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F ederal

reserve

Ba n k

of

Dallas

F IS C A L A G E N T O F T H E U N IT E D S T A T E S

DALLAS, TEXAS

75222
Circular No. 71-99
May 3, 1971

PROGRAM FOR FURTHER EXPANSION OF BOOK-ENTRY
PROCEDURE FOR TREASURY SECURITIES
To all banking institutions and others concerned
in the Eleventh Federal Reserve D istrict:
Last December plans were announced by the United States Treasury Department and the
Federal Reserve Banks for an accelerated program for the further expansion of the book-entry
procedure for Treasury securities. Since January 1, 1968, the book-entry procedure has been
applicable to Treasury securities owned by a member bank and held for its sole account at a Federal
Reserve Bank in lieu of the safekeeping of definitive securities; the procedure has also been appli­
cable to Treasury securities held at a Reserve Bank as collateral for advances by the Reserve Bank
or as collateral to Treasury Tax and Loan Accounts and related deposits. Over the years, the bookentry procedure has been expanded to apply to Treasury securities held in custody at Reserve Banks
for various other categories of safekeeping accounts, primarily governmental and foreign official
accounts. As of the end of 1970, over $100 billion in Treasury securities were held in book-entry
form at the Federal Reserve Banks. The rules and procedures governing book-entry accounts at
this Bank are set forth in this Bank’s Bulletin No. 7, “Custody of Securities”, and Fiscal Agency
Operating Circular No. 3, “Book-Entry Treasury Securities”.
As indicated in the plans announced last December, in connection with the emergence of a
problem of curtailed insurance coverage for Government securities, the present program for the
further expansion of the book-entry procedure involves its extension to include Treasury securities
held by member banks (a) for account of their customers, including customers which are nonbank
primary dealers in Government securities, and (b) as their “dealer” inventory in those cases in
which the bank is a primary dealer in Government securities. Since December, the Treasury, the
Internal Revenue Service, and the Federal Reserve Banks have adopted several changes in applicable
regulations and procedures to facilitate the implementation of that program. The purpose of this
letter is to report on such changes, and to advise you of the current status of the program and
plans for its further expansion.
In general, the program has involved two separate steps. The first step, which is now in effect,
provides for the extension of the book-entry procedure to Treasury securities owned by primary
dealers which are held either by bank dealers or by banks acting as clearing agents on behalf of
nonbank dealers, and which are cleared through the Government Securities Clearing Arrangement
at the Federal Reserve Bank of New York. To facilitate this step, the Treasury adopted amendments,
effective January 1, 1971, to Subpart 0 of Treasury Circular No. 300, “General Regulations with
Respect to U.S. Securities” (31 C.F.R. Part 306), and the Internal Revenue Service adopted changes
in the applicable Income Tax Regulations and Revenue Rulings (T.D. 7081, Rev. Rul. 71-15, Rev.
Rul. 71-21, all published in 1971 Internal Revenue Bulletin No. 3 at 16-18).
The next step in the program will be the extension of the book-entry procedure to securities
held by all member banks for account of their customers. In this connection, further changes have
recently been made in Subpart 0 of Treasury Circular No. 300 designed to facilitate the operation
of the extended book-entry procedure and its application to securities held by all member banks for
account of their customers. Such changes, together with the changes referred to above made by
the Treasury and the Internal Revenue Service since last December, are reflected in a new basic
revision of Subpart 0 and its Attachment relating to tax matters. Copies of the revised Subpart 0,
which became effective on April 7, 1971, together with a new Attachment, are enclosed. The revised
documents incorporate or reflect the following changes in the rules applicable to the book-entry
procedure:

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

(1) Provision is made for the extension of the book-entry procedure to securities
held by member banks for account of their customers.
(2) New rules are provided governing the transfer of book-entry securities, and the
effecting of pledges in such securities, on the books of a member bank or other “book-entry
custodian”.
(3) Subpart 0 has been restructured to classify different types of book-entry
accounts on the books of a Reserve Bank either as (a) accounts maintained by the Reserve
Bank acting solely as fiscal agent of the United States, or as (b) accounts maintained by
the Reserve Bank in a “dual capacity”, i.e., not only as fiscal agent of the United States
but also in its individual capacity.
(4) The applicable tax rules have been revised (a) to facilitate the extension of the
book-entry procedure to securities held by dealers in Government securities; (b) to liberal­
ize the identification requirements applicable to book-entry securities owned by member
banks and held for investment purposes; and (c) to establish similar rules for tax identi­
fication purposes with respect to book-entry securities held by banks for account of
their customers.
The Federal Reserve Banks are now preparing the detailed operating rules necessary to imple­
ment the extension of the book-entry procedure to securities held by all member banks for account
of their customers. It is contemplated that under such rules, it would be possible for every member
bank to open an additional book-entry account at its Federal Reserve Bank for customer securities.
In general, it is also contemplated that such securities would be held in a single account on the books
of the Reserve Bank in the name of the member bank, and the member bank would maintain the
records necessary to distinguish the ownership rights of its individual customers in such securities.
When the operating rules governing the opening of such accounts are completed, they will be
published in this Bank’s Bulletin No. 7 and Fiscal Agency Operating Circular No. 3. Until such
publication, the book-entry procedure for securities held for account of banks will continue to be
limited to the types of accounts outlined in the present Circulars, i.e., primarily securities owned
by a bank and held (a) in safekeeping, (b) as collateral for Reserve Bank advances, (c) as collateral
for Treasury Tax and Loan Accounts and related deposits, and (d) as collateral to secure deposits
in a member bank of public funds.
Pending the completion of the new Operating Circulars and the extension of the book-entry
procedure to securities of customers held at all member banks, technical amendments to this Bank’s
Bulletins No. 2 and No. 7, and Operating Circular No. 3 have been made in order to conform such
circulars to the recent changes in Subpart 0 relating to the capacity in which this Bank maintains
book-entry securities. Such amendments are set forth in the enclosed Supplements, dated May 3,
1971, to such Operating Circulars. (Bulletins No. 2 and 7 are not applicable to nonmember banks).
Until certain legal questions have been resolved in connection with the deposit of Treasury
securities held by member banks in trust accounts, it is not contemplated that such securities would
be deposited in book-entry accounts.
At this point, the book-entry procedure is applicable only to Treasury securities, pursuant to
the provisions of Treasury Circular No. 300. Studies are now in progress as to the application of
book-entry systems to securities issued by United States Government agencies and corporations.
We would welcome any comments or suggestions you may have with respect to our program
for the further expansion of the book-entry procedure. If you have any such comments or sug­
gestions, or if you have any questions regarding the program, the officers in charge of Fiscal
Agency activities at each of our offices will be pleased to review them with you.
Yours very truly,
P. E. Coldwell
President

