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FED ER AL RESERVE BANK O F NEW YORK I" Circular No. 6 0 9 1 1 L January 8, 1968 J Safekeeping, Handling, and Shipment of Securities Revision of Operating Circular No. 14 To All Member and Nonmember Banks in the Second Federal Reserve District: Enclosed is a copy of our Operating Circular No. 14, Revised January 5, 1968. The revised circular reflects the institution of the new book-entry procedure for Treasury securities, of w^hich we informed you in our Circular No. 6075, dated December 12, 1967. As indicated in the revised operating circular, transferable Treasury securities now or hereafter deposited with this Bank by member banks in this District for their sole account (other than for the account of a trust department) will be maintained as book-entry Treasury securities in accordance with the provisions of our current Operating Circular No. 21, Book-Entry Treasury Securities. Since the book-entry procedure applies to Treasury securities deposited by member banks having an office in the central financial district of New York City, as well as to other member banks in this District, this Bank is prepared to maintain in book-entry form Treasury securities deposited by such New York City banks for their sole account. The revised operating circular reflects a change in the coverage heretofore avail able in certain circumstances under the Government Losses in Shipment Act in regard to shipments of Treasury securities. Coverage under that Act is no longer available for shipments by this Bank of Treasury securities deposited in book-entry form upon original issue with us as collateral for a Treasury Tax and Loan Account. As reflected in paragraph 23 of the revised operating circular, the Government Losses in Shipment Act is now applicable only to shipments of Treasury securities upon original issue or in exchange for temporary certificates;shipments of $uch securities upon conversion from or to book-entry form are at the risk and expense of the bank effecting the shipment. Additional copies of this circular and its enclosure will be furnished upon request. A lfred H ayes, President. F ed era l R eserv e B ank of N ew York Circular No. 14 "1 Revised January 5,1968 i [ Operating SAFEKEEPING, HANDLING, AND SHIPMENT OF SECURITIES To AH Member and Nonmember Banks in the Second Federal Reserve District • This circular contains the general terms and conditions governing (1) the handling by this Bank at its Head Office in New York City and at its Buffalo Branch of securities received from or fo r the account o f member banks in the Second Federal Reserve District to be held in safekeeping, or to be sold, redeemed, or exchanged; and (2) the ship ment o f securities by or to this Bank (Head Office and Buffalo B ranch). Transferable Treasury securities— book-entry securities 1. In accordance with Subpart O o f Treasury Department Cir cular No. 300, this Bank, as fiscal agent o f the United States, maintains as “ book-entry Treasury securities” transferable Treasury securi ties deposited with this Bank either (1) by a member bank (including a member bank having an office in the central financial district of New York City) for its sole account and in lieu of the safekeeping of definitive Treasury securities, (2) as collateral pledged to this Bank for advances by it, or (3) as collateral pledged to the United States under Treasury Department Circular No. 92 or No. 176. Transferable Treasury securities now on deposit or hereafter deposited for any such purpose will be converted into book-entry form and deposited in a book-entry account in accordance with the provisions o f our current Operating Circular No. 21, Book-Entry Treasury Securities, and in such event such securities will be handled pursuant to the terms and conditions o f that circular, notwithstanding any inconsistent pro visions herein. Safekeeping Securities that will be held in safekeeping 2. (a) W e will accept and hold in safekeeping at our Head Office for account o f any member bank in the District, except a member bank having an office located in the central financial district of New York City, any securities other than transferable Treasury securities owned solely by such bank. A member bank located in the territory assigned to our Buffalo Branch and required to maintain the reserves prescribed for a member bank not located in a reseve city may at its option have such securities held in safekeeping at our Head Office or at our Buffalo Branch. (b) W e will also accept and hold in safekeeping at our Head Office, for account o f any member bank located in New York City for which we will not hold securities in safekeeping pursuant to para graph 2 (a ) hereof, any securities other than transferable Treasury securities owned solely by such bank that are eligible as collateral for borrowings from this Bank or for balances in Treasury Tax and Loan Accounts when such securities are being used from time to time for such purposes; we will render this service only to the extent that it contributes to efficient and economical operations at our Head Office. (c ) In any case in which we would accept and hold securities in safekeeping for account o f any member bank as specified in para graph. 