[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Rules and Regulations]
[Pages 63944-63949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30499]
[[Page 63943]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
1 CFR Part 462
24 CFR Part 81
Federal National Mortgage Association (Fannie Mae) and Federal Home
Loan Mortgage Corporation (Freddie Mac) Book-Entry Procedures
Revisions; Interim Rule
Federal Register / Vol. 61, No. 232 / Monday, December 2, 1996 /
Rules and Regulations
[[Page 63944]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
1 CFR Part 462
24 CFR Part 81
[Docket No. FR-4095-I-01]
RIN 2501-AC35
The Secretary of HUD's Regulation of the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac): Book-Entry Procedures
AGENCY: Office of the Secretary, HUD.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This interim rule revises procedures that govern the issuance,
recordation, and transfer of Federal National Mortgage Association
(``Fannie Mae'') and Federal Home Loan Mortgage Corporation (``Freddie
Mac'') (collectively ``Government-Sponsored Enterprises'' or ``GSEs'')
Securities in the Book-entry System. The rule modifies HUD's current
book-entry procedures for Fannie Mae to bring them into accord with the
revised book-entry procedures of the Department of Treasury
(``Treasury'') published in the Federal Register on August 23, 1996 (61
FR 43626). This rule also extends these revised book-entry procedures
to Freddie Mac and supersedes Freddie Mac's current book-entry
regulations.
In accordance with Treasury's revised book-entry procedures, this
rule incorporates recent significant changes in commercial and property
law, including changes concerning the holding of securities through
financial intermediaries. This rule replaces existing regulations that
contain outdated legal concepts. This rule applies to outstanding
securities.
DATES: Effective date: January 1, 1997.
Comment due date: Comments must be submitted by January 31, 1997.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Office of the General Counsel, Rules Docket Clerk,
room 10276, Department of Housing and Urban Development, 451 Seventh
Street, SW, Washington, DC 20410-0500. Comments should refer to the
above docket number and title of the rule. Facsimile (FAX) comments are
not acceptable. A copy of each communication submitted will be
available for public inspection and copying during regular business
hours (weekdays 7:30 a.m. to 5:30 p.m. Eastern time) at the above
address.
FOR FURTHER INFORMATION CONTACT: Janet Tasker, Director, Office of
Government-Sponsored Enterprises, Room 6154, telephone (202) 708-2224;
or, for legal questions, Kenneth A. Markison, Assistant General Counsel
for Government Sponsored Enterprises/RESPA, Office of the General
Counsel, Room 9262, telephone (202) 708-3137. The address for both of
these persons is: Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410. A telecommunications device
for deaf persons (TTY) is available at (202) 708-9300. (The telephone
numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
I. Background
Both Fannie Mae and Freddie Mac use the Book-entry System of the
Federal Reserve Banks to issue, record, and transfer ownership of
certain of their respective securities. Although the Book-entry System
was originally designed for Treasury securities, both GSEs have used
this system under separate sets of regulations dating back to the late
1970s. Treasury regulations govern the Book-entry System, known as the
commercial book-entry system, when it is used to issue, record,
transfer and maintain Treasury securities. Recently, Treasury
substantially modified its regulations governing Treasury securities
held in this system to reflect contemporary legal development of the
Uniform Commercial Code (``UCC''). This regulation conforms the book-
entry regulations applicable to GSE securities to the changes made in
Treasury's regulations (tailoring the changes to differences in the
GSEs and GSE Securities), and combines the book-entry regulations
applicable to both GSEs into a single set of regulations.
This rule furthers a rulemaking regarding book-entry procedures
begun with the publication of HUD's proposed rule, 60 FR 9154 (Feb. 16,
1995), to implement the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 (``FHEFSSA''). As part of that rulemaking,
HUD proposed to revise the book-entry procedures applicable to Fannie
Mae, and make the procedures applicable to both GSEs. In comments on
the proposed rule, however, the GSEs and the Book-Entry Treasury
Regulations Task Force of the Investment Securities Subcommittee of the
UCC Committee of the Business Law Section of the American Bar
Association (``ABA Task Force'') stated that HUD should not revise the
book-entry procedures in the form proposed in light of continuing work
on a comprehensive revision of the Treasury's book-entry regulations.
