DC 2-86

Department of the

Treasury





Fiscal Service, Bureau of the Public Debt





31 CFR Part 357 - Regulations Governing Book-Entry

Treasury Bonds, Notes and Bills Held in Legacy Treasury Direct ®



Department of the Treasury Circular,

Public Debt Series No. 2-86, as revised and amended





As of July 2008

31 CFR Ch. II (7–1–08 Edition)









PART 357—REGULATIONS GOV-

ERNING BOOK-ENTRY TREASURY

BONDS, NOTES AND BILLS HELD

IN LEGACY TREASURY DIRECT

Subpart A—General Information

Sec.

357.0 Book-entry systems.

357.1 Effective date.

357.2 Definitions.



Subpart B—Treasury/Reserve Automated

Debt Entry System (TRADES)

357.10 Laws governing a Treasury book-

entry security, TRADES, and security

interests or entitlements.

357.11 Laws governing other interests in

Treasury securities.

357.12 A Participant’s Security Entitle-

ment.

357.13 Obligations of the United States and

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the Federal Reserve Banks with respect



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Fiscal Service, Treasury § 357.0

to Book-entry Securities and security in- through securities intermediaries such

terests. as financial institutions or brokerage

357.14 What authority does a Federal Re- firms. A Treasury security is main-

serve Bank have?

357.15 How can a debtor’s interest in a Secu- tained in the commercial book-entry

rity Entitlement be reached by credi- system if it is credited by a Federal Re-

tors? serve Bank to a Participant’s Securi-

ties Account. The regulations gov-

Subpart C—Legacy Treasury Direct Book- erning the commercial book-entry sys-

Entry Securities System (Legacy Treas- tem are found at subpart B of this part,

ury Direct) and are referred to as Treasury/Reserve

357.20 Securities account in Legacy Treas-

Automated Debt Entry System

ury Direct ®. (TRADES).

357.21 Registration. (2) Legacy Treasury Direct ®. The Leg-

357.22 Transfers. acy Treasury Direct system is a non-

357.23 Judicial proceedings—sovereign im- Internet-based book-entry system

munity. maintained by Treasury for purchasing

357.24 Availability and disclosure of Legacy and holding marketable Treasury secu-

Treasury Direct ® records.

357.25 Security interests.

rities as book-entry products. A Treas-

357.26 Direct Deposit. ury security is maintained in Legacy

357.27 Reinvestment. Treasury Direct if it is credited to a

357.28 Transaction requests. Legacy Treasury Direct account as de-

357.29 Time required for processing trans- scribed in § 357.20 of this part. Treasury

action request. securities are held directly by the De-

357.30 Cases of delay or suspension of pay- partment of the Treasury in accounts

ment.

357.31 Certifying individuals. maintained in the investor’s name. A

357.32 Submission of transaction requests; Legacy Treasury Direct account may

further information. be accessed through a designated Fed-

eral Reserve Bank or the Bureau of the

Subpart D—Additional Provisions Public Debt. See subpart C of this part

357.40 Additional requirements.

for rules pertaining to Legacy Treas-

357.41 Waiver of regulations. ury Direct.

357.42 Liability of Department and Federal (3) TreasuryDirect ®. TreasuryDirect is

Reserve Banks. a book-entry, online system main-

357.43 Liability for transfers to and from tained by the Department of the Treas-

Legacy Treasury Direct ®. ury for purchasing and holding eligible

357.44 [Reserved] marketable Treasury securities, United

357.45 Supplements, amendments, or revi-

sions.

States Savings Bonds, and certificates

of indebtedness in electronic form as a

APPENDIX A TO PART 357—DISCUSSION OF

FINAL RULE

computer record on the books of Treas-

APPENDIX B TO PART 357—TRADES COM- ury. The regulations governing

MENTARY TreasuryDirect are found at 31 CFR

part 363.

AUTHORITY: 31 U.S.C. chapter 31; 5 U.S.C.

301; 12 U.S.C. 391. (b) Transferability between TRADES

and Legacy Treasury Direct. A Treasury

SOURCE: 51 FR 18265, May 16, 1986, unless security eligible to be maintained in

otherwise noted.

Legacy Treasury Direct under the

EDITORIAL NOTE: Nomenclature changes to terms of its offering circular or pursu-

part 357 appear at 70 FR 57431, Sept. 30, 2005. ant to notice published by the Sec-

retary may be transferred to or from

Subpart A—General Information an account in TRADES from or to an

account in Legacy Treasury Direct in

§ 357.0 Book-entry systems. accordance with § 357.22(a).

(a) Treasury securities. Treasury secu- (c) TreasuryDirect system.

rities are maintained in one of the fol- TreasuryDirect is an Internet-based

lowing book-entry systems: book-entry system maintained by the

(1) Commercial book-entry system. The Department of the Treasury. The regu-

commercial book-entry system is the lations governing TreasuryDirect are

book-entry system in which Treasury found at part 363 of this chapter. Leg-

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securities are held in a tiered system acy Treasury Direct is a separate, non-



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§ 357.1 31 CFR Ch. II (7–1–08 Edition)



Internet-based book-entry system for Depository institution means an entity

marketable Treasury securities only. described in section 19(b)(1)(A)(i)–(vi) of

the Federal Reserve Act (12 U.S.C.

[67 FR 64278, Oct. 17, 2002, as amended at 70

FR 57431, Sept. 30, 2005; 70 FR 57441, Sept. 30,

461(b)(1)(A)(i)–(vi). Under section 19(b)

2005] of the Federal Reserve Act, the term

depository institution includes:

§ 357.1 Effective date. (1) Any insured bank as defined in 12

U.S.C. 1813 or any bank which is eligi-

Subpart B of this part, the defini-

ble to make application to become an

tions of Adverse Claim, Book-entry Secu-

insured bank under 12 U.S.C. 1815;

rity, Entitlement Holder, Federal Reserve

Bank Operating Circular, Funds Account, (2) Any mutual savings bank as de-

Issue, Participant, Participant’s Securities fined in 12 U.S.C. 1813 or any bank

Account, Person, Revised Article 8, Secu- which is eligible to make application

rities Intermediary, Security Entitlement, to become an insured bank under 12

State, and Transfer Message and revi- U.S.C. 1815;

sions to the definitions of Security and (3) Any savings bank as defined in 12

TRADES, and §§ 357.42 and 357.44 and the U.S.C. 1813 or any bank which is eligi-

revisions to § 357.41 are effective Janu- ble to make application to become an

ary 1, 1997. All other provisions in ef- insured bank under 12 U.S.C. 1815;

fect prior to January 1, 1997, remain in (4) Any insured credit union as de-

effect. fined in 12 U.S.C. 1752 or any credit

union which is eligible to make appli-

[61 FR 43628, Aug. 23, 1996] cation to become an insured credit

union under 12 U.S.C. 1781;

§ 357.2 Definitions.

(5) Any member as defined in 12

In this part, unless the context indi- U.S.C. 1422; and

cates otherwise: (6) Any savings association (as de-

Adverse Claim means a claim that a fined in 12 U.S.C. 1813) which is an in-

claimant has a property interest in a sured depository institution, as defined

Security and that it is a violation of in the Federal Deposit Insurance Act,

the rights of the claimant for another 12 U.S.C. 1811, et seq., or is eligible to

Person to hold, transfer, or deal with apply to become an insured depository

the Security. institution under such Act.

Bill means an obligation of the Entitlement Holder means a Person to

United States, with a term of not more whose account an interest in a Book-

than one year, issued at a discount, entry Security is credited on the

under chapter 31 of title 31 of the records of a Securities Intermediary.

United States Code, in book-entry Federal Reserve Bank or Reserve Bank

form. means a Federal Reserve Bank or

Bond means an obligation of the Branch.

United States, with a term of more Federal Reserve Bank Operating Cir-

than ten years, issued under chapter 31 cular means the publication issued by

of title 31 of the United States Code, in each Federal Reserve Bank that sets

book-entry form. forth the terms and conditions under

Book-entry security means a Treasury which the Reserve Bank maintains

security maintained as a computer Book-entry Securities accounts and

record in the commercial book-entry transfers Book-entry Securities.

system, Legacy Treasury Direct ®, or Financial institution means, for pur-

TreasuryDirect ®. poses of direct deposit, an institution

Business day means any day other which has agreed to receive credit pay-

than a Saturday, Sunday, or other day ments under 31 CFR part 210, as amend-

on which the Federal Reserve Banks ed from time to time, and has not with-

are not open for business. drawn its participation in a direct de-

Department means the United States posit program under part 210, or an in-

Department of the Treasury, and, stitution which is willing to agree to

where appropriate, the Federal Reserve receive credit payments under 31 CFR

Banks acting as fiscal agents of the part 210 and has enrolled with its Fed-

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United States. eral Reserve Bank.



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Fiscal Service, Treasury § 357.2



Funds Account means a reserve and/or does not mean or include the United

clearing account at a Federal Reserve States or a Federal Reserve Bank.

Bank to which debits or credits are Redemption means payment of a secu-

posted for transfers against payment, rity at maturity, or pursuant to a call

book-entry securities transaction fees, for redumption in accordance with the

or principal and interest payments. terms of a security.

Incompetent means an individual who Representative includes an executor,

is legally, medically or mentally in- administrator, legal guardian, com-

capable of handling his or her business mittee, conservator, and any similar

affairs, except that a minor is not an person or entity appointed by a court

incompetent solely because of age. to represent the estate of a decedent,

Issue means a group of securities, as minor, or incompetent, as well as a

defined in this section, that is identi- trustee, whether appointed by a court

fied by the same CUSIP (Committee on or otherwise.

Uniform Securities Identification Prac- Revised Article 8 means Uniform Com-

tices) number. mercial Code, Revised Article 8, Invest-

Legacy Treasury Direct is the Legacy ment Securities (with Conforming and

Treasury Direct Book-Entry Securities Miscellaneous Amendments to Articles

System. 1, 3, 4, 5, 9 and 10) 1994 Official Text.

Maturity value is the amount that the The Director of the Federal Register

Department is obligated to pay when a approves the incorporation by ref-

security matures. erence of Revised Article 8 of the Uni-

Minor means an individual who is form Commercial Code in this part,

under the age of majority, as deter- pursuant to 5 U.S.C. 552(a) and 1 CFR

mined by applicable state law. part 51. Revised Article 8 was adopted

Note means an obligation of the by the American Law Institute and the

United States, with a term of at least National Conference of Commissioners

one year, but of not more than ten On Uniform State Laws and approved

years, issued under chapter 31 of title by the American Bar Association on

31 of the United States Code, in book- February 14, 1995. Copies of Revised Ar-

entry form. ticle 8 are available from the Executive

Original issue means Treasury’s offer- Office of the American Law Institute,

ing of a marketable Treasury security 4025 Chestnut Street, Philadelphia, PA

to the public and its issuance in book- 19104, and the National Conference of

entry form to be maintained in the Commissioners on Uniform State Laws,

commercial book-entry system, Legacy 211 East Ontario Street, Suite 1300,

Treasury Direct, or TreasuryDirect. Chicago, IL 60611. Copies are also avail-

Owner, as used in subpart C, means able for public inspection at the De-

the individual(s) or entity in whose partment of the Treasury Library,

name a security is registered. If a secu- Room 1428, Main Treasury Building,

rity is registered in more than one 1500 Pennsylvania Avenue, NW, Wash-

name, the term owner incudes all those ington, DC 20220 or at the National Ar-

whose names appear on the registra- chives and Records Administration

tion and are authorized by this Part to (NARA). For information on the avail-

make a transaction request on a secu- ability of this material at NARA, call

rity held in Legacy Treasury Direct. 202–741–6030, or go to: http://

Participant means a Person that www.archives.gov/federallregister/

maintains a Participant’s Securities codeloflfederallregulations/

Account with a Federal Reserve Bank. ibrllocations.html.

Participant’s Securities Account means Revised Article 9 means Uniform Com-

an account in the name of a Partici- mercial Code, Revised Article 9, Se-

pant at a Federal Reserve Bank to cured Transactions (with conforming

which Book-entry Securities held for a amendments to Articles 1, 2, 2A, 4, 5, 6,

Participant are or may be credited. 7, and 8), 1999 official text. The Direc-

Person means and includes an indi- tor of the Federal Register approves

vidual, corporation, company, govern- the incorporation by reference of Re-

mental entity, association, firm, part- vised Article 9 of the Uniform Commer-

nership, trust, estate, representative cial Code in this part, pursuant to 5

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and any other similar organization, but U.S.C. 552(a) and 1 CFR part 51. Revised



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§ 357.2 31 CFR Ch. II (7–1–08 Edition)



Article 9 was approved by the Amer- such security has been divided into

ican Law Institute and the National such components as authorized by the

Conference of Commissioners On Uni- express terms of the offering circular

form State Laws in 1998. Copies of Re- under which the security was issued

vised Article 9 are available from the and the components are maintained

Executive Office of the American Law separately on the books of one or more

Institute, 4025 Chestnut Street, Phila- Federal Reserve Banks; and

delphia, PA 19104, and the National (2) The interest coupons that have

Conference of Commissioners on Uni- been converted to book-entry form

form State Laws, 211 East Ontario under the Treasury’s Coupons Under

Street, Suite 1300, Chicago, IL 60611. Book-Entry Safekeeping Program

Copies are also available for public in- (‘‘CUBES’’), pursuant to agreement and

spection at the Department of the the regulations in 31 CFR part 358.

Treasury Library, Room 1428, Main Security Entitlement means the rights

Treasury Building, 1500 Pennsylvania and property interest of an Entitle-

Avenue, NW., Washington, DC 20220,or ment Holder with respect to a Book-

at the National Archives and Records entry Security.

Administration (NARA). For informa- Signature guarantee program means a

tion on the availability of this mate- signature guarantee program estab-

rial at NARA, call 202–741–6030, or go lished in response to Rule 17 Ad–15 (17

to: http://www.archives.gov/ CFR 240.17Ad–15), issued under author-

federallregister/ ity of the Securities Exchange Act of

codeloflfederallregulations/ 1934. For the purpose of the regulations

ibrllocations.html. in this part, the Securities Transfer

Securities Intermediary means: Agents Medallion Program (STAMP),

(1) A Person that is registered as a the Stock Exchanges Medallion Pro-

‘‘clearing agency’’ under the federal se- gram (SEMP), and the New York Stock

curities laws; a Federal Reserve Bank; Exchange, Inc. Medallion Signature

any other person that provides clear- Program (MSP) are recognized by

ance or settlement services with re- Treasury as such signature guarantee

spect to a Book-entry Security that programs.

would require it to register as a clear- State means any State of the United

ing agency under the federal securities States, the District of Columbia, Puer-

laws but for an exclusion or exemption to Rico, the Virgin Islands, or any

from the registration requirement, if other territory or possession of the

its activities as a clearing corporation, United States.

including promulgation of rules, are Taxpayer identifying number or TIN

subject to regulation by a federal or means a social security account num-

state governmental authority; or ber or an employer identification num-

(2) A Person (other than an indi- ber, as appropriate.

vidual, unless such individual is reg- TRADES is the Treasury/Reserve

istered as a broker or dealer under the Automated Debt Entry System, also

federal securities laws) including a referred to as the commercial book-

bank or broker, that in the ordinary entry system.

course of its business maintains securi- Transaction request means a request

ties accounts for others and is acting to effect a change in an account master

in that capacity. record or securities portfolio main-

Security means a bill, note, or bond, tained in Legacy Treasury Direct.

each as defined in this section. It also Transaction request form means a form

means any other obligation issued by or series of forms prescribed for use by

the Department that, by the terms of the Department to request a trans-

the applicable offering circular or an- action in Legacy Treasury Direct.

nouncement, is made subject to this (This term includes a document that

part. Solely for purposes of this part, it the Department has determined con-

also means: tains all of the elements required by

(1) The interest and principal compo- the transaction request form.)

nents of a security eligible for Sepa- Transfer Message means an instruc-

rate Trading of Registered Interest and tion of a Participant to a Federal Re-

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Principal of Securities (‘‘STRIPS’’), if serve Bank to effect a transfer of a



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Fiscal Service, Treasury § 357.11



Book-entry Security maintained in Federal Reserve Banks; and the rights of

TRADES, as set forth in Federal Re- any Person against the United States and

serve Bank Operating Circulars. the Federal Reserve Banks? Except as we

Voluntary representative means the provide in paragraph (b) of this section,

person qualified by the Department of the following are governed solely by

the Treasury to accept payment or di- Treasury regulations, including the

rect distribution of a decedent’s securi- regulations of this part, the applicable

ties pursuant to § 357.28. offering circular (which is 31 CFR part

[51 FR 18265, May 16, 1986, as amended at 59 356, in the case of securities issued on

FR 59038, Nov. 15, 1994. Redesignated and and after March 1, 1993), the announce-

amended at 61 FR 43628, Aug. 23, 1996; 62 FR ment of the offering, and Federal Re-

18694, Apr. 16, 1997; 62 FR 33548, June 20, 1997; serve Bank Operating Circulars:

67 FR 7079, Feb. 15, 2002; 69 FR 18803, Apr. 9,

2004; 70 FR 57431, Sept. 30, 2005; 70 FR 57441, (1) The rights and obligations of the

Sept. 30, 2005] United States and the Federal Reserve

Banks with respect to a Book-entry Se-

Subpart B—Treasury/Reserve curity or Security Entitlement and the

Automated Debt Entry System operation of TRADES, and

(TRADES) (2) The rights of any Person, includ-

ing a Participant, against the United

States and the Federal Reserve Banks

SOURCE: 67 FR 7080, Feb. 15, 2002, unless

otherwise noted.

with respect to a Book-entry Security

or Security Entitlement and the oper-

§ 357.10 Laws governing a Treasury ation of TRADES.

book-entry security, TRADES, and (b) What law governs security interests

security interests or entitlements. in Security Entitlements that are not re-

(a) What law governs the rights and ob- corded on a Federal Reserve Bank’s

ligations of the United States and the books? See the following table:

If a security interest in a security entitle- And it is— Then it is governed by—

ment is—



(1) in favor of a Federal Reserve Bank not recorded on the books of a Federal the law (not including the conflict-of-law

from a Participant. Reserve Bank pursuant to rules) of the jurisdiction where the

§ 357.12(e)(2). head office of the Federal Reserve

Bank maintaining the Participant’s Se-

curities Account is located.

