manner
specified in Sec. 1511.3.
(c) If the jurisdiction specified in the first sentence of
paragraph (b) of this section is a State that has not adopted Revised
Article 8 (incorporated by reference, see Sec. 1511.1), then the law
specified in paragraph (b) shall be the law of that State as though
Revised Article 8 had been adopted by that State.
Sec. 1511.3 Law governing other interests.
(a) To the extent not inconsistent with the regulations in this
part, the law (not including the conflict-of-law rules) of a Securities
Intermediary's jurisdiction governs:
(1) The acquisition of a Security Entitlement from the Securities
Intermediary;
(2) The rights and duties of the Securities Intermediary and
Entitlement Holder arising out of a Security Entitlement;
(3) Whether the Securities Intermediary owes any duties to an
adverse claimant to a Security Entitlement;
(4) Whether an Adverse Claim can be asserted against a Person who
acquires a Security Entitlement from the Securities Intermediary or a
Person who purchases a Security Entitlement or interest therein from an
Entitlement Holder; and
(5) Except as otherwise provided in paragraph (c) of this section,
the perfection, effect of perfection or non-perfection and priority of
a security interest in a Security Entitlement.
(b) The following rules determine a ``Securities Intermediary's
jurisdiction'' for purposes of this section:
(1) If an agreement between the Securities Intermediary and its
Entitlement Holder specifies that it is governed by the law of a
particular jurisdiction, that jurisdiction is the Securities
Intermediary's jurisdiction.
(2) If an agreement between the Securities Intermediary and its
Entitlement Holder does not specify the governing law as provided in
paragraph (b)(1) of this section, but expressly specifies that the
securities account is maintained at an office in a particular
jurisdiction, that jurisdiction is the Securities Intermediary's
jurisdiction.
(3) If an agreement between the Securities Intermediary and its
Entitlement Holder does not specify a jurisdiction as provided in
paragraph (b)(1) or (b)(2) of this section, the Securities
Intermediary's jurisdiction is the jurisdiction in which is located the
office identified in an account statement as the office serving the
Entitlement Holder's account.
(4) If an agreement between the Securities Intermediary and its
Entitlement Holder does not specify a jurisdiction as provided in
paragraph (b)(1) or (b)(2) of this section and an account statement
does not identify an office serving the Entitlement Holder's account as
provided in paragraph (b)(3) of this section, the Securities
Intermediary's jurisdiction is the jurisdiction in which is located the
chief executive office of the Securities Intermediary.
(c) Notwithstanding the general rule in paragraph (a)(5) of this
section, the law (but not the conflict-of-law rules) of the
jurisdiction in which the Person creating a security interest is
located governs whether and how the security interest may be perfected
automatically or by filing a financing statement.
(d) If the jurisdiction specified in paragraph (b) of this section
is a State that has not adopted Revised Article 8 (incorporated by
reference, see Sec. 1511.1), then the law for the matters specified in
paragraph (a) of this section shall be the law of that State as though
Revised Article 8 had been adopted by that State. For purposes of the
application of the matters specified in paragraph (a) of this section,
the Federal Reserve Bank maintaining the Securities Account is a
clearing corporation, and the Participant's interest in a Book-entry
Funding Corporation Security is a Security Entitlement.
Sec. 1511.4 Creation of Participant's Security Entitlement; security
interests.
(a) A Participant's Security Entitlement is created when a Federal
Reserve Bank indicates by book-entry that a Book-entry Funding
Corporation Security has been credited to a Participant's Securities
Account.
(b) A security interest in a Security Entitlement of a Participant
in favor of the United States to secure deposits of public money,
including without limitation deposits to the Treasury tax and loan
accounts, or other security interest in favor of the United States that
is required by Federal statute, regulation, or agreement, and that is
marked on the books of a Federal Reserve Bank is thereby effected and
perfected, and has priority over any other interest in the securities.
Where a security interest in favor of the United States in a Security
Entitlement of a Participant is marked on the books of a Federal
Reserve Bank, such Reserve Bank may rely, and is protected in relying,
exclusively on the order of an authorized representative of the United
States directing the transfer of the security. For purposes of this
paragraph, an ``authorized representative of the United States'' is the
official designated in the applicable regulations or agreement to which
a Federal Reserve Bank is a party, governing the security interest.
(c)(1) The Funding Corporation and the Federal Reserve Banks have
no obligation to agree to act on behalf of any Person or to recognize
the interest of any transferee of a security interest or other limited
interest in favor of any Person except to the extent of any specific
requirement of Federal law or regulation or to the extent set forth in
any specific agreement with the Federal Reserve Bank on whose books the
interest of the Participant is recorded. To the extent required by such
law or regulation or set forth in an agreement with a Federal Reserve
Bank, or the Federal Reserve Bank Operating Circular, a security
interest in a Security Entitlement that is in favor of a Federal
Reserve Bank, the Funding Corporation, or a Person may be created and
perfected by a Federal Reserve Bank marking its books to record the
security interest. Except as provided in paragraph (b) of this section,
a security interest in a Security Entitlement marked on the books of a
Federal Reserve Bank shall have priority over any other interest in the
securities.