They urged HUD to wait until Treasury adopted revised book-entry
regulations, and then to adopt consistent regulations for Book-entry
GSE Securities. Treasury was, at that time, in the process of
completing its revision of its book-entry regulations to reflect a
major revision to Article 8 of the UCC. (Treasury had withdrawn
proposed changes to its own regulations pending the completion of the
revisions to Article 8 and conforming revisions to Article 9 of the
UCC. See 57 FR 12244 (April 9, 1992) and 58 FR 59972 (November 12,
1993).) The Federal Reserve Bank of New York also urged HUD to delay
implementation of new book-entry provisions, await Treasury's adoption
of revised book-entry regulations, and then promulgate consistent
regulations.
As indicated in the preamble to HUD's final rule implementing other
matters pursuant to FHEFSSA, 60 FR 61846, 61885 (December 1, 1995), the
Secretary decided to postpone making significant revisions to the book-
entry regulations for the GSEs, including establishing uniform book-
entry procedures for both GSEs, pending completion of the revised
Treasury book-entry regulations. Based on the comments received, the
Secretary determined that for HUD to act at that time to finalize a
complete set of regulations for both GSEs, and then shortly to revise
them, would be inefficient and lead to confusion. In the final rule,
HUD announced its intention to adopt revised regulations simultaneous
with Treasury's adoption of a final rule revising its book-entry
procedures and to make HUD's regulations consistent with Treasury's at
that time.
On March 4, 1996 (61 FR 8420), Treasury's Bureau of the Public Debt
proposed revisions to its book-entry regulations. The purposes of
Treasury's changes, like the purposes of the changes to HUD's rule
announced today, were to incorporate recent and significant changes in
commercial law addressing the holding of securities in book-entry form
through securities intermediaries and to replace existing regulations
that contain outdated legal concepts. Treasury received eleven comments
on its proposed rule. Based on Treasury's proposal, the comments
received in response, and Treasury's approach to addressing the
comments in Treasury's August 23, 1996 final rule, and HUD's previously
announced determination, based on the comments received, to issue
revised book-entry regulations consistent with Treasury's
[[Page 63945]]
once those were promulgated, HUD developed this interim rule. HUD
considered Treasury's proposal, the comments received in response
thereto, and Treasury's final rule as relevant to this interim rule,
since this rule is closely modelled on Treasury's rule--except
differences necessitated by distinctions in the GSEs and their GSE
Securities--and will become effective simultaneously with Treasury's
rule. In light of the public comments on HUD's February 16, 1995
proposed revisions to the book-entry procedures and in light of
Treasury's notice and comment rulemaking and HUD's adaptation of
Treasury's rule to GSE Securities, HUD is issuing its revisions as an
interim rule to accompany Treasury's final rule previously published in
the Federal Register.
The book-entry rule announced today is identical for both GSEs and
provides a level playing field for both GSE's securities. To this end,
this regulation supersedes not only HUD's current book-entry regulation
for Fannie Mae contained in 24 CFR part 81, subpart H, but also
supersedes Freddie Mac's current book-entry regulation, codified at 1
CFR part 462.
II. Analysis of Revisions to Book-Entry Procedures
Except as is necessary because of differences between the GSEs and
their securities and Treasury and Treasury securities, HUD's revisions
to the book-entry procedures applicable to GSEs follow the revisions
Treasury is making to its book-entry procedures in a final rule
previously published in the Federal Register. HUD adopts, to the extent
relevant, the substance of the analysis contained in the commentary to
Treasury's final rule, which will be codified at 31 CFR Part 357,
Appendix B of Treasury's regulations. It is HUD's intent that the book-
entry procedures announced today will be interpreted in a manner fully
consistent and uniform with Treasury's revised book-entry procedures
and the commentary to Treasury's final rule, except to the extent that
HUD's rule diverges from Treasury's rule due to the unique nature of
the GSEs and their securities.
The book-entry regulation promulgated today shares many major
similarities with Treasury's regulation of the Treasury/Reserve
Automated Debt Entry System (``TRADES''). Three of the similarities
worthy of note are:
Under both the book-entry regulations applicable to GSE
securities and Treasury's TRADES regulation, there is federal
preemption of state law with respect to the rights and obligations of
the United States and the Federal Reserve Banks. (Additionally, HUD's
rule provides for federal preemption of state law with respect to the
rights and obligations of the GSEs.)
Other than as expressly stated in the rule, no duty exists
on the part of Treasury, Freddie Mac, Fannie Mae, or the Federal
Reserve to holders of GSE securities indirectly or through a securities
intermediary.