(2) in favor of a Federal Reserve Bank not recorded on the books of a Federal the law determined in the manner speci-

from a Person that is not a Participant. Reserve Bank pursuant to fied in § 357.11.

§ 357.12(e)(2).









(c) What law governs if the jurisdiction Intermediary’s jurisdiction governs the

in paragraph (b)(1) of this section did not following:

adopt Revised Article 8, or Revised Article (1) When a Person acquires a Secu-

8 as amended by Revised Article 9 (both rity Entitlement from the Securities

incorporated by reference, see Sec. 357.2)? Intermediary;

The law specified in paragraph (b)(1) of (2) The rights and duties of the Secu-

this section shall be the law of that rities Intermediary and Entitlement

State as though that State adopted Re- Holder that arise out of a Security En-

vised Article 8. titlement;

(3) Whether the Securities Inter-

§ 357.11 Laws governing other inter- mediary owes any duties to an adverse

ests in Treasury securities. claimant to a Security Entitlement;

(a) What does the law (not including (4) Whether a Person may assert an

the conflict-of-law rules) of a Securities Adverse Claim against a Person who

Intermediary’s jurisdiction govern? To acquires a Security Entitlement from

the extent not inconsistent with these the Securities Intermediary or against

regulations, the law (not including the a Person who purchases a Security En-

titlement or interest therein from an

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conflict-of-law rules) of a Security

Entitlement Holder; and



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§ 357.12 31 CFR Ch. II (7–1–08 Edition)



(5) The perfection, effect of perfec- (b) What is the ‘‘Securities

tion or non-perfection and priority of a Intermediary’s jurisdiction’’ for purposes

security interest in a Security Entitle- of this section? See the following table:

ment (except as otherwise provided in

paragraph (c) of this section).

Then the securities

If . . . intermediary’s jurisdiction

is . . .



(1) An agreement between the Securities Intermediary and its Entitlement Holder governing the the jurisdiction agreed upon.

securities account expressly provides that a particular jurisdiction is the Securities

Intermediary’s jurisdiction for purposes of Part 1 of Article 8 of the Uniform Commercial

Code, Article 8 of the Uniform Commercial Code, or the Uniform Commercial Code.

(2) An agreement between the Securities Intermediary and its Entitlement Holder governing the the jurisdiction agreed upon.

securities account expressly provides that it is governed by the law of a particular jurisdiction.

(3) The statements in paragraphs (b)(1) and (2) of this table do not apply, but the agreement the jurisdiction where the office

expressly specifies that the securities account is maintained at an office in a particular juris- is located.

diction.

(4) The statements in paragraphs (b)(1) through (3) of this table do not apply and an account the jurisdiction where the office

statement identifies the office serving the Entitlement Holder’s account. is located.

(5) None of the statements in paragraphs (b)(1) through (4) of this table apply ........................... the jurisdiction in which the

chief executive office of the

Securities Intermediary is lo-

cated.









(c) What law governs the perfection of a (a) of this section shall be the law of

security interest automatically or by fil- that State as though the State adopted

ing? The law (but not the conflict-of- Revised Article 8.

law rules) of the jurisdiction in which (f) What other rules apply? For pur-

the Person creating a security interest poses of the matters specified in para-

is located governs whether and how the graph (a) of this section, the Federal

security interest may be perfected Reserve Bank maintaining the Securi-

automatically or by filing a financing ties Account is a clearing corporation

statement. (This is despite the general and the Participant’s interest in a

rule in (a)(5) of this section).

Book-entry Security is a Security En-

(d) Where is a Person located, for pur-

titlement.

poses of paragraph (c) of this section? A

Person’s location is determined under § 357.12 A Participant’s Security Enti-

state law, including Revised Article 9 tlement.

(incorporated by reference, see § 357.2),

as it may be amended from time to (a) How is a Participant’s Security En-

time. titlement created? A Federal Reserve

(e) What law governs if the jurisdiction Bank indicates by book entry that a

in table (b) of this section did not adopt Book-entry Security has been credited

Revised Article 8 or Revised Article 8 as to a Participant’s Securities Account.

amended by Revised Article 9 (both incor- (b) What else do I need to know about

porated by reference, see § 357.2)? The law a Participant’s Security Entitlement? See

for the matters specified in paragraph the following table:

If a security interest in a security entitlement of a participant . . . Then . . .



(1) Meets all of the following criteria:

(i) is in favor of the United States it is created; it is perfected;

(ii) is marked on the books of a Federal Reserve Bank .................................................. and it has priority over any

(iii) is to secure deposits of public money (including without limitation deposits to the other interest in the securi-

Treasury tax and loan accounts, or other security interested required by Federal ties.

statute, regulation, or agreement).









(c) What is the effect of the marking of Bank? Where a security interest in

a security interest in favor of the United favor of the United States in a Secu-

States in a Security Entitlement of a Par- rity Entitlement of a Participant is

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ticipant on the books of a Federal Reserve



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Fiscal Service, Treasury § 357.13



marked on the books of a Federal Re- perfection and priority of a security in-

serve Bank, such Reserve Bank may terest.

rely, and is protected in relying, exclu- (ii) A security interest in favor of a

sively on the order of an authorized Federal Reserve Bank shall be treated

Representative of the United States di- as a security interest in favor of a

recting the transfer of the Security. clearing corporation in all respects

(d) Who is an authorized Representative under that law.

of the United States, for purposes of para- (iii) A Federal Reserve Bank Oper-

graph (c) in this section? The official ating Circular shall be treated as a rule

designated in the applicable regula- adopted by a clearing corporation for

tions or in an agreement to which a these purposes.

Federal Reserve Bank is a party, gov-

erning the security interest. § 357.13 Obligations of the United

States and the Federal Reserve

(e)(1) Must the United States and the Banks with respect to Book-entry

Federal Reserve Banks agree to act on be- Securities and security interests.

half of any Person or to recognize the in-

(a) Who is entitled to deal with an in-

terest of any transferee of a security inter-

terest in a Book-entry Security that has

est or other limited interest in favor of

been credited to a Participant’s Security

any Person? No, they need not agree to

Account? Except in the case of a secu-

act or recognize any party’s interest,

rity interest in favor of the United

except:

States or a Federal Reserve Bank or

(i) To the extent of any specific re- otherwise as provided in § 357.12 (e), for

quirement of Federal law or regulation, the purposes of this subpart B, the

or United States and the Federal Reserve

(ii) To the extent set forth in any Banks treat the Participant as exclu-

specific agreement with the Federal sively entitled to perform the following

Reserve Bank on whose books the in- functions, even if the Treasury or a

terest of the Participant is recorded. Federal Reserve Bank has any informa-

(2) May a security interest be created tion or notice to the contrary:

and perfected by a Federal Reserve Bank (1) Issue a Transfer Message,

marking its books? Yes, a security inter- (2) Receive interest and other pay-

est in a Security Entitlement that is in ments with respect thereof, and

favor of a Federal Reserve Bank or a (3) Exercise all the rights and powers

Person may be created and perfected with respect to the Security,

by a Federal Reserve Bank marking its (b) Are the Federal Reserve Banks and

books to record the security interest to Treasury liable for Adverse Claims? The

the extent required by law, regulation, Federal Reserve Banks and Treasury

or an agreement with a Federal Re- are not liable to a Person asserting or

serve Bank or the Federal Reserve having an Adverse Claim to a Security

Bank Operating Circular. Entitlement or to a Book-entry Secu-

(3) Does this security interest have pri- rity in a Participant’s Securities Ac-

ority over other interests? A security in- count. This includes any such claim

terest in a Security Entitlement arising as a result of the transfer or

marked on the books of a Federal Re- disposition of a Book-entry Security by

serve Bank has priority over any other a Federal Reserve Bank, pursuant to a

interest in the securities, except a se- Transfer Message that the Federal Re-

curity in favor of the United States, as serve Bank reasonably believes to be

provided in table (b) of this section. genuine.

(4) In addition to the method provided (c) When is the obligation of the United

in paragraph (e)(2) of this section, may a States to pay interest and principal with

security interest, including a security in- respect to Book-entry Securities dis-

terest in favor of a Federal Reserve Bank, charged? The obligation is discharged

be perfected in another way? Yes, a secu- once payment is made as follows:

rity interest may be perfected by any (1) A Federal Reserve Bank credits

method under applicable law as de- the appropriate amount of interest on

scribed in §§ 357.10(b) or 357.11. Book-entry Securities to a Funds Ac-

(i) The applicable law governs the count maintained at the Bank, or pays

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perfection, effect of perfection or non- it as directed by the Participant.



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§ 357.14 31 CFR Ch. II (7–1–08 Edition)



(2) Book-entry Securities are re- the name of a secured party, the debt-

deemed according to their terms, a or’s interest may be reached by legal

Federal Reserve Bank withdraws the process upon the secured party.

securities from the Participant’s Secu- (b) These regulations do not state

rities Account in which they are main- whether a Federal Reserve Bank is re-

tained, and either: quired to honor an order or other no-

(i) Credits the amount of the Re- tice of attachment in any particular

demption proceeds, including both case or class of cases.

principal and interest, where applica-

ble, to a Funds Account at the Bank, or Subpart C—Legacy Treasury Di-

(ii) Pays such principal and interest rect Book-Entry Securities Sys-

as directed by the Participant. tem (Legacy Treasury Direct)

(d) What does a Participant need to do

in connection with the Redemption of a § 357.20 Securities account in Legacy

Book-entry Security? No action by the Treasury Direct ®.

Participant is required. (a) Account. A securities account con-

sists of:

§ 357.14 What authority does a Federal (1) An account master record, and

Reserve Bank have?

(2) A securities portfolio.

(a) Each Federal Reserve Bank has (b) Security. A security in Legacy

the authority as fiscal agent of the Treasury Direct is evidenced by the ac-

United States to: count master record and a description

(1) Perform functions with respect to of the security as set out in the securi-

the issuance of Book-entry Securities ties portfolio associated with an ac-

offered and sold by the Department to count master record.

which this subpart applies, in accord- (c) Account master record. An owner

ance with the terms of the applicable must establish an account master

offering circular and with procedures record before the owner may deposit a

established by the Department; security in Legacy Treasury Direct. If

(2) Service and maintain Book-entry the security is being purchased on

Securities in accounts established for original issue, the request that an ac-

such purposes; count master record be established

(3) Make payments of principal and may be made on the form used for pur-

interest, as directed by the Depart- chase of the security. If the security is

ment; being acquired other than on original

(4) Effect transfer of Book-entry Se- issue, the request that an account mas-

curities between Participants’ Securi- ter record be established should be

ties Accounts as directed by the Par- made on the appropriate form that is

ticipants; and provided by the Department. The ac-

(5) Perform such other duties as fis- count master record includes, but is

cal agent that the Department may re- not limited to, the following data:

quest. (1) The exact form of registration in

(b) Each Federal Reserve Bank may which the securities are held;

issue Operating Circulars that are con- (2) The Legacy Treasury Direct ac-

sistent with this part, governing the count number;

details of its handling of Book-entry (3) The correspondence address for

Securities, Security Entitlements, and the account;

the operation of the book-entry system (4) The TIN of the owner, or in the

under this part. case of ownership by two individuals,

of the first-named owner; and

§ 357.15 How can a debtor’s interest in (5) Payment instructions. (See

a Security Entitlement be reached § 357.26.)

by creditors? (d) Securities portfolio. The securities

(a) The interest of a debtor may be portfolio contains a description of each

reached by creditors only by legal proc- security and is the aggregate of all se-

ess upon the Securities Intermediary curities in the securities account.

with whom the debtor’s securities ac- (e) Statement of account. The Depart-

count is maintained. Exception: If a ment shall send a statement of account

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Security Entitlement is maintained in (statement):



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Fiscal Service, Treasury § 357.21



(1) Upon the establishment of an ac- to the correspondence address des-

count master record; ignated in the account master record,

(2) Upon a change in the securities or may be sent by electronic means.

portfolio; When the statement is issued as a re-

(3) At an owner’s request; or sult of a change in ownership of a secu-

(4) Upon the determination on De- rity, statements will be sent, where ap-

cember 31 that an owner has not re- propriate, to both the former and cur-

ceived a statement of account for that rent owners. Other information regard-

current calendar year. ing the account may be obtained in ac-

The statement shall contain informa- cordance with § 357.24.

tion regarding the account as of the (f) Confirmation notice. The Depart-

date of such statement. The price asso- ment shall send a confirmation notice

ciated with each security in the securi- (notice):

ties portfolio will also appear on the (1) Upon a change in an account mas-

statement.1 The statement may be sent ter record;

(2) Upon scheduling or canceling a re-

1 IRS regulations require reporting of in- investment; or

come information on a security. (3) To confirm the interest earned on

(1) If the security is a bill, the price infor- a Treasury Inflation Indexed Security.

mation will be used to comply with this re- The notice shall contain information

quirement. The earnings reported to IRS for regarding the account as of the date of

the year of a bill’s maturity will be the dif-

such confirmation. The notice may be

ference between the par value of the bill and

its price. sent to the correspondence address des-

(a) If a bill is deposited in Legacy Treasury ignated in the account master record,

Direct at original issue, the price shown will or may be sent by electronic means.

be the issue price. All changes reflected in paragraph (f)

(b) If a bill is transferred to Legacy Treas- (1) and (2) of this section will be in-

ury Direct from TRADES, the price shown cluded in the next regularly scheduled

will be that included in the transfer wire or

statement of account. See paragraph

supplied subsequently by the bill owner. If a

price is not furnished, the price shown will (e) of this section for the statement

be the weighted average price of the bill of schedule.

the longest maturity having the identical (g) Account maintenance fees. An an-

CUSIP number. nual maintenance fee shall be charged

(c) If a bill is transferred from one Legacy for each Legacy Treasury Direct secu-

Treasury Direct account to another, the rities account holding securities that

price shown in the receiving (transferee’s) in the aggregate exceed a stipulated

account will be that shown on the transfer

instructions or supplied subsequently by the par amount. The amount of the fee will

transferee. If a price is not furnished, the be published by notice in the FEDERAL

price shown will be the weighted average REGISTER.

price at original issue of the bill of the long-

(Approved by the Office of Management and

est maturity having the identical CUSIP

Budget under control number 1535–0068)

number, unless the term of the bill can be

determined from the account record in which [51 FR 18265, May 16, 1986, as amended at 60

case the price shown will be the weighted av- FR 4377, Jan. 23, 1995; 62 FR 18004, Apr. 11,

erage price at original issue of the bill with 1997; 62 FR 32033, June 12, 1997]

that term.

(2) If the security is a note or bond, the § 357.21 Registration.

earnings reported to IRS for a year will be

the periodic interest payments made during

(a) General. (1) Registration of a secu-

that year. If a note or bond is transferred to rity conclusively establishes owner-

a Legacy Treasury Direct account between ship, except in the case of partnership

interest payment dates, the earnings re- nominees, in which case the Depart-

ported to IRS for the transferee will show ment reserves the right to treat the

the interest for the entire interest payment registration as conclusive of owner-

period. The price for notes and bonds will be ship. The registration may not, except

shown on the statement of account for the

as provided in this Subpart, include

account owner’s information. The price

shown will be determined following the pro-

cedures described above for bills. notes and bonds between interest payment

(3) The security owner should report di- periods and (b) price corrections for bills re-

rectly to the IRS (a) adjustments to annual ported after preparation of the reports to the

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earnings amounts arising from acquisition of IRS.



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§ 357.21 31 CFR Ch. II (7–1–08 Edition)



any restriction on the authority of an sons without indicating whether survi-

owner to change the data in the ac- vorship rights attach (other than a reg-

count master record, transfer the secu- istration under paragraph (b)(2)(ii) of

rity, or effect any other change in the this section), will be presumed to be a

securities portfolio. request for registration without right

(2) The registration of all securities of survivorship. If a security is reg-

held by an owner should be uniform istered in this form, a transaction re-

with respect to the owner’s name. An quest, other than a request by one

owner must be identified by the name owner to transfer the security to the

by which the owner is ordinarily other owner, and other than a request

known, preferably including at least for reinvestment, must be executed by

one full given name. A suffix, such as both owners.

Sr. or Jr., must be included when ordi- (B) With right of survivorship. In the

narily used, or when necessary to dis- names of two individuals, joined by the

tinguish members of the same family. word ‘‘and’’, and followed by the words

(3) If an additional security is depos- ‘‘with right of survivorship’’. A secu-

ited in an existing account, the secu- rity so registered shall confer on each

rity will be registered in the same owner an undivided interest in the se-

name and form of registration that ap- curity and shall create a conclusive

pears in the designated account master right of survivorship.

record. One who holds a security as Example: Mark A. Doe and Mary B. Doe,

John Allen Doe should use that name with right of survivorship.

when depositing another security rath-

er than J. Allen Doe, or John A. Doe’. If a security is registered in this form,

Minor variations in names used in acquir- a transaction request, other than a re-

ing a security to be deposited in an estab- quest by one owner to transfer the se-

lished account may be resolved by the De- curity to the other owner, and other

partment. than a request for reinvestment, must

(b) Natural persons. A security may be be executed by both owners.

registered in the names of one or two (ii) ‘‘Or’’ form—‘‘Coownership’’. In the

individuals, but only in one of the fol- names of two individuals, joined by the

lowing forms: word ‘‘or’’. A security so registered

(1) Single ownership. In the name of shall confer on each owner an undi-

one individual. vided interest in the security and shall

create a conclusive right of survivor-

Example: Robert W. Woods ship.

An individual who is sole proprietor of Example: Robert Woods or Laura Woods.

a business conducted under a trade

name may include a reference to the If a security is registered in this form,

trade name. either coowner may make a trans-

action request, but if the Department

Example: John A. Doe, doing business as receives conflicting requests at or

Doe’s Home Appliance Store. about the same time, it may refuse to

(2) Ownership by two individuals—(i) process them.

‘‘And’’ form—Joint Ownership—(A) With- (iii) Beneficiary. In the name of one

out right of survivorship. In the names of individual followed by the words ‘‘Pay-

two individuals, joined by the word able on death to’’ (or ‘‘P.O.D.’’) another

‘‘and’’, and followed by the words individual.

