[Federal Register Volume 62, Number 86 (Monday, May 5, 1997)]
[Proposed Rules]
[Pages 24375-24377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11582]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 356
[Department of the Treasury Circular, Public Debt Series No. 1-93]
Sale and Issue of Marketable Book-Entry Treasury Bills, Notes,
and Bonds
AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the
Treasury.
ACTION: Proposed rule.
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SUMMARY: The Department of the Treasury (``Treasury'' or
``Department'') is proposing for comment an amendment to 31 CFR Part
356 (Uniform Offering Circular for the Sale and Issue of Marketable
Book-Entry Treasury Bills, Notes, and Bonds). This proposed amendment
makes the necessary changes to accommodate three decimal bidding, in
.005 increments, and a reduction in the net long position reporting
threshold amount for Treasury bill auctions. The proposed rule also
makes certain technical clarifications and conforming changes.
DATES: Comments must be received on or before June 4, 1997.
ADDRESSES: This proposed amendment has also been made available for
downloading from the Bureau of the Public Debt home page at the
following address: www.publicdebt.treas.gov. Written comments should be
sent to: Government Securities Regulations Staff, Bureau of the Public
Debt, 999 E Street N.W., Room 515, Washington, D.C. 20249-0001.
Comments may also be sent through the Internet to the Government
Securities Regulations Staff at commoffc@bpd.treas.gov. When sending
comments through the Internet, please use an ASCII file format and
provide your full name and mailing address. Comments received will be
available for public inspection and downloading from the Internet and
for public inspection and copying at the Treasury Department Library,
Room 5030, Main Treasury Building, 1500 Pennsylvania Avenue, N.W.,
Washington, D.C. 20220.
FOR FURTHER INFORMATION CONTACT: Ken Papj (Director), Lee Grandy or
Kurt Eidemiller (Government Securities Specialists), Bureau of the
Public Debt,
[[Page 24376]]
Government Securities Regulations Staff, (202) 219-3632.
SUPPLEMENTARY INFORMATION: 31 CFR Part 356, also referred to as the
uniform offering circular, sets out the terms and conditions for the
sale and issuance by the Department of the Treasury to the public of
marketable Treasury bills, notes, and bonds. The uniform offering
circular, in conjunction with offering announcements, represents a
comprehensive statement of those terms and conditions.\1\ The proposed
rule, when finalized, would amend sections 356.12 and 356.13 of the
uniform offering circular and would provide a technical clarification
in Appendix B to Part 356 (i.e., Appendix B, Section IV, Paragraph C).
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\1\ The uniform offering circular was published as a final rule
on January 5, 1993 (58 FR 412). Amendments to the circular were
published on June 3, 1994 (59 FR 28773), March 15, 1995 (60 FR
13906), July 16, 1996 (61 FR 37007), August 23, 1996 (61 FR 43626),
October 22, 1996 (61 FR 54908), and January 6, 1997 (62 FR 846).
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A. Three Decimal Bidding in .005 Increments
In February 1995, Treasury began requiring competitive bids in note
and bond auctions to be expressed as yields using three decimal places,
rather than two decimal places, e.g., 7.123.\2\ At that time, Treasury
did not extend three decimal bidding to bill auctions because three
decimal bidding in .001 percent increments provides a price unique to
each discount rate only for bills with maturities of 360 days or more.
Price uniqueness occurs when each separate discount rate produces a
different (unique) price rounded to three decimal places, i.e., no two
discount rates result in the same price. Price uniqueness is a function
of the minimum bid increment allowed in auctions, price rounding
conventions, and the number of days to maturity. For the reasons
explained below, however, Treasury believes that it would now be
appropriate to extend three decimal bidding to bill auctions.
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\2\ Treasury Press Release was dated February 15, 1995. An
amendment to the uniform offering circular was published on March
15, 1995 (60 FR 13906).
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Section 356.12(c)(1)(i) reflects the proposed change to three
decimal bidding in .005 increments for Treasury bills. The third
decimal will be expressed in minimum increments of one-half basis
points (e.g., 5.320 or 5.325) in which the final decimal must be either
zero or five. The proposed rule provides that three decimal bidding in
.005 increments will be a requirement for all Treasury bill auctions--
13-, 26-, and 52-week bills as well as all cash management bills
(CMBs). The Department specifically requests comments as to whether
three decimal bidding in one-half basis point increments should be
extended to CMBs. Conducting all Treasury bill auctions, including
CMBs, using the bidding convention as proposed may simplify the rules
and result in an easier understanding of the requirements by auction
participants.
Under the current two decimal bidding requirement, price uniqueness
is maintained for CMBs with maturities of 36 days or more. If three
decimal bidding in increments of one-half basis points is extended to
CMBs, price uniqueness would be maintained with maturities of 72 days
or more. However, Treasury does not consider this to be problematic
given auction participants' experience with the non-price uniqueness of
short term CMBs under the current bidding process. For all regular
Treasury bill auctions, the proposed change would maintain price
uniqueness since regular bills have maturities of 90 days or more.
The change from two decimal to three decimal half-basis point
bidding for all Treasury bills is being proposed to promote more
efficient and aggressive bidding in these auctions and is expected to
lead to marginally higher auction revenues for Treasury. The Department
believes that market participants would need very little time to begin
half-basis point bidding for Treasury bills since it understands that
most market participants currently trade these securities in minimum
increments of one-half or one-quarter basis points. Treasury welcomes
comments on the system changes and the lead time necessary to implement
this new bidding process.
