[Federal Register Volume 62, Number 235 (Monday, December 8, 1997)]
[Proposed Rules]
[Pages 64528-64532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31953]
[[Page 64528]]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR 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)
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
includes changes necessary to make fungible stripped interest
components for Treasury inflation-indexed securities, which the
Department began issuing in January 1997. In addition, the proposed
amendment makes certain technical clarifications and conforming
changes.
DATES: Comments must be received on or before February 6, 1998.
ADDRESSES: 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. 20239-0001. Comments may also be sent via the
Internet to the Government Securities Regulations Staff at
[email protected]. When sending comments via 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.
This proposed amendment has also been made available for
downloading from Public Debt's web site at the following address:
www.publicdebt.treas.gov.
FOR FURTHER INFORMATION CONTACT: Ken Papaj (Director), Chuck Andreatta
or Kurt Eidemiller (Government Securities Specialists), Department of
the Treasury, Bureau of the Public Debt, Government Securities
Regulations Staff (202) 219-3632.
SUPPLEMENTARY INFORMATION:
I. Background
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
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\1\ The uniform offering circular was published as a final rule
on January 5, 1993 (58 FR 412). The circular, as amended, is
codified at 31 CFR Part 356.
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In January 1997, the Department began issuing a new type of
marketable security, referred to as a Treasury inflation-indexed
security,2 whose principal value is adjusted for inflation
as measured by the United States Government.3 The Department
believes the issuance of these new securities will reduce interest
costs to the Treasury over the long term and broaden the types of debt
instruments available to investors in U.S. financial markets.
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\2\ To date the Department has issued only inflation-indexed
notes. 31 CFR Part 356 also accommodates offerings of inflation-
indexed bonds, which the Department intends to begin issuing in
1998.
\3\ 62 FR 846 (January 6, 1997).
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A. Inflation-Indexed STRIPS
Inflation-indexed securities are eligible for the STRIPS (Separate
Trading of Registered Interest and Principal of Securities) program
immediately upon their issuance by the Treasury. STRIPS is the
Department's program under which eligible securities are authorized to
be separated into principal and interest components (interest
components are also referred to as ``TINTS''). Such components are
maintained in book-entry accounts, and transferred separately in the
Treasury/Reserve Automated Debt Entry System (``TRADES'' or the
commercial book-entry system). Unlike TINTS from fixed-principal
securities, interest components stripped from an inflation-indexed
security are currently not fungible (i.e., they are not
interchangeable) with interest components stripped from a different
inflation-indexed security, even if the components have the same
maturity (payment) date.4
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\4\ See 31 CFR 356.31(f).
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Making such stripped interest components fungible (i.e.,
interchangeable and having the same CUSIP number) is a more complicated
process than it is for fixed-principal interest components because of
the way in which inflation-indexed securities adjust for inflation.
Interest payments and the inflation-adjusted principal amount paid at
maturity are calculated based on the amount of inflation, as measured
by changes in the CPI,5 that has occurred since the original
issue date of the security.
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\5\ CPI refers to the non-seasonally adjusted U.S. City Average
All Items Consumer Price Index for All Urban Consumers published
monthly by the Bureau of Labor Statistics of the U.S. Department of
Labor.
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Although the CPI is announced monthly, a unique ``reference CPI''
can be calculated for any particular date using an interpolative
process described in Appendix B of the uniform offering
circular.6 Each inflation-indexed security has a unique
reference CPI value applicable to the security's original issue
date.7 This is the starting point for measuring inflation
for the period the security is outstanding. To calculate interest
payments or the principal value at maturity of an inflation-indexed
security, the par amount is adjusted for inflation by application of an
``index ratio,'' which is the ratio of the reference CPI applicable to
the interest payment or maturity date divided by the reference CPI
applicable to the original issue date. Stripped principal and interest
components with the same maturity date that are created from securities
with different issue dates have different index ratios at maturity.
This makes providing for fungibility of the interest components
somewhat complicated.
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\6\ See 31 CFR Part 356, Appendix B, Section I, Paragraph B, for
a detailed explanation of the indexing process and application of
the index ratio and reference CPI.
