Proposed Rule2022-21173
U.S. Treasury Securities-State and Local Government Series
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 30, 2022
Issuing agencies
Treasury DepartmentBureau of the Fiscal Service
Abstract
The Department of the Treasury (Treasury) is issuing this notice of proposed rulemaking (NPRM) to amend the regulations governing State and Local Government Series (SLGS) securities. Treasury is proposing to amend the SLGS regulations to address misuse of the SLGS program, most notably the use of program flexibilities by tax- advantaged entities, usually a state or local government, investing in SLGS securities to create impermissible cost-free options. This NPRM proposes amendments to existing regulations to help stop such activity. In addition, this NPRM proposes administrative changes to increase efficiencies in the program.
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 189 (Friday, September 30, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 189 (Friday, September 30, 2022)]
[Proposed Rules]
[Pages 59353-59363]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21173]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Bureau of the Fiscal Service
31 CFR Part 344
[FISCAL-2022-0002]
RIN 1530-AA25
U.S. Treasury Securities--State and Local Government Series
AGENCY: Bureau of the Fiscal Service, Fiscal Service, Treasury.
ACTION: Notice of proposed rulemaking with request for comments.
-----------------------------------------------------------------------
[[Page 59354]]
SUMMARY: The Department of the Treasury (Treasury) is issuing this
notice of proposed rulemaking (NPRM) to amend the regulations governing
State and Local Government Series (SLGS) securities. Treasury is
proposing to amend the SLGS regulations to address misuse of the SLGS
program, most notably the use of program flexibilities by tax-
advantaged entities, usually a state or local government, investing in
SLGS securities to create impermissible cost-free options. This NPRM
proposes amendments to existing regulations to help stop such activity.
In addition, this NPRM proposes administrative changes to increase
efficiencies in the program.
DATES: To be considered, comments must be received on or before
November 29, 2022.
ADDRESSES: You may submit comments by either of the following methods:
Internet: <a href="https://www.regulations.gov">https://www.regulations.gov</a> (via the online comment form
for this NPRM as posted within Docket ID No. FISCAL-2022-0002 at
<a href="http://www.regulations.gov">www.regulations.gov</a>, the Federal e-rulemaking portal);
U.S. Mail: Mike Goodwin, Division Director, or Jared Waters,
Program Manager, Bureau of the Fiscal Service, P.O. Box 396,
Parkersburg, WV 26106-1328.
All submissions received must be addressed to the Bureau of the
Fiscal Service and include the Docket ID Number FISCAL-2022-0002. All
comments received will be posted without change to <a href="http://www.regulations.gov">www.regulations.gov</a>.
The posting will include any personal information that you provide in
the submission.
FOR FURTHER INFORMATION CONTACT: Mike Goodwin, Division Director, Jared
Waters, Program Manager, Brian Metz, Senior Counsel, or Elizabeth
Spears, Senior Counsel, at <a href="/cdn-cgi/l/email-protection#144758534754727d677775783a606671756761666d3a737b62"><span class="__cf_email__" data-cfemail="ebb8a7acb8ab8d8298888a87c59f998e8a989e9992c58c849d">[email protected]</span></a> or (304) 480-5299.
SUPPLEMENTARY INFORMATION:
I. Regulatory Background
A. SLGS Program
SLGS securities are non-marketable Treasury securities that are
available only for purchase by an Issuer, as defined in 31 CFR 344.1,
of tax-advantaged securities (Issuers). The purpose of the SLGS program
is to assist Issuers when investing proceeds from bond issuances in
complying with yield restriction and rebate requirements applicable to
tax-advantaged securities under the Internal Revenue Code. Because an
Issuer's bond issuance process is characterized by several variables
that may take a number of weeks to resolve, flexibility has been built
into the SLGS program to allow Issuers to customize the SLGS security
terms such as interest rate, maturity, and issue date. Over the years,
Treasury has amended the SLGS regulations in an effort to maintain SLGS
securities as an attractive investment alternative to marketable
securities for Issuers, while also preventing the program from being
misused by Issuers and from becoming burdensome to Treasury financing
operations.
Treasury has repeatedly stated that speculation by Issuers in
interest rate movements between marketable Treasury securities and/or
SLGS securities is both inconsistent with the purpose of the SLGS
program and is prohibited by the SLGS regulations. Despite Treasury's
prohibition on such speculation, impermissible transactions have been
observed within the SLGS program. Treasury attributes the impermissible
transactions to the exploitation of certain flexibilities in the
program. The proposed amendments to the regulations are to reinforce to
Issuers the prohibition on these transactions and to make it less
likely that SLGS investors can use the flexibilities to impermissibly
create cost-free options based on interest rate movements. This NPRM
identifies in Section E the observed cost-free options that are
prohibited and proposes amendments to reduce Issuers' flexibility in
structuring the terms of SLGS securities to create such cost-free
options. Treasury is also proposing other changes that are designed to
improve the administration of the SLGS program.
B. Flexibilities Added to the SLGS Program in 1996
In 1996, Treasury revised the regulations governing SLGS securities
to make the program a more flexible and competitive investment vehicle
for Issuers in a manner that was intended to be cost effective for
them. 61 FR 55690 (October 28, 1996). The 1996 final rule eliminated
several requirements such as the Issuer's certifications to purchase
SLGS securities. In addition, the regulations were amended to permit an
Issuer to subscribe for SLGS securities and subsequently cancel the
subscription, without a monetary penalty, under certain circumstances
C. Cost-Free Options Addressed in 1997
In 1997, Treasury amended the regulations to clarify that certain
transactions in which Issuers previously used subscriptions for SLGS
securities to provide a cost-free interest rate hedge or option were
prohibited. 62 FR 46444 (September 3, 1997). The 1997 final rule added
Sec. Sec. 344.2(f)(1) and (f)(2), stating that it is impermissible to
subscribe for SLGS securities for deposit in a defeasance escrow or
fund if: (1) the amount of SLGS securities subscribed for, plus the
securities already in the escrow or fund, plus the amount the Issuer
has acquired or has a right to acquire for deposit in the escrow or
fund, exceeds the total amount of securities needed to fund such escrow
or fund, and (2) the securities in the escrow or fund are subject to an
agreement conditioned on changes in the interest rate on marketable
Treasury securities.
D. Cost-Free Options Addressed in 2004
Treasury has often noted that the prices established for SLGS
securities do not include the cost of an option. Although Treasury
considered whether to allow optionality on SLGS securities if Treasury
were compensated, Treasury concluded in a 2004 NPRM that there was no
practical way to charge for the value of an option. 69 FR 58756
(September 30, 2004).
E. Cost-Free Options Addressed in 2005
In a 2005 final rule, Treasury amended the regulations to prohibit
practices that were variations on the use of SLGS securities to create
some form of a cost-free option. These practices included: (1) the
redemption before maturity or sale of securities to reinvest in a
higher yielding SLGS or marketable security, and (2) the cancellation
of SLGS subscriptions upon rising interest rates and re-subscribing for
SLGS securities at a higher yield. 70 FR 37904 (June 30, 2005). In an
attempt to stop recurring misuse of the SLGS program, the preamble
reaffirmed that it is ``inappropriate to use the SLGS securities
program as an option'' and that such practice is ``contrary to the
purpose of the program.''
Under current regulations, Issuers are not allowed to create a
cost-free option. 31 CFR 344.2(f) provides: ``What are some practices
involving SLGS securities that are not permitted? (1) In General. For
SLGS securities subscribed for on or after August 15, 2005, it is
impermissible: (i) To use the SLGS program to create a cost-free
option. . . .''