Book-entry GSE Securities may be converted to definitive
securities only when so permitted in the documents establishing the
terms of the securities.
Four significant areas in which HUD's rule differs from Treasury's
rule, however, are the following:
Under Treasury regulations, Treasury securities may be
maintained in either of two book-entry systems--TRADES or TREASURY
DIRECT. Inasmuch as there is no direct registration and holding of GSE
Securities at this time, this rule does not establish a system
analogous to TREASURY DIRECT for GSE Securities.
The GSEs issue a wide variety of securities, some of which
are not maintained by the Federal Reserve Banks. GSE Securities not
maintained by a Federal Reserve Bank are not subject to this book-entry
regulation and there is no federal preemption by these subpart H
regulations for such securities. Furthermore, the book-entry regulation
in this subpart H applies only for so long as the GSE security is
actually on the Book-entry System; this regulation does not apply to
GSE securities initially issued on the records of a Federal Reserve
Bank when those securities are taken off the book-entry system and
converted to definitive form.
The book-entry regulation applicable to the GSEs
recognizes that there are variations in documentation that a GSE uses
depending upon the type of security issued.
Unlike Treasury securities, GSE Securities may contain an
express choice of law provision, under which state law is chosen to
govern the rights and obligations of the GSEs. To the extent the state
law chosen in the Security Documentation conflicts with the state law
that would govern under these regulations, the state law selected in
accordance with this regulation will prevail.
III. Section-by-Section Comparison With Treasury's Model
This section notes in a section-by-section comparison, other
differences between this book-entry regulation and Treasury's TRADES
regulation.
Revisions to 81.2 Definitions
The rule adds some definitions to Sec. 81.2. These definitions
correspond to definitions in 31 CFR 357.2, but are tailored to apply to
the GSEs and their securities. It should be noted that HUD's rule uses
the terminology ``Book-entry System'' rather than ``TRADES,'' because
TRADES is Treasury's unique terminology for the system as applied to
Treasury securities.
HUD's definition of ``person'' makes clear that it excludes the
GSEs. In addition, HUD's rule provides a definition of ``Securities
Documentation.'' Further, HUD intends that the rule's definitions of
``Book-entry GSE Security'' and ``GSE Security'' refer to the wide
array of securities and obligations that the GSEs issue.
The definitions added to Sec. 81.2 are supplemented by a general
provision, Sec. 81.2(c), which indicates that terms used in subpart H
that are not defined in part 81 have the meanings set forth in 31 CFR
357.2. This provision reflects HUD's determination that it is
unnecessary to define certain terms used in subpart H or used in a
section of Treasury's rule adopted by cross-reference in subpart H,
even though those terms are not defined in part 81, because the
definitions in the Treasury rule are adequate (e.g., ``Security
Entitlement'').
This rule also eliminates an outdated provision that formerly
appeared in the definition of ``Fannie Mae security,'' which excluded
short-term discount notes and obligations convertible into shares of
common stock.
Section 81.91
This section, addressing maintenance of GSE Securities, is modelled
after 31 CFR 357.0, but is custom-tailored to GSE Securities to reflect
that GSE Securities need not be maintained in the Book-entry System.
Some GSE Securities are held in definitive form, either indirectly
through depositories or intermediaries or directly by the investor in
TREASURY DIRECT. No system currently exists for GSE Securities that is
analogous to TREASURY DIRECT.
Section 81.92
This section, addressing the law governing the rights and
obligations of the United States, the Federal Reserve Banks, and the
GSEs, and other interests, is modelled after 31 CFR 357.10 and 357.11.
One difference between HUD's and Treasury's provisions is that HUD's
rule recognizes that the GSEs use various forms of documentation to
establish the terms of
[[Page 63946]]
GSE Securities, depending upon the type of security issued. HUD's rule
makes clear the way in which such documentation applies to the GSEs and
their securities.
Section 81.93
This section, addressing security entitlements and interests, is
modelled after 31 CFR 357.12. HUD's rule applies these provisions to
the GSEs and their securities.
Section 81.94
This section, addressing obligations of GSEs, is modelled after 31
CFR 357.13. HUD's rule accounts for the possibility that the GSEs could
make payments with respect to Book-entry GSE Securities that might be
characterized as other than principal or interest payments.