‘‘without right of survivorship’’. A se- Example: Jack S. Jones, payable on death

curity so registered shall conclusively to Marie Jones.

confer on each owner an undivided in-

terest in the security. If a minor or an incompetent is named

as a beneficiary, the status of the bene-

Example: Elizabeth Black and Jane Brown, ficiary must be identified in the reg-

without right of survivorship.

istration. A minor or an incompetent

Any request for registration which pur- may not be designated as an owner. See

ports, by its terms, to preclude the paragraphs (b)(3) and (4) of this section.

right of survivorship, or which requests Example: John Perry, P.O.D. John Perry,

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registration in the names of two per- Jr., a minor.



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Fiscal Service, Treasury § 357.21



Registration in this form shall create Example: Virginia McDonald, as custodian

ownership rights in the beneficiary for Lynne Gorman, under the New York Uni-

only if the beneficiary survives the form Gifts to Minors Act.

owner. During an owner’s lifetime, a Any request to alter the rights of own-

transaction request may be executed ership of the security must be made as

by the owner without the consent of provided in the applicable statute.

the beneficiary. If the beneficiary dies (4) Incompetents—(i) General. A secu-

before the owner, the security will be rity may not be registered in the name

deemed to be registered in the owner’s of an individual in his or her own right

name alone. as an owner if that individual is incom-

(3) Minors—(i) General. A security petent. If a security is so registered, or

may not be registered in the name of a if the owner subsequently becomes in-

minor in his or her own right as an competent after the security is pur-

owner. If a security is so registered and chased, and the Department receives

the Department thereafter receives evidence or information of that fact,

evidence or information of that fact, the Department may suspend any

the Department may suspend proc- transaction with respect to the secu-

essing of any transaction request with rity until a legal guardian, conser-

respect to the security until either a vator, or other representative of the

legal guardian has been appointed or a incompetent’s estate has been ap-

natural guardian, as provided in para- pointed, or a voluntary guardian, as

graph (b)(3)(ii) of this section, has been provided in paragraph (b)(3)(ii) of this

recognized. Where a legal guardian is section, has been recognized. Where a

appointed, the Department will require legal guardian, conservator, or other

a certified copy of the court order mak- representative is appointed, the De-

ing such appointment. See § 357.28(c). partment will require a certified copy

(ii) Natural guardians of minors. A se- of the court order making such ap-

curity may be registered in the name pointment. See § 357.28(c).

of a natural guardian of a minor for (ii) Voluntary guardian of incompetent.

whose estate no legal representative If a legal guardian has not been ap-

has been appointed. The parent with pointed, and the face amount of the se-

curities held in one or more accounts

whom the minor resides will be recog-

in Legacy Treasury Direct ® by an

nized as the natural guardian. If the

owner who had become incompetent

minor resides with both parents, either

does not exceed, in the aggregate,

or both may be recognized as natural

$20,000 (par amount), upon submission

guardian(s). If the minor does not re-

to, and approval by, the Department of

side with either parent, the Depart-

an appropriate form, a relative or other

ment may recognize the person who

person responsible for an incompetent’s

furnishes the minor’s chief support as

care and support will be recognized as

the natural guardian.

voluntary guardian for purpose of mak-

Examples: Michael Jones, as natural guard- ing a transaction request under

ian of Alice Jones, a minor. § 357.28(b)(4). All persons known by the

Michael Jones and Evelyn Jones, as nat- Department to have an interest in the

ural guardians of Alice Jones, a minor. incompetent’s estate, as required by

the application form, must agree to the

The security may also be registered in designation of the voluntary guardian.

one of the forms authorized under para- The security may be re-registered in

graph (b)(2) of this section. the name of the voluntary guardian.

Examples: James Green, as natural guard- Example: Richard Melrose, as voluntary

ian of William Green, a minor, and Anne guardian for James W. Brundige.

Green, without right of survivorship.

(c) Representatives. A security may be

James Green, as natural guardian of Wil-

liam Green, a minor, POD Lynne Green.

registered in the name of a representa-

tive of an estate. If there is more than

(iii) Custodian under statute author- one representative, the names of some

izing gifts to minors. A security may be representatives may be omitted if fol-

registered as provided under an appli- lowed by language that indicates the

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cable gift to minors statute. existence of other representatives. In



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§ 357.21 31 CFR Ch. II (7–1–08 Edition)



such cases, those named in the reg- (d) Private organizations (corporations,

istration shall be conclusively pre- unincorporated associations and partner-

sumed by the Department to have au- ships). A security may be registered in

thority to make a transaction request the name of a private corporation, un-

on behalf of all the representatives. incorporated association, or partner-

The form of registration must identify ship. The full legal name of the organi-

the specific capacity of the representa- zation, as set forth in its charter, arti-

tive(s) and the estate represented. cles of incorporation, constitution,

Examples: ABC National Bank of Chicago, partnership agreement, or other docu-

Illinois and Harold Smith, co-executors of ments from which its powers are de-

the will (or administrators of the estate) of rived, must be included in the registra-

Charles Johnson, deceased. tion. The name may be followed by a

William Brown, guardian of the estate of reference to a particular account or

Henry Jones, a minor. fund, other than a trust fund, such as

Robert Smith, Richard Smith, et al., execu- an escrow account.

tors of the will of Lorraine Smith, deceased.

(1) A corporation. The legal name of a

If the representative is a trustee, the business, fraternal, religious, or other

form of registration must identify spe- private corporation must be followed

cifically the authority or document by descriptive words indicating the

creating the trust. corporate status unless the term cor-

Examples: Sarah Jones and XYZ Trust Co., poration or the abbreviation Inc. is part

trustees under the will of Matthew Smith, of the name or the name is that of a

deceased. corporation or association organized

Cynthia Doe and Margaret Jones, trustees under Federal law, such as a national

under agreement with Martha Roe, dated bank or Federal savings and loan asso-

April 13, 1979. ciation.

Cynthia Doe, trustee under declaration of

Examples: Brown Manufacturing Co., a cor-

trust, dated April 13, 1979.

poration (Education Fund).

Richard Smith, James Jones, and Frank

Brown, trustees under the will of Henry K. The Apex Manufacturing Corporation.

James, deceased. XYZ National Bank of El Paso, TX.

ABC Corporation, Myrna Banker, et al., Goodworks, Unlimited, a not-for-profit cor-

trustees of Profit-Sharing Plan of Ace Manu- poration.

facturing Co., under B/D resolution, dated

May 18, 1975. (2) An unincorporated association. Un-

less the name of a lodge, club, labor

If there are several trustees designated union, veterans or religious organiza-

as a board or authorized to act as a tion, or similar organization which is

unit, their names should be omitted not incorporated (whether or not it is

and the words, ‘‘Board of Trustees’’ chartered by or affiliated with a parent

substituted. organization which is incorporated) in-

Example: Board of Trustees of Super Co. cludes the words an unincorporated as-

Retirement Fund, under collective bar- sociation, the registration must include

gaining agreement, dated March 18, 1969. descriptive words indicating the orga-

An organization (other than a bank) or nization’s unincorporated status. A se-

individual seeking to act as trustee or curity may not be registered in the

custodian of an Individual Retirement name of an unincorporated association

Account (‘‘IRA’’), must be authorized if the legal title to its property or the

to so act by the Internal Revenue Serv- legal title to the funds with which the

ice. As appropriate, registration of the security is to be purchased is held by

security should be in the form shown trustees. In such a case, the security

below: should be registered in the name of the

trustees in accordance with paragraph

Examples: ABC Bank, trustee for John Doe

(c) of this section. The term unincor-

IRA, under agreement dated December 21,

1990. porated association should not be used

EFG Broker, Inc., custodian for Mary to describe a trust fund, a partnership

Smith IRA, under agreement dated Sep- or a business conducted under a trade

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tember 4, 1991. name.



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Fiscal Service, Treasury § 357.22

Examples: Local Union No. 13, Brotherhood § 357.22 Transfers.

of Operating Engineers, an unincorporated

association. (a) General. A security may be trans-

The Simpson Society, an unincorporated ferred only as authorized by this part.

association. A security may be transferred among

accounts in Legacy Treasury Direct ®,

(3) Partnership. Unless the name of a the commercial book-entry system,

partnership includes the word partner- and TreasuryDirect ®. A security may

ship, the registration must include de- also be transferred between accounts in

scriptive words indicating partnership Legacy Treasury Direct. The Depart-

status. ment may delay transfer of a newly

Examples: Red & Blue, a partnership. purchased security from a Legacy

Treasury Direct account to an account

Abco and Co., a nominee partnership.

in commercial book entry or

(e) Governmental entities and officers. TreasuryDirect for a period not to ex-

A security may be registered in the ceed (30) calendar days from the date of

name of a State, county, city, town, issue. This provides time for the inves-

village, school district, or other gov- tor to become aware of any unauthor-

ernmental entity, body, or corporation ized debits.

established by law. If a governmental (1) Identification of securities to be

officer is authorized to act as a trustee transferred. The owner must identify

or custodian, a security may be reg- the securities to be transferred, in the

istered in the title, or name and title, manner required by the transaction re-

of the governmental officer. The form quest. If such identification is not pro-

of registration should reflect the ca- vided, the request will not be processed

pacity in which the governmental enti- and will be returned.

ty or officer is authorized to hold prop- (2) Denominational amounts. A secu-

erty (e.g., it may be authorized to hold rity may be transferred from an ac-

property in its own name or as trustee count only in a denominational

or custodian). amount authorized by the offering

Examples: Laura Woods, Treasurer, City of under which the security was issued.

Twin Falls, Mo. Any security remaining in the securi-

ties portfolio after the transfer must

State of Michigan.

also be in an authorized denomina-

Village of Gaithersburg, Md. tional amount.

Pennsylvania State Highway Administra- (3) When transfer effective. (i) Transfer

tion (Highway Road Repair Fund). within Legacy Treasury Direct or to Leg-

Insurance Commissioner of Florida, trust- acy Treasury Direct from the commercial

ee for benefit of policy holders of Sunshine book-entry system or TreasuryDirect. A

Insurance Co. under F.S.A. Sec. 629.104.

transfer of a security within Legacy

Commonwealth of Virginia, in trust for Treasury Direct, or to Legacy Treasury

Virginia Surplus Property Agency. Direct from another book-entry sys-

Gleason County Cemetery Commission, tem, is effective when an appropriate

trustee under Md. Code Ann. Sec. 310.29. entry is made in the name of the trans-

(f) The United States Treasury. A secu- feree on the Legacy Treasury Direct

rity may be registered in the name of records.

an individual, with the United States (ii) Transfer from Legacy Treasury Di-

Treasury as beneficiary, provided a ref- rect to the commercial book-entry system.

erence to the statute which authorizes A transfer of a security from Legacy

gifts to be made to the United States Treasury Direct to the commercial

to reduce the public debt, is included. book-entry system is effective as pro-

vided in Subpart B. If a transfer cannot

Example: John S. Green, payable on death be completed, and the security is sent

[or P.O.D.] to U.S. Treasury to reduce the

back to Legacy Treasury Direct, the

public debt (31 U.S.C. 3113).

Department will redeposit the security

(Approved by the Office of Management and in the original account.

Budget under control number 1535–0068) (iii) Transfer from Legacy Treasury Di-

[51 FR 18265, May 16, 1986, as amended at 57 rect to TreasuryDirect. A transfer of a

rfrederick on PROD1PC67 with CFR









FR 38774, Aug. 27, 1992] security from Legacy Treasury Direct



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§ 357.22 31 CFR Ch. II (7–1–08 Edition)



to TreasuryDirect is effective as pro- an inflation-indexed security, yield

vided in 31 CFR part 363. If the transfer means real yield, as defined in 31 CFR

cannot be completed, the Department part 356.

will redeposit the security in the origi- (3) Procedure. On an approved Treas-

nal account. ury form, the owner must authorize a

(b) Transfer to Federal Reserve Bank transfer of the security from the inves-

for sale of securities in the secondary mar- tor’s Legacy Treasury Direct account

ket. (1) Upon authorization by the in- to the designated Federal Reserve

vestor, an unmatured security may be Bank, and authorize the Federal Re-

transferred to a Federal Reserve Bank serve Bank to sell the security. Rules

acting as the designated fiscal agent of in subpart C of this part governing the

the United States, to be sold on behalf transfer of securities will apply to the

of the investor. transfer of the security to the Federal

(2) Definitions. In this section, unless Reserve Bank. Generally, on the day

the context indicates otherwise: that the security is transferred to the

Dealer means an entity that is reg- Federal Reserve Bank, the Federal Re-

istered or has given notice of its status serve Bank will make reasonable ef-

as a government securities broker or forts to obtain a price quote from at

government securities dealer, pursuant least three dealers, and will enter into

to Section 15C(a)(1) of the Securities an agreement to sell the security to

Exchange Act of 1934. the dealer with the highest price quote

Par amount means the stated value of for next day settlement. What con-

a security at original issuance.

stitutes reasonable effort shall be de-

Price means the dollar amount to be

termined solely by the Federal Reserve

paid for a security expressed as a per-

Bank. On the next full business day

cent of its current par amount.

after the trade date, the settlement

Security means any amount held in a

amount shall be released by direct de-

Legacy Treasury Direct account which

posit (electronic funds transfer), as

is represented by a separate CUSIP

provided in § 357.26 of this part, to the

number.

account at the financial institution

Settlement amount, also referred to as

designated by the investor to accept

net amount, is the amount deposited

by the Federal Reserve Bank to the ac- Legacy Treasury Direct payments, ex-

count of the investor at the financial cept when the Department determines

institution designated by the investor that extraordinary circumstances exist

to receive Legacy Treasury Direct pay- that require payment by other means.

ments. This amount is equal to the par In the event that the Federal Reserve

amount of the securities multiplied by Bank is unable to obtain at least one

the price, plus any accrued interest, price quote for the security, the secu-

and less the transaction fee. For infla- rity will be returned to the Legacy

tion indexed securities, the settlement Treasury Direct account of the inves-

amount also includes any applicable tor on the next full business day fol-

inflation adjustment, as provided in 31 lowing the receipt of the securities by

CFR Part 356. The settlement amount the Federal Reserve Bank, and the Fed-

may be less than the par amount of the eral Reserve Bank will notify the in-

security. vestor.

Settlement date is the date the settle- (4) Confirmation. The Federal Reserve

ment amount is released to the ac- Bank will send a confirmation of the

count at the financial institution des- sale to the investor upon completion of

ignated by the investor for receipt of the transaction. Such confirmation

Legacy Treasury Direct payments. will include such information as price,

Trade date means the date on which trade date, settlement date, settlement

the Federal Reserve Bank enters into amount, also referred to as net

an agreement with a dealer for the sale amount, transaction fee, and yield to

of the security. maturity.

Yield, also referred to as yield to ma- (5) Price. By authorizing the transfer

turity, means the annualized rate of re- and sale of the securities, the investor

turn to maturity on a fixed principal agrees to accept the price received by

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security expressed as a percentage. For the Federal Reserve Bank from the



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Fiscal Service, Treasury § 357.23



dealer selected as having the highest scribed in § 357.21(b)(2)(i)(B)) only upon

price quote. proof of death of an owner.

(6) Transaction fee. A transaction fee (2) Succession under law of domicile. If

shall be charged for each security sold a security is registered in a form that

on behalf of the investor. If the Federal does not provide for a right of survivor-

Reserve Bank is unable to complete the ship, succession shall be determined in

sale of the security, no fee will be accordance with the applicable law of

charged. By authorizing the sale of the the deceased owner’s domicile at the

security, the investor authorizes the time of death.

Federal Reserve Bank to withhold the (d) Representative succession. If a secu-

transaction fee prior to the Federal Re- rity is registered in the name of a rep-

serve Bank initiating the payment of resentative who has died, resigned, or

the settlement amount to the account been removed, succession shall be de-

at the financial institution designated termined in accordance with applicable

by the investor to receive Legacy law and the terms of the document

Treasury Direct payments. The under which the representative was

amount of the transaction fee will be acting.

published by notice in the FEDERAL (e) Organizational succession—(1) Cor-

REGISTER. poration and unincorporated association.

(7) Termination. This service may be If a security is registered in the name

terminated at anytime without prior of a corporation or an unincorporated

notice at the discretion of the Depart- association that has been dissolved,

ment. merged or consolidated into another

(8) Rights. The provisions applicable organization, succession shall be deter-

to Legacy Treasury Direct trans- mined in accordance with applicable

actions in subpart C shall apply to this law and the terms of the documents by

section. The provisions applicable to which the dissolution, merger, or con-

transactions in TRADES in subpart B solidation was effected.

shall not apply to this section. (2) Partnership. If a partnership is dis-

(9) Irrevocability. The authorization of solved or terminated, succession shall

the investor for the transfer and sale of be determined in accordance with ap-

the securities shall be irrevocable when plicable law and the terms of the part-

the transfer from the Legacy Treasury nership agreement.

Direct account of the investor to the (f) Succession of governmental officer. If

account at the Federal Reserve Bank is a security is registered in the name

effected. and title of a governmental officer who

(10) Liability. The Department and has died, resigned, or has been re-

the designated Federal Reserve Bank moved, succession shall be determined

shall not be liable for changes in mar- in accordance with applicable law.

ket conditions affecting the price re-

ceived for the security, or for any loss (Approved by the Office of Management and

which the investor may incur as a re- Budget under control number 1535–0068)

sult of the transaction or the inability [51 FR 18265, May 16, 1986; 51 FR 18884, May

of the Federal Reserve Bank to com- 23, 1986, as amended at 53 FR 10074, Mar. 29,

plete the transaction. 1988; 62 FR 46861, Sept. 4, 1997; 64 FR 6527,

(c) Transfer upon death of an owner— Feb. 10, 1999; 70 FR 57441, Sept. 30, 2005]

(1) Right of survivorship. If a security is

registered in beneficiary form or a § 357.23 Judicial proceedings—sov-

form which provides for a right of sur- ereign immunity.

vivorship, upon the death of an owner, (a) Department and Federal Reserve

the beneficiary or survivor shall be the Banks not proper parties. The Depart-

sole and absolute owner, notwith- ment and the Federal Reserve Banks

standing any purported testamentary are not proper defendants in a judicial

disposition by the decedent and not- proceeding involving competing claims

withstanding any State or other law to to a security held in Legacy Treasury

the contrary. The Department will Direct ® nor are they subject to any in-

honor a transaction request by a bene- junction or restraining order issued

ficiary or a survivor (in the case of a with respect to a security. The Depart-

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security registered in the form de- ment will not recognize a notice of a



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§ 357.24 31 CFR Ch. II (7–1–08 Edition)



pending or contemplated judicial or ad- § 357.24 Availability and disclosure of

ministrative proceeding affecting a se- Legacy Treasury Direct ® records.

curity in Legacy Treasury Direct. (a) General. All records with respect

(b) Orders—(1) Ownership rights. The to a Legacy Treasury Direct account

Department will recognize a final order are held confidential. Consistent with

entered by a court that affects owner- the Privacy Act (5 U.S.C. 552a), infor-

ship rights in a security in Legacy mation relating to those accounts will

Treasury Direct if: be released only to the owner except:

(i) The order is consistent with the (1) As provided in these regulations;

provisions of this subpart and the (2) As provided in Treasury regula-

terms and conditions of the security; tions contained in 31 CFR Part 323; or

and (3) As otherwise provided by law.

