98-4070. Regulations Governing Book-Entry Federal Home Loan Bank Securities  

  • [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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    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
    
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    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
    
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    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
    
    
    

Document Information

Effective Date:
3/20/1998
Published:
02/18/1998
Department:
Federal Housing Finance Board
Entry Type:
Rule
Action:
Final rule.
Document Number:
98-4070
Dates:
This final rule is effective on March 20, 1998.
Pages:
8057-8062 (6 pages)
Docket Numbers:
No. 98-03
RINs:
3069-AA54: Book Entry Procedure for Federal Home Loan Bank Securities
RIN Links:
https://www.federalregister.gov/regulations/3069-AA54/book-entry-procedure-for-federal-home-loan-bank-securities
PDF File:
98-4070.pdf
CFR: (21)
12 CFR 912.4(c)(1)
12 CFR 910.3
12 CFR 912.1
12 CFR 912.2
12 CFR 912.3
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