Section 81.95
This section, addressing the authority of the Federal Reserve
Banks, is modelled after 31 CFR 357.14. HUD's rule specifically
authorizes each Federal Reserve Bank to effect conversions between
Book-entry GSE Securities and Definitive GSE Securities where
conversion rights are available pursuant to the applicable Securities
Documentation.
Section 81.96
This section, addressing withdrawal of Book-entry GSE Securities
eligible for conversion to definitive form, is modelled after 31 CFR
306.117. HUD's rule highlights the requirement that conversion must be
consistent with the Securities Documentation.
Section 81.97
This section, addressing waiver of regulations, is modelled after
31 CFR 357.41. HUD's rule makes clear that the Secretary of HUD may
waive these regulations. HUD traditionally has consulted with the GSEs
in the waiver process. In accordance with section 106 of the Department
of Housing and Urban Development Reform Act of 1989 (42 U.S.C.
3535(q)), HUD publishes a notice each quarter indicating the waivers of
regulations granted during that quarter.
Section 81.98
This section, addressing liability of GSEs and Federal Reserve
Banks, is modelled after 31 CFR 357.42. HUD's rule reflects that some
terms such as ``tender'' and ``transactions request form'' used in
Treasury's rule do not apply to Book-entry GSE Securities.
Section 81.99
This section is modelled after two Treasury regulations. Subsection
(a) on additional requirements is modelled after 31 CFR 357.40.
Subsection (b) on notice of attachment for GSE Securities is modelled
after 31 CFR 357.44.
Removal of 1 CFR part 462
Freddie Mac's current book-entry regulation is codified at 1 CFR
part 462. This regulation was promulgated prior to the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L.
101-73, (August 9, 1989). Section 731(c) of FIRREA accorded the
Secretary of HUD general regulatory power over Freddie Mac. The
Secretary's general regulatory power over Freddie Mac is currently
codified in section 1321 of FHEFSSA (12 U.S.C. 4541).
Since this regulation applies to both GSEs, it supersedes Freddie
Mac's current book-entry regulation codified at 1 CFR Part 462. Thus,
HUD's rule removes Freddie Mac's current book-entry regulation from the
CFR pursuant to the Secretary's general regulatory power over Freddie
Mac.
Findings and Certifications
Public Reporting Burden
This interim rule contains no new information collection
requirements that would require review by the Office of Management and
Budget under the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-3520).
Justification for Interim Rule
As discussed above in the Background section, this rule is
published as an interim rule based not only on the previous proposed
rule issued by HUD on February 16, 1995, but also on the proposed and
final rules issued by Treasury. Treasury's final rule, published on
August 23, 1996, needed relatively minor adaptations to apply
appropriately to Fannie Mae and Freddie Mac. This interim rule makes
those necessary changes.
The Department generally publishes a rule for public comment before
issuing a rule for effect, in accordance with its regulations on
rulemaking in 24 CFR part 10. However, prior public procedure may be
omitted if HUD determines that it is ``impracticable, unnecessary, or
contrary to the public interest.'' (24 CFR 10.1) The essence of this
rule has been the subject of notice and comment in the form of the
Treasury proposed rule, and comments on HUD's proposed rule recommended
that HUD's rule follow Treasury's rule. To avoid dislocation in the
securities market, it is imperative that these regulations take effect
at the same time as Treasury's final rule, on January 1, 1997. Given
that Treasury's rule was not published until August 23, 1996, there
would not have been sufficient time for HUD to go through notice and
comment rulemaking and then proceed to publish a final rule with a
January 1, 1997 effective date. Therefore, the Department has
determined that it is unnecessary and contrary to the public interest
to undergo separate notice and comment rulemaking on the specifics of
this adaptation of the Treasury rule before making this rule effective.
As a result, in accordance with 24 CFR part 10, HUD is publishing this
interim rule for effect.
In the interest of obtaining the fullest participation possible in
determining that the adaptation of Treasury's rule is appropriate, the
Department does invite public comment on the rule. The comments
received within the 60-day comment period will be considered during
development of a final rule that will supersede this interim rule.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so
doing certifies that this interim rule will not have a significant
economic impact on a substantial number of small entities. This interim
rule affects the operation of two entities, Fannie Mae and Freddie Mac,
neither of which is a small entity.