\7\ If the security's dated date is different from the original
issue date, then the reference CPI for the dated date is used. See
31 CFR 356.2 for the definition of dated date. This preamble
discussion assumes that the original issue date and the dated date
are the same and therefore uses only the term original issue date.
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Due to this complexity, inflation-indexed interest components were
not made fungible when the securities were first offered in January
1997. As a result, while the rules currently permit inflation-indexed
securities to be stripped into separate principal and interest
components, interest components from the outstanding 5-year and 10-year
inflation-indexed notes are not fungible even though some components
would have the same maturity (payment) date. In the preamble to the
final rule amendments to accommodate inflation-indexed securities, the
Department stated that it would ``continue to work on making interest
components fungible in a manner that is operationally
feasible.''8 The Department recognizes that making stripped
inflation-indexed interest components fungible is important to
[[Page 64529]]
developing a liquid market for these components.
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\8\ 62 FR 846, 848 (January 6, 1997).
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Over the last several months, the Department has worked with market
participants to develop a methodology that will enable interest
components stripped from different inflation-indexed securities to be
fungible. The Department requests comments from market participants on
the following proposed methodology and any related aspects of this
proposal. Specifically, comments are requested on any operational
issues, including the time needed to make any necessary automated
system changes, and the extent to which making inflation-indexed TINTS
fungible would help in the continued development of a liquid market for
inflation-indexed securities.
B. Proposed Methodology for Fungible Inflation-Indexed STRIPS
To make TINTS from different inflation-indexed securities fungible,
the TINTS would be converted to a common reference CPI value of 100.
This would be accomplished by calculating an ``adjusted value'' (see
sections 356.2 and 356.31(c) of the proposed rule). The adjusted value
of each TINT would be calculated by multiplying the par amount of the
inflation-indexed security to be stripped by the security's semiannual
interest rate, and then multiplying this amount by the ratio of 100
divided by the reference CPI for the security's original issue date.
For example, an inflation-indexed security with a par amount of $1
million, an interest rate of 3\1/2\%, and an issue-date reference CPI
of 162.00000 would have an adjustment factor for each TINT of $1
million x (0.035)/2 x (100/162), or $10,802.47. Inflation-indexed
TINTS would be maintained in accounts and transferred at their
``adjusted value.'' This is in contrast to stripped principal
components, which would be maintained and transferred at their par
amount.
All inflation-indexed TINTS with the same maturity date would have
the same CUSIP number, regardless of the underlying inflation-indexed
security from which the interest components were stripped. Such TINTS
would be considered to be the same security and would therefore be
fungible. Fungibility would apply to TINTS only; stripped principal
components would not be fungible. TINTS from inflation-indexed
securities would not be fungible with any interest components stripped
from fixed-principal securities.
By converting to adjusted values, all inflation-indexed TINTS
having the same maturity date would become fungible. They would be
bought and sold on the basis of their adjusted values, regardless of
the underlying security from which they were stripped. Similarly, for
purposes of reconstituting an inflation-indexed security from its
separate stripped unmatured interest and principal components, an
investor could obtain any needed TINTS at the adjusted value required
for the particular inflation-indexed security to be reconstituted. For
example, to reconstitute $1 million of an inflation-indexed security
with an interest rate of 3\1/2\% and an issue-date reference CPI of
162.00000, a holder would submit to the Federal Reserve Bank of New
York the principal component and all unmatured TINTS, each TINT having
an adjusted value of $1 million x (0.035)/2 x (100/162), or
$10,802.47.
When a TINT matures, its payment amount would be calculated by
multiplying the adjusted value by the reference CPI for the maturity
date, divided by 100. For example, for an adjusted value of $10,802.47
and a maturity-date reference CPI of 167.00000, the payment amount
would be $10,802.47 x (167/100), or $18,040.12. The end result is
that a holder of an inflation-indexed TINT stripped from a security of
a given par amount would receive, except for a possible slight
difference due to rounding procedures, a payment amount at maturity
that is the same as the interest payment received by a holder of a
fully-constituted security of the same par amount.9
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\9\ In this example, a holder of $1 million of the fully-
constituted security would receive an interest payment of
$18,040.05.