FEDERAL RESERVE BANK
OF DALLAS
Fiscal A gent o f the U nited States

Paragraphs 1 and 2 of this Bank’s Fiscal
Agency Operating Circular No. 3, revised
September 1, 1969, are amended to provide as
follow s:
1. This circular contains information and
instructions relating to the general terms and
conditions governing the issuance and mainte­
nance by this Bank, as fiscal agent o f the United
States, of certain book-entry Treasury securi­
ties under Subpart O of Treasury Department
Circular N o. 300 (hereinafter “Subpart O ” ).
F or purposes of this circular, the term s
“ T reasu ry se cu rity ,” “d efin itiv e T reasu ry
security,” and “book-entry Treasury security”
shall have the meanings prescribed in Section
306.115 of Subpart O.
2. (a ) This Bank may apply the book-entry
procedure to Treasury bonds, notes, certificates
of indebtedness and bills issued under the
Second Liberty Bond Act ( “book-entry Treas­
ury securities” ) deposited in accounts main­
tained by this Bank, in its individual capacity,
and as to which this Bank, in its individual
capacity, is to con tin u e to m aintain such
deposit accounts, notwithstanding application of
the book-entry procedure to such securities.
Such accounts include, but are not limited to,
securities deposited:
(1 ) as collateral for advances by this Bank,
in its individual capacity;
(2 )

for the sole account o f a member bank
in this District (including both securi­
ties held by such member banks as
investments, and securities held as in­
ventory by member banks which are
dealers in such securities) ;

(3 ) as collateral to secure d ep osits in
member banks of public funds by a

Am endm ent No. 1
E ffective May 3, 1971
to
Fiscal A gency O perating Circular No. 3
D ated Septem ber 1, 1969

State, municipality, or other political
subdivision ;
( 4 ) pursuant to Section 61 of the Bank­
ruptcy Act (11 U .S.C . 101) in con­
nection with the deposit of bankruptcy
funds in commercial banks;
( 5 ) as collateral in connection with the
qualification of member banks to exer­
cise trust pow ers; and
(6 ) as collateral to secure deposits of trust
funds in commercial banking depart­
ments of member banks.
(b ) Under Section 306.117(b) of Sub­
part O, this Bank as Fiscal Agent of the United
States shall apply the book-entry procedure to
Treasury securities deposited with us as col­
lateral pledged to the United States under
Treasury Department Circulars No. 92 and No.
176, both as revised and amended, and may
apply the book-entry procedure, with the ap­
proval of the Secretary of the Treasury, to any
other Treasury securities deposited with us.
(c ) Subpart O also authorizes this Bank
to convert definitive Treasury securities to and
from book-entry Treasury securities, and under
Section 306.117(c) of Subpart O, any person
having an interest in Treasury securities which
are deposited with this Bank, in either its
individual capacity or as Fiscal Agent of the
United States, for any o f the purposes specified
in paragraph 2 (a ) hereof, shall be deemed to
have consented to their conversion to bookentry Treasury securities pursuant to the pro­
visions of Subpart O, and in the manner and
under the procedure prescribed by this Bank.
Book-entry Treasury securities are maintained
at our Head Office and at our El Paso, Houston,
and San Antonio Branches.

FEDERAL RESERVE BANK
OF DALLAS

Paragraphs 6 through 10 of Bulletin No. 7,
revised September 1, 1969, is amended to pro­
vide as follows:
TRANSFERABLE TREASURY SECURITIES —
BOOK-ENTRY SECURITIES

6.a. In accordance with Section 306.117(a)
of Subpart O of Treasury Department Circular
No. 300, this Bank as fiscal agent of the United
States may maintain Treasury bonds, notes,
certificates of indebtedness and bills issued
under the Second Liberty Bond Act by means
of entries on the records o f this Bank as such
fiscal agent ( “book-entry Treasury securities” )
when such Treasury securities are deposited in
accounts maintained by this Bank in its individ­
ual capacity and as to which securities this Bank
in its individual capacity is to continue to
maintain such deposits notwithstanding appli­
cation of the book-entry procedure to such
securities. Such accounts include, but are not
limited to, accounts in which Treasury securi­
ties are deposited (i) by member banks in this
District for their own account; (ii) as col­
lateral for advances by this Bank in its individ­
ual capacity; (iii) as collateral to secure
deposits in member banks of public funds by a
State, municipality, or other political subdivi­
sion; (iv ) pursuant to Section 61 of the Bank­
ruptcy Act (11 U .S.C . 101) in connection with
the deposit of bankruptcy funds in commercial
banks; (v ) as collateral in connection with the
qualification o f member banks to exercise trust
powers; or (v i) as collateral to secure deposits
o f trust funds in commercial banking depart­
ments of member banks. Section 306.117(a) of
Subpart O provides that such application o f
the book-entry procedure shall not derogate
from or adversely affect the relationships that
would otherwise exist between this Bank in its
individual capacity and its depositors.

Amendment No. 1
Effective May 3, 1971
to
Bulletin No. 7
Dated September 1, 1969

deposited in any of the aforesaid accounts or
any other account specified by this Bank for
application of the book-entry procedure under
Section 306.117(a) of Subpart O of Treasury
Department Circular No. 300, will be deemed
to have authorized this Bank to employ the
book-entry procedure under the provisions of
such section with respect to such Treasury
securities and to have consented to the con­
version of any such Treasury securities from
definitive to book-entry form.
c.
In connection with the application of the
book-entry procedure to Treasury securities
under the provisions of Section 306.117(a) of
Subpart O, it is understood that:
(1 ) The terms and conditions of this letter
and this Bank’s Fiscal Agency Operating Cir­
cular N o. 3 entitled “Book-Entry Treasury
Securities”, or in the event of a particular
agreement between this Bank and its depositor,
the terms and conditions of such agreement,
shall apply to such securities.
( 2 ) Advices of deposit and withdrawal with
respect to such Treasury securities should be
retained in some circumstances by the deposit­
ing banks or other parties in interest for Fed­
eral income tax purposes. (S ee attachment to
Subpart O ).

7.
Under Section 306.117(b) of Subpart O
of Treasury Department Circular No. 300, this
Bank, as fiscal agent of the United States, shall
apply the book-entry procedure to Treasury
securities deposited with this bank, as collateral
for balances in T reasu ry T a x and Loan
Accounts or for deposits of public monies under
Treasury Department Circular No. 92 or No.
176, respectively, and may also apply to bookentry procedure to T reasu ry secu rities d e­
posited in other accounts designated by this
b.
A n y bank or other d ep ositor w h ose B an k ; and such securities will be handled
Treasury securities are on deposit in any ac­
pursuant to such terms and conditions as may
count specified in paragraph (a ) above main­
be agreed upon between this Bank and the
tained by this Bank either in its individual
depositors of such securities. This Bank’s Fiscal
Agency Operating Circular No. 3, entitled
capacity or as fiscal agent on April 7, 1971,
and any person having an interest in Treasury
“Book-Entry Treasury Securities” applies to
such accounts.
securities which on or after such date are

FEDERAL RESERVE BANK OF DALLAS

BULLETIN 2

3.25 Renewal

Section 5, SECTION 13 ADVANCES

A borrowing bank wishing to renew an advance
should follow the same procedure necessary to
obtain an original advance (see section 5 and
section 6).