II. Treasury's Proposals To Address Creation of Impermissible Cost-Free
Options
During escrow restructurings, Issuers often redeem SLGS securities
before maturity (early redemption) and reinvest the proceeds in SLGS or
marketable securities at a higher yield to
[[Page 59355]]
eliminate ``negative arbitrage'' under the Internal Revenue Code.
Negative arbitrage occurs when bond proceeds are invested by an Issuer
at a yield that is less than the yield on the bond issue, often as a
result of market conditions where the maximum SLGS rates available are
lower than what would be permissible under arbitrage provisions of the
Internal Revenue Code (26 U.S.C. 148). Such restructuring transactions
to eliminate negative arbitrage generally are allowed under the current
SLGS regulations, so long as a cost-free option is not created.
However, changing the terms of or early redemption of SLGS securities
to take advantage of infrequent pricing of SLGS securities is
prohibited under the current regulations even when undertaken to
eliminate negative arbitrage. Section 244.2(f)(1)(i) of the current
regulations makes it impermissible ``to use the SLGS program to create
a cost-free option.'' The rationale for this prohibition was previously
explained in two prior Federal Register publications, in which Treasury
specifically stated that cost-free options are impermissible, even if
used to eliminate negative arbitrage. 69 FR 58756 (September 30, 2004)
and 70 FR 37904 (June 30, 2005). Furthermore, section 244.2(f)(2) of
the current regulations includes examples of negative arbitrage
situations that are prohibited.
To further clarify the boundaries of the cost-free option
prohibition, Treasury proposes modest reductions in the current
flexibilities available under the SLGS regulations to eliminate the
following three types of practices that create cost-free options in
violation of the SLGS regulations:
(1) Purchasing a long-term SLGS security and redeeming the security
before maturity to capture redemption premium;
(2) Establishing or changing the maturity and associated interest
rate on SLGS securities already subscribed for to take advantage of
interest rate movements, either to capture redemption premiums or to
minimize losses or
(3) Establishing or changing the SLGS subscription amount to
maximize redemption premiums or minimize potential losses.
Any of these practices, alone or in combination, creates a cost-
free option. Treasury has repeatedly stated that manipulating the
administrative flexibility designed in the SLGS regulations to create a
cost-free option is an inappropriate use of the program and
inconsistent with its purpose even when undertaken to eliminate
negative arbitrage. Treasury incurs a direct cost from such
manipulation because it is not compensated for the value of the cost-
free option, which may generate large gains in the hands of the SLGS
purchasers. In addition, SLGS transactions motivated by cost-free
options result in volatility in Treasury's cash balances and difficulty
in forecasting cash balances, which increases Treasury's borrowing and
administrative costs, as previously identified in 2004 and in 2005. 69
FR 58756 (September 30, 2004) and 70 FR 37904 (June 30, 2005). The
three practices identified above create features that are not available
in marketable Treasury securities and result in additional costs to the
Federal taxpayer.
For these reasons, this NPRM proposes the amendments described
below to the SLGS regulations to eliminate these practices. Treasury
believes that the proposed amendments retain sufficient flexibility for
Issuers to be able to select maturities and interest payment dates,
thereby continuing to make SLGS securities an attractive investment
vehicle for Issuers. The proposed rule amendments will apply only to
SLGS subscriptions started on or after the effective date of the final
rule. Treasury anticipates that the effective date will be six months
after the final rule's publication in the Federal Register.
A. Purchasing and Early Redemption of a Long-Term SLGS Security
The first type of cost-free option identified in this NPRM is
``purchasing a long-term SLGS security and redeeming the security
before maturity in order to capture redemption premium.'' To eliminate
this cost-free option, Treasury proposes imposing a requirement that
the Issuer match the maturity of the SLGS security with an underlying
governmental purpose and hold Time Deposit securities, as defined by 31
CFR 344.4, for a minimum amount of time before requesting an early
redemption. The meaning of the phrase ``governmental purpose'' is
intended to be consistent with its meaning pursuant to the Income Tax
Regulations under section 148 of the Internal Revenue Code (26 U.S.C.
148). Thus, an underlying governmental purpose generally refers to the
Issuer's expected use of the invested funds; for example, financing a
construction project, repaying a prior issue of bonds, or funding a
debt service reserve.
1. No Maturity Longer Than Necessary. In a 2004 NPRM, Treasury
proposed a provision that would make it impermissible for an Issuer to
purchase a SLGS security with a maturity longer than was reasonably
necessary to accomplish a governmental purpose of the Issuer. The
provision was intended to address a practice where the Issuer, acting
on movements of interest rates, would redeem the SLGS security before
maturity to capture a premium. 69 FR 58756 (September 30, 2004). Based
on public comments received, Treasury decided not to include the
provision in the 2005 final rule. 70 FR 37904 (June 30, 2005).
However, due to more recently observed early redemption requests
and changes to SLGS subscriptions that appear to have been made without
a legitimate governmental purpose, Treasury is revisiting the previous
proposal. Treasury believes that the costs to Treasury of early
redemptions and changes to SLGS subscriptions have the potential to
outweigh any administrative burden imposed on either Treasury or the
Issuer. To help ensure clarity, Treasury has added specific examples
explaining the proposed amendment.
Treasury proposes two provisions that will require the Issuer to
match the maturity of the SLGS security with an underlying governmental
purpose in order to preclude the Issuer from purchasing a long-term
SLGS security and redeeming it prior to maturity in order to capture
redemption premium. First, Treasury proposes adding a new ``duration''
certification in Sec. 344.2(e)(3), requiring the Issuer to certify
that the length of the maturity of a SLGS security subscribed for is no
longer than reasonably necessary for the underlying governmental
purpose of the investment. Because Demand Deposit securities, defined
at 31 CFR 344.7, are one-day certificates of indebtedness, they will
not be subject to the duration certification.
Second, Treasury proposes amending the non-exhaustive list of
impermissible transactions in Sec. 344.2(f)(1) by adding a new
functional description in subsection (iv) that will make it an
impermissible practice to purchase or redeem prior to maturity a SLGS
security with a maturity that is longer than is reasonably necessary to
accomplish the Issuer's governmental purpose. This functional
description is meant to encompass the policy behind the amendments
Treasury is proposing in this NPRM while acknowledging that
impermissible activity could occur in a variety of ways, including ways
not described in the non-exhaustive list. To illustrate how the
duration certification will apply to refunding escrow funds, bond debt
service reserve funds, and project construction funds, new examples of
impermissible transactions
[[Page 59356]]
will be added to Sec. 344.2(f)(2)(vii). Other examples will provide
guidance on how the certification will apply to purchases and early
redemptions of SLGS securities. Even with the addition of the new
examples of impermissible practices, Treasury considers the list of
examples to be non-exhaustive. There may be other transactions where
manipulative practices create a cost-free option using the
flexibilities afforded to Issuers in the SLGS program. All such
practices are prohibited. Conforming technical amendments will be made
throughout the regulation.
2. Minimum Holding Period and Notification for Early Redemption of
Time Deposit Securities. Under the current regulations, the Issuer may
request early redemption of a Time Deposit security as early as the day
after Treasury issues the SLGS security. Proposed Sec. 344.6(a)(3)
requires a 14-day minimum holding period after the security has been
issued before the Issuer may request early redemption of a Time Deposit
note or bond. Increasing the minimum holding period from 1 day to 14
days will increase the Issuer's interest rate risk and help to address
the type of cost-free option described in this NPRM as ``purchasing a
long-term SLGS security and redeeming the security before maturity in
order to capture redemption premium.''