(ii) The Department has received evi- (b) Inquiries by owners. Information

dence of the order, as provided in para- requested will be disclosed to an owner

graph (c) of this section. provided that:

(2) Transaction request. The Depart- (1) Sufficient information is provided

ment will honor a transaction request to identify the owner; and

submitted by a person appointed by a (2) Sufficient information is provided

court and having authority under an to identify the Legacy Treasury Direct

order of a court to dispose of the secu- account.

rity or payment with respect thereto (c) Conditions for release. A request for

if: information will be honored only if, in

(i) The ordered disposition of the se- the sole judgment of the Department

curity or payments with respect there- or the Federal Reserve Bank to which

to is consistent with the provisions of the inquiry is made, the identity and

this subpart and the terms and condi- right of the requester to the informa-

tions of the security; and tion have been established.

(ii) The Department has received evi-

[51 FR 18265, May 16, 1986; 51 FR 18884, May

dence of the appointment and order, as 23, 1986]

provided in paragraph (c) of this sec-

tion. § 357.25 Security interests.

(c) Evidence required. Before the De-

(a) General. The Department will not

partment will recognize an order or de-

recognize any notice or claim of a lien,

termination entered by a court, the De- encumbrance, or security interest of

partment must have received a cer- any kind, including a pledge, in a secu-

tified copy of the judgment, decree, or rity in Legacy Treasury Direct ® except

order and any additional documents as provided in § 357.23 and in paragraph

deemed necessary by the Department. (b) of this section.

A certificate from the clerk of the (b) Security for the performance of duty

court, bearing the seal of the court, or obligation under Federal law. The De-

must also be submitted stating that partment will accept and hold pursuant

the judgment, decree, or order is still to the provisions of 31 U.S.C. 9303,

in full force and has not been stayed or book-entry bonds, notes or bills sub-

appealed, and that the time for filing mitted in lieu of a surety bond as secu-

an appeal has passed. Before the De- rity for the performance of a duty or

partment will honor a transaction re- obligation required by Federal law in

quest submitted by a person appointed accordance with said section.

by a court, the Department must re-

ceive a certified copy of the order mak- § 357.26 Direct Deposit.

ing the appointment and describing (a) General. A payment by the De-

specifically the person’s authority, and partment with respect to a security

any additional documents deemed nec- shall be by direct deposit unless it is

essary by the Department. deemed necessary by the Department

(Approved by the Office of Management and to make payment by another means.

Budget under control number 1535–0068) Direct Deposit payments are governed

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by the regulations at 31 CFR part 370.



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Fiscal Service, Treasury § 357.28



(b) Names on account. Where the Leg- amount and will be issued in accord-

acy Treasury Direct ® securities ac- ance with the terms of the offering. If

count is in the name of individual(s) in the new security is issued at a pre-

their own right, and the deposit ac- mium or with accrued interest, an ad-

count at the financial institution is in ditional payment will be required from

the name of individual(s) in their own the investor. If the new security is

right, the two accounts must contain issued at a discount, the difference will

at least one name that is common to be remitted to the owner.

both. (b) Treasury bills. A request by an

(c) Inquiry to financial institution. owner for a single or successive rein-

Where the deposit account to which vestment of a Treasury bill must be

payments are to be directed is held in made in accordance with the terms pre-

the name of the financial institution scribed on the tender form submitted

itself acting as sole trustee, or as co- at the time of purchase of the original

trustee, or is in the name of a commer- bill, or by a subsequent transaction re-

cially-managed investment fund, par- quest received not less than ten (10)

ticular inquiry should first be made of business days prior to the maturity

the financial institution to make cer- date of the bill. A request to revoke a

tain that the direct deposit payments direction to reinvest the proceeds of a

can be received, and alternate arrange- bill must be received by the Depart-

ments made if it cannot do so. ment not less than ten (10) business

(d) Payments to master account. All days prior to the maturity date of the

payments relating to a single account bill. If either a request for reinvest-

master record must be made to the ment or revocation of a reinvestment

same designated account at a financial request is received less than ten (10)

institution. business days prior to maturity of the

(e) Deposit account. The deposit ac- original bill, the Department may in

count to which payments are directed its discretion act on such request if

should preferably be established in a sufficient time remains for processing.

form identical to the registration of (c) Issue date not coincidental with ma-

the securities account, particularly turity date. If the date on which a secu-

where the securities are registered rity matures or is called does not coin-

jointly or with right of survivorship, to cide with the issue date of the security

assure that the rights of ownership and being purchased through reinvestment,

of survivorship can be more easily the Department may, at its option,

identified and preserved. Neither the hold the redemption proceeds in the

United States nor any Federal Reserve same form of registration as the ma-

Bank shall be liable for any loss sus- turing or called security, but no inter-

tained because the interests of the est shall accrue or be paid on such

holder(s) of a deposit account to which funds.

payments are made are not the same as (Approved by the Office of Management and

the interests of the owner(s) of the se- Budget under control number 1535–0068)

curity.

[51 FR 18265, May 16, 1986, as amended at 62

(Approved by the Office of Management and FR 18694, Apr. 16, 1997]

Budget under control number 1535–0068)

[51 FR 18265, May 16, 1986, as amended at 57 § 357.28 Transaction requests.

FR 38774, Aug. 27, 1992; 61 FR 6113, Feb. 16, (a) General. Unless otherwise author-

1996; 64 FR 40487, July 26, 1999] ized by the Department, a transaction

request must be submitted on a trans-

§ 357.27 Reinvestment. action request form. In the case of cer-

(a) General. Upon the request of an tain transactions specified by the De-

owner, the redemption proceeds of a se- partment, the owner’s signature on the

curity may be reinvested at maturity form must be certified or guaranteed,

in a new security in the same form of as provided in § 357.31. If the trans-

registration, provided a new security is action request form is received more

then being offered by the Department than six (6) months after its execution,

and provision for reinvestment is made it will not be honored by the Depart-

in the offering. The new security must ment and will be returned to the sender

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be in an authorized denominational for further instructions.



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§ 357.28 31 CFR Ch. II (7–1–08 Edition)



(b) Individuals—(1) General. A trans- will not honor a transaction request by

action request must be signed by the the voluntary guardian:

owner of the security. In addition to (i) Which would transfer the security

any required certification, a trans- to a voluntary guardian in his or her

action request form executed by a per- own right; or

son by mark, e.g., ‘‘(X)’’, must be wit- (ii) After the Department receives

nessed by a disinterested person. The notice of the ward’s restoration to

following language should be added to competency, the qualification of a

the form and be signed by the witness: legal guardian or similar representa-

tive, or the death of the ward. See

Witness to signature by mark

§ 357.21(b)(4).

llllllllllllllllllllllll

(c) Representatives—(1) General. Any

Signature of witness

llllllllllllllllllllllll

representative of an owner’s estate,

Address of witness other than a trustee, may execute a

transaction request form if the rep-

(2) Change of name. If an individual’s resentative submits to the Department

name has been changed from that ap- properly authenticated evidence of the

pearing in the registration, the indi- authority to act. The evidence will not

vidual should sign both names to the be accepted if dated more than one

transaction request form and state the year prior to the date of submission of

manner in which the change occurred. the transaction request.

Example: Deborah L. Gains, changed by (2) Decedent’s estate has been settled

order of court from Deborah G. O’Brien. previously. If a decedent’s estate has

been settled previously through judi-

The individual must provide evidence, cial proceedings, the persons entitled

such as a certified copy of a court may make a transaction request. A

order, which confirms the change, un- certified copy of the court-approved

less it is indicated that the change of final accounting for the estate, the

name resulted from marriage. court’s decree of distribution, or other

Example: Catherine M. Cole, changed by

appropriate evidence will be required.

marriage from Catherine T. Murray. (3) Special provisions under the law of

the jurisdiction of the decedent’s domicile.

(3) Natural guardians. A transaction If there is no formal or regular admin-

request involving a security registered istration and no representative of the

in the name of a natural guardian of a decedent’s estate is to be appointed,

minor may be executed by the natural the person appointed to receive or dis-

guardian. If a security is registered in tribute the assets of a decedent’s estate

the names of both parents as natural without regular administration under

guardians of a minor, both must exe- applicable local law summary or small

cute a transaction request. However, estates procedures may make a trans-

the Department will not honor a trans- action request. Appropriate evidence

action request by the natural guard- will be required.

ian(s): (4) When administration is required. If

(i) Which would transfer the security the total redemption value of the

to a natural guardian in his or her own Treasury securities and undelivered

right; or payments, if any, held directly on our

(ii) After the Department receives records that are the property of the de-

notice of the minor’s attainment of cedent’s estate is greater than $100,000,

majority, the qualification of a legal administration of the decedent’s estate

guardian or similar representative, or will be required. The redemption value

the death of the minor. of savings bonds and the principal

(4) Voluntary guardians. A transaction amount of marketable securities will

request involving a security belonging be used to determine the value of secu-

to an owner who has become incom- rities, and will be determined as of the

petent may be executed by a voluntary date of death. Administration may also

guardian, but only after approval by be required at the discretion of the De-

the Department of the voluntary partment for any case.

guardian’s application for such des- (5) Voluntary representative for small

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ignation. However, the Department estates of decedents that are not being



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Fiscal Service, Treasury § 357.28



otherwise administered. (i) General. A the distribution of securities or pro-

voluntary representative is a person ceeds is to or on behalf of the persons

qualified according to paragraph entitled by the law of the jurisdiction

(c)(5)(iii) of this section, to make a in which the decedent was domiciled at

transaction request. The voluntary the date of death. The United States is

representative procedures are for the not liable to any person for the im-

convenience of the Department; enti- proper distribution of securities or pro-

tlement to the decedent’s securities ceeds. Upon distribution of the securi-

and held payments, if any, is deter- ties or proceeds at the request of the

mined by the law of the jurisdiction in voluntary representative, the United

which the decedent was domiciled at States is released to the same extent as

the date of death. Voluntary represent- if it had paid or delivered to a rep-

ative procedures may be used only if: resentative of the estate appointed pur-

(A) There has been no administra- suant to the law of the jurisdiction in

tion, no administration is con- which the decedent was domiciled at

templated, and no summary or small the date of death. The voluntary rep-

estate procedures under applicable resentative shall indemnify and hold

local law have been used; harmless the United States and all

(B) The total redemption value of the creditors and persons entitled to the

Treasury securities and held payments, estate of the decedent. The amount of

if any, that are the property of the de- the indemnification is limited to an

cedent’s estate is $100,000 or less as of amount no greater than the value re-

the date of death; and ceived by the voluntary representative.

(C) There is a person eligible to serve (v) Creditor. If there has been no ad-

as the voluntary representative accord- ministration, no administration is con-

ing to paragraph (c)(5)(iii) of this sec- templated, no summary or small estate

tion. procedures under applicable local law

(ii) Authority of voluntary representa- have been used, and there is no person

tive. A voluntary representative may eligible to serve as a voluntary rep-

make a transaction request to dis-

resentative pursuant to paragraph (e)

tribute the securities to or for the ben-

of this section, then a creditor may

efit of the persons entitled by laws of

make a claim for payment of the

the jurisdiction in which the decedent

amount of the debt, providing the debt

was domiciled at the date of death.

has not been barred by applicable local

(iii) Order of precedence for voluntary

law.

representative. An individual eighteen

years of age or older may act as a vol- (d) Private organizations—(1) Corpora-

untary representative according to the tions and unincorporated associations. A

following order of precedence: A sur- transaction request involving a secu-

viving spouse; if there is no surviving rity registered in the name of a cor-

spouse, then a child of the decedent; if poration or an unincorporated associa-

there are none of the above, then a de- tion (either in its own right or in a rep-

scendant of a deceased child of the de- resentative capacity), may be executed

cedent; if there are none of the above, by an authorized person on its behalf.

then a parent of the decedent; if there The request must be supported by evi-

are none of the above, then a brother dence of the person’s authority to act.

or sister of the decedent; if there are (2) Partnerships. A transaction re-

none of the above, then a descendant of quest involving a security registered in

a deceased brother or sister of the dece- the name of a partnership must be exe-

dent; if there are none of the above, cuted by a general partner.

then a next of kin of the decedent, as (e) Government entities. A transaction

determined by the law of the jurisdic- request involving a security registered

tion in which the decedent was domi- in the name of a State, county, city,

ciled at the date of death. As used in school district, or other governmental

this order of precedence, child means a entity, public body or corporation,

natural or adopted child of the dece- must be executed by an authorized offi-

dent. cer of the entity. The request must be

(iv) Liability. By serving, the vol- supported by evidence of the officer’s

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untary representative warrants that authority to act.



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§ 357.29 31 CFR Ch. II (7–1–08 Edition)



(f) Public officers. A transaction re- § 357.30 Cases of delay or suspension

quest involving a security registered in of payment.

the title of a public officer must be ex- If evidence required by the Depart-

ecuted by the officer. The request must ment in support of a transaction re-

be supported by evidence of incum- quest is not received by the Depart-

bency. ment at least ten (10) business days be-

(g) Attorneys-in-fact. A transaction re- fore the maturity date of the security,

quest made by an attorney-in-fact or if payment at maturity has been

must be accompanied by the original suspended pursuant to 31 CFR 370.10, in

power of attorney or a properly au- cases of reinvestment, the Department

thenticated copy. A power of attorney will redeem the security and hold the

must be executed in the presence of a redemption proceeds in the same form

notary public or a certifying indi- of registration as the security re-

vidual. See § 357.31. The power of attor- deemed, pending further disposition.

ney will not be accepted if it was exe- No other interest shall accrue or be

cuted more than two (2) years before paid on such proceeds after the secu-

the date the transaction request was rity is redeemed.

executed, unless the power provides

that the authority of the attorney-in- [64 FR 40487, July 26, 1999]

fact continues notwithstanding the in-

§ 357.31 Certifying individuals.

capacity of the principal. If two or

more attorneys-in-fact are named, all (a) General. The following individuals

must execute the transaction request may certify signatures on transaction

unless the power authorizes fewer than request forms:

all to act. A transaction request exe- (1) Officers and employees of deposi-

cuted by an attorney-in-fact seeking tory institutions, corporate central

transfer of a security to the attorney- credit unions, and institutions that are

in-fact will not be accepted unless ex- members of Treasury-recognized signa-

pressly authorized by the document ap- ture guarantee programs who have

pointing the attorney-in-fact. been authorized:

(i) Generally to bind their respective

(Approved by the Office of Management and

institutions by their acts;

Budget under control number 1535–0068)

(ii) Unqualifiedly to guarantee signa-

[51 FR 18265, May 16, 1986; 51 FR 18884, May tures to assignments of securities; or

23, 1986, as amended at 70 FR 57431, Sept. 30, (iii) To certify assignments of securi-

2006]

ties.

§ 357.29 Time required for processing (2) Officers and authorized employees

transaction request. of Federal Reserve Banks.

(3) Officers of Federal Land Banks,

For purposes of a transaction request

Federal Intermediate Credit Banks and

affecting payment instructions with re- Banks for Cooperatives, the Central

spect to a security, a proper request Bank for Cooperatives, and Federal

must be received not less than ten (10) Home Loan Banks.

business days preceding the next pay-

(4) Commissioned officers and war-

ment date. If a transaction request is

rant officers of the Armed Forces of

received less than ten (10) business

the United States but only with re-

days preceding a payment date, the De-

spect to signatures executed by Armed

partment may in its discretion act on

Forces personnel, civilian field employ-

such request if sufficient time remains

ees, and members of their families.

for processing. If a transaction request

is received too late for completion of (5) Such other persons as the Com-

the requested transaction, the trans- missioner of the Public Debt or his des-

action request will be acted upon with ignee may authorize.

respect to future payments only. (b) Foreign countries. The following

individuals are authorized to certify

(Approved by the Office of Management and signatures on transaction request

Budget under control number 1535–0068) forms executed in a foreign country:

[51 FR 18265, May 16, 1986, as amended at 62 (1) United States diplomatic or con-

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FR 18694, Apr. 16, 1997] sular officials.



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Fiscal Service, Treasury § 357.31



(2) Managers and officers of foreign ment should be dated, and the seal of

branches of depository institutions and the institution should be added. This

institutions that are members of form of endorsement is an uncondi-

Treasury-recognized signature guar- tional guarantee to the Department

antee programs. that the institution is acting for the

(3) Notaries public and other officers owner under proper authorization.

authorized to administer oaths, pro- (d) Evidence of certifying individual’s

vided their official position and au- authority. The authority of a certifying

thority are certified by a United States individual to act is evidenced by

diplomatic or consular official under affixing to the certification the fol-

seal of the office. lowing:

(c) Duties and liabilities of certifying (1) Officers and employees of depository

individuals— (1) General. Except as institutions. The institution’s seal or

specified in paragraph (c)(2) of this sec- signature guarantee stamp; if the insti-

tion, a certifying individual shall re- tution is an authorized paying agent

quire that the transaction request form for U.S. Savings Bonds, a legible im-

be signed in the certifying individual’s print of the paying agent’s stamp; or, if

presence after he or she has established the institution is a member of the Se-

the identity of the person seeking the curity Transfer Agents Medallion Pro-

certification. An employee who is not gram (STAMP), a legible imprint of the

an officer should insert the words ‘‘Au- STAMP signature guarantee stamp.

thorized signature’’ in the space pro-

(2) Officers and authorized employees of

vided for the title. A certifying indi-

institutions that are members of Treasury-

vidual and the organization for which

recognized signature guarantee programs.

he or she is acting are jointly and sev-

A legible imprint of the program’s sig-

erally liable for any loss the United

nature guarantee stamp, e.g., the

States may incur as a result of the in-

STAMP, SEMP, MSP stamp for mem-

dividual’s negligence in making the

bers of the Securities Transfer Agents

certification.

