[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Proposed Rules]
[Pages 19002-19003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10726]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 344
[Department of the Treasury Circular, Public Debt Series No. 3-72]
Regulations Governing United States Treasury Certificates of
Indebtedness, Treasury Notes, and Treasury Bonds--State and Local
Government Series
AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the
Treasury.
ACTION: Advance Notice of Proposed Rulemaking.
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SUMMARY: The Department of the Treasury is issuing this Advance Notice
of Proposed Rulemaking to advise market participants in State and Local
Government Series (SLGS) securities transactions of its intention to
issue regulations designed to make the SLGS securities program more
attractive and flexible to investors while still achieving policy and
cost objectives of the Department. Many of the changes under
consideration have been requested by market participants and state and
local governments. We invite comments, advice and recommendations from
interested parties regarding the changes under consideration as well as
any additional changes not specifically covered by this notice.
DATES: Comments must be received on or before May 30, 1996.
ADDRESSES: Copies of this Advance Notice of Proposed Rulemaking have
been made available for downloading from the Bureau of the Public Debt
home page at the following address: http://www.ustreas.gov/treasury/
bureaus/pubdebt/pubdebt.hmtl Comments should be sent to: Division of
Special Investments, Bureau of the Public Debt, Department of the
Treasury, 200 3rd St., P.O. Box 396, Parkersburg, WV 26101-0396.
[[Page 19003]]
Comments received will be available for public inspection and copying
at the Division of Special Investments and at the Treasury Department
Library, FOIA Collection, Room 5030, Main Treasury Building, 1500
Pennsylvania Avenue NW, Washington, D.C. 20220. Persons wishing to
visit the library should call 202-622-0990 for an appointment. Comments
may also be sent through the Internet to Fred Pyatt, Director, or
Howard Stevens, Supervisory Program Analyst, Division of Special
Investments at fpyatt@bpd.treas.gov or hstevens@bpd.treas.gov. When
sending comments by Internet, please provide your full name and mailing
address.
FOR FURTHER INFORMATION CONTACT: Fred Pyatt, Director, or Howard
Stevens, Supervisory Program Analyst, Division of Special Investments,
at 304-480-7752.
SUPPLEMENTARY INFORMATION:
I. Background
The Department of the Treasury, Bureau of the Public Debt, desires
to make the SLGS securities program more attractive and flexible for
State and local government issuers of debt obligations that are subject
to the arbitrage and rebate rules of the Internal Revenue Code. It is
the Department's intent to do so in a manner consistent with tax policy
objectives and in a manner that is cost effective.
In recent years, market participants have advised the Department
that aspects of the existing SLGS securities regulations impose burdens
that are not needed or cost-effective. Changes in the Internal Revenue
Code since the inception of the SLGS securities program, specifically
changes in the arbitrage and rebate restrictions under Section 148,
make it possible to eliminate certain requirements that are now
contained in the SLGS securities regulations. Section 148 restricts the
use of proceeds of tax-exempt State and local bonds to acquire higher
yielding investments. For example, Section 148(a) provides generally
that interest on a State or local bond is tax-exempt only if the issuer
invests bond proceeds at a yield that is not materially higher than the
yield on the bond issue. Section 148(f) provides that interest on a
State or local bond is tax-exempt only if the issuer rebates to the
Federal government certain arbitrage earnings derived from investing
gross proceeds at a yield exceeding the yield on the bond issue.
II. Set Forth Below Are Possible Changes in the SLGS Program That
the Department is Studying
1. Eliminate the ``all or nothing'' certification which requires
all yield restricted investments be invested either all in SLGS
securities or all in open market Treasury securities.
2. Allow subscriptions for time deposit and special zero interest
SLGS securities in increments of less than $100 above the $1,000
minimum investment and permit partial redemptions in multiples of less
than $100.
3. Reduce the minimum maturity for zero interest time deposit and
special zero interest certificates of indebtedness.
4. Reduce the time between the date of subscription and the date of
issue for time deposit and special zero interest SLGS securities.
5. Make SLGS securities pricing more consistent with open market
Treasury securities pricing by reducing the 1/8 of 1% (12.5 basis
points) differential that now exists between SLGS securities prices and
the then current estimated Treasury borrowing rate for a security of
comparable maturity.
6. Permit SLGS securities to be purchased with funds subject to
rebate as well as yield restriction by removing from the current SLGS
securities regulations certifications which limit or prohibit
investment. Certain of the limitations would be incorporated into the
Internal Revenue Service regulations.
7. Revise the demand deposit program. Revisions being considered
include adjusting the rate formula and eliminating certifications that
are duplicative of current tax regulations or could be better
administered through the tax regulations.
8. Change the formula for determining the redemption value of SLGS
securities to one where the remaining interest and principal payments
are discounted by the Treasury borrowing rate for the remaining term to
maturity of the security being redeemed. This would result in a premium
in cases where the Treasury borrowing rate is lower than the stated
interest rate of the SLGS security.
9. Zero interest time deposit SLGS securities could be redeemed
early at par.
10. Permit the purchase of SLGS securities with the proceeds of
previously redeemed SLGS securities or open market Treasury securities.
These proposed changes to the SLGS securities program could be
omitted, modified or additions made in light of any comments received
or as a result of any internal Department decisions.
This advance notice of proposed rulemaking is being issued to
secure the benefit of public comment. After receipt and consideration
of responses to this advance notice of proposed rulemaking, the
Department may issue a notice of proposed rulemaking or it may only
issue a final rule amending 31 CFR Part 344. However, because any
proposed or final rule will relate to matters of public contract and
procedures for United States securities, as well as the borrowing power
and fiscal authority of the United States, the notice, public comment
and delayed effective date provisions of the Administrative Procedure
Act are inapplicable pursuant to 5 U.S.C. 553(a)(2).
List of Subjects in 31 CFR Part 344
Bonds, Government securities, Securities.
Authority: 31 U.S.C. 3102, et seq., Pub. L. 99-514, 100 Stat.
2654, Sec. 1301(d).
Dated: April 25, 1996.
Gerald Murphy,
Fiscal Assistant Secretary.
[FR Doc. 96-10726 Filed 4-26-96; 10:23 am]
BILLING CODE 4810-39-W
