[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Rules and Regulations]
[Pages 8057-8062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4070]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 63, No. 32 / Wednesday, February 18, 1998 /
Rules and Regulations
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FEDERAL HOUSING FINANCE BOARD
12 CFR Parts 910 and 912
[No. 98-03]
RIN 3069-AA54
Regulations Governing Book-Entry Federal Home Loan Bank
Securities
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Board is adopting a final rule
amending its regulations governing procedures for maintaining book-
entry (uncertificated) Federal Home Loan Bank securities within the
Federal Reserve Banks' system of accounts to eliminate the need to
treat such securities as if they were certificated securities and to
conform more closely to the manner in which book-entry securities are
treated under the laws of the majority of states (as set forth in
Article 8 of the Uniform Commercial Code, as revised in 1994).
DATES: This final rule is effective on March 20, 1998.
FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Attorney-Advisor,
Office of General Counsel, 202/408-2932, Federal Housing Finance Board,
1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Background
On December 3, 1996, the Federal Housing Finance Board (Finance
Board) published, and requested public comments on, an interim rule
that amended part 912 of the Finance Board's regulations, which governs
Federal Home Loan Bank (FHLBank) securities maintained in book-entry
(uncertificated) form. 61 FR 64021 (Dec. 3, 1996). The interim final
rule was intended to update part 912 to reflect new developments in
commercial law regarding ownership and other rights in uncertificated
securities and, especially, to parallel the treatment of such
securities under Article 8 of the Uniform Commercial Code (UCC), as
amended in 1994.
Paragraphs (b) and (c) of section 11 of the Federal Home Loan Bank
Act (Bank Act) authorize the Finance Board to issue, upon such terms
and conditions as it may establish, consolidated Federal Home Loan Bank
(FHLBank) debentures or bonds (collectively, ``FHLBank securities''),
which are the joint and several obligations of the twelve regional
FHLBanks. See 12 U.S.C. 1431(b), (c). The Finance Board has set forth
the terms and conditions regarding the issuance of FHLBank securities
in part 910 of its regulations. 12 CFR part 910. Although, under the
Bank Act, the Finance Board is designated as the ``issuer'' of FHLBank
securities, it has delegated this issuance function, along with such
other ministerial functions as the servicing of the FHLBank securities,
to the Office of Finance (OF) (a joint office of the FHLBanks) pursuant
to section 2B(b)(1) of the Bank Act, 12 U.S.C. 1422b(b)(1), part 941 of
the Finance Board's regulations, 12 CFR part 941, and periodic
resolutions of the Board of Directors of the Finance Board.
Since 1977, the OF has issued domestic FHLBank securities
exclusively in ``book-entry'' form; that is, as uncertificated
securities recorded as entries on the computerized system of accounts
maintained by the Federal Reserve Banks (Reserve Banks). Under this
arrangement, the Reserves Banks, acting as fiscal agents of the Finance
Board, the FHLBanks and the OF: issue book-entry FHLBank securities;
maintain related book-entry accounts; pay principal and interest due on
book-entry FHLBank securities; and otherwise service such FHLBank
securities.
Prior to the adoption of the interim final rule in 1996, the rights
and obligations of the FHLBanks, the Reserve Banks, and other persons
with respect to the issuance and servicing of book-entry FHLBank
securities, and the operation of the associated FHLBank book-entry
system, were governed by regulatory text that had been promulgated by
the former Federal Home Loan Bank Board (FHLBB)--the Finance Board's
predecessor as regulator of the FHLBanks in 1973. See 12 CFR 506a
(1974); 38 FR 10969 (May 3, 1973) (proposed rule); 38 FR 26355 (Sept.
20, 1973) (final rule). These regulations, and those of other
government sponsored enterprises (GSEs) having similar book-entry
arrangements with the Reserve Banks, were patterned after former part
306 of the regulations of the Department of Treasury, 31 CFR part 306
(1996), which governed Reserve Bank book-entry procedures for Treasury
securities.