The SLGS rate table on the date a subscription is ``started''
establishes the maximum interest rate applied to a SLGS security based
on the term of the security. The SLGS rate table in effect on the date
of the early redemption request is used in determining if the SLGS
security will be redeemed at a discount or premium. A premium might be
earned under the current regulations if the Issuer impermissibly
creates a cost-free option by either: (a) starting a subscription and
redeeming the security prior to maturity in response to a fall in
interest rates occurring between the subscription and issuance dates,
or (b) changing the term of a SLGS security in a subscription and
redeeming the security prior to maturity in response to a fall in
interest rates occurring between the subscription and issuance dates.
For instance, if the Issuer subscribes for a shorter-term SLGS
security, changes the subscription to a longer-term security, and
submits an early redemption request on the day after the issue date in
response to interest rate movements, an impermissible cost-free option
has been created, unless Treasury grants the Issuer a waiver in
accordance with Sec. 344.2(n). Increasing the minimum holding period
before an Issuer may request early redemption will deter the creation
of this type of impermissible cost-free option by increasing the
interest rate risk to a more meaningful level than exists under current
regulations. It is Treasury's view that even more than de minimis risk
to the Issuer does not change the fact that this is still a cost-free
option and, either with or without risk, this is an impermissible
practice.
Treasury does not believe that the proposed new holding period will
impose undue hardship on Issuers that have a need for cash proceeds
sooner than the maturity date that was chosen when the subscription was
started. If new or intervening circumstances arise before issuance of
the SLGS securities, the Issuer could take steps to change the
subscription by adjusting the maturity to a shorter-term SLGS security.
Additionally, if circumstances change after issuance of the SLGS
securities, the Issuer may seek a waiver of the minimum holding period
from Treasury as detailed in the regulations. The proposed new holding
period would not apply to Time Deposit certificates of indebtedness or
Demand Deposit securities, as these are short-term securities.
B. Establishing or Changing the Maturity and Interest Rate on SLGS
Securities
The second type of cost-free option identified in this NPRM is
referred to as ``establishing or changing the maturity and associated
interest rate on SLGS securities already subscribed for to take
advantage of interest rate movements, either to capture redemption
premiums or to minimize losses.'' To eliminate this cost-free option,
Treasury proposes that the Issuer be required to specify the maturity
of Time Deposit securities when a subscription is started and be
limited in adjustments that can be made to the maturity of Time Deposit
securities.
1. Specifying the Maturity of Time Deposit Securities
Current regulations permit Issuers to subscribe for SLGS up to 60
days in advance of issuance and until 3 p.m. Eastern Time on the day of
issuance to specify the maturity for Time Deposit securities. This
flexibility makes it possible for the Issuer to impermissibly create
the cost-free option described in this NPRM as ``establishing or
changing the maturity and associated interest rate on SLGS securities
already subscribed for to take advantage of interest rate movements,
either to capture redemption premiums or to minimize losses.''
Treasury's research reveals that approximately 99 percent of SLGS
subscriptions are started with a stated maturity date. Only a small
percentage of subscriptions have had changes made by Issuers to the
maturity dates of the securities following the start of a subscription.
Given that the overwhelming majority of Issuers have identified the
maturity date at the start of the SLGS subscription process, Treasury
proposes that all Issuers must provide a maturity date at the start of
a subscription, rather than by the time of completion of the
subscription. Treasury proposes that when starting a Time Deposit
security subscription under Sec. 344.5(b)(5) and completing a
subscription under Sec. 344.5(e)(2), the Issuer must separately
itemize the maturity date(s) by individual Time Deposit security.
Issuers will have the ability to adjust the maturities, within certain
parameters, if necessary.
2. Limiting Maturity Adjustments on Time Deposit Securities
Additionally, Treasury proposes to limit Issuer adjustments to the
maturity of a Time Deposit security before issuance. The current SLGS
regulations permit the Issuer to make unrestricted changes to the
maturity of a Time Deposit security and choose any term from 30 days to
40 years (31 CFR 344.4(a)). This flexibility is an attractive feature
of the SLGS program. However, when this flexibility results in the
Issuer ``establishing or changing the maturity and associated interest
rate on SLGS securities already subscribed for to take advantage of
interest rate movements, either to capture redemption premiums or to
minimize losses,'' an impermissible cost-free option is created.
Proposed Sec. 344.5(d)(4), governing how to change a subscription,
and Sec. 344.5(e)(7), governing when a subscription is completed,
state that the Issuer cannot change the maturity date on a Time Deposit
security by more than 30 days for certificates of indebtedness, 6
months for notes, and 1 year for bonds. The proposed amendments retain
flexibility in setting maturity of SLGS securities, while removing the
ability to alter maturities beyond the time required to accomplish a
governmental purpose.
C. Establishing or Changing the SLGS Subscription Amount
The third type of cost-free option identified in this NPRM is
referred to as ``establishing or changing the SLGS subscription amount
in order to maximize redemption premiums or minimize potential
losses.'' Treasury proposes to limit principal amount changes to Time
Deposit securities at
[[Page 59357]]
the individual security level to address this cost-free option.
1. Changing Principal Amounts on Time Deposit Securities
Before 2005, the Issuer could change the aggregate principal amount
specified in the initial subscription by up to $10 million or 10
percent, whichever was greater. In a 2004 NPRM, Treasury proposed a
size amendment provision to permit a change in the aggregate principal
amount by 10 percent above or below the amount originally specified in
the subscription. 69 FR 58756 (September 30, 2004). The provision was
adopted in the 2005 final rule. 70 FR 37904 (June 30, 2005).
The current regulation provides that the aggregate principal amount
originally specified in the SLGS subscription cannot be changed by more
than 10 percent. Because a single subscription may be used to purchase
multiple Time Deposit securities with different principal and maturity
terms, the current size provision at the aggregate subscription level
is inadequate to address Treasury's concerns about the creation of
cost-free options at the individual security level. Treasury proposes
to limit the amount of principal that each Time Deposit security in a
subscription can be changed. Proposed Sec. 344.5(d)(2) applies the 10
percent limit at the individual SLGS security level instead of at the
case level, which may be composed of multiple SLGS securities.
Notwithstanding the above, even if a principal adjustment within 10
percent of the original subscription amount of a particular Time
Deposit security complies with proposed Sec. 344.5(d)(2), that
adjustment would violate the current prohibition in Sec.
344.2(f)(1)(i) if the change is motivated by interest rate movements.
In that case, the Issuer would be creating a cost-free option by
``establishing or changing the SLGS subscription amount in order to
maximize redemption premiums or minimize potential losses.''
2. Changing Principal Amounts on Demand Deposit Securities
Treasury does not propose to amend Sec. 344.8(d) pertaining to
Demand Deposit securities. Demand Deposit securities will remain
subject to the current rule that the aggregate principal amount may not
be changed by more than 10 percent above or below the amount originally
specified in the subscription.
III. Administrative Changes
On October 7, 2012, the Secretary of the Treasury issued Treasury
Order 136-01, establishing within the Department of the Treasury, the
Bureau of the Fiscal Service (Fiscal Service). The new bureau
consolidated the bureaus formerly known as the Financial Management
Service (FMS) and the Bureau of the Public Debt (BPD). 78 FR 31629 (May
24, 2013).