(2) In addition to the method provided in paragraph (c)(1) of this
section, a security interest in a Security Entitlement, including a
security interest in favor of a Federal Reserve Bank, may be perfected
by any method by which a security interest may be perfected under
applicable law as described in Sec. 1511.2(b) or Sec. 1511.3. The
perfection, effect of perfection or non-perfection and priority of a
security interest are governed by such applicable law. A security
interest in favor of a Federal Reserve Bank shall be treated as a
security interest in favor of a clearing corporation in all respects
under such law, including with respect to the effect of perfection and
priority of such security interest. A Federal Reserve Bank Operating
Circular shall be treated as a rule adopted by a clearing corporation
for such purposes.
Sec. 1511.5 Obligations of Funding Corporation; no adverse claims.
(a) Except in the case of a security interest in favor of the
United States or a Federal Reserve Bank or otherwise as provided in
Sec. 1511.4(c)(1), for the purposes of this part 1511, the Funding
Corporation and the Federal Reserve Banks shall treat the Participant
to
[[Page 66878]]
whose Securities Account an interest in a Book-entry Funding
Corporation Security has been credited as the Person exclusively
entitled to issue a Transfer Message, to receive interest and other
payments with respect thereof and otherwise to exercise all the rights
and powers with respect to such Security, notwithstanding any
information or notice to the contrary. Neither the Federal Reserve
Banks nor the Funding Corporation is liable to a Person asserting or
having an Adverse Claim to a Security Entitlement or to a Book-entry
Funding Corporation Security in a Participant's Securities Account,
including any such claim arising as a result of the transfer or
disposition of a Book-entry Funding Corporation Security by a Federal
Reserve Bank pursuant to a Transfer Message that the Federal Reserve
Bank reasonably believes to be genuine.
(b) The obligation of the Funding Corporation to make payments of
interest and principal with respect to Book-entry Funding Corporation
Securities is discharged at the time payment in the appropriate amount
is made as follows:
(1) Interest on Book-entry Funding Corporation Securities is either
credited by a Federal Reserve Bank to a Funds Account maintained at
such Bank or otherwise paid as directed by the Participant.
(2) Book-entry Funding Corporation Securities are redeemed in
accordance with their terms by a Federal Reserve Bank withdrawing the
securities from the Participant's Securities Account in which they are
maintained and by either crediting the amount of the redemption
proceeds, including both principal and interest where applicable, to a
Funds Account at such Bank or otherwise paying such principal and
interest, as directed by the Participant. The principal of such
Securities shall be paid using the proceeds of the noninterest bearing
instruments maintained by the Funding Corporation for such purpose.
Sec. 1511.6 Authority of Federal Reserve Banks.
(a) Each Federal Reserve Bank is hereby authorized as fiscal agent
of the Funding Corporation to perform functions with respect to the
issuance of Book-entry Funding Corporation Securities offered and sold
by the Funding Corporation, in accordance with the Securities
Documentation, and Federal Reserve Bank Operating Circulars; to service
and maintain Book-entry Funding Corporation Securities in accounts
established for such purposes; to make payments of principal and
interest with respect to such Book-entry Funding Corporation Securities
as directed by the Funding Corporation; to effect transfer of Book-
entry Funding Corporation Securities between Participants' Securities
Accounts as directed by the Participants; and to perform such other
duties as fiscal agent as may be requested by the Funding Corporation.
(b) Each Federal Reserve Bank may issue Operating Circulars not
inconsistent with this Part, governing the details of its handling of
Book-entry Funding Corporation Securities, Security Entitlements, and
the operation of the Book-Entry System under this Part.
Sec. 1511.7 Liability of the Funding Corporation and Federal Reserve
Banks.
The Funding Corporation and the Federal Reserve Banks may rely on
the information provided in a Transfer Message, or other documentation,
and are not required to verify the information. The Funding Corporation
and the Federal Reserve Banks shall not be liable for any action taken
in accordance with the information set out in a Transfer Message, other
documentation, or evidence submitted in support thereof.
Sec. 1511.8 Notice of attachment.
The interest of a debtor in a Security Entitlement may be reached
by a creditor only by legal process upon the Securities Intermediary
with whom the debtor's securities account is maintained, except where a
Security Entitlement is maintained in the name of a secured party, in
which case the debtor's interest may be reached by legal process upon
the secured party. The regulations in this part do not purport to
establish whether a Federal Reserve Bank is required to honor an order
or other notice of attachment in any particular case or class of cases.
Dated: December 5, 1996.
Van B. Jorstad,
Acting Executive Director.
[FR Doc. 96-32169 Filed 12-18-96; 8:45 am]
BILLING CODE 2221-01-P