By 1996, the legal concepts upon which former part 912 were based,
like those underlying the analogous Department of Treasury regulations,
had become outdated. In the early 1970s, when these regulations were
developed, the United States government securities market was in a
state of transition between one in which most securities existed in
definitive form (that is, the traditional certificate) to one in which
securities are maintained almost exclusively within computerized book-
entry systems. Corresponding law (including state laws based on the
UCC) at the time former part 912 was promulgated assumed that
possession and delivery of physical certificates were the key elements
in the securities holding system. This led the Department of Treasury,
the FHLBB, and other GSE regulators to premise their regulations upon
the ``bearer-definitive security fiction,'' which deemed each book-
entry security to be the equivalent of a bearer-definitive security.
The shortcomings of the bearer-definitive security fiction became
increasingly apparent over the years, as the rules based on this
fiction were found to leave many unanswered questions regarding
transactions and rights in book-entry securities.
In addition, the rules proved inadequate to deal with the tiered
system of accounts in which book-entry securities are held. Each
interest in a book-entry security must be credited to the account of a
Reserve Bank ``participant''--that is, an entity having an account with
a Reserve Bank. Persons or entities, including securities broker-
dealers, who wish to acquire an interest in book-entry securities, but
who do not have an account with a Reserve Bank, must do so through a
Reserve Bank participant. Non-participant broker-dealers who deal in
book-entry securities through a participant may, in turn, hold these
[[Page 8058]]
securities for other persons or entities who otherwise lack access to
the securities markets. Accordingly, a Reserve Bank most likely will
have no information regarding the beneficial owners of interests in
book-entry securities, but, instead, will consider the participants in
whose Reserve Bank accounts the book-entry securities are held to be
the ``owners'' of the interests therein.
In 1994, the American Law Institute and the National Conference of
Commissioners on Uniform State Laws ratified a revised version of
Article 8 of the UCC (Revised Article 8), which addresses investment
securities. Thereafter, in 1996, the Department of Treasury amended its
regulations governing the book-entry system for Treasury securities
(called ``Treasury/Reserve Automated Debt Entry System'' or ``TRADES'')
to incorporate many of the concepts regarding transactions and rights
in book-entry securities set forth in Revised Article 8 and to defer to
state law modeled after Revised Article 8 in many circumstances. See 61
FR 43626 (Aug. 23, 1996) (final rule); 61 FR 8420 (Mar. 4, 1996)
(proposed rule). Shortly thereafter, in order to ensure uniformity in
the treatment of book-entry government securities, the regulators of
GSEs that maintain book-entry securities at Reserve Banks also
promulgated new regulations to govern their respective book-entry
systems. These regulations parallel the new TRADES regulation, with
modifications appropriate to the particular GSE and government
securities to which such regulations apply.
As part of this effort, the Finance Board adopted an interim final
rule amending part 912 of its regulations, governing book-entry FHLBank
securities, in December 1996. The Finance Board chose to act through an
interim final rule so that new part 912 would become effective
simultaneously with the new TRADES regulation on January 1, 1997, while
also giving the agency an opportunity to solicit comments from the
public and to give further consideration to some minor issues relating
to various aspects of the rule.
II. Analysis of the Final Rule
The Finance Board received no comments on the interim final rule
and, therefore, has made no changes thereto in response to public
comment. However, pursuant to its own review, the Finance Board has
incorporated some minor clarifications into the final rule without
altering the substance of the regulation. In the final rule,
Sec. 910.3, which cross-references part 912, has been modified to
replace the commas surrounding the phrase ``regarding book-entry
procedure'' with parentheses. This change has been made in order to
make clear that all Department of Treasury regulations governing
transactions in United States securities except those governing book-
entry securities shall apply to FHLBank securities. As this section
appeared in the interim final rule, it was possible to read the first
sentence as providing that the Department of Treasury's regulations
governing book-entry securities were to be incorporated into part 910.
In the final rule, the definition of ``Entitlement Holder'' and
``Participant,'' which are set forth in Sec. 912.1(c) and Sec. 912.1(j)
(designated as Sec. 912.1(h) in the interim final rule), respectively,
have been amended to include FHLBanks, which are permitted by statute
both to hold FHLBank securities and to maintain accounts with a reserve
Bank. See 12 U.S.C. 1431(h), 1435. In the interim final rule, these
definitions encompassed only entities meeting the definition of a
``Person,'' from which the FHLBanks are expressly excluded.