Medallion Program, the Stock Ex-

(2) Signature guaranteed. The trans-

changes Medallion Program, or the

action request form need not be exe-

cuted in the presence of a certifying in- New York Stock Exchange Incor-

dividual if he or she unqualifiedly porated Medallion Signature Program,

guarantees the signature, in which case respectively.

the certifying individual shall, after (3) Officers and authorized employees of

the signature, add the following en- Federal Reserve Banks. Whatever is pre-

dorsement: ‘‘Signature guaranteed, scribed in procedures established by

First National Bank of Smithville, the Department.

Smithville, NH, by A.B. Doe, Presi- (4) Officers and employees of corporate

dent’’, and add the date. In guaran- central credit unions and other entities

teeing a signature, the certifying indi- listed in paragraph (a)(3) of this section.

vidual and the organization for which The entity’s seal.

he or she is acting warrant to the De- (5) Notaries public, diplomatic or con-

partment that the signature is genuine sular officials. The official seal or stamp

and that the signer had the legal ca- of the office. If the certifying indi-

pacity to execute the transaction re- vidual has no seal or stamp, then the

quest. official’s position must be certified by

(3) Absence of signature guaranteed by some other authorized individual,

depository institution. A transaction re- under seal or stamp, or otherwise

quest form need not be actually signed proved to the satisfaction of the De-

by the owner in any case where a certi- partment.

fying individual associated with a de- (6) Commissioned or warrant officers of

pository institution has placed an en- the United States Armed Forces. A state-

dorsement on the form reading sub- ment which sets out the officer’s rank

stantially as follows: ‘‘Absence of sig- and the fact that the person executing

nature by owner and validity of trans- the transaction request is one whose

action guaranteed, Second State Bank signature the officer is authorized to

of Jonesville, Jonesville, NC, by B.R. certify under the regulations in this

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Butler, Vice President’’. The endorse- part.



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§ 357.32 31 CFR Ch. II (7–1–08 Edition)



(7) Such other persons as the Commis- essary hardship, if such action is not

sioner of the Public Debt or his designee inconsistent with law, does not ad-

may authorize. The evidence specified versely affect any substantial existing

by the Commissioner or his designee. rights, and the Secretary is satisfied

(e) Interested persons not to act as certi- that such action will not subject the

fying individual. Neither the transferor, United States to any substantial ex-

the transferee, nor any person having pense or liability.

an interest in a security involved in

[61 FR 43630, Aug. 23, 1996]

the transaction may act as a certifying

individual. However, an authorized offi- § 357.42 Liability of Department and

cer or employee of a depository institu- Federal Reserve Banks.

tion or of an institution that is a mem-

The Department and the Federal Re-

ber of a Treasury-recognized signature

serve Banks may rely on the informa-

guarantee program may act as a certi-

tion provided in a tender, transaction

fying individual on a transaction re-

request form, or Transfer Message, and

quest for transfer of a security to the

are not required to verify the informa-

institution, or any request executed by

tion. The Department and the Federal

another individual on behalf of the in-

Reserve Banks shall not be liable for

stitution.

any action taken in accordance with

[59 FR 59038, Nov. 15, 1994] the information set out in a tender,

transaction request form, or Transfer

§ 357.32 Submission of transaction re- Message, or evidence submitted in sup-

quests; further information. port thereof.

Transaction requests and requests for

[61 FR 43630, Aug. 23, 1996]

forms and information may be sub-

mitted to any Federal Reserve Bank or § 357.43 Liability for transfers to and

to the Bureau of the Public Debt, Leg- from Legacy Treasury Direct ®.

acy Treasury Direct ®, Washington, DC

20239–0001. A list of the addresses of A depository institution or other en-

Federal Reserve Banks will be avail- tity that transfers to, or receives, a se-

able upon request to the Bureau. The curity from Legacy Treasury Direct is

Federal Reserve Banks, as fiscal agents deemed to be acting as agent for its

of the United States, are authorized to customer and agrees thereby to indem-

perform such functions as may be dele- nify the United States and the Federal

gated to them by the Department in Reserve Banks for any claim, liability,

order to carry out the provisions of or loss resulting from the transaction.

this part.

§ 357.44 [Reserved]



Subpart D—Additional Provisions § 357.45 Supplements, amendments, or

revisions.

§ 357.40 Additional requirements.

The Secretary may, at any time, pre-

In any case or any class of cases aris- scribe additional supplemental, amend-

ing under these regulations, the Sec- atory or revised regulations with re-

retary of the Treasury (‘‘Secretary’’) spect to securities, including charges

may require such additional evidence and fees for the maintenance and serv-

and a bond of indemnity, with or with- icing of securities in book-entry form.

out surety, as may in the judgment of

the Secretary be necessary for the pro- APPENDIX A TO PART 357—DISCUSSION

tection of the interests of the United OF FINAL RULE

States.

BACKGROUND

§ 357.41 Waiver of regulations. Twenty-four written comments were re-

The Secretary reserves the right, in ceived to the notice of proposed rulemaking

from various sources, including Federal

the Secretary’s discretion, to waive

agencies, trade associations, as well as finan-

any provision(s) of these regulations in cial and commercial investment institu-

any case or class of cases for the con- tions. With the exception of one bank, all

venience of the United States or in commentators endorsed the concept of a

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order to relieve any person(s) of unnec- certificateless security.



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Fiscal Service, Treasury Pt. 357, App. A

The grouping and identification of the proach is consistent with the one previously

comments received have been made on a sec- taken in the case of United States Savings

tion-by-section basis, with an explanation of Bonds. It will have the effect of overriding

the action taken with respect thereto. As inconsistent State laws. See, Free v. Bland,

circumstances necessitated the publication 369 U.S. 663 (1962).

of the rule in two segments, in order to make ‘‘In the case of individuals (who are likely

each part more understandable, certain defi- to be by far the majority of holders of securi-

nitions, such as those for ‘‘Department’’ and ties in Legacy Treasury Direct), the options

‘‘securities’’, have appeared in the proposed offered will permit virtually all the preferred

rule for both Legacy Treasury Direct ® and forms of ownership. At the investor’s option,

TRADES, and were slightly modified in the it will be possible to provide for the disposi-

proposed rules on TRADES. Because these tion of the securities upon death through

modifications represent non-substantive rights of survivorship.

clarifications, and to avoid confusion as be- ‘‘Coownership registration. One option is the

tween the two portions of the rules, the defi- coownership form of registration, i.e., ‘‘A or

nitions as used in TRADES have been adopt- B.’’ Unlike the current Treasury bill book-

ed. entry system being administered by the Bu-

SECTION-BY-SECTION ANALYSIS reau of the Public Debt, a security held in

Legacy Treasury Direct registered in this

Section 357.21 Registration. form will be transferable upon the written

request of either coowner. Other changes in

The forms of registrations provided for se- the account may also be made upon the re-

curities to be held in Legacy Treasury Direct

quest of either party. While this form of reg-

have different legal effect from those cur-

istration will facilitate the receipt of pay-

rently provided for in the case of definitive

ments and provide ease in conducting trans-

Treasury securities and for the Treasury’s

actions, care should obviously be exercised

book-entry Treasury bill system. A comment

in designating a coowner.

was received that, as a result, this could lead

to some confusion, and that the Treasury ‘‘Joint ownership. For those who would pre-

bill forms of recordation currently offered fer to have the transferability of a security

should be changed, particularly since Treas- held in two names contingent upon the re-

ury bills will be phased into Legacy Treasury quest of both, the joint form of registration

Direct gradually. The Bureau believes that will be appropriate. This form of registra-

the benefits of uniformity of rights and in- tion, i.e., ‘‘A and B, with [without] the right

terests that Legacy Treasury Direct inves- of survivorship,’’ will require the agreement

tors will derive far outweigh any possible of both parties to conduct any authorized

confusion. As for confusion with the current transaction.

Treasury bill book-entry system, given the ‘‘Beneficiary form. The beneficiary form,

fact that Treasury bills have a term of not i.e., ‘‘A payable on death to (POD) B,’’ will

more than a year, it is believed that the permit the owner to have sole control of the

problem, if any, will be short-lived. account during his/her lifetime, but in the

Given the importance of the change that event of death, the account will pass by right

Legacy Treasury Direct provides as to reg- of survivorship to the beneficiary.’’

istration, the discussion thereof that accom- One commentator questioned the ‘‘natural

panied the Notice of Proposed Rulemaking is guardian’’ and ‘‘voluntary guardian’’ forms

re-published below. of registration provided in the regulations,

‘‘Forms of Registration. The proposed rule pointing out that financial institutions are

provides the investor with a variety of reg- reluctant to establish an account in the

istration options. They are essentially simi- name of a natural guardian of a minor be-

lar to those provided for registered, defini- cause of the uncertainties as to who might

tive marketable Treasury securities. Inves- be entitled to the funds on the death of the

tors should be particularly aware that, natural guardian or minor, or when the

where the security is held in the names of minor reached majority. It was mentioned

two individuals, the registration chosen may that a bank would be reluctant to open an

establish rights of survivorship. account in the name of a voluntary guard-

‘‘The reason for establishing the rights of ian, or to release funds from an existing ac-

ownership for securities held in Legacy count to a voluntary guardian because of the

Treasury Direct is that it will give investors potential risk in the event of a claim from a

the assurance that the forms of registration court-appointed guardian. It seems apparent

they select will establish conclusively the that the comment was prompted by the pro-

rights to their book-entry securities. It will vision that appeared in the proposed rule

also serve to eliminate some of the uncer- that the account held in Legacy Treasury

tainties, as well as possible conflicts, be- Direct and the deposit account to which pay-

tween the varying laws of the several States. ments are to be directed should be in the

‘‘A Federal rule of ownership is being same form. As hereafter pointed out in the

adopted by the Treasury for Legacy Treas- discussion under the payment section, this is

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ury Direct securities. This regulatory ap- not a requirement.



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Pt. 357, App. A 31 CFR Ch. II (7–1–08 Edition)

While parents are universally recognized as pointed by a court and having authority

the natural guardians of the person of mi- under an order of a court to dispose of the se-

nors, they have generally not been recog- curity or payment with respect thereto, pro-

nized as entitled to control the estates of vided conditions similar to those above are

these minors, except perhaps in the case of met.’’

small amounts. Traditionally, the guardian

of the estate of a minor involves judicial ap- Section 357.25 Security interests.

pointment and supervision. In order to pro- Legacy Treasury Direct is not designed to

vide a means of dealing with the problem of reflect or handle the various types of secu-

disposing of securities inadvertently reg- rity interests that may arise in connection

istered in the name of minors without re- with a Treasury bond, note or bill. However,

quiring the appointment of a legal guardian the Treasury has from time to time and to a

and to provide a means for investing funds of limited extent held in safekeeping, for such

a minor, which did not technically qualify agencies as the Customs Service and Immi-

for investment under the Uniform Gifts to gration and Naturalization Service, Treasury

Minors Act, the Department decided to pro- securities submitted in lieu of surety bonds

vide recognition for natural guardians. in accordance with 31 U.S.C. 9303. While the

The voluntary guardianship procedure is Federal Reserve Banks handle the majority

wholly a creature of the Department’s regu-

of such pledges and will continue to do so, as

lations. It was established in recognition of

this statute requires the Treasury to accept

the burden placed on an incompetent’s estate

these Government obligations so pledged, a

and his/her family by requiring the appoint-

provision has been added for accepting and

ment of a legal guardian to receive the inter-

holding book-entry securities submitted for

est on, or to redeem securities for, the ac-

such purposes.

count of an individual who has become in-

competent, at least where the incompetent’s Section 357.26 Payments.

estate is relatively modest. This form of reg-

istration is not available on original issue (a) General. Most comments focused on the

and is limited to an aggregate of $20,000 (par provisions on payments. A key feature of

amount) of Legacy Treasury Direct securi- Legacy Treasury Direct will be the making

ties. The $20,000 limit in connection with the of payments by the direct deposit method

use of the voluntary guardianship procedure (also known as the electronic funds transfer

is in keeping with the limits used in connec- or ACH method). Checks will be issued only

tion with the summary administration of de- under extraordinary circumstances. A num-

cedents’ estates under the laws of many ber of comments endorsed the concept of

States. payment by direct deposit as an improve-

ment given the difficulties associated with

Section 357.23 Judicial proceedings. checks.

No comments were received regarding the One comment expressed concern as to who

provisions on judicial proceedings. Given would have the burden of resolving errors in

their importance, the discussion that accom- cases where a receiving financial institution

panied the publication thereof in proposed fails to properly credit a payment. The De-

form is included here. partment has concluded that while the direct

Judicial proceedings. Under the principle of deposit payment method is not without

sovereign immunity, neither the Department risks, it is far superior to the use of checks,

nor a Federal Reserve Bank, acting as fiscal in terms of the risks, potential losses, and

agent of the United States, will recognize a costs. In a case where a receiving institution

court order that attempts to restrain or en- fails to act in accordance with the instruc-

join the Department or a Federal Reserve tions given it, the Bureau intends to use its

Bank from making payment on a security or best efforts to assist investors in rectifying

from disposing of a security in accordance the error.

with instructions of the owner as shown on (b) Direct deposit. A number of comments

the Department’s records. expressed the view that the Legacy Treasury

‘‘The Department will recognize a final Direct payment system should adopt either

court order affecting ownership rights in the rules governing the direct deposit of

Legacy Treasury Direct securities provided Government payments (31 CFR part 210), or

that the order is consistent with the provi- the rules of the National Automated Clear-

sions of subpart C and the terms and condi- ing House Association (‘‘NACHA Rules’’), but

tions of the security, and the appropriate not separate rules. The final rules have

evidence, as described in § 357.23(c), is sup- adopted some of the existing practices appli-

plied to the Department. For example, the cable to commercial ACH payments, but it is

Department may recognize final orders aris- not possible for the Department of the Treas-

ing from divorce or dissolution of marriage, ury to conform to all of these rules. For ex-

creditor or probate proceedings, or cases in- ample, the Treasury has no authority to in-

volving application of a State slayer’s act. demnify recipients of direct deposit pay-

The Department will also recognize a trans- ments, although such indemnification by a

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action request submitted by a person ap- sender is contemplated in the NACHA rules



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Fiscal Service, Treasury Pt. 357, App. A

and was advocated in several comments. It (b)(1)(ii) (see below), the Treasury does not

should also be noted that the rules applica- intend to establish any limitations on how

ble to Legacy Treasury Direct payments are the receiving deposit account is held.

modeled, to some extent, on the rules for Several comments addressed the issue of

Government direct deposit payments in the registration of the security versus the

order to take advantage of the large number title of the deposit account. Two comments

of entities that are a part of the Government pointed out that if the deposit account must

direct deposit network. See the discussion be in the same form as the registration of

under paragraph (b)(2). Where there are the security, then existing traditional forms

unique rules applicable to Legacy Treasury of ownership for bank accounts, which do not

Direct, however, they are explained here. include all the forms of registration for secu-

Given the variance between the procedures rities held in Legacy Treasury Direct, would

set out in the proposed rules and existing not suffice. Concerns were also expressed

practice, and the increased burdens resulting that with multiple forms of ownership, fi-

therefrom, several clearing house associa- nancial institutions could become involved

tions and financial institutions requested in disputes with investors. As noted above,

that the implementation of Legacy Treasury there is no requirement that the Legacy

Direct be delayed from July 1986 to July 1987. Treasury Direct account and the deposit ac-

The Treasury is satisfied that the added bur- count be identical. The responsibility to

dens that would have been imposed on finan- choose the title of the deposit account rests

cial institutions to receive Legacy Treasury with the investor.

Direct payments under the proposed rules Another comment objected to the rule that

have been effectively eliminated in the final the first-named security owner be named on

rule. Thus, Treasury plans to implement the the receiving deposit account because the

system on or about the original target date. rule would eliminate the possibility of pay-

The final rules are being published, however, ment to an account at a financial institution

in advance of actual implementation so as to in the name of a mutual fund, security deal-

give financial institutions an opportunity to er, or insurance company. Although the

make whatever remaining, minor procedural change in the tax reporting rule described

changes as may be necessary. above permits payment to such accounts, as

(b)(1) Information on deposit account at fi- well as to trust accounts, since it appears

nancial institution. The proposed regulations that there is a question as to the capability

provided that the owner of a security in Leg- of some receiving institutions to handle such

acy Treasury Direct, or in the case of owner- payments, investors are strongly urged to

ship by two individuals, the first-named consult their financial institution before re-

owner, must be an owner of, and so des- questing such payment arrangements. See

ignated, on the account at the receiving fi- paragraph (b)(1)(iii).

nancial institution. The regulations also pro- It should be emphasized that any payments

vided that in any case in which a security is that must be made by check will be made in

held jointly or with right of survivorship, the form in which the Legacy Treasury Di-

the account at the financial institution rect account is held, which may be different

should be established in a form that assures than the form of the deposit account. Inves-

that the rights of each joint owner or sur- tors should be aware that this may result in

vivor will be preserved. checks being issued, and thus payment being

The rule requiring the naming of the first- made, in a form different than they intended

named owner on the receiving financial in- the direct deposit payments to be made. For

stitution account was based on tax reporting example, if Investor A purchases a security

considerations. It has now been determined in his or her name alone with instructions

that the first-named security owner need not that payments be directed to a financial in-

be named on the receiving deposit account. stitution for the account of a money market

The rule relating to establishment of the fund, any checks that must be issued will be

receiving account in joint ownership cases in drawn in the name of Investor A. This could

the same form as the registration of the se- happen if Investor A furnishes erroneous

curity was intended to be a notice to inves- payment instructions and the problem can-

tors of a potential problem, rather than a re- not be resolved before a payment date, in

quirement. In cases where an investor in- which case a check would be issued.

tends a beneficiary, joint owner or coowner The one restriction on the form of the de-

to receive securities after the investor’s posit account that appears in paragraph

death, this intention may be defeated if the (b)(1)(ii) of the final regulations is a rule

recipient is not also named on the receiving that where the Legacy Treasury Direct ac-

deposit account. It is up to the investor to count is in the name of individual(s), and the

examine his or her particular circumstances receiving deposit account is also in the name

and determine whether the form in which of individual(s), one of the individuals on the

the deposit account will be held is satisfac- Legacy Treasury Direct account must be

tory. This matter has been clarified in para- named on the deposit account. This rule is

graph (b)(1)(v) of the final rule. Except for intended to provide a means to determine

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the restriction described in paragraph the disposition of the payment, if necessary.