5.00 Description
We may make advances to a member bank,
pursuant to section 13 of the Act, for periods
not exceeding 90 days,* on the security of obliga­
tions of, or fully guaranteed by, the United
States or any agency of the United States (see
Supplement B). Also, we may make advances to
a member bank, pursuant to section 13 of the
Act, for periods not exceeding 90 days,* on the
security of any paper eligible for discount or for
purchase by the Reserve Banks under provisions
of the Act (eligible paper).

Section 4, PREREQUISITES FOR
BORROWING
4.00 Borrowing resolution
A certified copy of a resolution adopted by a
member bank’s board of directors authorizing
designated officers to execute agreements with
us and to borrow on its behalf from us must be
on file with us in order for any member bank to
obtain credit accommodations. Our Form BD-1
Rev. should be used for this purpose. Borrowing
resolutions filed with us remain in effect until
cancelled or superseded by a new resolution.

5.05 Borrowing request
In general, we do not require that a request for
an advance be accompanied by a written appli­
cation, and any such request may be made by
letter, wire, or telephone by an officer authorized
to borrow. However, we reserve the right to re­
quire the submission of a written application.
Each request for an advance must specify the
amount and maturity of the requested advance
and the collateral offered as security, and in the
event such collateral is not already held by us,
the manner in which such collateral will be
placed in our possession or under our control.

4.05 Filing of signatures
An officer authorized to borrow must have his
signature filed with this bank on a signature
card, Form AC-150, before he is authorized to
sign any documents in connection with borrow­
ing.
4.10 Continuing lending agreement

Reference: 4.05 of this bulletin.

In general, we will make advances to a member
bank pursuant to a continuing lending agree­
ment (our Form LD-176) to be executed by an
officer authorized to borrow; and particular ad­
vances p u rsu a n t to such agreem ent w ill be
evidenced by an advice of credit, transmitted to
the member bank at the time of the particular
advance, specifying the amount and maturity of
the advance. However, we reserve the right in
any case to require the execution by a member
bank of a promissory note with respect to a
particular advance. Such a note must be signed
by an officer authorized to borrow. The continu­
ing lending agreement remains in effect until
cancelled by either party by notice in writing
to the other; however, cancellation does not
affect loan transactions made previously.

5.10 Collateral security
Collateral offered as security for any advance,
in addition to meeting requirements of the con­
tinuing lending agreement, must be acceptable
to us; must be endorsed or assigned by the mem­
ber bank (except in the case of bearer paper];
and must be in such form, or accompanied by
such documents, that it may be readily trans­
ferred to us without further action by the mem­
ber bank.

Reference: 1.00 and sections 8 and 9 of this
bulletin.
*It is expected, however, that advances for adjustment
purposes normally will be for shorter periods com­
mensurate with the period of time Federal Reserve
credit is actually needed.

Reference: 1.50 and 4.05 of this bulletin.

3
5-3-71

BULLETIN 2

FEDERAL RESERVE BANK OF DALLAS

Long-term general obligation bonds, revenue
bonds, notes and warrants of any state or politi­
cal subdivision thereof (other than those referred
to in Supplement B).
In addition, when in our judgment circumstances
make it advisable, we may accept as security for
a section 10(b) advance any assets other than
those set forth above which we find acceptable.

5.15 Collateral must have adequate maturity
Collateral should not mature earlier than the
date on which the borrowing matures (except
collateral which is to be exchanged for similar
collateral, with our advance agreement, before
the maturity of the borrowing).
5.20 Release of collateral
Unless the borrowing bank requests otherwise,
we release collateral immediately following pay­
ment of the related borrowing. All paper held as
collateral will be returned to the borrowing
bank and securities will be held by us in safe­
keeping subject to the order of the borrowing
bank.

6.10 Procedure
Procedure for obtaining a section 10(b) advance
is identical to that for other advances (see sec­
tion 5). In addition, Form BD-29 should be sub­
mitted when the collateral is paper, secured or
unsecured.

Section 7, DISCOUNTS

5.25 Advances due on Saturdays, Sundays or
holidays

7.00 Description
We may discount customers’ paper of a member
bank pursuant to section 13 and 13(a) of the
Act, that meets the “eligibility” requirements set
forth in section 201.3 of Regulation A (eligible
paper). Banks have generally found it more con­
venient to use eligible paper as collateral for a
section 13 advance, rather than have it dis­
counted.
7.05 Procedure
Any member bank desiring to discount paper
with us, as indicated in 7.00 above, should con­
sult us regarding the procedure to be followed.

If an advance is agreed to fall due on one of
our nonbanking days, the due date will be
changed so that the advance will mature on our
next banking day.

Reference: Supplement A to Bulletin 1, contain­
ing our nonbanking days.

Section 6, SECTION 10(b) ADVANCES
6.00 Description
We may make advances to a member bank,
pursuant to section 10(b) of the Act, for periods
not to exceed four months,* secured to our satis­
faction, whether or not the collateral meets the
requirements of 5.00 above. However, the rate
on such advances must be at least one-half of
1 per cent higher than the highest rate applicable
to discounts of or advances on eligible paper.

Reference: section 9 for operating details with
respect to eligible paper.

Section 8, SECURITIES AS
COLLATERAL
8.00 Book-entry Treasury securities
In accordance with Section 306.117(a) of Subpart
O of Treasury Department Circular No. 300, this
bank, as fiscal agent of the United States, main­
tains as “book-entry Treasury securities,” trans­
ferable Treasury securities deposited as collat­
eral for advances by this bank. Notwithstanding
the application of the book-entry procedures,
this bank in its individual capacity shall con­

6:05 Collateral types
Among the types of collateral which may be
acceptable for a section 10(b) advance are those
listed below:
Paper which would be eligible except for its
maturity, at the unpaid principal amount.
Paper secured by stock and complying with
Regulation U, at the unpaid principal amount.
Obligations insured under Title I or Title II of
the National Housing Act, at the unpaid principal
amount.

*It is expected, however, that advances normally will be
for shorter periods commensurate with the period of
time Federal Reserve credit is actually needed.