The requirement for competitive bids for Treasury note and bond
auctions to be expressed in three decimals in .001 increments remains
unchanged. Further, the restriction against using fractions still
applies to all marketable security auctions.
A technical change to the note at the end of Appendix B, Section
IV, Paragraph C is also being proposed. The proposed revision
identifies the changes that have been made over the years in the
bidding conventions for Treasury bill auctions. Treasury is not
revising any of the examples of Appendix B since the proposed change to
three decimal bidding will not require any changes in the applicable
formulas for bills.
B. Decrease in Net Long Position Reporting Threshold
Section 356.13(a) reflects the proposed reduction in the net long
position reporting threshold amount for all Treasury bill auctions
(i.e., 13-, 26-, 52-week bills and CMBs) from $2 billion to $1
billion, while maintaining the $2 billion threshold amount for Treasury
note and bond auctions. The net long position reporting threshold
amount for bills, notes, and bonds will continue to be provided in the
offering announcement for the particular security. As currently stated
in section 356.10 of the uniform offering circular, the offering
announcement takes precedence whenever any provision of the
announcement is consistent with any provision of the circular. The
Department specifically requests comments as to whether operationally
this proposed $1 billion net long position reporting threshold amount
should be established and maintained for all bill auctions or whether
auction participants would prefer that the net long position reporting
threshold amount be changed from time to time. Regardless, section
356.10 would continue to give Treasury the flexibility to change the
net long position reporting threshold amount by providing the amount in
the offering announcement. This reduction in the threshold amount is
being proposed to more effectively achieve a Treasury financing
objective of ensuring a broad distribution of a security issue, whereby
no single bidder is awarded more than 35% of the public offering less
the bidder's net long position as reportable under section 356.13.
Procedural Requirements
This proposed amendment does not meet the criteria for a
``significant regulatory action'' pursuant to Executive Order 12866.
Although this rule is being issued in proposed form to secure the
benefit of public comment, the notice and public procedures
requirements of the Administrative Procedure Act are inapplicable,
pursuant to 5 U.S.C. 553(a)(2).
Since no notice of proposed rulemaking is required, the provisions
of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.
There is no new collection of information contained in this
proposed rule, and therefore, the Paperwork Reduction Act does not
apply. The collections of information of 31 CFR Part 356 have been
previously approved by the Office of Management and Budget under
section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35) under control number 1535-0112. Under this Act, an agency
may not conduct or sponsor, and a person is not required to respond to,
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a collection of information unless it displays a valid OMB control
number.
List of Subjects in 31 CFR Part 356
Bonds, Federal Reserve System, Government securities, Securities.
For the reasons set forth in the preamble, 31 CFR Chapter II,
Subchapter B, Part 356, is proposed to be amended as follows:
PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS,
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT
SERIES NO. 1-93)
1. The authority citation for part 356 continues to read as
follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq, 12 U.S.C. 391
2. Section 356.12 is amended by revising paragraph (c)(1)(i) to
read as follows:
Sec. 356.12 Noncompetive and competitive bidding.
* * * * *
(c) * * *
(1) * * *
(i) Treasury bills. A competitive bid must show the discount rate
bid, expressed with three decimals in .005 minimum increments. The
third decimal must be either a zero or a five, e.g., 5.320 or 5.325.
Fractions may not be used.
* * * * *
3. Section 356.13 is amended by revising paragraph (a) to read as
follows:
Sec. 356.13 Net long position.
(a) Reporting net long positions. When bidding competitively, a
bidder must report the amount of its net long position when the total
of all of its bids in an auction plus the bidder's net long position in
the security being auctioned equals or exceeds the net long position
reporting threshold amount. The net long position reporting threshold
amount for any particular security will be as stated in the offering
announcement for that security. (See Sec. 356.10.) That amount will be
$1 billion for bills, and $2 billion for notes and bonds, unless
otherwise stated in the offering announcement. If the bidder either has
no position or has a net short position and the total of all of its
bids equals or exceeds the net long position reporting threshold
amount, e.g., $1 billion for bills and $2 billion for notes and bonds,
a net long position of zero must be reported. In cases where a bidder
that is required to report the amount of its net long position has more
than one bid, the bidder's total net long position should be reported
in connection with only one bid. A bidder that is a customer must
report its reportable net long position through only one depository
institution or dealer. (See Sec. 356.14(c).)
* * * * *
4. Appendix B, Section IV, Paragraph C is amended by revising the
note at the end of the paragraph to read as follows:
IV. Computation of Purchase Price, Discount Rate, and Investment Rate
(Coupon-Equivalent Yield) for Treasury Bills
* * * * *
C. Conversion of prices to discount rates for Treasury bills of
all maturities: * * *
Note: Prior to April 18, 1983, bills were sold in price-basis
auctions, in which discount rates calculated from prices were
rounded to three places, using normal rounding procedures. Since
that time, bills have been sold only on a discount rate basis.
Discount rates bid were submitted with two decimals, e.g., 5.32,
until 1997, when Treasury instituted a change to three decimal
bidding in minimum increments of .005 percent, e.g., 5.320 or 5.325.
* * * * *
Dated: April 29, 1997.
Gerald Murphy,
Fiscal Assistant Secretary.
[FR Doc. 97-11582 Filed 5-2-97; 8:45 am]
BILLING CODE 4810-39-M