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Pt. 357, App. A 31 CFR Ch. II (7–1–08 Edition)

The Treasury does not expect financial insti- tion, as is now the practice in the case of

tutions to monitor this rule. payments under 31 CFR part 210. Under these

Provision has been made in paragraph circumstances, the Treasury cannot, in ef-

(b)(1)(vii) to permit financial institutions to fect, guarantee that a payment will be cred-

request ‘‘mass changes’’ of deposit account ited by a financial institution to the correct

numbers without the submission of indi- account. It should also be noted that this

vidual requests from investors to Legacy rule on acquittance of the United States is

Treasury Direct. This procedure is intended consistent with the provision in § 357.10(c) of

for use where an institution changes all or the proposed regulations on TRADES. In

an entire group of its account numbers, typi- practice, however, the Treasury plans to par-

cally as a result of an organizational change. ticipate actively in seeking to locate and re-

Legacy Treasury Direct will honor requests cover any payments that have been mis-

from a financial institution to change de- directed.

posit account numbers under such cir- (b)(2) Agreement of financial institution. The

cumstances, with the understanding that the proposed rule provided, in § 357.26(b)(2), that

institution agrees to indemnify the Treasury a financial institution which has agreed to

and the security owners for any losses re- accept payments under 31 CFR part 210 shall

sulting from errors made by the institution. be deemed to have agreed to accept pay-

If the institutions does not wish to use the ments from Legacy Treasury Direct. The

‘‘mass change’’ procedure, then the change rule further provided that an institution

in account number must be requested by the could not be designated to receive Legacy

investor, using the authorized transaction Treasury Direct payments unless it had

request form. See § 357.28. agreed to accept direct deposit payments

Some institutions voiced concern in gen- under 31 CFR part 210.

eral about investor errors in furnishing the One financial institution commented that

Legacy Treasury Direct a deposit account a receiving institution that has already

number and the financial institution’s rout- agreed to accept part 210 payments should

ing number. Although the Treasury plans to have the choice as to whether to accept pay-

provide as much assistance to investors as ments from Legacy Treasury Direct. The

possible, the investor must bear the respon- basis for this comment was the perception

sibility for securing accurate payment infor- that the receipt of Legacy Treasury Direct

mation. Investors are urged to consult with payments would require the implementation

their receiving institution to verify the ac- of special procedures by the financial insti-

curacy of the payment information, since tution and expose it to additional risks. As

neither the Treasury nor the receiving finan- explained earlier, the Treasury has signifi-

cial institution would be responsible for pay- cantly modified the procedures and reduced

ment errors resulting from erroneous infor- the requirements imposed upon a financial

mation provided by investors. institution in order to receive Legacy Treas-

The proposed rule provided in ury Direct payments, and decreased as well

§ 357.26(b)(1)(iii) that the designation of a fi- the risks an institution will incur in the re-

nancial institution by a security owner to ceipt of such payments. Thus, the proposed

receive payments from Legacy Treasury Di- rule on eligibility of receiving institutions

rect would constitute the appointment of the has been retained in the final rule in essen-

financial institution as agent for the owner tially the same form.

for the receipt of payments. The crediting of Two other comments were made to the ef-

a payment to the financial institution for de- fect that the category of institutions receiv-

posit to the owner’s account, in accordance ing payments should be broadened. In decid-

with the owner’s instructions, would dis- ing to authorize payments to all institutions

charge the United States of any further re- receiving part 210 payments, the Treasury

sponsibility for the payment. One comment considered the fact that many more institu-

noted that, in contrast, the rule in 31 CFR tions are designated endpoints for Govern-

210.13 for Federal recurring payments is that ment (direct deposit) payments than for

the United States is not acquitted until the commercial ACH payments. In order to af-

payment is credited to the account of the re- ford investors the widest choice of recipient

cipient on the books of a financial institu- institutions, all institutions that had agreed

tion. to accept part 210 payments were designated

Although, in principle, the same rules as authorized recipients. Treasury has now

should apply to all Government payments, broadened the rule further to also authorize

the proposed Legacy Treasury Direct rule those financial institutions that are willing

has been retained in the final regulations on to agree to accept part 210 payments in the

the basis of the major differences in the pro- future. This rule will permit investors to

cedures to be used in Legacy Treasury Di- designate institutions that are not now re-

rect. Most significantly, the Treasury will ceiving Government direct deposit payments

not be securing any written verification (i.e., as the recipients of their Legacy Treasury

an enrollment form) from a financial institu- Direct payments if the institutions make ap-

tion as to the accuracy of the deposit ac- propriate arrangements with the Federal Re-

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count number and other payment informa- serve Bank of their District.



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Fiscal Service, Treasury Pt. 357, App. A

(b)(3) Pre-notification. A significant feature Treasury will either make the necessary

of the Legacy Treasury Direct payment pro- changes in the Legacy Treasury Direct ac-

cedure will be the use of a pre-notification count or contact the investor, depending on

message sent to the receiving financial insti- the circumstances.

tution in advance of the first payment. This One commentator objected to the warranty

procedure, already in use for commercial by the receiving institution as to the accu-

ACH payments, alerts the institution that a racy of the pre-notification information, par-

payment will be made and provides an oppor- ticularly in view of the manual verification

tunity for verification of the accuracy of the or changes in procedures that would be re-

account information. quired, and the resulting possibility of error.

The proposed regulations provided that the As previously noted, the requirement to

financial institution would be required to re- verify an account name has been eliminated.

ject the pre-notification message within four In addition, language has been added to

calendar days after the date of receipt if the make it clear that the verification is limited

information contained in the message did to the time of pre-notification. The Treasury

not agree with the records of the institution is of the view that the warranty is a useful

or if for any other reason the institution concept in encouraging institutions to re-

would not be able to credit the payment. The spond to pre-notification messages and will

rules also stated that a failure to reject the benefit all concerned by increasing the like-

message within the specified time period lihood that payments will be made accu-

would be deemed an acceptance of the pre- rately and to the appropriate party.

notification and a warranty that the infor- (b)(5) Responsibility of financial institution.

mation in the message was accurate. The proposed regulations provided, in

Because there was some confusion over § 357.26(b)(5)(ii), that a financial institution

when the pre-notification message woud be that receives a Legacy Treasury Direct pay-

sent, the final rules clarify, in paragraph ment on behalf of a customer would be re-

(b)(3)(i), that in most cases, this will occur quired to promptly notify the Treasury when

shortly after establishment of a Legacy it has made a change in the status or owner-

Treasury Direct account. The Treasury has ship of the customer’s deposit account, such

under consideration a system change that as the deletion of the first-named owner of

would permit a second pre-notification to be the security from the title of the account, or

sent closer to the time of the payment if the when the institution is on notice of the

first payment is to occur a substantial death or incompetency of the owner of the

length of time after account establishment. deposit account.

One of the items of information contained Several financial institutions objected to

in a pre-notification message is the name the this requirement on the grounds that it

investor has indicated appears on the deposit would be burdensome and would require the

account. Comments were received that exist- development of new procedures to monitor

ing procedures and software do not permit the changes in deposit accounts. Specifi-

automatic verification of the account name. cally, several institutions indicated they

Although there is apparently some variation would be unable to relate the receipt of Leg-

in practice, and some institutions undertake acy Treasury Direct payments, which would

to verify the account name information be handled in a centralized area of the insti-

manually, the Treasury has decided to drop tution, to the changes being made in a de-

the account name verification requirement posit account, which are handled in another

in the final rules. This means that under operational area of the institution. These in-

paragraph (b)(3)(ii), a financial institution stitutions said they would not necessarily be

need only verify the account number and aware of who is the first-named owner of the

type designations on the pre-notification security in Legacy Treasury Direct, and that

message. However, the Treasury urges insti- more responsibility should be placed on the

tutions which are able to verify account security owner in reporting changes.

names to do so and encourages the develop- In response to these comments, the Treas-

ment of software that would have this capa- ury has narrowed the notification rule, in

bility. paragraph (b)(5)(ii) of the final rule, to re-

A number of comments urged that the quire a financial institution to notify Legacy

four-day period provided for an institution to Treasury Direct only in cases where it is on

reject a pre-notification message be length- notice of the death or legal incapacity of an

ened. After consideration of the various al- individual named on the deposit account, or

ternatives proposed, the Treasury has con- where it is on notice of the dissolution of a

cluded that an eight-day period will meet the corporation named in the deposit account.

needs of most institutions. See paragraph Upon receipt of notice by the area of the in-

(b)(3)(ii) of the final rule. In responding to a stitution that receives credit payments, the

pre-notification message, an institution may institution will be required to return any

use the NACHA’s ‘‘notification of change’’ Legacy Treasury Direct payments received

procedure, standardized automated rejection thereafter.

codes, or any other similar standard proce- (b)(6) Payments in error/duplicate payments.

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dure. Upon receipt of such notification, the The proposed regulations, in § 357.26(b)(6), set



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Pt. 357, App. B 31 CFR Ch. II (7–1–08 Edition)

out rules describing the procedure that sible only to the Department and would not

would be followed in cases where the Treas- be liable to any other party for any loss re-

ury or a Federal Reserve Bank has made a sulting from its handling of payments. This

duplicate payment or a payment in error. rule was taken from the existing regulations

First, the financial institution to which the in 31 CFR part 210 (see § 210.3(f)), and is sim-

payment was directed would be provided ply a restatement of existing law.

with a notice asking for the return of the In making payments, the Federal Reserve

amount of the payment remaining in the de- Banks are acting in the capacity as fiscal

posit account. If the financial institution agents of the United States, pursuant to 12

were unable to return any part of the pay- U.S.C. 391. They are not acting in an indi-

ment, it would be required to notify the vidual (banking) capacity. If a Federal Re-

Treasury or its Federal Reserve Bank, and serve Bank misdirects a payment contrary

provide the names and addresses of the per- to instructions provided by the investor, the

sons who withdrew funds from the deposit United States, as principal, may remain lia-

account after the date of the duplicate pay- ble to the investor for the payment. The

ment or the payment in error. If the finan- United States could seek to recover any loss

cial institution did not respond to the notice from its agent, the Fedeal Reserve Bank.

within 30 days, the financial institution’s ac- However, because the proposed rule simply

count at its Federal Reserve Bank could be stated a legal conclusion and tended to cre-

debited in the amount of the duplicate or im- ate the impression that the rule was broader

proper payment. than intended, it has been omitted from the

Several institutions raised objections final regulations.

about various aspects of the above proce-

dures. One stated that 30 days was an insuffi- Section 357.31 Certifying individuals.

cient time to respond and urged conformity For clarity, the warranties which accom-

with the rules in 31 CFR part 210 permitting pany the use of a ‘‘Signature guaranteed’’

a 60-day response time. Some objected to fur- stamp have been set out.

nishing information about the persons who

withdrew money from an account. Several Section 357.42 Preservation of existing rights.

objected in principle to the provision author-

izing the debiting of their accounts. Several This section has been deleted. The same

comments indicated that if a payment is re- subject-matter will be covered in § 357.1, as

turned by a financial institution using an finally adopted.

automated payment reversal procedure, then Section 357.43 Liability of Department and

only the full amount of the payment (not a Federal Reserve Banks.

partial amount) can be reversed.

In the final rule, the Treasury has clarified This section was published as § 357.42 in the

the procedures. The requirement to provide notice of proposed rulemaking for TRADES.

the names of persons who withdrew funds The final version will be published after all

from an account has been changed. In para- the comments on the rulemaking for

graph (b)(6)(i), financial institutions are TRADES have been reviewed and considered.

asked to provide only such information as

they have about the matter. The debiting of Section 357.46 Supplements, amendments, or

an institution’s account at a Federal Reserve revisions.

Bank is intended to be simply a last resort if Provision for ‘‘charges and fees for services

the institution fails totally to respond to the and maintenance of book-entry Treasury se-

notice of a duplicate payment or payment curities’’ has been added in the event cir-

made in error. See paragraph (b)(6)(iii). The cumstances should dictate their imposition.

time provided for response to this notice has

been lengthened to 60 days. [51 FR 18260, May 16, 1986; 51 FR 18884, May

The final rule has also been clarified in 23, 1986]

paragraph (b)(6)(i) to provide that the

amount that should be returned is an APPENDIX B TO PART 357—TRADES

amount equal to the payment. The Treasury COMMENTARY

reserves the right, however, to request the

INTRODUCTION

return by other than automated means of a

partial amount of a payment made in error. The adoption of regulations for the Treas-

It is anticipated that such a procedure would ury/Reserve Automated Debt Entry System

occur only if the notice of a payment made (‘‘TRADES’’) is the culmination of a multi-

in error is not issued immediately after the year Treasury process of moving from

payment was made. issuing securities only in definitive (phys-

(d) Handling of payments by Federal Reserve ical/certificated/paper) form to issuing secu-

Banks. Some of the comments raised a ques- rities exclusively in book-entry form. The

tion about the liability of the Federal Re- TRADES regulations provide the legal

serve Banks in making payments. The pro- framework for all commercially-maintained

posed rule, in § 357.26(d)(2), provided that Treasury book-entry securities. For a more

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each Federal Reserve Bank would be respon- detailed explanation of the procedural and



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Fiscal Service, Treasury Pt. 357, App. B

legal development of book-entry and the Neither Treasury nor a Federal Reserve

TRADES regulations, see the preamble to Bank has any payment obligation to a non-

the rule proposed March 4, 1996 (61 FR 8420), Participant beneficial owner of an interest

as well as the earlier proposals cited therein in a Treasury book-entry security. A non-

51 FR 8846 (March 14, 1986); 51 FR 43027 (No- Participant beneficial owner receives its

vember 28, 1986); 57 FR 12244 (April 9, 1992). payment when its Securities Intermediary

credits the owner’s account.

COMPARISON OF TRADES AND LEGACY Persons holding Treasury book-entry secu-

TREASURY DIRECT rities in Legacy Treasury Direct, on the

A person may hold interests in Treasury other hand, hold their securities accounts on

book-entry securities either in TRADES 1 or records maintained by Treasury through its

Legacy Treasury Direct. The following sum- fiscal agents, the Federal Reserve Banks.

marizes the major differences between the The primary characteristic of Legacy Treas-

two systems. ury Direct is a direct account relationship

Persons holding Treasury book-entry secu- between the beneficial owner of a Treasury

rities in TRADES hold their interests in book-entry security and Treasury. In Legacy

such securities in a tiered system of owner- Treasury Direct, Treasury discharges its

ship accounts. In TRADES, Treasury, payment obligation when payment is cred-

through its fiscal agents, the Federal Re- ited to the depository institution specified

serve Banks, recognizes the identity only of by the beneficial owner of the Treasury

Participants (persons with a direct account book-entry security, paid directly to the

relationship with a Federal Reserve Bank). beneficial owner by check, or paid in accord-

While Participants may be beneficial owners ance with the beneficial owner’s instruc-

of interests in Treasury book-entry securi- tions. Unlike TRADES, Legacy Treasury Di-

ties, there are many beneficial owners of rect does not provide a mechanism for the

such interests that are not Participants. exchange of cash to settle a secondary mar-

Such beneficial owners hold their interests ket transaction, nor are pledges of Treasury

through one or more Securities Inter- book-entry securities held in Legacy Treas-

mediaries such as banks, brokerage firms or ury Direct generally recognized. Accord-

securities clearing organizations. ingly, Legacy Treasury Direct is suited for

In TRADES, the rights of non-Participant persons who plan to hold their Treasury se-

beneficial owners may be exercised only curities until maturity, and provides an al-

through their Securities Intermediaries. Nei- ternative for investors who are concerned

ther Treasury nor the Federal Reserve Banks about holding securities through inter-

have any obligation to a non-Participant mediaries and who do not wish to hold their

beneficial owner of an interest in a Treasury interests in Treasury securities indirectly in

book-entry security. Two examples illustrate TRADES.

this principle. First, except where a pledge

has been recorded directly on the books of a SCOPE OF REGULATION

Federal Reserve Bank pursuant to Just as the scope of Revised Article 8 is

§ 357.12(c)(1), Federal Reserve Banks, as limited,2 the scope of this regulation is lim-

Treasury’s fiscal agents, will act only on in- ited. It is not a comprehensive codification

structions of the Participant in whose Secu- of the law governing securities, transactions

rities Account the Treasury book-entry secu- in securities or the law of contracts for the

rity is maintained in recording transfers of purchase or sale of securities. Similarly, it is

an interest in a Treasury book-entry secu- not a codification of all laws that could af-

rity. A beneficial owner of the interest that fect a person’s interest in a Treasury book-

is a non-Participant has no ability to direct entry security. For example, state laws re-

a transfer on the books of a Federal Reserve garding divorce or intestate succession could

Bank. Second, Treasury discharges its pay- well affect which persons have rights in the

ment obligation with respect to a Treasury interest in a Treasury book-entry security.

book-entry security when payment is cred- Moreover, the regulations deal with certain

ited to a Participant’s account or paid in ac- aspects of transactions in Treasury securi-

cordance with the Participant’s instructions. ties, such as perfection of a security interest

and its effects and not other aspects, such as

1 In TRADES a Person’s interest in a the contractual relationship between a debt-

Treasury book-entry security is a Security or and its secured party, which are left to ap-

Entitlement, as described in TRADES. A plicable law 3. See the discussion under

Participant’s interest in a marketable Treas- § 357.10 of the Section-by-Section Analysis.

ury book-entry security also is a Security

Entitlement. A Participant’s Security Enti- 2 U.C.C. Revised Article 8, Prefatory Note



tlement is different than a Security Entitle- at 12.

ment as described in Revised Article 8, with 3 The regulations in 31 CFR 306.118(b),

respect to the Participant’s rights against which are being supplanted by TRADES,

the issuer. A non-Participant’s Security En- state that ‘‘applicable law’’ covers how a

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titlement is described in Revised Article 8. Continued





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Pt. 357, App. B 31 CFR Ch. II (7–1–08 Edition)

SECTION-BY-SECTION ANALYSIS Treasury has determined that TRADES will

be effective on January 1, 1997, to ensure a

Section 357.0 Dual book-entry systems. smooth transition to TRADES. In making

Section 357.0 sets forth that Treasury pro- that determination, Treasury has taken into

vides two systems for maintaining Treasury account the time required by other Govern-

book-entry securities—TRADES and Legacy ment-Sponsored Enterprises (GSEs) to pro-

Treasury Direct. Subpart A of part 357 of 31 mulgate similar regulations for their securi-

CFR contains general information about ties. Such an effective date, when combined

TRADES and Legacy Treasury Direct. Sub- with TRADES having been published in pro-

part B contains the TRADES regulations. posed form with a 60-day comment period,

Subpart C contains the Legacy Treasury Di- should provide sufficient time for an orderly

rect regulations. Subpart D contains mis- transition to the new TRADES rules.

cellaneous provisions. Thus, in its totality,

part 357 sets forth in one place the complete Section 357.2 Definitions.

set of governing rules for Treasury securities Section 357.2 contains definitions for use in

issued in book-entry form. subparts B and C. While most of the defini-

tions are straightforward, four terms—Par-

Section 357.1 Effective date. ticipant, Entitlement Holder, Security Enti-

Section 357.1 establishes the effective date tlement and Securities Intermediary—are

for TRADES. TRADES applies to out- critical to an understanding of the proposed

standing securities formerly governed by 31 TRADES regulations.