4

BULLETIN 2

FEDERAL RESERVE BANK OF DALLAS

contacted at the custodian bank should be furn­
ished us in order that we may confirm that the
securities are held as collateral. The borrowing
bank should execute a Pledge Agreement Form
(LD-168X), though when necessary the agree­
ment may be obtained after the funds are ad­
vanced. W hen the secu rities are no longer
pledged, we will instruct the custodian bank to
release them and hold them in free safekeeping.
8.20 Simplified description in certain cases
W hen obligations pledged as co llateral are
regular bearer securities held in custody with us,
or book-entry Treasury securities on our books,
the borrowing bank need only advise us of the
description of the securities and the number of
the custody receipt or advice of deposit.

tinue to maintain appropriate accounts evidenc­
ing such deposits. Transferable Treasury securi­
ties on deposit or hereafter deposited for such
purpose will be converted into book-entry form
and maintained in a book-entry collateral ac­
count in accordance with the provisions of our
current Fiscal Agency Operating Circular No. 3,
“Book-Entry Treasury Securities,” and in such
event such securities will be handled pursuant
to the terms and conditions of that circular,
n o tw ith stan d in g any in c o n sisten t pro v isio n s
herein.
8.05 Registered securities
Registered U.S. securities should be accom­
panied by the appropriate Treasury Department
forms properly executed. In this connection,
reference should be made to Treasury Depart­
ment Form PD1004 (power of attorney), and
Treasury Department Form PD1010 (authorizing
resolution), and the instructions thereon. (The
authorizing resolution on Form PD1010 must be
in addition to the borrowing resolution referred
to in paragraph 4.00 of this bulletin.)
8.10 Securities held elsewhere
Under certain conditions, securities offered as
collateral may be held elsewhere than at this
bank and should be handled in the following
manner:
(1) If held by an approved custodian bank,
arrangements may be made for us to accept a
custody receipt (see 8.15 for procedure).
(2) If held in a correspondent bank in a Federal
Reserve office city outside this district, they may
be delivered to the Federal Reserve office in
that city. The procedure for this will be supplied
on request and should be initiated early in the
morning on the day the advance is needed.

Section 9, PAPER
9.00 Approval required
Paper submitted for discount or to secure an
advance should be listed on our Form BD-29 and
must be processed and approved by our Dis­
count Committee before credit can be granted.
However, credit for approved paper will be
granted as of the date the paper was received,
unless we are otherwise instructed. Many banks
find it convenient to submit paper for approval
in advance, with instructions for the approved
paper to be held in abeyance pending possible
use for borrowing.
9.05 Bankers’ acceptances
If a banker’s acceptance as drawn does not
clearly disclose the character of the underlying
transaction on its face, evidence of eligibility
may consist of a stamp or certificate affixed by
the acceptor in one of the following standard
certificate forms:
DOMESTIC SHIPMENTS
At time of acceptance, this bill was accompanied
by shipping documents evidencing the domestic
shipment of (name of commodity) from (point of
shipment) to (place of destination).

(3) In all other cases, the securities should be
delivered to us.
8.15 Securities held by an approved custodian
bank
Supplement C to this bulletin lists custodian
banks that have agreed to hold collateral for us.
The borrowing bank should telephone and in­
struct the custodian bank to hold the securities
subject to our order and for the account of the
borrowing bank. The name of the individual

(Name of Acceptor)
IMPORT AND EXPORT TRANSACTIONS
The transaction which gives rise to this instru­
ment is the (importation or exportation) of

5
5-3-71

BULLETIN 2

FEDERAL RESERVE BANK OF DALLAS

offered as collateral for an advance or for dis­
count, and such other reports and statements
as we may deem desirable.
9.25 Financial statements — originals or copies
Financial statements should be originals or
copies of originals held in the files of the bor­
rowing bank. Financial statements become the
property of this bank and are not returned;
th erefo re, w hen a b o rro w ing b an k subm its
original financial statements, it should retain
copies for its files. If copies (other than photo­
copies) are furnished, they should bear the fol­
lowing certification signed by an officer author­
ized to borrow:

(name of commodity) from (point of shipment)
to (place of destination).
(Name of Acceptor)
WAREHOUSE SECURED CREDIT
This bill was secured at the time of acceptance
by independent warehouse, terminal, or other
similar receipt conveying security title to (name
of readily marketable staple) stored in (country
where stored).
(Name of Acceptor)
9.10 Collection of paper

This is a true copy of the original signed *
1
financial statement held in our files.

Paper which has been discounted or pledged as
collateral will be furnished to the borrowing
bank, in trust, ten days in advance of maturity
to p erm it co llection (see also 3.20 of this
bulletin).
9.15 Demand paper
Eligible paper in the form of demand notes is
acceptable for discount or to secure advances.
However, demand paper cannot be accepted if
offered more than a reasonable time after issue,
if dishonored after demand for payment, or if
otherwise overdue. Subject to the above restric­
tions, or unless limited by facts which establish
an earlier payment date:
(1) Commercial or industrial demand paper may
be accepted for periods up to 90 days from the
date of pledge or discount.
(2) A g ricu ltu ral dem and p ap er m ay be d is­
counted for periods up to 9 months, or accepted
as collateral to a borrowing bank’s note having
a maturity not in excess of 90 days.

9.30 Form of financial statements, forms
available
Financial statements need not be in any special
form but should consist of a complete and
reasonably detailed balance sheet, profit and
loss statement, and reconciliation of net worth.
We may request additional information when
deemed desirable for a better understanding of
the financial condition and operation of the
obligor. We have p rep are d th ree form s for
optional use by member banks in this connec­
tion, and we supply them free of charge to
member banks. They are:
Form C-5, financial statement for farmers and
ranchers.
Form C-6, financial statement for commercial
borrowers.
Form C-7, for comparative posting of five years
of financial data on the borrower.

9.20 Financial statements
In connection with any advance or discount,
financial statements, including complete sched­
ules of important items, must be submitted with
all commercial or industrial paper regardless of
amount and should be submitted with agricul­
tural paper in the amount of $1,000 or over.
Financial statements of endorsers or guarantors,
if any, should also be submitted. We reserve the
right to require a recent balance sheet and profit
and loss statement of any obligor on paper

9.35 Endorsement
Paper may be endorsed by the use of an allonge
so firmly affixed as to become a part of the
instrument. Affixing the allonge by glue will
m eet this te st; how ever, the use of pins,
staples, paper clips, or various forms of tape
will not comply.
9.40 Insurance
When applicable, insurance policies covering
collateral should accompany paper and should

6

GENERAL REGULATIONS WITH RESPECT TO UNITED STATES SECURITIES
1971
First Supplement to
Department Circular No. 300
Third Revision
dated December 2 3 , 196 ^,
as amended

TREASURY DEPARTMENT
Washington, April 7> 1971

Fiscal Service
Bureau of the Public Debt
Subpart 0 of Treasury Department Circular No. 3005 Third Revision,
dated December 2 3 , 19^^, as amended (31 CFR Part 3 0 6 ) is hereby revised
,
and issued in its entirety as a supplement as follows:
SUBPART 0--BOOK-ENTRY PROCEDURE
Sec. 3 0 6 .II5 . Definition of terms.
In this subpart, unless the context otherwise requires or indicates:
(a) "Reserve Bank” means a Federal Reserve Bank and its branches
acting as Fiscal Agent of the United States and when indicated acting in
its individual capacity.
(b) "Treasury security" means a Treasury bond, note, certificate of
indebtedness, or bill issued under the Second Liberty Bond Act, as amended,
in the form of a definitive Treasury security or a book-entry Treasury
security.
(c) "Definitive Treasury security" means a Treasury bond, note,
certificate of indebtedness, or bill issued under the Second Liberty Bond
Act, as amended, in engraved or printed form.
(d) "Book-entry Treasury security" means a Treasury bond, note,
certificate of indebtedness, or bill issued under the Second Liberty Bond
Act, as amended, in the form of an entry made as prescribed in this sub­
part on the records of a Reserve Bank.
(e) "Pledge" includes a pledge of, or anyother security interest
in. Treasury securities as collateral for loans or advances or to secure
deposits of public monies or the performance of an obligation.