The majority of changes made have been incorporated in order to
reflect more expressly in the regulation the rights and obligations of
the Finance Board as statutory issuer of FHLBank securities and of the
OF as agent for the Finance Board or the FHLBanks with respect to the
securities. In this vein, Sec. 912.1(d) has been amended to make clear
that, under section 11 of the Bank Act, the Finance Board is considered
to be the issuer of FHLBank securities. See 12 U.S.C. 1431. Section
912.1(e) has been amended to refer to the OF, instead of the FHLBanks,
in order make clear that, in issuing and maintaining FHLBank securities
in its book-entry system, a Federal Reserve Bank acts as agent of the
OF which, in turn, acts as agent for the Finance Board or the FHLBanks.
In addition, definitions of ``Finance Board'' and ``Office of Finance''
have been added to Sec. 912.1 to permit the use of these terms within
the substantive portion of the regulation. The definition of ``Office
of Finance'' set forth in Sec. 912.1(i) makes clear that the OF acts as
agent of the Finance Board when it issues book-entry FHLBank
securities, but as agent of the FHLBanks when it performs any functions
relating to the maintenance and servicing of these securities.
Given the complex nature of the statutorily-mandated system under
which FHLBank securities are issued and serviced, the rights and
obligations of the Finance Board, the FHLBanks and the OF may overlap,
or may be at times ambiguous, depending on the function at issue.
Accordingly, all references to rights, obligations, or liabilities
arising in connection with book-entry FHLBank securities which in the
interim final rule referred only to the FHLBanks and the Reserve Banks
have been amended in the final rule to refer to the FHLBanks, the
Finance Board, the OF and the United States, in addition to the Reserve
Banks. These changes affect Sec. 912.1(l) (which was designated as
Sec. 912.1(j) in the interim final rule, defining the term ``person''
to exclude the foregoing entities), Sec. 912.2(a) (specifying the law
governing rights and obligations regarding book-entry FHLBank
securities), Sec. 912.5(a) (addressing obligations arising from the
transfer of interests in book-entry FHLBank securities), and Sec. 912.7
(addressing liabilities arising from transactions in book-entry FHLBank
securities).
In addition, in order to more accurately reflect the fact that the
Reserve Banks deal with the OF--and not directly with the FHLBanks or
the Finance Board (for whom the OF acts as agent)--in matters
concerning the book-entry system, references to dealings with the
Reserve Banks have been amended to refer to the OF, instead of to the
FHLBanks. This change affects Sec. 912.2(a) (addressing procedures
established to govern book-entry transactions) and Sec. 912.6(a)
(addressing the authority of the Reserve Banks as fiscal agents).
Finally, the Finance Board has amended the interim final rule by
adding a new paragraph (a) to Sec. 912.8 and designating the existing
text as Sec. 912.8(b). New Sec. 912.8(a) has been added in order to
conform to common practice among private parties and other GSEs by
authorizing the OF to require an indemnity bond of a party if, in its
judgment, or in the judgment of the Finance Board or FHLBanks, such
action is necessary to protect the interests of any of these entities.
In summary, although the final rule is intended to provide a legal
framework for all book-entry FHLBank securities, it is not a
codification of all laws that could affect interests in book-entry
FHLBank securities. In general, the regulation provides that (with some
exceptions regarding security interests) Federal law will govern the
rights and obligations of the FHLBanks, the Finance Board, the OF, the
United States and the Reserve Banks arising from book-entry FHLBank
securities and the book-entry system, and that state law (to the extent
that states have adopted Revised Article 8) will govern all other
rights and obligations. The regulation also sets forth the substantive
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Federal law that applies to the rights and obligations of the FHLBanks,
the Finance Board, the OF, the United States and the Reserve Banks
arising from book-entry FHLBank securities and the book-entry system.
The most prominent aspect of the substantive law set forth therein is
that none of the aforementioned entities is liable to persons having or
claiming interests in book-entry securities that are below the
participant level in the tiered system of ownership; that is, the
FHLBanks, the Finance Board, the OF, the United States and the Reserve
Banks need only recognize Reserve Bank participants as holders of
interests in book-entry FHLBank securities.