On October 2, 2013, Treasury published a final rule entitled
``Regulatory Reorganization; Administrative Changes to Regulations Due
to the Consolidation of the Financial Management Service and the Bureau
of the Public Debt Into the Bureau of the Fiscal Service.'' This final
rule renamed subchapter A, transferred parts 306 through 391 of
subchapter B to subchapter A, and removed and reserved subchapter B in
31 CFR chapter II. This had the effect of moving the SLGS regulations
from subchapter B to subchapter A; removing all references to ``Bureau
of the Public Debt'' and adding, in their place, ``Bureau of the Fiscal
Service''; removing all references to ``BPD'' and ``Public Debt'' and
adding, in their place, ``Fiscal Service''; and, removing all
references to ``<a href="http://www.publicdebt.treas.gov">www.publicdebt.treas.gov</a>'' and adding, in each place,
``<a href="http://www.fiscal.treasury.gov">www.fiscal.treasury.gov</a>'', but did not make any corresponding changes
to the current requirements of the SLGS regulations. 78 FR 60695
(October 2, 2013).
This NPRM makes other minor administrative or technical changes.
See, e.g., proposed Sec. Sec. 344.0(a), 344.1, 344.2(d), (e)(2)(i),
(e)(4), (f)(2)(iv), (f)(2)(v), (g), 344.3(e), 344.4(b)(1), 344.5(a)-
(b), (d)-(f), 344.6(a)(3), (g), 344.7(b)(1)-(2), 344.8(a)-(b), (e), and
344.9(a). Some of these changes are noted below.
A. Purpose of the SLGS Program
Previously Sec. 344.0(a) provided that SLGS securities may be
issued to assist Issuers in complying with the yield restriction and
rebate requirements applicable to tax-exempt securities under the
Internal Revenue Code (26 U.S.C. 148). Treasury issued a final rule in
2005 deleting the language relating to amounts that ``assist in
complying with applicable provisions of the Internal Revenue Code
relating to the tax exemption'' stating that this language was somewhat
vague and proved too difficult to administer. 70 FR 37904, 37909, June
30, 2005. This deletion has had the unintended consequence of confusing
some Issuers about the purpose of the SLGS program. Treasury proposes
to amend Sec. 344.0(a) by reinserting language that the purpose of the
SLGS program is ``to assist in complying with applicable provisions of
the Internal Revenue Code.''
B. Definitions Updates.
The 2005 final rule amended the regulations to require
certifications under Sec. 344.2(e)(2)(A) if Issuers purchase SLGS
securities with any amount received from the sale or redemption before
maturity of any marketable security, that the yield on such SLGS
security does not exceed the yield at which such marketable security
was sold or redeemed. The preamble of the 2005 final rule explained
that ``marketable securities'' was a broader category than Treasury
securities and could include ``marketable securities that have a lower
credit rating than Treasury securities.'' 70 FR 37904, 37906 (June 30,
2005).
Since 2005, the SLGS Frequently Asked Questions have explained that
a ``marketable security'' is ``any security other than a State or Local
Government Series (SLGS) security. Examples of marketable securities
include Treasury securities (other than SLGS securities), guaranteed
investment contracts, and federal agency securities.'' <a href="https://www.slgs.gov">https://www.slgs.gov</a>. While this definition may appear broad, given that owners
of SLGS securities are generally restricted in the types of investments
they may purchase with tax-advantaged bond proceeds, this definition
has served to clarify how the term ``marketable security'' is used in
the context of the SLGS regulations.
Treasury proposes adding a definition of ``marketable security''
under Sec. 344.1 that closely aligns with the example in the SLGS
Frequently Asked Questions. The proposed definition states,
``Marketable security, with reference to the types of securities that
issuers of tax-advantaged securities are permitted to purchase with
tax-advantaged proceeds, means any security other than a SLGS security.
Examples of marketable securities include Treasury securities (other
than SLGS securities) and federal agency securities.'' Treasury is not
incorporating ``guaranteed investment contracts'' within the proposed
definition of ``marketable security.'' This change is not because
Treasury intends to allow guaranteed investment contracts to be used to
create cost-free options, but is meant to keep the definition of
``marketable security'' more in line with industry use. For the
avoidance of doubt, Treasury affirms that the use of guaranteed
investment contracts, any other nonmarketable security, or any other
means to create a cost-free option, is prohibited. The definition would
apply throughout the rule whenever the term ``marketable security'' is
used.
[[Page 59358]]
Additionally, Treasury proposes adding a new definition of ``cost-
free option'' under Sec. 344.1 that states that the use of any
provision(s) in the SLGS program to exploit movements in interest
rates, including, but not limited to, those designed to provide
marginal flexibility to Issuers in structuring their SLGS investments
constitutes the creation of an impermissible cost-free option. Treasury
has intentionally drafted the definition of cost-free option broadly to
encompass all situations in which exploitation of the movement in
interest rates is an impermissible practice.
Treasury further proposes adding a new definition of ``governmental
purpose'' under Sec. 344.1 that clarifies that using the SLGS program
to create cost-free options is not a permitted governmental purpose. A
permitted governmental purpose includes but is not limited to financing
a construction project, repaying a prior issue of bonds, or funding a
debt service reserve. The governmental purpose must be consistent with
the purposes of the Income Tax Regulations under section 148 of the
Internal Revenue Code.
Treasury also proposes adding a new definition of ``tax-advantaged
bond'' under Sec. 344.1 that corresponds with the definition of the
types of bonds to which the relevant portions of the Internal Revenue
Code and the Income Tax Regulations (generally 26 U.S.C. 148 and 26 CFR
1.148-0 through 1.148-11) apply. The Internal Revenue Code is dynamic
and new types tax-advantaged bonds have been created and could be
created in the future. The definition of ``tax-advantaged bond''
includes (i) a tax-exempt bond, (ii) a taxable bond that provides a
federal tax credit to the investor with respect to the Issuer's
borrowing costs, (iii) a taxable bond that provides a refundable
federal tax credit payable directly to the Issuer for its borrowing
cost, and (iv) any future similar bond that provides a federal tax
benefit that reduces an Issuers' borrowing cost. (26 CFR 1.150-1(b)).
Treasury proposes amending the definition of ``business day'' under
Sec. 344.1 to clarify which days normal processing of SLGS securities
transactions will occur. Section 6103 of Title 5 of the United States
Code sets forth which days are considered ``legal public holidays.''
Generally, federal agencies are closed for business on legal public
holidays and such holidays are non-workdays for federal employees.
However, while federal agencies may be closed on such days, the Federal
Reserve Bank of New York may still be open and conducting payment
transactions. Because payment transactions are still possible, even
though the Bureau of the Fiscal Service may be closed for most
transactions, scheduled payments for SLGS securities still occur those
days when the Federal Reserve Bank of New York is open. The revision to
the definition of ``business day'' clarifies when normal SLGS
transactions may occur and payments will be processed.
Finally, Treasury proposes amending the definition of ``eligible
source of funds'' under Sec. 344.1 to better align with the relevant
portions of the Internal Revenue Code and the Income Tax Regulations.
New types of tax-advantaged bonds have been and can be added to the
Internal Revenue Code. Treasury is amending the definition of
``eligible source of funds'' to include proceeds of all types of tax-
advantaged bonds as defined in 26 CFR 1.150-1(b), including those
created after the date of any SLGS final rule.