(f) "Date of call" (see Sec. 306.2) is "the date fixed in the
official notice of call published in the Federal Register * * * on which
the obligor will make payment of the security before maturity in accord­
ance with its terms •"
(g) "Member bank" means any national bank, State bank or bank or
trust corbpany which is a member of a Reserve Bank.
(h) "Book-entry custodian" means a bank, banking institution, finan­
cial firm, or similar party, which (l) regularly accepts in the course of
its business Treasury securities as a custodial service for customers,
(2 ) maintains accounts in the name of such customers reflecting ownership
of or interest in such securities which are deposited in a book-entry
account under Sec. 306.117(a)(3) of this subpart with such customers1
consent, and (3 ) complies with the procedures and conditions for maintain­
ing such accounts prescribed by the Reserve Bank maintaining such bookentry Treasury securities.
Sec.

306.116.

Authority of Reserve Banks.

Each Reserve Bank is hereby authorized, in accordance with the pro­
visions of this subpart, to (a) issue book-entry Treasury securities by
means of entries on its records which shall include the name of the
depositor, the amount, the loan title (or series) and maturity date; (b)
effect conversions between book-entry Treasury securities and definitive
Treasury securities; (c) otherwise service and maintain book-entry Treasury
securities; and (d) issue a confirmation of transaction in the form of a
written advice (serially numbered or otherwise) which specifies the amount
and description of any securities, that is, loan title (or series) and
maturity date, sold or transferred and the date of the transaction.
Sec. 306.117.

Scope and effect of book-entry procedure.

(a)
A Reserve Bank as Fiscal Agent of the United States may apply
the book-entry procedure provided for in this subpart to any Treasury
securities which have been or are hereafter deposited for any purpose in
accounts with it in its individual capacity under terms and conditions which
indicate that the Reserve Bank will continue to maintain such deposit
accounts in its individual capacity, notwithstanding application of the
book-entry procedure to such securities. This paragraph is applicable,
but not limited, to securities deposited: 1 /

1/

See the Attachment to this subpart for rules of identification of
book-entry securities for Federal income tax purposes.

-

2

-

(1) as collateral pledged to a Reserve Bank (in its indivi­
dual capacity)for advances by it;
(2)

by

a member bank for its sole

account;

(3)

by

a member bank held for the

account ofits

customers;

(j) in
Iconnection with deposits in a memberbank offundsof
States, municipalities, or other political subdivisions; or,
(5 )
in connection with the performance of an obligation or
duty under Federal, State, municipal, or local law, or judgments or
decrees of courts.

The application of the book-entry procedure under this paragraph shall
not derogate from or adversely affect the relationships that would other­
wise exist between a Reserve Bank in its individual capacity and its deposi­
tors concerning any deposits under this paragraph. Whenever the book-entry
procedure is applied to such Treasury securities, the Reserve Bank is
authorized to take all action necessary in respect of the book**entry pro­
cedure to enable such Reserve Bank in its individual capacity to perform its
obligations as depositary with respect to such Treasury securities.
(b) A Reserve Bank as Fiscal Agent of the United States shall apply
the book-entry procedure to Treasury securities deposited as collateral
pledged to the United States under Treasury Department Circulars No. 92
and 1 7 6 , both as revised and amended, and may apply the book-entry pro­
cedure, with the approval of the Secretary of the Treasury, to any other
Treasury securities deposited with a Reserve Bank as Fiscal Agent of the
United States.
(c) Any person having an interest in Treasury securities which are
deposited with a Reserve Bank (in either its individual capacity or as
Fiscal Agent) for any purpose shall be deemed to have consented to their
conversion to book-entry Treasury securities pursuant to the provisions
of this subpart, and in the manner and under the procedures prescribed by
the Reserve Bank.
(d) No deposits shall be accepted under this section on or after
the date of maturity or call of the securities.
Sec.

3 0 6 .II8 . Pledges.

(a) (l) A pledge of book-entry Treasury securities maintained under
Sec. 306.117 is effected, notwithstanding any provision of law to the

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contrary, by a Reserve Bank making an appropriate entry in its records
of the amount of the securities pledged.

(2)
In addition, a pledge of transferable book-entry Treasur
securities maintained under Sec. 306.117(a)(3)? or under any other pro­
vision of Sec. 306.117 to the extent and in the manner provided under
procedures prescribed by the Reserve Bank maintaining the book-entry
Treasury securities, may be effected by (i) the making of appropriate
entries on the books of a member bank or other book-entry custodian which
evidence that such Treasury securities are held by it for the account of
the pledgee, and (ii) issuance by such member bank or book-entry custodian
of an advice directed to the pledgee reflecting such entries and acknowledg­
ing such holding.
(b) The making of such entries under subsection (a) of this section,
and issuance of any required advice as provided for in subsection (a)(2 )
of this section, (i) shall have the effect of a delivery of definitive
Treasury securities in bearer form in the amount of the obligations pledged;
(ii) shall have the effect of a taking of delivery by the pledgee; (iii)
shall effect a perfected security interest therein in favor of the pledgee;
and (iv) shall constitute such pledgee a holder.
(c) No filing or recording with a public recording office or officer
shall be necessary to perfect any pledge in any book-entry Treasury securi­
ties under this subpart.
(d) A Reserve Bank shall, upon receipt of appropriate instructions,
convert book-entry Treasury securities into definitive Treasury securities
and deliver them to its depositor; and the pledge interest of the pledgee
in such book-entry Treasury securities prior to conversion to definitive
securities shall continue without interruption to be fully effective with
respect to such definitive securities.
Sec. 3 0 6 . H 9 . Limitations on transfers or pledges.
Except as provided in this subpart, book-entry Treasury securities
may not be assigned, transferred, hypothecated, pledged as collateral, or
used as security for the performance of an obligation.
Sec. 306.120.

Withdrawals and transfers.

(a) (l) Withdrawals and transfers of book-entry Treasury securities
may be made upon a depositor of a Reserve Bank requesting (i) delivery of
like definitive Treasury securities to itself or on its order to a trans­
feree, or (ii) transfer to any transferee eligible to maintain a bookentry account in its name with a Reserve Bank under Sec. 306.117.