III. Procedural Requirements
This final rule does not meet the criteria for a ``significant
regulatory action'' under Executive Order 12866.
Because the Finance Board adopted the changes to Sec. 910.3 and
part 912 in the form of an interim final rule and not as a proposed
rule, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601,
et seq., do not apply.
There are no collections of information contained in this final
rule. Therefore, the Paperwork Reduction Act of 1995, 44 U.S.C. 3501,
et seq., does not apply.
List of Subjects
12 CFR Part 910
Federal home loan banks, Government securities.
12 CFR Part 912
Federal home loan banks, Federal Reserve System, Government
securities, electronic funds transfer.
Accordingly, the Federal Housing Finance Board hereby amends title
12, chapter IX of the Code of Federal Regulations, as follows:
PART 910--CONSOLIDATED BONDS AND DEBENTURES
1. The authority citation for part 910 continues to read as
follows:
Authority: 12 U.S.C. 1422b, 1431.
2. Section 910.3 is revised to read as follows:
Sec. 910.3 Transactions in consolidated bonds.
The general regulations of the Department of Treasury now or
hereafter in force governing transactions in United States securities,
except 31 CFR part 357 (regarding book-entry procedure), are hereby
incorporated into this part, so far as applicable and as necessarily
modified to relate to consolidated Federal Home Loan Bank bonds, as the
regulations of the Board for similar transactions in consolidated
Federal Home Loan Bank bonds. The book-entry procedure for consolidated
Federal Home Loan Bank bonds is contained in part 912 of this
subchapter.
3. Part 912 is revised to read as follows:
PART 912--BOOK-ENTRY PROCEDURE FOR FEDERAL HOME LOAN BANK
SECURITIES
Sec.
912.1 Definitions.
912.2 Law governing rights and obligations of Federal Home Loan
Banks, Finance Board, Office of Finance, United States and Federal
Reserve Banks; rights of any Person against Federal Home Loan Banks,
Finance Board, Office of Finance, United States and Federal Reserve
Banks.
912.3 Law governing other interests.
912.4 Creation of Participant's Security Entitlement; security
interests.
912.5 Obligations of Federal Home Loan Banks and the Office of
Finance; no Adverse Claims.
912.6 Authority of Federal Reserve Banks.
912.7 Liability of Federal Home Loan Banks, Finance Board, Office
of Finance and Federal Reserve Banks.
912.8 Additional requirements; notice of attachment for Book-entry
Federal Home Loan Bank Securities.
912.9 Reference to certain Department of Treasury commentary and
determinations.
912.10 Obligations of United States with respect to Federal Home
Loan Bank Securities.
Authority: 12 U.S.C. 1422a, 1422b, 1431, 1435.
Sec. 912.1 Definitions.
For purposes of this part, unless the context otherwise requires or
indicates:
(a) Adverse Claim means a claim that a claimant has a property
interest in a Book-entry Federal Home Loan Bank Security and that it is
a violation of the rights of the claimant for another Person to hold,
transfer, or deal with the Security.
(b) Book-entry Federal Home Loan Bank Security means a Federal Home
Loan Bank Security maintained in the book-entry system of the Federal
Reserve Banks.
(c) Entitlement Holder means a Person or a Federal Home Loan Bank
to whose account an interest in a Book-entry Federal Home Loan Bank
Security is credited on the records of a Securities Intermediary.
(d) Federal Home Loan Bank Security means a consolidated bond,
debenture, note, or other obligation of the Federal Home Loan Bank
issued by the Finance Board under authority of section 11 of the
Federal Home Loan Bank Act (12 U.S.C. 1431).
(e) Federal Reserve Bank means a Federal Reserve Bank or branch,
acting as fiscal agent for the Office of Finance, unless otherwise
indicated.
(f) Federal Reserve Bank Operating Circular means the publication
issued by each Federal Reserve Bank that sets forth the terms and
conditions under which the Federal Reserve Bank maintains Book-entry
Securities accounts and transfers Book-entry Securities.
(g) Finance Board means the Federal Housing Finance Board.
(h) 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.