C. Certification of Eligibility To Purchase
Given that the purpose of the SLGS program is to assist Issuers in
complying with the yield restriction and rebate requirements applicable
to tax-advantaged securities under the Internal Revenue Code, Treasury
views it prudent to provide for what are currently rare situations when
bonds lose their tax-advantaged status. In such cases, the proceeds
used by the Issuer to purchase SLGS may no longer be considered an
``eligible source of funds.''
Treasury proposes a new Sec. 344.2(e)(4) that would add an Issuer
certification as to its eligibility to purchase SLGS securities. Under
this new section, the Issuer would certify that it will notify Treasury
if the funds used to purchase SLGS securities were no longer considered
``an eligible source of funds.'' The notification requirement would
apply to all outstanding SLGS securities (e.g., Time Deposit, Demand
Deposit, and special 90-day certificates of indebtedness). Treasury
would deem the notification as a request to redeem those outstanding
Demand Deposit securities that are affected by the ineligibility under
Sec. 344.9, as amended. The Issuer would not be required to redeem
Time Deposit securities that are outstanding at the time of the
notification because Time Deposit securities are longer-term securities
that would have been purchased with an eligible source of funds.
Special 90-day certificates of indebtedness containing funds that are
no longer considered ``an eligible source of funds'' would be redeemed
either upon maturity (i.e., would not be rolled into a new special 90-
day certificate of indebtedness) or upon reversion to Demand Deposit
securities.
D. SLGS Rate Table
Under the current regulation, Sec. 344.4(b)(1), if the SLGS rate
table is not released to the public by 10 a.m. Eastern Time on a
particular business day, then the SLGS rate table for the preceding
business day applies. Treasury proposes amending Sec. 344.4(b)(1) to
state that Treasury will post the SLGS rate table ``by 10 a.m. Eastern
Time each business day or as soon as practicable thereafter.'' Under
this proposed amendment, Treasury would have more flexibility in those
instances where the SLGS rate table could not be released to the public
by 10 a.m. Eastern Time. However, if no SLGS rate table has been
published by 11 a.m. Eastern Time, then the SLGS rate table for the
preceding business day would apply. This provides Issuers with more
accurate pricing when there is a slight delay in publishing the SLGS
rate table, while carrying over the previous day's rate if
circumstances prevent publication of a new SLGS rate table.
E. Establishment of the Issue Date
Under the current rule in Sec. 344.5(a) and Sec. 344.8(a), the
issue date for Time Deposit and Demand Deposit securities cannot be
more than 60 calendar days after the date Treasury receives the
subscription. Our data analysis reveals that less than 4 percent of
SLGS subscriptions are started more than 45 days in advance of the
issue date. Treasury proposes to amend these provisions to reduce the
lead time for an Issuer to subscribe for SLGS securities from 60 to 45
calendar days. The subscription date controls which SLGS rate table
applies to the subscription for securities. Moving the subscription
date closer to the issue date would provide more accurate pricing for
SLGS securities. Additionally, this proposed amendment has the added
benefit of narrowing the window of time in which an impermissible cost-
free option could be created. Conforming amendments would also be made
to Sec. 344.2(f)(2)(iv).
F. Subscription Process
The current regulation specifies the information the Issuer must
provide to start and complete the subscription process for both Time
Deposit and Demand Deposit securities. The current rule in Sec. 344.5
and Sec. 344.8 specifies the information that the Issuer must provide
when starting the SLGS subscription process (Sec. 344.5(b) and Sec.
344.8(b)), how the Issuer may change a subscription (Sec. 344.5(d) and
Sec. 344.8(d)), and how the
[[Page 59359]]
Issuer completes the subscription (Sec. 344.5(e) and Sec. 344.8(e)).
To implement Treasury's proposed amendments discussed in Sections
II(A)(1) (duration certification regarding matching the SLGS maturity
to the governmental purpose), II(B)(1) (specifying the maturity of each
Time Deposit security in the subscription), II(C) (changing the
principal amounts), III(C) (eligibility certification), and III(G)
(including the EMMA[supreg] registration in the SLGS case, discussed
below), Treasury proposes amending Sec. 344.5 and Sec. 344.8 to
include these requirements.
Additionally, Treasury proposes amending Sec. 344.5 and Sec.
344.8 to more specifically identify currently required information such
as the Issuer's address and banking information, while removing the
requirement to specify the ``title of an official authorized to
purchase SLGS securities'' as the title is no longer needed. In
addition, the reference to the ``proceeds that are derived, directly or
indirectly, from the redemption before maturity of SLGS securities
subscribed for on or before December 27, 1976,'' would be deleted as
none of these securities remain outstanding.
G. Identification of the Tax-Advantaged Bond Issue
Under the current rule in Sec. 344.5(b)(5) and Sec. 344.8(b)(5),
the underlying tax-advantaged bond issue must be identified when the
Issuer ``starts'' and ``completes'' the subscription for SLGS
securities. The Issuer starts the subscription process by entering
certain information in required data fields in SLGSafe, the secure
internet site through which SLGS transactions are submitted. When
starting a subscription, the Issuer typically enters information on the
new or ``refunding bonds,'' and not the ``refunded bonds'' or the
``prior issue'' being refinanced.
This requirement has been in the current regulation since the 2005
final rule required the Issuer to enter a description of the Issuer's
tax-exempt bond issue such as ``Water and Sewer Revenue Bonds Series
2004'' (70 FR 37904, 37907, June 30, 2005). Subsequently, the Municipal
Securities Rulemaking Board (MSRB) launched its Electronic Municipal
Market Access (EMMA[supreg]) system, and EMMA[supreg] has now become
the official repository for municipal securities disclosures.
Given that EMMA[supreg] generally contains information about state
and local government bonds, Treasury proposes to amend the regulation
to require that if a bond issue is registered in EMMA[supreg], the
Issuer must adhere to the naming convention supplied in the ``issue
description'' field on the ``Security Information'' tab in EMMA[supreg]
at <a href="https://emma.msrb.org">https://emma.msrb.org</a> when describing the tax-advantaged bond in
SLGSafe. If the EMMA[supreg] website revises its naming convention, the
Issuer would supply the updated registration as it is presented in
EMMA[supreg], or its successor system.
The Issuer would be able to input the ``EMMA[supreg] registration''
into SLGSafe at the time the subscription is started (Sec. 344.5(b)(4)
and Sec. 344.8(b)(4)), but that information would not be required
until such time as the subscription is completed (Sec. 344.5(e)(3) and
Sec. 344.8(e)(2)). This would allow additional time for the Issuer to
update the description field if the bond issue has not yet been
registered with EMMA[supreg] when the subscription is started.
Conforming the underlying bond issuance field in SLGSafe with the
EMMA[supreg]'s naming convention would assist Treasury in determining
if the amounts are an ``eligible source of funds'' under Sec. 344.1
that may be used to purchase SLGS securities.
H. Special Zero Interest Securities and Subscriptions on or Before
December 27, 1976
Special zero interest securities were discontinued by Treasury on
October 28, 1996. Therefore, Treasury proposes removing Subpart D of
the current rule. In addition, all outstanding SLGS securities issued
on or before December 27, 1976, matured by November 1, 2013. Therefore,
Treasury proposes removing Sec. 344.5(e)(4) and Sec. 344.6(g) of the
current rule.