- 4 -

(2)
In addition, a transfer of transferable book-entry Treasur
securities maintained under Sec. 306.117(a)(3) may be effected, by (i)
the making of appropriate entries on the books of a member bank or other
book-entry custodian which evidence that such Treasury securities are held
by it for account of the transferee, and (ii) issuance by such member bank
or book-entry custodian of an advice directed to the transferee reflect­
ing such entries and acknowledging such holding.
(b) The tra n s fe r o f a b o o k-e n try Treasury s e c u r ity as provided in
t h is sec tio n s h a ll have the same e f f e c t as a d e liv e r y to th e tra n s fe re e
o f d e f i n it i v e Treasury s e c u r itie s in b earer form . The tr a n s fe r o f booke n try Treasury s e c u r itie s w ith in a Reserve Bank w i l l be made in accord­
ance w ith procedures e s ta b lis h e d by th e l a t t e r not in c o n s is te n t w ith t h is
subpart. The tr a n s fe r o f b o o k-e n try Treasury s e c u r itie s between Reserve
Banks may be made through a te le g ra p h ic t r a n s fe r procedure.

(c) All requests for withdrawal or for transfer must be made prior
to the maturity or date of call of the securities. Treasury bonds and
notes which are actually to be delivered upon withdrawal or transfer may
be issued either in registered or in bearer form, except that EA and E0
series of Treasury notes will be issued in bearer form only.
Sec. 306.121.

Delivery of Treasury securities.

A Reserve Bank s h a ll be f u l l y discharged o f i t s o b lig a tio n s under
t h is subpart by th e d e liv e r y o f Treasury s e c u r itie s in d e f i n it i v e form to
i t s d ep o sito r or upon the order o f such d e p o s ito r. Customers o f a member
bank or o th er b o o k-e n try custodian may re c e iv e Treasury s e c u r itie s in
d e f i n it i v e form o n ly by making an a p p ro p ria te demand to such member bank
or b o o k-e n try custod ian .

Sec. 306.122.

Registered bonds and notes.

No formal assignment shall be required for the conversion to bookentry Treasury securities of registered Treasury securities held by a
Reserve Bank (in either its individual capacity or as Fiscal Agent) on
the effective date of this subpart for any purpose specified in Sec.
306.117(a). Registered Treasury securities deposited thereafter with a
Reserve Bank for any purpose specified in Sec. 306.117 shall be assigned
for conversion to book-entry Treasury securities. The assignment, which
shall be executed in accordance with the provisions of Subpart F of the
regulations in this part, so far as applicable, shall be to "Federal
Reserve Bank o f ____________, as F is c a l Agent o f the U n ite d S ta te s , f o r

conversion to book-entry Treasury securities."

- 5 -

Sec. 3 0 6 . 2 3 . Servicing book-entry Treasury securities; payment
1
of interest, payment at maturity,or upon call.
Interest becoming due on book-entry Treasury securities shall be charged
in the Treasurer's account on the interest due date and remitted or credited
in accordance with the depositor's instructions. Such securities shall be
redeemed and charged in the Treasurer's account on the date of maturity,
call or advance refunding, and the redemption proceeds, principal and
interest, shall be disposed of in accordance with the depositor's instruc­
tions .

JOHN K. CAKLOCK
Fiscal Assistant Secretary
of the Treasury.

-

6 -

ATTACHMENT
SUBPART 0— BOOK-ENTRY PROCEDURE
TREASURY DEPARTMENT CIRCULAR NO. 300
THIRD REVISION, SIXTH AMENDMENT

Records for Federal Income Tax Purposes
There are attached three documents in connection
with the book-entry procedure which simplify record­
keeping for Federal income tax purposes.
They apply to
transferable Treasury bonds, notes, certificates of
indebtedness or bills issued under the Second Liberty
Bond Act, as amended, and to "any other security of the
United States."
The quoted term is defined to include
a bond, note, certificate of indebtedness, bill, deben­
ture or similar obligation which is subject to the
provisions of 31 CFR, Part 306, or other comparable
Federal regulations and which is issued by any depart­
ment or agency of the Government of the United States,
or the Federal National Mortgage Association, the
Federal Home Loan Banks, the Federal Land Banks, the
Federal Intermediate Credit Banks , the Banks for
Cooperatives, or the Tennessee Valley Authority.
The three documents are:
(1) The substance of Treasury Department Decision
708l, published in the Federal Register on December 31,
1970;
(2) Revenue Ruling 71-21, published in Internal
Revenue Bulletin 1971-3, dated January 18, 1971; and
(3) Revenue Ruling 71-lb * published in Internal
Revenue Bulletin 1971-3, dated January 18, 1971*
The first document modifies the tax identification
rules regarding the determination of basis and holding
period of securities held as investments.
It applies

- 7 -

to th e s a l e or t r a n s f e r o f b o o k - e n t r y s e c u r i t i e s p u r s u a n t
t o a w r i t t e n i n s t r u c t i o n by a t a x p a y e r .
I t perm its the
t a x p a y e r i n i t s w r i t t e n i n s t r u c t i o n t o i t s bank o r o t h e r
b o o k - e n t r y c u s t o d i a n , w i t h r e g a r d to t h e s a l e or t r a n s f e r ,
t o i d e n t i f y t h e s e c u r i t i e s b e i n g s o l d o r t r a n s f e r r e d by
s p e c i f y i n g t h e u n iq u e l o t num ber w h i c h he has a s s i g n e d t o
t h e l o t c o n t a i n i n g them.
The t a x p a y e r may make t h e s p e c i f i c a t i o n e i t h e r - ( a ) i n t h e w r i t t e n i n s t r u c t i o n , o r ( b ) i n t h e case o f a
t a x p a y e r h a v in g a b o o k - e n t r y account a t a R eserve Bank,
i n a l i s t o f l o t num bers w i t h r e s p e c t t o a l l b o o k - e n t r y
s e c u r i t i e s on t h e books o f t h e R e s e r v e Bank s o l d o r t r a n s ­
f e r r e d by h i m on t h a t d a t e , p r o v i d e d t h e l i s t i s m a i l e d t o
o r r e c e i v e d by t h e R e s e r v e Bank on o r b e f o r e t h e l a t t e r f s
next business day.
T h e s e p r o v i s i o n s a p p ly o n ly i f t h e t a x p a y e r a s s i g n s
l o t numbers i n n u m e r i c a l s e q u e n c e t o s u c c e s s i v e p u r c h a s e s
o f s e c u r i t i e s i n t h e same l o a n t i t l e ( s e r i e s ) and m a t u r i t y
d a t e , e x c e p t t h a t s e c u r i t i e s o f t h e same l o a n t i t l e ( s e r i e s )
and m a t u r i t y d a t e w h i c h a r e p u r c h a s e d a t t h e same p r i c e on
t h e same d a t e may be i n c l u d e d w i t h i n t h e same l o t .
The w r i t t e n a d v i c e o f t r a n s a c t i o n f u r n i s h e d t o t h e
t a x p a y e r by t h e R e s e r v e B a n k , o r by t h e c u s t o m e r ’ s b a n k
o r o t h e r b o o k - e n t r y c u s t o d i a n , w h i c h s p e c i f i e s t h e am ount
and t h e d e s c r i p t i o n o f t h e s e c u r i t i e s s o l d o r t r a n s f e r r e d
and t h e d a t e o f t h e t r a n s a c t i o n i s s u f f i c i e n t c o n f i r m a t i o n .
The R e s e r v e Bank n e e d n o t u s e o r r e f e r t o t h e l o t n u m b e r .
The s e c o n d doc ument c o n c e r n s an o wne r o f s e c u r i t i e s
who has a s s i g n e d s e q u e n t i a l num bers t o h i s s u c c e s s i v e p u r ­
chases.
The owner r e t a i n s f u l l i n t e r e s t i n t h e s e c u r i t i e s
b u t t r a n s f e r s t he m t o a b a n k w h i c h has a b o o k - e n t r y a c c o u n t
w i t h a Reserve Bank, or t o a n o t h e r b o o k - e n t r y c u s t o d ia n
w h i c h t r a n s f e r s t he m t o a b a n k w h i c h has a b o o k - e n t r y
acc o u n t w i t h a R e s e r v e Bank.
When a t a l a t e r d a t e t h e b a n k i n s t r u c t s t h e R e s e r v e
Bank t o s e l l o r t r a n s f e r s e c u r i t i e s h e l d i n boo k e n t r y f o r
i t s c u s t o m e r , t h e bank need n o t r e f e r t o t h e s e q u e n t i a l
num ber w h i c h h a d b e e n a s s i g n e d on t h e o w n e r ’ s b o o k s .