Environmental Impact
This interim rule is exempt from the requirement for an
environmental assessment under section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332), in accordance with
HUD regulations at 24 CFR 50.19(c)(1), as revised by a final rule on
September 27, 1996 (61 FR 50919). In accordance with 24 CFR 50.19(a),
other Federal environmental laws, as described in 24 CFR 50.4, are not
applicable to this interim rule.
Federalism Impact
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this interim
rule's preemption of State law to the extent that it applies the newly
revised Article 8 of the Uniform Commercial Code has sufficient effect
on States to require consideration of the impact of the rule under the
Order. The General Counsel has assessed this preemption in light of the
principles, criteria, and requirements of the Executive Order and
determined that it is not inconsistent with them. The policy does not
impose additional costs or burdens on the States
[[Page 63947]]
and it does not affect the States' ability to discharge traditional
State governmental functions.
This rule makes explicit the preemption applicable to the rights
and obligations of the United States, the Federal Reserve Banks, and
the GSEs that was implicit under the prior rule. The rule continues to
accommodate State law, to the maximum extent possible, given market
methodologies. Ultimately, as States proceed to adopt the revised
Article 8, the rule will provide no greater preemption of State law
than under the prior rule.
The rule is justified, despite the preemption it effects, by the
fact that the preemption is no greater than necessary to accommodate
the nationwide application of the rule and the nationwide market for
the GSE Securities, as was the preemption under the book-entry rules
this rule replaces. It should be noted that section 304(d) of the
Fannie Mae Charter Act (12 U.S.C. 1719(d)) and section 306(g) of the
Freddie Mac Act (12 U.S.C. 1455(f)) specifically provide for the
exemption of GSE securities from State securities registration
requirements (as well as the registration requirements of the
Securities and Exchange Commission). See also 15 U.S.C. 77r-1.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this interim rule does not
have potential for significant impact on family formation, maintenance,
and general well-being, and, thus, is not subject to review under the
order. No significant change in existing HUD policies or programs will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
Unfunded Mandates Reform Act
The Secretary, in accordance with the Unfunded Mandates Reform Act
of 1995, 2 U.S.C. 1532, has reviewed this interim rule before
publication and by approving it certifies that this interim rule does
not impose a Federal mandate that will result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year.
Catalog
There is no Catalog of Federal Domestic Assistance number for the
program affected by this interim rule.
List of Subjects
1 CFR Part 462
Accounting, Banks, Banking, Securities.
24 CFR Part 81
Accounting, Federal Reserve System, Mortgages, Reporting and
recordkeeping requirements, Securities.
Accordingly, for the reasons set out in the preamble, under the
authority of 42 U.S.C. 3535(d), part 462 of title 1 of the Code of
Federal Regulations and part 81 of title 24 of the Code of Federal
Regulations are amended as follows:
TITLE 1--GENERAL PROVISIONS
CHAPTER IV--MISCELLANEOUS AGENCIES
PART 462--FEDERAL HOME LOAN MORTGAGE CORPORATION (BOOK-ENTRY
REGULATIONS)
1. 1 CFR part 462 is removed.
TITLE 24--DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
PART 81--THE SECRETARY OF HUD'S REGULATION OF THE FEDERAL NATIONAL
MORTGAGE ASSOCIATION (FANNIE MAE) AND THE FEDERAL HOME LOAN
MORTGAGE CORPORATION (FREDDIE MAC)
2. The authority citation for Part 81 continues to read as follows:
Authority: 12 U.S.C. 1451 et seq., 1716-1723h, and 4501-4641; 42
U.S.C. 3535(d) and 3601-3619.
3. In Sec. 81.2, paragraph (b) is amended by adding the following
definitions, in appropriate alphabetical order location, and by adding
a new paragraph (c), to read as follows:
Sec. 81.2 Definitions.
* * * * *
Book-entry GSE Security means a GSE Security issued or maintained
in the Book-entry System.
Book-entry System means the automated book-entry system operated by
the Federal Reserve Banks acting as the fiscal agent for the GSEs, on
which Book-entry GSE Securities are issued, recorded, transferred and
maintained in book-entry form.
* * * * *
Definitive GSE Security means a GSE Security in engraved or printed
form, or that is otherwise represented by a certificate.
* * * * *
Eligible Book-entry GSE Security means a Book-entry GSE Security
issued or maintained in the Book-entry System which by the terms of its
Security Documentation is available in either definitive or book-entry
form.