I. Debt Limit Contingency
1. Treasury's Discretion to Leave Demand Deposit Securities
Invested or to Invest in Special 90-day Certificates of Indebtedness.
The current regulation states that at any time the Secretary determines
that issuance of obligations sufficient to conduct the orderly
financing operations of the United States cannot be made without
exceeding the statutory debt limit, Treasury must invest any unredeemed
Demand Deposit securities in special 90-day certificates of
indebtedness. Treasury proposes to amend Sec. 344.7(b) to provide the
Secretary with the flexibility to exercise discretion to either leave
the unredeemed Demand Deposit securities invested or to invest them in
special 90-day certificates of indebtedness.
2. Terms Applying to Invested Demand Deposit Securities. Treasury
proposes to clarify Sec. 344.7(b)(1) to provide that Demand Deposit
securities during a debt limit contingency remain subject to the normal
terms and conditions that apply to Demand Deposit securities.
3. Terms Applying to Special 90-day Certificates of Indebtedness.
Treasury proposes to clarify Sec. 344.7(b)(2) to provide that special
90-day certificates of indebtedness that are issued during a debt limit
contingency remain subject to the same redemption rules as Demand
Deposit securities. Treasury would roll over special 90-day
certificates of indebtedness, along with accrued interest, into new
special 90-day certificates of indebtedness when a debt limit
contingency period lasts longer than 90 days.
4. End of a Debt Limit Contingency. At the end of a debt limit
contingency, the Issuer currently has the option to keep the special
90-day certificates of indebtedness until maturity, redeem them before
maturity, or reinvest them in Demand Deposit securities. Treasury
proposes to amend Sec. 344.7(b)(2) to provide that when regular
Treasury borrowing operations resume, Treasury would redeem any special
90-day certificates of indebtedness and reinvest the proceeds, along
with accrued interest, in Demand Deposit securities. As a result, the
Issuer would once again hold the investment that the Issuer originally
requested.
J. Notice Period for Redemption of Demand Deposit Securities
The current regulation Sec. 344.9(a) requires notice of 1 business
day for redemption of Demand Deposit securities in the amount of $10
million or less and notice of 3 business days for redemptions of more
than $10 million. To aid in Treasury's cash forecasting and cash
management, Treasury proposes amending Sec. 344.9(a) to require notice
of 5 business days for redemption of Demand Deposit securities and
special 90-day certificates of indebtedness in the principal amount of
$500 million or more. Some Issuers hold numerous securities in multiple
SLGSafe cases. To determine which notice period applies, the Issuer
would calculate the total amount of proceeds to be derived from
redemption of Demand Deposit securities and special 90-day certificates
of indebtedness at the ``owner,'' and not the ``case,'' level.
IV. Procedural Requirements
A. Executive Order 12866
This NPRM is not a significant regulatory action as defined in
Executive Order 12866, dated September 30, 1993. Therefore, a
regulatory assessment of anticipated
[[Page 59360]]
benefits, costs, and regulatory alternatives is not required.
B. Administrative Procedure Act (APA)
Because this NPRM relates to United States securities, which are
contracts between Treasury and the owner of the security, this rule
falls within the contract exception to the Administrative Procedure Act
(APA), 5 U.S.C. 553(a)(2). As a result, the notice, public comment, and
delayed effective date provisions of the APA are inapplicable to this
rule. However, although not required under the APA, Treasury is seeking
public comment on this NPRM.
C. Regulatory Flexibility Act
Although this NPRM is being issued in proposed form to secure the
benefit of public comment, it relates to matters of public contract and
procedures for United States securities. Because a NPRM is not
required, the provisions of the Regulatory Flexibility Act, 5 U.S.C.
601 et seq., do not apply. However, Treasury will consider the
potential impact of this proposed rule on small entities and will
evaluate any proposed alternatives that would allow Treasury to
accomplish the objectives of this proposed rule without unduly
burdening small entities by imposing a significant economic impact on
them. Therefore, Treasury will accept comments pertaining to the
potential impact and proposed alternatives during the comment period.
D. Paperwork Reduction Act
The provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et
seq., and its implementing regulations, 5 CFR part 1320, do not apply
to this NPRM because there are no new or revised recordkeeping or
reporting requirements. The existing OMB Paperwork Reduction Act
control numbers for Part 344 are 1530-0044 and 1530-0065.
V. Proposed Regulations
List of Subjects in 31 CFR Part 344
Bonds, Government securities, Reporting and recordkeeping
requirements.
Accordingly, for the reasons set forth in the preamble, Treasury
proposes to amend 31 CFR part 344 as follows:
PART 344--U.S. TREASURY SECURITIES--STATE AND LOCAL GOVERNMENT
SERIES.
0
1. The authority citation for part 344 continues to read as follows:
Authority: 26 U.S.C. 141 note; 31 U.S.C. 3102, 3103, 3104, and
3121.
0
2. Amend Sec. 344.0, by revising paragraph (a) and removing paragraph
(b)(3).
The revisions read as follows:
Sec. 344.0 What does this part cover?
(a) What is the purpose of the SLGS securities offering? The
Secretary of the Treasury (the Secretary) offers for sale non-
marketable State and Local Government Series (SLGS) securities to
provide issuers of tax-advantaged bonds with investments from any
eligible source of funds (as defined in Sec. 344.1) to assist issuers
in complying with applicable provisions of the Internal Revenue Code.
* * * * *
0
3. Amend Sec. 344.1, by:
0
a. Revising the definition of ``Business day(s)'';
0
b. Adding in alphabetical order a definition for ``Cost-free option'';
0
c. Revising the definition of ``Eligible source of funds'';
0
d. Adding in alphabetical order a definition for ``Governmental
purpose'';
0
e. Revising the definition of ``Issuer'';
0
f. Adding in alphabetical order definitions for ``Marketable
security''; and ``Tax-advantaged bond.''
The revisions and additions read as follows:
Sec. 344.1 What special terms do I need to know to understand this
part?
* * * * *
Business day(s) means any day other than a Saturday or Sunday that
the Federal Reserve Bank of New York is open for business.
Cost-free option means the use of any provision(s) in the SLGS
program to exploit movements in interest rates, including, but not
limited to, those designed to provide marginal flexibility to issuers
in structuring their SLGS investments.
* * * * *
Eligible source of funds means:
(1) Any amounts that are gross proceeds of an issue of tax-
advantaged bonds or are reasonably expected to become gross proceeds of
such an issue of tax-advantaged bonds;
(2) Any amounts that formerly were gross proceeds of a tax-
advantaged bond issue, but no longer are treated as gross proceeds of
such issue as a result of the operation of the universal cap on the
maximum amount treated as gross proceeds under 26 CFR 1.148-6(b)(2);
(3) Amounts held or to be held together with gross proceeds of one
or more tax-advantaged bond issues in a refunding escrow, defeasance
escrow, parity debt service reserve fund, or commingled fund (as
defined in 26 CFR 1.148-1(b));
(4) Proceeds of a bond issue that is not an issue of tax-advantaged
bonds but that refunds, or is refunded by, an issue of tax-advantaged
bonds; or
(5) Any other amounts that are subject to yield limitations under
the rules applicable to tax-advantaged bonds under the Internal Revenue
Code.
Governmental purpose, under this part, means the issuer's expected
use of the invested funds, including but not limited to, financing a
construction project, repaying a prior issue of bonds, or funding a
debt service reserve. Such use must be consistent with the purposes of
the Income Tax Regulations under section 148 of the Internal Revenue
Code. Generating gain on the proceeds of a bond issue through the use
of a cost-free option in purchasing and redeeming SLGS is not a
permitted governmental purpose.