-

8

-

The t a x i d e n t i f i c a t i o n r e q u i r e m e n t s a r e s a t i s f i e d
i f t h e o w n e r ’ s w r i t t e n i n s t r u c t i o n t o h i s bank or b o o k en try custodian s u f f i c i e n t l y i d e n t i f i e s the s e c u r it ie s to
be s o l d o r t r a n s f e r r e d and r e f e r s t o t h e l o t num ber a s ­
s i g n e d t o t he m i n t h e o w n e r ' s b o o k s .
The b a n k ' s i n s t r u c ­
t i o n t o t h e R e s e r v e Bank w i l l n o t r e f e r t o l o t n u m b e r s ;
t h e R e s e r v e Bank w i l l c o n f i r m t h e s a l e t o t h e b a n k i n t h e
manne r i t deems a p p r o p r i a t e .
The member b a n k w i l l c o n f i r m
t h e s a l e o r t r a n s f e r t o i t s c u s t o m e r by f u r n i s h i n g a
w r i t t e n a d v i c e o f t r a n s a c t i o n s p e c i f y i n g t h e am ount and
d e s c r i p t i o n o f t h e s e c u r i t i e s s o l d and t h e d a t e o f s a l e .
The c o n f i r m a t i o n n e e d n o t r e f e r t o l o t n u m be r .
T h i s document a l s o p e r m i t s s u b s t a n t i a l l y t h e same
k i n d o f i d e n t i f i c a t i o n and c o n f i r m a t i o n p r o c e d u r e s when
s e c u r i t i e s a r e p u r c h a s e d th ro u g h t h e b o o k - e n t r y a c c o u n t
f o r th e b an k 's customers.
The t h i r d doc ument p r o v i d e s t h a t a d e a l e r , who
p r o p e r ly holds s e c u r i t i e s in in v e n to r y in accordance w ith
s e c t i o n 1.U71-5 o f t h e I nc o me Tax R e g u l a t i o n s and p r o p o s e s
t o t r a n s f e r t he m t o a b o o k - e n t r y s y s t e m i n a R e s e r v e B a n k ,
w i l l c o n t i n u e t o m a i n t a i n h i s boo ks and r e c o r d s f o r
F e d e r a l i n c o m e t a x p u r p o s e s w i t h r e s p e c t t o such s e c u r i t i e s
i n a c c o r d a n c e w i t h s e c t i o n l . i + 7 1 - 5 o f t h e r e g u l a t i o n s and
not s e c tio n 1 .1 0 1 2 -1 o f the r e g u l a t io n s .

- 9 -

The substantive portion of T.D. 708l, approved December 26, 1970,
reads as follows:
TITLE 26— INTERNAL REVENUE
CHAPTER I— INTERNAL REVENUE SERVICE,
DEPARTMENT OF THE TREASURY
SUBCHAPTER A— INCOME TAX
PART 1— INCOME TAX;TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953
Identification of Federal Book-Entry securities
In order to modify the identification rules for purposes of
determining basis and holding period of property in the case of
certain Federal securities, paragraph (c)(7) of Sec. 1.1012-1 of
the Income Tax Regulations (26 CFR Part l) is amended to read as
follows:
Sec. 1.1012-1
*

Basis of property.
*

*

*

(c)

Sale of stock. * * *

(7)

*

Book-entry securities.

(i)
In applying the provisions of subparagraph (3)(i)(a)
of this paragraph in the case of a sale or transfer of a bookentry security (as defined in subdivision (iii)(a) of this sub­
paragraph) which is made after December 31> 1970, pursuant to a
written instruction by the taxpayer, a specification by the tax­
payer of the unique lot number which he has assigned to the lot
which contains the securities being sold or transferred shall
constitute specification as required by such subparagraph. The
specification of the lot number shall be made either—
(a)

In such written instruction, or

(b) In the case of a taxpayer in whose name the book entry
by the Reserve Bank is made, in a list of lot numbers with repect to all book-entry securities on the books of the Reserve
Bank sold or transferred on that date by the taxpayer, pro­
vided such list is mailed to or received by the Reserve Bank on
or before the Reserve Bank*s next business day.
This subdivision shall apply only if the taxpayer assigns lot
numbers in numerical sequence to successive purchases of securi­
ties of the same loan title (series) and maturity date, except

-

10

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that securities of the same loan title (series) and maturity
date which are purchased at the same price on the same date
may be included within the same lot.
(ii) In applying the provisions of subparagraph (3)(i)
(b) of this paragraph in the case of a sale or transfer of a
book-entry security which is made pursuant to a written in­
struction by the taxpayer, a confirmation as required by such
subparagraph shall be deemed made by—
(a) In the case of a sale or transfer made after
December 31> 1970, the furnishing to the taxpayer of a written
advice of transaction, by the Reserve Bank or the person through
whom the taxpayer sells or transfers the securities, which speci­
fies the amount and description of the securities sold or trans­
ferred and the date of the transaction, or
(b) In the case of a sale or transfer made before January 1,
1971j the furnishing of a serially numbered advice of transaction
by a Reserve Bank.
(iii)
(a)