CFR part 306, subpart O. Conforming changes (a) Participant. A Participant is a person

to parts 306, 356, and 358 are being made to that has a securities account relationship in

coincide with the publication of TRADES in its name with a Federal Reserve Bank. Ac-

final form. Consistent with the approach set cordingly, the Federal Reserve Bank and

forth in Revised Article 8 (see § 8–603 and the Treasury know both the identity of the per-

official comment thereto), on and after the sons maintaining these accounts and the

effective date these regulations will apply to Treasury book-entry securities held in these

all transactions, including transactions com- accounts.

menced prior to the effective date. Revised (b) Securities Intermediary. Securities Inter-

Article 8, in Section 8–603, gave secured par- mediaries are persons (other than individ-

ties four months after the effective date to uals, except as described below) that are in

take action to continue the perfection of the business of holding interests in Treasury

their security interests. TRADES, through book-entry securities for others. Partici-

its delayed effectiveness, provides a similar pants can be, and usually are, Securities

period. In TRADES, January 1, 1997, becomes Intermediaries.

the date by which such actions must be com- In addition, entities such as clearing cor-

pleted. porations, banks, brokers and dealers can be

The effective date for TRADES is January Securities Intermediaries in a single chain of

1, 1997. While TRADES is based in large part ownership of a Treasury security. An indi-

on Revised Article 8 that has received wide- vidual, unless registered as a broker or deal-

spread attention in the financial community er under the federal securities laws, cannot

and already has been adopted in 28 states,4 be a Securities Intermediary. As an illustra-

tion of a possible chain of ownership, in the

transfer or pledge is ‘‘effected’’ as well as following chart, the Federal Reserve Bank,

perfected. Except with respect to security in- Participant and Broker-Dealer are all Secu-

terests marked on the books of a Federal Re- rities Intermediaries.

serve Bank, TRADES does not address how a Treasury

security interest in a Treasury book-entry

security is created or what law governs the Federal Reserve Bank

creation of a security interest. Section

357.11(a) of TRADES, which establishes the

|

choice of law for interests other than those Participant

covered by § 357.10, addresses the choice of |

law with respect to the perfection, effect of Broker-Dealer

perfection or non-perfection, and priority of |

security interests, but does not address the Individual Holder

law governing creation or attachment of a

security interest. This is consistent with the (c) Entitlement Holder. An Entitlement

scope and choice of law provisions of Revised Holder is any person for whom a Securities

Article 8. Intermediary holds an interest in a Treasury

4 As of August 1, 1996, those states are: Ala-



bama, Alaska, Arizona, Arkansas, Colorado, ico, Oklahoma, Oregon, Pennsylvania, Texas,

Idaho, Illinois, Indiana, Iowa, Kansas, Ken- Utah, Vermont, Virginia, Washington, West

tucky, Louisiana, Maryland, Massachusetts, Virginia and Wyoming. See discussion ac-

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Minnesota, Mississippi, Nebraska, New Mex- companying footnote 11.



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Fiscal Service, Treasury Pt. 357, App. B

book-entry security. In the above example lars.5 Prior to March 1, 1993, the terms of

Individual Holder, Broker-Dealer and Partic- each offering of Treasury securities, except

ipant are all Entitlement Holders. Thus, a for Treasury bills were set forth in an offer-

person can be both a Securities Intermediary ing circular published in the FEDERAL REG-

and an Entitlement Holder. See also the ISTER.6 Since March 1, 1993, all Treasury

commentary on ‘‘Security Entitlement.’’ book-entry securities have been offered pur-

(d) Security Entitlement. A Security Entitle- suant to a uniform offering circular set forth

ment is the interest that an Entitlement at 31 CFR part 356.

Holder has in a Treasury book-entry secu- While TRADES is based in large measure

rity. In the example, Participant, Broker- on Revised Article 8, a fundamental principle

Dealer and Individual Holder all hold Secu- of these regulations (and a divergence from

rity Entitlements. The rights and property Revised Article 8) is that the obligations of

interests associated with a Security Entitle- the issuer (the United States) and the Fed-

ment of a Participant held on the books of a eral Reserve Banks, as well as all claims

Federal Reserve Bank (‘‘Participant’s Secu- with respect to TRADES or a Treasury book-

rity Entitlement’’) are, however, different entry security against Treasury or a Federal

from the rights and property interests asso- Reserve Bank, are governed solely by Fed-

ciated with other Security Entitlements. As eral law. Thus, for example, those parts of

provided in § 357.10(a), Federal law defines Revised Article 8 that detail obligations of

the scope and nature of a Participant’s Secu- issuers (or their agents) of securities are not

rity Entitlement. While TRADES is based in applicable to either the United States or

large part on Revised Article 8, the meaning Federal Reserve Banks.7 In addition, neither

of Security Entitlement under federal law is the United States nor Federal Reserve Banks

different than under Revised Article 8. For have any obligations to persons holding their

example, Participants have a direct claim interests in a Treasury book-entry security

against the United States for interest and at levels below the level of a Participant or

principal even though, under state law, an to any other person claiming an interest in

Entitlement Holder would only have a claim a Treasury book-entry security (with the

against its Securities Intermediary for such limited exception set out in § 357.12(c)(1)).

payment. To the extent not inconsistent Thus, there are no derivative rights against

with this regulation, the scope and nature of either the United States or the Federal Re-

a Security Entitlement of an Entitlement serve Banks.

Holder below the level of a Participant, In interpreting this section, it is important

(Broker-dealer and Individual Holder in the to note that the scope of TRADES, like that

example above), is defined by applicable of Revised Article 8, is limited. Accordingly,

state law, as determined pursuant to § 357.11. the governing law set forth in § 357.10(a) is

It should also be noted that while a Partici- applicable only to the matters set forth in

pant’s rights have Federal law components § 357.10(a). Other laws remain applicable and

under § 357.10(a), the nature of a Security En- could affect the holders of book-entry securi-

titlement held by a lower tier intermediary ties.

on the books of a Participant is determined For example, the tax treatment of Securi-

pursuant to applicable law as provided in ties Entitlements is outside the scope of

§ 357.11. TRADES and other law (the Federal income

tax code) is applicable in determining such

Section 357.10 Law governing the United States tax treatment. Similarly, nothing in

and Reserve Banks. § 357.10(a) limits the applicability of other



Section 357.10(a) provides that the rights

5 A ‘‘Federal Reserve Bank Operating Cir-

and obligations of the United States and the

Federal Reserve Banks (with one exception cular’’ is defined in § 357.2 as the publication

detailed below), with respect to both the issued by each Federal Reserve Bank that

TRADES system and Treasury book-entry sets forth the terms and conditions under

securities maintained in TRADES are gov- which the Reserve Bank maintains Book-

erned solely and exclusively by Federal law. entry Securities Accounts and transfers

Thus, claims against the United States and Book-entry Securities.

6 Treasury bills were issued pursuant to

Federal Reserve Banks of both Participants

one master offering circular (31 CFR part 349,

and all other persons with an interest (or

removed, and replaced by 31 CFR part 356) ef-

claiming an interest) in a Treasury book-

fective March 1, 1993. (58 FR 412)

entry security maintained in TRADES are 7 The regulations in subpart C of this part

governed by Federal law. Federal law is de- set out other obligations of the United

fined to include TRADES, the offering circu- States and the Federal Reserve Banks for se-

lars pursuant to which the Treasury securi- curities held in Legacy Treasury Direct.

ties are sold, the offering announcements These regulations preempt applicable state

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and Federal Reserve Bank Operating Circu- law.



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Pt. 357, App. B 31 CFR Ch. II (7–1–08 Edition)

laws to matters such as whether the activi- head office of the Federal Reserve Bank is

ties of Participants or Securities Inter- located. Such a security interest could arise,

mediaries with respect to interests in Treas- for example, where the delivery of book-

ury book-entry securities are subject to entry securities to the securities account of

banking or securities laws. the Participant results in an overdraft in the

While TRADES in § 357.10(a) defines what Participant’s Funds Account. The extent to

law governs the contract between the United which the Federal Reserve Bank has an in-

States, as issuer, and the holder of a Secu- terest in the Participant’s book-entry securi-

rity Entitlement, it is not a complete state- ties to secure the overdraft therefore would

ment of the contract law applicable to the be determined under the law of the state in

United States or Federal Reserve Banks. For which the Reserve Bank’s head office is lo-

example, if a Participant obtains a discount cated. If the State in which the head office of

window loan from a Federal Reserve Bank the Federal Reserve Bank is located has not

and agrees to pledge collateral, including adopted Revised Article 8, under § 357.10(c)

Treasury book-entry securities, to the Fed- that State is deemed to have adopted Re-

eral Reserve Bank as security for the loan, vised Article 8.

§ 357.10(a) does not establish the law for de- In certain very limited circumstances, a

termining the validity or enforceability of Federal Reserve Bank also may have a secu-

the contract or the law applicable to the cre- rity interest in the book-entry securities of

ation and perfection of security interests in a non-Participant that is not marked on the

property that is not a Treasury book-entry books of the Federal Reserve Bank. Section

security. Section 357.10(a) does provide the 357.10(b) provides a separate rule for such a

law applicable for how a security interest in security interest, which would be governed

Treasury book-entry securities is perfected, by the law of the non-Participant’s Securi-

the priority of such interest and, if ties Intermediary, as determined under

§ 357.12(c)(1) is applicable, how such security § 357.11. Under § 357.11, the perfection, effect

interest is created. Similarly, nothing in of perfection, and priority of a security in-

§ 357.10(a) affects the continuing applicability terest created under such an agreement

or enforceability of Federal Reserve Bank would be governed by the law of the Securi-

operating circulars such as the circular set- ties Intermediary’s jurisdiction, as deter-

ting forth provisions regarding electronic ac- mined under § 357.11(b). Under § 357.11(d), if

cess to services provided by Federal Reserve the jurisdiction specified in § 357.11(b) has not

Banks and agreements executed in connec- adopted Revised Article 8, jurisdiction would

tion with such circulars. be deemed to have adopted Revised Article

The law applicable with respect to inter- 8.8

ests granted to a Federal Reserve Bank de- For purposes of applying the state law cho-

pends on the manner in which the security sen under the rules of § 357.10(b), Federal Re-

interest is granted. serve Banks are treated as clearing corpora-

Where a security interest in favor of a Fed- tions. As a result, a security interest in a Se-

eral Reserve Bank is marked on the books of curities Entitlement of a Participant in

the Federal Reserve Bank under Section favor of a Federal Reserve Bank under

357.12(c)(1), § 357.10(a) establishes the applica- § 357.12(c)(2) has the same priority as security

ble law. A security interest in favor of a Fed- interests granted to other clearing corpora-

eral Reserve Bank would be recorded on the tions under state law. This is consistent with

Federal Reserve Bank’s books where, for ex- the treatment accorded to Federal Reserve

ample, the Federal Reserve Bank made a dis- Banks generally under Revised Article 8.

count window loan to a depository institu-

tion and any Treasury book-entry securities Section 357.11 Law governing other interests.

provided by the depository institution as col-

(a) Law governing the rights and obligation of

lateral have been deposited to a pledge ac-

Participants and third parties. Section 357.11 is

count on the books of the Federal Reserve

a choice of law rule. The substantive matters

Bank. For a borrowing depository institu-

subject to this choice of law rule are set

tion that is not a Participant, the book-

entry securities used as collateral generally

would be deposited to the Federal Reserve 8 An interest in book-entry securities of a



Bank pledge account by the borrowing insti- non-Participant that is not marked on the

tution’s Securities Intermediary. See Hypo- books of the Federal Reserve Bank, while un-

thetical 5. common, could arise where the Federal Re-

Section 357.10(b) sets forth law applicable serve Bank lends to a non-Participant depos-

with respect to security interests in favor of itory institution and enters into a triparty

a Federal Reserve Bank that have not been agreement with the depository institution

marked on the books of a Federal Reserve and its Securities Intermediary rather than

Bank. A security interest in the Securities requiring the deposit of the book-entry secu-

Entitlement of a Participant in favor of a rities in a pledge account on the books of the

Federal Reserve Bank that is not marked on Federal Reserve Bank through an instruc-

the books of the Federal Reserve Bank is tion given by the non-Participant depository

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Fiscal Service, Treasury Pt. 357, App. B

forth in § 357.11(a). The matters set forth in cause Treasury believed that a uniform rule

§ 357.11(a) are meant to be coextensive with was necessary to preserve the efficiency and

those matters covered by Revised Article 8 liquidity of the market for Treasury securi-

with respect to a person’s interest in a ties—the most liquid and efficient market in

Treasury book-entry security (other than the world. Treasury believed then, and be-

those related to a person’s relationship to lieves now, that the material rights of a

Treasury or a Federal Reserve Bank which holder in the United States of an interest in

are governed solely by federal law). For pur- a Treasury security should not vary solely

poses of these choice of law rules Partici- by virtue of such holder’s geographic loca-

pants are Securities Intermediaries. tion or the location of the financial institu-

Section 357.11(b) adopts Revised Article 8’s tion through which it holds its interest in

general choice of law rule. Section 357.11(c) Treasury securities. In light of Revised Arti-

sets forth a special choice of law rule with cle 8, Treasury has determined that it is pos-

respect to security interests perfected auto- sible to achieve this uniformity without de-

matically or by filing, which also is included veloping an independent system of Federal

in Revised Article 8. Generally, the law ap- commercial law.10 The questions inherent in

plicable to the Securities Intermediary will a tiered system of ownership have been ana-

govern matters involving an interest in a lyzed, and, in Treasury’s view, satisfactorily

book-entry security held through that inter- addressed by Revised Article 8.

mediary. This approach is not followed with As of August 1, 1996, 28 states have adopted

respect to perfection of security interests Revised Article 8 and Treasury understands

automatically or by filing. In those cases, that it will soon be adopted in additional

the law of the jurisdiction in which the debt- states. As with all uniform laws, the adop-

or is located is the governing law. Since fil- tion process takes several years. In order to

ing systems are based on the location of the assure uniformity, in light of the unavoid-

debtor, this approach should reduce uncer- able delays in the state-by-state adoption

tainty and preserve the normal practice of process of Revised Article 8, Treasury is pro-

searching records based on the debtor’s loca- mulgating regulations with a limited form of

tion.9 The language ‘‘person creating a secu- preemption. As provided in both §§ 357.10(c)

rity interest’’ is used in lieu of the term and 357.11(d), if the choice of law rules set

‘‘debtor’’ in this provision to avoid any con- forth in TRADES would lead to the applica-

fusion. The word ‘‘debtor’’ has two meanings tion of the law of a State that has not yet

in the Uniform Commercial Code and the ex- adopted Revised Article 8, TRADES will

pression ‘‘person creating a security inter- apply Revised Article 8 (with conforming and

est’’ provides clarity with respect to who is miscellaneous amendments to other Arti-

covered by this section. The term does not cles) in the form approved by the ALI and

refer to a creditor. The language ‘‘is located’’ NCCUSL. Treasury expects that these provi-

is intended to conform to its meaning under sions will be operative only during the state-

applicable law, as it may be amended from by-state adoption process and would plan to

time to time. See, e.g., U.C.C. section 9– amend TRADES to delete reference to these

103(3)(d). Section 357.11(d) provides for the provisions once the adoption process has

application of Revised Article 8 if the choice been completed.

of law analysis required by § 357.11(b) results While Revised Article 8 is defined to mean

in the choice of the law of a State that has the official text of Article 8 as approved by

not yet adopted Revised Article 8. As noted the ALI and NCCUSL, Treasury recognizes

elsewhere, in such a situation, the State’s that states may make minor changes in that

law is viewed as if it had adopted Revised Ar- text when adopting Article 8. Treasury has

ticle 8. This section also provides that, for concluded that minor changes should not

purposes of applying state law, the Federal prevent Revised Article 8, as adopted by a

Reserve Banks are clearing corporations and state, from being the appropriate law. In

Participants’ interests in book-entry securi- other words, if a state passes a version of Ar-

ties are Security Entitlements. ticle 8 that is substantially identical to Re-

(b) Limited scope of Federal preemption. In an vised Article 8, reference to Revised Article

earlier TRADES proposal Treasury con- 8 (as defined) would no longer be required.

templated adopting a comprehensive regula- Treasury has determined that the versions of

tion governing the rights of all persons in Article 8 passed by 5011 states that have en-

Treasury book-entry securities held in acted Article 8 meet this standard. Accord-

TRADES. Such an approach was proposed be- ingly, §§ 357.10(c) and 357.11(d) would not be



9 The substantive effect of filing is limited 10 As noted previously, the substantive

and applies only in states which have adopt- scope of this regulation is limited.

ed Revised Article 8. Since the effect of filing 11 Alabama, Alaska, Arizona, Arkansas,

is a unique state law matter, in this one California, Colorado, Connecticut, Delaware,

area, Treasury has determined that possible District of Columbia, Florida, Georgia, Ha-

lack of uniformity does not justify altering waii, Idaho, Illinois, Indiana, Iowa, Kansas,

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Pt. 357, App. B 31 CFR Ch. II (7–1–08 Edition)

applicable if the choice of law provisions of holding such interest issuing a Transfer Mes-

TRADES directed a person to one of those sage. As a result of such message, the Fed-

states. As additional states adopt Revised eral Reserve Bank will make a book entry in

Article 8, Treasury will provide notice in the favor of the receiving Participant (thereby

FEDERAL REGISTER as to whether the enact- creating a Security Entitlement in favor of

ments are ‘‘substantially identical’’ to the such Participant) and also will make a book

uniform version for purposes of these regula- entry deleting the initiator Participant’s in-

tions and on an annual basis, the Com- terest in such Treasury book-entry security

mentary will be amended to reflect subse- (thereby eliminating that Participant’s Se-

quent enactments. This approach represents curity Entitlement). In addition, if author-

a significantly reduced form of preemption ized under applicable state law, Participants

of state law from former versions of may enter into agreements with other Par-

TRADES and preserves Treasury’s pre- ticipants that, as to the Participants, con-

eminent interest in a uniform system of stitute a transfer. Such action is without ef-

rules applicable to all holders of interests in fect to either the United States or a Federal

Treasury book-entry securities. Reserve Bank.