Issuer refers to the government body or other entity that issues
tax-advantaged bonds, or to a conduit borrower.
Marketable security, with reference to the types of securities that
issuers are permitted to purchase with an eligible source of funds,
means any security other than a SLGS security. Examples of marketable
securities include Treasury securities (other than SLGS securities) and
federal agency securities.
* * * * *
Tax-advantaged bond means tax-advantaged bond as defined in 26 CFR
1.150-1(b).
* * * * *
0
4. Amend Sec. 344.2 by:
0
a. Revising paragraph (d) and paragraph (e)(2)(i) introductory text;
0
b. Adding paragraphs (e)(3) and (e)(4);
0
c. Revising paragraph (f)(1), the second sentence of paragraph
(f)(2)(iv), and the first sentence of paragraph (f)(2)(v);
0
d. Adding paragraph (f)(2)(vii);and
0
e. Revising the last sentence of paragraph (g).
The revisions and additions read as follows:
Sec. 344.2 What general provisions apply to SLGS securities?
* * * * *
(d) Can SLGS securities be transferred? No. SLGS securities issued
as any one type, i.e., Time Deposit or Demand Deposit, cannot be
transferred for other securities of that type or any other type.
Transfer of securities by sale, exchange, assignment, pledge, or
otherwise is not permitted.
(e) * * *
(2) * * *
(i) Purchase of SLGS securities. Upon submitting a subscription, or
performing
[[Page 59361]]
any other transaction for a SLGS security, a subscriber must certify
that:
* * * * *
(3) Duration certification. For each subscription to purchase a
Time Deposit SLGS security, the subscriber must certify that the term
of the SLGS security subscribed for is no longer than reasonably
necessary for the underlying governmental purpose of the investment.
(4) Eligibility certification. For each subscription to purchase a
SLGS security, the subscriber must certify that if, at any point while
SLGS securities are outstanding, the issuer becomes ineligible to
purchase SLGS securities or the funds used to purchase SLGS securities
are no longer an eligible source of funds, the issuer or agent thereof
must, as soon as practicable, notify Treasury of such ineligibility.
Such notification will be deemed to be a request for redemption of
those outstanding Demand Deposit securities that are affected by the
ineligibility.
(f) * * *
(1)Impermissible Transactions:
(i) To use the SLGS program to create a cost-free option (while the
following examples may specifically use marketable securities for
illustration, creating a cost-free option via any means is prohibited);
(ii) To purchase a SLGS security with any amount received from the
sale or redemption (at the option of the holder) before maturity of any
marketable security, if the yield on such SLGS security exceeds the
yield at which such marketable security is sold or redeemed;
(iii) To invest any amount received from the redemption before
maturity of a Time Deposit security (other than a Zero Percent Time
Deposit security) at a yield that exceeds the yield that is used to
determine the amount of redemption proceeds for such Time Deposit
security; or
(iv) To purchase a SLGS security with a maturity that is longer
than is reasonably necessary to accomplish the issuer's governmental
purpose for its purchase of the SLGS security or to purchase a SLGS
security with an intention to redeem such SLGS security earlier than is
reasonably necessary to accomplish the issuer's governmental purpose
for its purchase of the SLGS security.
(2) * * *
(iv) * * * To reduce or eliminate this negative arbitrage, the
issuer subscribes for SLGS securities for purchase in 45 days. * * *
(v) * * * On February 6, 2006, an issuer purchases a Time Deposit
security using an eligible source of funds from a debt service reserve
fund. * * *
* * * * *
(vii) Purchase of SLGS security with maturity longer than
reasonably necessary. An issuer may purchase SLGS securities to
facilitate compliance with arbitrage yield restrictions for investments
of various types of proceeds of tax[hyphen]advantaged bonds, including
investments in refunding escrow funds, bond debt service reserve funds,
or project construction funds, respectively. The determination of
whether a maturity for a SLGS security is longer than is reasonably
necessary depends on the issuer's governmental purpose for the
issuance. Thus, the maturities of SLGS securities invested in a
refunding escrow fund are reasonably necessary if they are no longer
than those necessary to accomplish the defeasance of the underlying
refunded bonds until the applicable redemption date or retirement date
of the refunded bonds. Maturities of SLGS securities invested in a
project construction fund are reasonably necessary if they are no
longer than the reasonably expected construction period for the
financed project, and early redemptions of such securities are
reasonably necessary if they are reasonably related to construction
draws for the financed project. Maturities of SLGS securities invested
in a debt service reserve fund are reasonably necessary if they are no
longer than the earlier of the permitted term of investments in that
reserve fund under the bond documents or the term of the secured bonds.
Early redemptions of SLGS securities with reasonably necessary
maturities are permissible for the above bona fide business reasons,
including changes in market interest rates. By contrast, the purchase
of SLGS securities with maturities that are longer than the reasonably
necessary maturities described above and associated early redemptions
of those SLGS securities to obtain the funds within periods that would
correspond to an issuer's bona fide governmental purpose for a SLGS
investment constitute impermissible practices under paragraph
(f)(1)(iv). Thus, for example, if an issuer purchases SLGS securities
to fund a refunding escrow to be used to defease and call refunded
bonds at the first call date in five years, the issuer's purchase of
SLGS securities with maturities beyond that five-year period and
corresponding early redemptions of those SLGS securities within that
five[hyphen]year period constitute an impermissible use of the SLGS
program.
(g) * * * Fiscal Service's ABA Routing Number can be found on
Fiscal Service's website under the SLGS FAQs.
* * * * *
0
5. Amend Sec. 344.3 by revising paragraph (e) to read as follows:
Sec. 344.3 What provisions apply to the SLGSafe Service?
* * * * *
(e) How do I apply for SLGSafe access? Submit to Fiscal Service a
completed SLGSafe Application for internet Access, which is found on
Fiscal Service's website.
* * * * *
0
6. Amend Sec. 344.4 by revising paragraph (b)(1) to read as follows:
Sec. 344.4 What are Time Deposit securities?
* * * * *
(b) * * *
(1) When is the SLGS rate table released? We release the SLGS rate
table to the public by 10 a.m. Eastern time each business day or as
soon as practicable thereafter. If the SLGS rate table is not available
by 11 a.m. Eastern time on any given business day, the SLGS rate table
for the preceding business day applies.
* * * * *
0
7. Amend Sec. 344.5 by revising paragraphs (a), (b), (d), (e), and
(f), to read as follows:
Sec. 344.5 What other provisions apply to subscriptions for Time
Deposit securities?
(a) When is my subscription due? The subscriber must set the issue
date for the securities in the subscription. The issue date must be a
business day. The issue date cannot be more than 45 days after the date
we receive the subscription. If the subscription is for $10 million or
less, we must receive a subscription at least 5 days before the issue
date. If the subscription is for over $10 million, we must receive the
subscription at least 7 days before the issue date.
Example 1 to paragraph (a): If SLGS securities totaling $10 million
or less will be issued on May 16th, we must receive the subscription no
later than May 11th. If SLGS securities totaling more than $10 million
will be issued on May 16th, we must receive the subscription no later
than May 9th. In all cases, if SLGS securities will be issued on May
16th, we will not accept the subscription before April 1st.