(i) Office of Finance means the Office of Finance established under
part 941 of this chapter, acting as agent of the Finance Board in all
matters relating to the issuance of Book-entry Federal Home Loan Bank
Securities, or as agent of the Federal Home Loan Banks in the
performance of all other necessary and proper functions relating to
Book-entry Federal Home Loan Bank Securities, including the payment of
principal and interest due thereon.
(j) Participant means a Person or a Federal Home Loan Bank that
maintains a Participant's Securities Account with a Federal Reserve
Bank.
(k) Participant's Securities Account means an account in the name
of a Participant at a Federal Reserve Bank to which Book-entry Federal
Home Loan Bank Securities held for a Participant are or may be
credited.
(l) 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 a Federal Home Loan Bank, the Finance Board, the Office of
Finance, the United States, or a Federal Reserve Bank.
(m) 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.
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.
(n) Securities Intermediary means:
(1) A Person that is registered as a ``clearing agency'' under the
federal
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securities laws; a Federal Reserve Bank; any other person that provides
clearance or settlement services with respect to a Book-entry Federal
Home Loan Bank 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, it 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.
(o) Security Entitlement means the rights and property interest of
an Entitlement Holder with respect to a Book-entry Federal Home Loan
Bank Security.
(p) 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.
(q) Transfer Message means an instruction of a Participant to a
Federal Reserve Bank to effect a transfer of a Book-entry Federal Home
Loan Bank Security, as set forth in Federal Reserve Bank Operating
Circulars.
Sec. 912.2 Law governing rights and obligations of Federal Home Loan
Banks, Finance Board, Office of Finance, United States and Federal
Reserve Banks; rights of any Person against Federal Home Loan Banks,
Finance Board, Office of Finance, United States and Federal Reserve
Banks.
(a) Except as provided in paragraph (b) of this section, the rights
and obligations of the Federal Home Loan Banks, the Finance Board, the
Office of Finance, the United States and the Federal Reserve Banks with
respect to: A Book-entry Federal Home Loan Bank Security or Security
Entitlement and the operation of the Book-entry system, as it applies
to Federal Home Loan Bank Securities; and the rights of any Person,
including a Participant, against the Federal Home Loan Banks, the
Finance Board, the Office of Finance, the United States and the Federal
Reserve Banks with respect to: A Book-entry Federal Home Loan Bank
Security or Security Entitlement and the operation of the Book-entry
system, as it applies to Federal Home Loan Bank Securities; are
governed solely by regulations of the Finance Board, including the
regulations of this part 912, the applicable offering notice,
applicable procedures established by the Office of Finance, and Federal
Reserve Bank Operating Circulars.
(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. 912.4(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
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. 912.4(c)(1), is governed by the law determined in the manner
specified in Sec. 912.3.
(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, then the law specified in the first sentence of paragraph
(b) of this section shall be the law of that State as though Revised
Article 8 had been adopted by that State.
Sec. 912.3 Law governing other interests.
(a) To the extent not inconsistent with this part 912, 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, 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 Federal Home Loan Bank Book-entry Security is a Security
Entitlement.
Sec. 912.4 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 Federal Home
Loan Bank 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
[[Page 8061]]
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 Federal 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 (b), 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 Federal Home Loan Banks, the Finance Board, the Office
of Finance, the United States 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 a Security Entitlement 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 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. 912.2(b) or Sec. 912.3. The
perfection, effect of perfection or non-perfection, and priority of a
security interest are governed by that 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 that law, including with respect to the effect of perfection and
priority of the security interest. A Federal Reserve Bank Operating
Circular shall be treated as a rule adopted by a clearing corporation
for such purposes.