(b) Creation and priority of a Security Inter-

Section 357.12 Obtaining an interest in a book-

est. (i) Security Interests of the United States.

entry security.

Section 357.12(b) provides that a security in-

(a) Creation of a Participant’s Security Enti- terest in favor of the United States has pri-

tlement. A Participant’s interest in a Treas- ority over the interests of any other person

ury book-entry security is a Securities Enti- in a Treasury book-entry security. The

tlement. Section 357.12(a) provides that a United States obtains security interests in

Participant’s Securities Entitlement is cre- Treasury securities as collateral to secure

ated when a Federal Reserve Bank indicates funds in a variety of situations such as

by book entry that a Book-entry Security Treasury Tax and Loan accounts; govern-

has been credited to a Participant’s Securi- ment agency funds or funds under the con-

ties Account. Instead of the concept of ini- trol of the Federal Courts held at financial

tial credit and transfer of a Treasury book- institutions; and securities pledged in lieu of

entry security, as set forth in the existing surety by contractors and others. The pri-

regulations, this proposal focuses on the cre- ority provided the United States in these sit-

ation of a Participant’s Securities Entitle- uations is consistent with existing law.

ment and, in this way, is similar to Section In addition, Federal Reserve Banks do rec-

8–501 of Revised Article 8. ognize on their books and records security

The regulation focuses on the creation of a interests in favor of the United States. In

Participant’s Security Entitlement because that situation, the Federal Reserve Bank

Security Entitlement is the term used to de- will not transfer the security without the

scribe the Participant’s interest in a Treas- permission of the United States. This section

ury book-entry security. Once a Participant provides that a Federal Reserve Bank may

obtains that interest, the regulation sets rely exclusively on the directions of an au-

forth what that interest is. Thus, as provided thorized representative of the United States

in § 357.10, federal law describes a Partici- to transfer a security and is protected in so

pant’s rights against the United States and relying. Ordinarily, an authorized represent-

the Federal Reserve Bank where it main- ative of the United States would take such

tains its Securities Account. To the extent action under circumstances such as the de-

not inconsistent with § 357.10, § 357.11 de- fault or insolvency of the pledgor.

scribes the applicable law to determine Par- (ii) Security Interests on the books of a Re-

ticipants’ rights and obligations with respect serve Bank. Where required by Federal law or

to all other persons. Under these regulations, regulation or pursuant to a specific agree-

Participants can still transfer their interests ment with a Federal Reserve Bank, a secu-

in a Treasury book-entry security as they rity interest in favor of a Federal Reserve

did before—by issuing a Transfer Message to Bank or other person may be created or per-

the Federal Reserve Bank where they hold fected by a Federal Reserve Bank marking

such interest. Transfer of interests between its books to record the security interest

Participants can occur by a Participant under § 357.12(c)(1). An example of a security

interest that is marked on the books of a

Kentucky, Louisiana, Maine, Maryland, Mas- Federal Reserve Bank would be the pledge in

sachusetts, Michigan, Minnesota, Mis- favor of a Federal Reserve Bank of a Partici-

sissippi, Missouri, Montana, Nebraska, Ne- pant’s book-entry securities as collateral for

vada, New Hampshire, New Jersey, New Mex- a discount window loan.12 For limited cat-

ico, New York, North Carolina, North Da- egories of pledges, Federal Reserve Banks

kota, Ohio, Oklahoma, Oregon, Pennsyl-

vania, Puerto Rico, South Dakota, Ten- 12 Book-entry securities pledged by a non-



nessee, Texas, Utah, Vermont, Virginia, Participant to a Federal Reserve Bank gen-

Washington, West Virginia, Wisconsin and erally would be deposited by the non-Partici-

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Wyoming. pant’s Securities Intermediary to a pledge



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Fiscal Service, Treasury Pt. 357, App. B

may agree to record a security interest in Section 357.13 Rights and obligations of

favor of a third party on their books. For ex- Treasury and the Reserve Banks.

ample, in some circumstances a Federal Re-

(a) Adverse claims. Section 357.13(a) sets

serve Bank may permit the establishment of forth the general rule that, with limited ex-

a pledge account to hold book-entry securi- ceptions, Treasury and the Federal Reserve

ties pledged to governmental entities other Banks will recognize only the interest of a

than the United States government. It is im- Participant in a Treasury book-entry secu-

portant to note that there is no obligation rity in whose Securities Account such inter-

for either Treasury or a Federal Reserve est is maintained.

Bank to agree to record a security interest As noted previously, Treasury book-entry

on the books of a Federal Reserve Bank, ex- securities maintained in TRADES are held in

cept as required by Federal law or regula- a tiered system of ownership. The records of

tion. If they do so, the security interest is a Federal Reserve Bank reflect only the own-

perfected when the Federal Reserve Bank ership at the top tier. Institutions maintain-

records a security interest on its books. In ing a Securities Account with a Federal Re-

addition, the security interest has priority serve Bank frequently will hold interests in

over all other interests in the Treasury Treasury book-entry securities for their cus-

book-entry security except an interest of the tomers (which can include broker-dealers

United States. and other Securities Intermediaries) and in

(iii) Other Security Interests. As provided in certain cases those customers will hold in-

§ 357.12(c)(2), a security interest in a book- terests in securities for their customers. Ac-

cordingly, neither Treasury nor a Federal

entry security may be perfected by any

Reserve Bank will know the identity or rec-

method available under applicable state law,

ognize a claim of a Participant’s customer if

as determined under § 357.10(b) or § 357.11.13 that customer were to present it to Treasury

The perfection and priority of such interests or a Federal Reserve Bank.

shall be governed by applicable law. Security In addition, except in the limited case

interests under this section may include se- where a security interest is marked on the

curity interests in favor of a Federal Reserve books of a Federal Reserve Bank pursuant to

Bank, such as a clearing lien or pledge by a § 357.12(c)(1), neither the Treasury nor a Fed-

non-participant of book-entry securities held eral Reserve Bank will recognize the claims

through a Securities Intermediary where the of any other person asserting a claim in a

securities have not been deposited to a Fed- Treasury book-entry security. Persons at

eral Reserve Bank pledge account. Con- levels below the Participant level must

sistent with Revised Article 8, a Federal Re- present their claims to their Securities

serve Bank would be treated as a clearing Intermediary.

corporation under the applicable state law. (b) Payment obligations. Section 357.13(b)

If a Person perfects a security interest pur- contains a corollary to the rule set forth in

suant to § 357.12(c)(2), obligations of the § 357.13(a). This section provides that Treas-

Treasury and the Federal Reserve Banks ury discharges its payment responsibility

with respect to that security interest are with respect to a security that it has issued

limited. Specifically, unless special arrange- when a Federal Reserve Bank credits the

ments are agreed to by the United States or funds account of a Participant with amounts

due on that security or makes payment in

a Federal Reserve Bank pursuant to

some other manner specified by the Partici-

§ 357.12(c)(1), neither the Federal Reserve

pant. This is consistent with existing law

Bank nor the United States will recognize

and the first TRADES proposal.14 In Revised

the interests of any person other than the Article 8, the issuer discharges its obliga-

person in whose securities account the inter- tions when it makes payment to an owner

est in a Treasury book-entry security is registered on its books. Under common com-

maintained. This does not mean that such a mercial practice, the registered owner in the

security interest is invalid. Rather, it means indirect system may be a clearing corpora-

that the creditor’s recourse will be solely tion or the clearing corporation’s nominee.

against the debtor Participant or other third Although the Federal Reserve Banks are

party. treated as clearing corporations under both

Revised Article 8 and TRADES, Treasury re-

mains liable until payment is made to, or in

account at the Federal Reserve Bank, and accordance with the instructions of, a Par-

therefore also would be marked on the books ticipant. Section 357.13(b)(2) establishes the

of the Federal Reserve Bank. See the discus- mechanism of how Treasury book-entry se-

sion under D. (§ 357.10). curities are paid at maturity. It is intended

13 Under both of these sections, if the state to cover a variety of procedures, including

where the proceeds of pledged securities are

has not yet adopted Revised Article 8, the

applicable law would be that state’s law as it

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would be amended by Revised Article 8. 14 51 FR 8846, 8848 (March 14, 1986).



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Pt. 357, App. B 31 CFR Ch. II (7–1–08 Edition)

credited to a suspense account pending sub- of federal law, neither Treasury nor a Fed-

stitution or release. This paragraph makes eral Reserve Bank will recognize any claim

clear that the payment takes place auto- by Dealer or Investor.16

matically and that, unlike with physical cer- In the hypothetical above, as between Par-

tificates, there is no act of presentment re- ticipant and Dealer, Participant is the Secu-

quired by the Participant. rities Intermediary. With respect to the mat-

ters set forth in § 357.11(a), the law of the Se-

Section 357.14 Authority of Reserve Banks.

curities Intermediary’s jurisdiction governs.

Section 357.14 provides that Federal Re- Thus, with respect to the matters in

serve Banks are authorized, as fiscal agents § 357.11(a), the law of Participant’s jurisdic-

of Treasury, to operate the commercial tion applies as between Participant and

book-entry system for Treasury. Dealer.17 If Participant’s jurisdiction, as de-

termined under § 357.11(b), has not adopted

Section 357.44 Notices. Revised Article 8, the law of Participant’s ju-

Section 357.44 contains a revised version of risdiction, as it would be amended by Re-

a provision that appeared in earlier TRADES vised Article 8, applies. Similarly, as be-

proposals. Similar to the rule in Revised Ar- tween Dealer and Investor, Dealer is a Secu-

ticle 8 (see section 8–112), it provides where rities Intermediary, with respect to the mat-

certain legal process should be directed. ters in § 357.11(a), the law of Dealer’s jurisdic-

While providing instructions on where notice tion applies as between Dealer and Investor.

should be directed, it makes clear that the If Dealer’s jurisdiction has not adopted Re-

regulations do not establish whether a Fed- vised Article 8, the law of Dealer’s jurisdic-

eral Reserve Bank is required to honor any tion, as it would be amended by Article 8, ap-

such order or notice. plies.

J. HYPOTHETICALS Hypothetical 2

Hypothetical 1 Assume that Dealer A sells its interest in

TREASURY a Treasury book-entry security to Dealer B.

The transaction likely would take the fol-

lowing form. Dealer A will instruct Partici-

FEDERAL RESERVE BANK pant A to transfer its interest in a Treasury

| security to Participant B against cash pay-

PARTICIPANT ment. Dealer B will instruct Participant B to

| transfer cash to Participant A against deliv-

DEALER ery of an interest in the specified securities.

| Participant A will instruct the Federal Re-

INVESTOR serve Bank to transfer its interest in the

Treasury security to Participant B against

The first hypothetical is designed to show simultaneous credit of cash. The Federal Re-

what law applies at different levels of the serve Bank will debit Participant A’s secu-

tiered book-entry system. TRADES provides rity account and credit Participant B’s secu-

that federal law, and only federal law (de-

rity account and simultaneously credit Par-

fined in § 357.10(a)), governs the rights and

ticipant A’s cash account and debit Partici-

obligations of the United States and the Fed-

pant B’s cash account. Participant A will

eral Reserve Banks (except for those matters

mark its books to show that it has debited

involving Federal Reserve Banks set forth in

Dealer A’s securities account and credited

§ 357.10(b)). Thus, for example, Treasury dis-

Dealer A’s cash account. Participant B will

charges its payment obligations with respect

to a security it has issued in the manner de-

scribed in § 357.13(b). Federal law both defines 16 One comment questioned whether similar

the payment obligation and describes how language in the March 4, 1996 release implied

Treasury fulfills that obligation. Those por- that, under Revised Article 8, in the above

tions of Revised Article 8 dealing with issuer example Investor could have a claim against

obligations are not applicable to Treasury or Participant. No such implication was in-

the Federal Reserve Banks.15 Similarly, with tended. The only point of the language is to

certain limited exceptions as set forth in make it clear that Federal, not state, law

§ 357.12(c)(1), Treasury and the Federal Re- governs the rights and obligations of Treas-

serve Banks will recognize only the interest ury and the Federal Reserve Banks.

of a Participant in a Treasury book-entry se- 17 As described in the March 4 Release, the

curity in whose Security Account the inter- scope of TRADES is limited. As a general

est is maintained. Accordingly, as a matter rule, if a matter is not covered in § 357.11(a),

TRADES is not applicable. One comment

15 As provided in § 357.14, Federal Reserve questioned whether TRADES covered the

Banks, among other things, effect transfers creation and attachment of a security inter-

of book-entry securities between Partici- est. The omission of creation and attach-

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pants’ Security Accounts. ment in § 357.11(a) is intentional.



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Fiscal Service, Treasury Pt. 357, App. B

mark its books to show the Security Entitle- Article 8, the Federal Reserve Bank’s inter-

ment in the Treasury security in favor of est would be that of a clearing corporation.

Dealer B and a debit against Dealer B’s cash

account. Federal law, set forth in § 357.12(a) Hypothetical 4

provides that Participant B acquires its in- TREASURY

terest in the Treasury book-entry security

when the Federal Reserve Bank indicates by FEDERAL RESERVE BANK

book-entry that the interest in the security | |

has been credited to Participant B’s Securi- PARTICIPANT PARTICIPANT

ties Account. Pursuant to § 357.11(a), but sub-

A B

ject to § 357.11(d), Participant B’s jurisdiction

governs Dealer B’s acquisition of a Securi- Assume that Participant A wishes to bor-

ties Entitlement from Participant B. row from Participant B and grant Partici-

pant B a security interest in its Security En-

Hypothetical 3 titlement in Treasury book-entry securities.

As provided in § 357.12(c)(2), the transaction

TREASURY would be completed pursuant to applicable

law determined in accordance with 357.11. Al-

FEDERAL RESERVE BANK though such an interest could be recorded on

| the books of a Federal Reserve Bank under

§ 357.12(c)(1), Federal Reserve Banks gen-

PARTICIPANT erally do not mark their books to record this

Assume Participant wishes to obtain a type of security interest for Participants.

loan from Federal Reserve Bank and, as part

Hypothetical 5

of the transaction, will grant Federal Re-

serve Bank a security interest in its Securi- TREASURY

ties Entitlement with respect to Treasury

book-entry securities. The transaction can FEDERAL RESERVE BANK

be accomplished in one of two ways. Pursu- |

ant to § 357.12(c)(1), the Federal Reserve Bank PARTICIPANT A

can mark its books to reflect the security in- |

terest. As a matter of federal law, that ac- DEALER A

tion creates and perfects the Federal Reserve |

Bank’s security interest and grants the Fed-

BANK A

eral Reserve Bank priority over all other

claimants (other than the United States pur- Assume that Bank A wishes to borrow

suant to § 357.12(b)).18 A second method for from the Federal Reserve Bank and will

completing the transaction, as set forth in pledge its interest in Treasury book-entry

§ 357.12(c)(2), would be to take whatever ac- securities held at Dealer A to collateralize

tions are authorized by applicable law. In that loan. The transaction could be accom-

that case, applicable law is the law of the ju- plished in two ways. Pursuant to

risdiction of the head office of the Federal § 357.12(c)(1), the interest could be created

Reserve Bank. If that jurisdiction had adopt- and perfected on the books of a Federal Re-

ed Revised Article 8, it would be the law of serve Bank. Such a transaction would take

that jurisdiction. If that jurisdiction had not place in the following fashion. Bank A could

adopted Revised Article 8, it would be the have Dealer A instruct Participant A to de-

law of that jurisdiction as if the jurisdiction posit securities to a pledge account specified

had adopted Revised Article 8. Under Revised by the Federal Reserve Bank. The Federal

Reserve Bank likely would create an account

on its books and specify that account to

18 In certain limited circumstances, a Fed- Bank A as the account to receive Bank A’s

eral Reserve Bank may enter into an agree- interest in Treasury book-entry securities.

ment under which it agrees to record on its Participant A, upon receiving Dealer A’s in-

books an interest in Participant’s book- structions, would then instruct the Federal

entry securities in favor of a non-Partici- Reserve Bank to debit its account at the

pant, such as a governmental entity. Under Federal Reserve Bank and credit the account

these circumstances, the non-Participant created by the Federal Reserve Bank. The

would have a perfected security interest with second way the transaction could take place

priority over other claimants (other than the is by any method permitted by the law of

United States under § 357.12(b)). It should be Dealer A’s (Bank A’s Securities Inter-

noted that, as set forth in § 357.12(c)(1), there mediary) jurisdiction. This could involve a

is no requirement that either the United tri-party agreement among the Federal Re-

States or a Federal Reserve Bank agree to serve Bank, Dealer A, and Bank A. As set

creation and perfection of a security interest forth in § 357.11(b)(1), that agreement likely

in this way, except as provided in would specify which jurisdiction’s law is to

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§ 357.12(c)(1). govern the transaction and could specify



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31 CFR Ch. II (7–1–08 Edition)

that such choice of law supersedes any other

choice of law agreement previously entered

into by Dealer A and Bank A. If Dealer A’s

jurisdiction has not adopted Revised Article

8, the applicable law would be the law of

Dealer A’s jurisdiction as it would be amend-

ed by Revised Article 8.

[61 FR 43631, Aug. 23, 1996, as amended at 62

FR 43284, Aug. 13, 1997; 63 FR 69191, Dec. 16,

1998]

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