(b) How do I start the subscription process? A subscriber starts
the subscription process by entering into SLGSafe the following
information:
(1) The issue date;
(2) The total principal amount;
(3) The issuer's name and Taxpayer Identification Number;
[[Page 59362]]
(4) A description of the tax-advantaged bond issue;
(5) Separately itemized securities to be purchased, specifying
principal amount, maturity date, interest rate, and first interest
payment date (in the case of notes and bonds) for each; and
(6) The certifications required by Sec. 344.2(e).
* * * * *
(d) How do I change a subscription? You can change a subscription
on or before 3 p.m. Eastern time, on the issue date. Changes to a
subscription are acceptable with the following exceptions:
(1) You cannot change the issue date; provided, however, you may
change the issue date up to 7 days after the original issue date if you
establish to the satisfaction of Treasury that such change is required
as a result of circumstances that were unforeseen at the time of the
subscription and are beyond the issuer's control (for example, a
natural disaster);
(2) You cannot change the principal amount originally specified for
any security in the subscription by more than ten percent;
(3) You cannot change an interest rate to exceed the maximum
interest rate in the SLGS rate table that was in effect for a security
of comparable maturity on the business day that you began the
subscription process; and
(4) You cannot change the maturity date originally specified for
any security in the subscription by more than 30 days for certificates
of indebtedness, 6 months for notes, and 1 year for bonds.
(e) How do I complete the subscription process? The completed
subscription must:
(1) Be dated and submitted electronically by an official authorized
to make the purchase;
(2) Separately itemize securities specifying principal amount,
maturity date, interest rate, and first interest payment date (in the
case of notes and bonds) for each;
(3) Describe the bond issue. If the tax-advantaged bond issue
referenced in paragraph (b)(4) of this section is, or will be,
registered or disclosed in the Municipal Securities Rulemaking Board's
(MSRB) Electronic Municipal Market Access (EMMA[supreg]) system,
describe the issue exactly as designated in the ``issue description''
field of EMMA[supreg], or successor system;
(4) Include the issuer's address;
(5) Include information on the financial institution that will
transmit the funds for the purchase of the securities and information
on the financial institution that will receive security principal and
interest payments;
(6) Not be more than ten percent above or below the aggregate
principal amount originally specified in the subscription and not be
more than ten percent above or below the originally subscribed for
amount for each individual security;
(7) Not deviate from the original subscribed for maturity date
specified for any security in the subscription by more than 30 days for
certificates of indebtedness, 6 months for notes, and 1 year for bonds;
(8) Include the information required under paragraph (b) of this
section, if not already provided; and
(9) Include the certifications required by Sec. 344.2(e).
(f) When must I complete the subscription? We must receive a
completed subscription on or before 3 p.m. Eastern time on the issue
date.
0
8. Amend Sec. 344.6 by revising paragraph (a)(3); and removing
paragraph (g).
The revision reads as follows:
Sec. 344.6 How do I redeem a Time Deposit security before maturity?
(a) * * *
(3) Notes or bonds. A note or bond can be redeemed, at the owner's
option, no earlier than 30 days after the issue date. Any request for
redemption received within 14 days of the issue date will be rejected.
* * * * *
0
9. Amend Sec. 344.7 by revising paragraph (b) to read as follows:
Sec. 344.7 What are Demand Deposit securities?
* * * * *
(b) What happens to Demand Deposit securities during a Debt Limit
Contingency? At any time the Secretary determines that issuance of
obligations sufficient to conduct the orderly financing operations of
the United States cannot be made without exceeding the statutory debt
limit, we may invest any unredeemed Demand Deposit securities in
special 90-day certificates of indebtedness.
(1) Funds left invested in Demand Deposit securities remain subject
to the normal terms and conditions for such securities as set forth in
this part.
(2) Funds invested in 90-day certificates of indebtedness earn
simple interest equal to the daily factor in effect at the time Demand
Deposit security issuance is suspended, multiplied by the number of
days outstanding. Ninety-day certificates of indebtedness are subject
to the same request for redemption notification requirements as those
for Demand Deposit securities and will be redeemed at par value plus
accrued interest. If a 90-day certificate of indebtedness reaches
maturity during a debt limit contingency, we will automatically roll it
into a new 90-day certificate of indebtedness, along with accrued
interest, that earns simple interest equal to the daily factor in
effect at the time that the new 90-day certificate of indebtedness is
issued, multiplied by the number of days outstanding. When regular
Treasury borrowing operations resume, the 90-day certificates of
indebtedness, along with accrued interest, will be reinvested in Demand
Deposit securities.
0
10. Amend Sec. 344.8 by revising paragraphs (a), (b), and (e) to read
as follows:
Sec. 344.8 What other provisions apply to subscriptions for Demand
Deposit securities?
(a) When is my subscription due? The subscriber must set the issue
date in the subscription. You cannot change the issue date to require
issuance earlier or later than the issue date originally specified;
provided, however, you may change the issue date up to 7 days after the
original issue date if you establish to the satisfaction of Treasury
that such change is required as a result of circumstances that were
unforeseen at the time of the subscription and are beyond the issuer's
control (for example, a natural disaster). The issue date must be a
business day. The issue date cannot be more than 45 days after the date
we receive the subscription. If the subscription is for $10 million or
less, we must receive the subscription at least 5 days before the issue
date. If the subscription is for more than $10 million, we must receive
the subscription at least 7 days before the issue date.
(b) How do I start the subscription process? A subscriber starts
the subscription process by entering into SLGSafe the following
information:
(1) The issue date;
(2) The total principal amount;
(3) The issuer's name and Taxpayer Identification Number;
(4) A description of the tax-advantaged bond issue; and
(5) The certifications required by Sec. 344.2(e)(1), if the
subscription is submitted by an agent of the issuer.
* * * * *
(e) How do I complete the subscription process? The completed
subscription must:
(1) Be dated and submitted electronically by an official authorized
to make the purchase;
[[Page 59363]]
(2) Describe the bond issue. If the tax-advantaged bond issue
referenced in paragraph (b)(4) of this section is, or will be,
registered or disclosed in the Municipal Securities Rulemaking Board's
(MSRB) Electronic Municipal Market Access (EMMA[supreg]) system,
describe the issue exactly as designated in the ``issue description''
field of EMMA[supreg], or successor system;
(3) Include the issuer's address;
(4) Include the information on the financial institution that will
transmit the funds for the purchase of the securities;
(5) Not be more than ten percent above or below the aggregate
principal amount originally specified in the subscription;
(6) Include the information required under paragraph (b) of this
section, if not already provided; and
(7) Include the certifications required by Sec. 344.2(e)(1) (agent
certification), Sec. 344.2(e)(2)(i) (yield certification), and Sec.
344.2(e)(4) (eligibility certification).
0
11. Amend Sec. 344.9 by revising paragraph (a) to read as follows:
Sec. 344.9 How do I redeem a Demand Deposit security?
(a) When must I notify Treasury to redeem a security? Demand
Deposit securities can be redeemed at the owner's option, if we receive
a request for redemption not less than:
(1) One business day before the requested redemption date for total
redemptions by an owner of $10 million or less;
(2) Three business days before the requested redemption date for
total redemptions by an owner of more than $10 million but less than
$500 million; and
(3) Five business days before the requested redemption date for
total redemptions by an owner of $500 million or more.
* * * * *
Subpart D [Removed]
0
12. Remove Subpart D.
By the Department of the Treasury.
David Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2022-21173 Filed 9-29-22; 8:45 am]
BILLING CODE 4810-AS-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on September 30, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.