Entitlement Holder means a Person to whose account an interest in a
Book-entry GSE Security is credited on the records of a Securities
Intermediary.
* * * * *
Federal Reserve Bank Operating Circular means the publication
issued by each Federal Reserve Bank that sets forth the terms and
conditions under which the Reserve Bank maintains book-entry Securities
accounts (including Book-entry GSE Securities) and transfers book-entry
Securities (including Book-entry GSE Securities).
* * * * *
GSE Security means any security or obligation of Fannie Mae or
Freddie Mac issued under its respective Charter Act in the form of a
Definitive GSE Security or a Book-entry GSE Security.
* * * * *
Person, as used in subpart H, means and includes an individual,
corporation, company, governmental entity, association, firm,
partnership, trust, estate, representative, and any other similar
organization, but does not mean or include the United States, a GSE, or
a Federal Reserve Bank.
Revised Article 8 has the same meaning as in 31 CFR 357.2.
* * * * *
Security means any mortgage participation certificate, note, bond,
debenture, evidence of indebtedness, collateral-trust certificate,
transferable share, certificate of deposit for a security, or, in
general, any interest or instrument commonly known as a ``security.''
Securities documentation means the applicable statement of terms,
trust indenture, securities agreement or other documents establishing
the terms of a Book-entry GSE Security.
* * * * *
Transfer message means an instruction of a Participant to a Federal
Reserve Bank to effect a transfer of a Book-entry Security (including a
Book-entry GSE Security) maintained in the Book-entry System, as set
forth in Federal Reserve Bank Operating Circulars.
* * * * *
(c) Subpart H terms. Unless the context requires otherwise, terms
used in subpart H of this part that are not defined in this part, have
the meanings as set forth in 31 CFR 357.2. Definitions and terms used
in 31 CFR part 357 should read as though modified to effectuate their
application to the GSEs.
4. Subpart H is revised to read as follows:
[[Page 63948]]
Subpart H--Book-Entry Procedures
Sec.
81.91 Maintenance of GSE Securities.
81.92 Law governing rights and obligations of United States,
Federal Reserve Banks, and GSEs; rights of any Person against United
States, Federal Reserve Banks, and GSEs; Law governing other
interests.
81.93 Creation of Participant's Security Entitlement; security
interests.
81.94 Obligations of GSEs; no adverse claims.
81.95 Authority of Federal Reserve Banks.
81.96 Withdrawal of Eligible Book-entry GSE Securities for
conversion to definitive form.
81.97 Waiver of regulations.
81.98 Liability of GSEs and Federal Reserve Banks.
81.99 Additional provisions.
Subpart H--Book-Entry Procedures
Sec. 81.91 Maintenance of GSE Securities.
A GSE Security may be maintained in the form of a Definitive GSE
Security or a Book-entry GSE Security. A Book-entry GSE Security shall
be maintained in the Book-entry System.
Sec. 81.92 Law governing rights and obligations of United States,
Federal Reserve Banks, and GSEs; rights of any Person against United
States, Federal Reserve Banks, and GSEs; Law governing other interests.
(a) Except as provided in paragraph (b) of this section, the
following rights and obligations are governed solely by the Book-entry
regulations contained in this subpart H, the Securities Documentation
(but not including any choice of law provisions in such documentation),
and Federal Reserve Bank Operating Circulars:
(1) The rights and obligations of the United States, a GSE and the
Federal Reserve Banks with respect to:
(i) A Book-entry GSE Security or Security Entitlement; and
(ii) The operation of the Book-entry System as it applies to GSE
Securities; and
(2) The rights of any Person, including a Participant, against the
United States, a GSE and the Federal Reserve Banks with respect to:
(i) A Book-entry GSE Security or Security Entitlement; and
(ii) The operation of the Book-entry System applicable to GSE
Securities;
(b) A security interest in a Security Entitlement that is in favor
of a Federal Reserve Bank from a Participant and that is not recorded
on the books of a Federal Reserve Bank pursuant to Sec. 81.93(c)(1), is
governed by the law (not including the conflict-of-law rules) of the
jurisdiction where the head office of the Federal Reserve Bank
maintaining the Participant's Securities Account is located. A security
interest in a Security Entitlement that is in favor of a Federal
Reserve Bank from a Person that is not a Participant, and that is not
recorded on the books of a Federal Reserve Bank pursuant to
Sec. 81.93(c)(1), is governed by the law determined in the manner
specified in paragraph (d) of this section.