For purposes of this subparagraph:
The term "book-entry security" means—

(1) In the case of a sale or transfer made after December 31?
1970, a transferable Treasury bond, note, certificate of indebt­
edness. or bill issued under the Second Liberty Bond Act (31 U.S.C.
77^(2)), as amended, or other security of the United States (as
defined in (b) of this subdivision (iii)) in the form of an entry
made as prescribed in 31 CFR Part 306, or other comparable Federal
regulations, on the records of a Reserve Bank, or
(2) In the case of a sale or transfer made before January 1,
19715 a transferable Treasury bond, note, certificate of indebt­
edness, or bill issued under the Second Liberty Bond Act, as
amended, in the form of an entry made as prescribed in 31 CFR
Part 306, Subpart 0, on the records of a Reserve Bank which is
deposited in an account with a Reserve Bank ( i ) as collateral
pledged to a Reserve Bank (in its individual capacity) for
advances by it, ( i ) as collateral pledged to the United States
i_
under Treasury Department Circular No. 92 or 176, both as re­
vised and amended, (iii) by a member bank of the Federal Reserve
System for its sole account for safekeeping by a Reserve Bank in
its individual capacity, (iv) in lieu of a surety or sureties
upon the bond required by section 6l of the Bankruptcy Act, as
amended (11 U.S.C. 101), of a banking institution designated by
a judge of one of the several courts of bankruptcy under such
section as a depository for the moneys of a bankrupt*s estate,

- 11 -

(v) pursuant to 6 U.S.C. 15, in lieu of a surety or sureties
required in connection with any recognizance, stipulation,
bond, guaranty, or undertaking which must be furnished under
any law of the United States or regulations made pursuant
thereto, (vi) by a banking institution,pursuant to a State or
local law, to secure the deposit in such banking institution
of public funds by a State, municipality, or other political
subdivision, (
vii) by a State bank or trust company or a
national bank, pursuant to a State or local law, to secure
the faithful performance of trust or other fiduciary obliga­
tions by such State bank or trust company or national bank,
or (viii) to secure funds which are deposited or held in trust
by a State bank or trust company or a national bank and are
awaiting investment, but which are used by such State bank or
trust company or nationalbank in the conduct of its business;
(b) The term "othersecurity of the United States" means
a bond, note, certificate of indebtedness, bill, debenture, or
similar obligation which is subject to the provisions of 31 CFR
Part 306 or other comparable Federal regulations and which is
issued by
(1) any department or agency ofthe Government of the
United States, or
(2) the Federal National Mortgage Association, the Federal
Home Loan Banks, the Federal Land Banks, the Federal Intermediate
Credit Banks, the Banks for Cooperatives, or the Tennessee Valley
Authority;
( _ The term "serially-numbered advice of transaction"
c)
means the confirmation (prescribed in 31 CFR 3 0 6 .II6 ) issued
by the Reserve Bank which is identifiable by a unique number
and indicates that a particular written instruction to the
Reserve Bank with respect to the deposit or withdrawal of a spec!
fied book-entry security (or securities) has been executed; and
(d)
The term "Reserve Bank" means a Federal Reserve Bank
and its branches acting as Fiscal Agent of the United States.
*

*

*

*

-

12

-

*

SECTION 1012.— BASIS OF PROPERTY— COST
26 CFR 1.1012.1:

Basis of property.

Rev. Rul. 71-21^/

A taxpayer owns as investments Treasury securities and certain other
securities described in the new section 1 .
1012 -1 (c)(7 )(iii)(a) of the
Income Tax Regulations. The taxpayer owner will assign a lot number to
the securities in his books. The numbers will be assigned in numerical
sequence to successive purchases of the same loan title (series) and
maturity date, except that securities of the same loan title (series)
and maturity date which are purchased at the same price on the same date
may be included in the same lot.
The owner proposes to retain full interest in the securities but he
will transfer possession of them to a bank. That bank will not keep
records of the securities by use of the above-described lot numbers. The
bank will also take possession of like securities for other taxpayers.
The bank will transfer all of these securities toa book-entry
system of a Federal Reserve Bank. The securities will be entries in the
book-entry account of the bank and, as such, the securities will no
longer exist in definitive form. That account will not reflect the fact
that the bank holdssecurities for several taxpayers.
When the ownerwishes to sell certain securities, he will so
in­
struct the bank in writing. The owner's instruction will sufficiently
identify the securities to be sold, and will also refer to the lot number
assigned in the books of the owner to the securities to be sold. The
bank will then instruct, in writing, the Federal Reserve Bank to trans­
fer the securities. The latter instruction will not refer to the perti­
nent lot number. The Federal Reserve Bank will confirm the sale to the
bank in the manner it deems appropriate. The bank will confirm the sale
to the owner by furnishing a written advice of transaction specifying
the amount and description of the securities sold and the date of the sale.
The confirmation will not refer to lot numbers.
When the owner desires to buy additional securities as investments
of the kind described in the new section 1 .1012 -l(c)(7 )(iii)(a) of the
regulations, he will order the bank to purchase them. The bank will in­
struct the Federal Reserve Bank to obtain the securities and to put them
in the bank’ book-entry account. The confirmation of the purchase from
s
the Federal Reserve Bank to the bank and from the bank to the owner will
be of the nature used for the sale of securities. The owner will assign
lot numbers in the manner described above to these purchased securities.

1/ Also released as Technical Information Release IO6 3 , dated
December 3 O 5 1970.
- 13 -

Held, the above procedure is consistent with the tax record re­
quirements of new section 1.1012-l(c)(7) of the regulations. This
procedure exemplifies the tax record requirements when securities are
transferred by parties to a bank who has an account in the book-entry
system of a Federal Reserve Bank. The tax record requirements in the
case of a bank who puts its own investment securities in the book-entry
system are set forth in new section 1.1012-l(c)(7) of the regulations.

SECTION ^-71.--GENERAL RULE FOR INVENTORIES
26 CFR l.ij-71-5*

Inventories by dealers in
securities.
(Also Section 1012; 1.1012-L)

Rev. Ral. 71-15^

A dealer, as defined in section 1.V71-5 of the Income Tax Regula­
tions, holds Treasury securities and other securities of the United
States. "Other securities of the United States" means a transferable
bond, note, certificate of indebtedness, bill, debenture, or similar
obligation which is subject to the provisions of 31 CFR Part 306 or
other comparable Federal regulations and which is issued by (l) any
department or agency of the Government of the United States, or (2)
the Federal National Mortgage Association, the Federal Home Loan Bank,
the Federal Land Banks, the Federal Intermediate Credit Banks, the
Banks of Cooperative, or the Tennessee Valley Authority.
The dealer properly holds such securities in inventory in accord­
ance with section 1.U71-5 of the Income Tax Regulations. He proposes
to transfer those securities to a book-entry system maintained by a
Federal Reserve Bank. The dealer will continue to maintain his books
and records for Federal income tax purposes with respect to such securi­
ties in accordance with section 1 .U7 1 -5 of the regulations.
Held, the dealer is not subject to the provisions of section
1 .1012-1 of the regulations relating to identification of property
with respect to such securities. Such a dealer must, however, comply
with the provisions of section 1 .U7 1-5 of the regulations relating to
inventory by dealers in securities.

1/ Also released as Technical Information Release. 106U, dated
January lU, 1971.

- 14 U. S. G O V E R N M E N T P R I N T IN G O F F I C E : 1971 O - 421 -801


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102