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C. Payment Differences
The possible difference in payment amount between a stripped
interest component and an interest payment from a fully-constituted
security results primarily from rounding the index ratio. The size of
the differences is a function of both the interest rate of the fully-
constituted security and the level of the CPI on the payment date.
These differences are quite small. For example, for an inflation-
indexed security with an interest (coupon) rate of 4% or less
10 and a reference CPI of 200 or less on the payment date,
the maximum payment difference per $1 million of par is $0.11 (higher
or lower). Over a range of securities offerings, these payment
differences generally would be revenue neutral--they would benefit
neither the Treasury nor STRIPS investors. Further, revising Treasury's
rounding conventions would require market participants and the
Department to modify their automated systems to accommodate this
change. Since the payment differences are de minimis and revenue
neutral, the costs of such systems changes would outweigh their
benefits. Therefore, the Department has determined not to change its
current rounding conventions to eliminate these differences.
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\10\ To date, the interest (coupon) rates on the two issues of
Treasury inflation-indexed notes have been 3\3/8\% and 3\5/8\%.
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D. Minimum and Multiple Amounts for Stripping
In order to make the calculation of adjusted values and payment
amounts for inflation-indexed TINTS as precise as possible, adjusted
values would be calculated--and transferred and maintained--to the
penny (e.g., $10,802.47). Therefore, in effect there would be no
required multiple amounts for inflation-indexed TINTS. This is in
contrast to fixed-principal TINTS, which must be transferred and
maintained in multiple amounts of $1,000. Some market participants that
plan to participate in the inflation-indexed STRIPS market might need
to modify their automated systems to accommodate holding Treasury
securities to the penny (i.e., to two decimal places).
The minimum par amount of a fully-constituted inflation-indexed
security that could be submitted to the Federal Reserve Bank of New
York for stripping would be $1,000, with any larger amounts in
multiples of $1,000. Except for the requirement that they be expressed
to the penny, there would be no required minimum adjusted value for the
resulting TINTS. This is in contrast to minimum and multiple stripping
requirements for fixed-principal securities, under which, for any given
interest rate, the fully-constituted security must be submitted in a
specific minimum and multiple par amount in order to produce TINTS that
are themselves in minimum and multiple amounts of $1,000.11
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\11\ 31 CFR Part 356, Exhibit C includes a table that provides,
for each interest rate from \1/8\% to 20%, the corresponding minimum
par amount of the fully-constituted security required to produce
TINTS that are in multiples of $1,000.
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No changes are being proposed at this time to the current STRIPS
program for fixed-principal securities. However, the Department will
consider at a later date the desirability of making changes to the
minimum and multiple requirements for fixed-principal TINTS similar to
the proposed requirements for inflation-indexed TINTS, i.e.,
discontinuing the $1,000 minimum-to-hold and multiple requirement, and
permitting fixed-principal TINTS to be held in amounts to the penny.
[[Page 64530]]
E. Index Contingencies
The CPI is expressed in relative terms in relation to a particular
time base reference period for which the level is set at 100. The
current CPI reference period is 1982-84. The Department understands
that, sometime during the next two years, the Bureau of Labor
Statistics (BLS) plans to rebase the CPI to a 1993-95 base period. Once
this new base period goes into effect, subsequent issuances of Treasury
inflation-indexed securities would be issued using the new base period.
In other words, the reference CPI of the original issue date will
reflect the new reference period and thus will generally be a lower
number than the issue-date reference CPIs of those inflation-indexed
securities issued prior to the effective date of the new base reference
period.
When this new reference period goes into effect, Treasury
understands that BLS will continue to publish CPI figures for the 1982-
84 base period as well as publish figures for the new 1993-95 base
period. Interest payments, and principal payments at maturity, for
unstripped inflation-indexed securities issued while the 1982-84 base
period was in effect will continue to be calculated using reference CPI
numbers derived from this base period.