(c) If the jurisdiction specified in the first sentence of
paragraph (b) of this section is a State that has not adopted Revised
Article 8, then the law specified in paragraph (b) of this section
shall be the law of that State as though Revised Article 8 had been
adopted by that State.
(d) To the extent not otherwise inconsistent with this subpart H,
and notwithstanding any provision in the Security Documentation setting
forth a choice of law, the provisions set forth in 31 CFR 357.11
regarding law governing other interests apply and shall be read as
though modified to effectuate the application of 31 CFR 357.11 to the
GSEs.
Sec. 81.93 Creation of Participant's Security Entitlement; security
interests.
(a) A Participant's Security Entitlement is created when a Federal
Reserve Bank indicates by book-entry that a Book-entry GSE Security has
been credited to a Participant's Securities Account.
(b) A security interest in a Security Entitlement of a Participant
in favor of the United States to secure deposits of public money,
including without limitation deposits to the Treasury tax and loan
accounts, or other security interest in favor of the United States that
is required by Federal statute, regulation, or agreement, and that is
marked on the books of a Federal Reserve Bank is thereby effected and
perfected, and has priority over any other interest in the securities.
Where a security interest in favor of the United States in a Security
Entitlement of a Participant is marked on the books of a Federal
Reserve Bank, such Reserve Bank may rely, and is protected in relying,
exclusively on the order of an authorized representative of the United
States directing the transfer of the security. For purposes of this
paragraph, an ``authorized representative of the United States'' is the
official designated in the applicable regulations or agreement to which
a Federal Reserve Bank is a party, governing the security interest.
(c)(1) A GSE, the United States, and the Federal Reserve Banks have
no obligation to agree to act on behalf of any Person or to recognize
the interest of any transferee of a security interest or other limited
interest in favor of any Person except to the extent of any specific
requirement of Federal law or regulation or to the extent set forth in
any specific agreement with the Federal Reserve Bank on whose books the
interest of the Participant is recorded. To the extent required by such
law or regulation or set forth in an agreement with a Federal Reserve
Bank, or the Federal Reserve Bank Operating Circular, a security
interest in a Security Entitlement that is in favor of a Federal
Reserve Bank, a GSE, or a Person may be created and perfected by a
Federal Reserve Bank marking its books to record the security interest.
Except as provided in paragraph (b) of this section, a security
interest in a Security Entitlement marked on the books of a Federal
Reserve Bank shall have priority over any other interest in the
securities.
(2) In addition to the method provided in paragraph (c)(1) of this
section, a security interest, including a security interest in favor of
a Federal Reserve Bank, may be perfected by any method by which a
security interest may be perfected under applicable law as described in
Sec. 81.92(b) or (d). The perfection, effect of perfection or non-
perfection and priority of a security interest are governed by such
applicable law. A security interest in favor of a Federal Reserve Bank
shall be treated as a security interest in favor of a clearing
corporation in all respects under such law, including with respect to
the effect of perfection and priority of such security interest. A
Federal Reserve Bank Operating Circular shall be treated as a rule
adopted by a clearing corporation for such purposes.
Sec. 81.94 Obligations of GSEs; no adverse claims.
(a) Except in the case of a security interest in favor of the
United States or a Federal Reserve Bank or otherwise as provided in
Sec. 81.93(c)(1), for the purposes of this subpart H, the GSE and the
Federal Reserve Banks shall treat the Participant to whose Securities
Account an interest in a Book-entry GSE Security has been credited as
the person exclusively entitled to issue a Transfer Message, to receive
interest and other payments with respect thereof and otherwise to
exercise all the rights and powers with respect to such Security,
notwithstanding any information or notice to the contrary. Neither the
Federal Reserve Banks, the United States, nor a GSE is liable to a
Person asserting or having an adverse claim to a Security Entitlement
or to a Book-entry GSE Security in a Participant's Securities Account,
including any such claim arising as a result of the transfer
[[Page 63949]]
or disposition of a Book-entry GSE Security by a Federal Reserve Bank
pursuant to a Transfer Message that the Federal Reserve Bank reasonably
believes to be genuine.