Sec. 912.5 Obligations of the Federal Home Loan Banks and the Office
of Finance; 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. 912.4(c)(1), for the purposes of this part 912, the Federal Home
Loan Banks, the Office of Finance and the Federal Reserve Banks shall
treat the Participant to whose Securities Account an interest in a
Book-entry Federal Home Loan Bank 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 the Security,
notwithstanding any information or notice to the contrary. Neither the
Federal Home Loan Banks, the Finance Board, the Office of Finance, the
United States, nor the Federal Reserve Banks are liable to a Person
asserting or having an Adverse Claim to a Security Entitlement or to a
Book-entry Federal Home Loan Bank Security in a Participant's
Securities Account, including any such claim arising as a result of the
transfer or disposition of a Book-entry Federal Home Loan Bank 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 Federal Home Loan Banks and the Office of
Finance to make payments of interest and principal with respect to
Book-entry Federal Home Loan Bank Securities is discharged at the time
payment in the appropriate amount is made as follows:
(1) Interest on Book-entry Federal Home Loan Bank Securities is
either credited by a Federal Reserve Bank to a Funds Account maintained
at the Federal Reserve Bank or otherwise paid as directed by the
Participant.
(2) Book-entry Federal Home Loan Bank Securities are paid, either
at maturity or upon redemption, 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 proceeds, including both principal and interest,
where applicable, to a Funds Account at the Federal Reserve Bank or
otherwise paying such principal and interest as directed by the
Participant. No action by the Participant is required in connection
with the payment of a Book-entry Federal Home Loan Bank Security,
unless otherwise expressly required.
Sec. 912.6 Authority of Federal Reserve Banks.
(a) Each Federal Reserve Bank is hereby authorized as fiscal agent
of the Office of Finance: to perform functions with respect to the
issuance of Book-entry Federal Home Loan Bank Securities, in accordance
with the terms of the applicable offering notice and with procedures
established by the Office of Finance; to service and maintain Book-
entry Federal Home Loan Bank Securities in accounts established for
such purposes; to make payments of principal, interest and redemption
premium (if any), as directed by the Office of Finance; to effect
transfer of Book-entry Federal Home Loan Bank 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
Office of Finance.
(b) Each Federal Reserve Bank may issue Operating Circulars not
inconsistent with this part 912, governing the details of its handling
of Book-entry Federal Home Loan Bank Securities, Security Entitlements,
and the operation of the Book-entry system under this part 912.
Sec. 912.7 Liability of Federal Home Loan Banks, Finance Board, Office
of Finance and Federal Reserve Banks.
The Federal Home Loan Banks, the Finance Board, the Office of
Finance and the Federal Reserve Banks may rely on the information
provided in a tender, transaction request form, other transaction
documentation, or Transfer Message, and are not required to verify the
information. Neither the Federal Home Loan Banks, the Finance Board,
the Office of Finance, the United States, nor the Federal Reserve Banks
shall be liable for any action taken in accordance with the information
set out in a tender, transaction request form, other transaction
documentation, or Transfer Message, or evidence submitted in support
thereof.
Sec. 912.8 Additional requirements; notice of attachment for Book-
entry Federal Home Loan Bank Securities.
(a) Additional requirements. In any case or any class of cases
arising under the regulations in this part 912, the Office of Finance
may require such additional evidence and a bond of indemnity, with or
without surety, as may in its judgment, or in the judgment of the
Federal Home Loan Banks or the Finance Board, be necessary for the
protection of the interests of the Federal
[[Page 8062]]
Home Loan Banks, the Finance Board, the Office of Finance or the United
States.
(b) 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 912 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.
Sec. 912.9 Reference to certain Department of Treasury commentary and
determinations.
(a) The Department of Treasury TRADES Commentary (31 CFR part 357,
appendix B) addressing the Department of Treasury regulations governing
book-entry procedure for Treasury Securities is hereby referenced, so
far as applicable and as necessarily modified to relate to Book-entry
Federal Home Loan Bank Securities, as an interpretive aid to this part
912.
(b) Determinations of the Department of Treasury regarding whether
a State shall be considered to have adopted Revised Article 8 for
purposes of 31 CFR part 357, as published in the Federal Register or
otherwise, shall also apply to this part 912.
Sec. 912.10 Obligations of United States with respect to Federal Home
Loan Bank Securities.
Federal Home Loan Bank Securities are not obligations of the United
States and are not guaranteed by the United States.
By the Board of Directors of the Federal Housing Finance Board
Dated: January 21, 1998.
Bruce A. Morrison,
Chairman.
[FR Doc. 98-4070 Filed 2-17-98; 8:45 am]
BILLING CODE 6725-01-U