Allowing inflation-indexed TINTS issued during one base reference
period to be fungible with those issued during other base reference
periods could enhance their liquidity. Fungibility could be achieved
through, for example, the use of a conversion factor that would, in
effect, transform the adjusted values of all inflation-indexed TINTS
with 1982-84 base-period reference CPIs to values based on the 1993-95
base period. However, such a process would likely result in additional
payment differences of a similar nature and magnitude as those
described previously. As was the case with those payment differences,
payment differences caused by the transformation of adjusted values to
a new base period would generally be revenue neutral over a range of
securities offerings. Since, for each rebasing, there would be a one-
time conversion for those outstanding inflation-indexed securities,
Treasury would provide this conversion factor to market participants so
that they could modify their systems accordingly. The CPI has been
rebased approximately every 10 years so, during the maturity period of
a 30-year inflation-indexed bond, rebasing could occur two or three
times. The Department solicits comment from market participants on
whether the benefits of increased supply, and thus additional
liquidity, of specific fungible inflation-indexed TINTS would justify
the cost and inconvenience of having additional small payment
discrepancies, possible automated system changes to accommodate a
conversion factor, and increased complexity of the rules.
A different index contingency would occur if the Treasury were to
replace the CPI with a different measure of inflation for the purpose
of indexing securities because the CPI was discontinued or
``fundamentally'' altered as described in the preamble to the final
rule amendment to accommodate inflation-indexed
securities.12 The Department is not aware of any plans to
discontinue or fundamentally change the CPI, but it is important for
market participants to understand the effect that such an event would
have on outstanding inflation-indexed securities. The Department has
determined that TINTS stripped from inflation-indexed securities issued
under different indices would not be fungible.
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\12\ 62 FR 846, 849 (January 6, 1997).
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F. Fungibility of TINTS Created Prior to Effective Date of Amendment
As of October 31, 1997, none of the currently outstanding
inflation-indexed securities has been stripped. If these securities
were to be stripped prior to the effective date of a final rule making
inflation-indexed TINTS fungible, the resulting TINTS would be
converted to fungible TINTS since it is the Department's goal, where
possible, to make all TINTS from inflation-indexed securities fungible.
Specifically, if a market participant decides to strip an inflation-
indexed security prior to the effective date for making STRIPS
fungible, Treasury will convert any outstanding inflation-indexed TINTS
by retiring them and issuing new fungible inflation-indexed TINTS. If
necessary, Treasury will provide public notice informing participants
of the effective conversion date. Also, detailed instructions regarding
the conversion to fungible STRIPS will be provided.
G. Taxation
There are no new tax issues related to making inflation-indexed
TINTS fungible. The tax treatment as noted in current 31 CFR 356.32
applies.
II. Section-by-Section Analysis
This proposed amendment, when finalized, would include the
necessary revisions to make fungible the stripped interest components
of marketable Treasury inflation-indexed securities. This rule would
amend sections 356.2 and 356.31 and add a new section IV to Appendix B
of the uniform offering circular.
A. Section 356.2--Definitions
The term adjusted value has been added to the listing of
definitions in Sec. 356.2. This term refers specifically to interest
components stripped from inflation-indexed securities.
B. Section 356.31--STRIPS
Changes have been made to Sec. 356.31 to reflect the STRIPS program
more completely. The section has been reorganized to distinguish more
clearly the features of fixed-principal STRIPS from inflation-indexed
STRIPS. Most of the significant modifications to this section have been
made in paragraph (c), which only discusses inflation-indexed
securities.
Specifically, new paragraph (c)(1) provides that the minimum and
multiple par amount of an inflation-indexed security that may be
stripped would be $1,000. New paragraph (c)(2), except for a revised
title, is essentially the same as current paragraph (e), since the
treatment of principal components stripped from inflation-indexed
securities does not change under this proposal. New paragraph (c)(3)
describes the calculation of the adjusted value for interest
components; clarifies that interest components stripped from inflation-
indexed securities would be maintained and transferred at their
adjusted value; describes the fungibility of these components; and
explains how the payment amount would be calculated from the adjusted
value. New paragraph (d), which discusses reconstitution, is
essentially the same as current paragraph (g) except that the sentence
stating that interest components stripped from inflation-indexed
securities are not interchangeable has been deleted. New paragraph (e)
is the same as current paragraph (h).