(b) The obligation of the GSE to make payments (including payments
of interest and principal) with respect to Book-entry GSE Securities is
discharged at the time payment in the appropriate amount is made as
follows:
(1) Interest or other payments on Book-entry GSE Securities is
either credited by a Federal Reserve Bank to a Funds Account maintained
at such Bank or otherwise paid as directed by the Participant.
(2) Book-entry GSE Securities are redeemed in accordance with their
terms by a Federal Reserve Bank withdrawing the securities from the
Participant's Securities Account in which they are maintained and by
either crediting the amount of the redemption proceeds, including both
principal and interest, where applicable, to a Funds Account at such
Bank or otherwise paying such principal and interest as directed by the
Participant. No action by the Participant ordinarily is required in
connection with the redemption of a Book-entry GSE Security.
Sec. 81.95 Authority of Federal Reserve Banks.
(a) Each Federal Reserve Bank is hereby authorized as fiscal agent
of the GSEs to perform the following functions with respect to the
issuance of Book-entry GSE Securities offered and sold by a GSE to
which this subpart H applies, in accordance with the Securities
Documentation, Federal Reserve Bank Operating Circulars, this subpart
H, and procedures established by the Secretary consistent with these
authorities:
(1) To service and maintain Book-entry GSE Securities in accounts
established for such purposes;
(2) To make payments with respect to such securities, as directed
by the GSE;
(3) To effect transfer of Book-entry GSE Securities between
Participants' Securities Accounts as directed by the Participants;
(4) To effect conversions between Book-entry GSE Securities and
Definitive GSE Securities with respect to those securities as to which
conversion rights are available pursuant to the applicable Securities
Documentation; and
(5) To perform such other duties as fiscal agent as may be
requested by the GSE.
(b) Each Federal Reserve Bank may issue Operating Circulars not
inconsistent with this subpart H, governing the details of its handling
of Book-entry GSE Securities, Security Entitlements, and the operation
of the book-entry system under this subpart H.
Sec. 81.96 Withdrawal of Eligible Book-entry GSE Securities for
conversion to definitive form.
(a) Eligible Book-entry GSE Securities may be withdrawn from the
Book-entry System by requesting delivery of like Definitive GSE
Securities.
(b) A Reserve bank shall, upon receipt of appropriate instructions
to withdraw Eligible Book-entry GSE Securities from book-entry in the
Book-entry System, convert such securities into Definitive GSE
Securities and deliver them in accordance with such instructions. No
such conversion shall affect existing interests in such GSE Securities.
(c) All requests for withdrawal of Eligible Book-entry GSE
Securities must be made prior to the maturity or date of call of the
securities.
(d) GSE Securities which are to be delivered upon withdrawal may be
issued in either registered or bearer form, to the extent permitted by
the applicable offering circular.
Sec. 81.97 Waiver of regulations.
The Secretary reserves the right in the Secretary's discretion, to
waive any provision(s) of these regulations in any case or class of
cases for the convenience of a GSE, the United States, or in order to
relieve any person(s) of unnecessary hardship, if such action is not
inconsistent with law, does not adversely affect any substantial
existing rights, and the Secretary is satisfied that such action will
not subject a GSE or the United States to any substantial expense or
liability.
Sec. 81.98 Liability of GSEs and Federal Reserve Banks.
A GSE and the Federal Reserve Banks may rely on the information
provided in a Transfer Message, and are not required to verify the
information. A GSE and the Federal Reserve Banks shall not be liable
for any action taken in accordance with the information set out in a
Transfer Message, or evidence submitted in support thereof.
Sec. 81.99 Additional provisions.
(a) Additional requirements. In any case or any class of cases
arising under these regulations, a GSE may require such additional
evidence and a bond of indemnity, with or without surety, as may in the
judgment of the GSE be necessary for the protection of the interests of
the GSE.
(b) Notice of attachment for GSE Securities in Book-entry system.
The interest of a debtor in a Security Entitlement may be reached by a
creditor only by legal process upon the Securities Intermediary with
whom the debtor's securities account is maintained, except where a
Security Entitlement is maintained in the name of a secured party, in
which case the debtor's interest may be reached by legal process upon
the secured party. These regulations do not purport to establish
whether a Federal Reserve Bank is required to honor an order or other
notice of attachment in any particular case or class of cases.
Dated: November 6, 1996.
Henry G. Cisneros,
Secretary.
[FR Doc. 96-30499 Filed 11-29-96; 8:45 am]
BILLING CODE 4210-32-P