C. Appendix B to Part 356
A new Section IV has been added to Appendix B to provide the
formulas and an example for calculating the adjusted value and the
payment amount for inflation-indexed TINTS. The previous Section IV has
been renumbered as Section V.
D. Exhibit C to Part 356
The title of Exhibit C has been revised to indicate that the
exhibit, which contains minimum par amounts of securities for stripping
at various interest rates, applies only to fixed-principal STRIPS.
[[Page 64531]]
III. Procedural Requirements
This proposed rule 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 in 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,
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.
Dated: December 1, 1997.
Gerald Murphy,
Fiscal Assistant Secretary.
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 356.2 is amended by adding in alphabetical order the
definition of ``Adjusted value'' to read as follows:
Sec. 356.2 Definitions.
* * * * *
Adjusted value means, for an interest component stripped from an
inflation-indexed security, an amount derived by multiplying the
semiannual interest rate by the par amount and then multiplying this
value by 100 divided by the Reference CPI of the original issue date
(or dated date, when the dated date is different from the original
issue date). (See Appendix B, Section IV, to this part for an example
of how to calculate the adjusted value for interest components stripped
from an inflation-indexed security.)
* * * * *
3. Section 356.31 is revised to read as follows:
Sec. 356.31 STRIPS.
(a) General. A note or bond may be designated in the offering
announcement as eligible for the STRIPS program. At the option of the
holder, and generally at any time from its issue date until its call or
maturity, any such security may be ``stripped,'' i.e., divided into
separate principal and interest components. A short or long first
interest payment and all interest payments within a callable period are
not eligible to be stripped from the principal component. The CUSIP
numbers and payment dates for the principal and interest components are
provided in the offering announcement if not previously announced.
(b) Treasury fixed-principal securities--(1) Minimum par amounts
required for STRIPS. For a fixed-principal security to be stripped into
the components described above, the par amount of the security must be
in an amount that, based on its interest rate, will produce a
semiannual interest payment in a multiple of $1,000. Exhibit C to this
part provides the minimum par amounts required to strip a fixed-
principal security at various interest rates, as well as the
corresponding interest payments. Amounts greater than the minimum par
amount must be in multiples of that amount. The minimum par amount
required to strip a particular security will be provided in the press
release announcing the auction results.
(2) Principal components. Principal components stripped from fixed-
principal securities are maintained in accounts, and transferred, at
their par amount. The principal components have a CUSIP number that is
different from the CUSIP number of the fully-constituted (unstripped)
security.
(3) Interest components. Interest components stripped from fixed-
principal securities are maintained in accounts, and transferred, at
their original payment value, which is derived by applying the
semiannual interest rate to the par amount. When an interest component
is created, the interest payment date becomes the maturity date for the
component. All such components with the same maturity date have the
same CUSIP number, regardless of the underlying security from which the
interest payments were stripped. All interest components have CUSIP
numbers that are different from the CUSIP number of any fully-
constituted security and any principal component.
(c) Treasury inflation-indexed securities. (1) Minimum par amounts
required for STRIPS. The minimum par amount of an inflation-indexed
security that may be stripped into the components described in
paragraph (a) of this section is $1,000. Any par amount to be stripped
above $1,000 must be in a multiple of $1,000.
(2) Principal components. Principal components stripped from
inflation-indexed securities are maintained in accounts, and
transferred, at their par amount. At maturity, the holder will receive
the inflation-adjusted principal value or the par amount, whichever is
greater. (See Sec. 356.30.) The principal components have a CUSIP
number that is different from the CUSIP number of the fully-constituted
(unstripped) security.
(3) Interest components. Interest components stripped from
inflation-indexed securities are maintained in accounts, and
transferred, at their adjusted value, which is derived by multiplying
the semiannual interest rate by the par amount and then multiplying
this value by 100 divided by the Reference CPI of the original issue
date (or dated date, when the dated date is different from the original
issue date). See Appendix B, Section IV, to this part for an example of
how to calculate an adjusted value. When an interest component is
created, the interest payment date becomes the maturity date for the
component. All such components with the same maturity date have the
same CUSIP number, regardless of the underlying security from which the
interest payments were stripped. All interest components have CUSIP
numbers that are different from the CUSIP number of any fully-
constituted security and any principal component. At maturity, the
payment to the holder will be derived by multiplying the adjusted value
of the interest component by the Reference CPI of the maturity date,
divided by 100. See Appendix B, Section IV, to this part for an example
of how to calculate an actual payment amount from an adjusted value.
(d) Reconstituting a security. Stripped interest and principal
components may be reconstituted, i.e., restored to their fully-
constituted form. A principal component and all related unmatured
interest components, in the appropriate minimum or multiple amounts or
adjusted values, must be submitted together for reconstitution.
Interest components stripped from inflation-
[[Page 64532]]
indexed securities are different from interest components stripped
from fixed-principal securities and, accordingly, are not
interchangeable for reconstitution purposes.
(e) Applicable regulations. Unless otherwise provided in this part,
notes and bonds stripped into their STRIPS components are governed by
subparts A, B, and D of part 357 of this chapter.
4. Appendix B to part 356 is amended by revising the list of
section headings at the beginning of the appendix to read as follows:
Appendix B to Part 356--Formulas and Tables
I. Computation of Interest on Treasury Bonds and Notes.
II. Formulas for Conversion of Fixed-Principal Security Yields to
Equivalent Prices.
III. Formulas for Conversion of Inflation-Indexed Security Yields to
Equivalent Prices.
IV. Computation of Adjusted Values and Payment Amounts for Stripped
Inflation-Indexed Interest Components.
V. Computation of Purchase Price, Discount Rate, and Investment Rate
(Coupon-Equivalent Yield) for Treasury Bills.
* * * * *
5. Appendix B to Part 356 is amended by redesignating Section IV as
Section V and adding a new Section IV to read as follows:
* * * * *
IV. Computation of Adjusted Values and Payment Amounts for Stripped
Inflation-Indexed Interest Components
Note: Valuing an interest component stripped from an inflation-
indexed security at its adjusted value enables this interest
component to be interchangeable (fungible) with other interest
components that have the same maturity date, regardless of the
underlying inflation-indexed security from which the interest
components were stripped. The adjusted value provides for
fungibility of these various interest components when buying,
selling, or transferring them, or when reconstituting an inflation-
indexed security.
Definitions
C=the regular annual interest rate, payable semiannually, e.g.,
3.625% (the decimal equivalent of a 3-\5/8\% interest rate)
Par=par amount of the security to be stripped
Ref CPIIssue Date=reference CPI for the original issue
date (or dated date, when the dated date is different from the
original issue date) of the underlying (unstripped) security
Ref CPIDate=reference CPI for the maturity date of the
interest component
AV=adjusted value of the interest component
PA=payment amount at maturity by Treasury
Formulas
AV=Par (C/2)(100/Ref CPIIssue Date) (rounded to 2
decimals with no intermediate rounding)
PA=AV (Ref CPIDate/100) (rounded to 2 decimals with no
intermediate rounding)
Example. A 10-year inflation-indexed note paying 3\1/2\%
interest is issued on January 15, 1999, with the second interest
payment on January 15, 2000. The Ref CPI on January 15, 1999 (Ref
CPIIssue Date) is 174.62783, and the Ref CPI on January
15, 2000 (Ref CPIDate) is 179.86159. Calculate the
adjusted value and the payment amount at maturity of the interest
component.
Definitions
C=3.50%
Par=$1,000,000
Ref CPIIssue Date=174.62783
Ref CPIDate=179.86159
Resolution
For a par amount of $1 million, the adjusted value of each
stripped interest component is $1,000,000 (.035/2)(100/174.62783),
or $10,021.31 (no intermediate rounding).
For an interest component maturing on January 15, 2000, the
payment amount is $10,021.31 x (179.86159/100), or $18,024.49 (no
intermediate rounding).
* * * * *
6. Exhibit C to Part 356 is amended by revising the heading to read
as follows:
Exhibit C to Part 356--Minimum Par Amounts for Fixed-Principal
STRIPS
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[FR Doc. 97-31953 Filed 12-5-97; 8:45 am]
BILLING CODE 4810-39-P