2 (a ) hereof, we will also accept and hold in safekeeping for account o f the trust department o f such bank any securities owned solely by such bank and set aside in its trust department to secure deposits o f trust funds awaiting investment or distribution (as is provided in section 1 (d ) o f Public Law 87-722); but securities held by a member bank in any other fiduciary capacity, or as collateral for loans o r advances made by it, or which are the property o f others, will not be accepted fo r safekeeping. Representations as to securities tendered for safekeeping 3. A n y member bank tendering securities to us for safekeeping for its account (other than for the account of its trust department) will be deemed to represent to us that such securities are owned solely by i t ; and any member bank tendering securities to us for safekeeping foT account o f its trust department will be deemed to represent to us that such securities are owned by it and have been set aside in its trust department to secure deposits o f trust funds awaiting investment or distribution. Advices of receipt and withdrawal 4. Securities received by us fo r safekeeping for account o f a member bank or o f the trust department o f a member bank will be described in an advice o f receipt that we will mail to such bank or trust department. These advices are neither transferable nor nego tiable and their return will not be required when securities are with drawn from safekeeping, but they should be retained by the bank in its records o f securities held by us. Corresponding adviees will be sent when securities are withdrawn from safekeeping. Maturing and catted securities and coupons 5. This Bank will endeavor to perform the services described in paragraphs 6,7, and 8 with respeet to maturing coupons and maturing, called or exchangeable securities held in safekeeping, but in no case will the Bank assume any liability fo r its failure to perform such services. 6. Unless we receive appropriate instructions to the contrary within a reasonable time prior to m aturity: (a) A ll maturing securities o f any obligor fo r which this Bank acts as fiscal agent, held in safekeeping for account o f a member bank or the trust department o f a member bank, will be withdrawn from safekeeping and redeemed by this Bank, as fiscal agent o f the United States or other obligor, and the amount thereof will be credited to the reserve account o f the member bank; and (b) A ll other maturing securities payable in United States dollars in any Federal Reserve District,* held in safekeeping for account o f a member bank, except securities payable in a city, town, or village in which an office o f the member bank is located, will be withdrawn from safekeeping and will be presented for payment, or forwarded for collection, at maturity in accordance with the provisions o f our current Operating Circular No. 8, Collection o f Noncash Items, and the proceeds will be credited, * As used in this paragraph, the term “ any Federal Reserve District” means any Federal Reserve District as referred to in paragraph 1 of Operating Circular No. 8. under advice, to the reserve account o f tile member bank. A maturing security payable in a city, town, or village in which an office of the member bank is located will be forwarded directly to the head office of such member bank for collection; the proceeds of such item should be retained by the member bank and not treated as the proceeds of a collection item. Whenever the title of any security held in safekeeping indicates that it may be convertible into a security of another issue, no action will be taken by us with respect to the conversion privilege except upon receipt o f timely and appropriate instructions; in the absence of such instructions, our only action will be to present the security upon maturity for payment or forward it for collection. Maturing coupons will be detached from securities held in safekeeping and will be handled in the same manner as maturing securities. 7. Securities or coupons payable in the alternative in more than one currency, including United States dollars, will be presented for payment in United States dollars unless appropriate instructions to che contrary are received by us within a reasonable time prior to the date o f maturity. 8. It is our practice to review the services to which we subscribe for the purpose of ascertaining whether any securities held by us in safekeeping (a) have been called for redemption, (b) are exchange able for securities in definitive form, or (c) are exchangeable for other securities in connection with a reorganization or readjust ment. We endeavor to transmit such information to each bank for which we hold any such securities. Unless we receive appropriate instructions to the contrary, it is our practice to handle called securi ties in the same manner as other maturing securities, and to endeavor to exchange interim or temporary securities for definitive securities when the latter are available. Receipt and delivery o f securities 9. Upon receipt o f appropriate instructions, we will arrange: (a) To receive or deliver securities, against payment or receipt, for account o f any member bank other than a member bank located in the central financial district of New York City. (b) For the purchase or sale of securities (other than corporate stocks) for account o f those member banks that do not have ready access to ordinary market facilities, provided that, in the judgment o f this Bank, such transactions, for any one member bank, are occasional and in small amounts. Instructions to receive securities against payment or to purchase secu rities should specify the amount to be paid and the purchase price, and will constitute our order to debit the reserve account o f the member bank with such amount on the day the securities are received by us. When instructed by a member bank to deliver securities against pay ment, or to sell securities, we will, unless otherwise instructed, accept payment therefor in the form o f a check drawn on a commercial bank and payable to our order, and immediate or deferred credit therefor, subject to receipt of payment in actually and finally collected funds, will be given in the reserve account o f such member bank in accordance with the time schedule contained in our current Operating Circular No. 5. I f payment for any such securities is made in ‘ "Federal funds,” 3 however, the proceeds thereof will be credited to the reserve account of such member bank on the day the securities are delivered. Instructions 10. Instructions with reference to securities held, or to be received and held, by us in safekeeping fo r account o f the trust department of a member bank should be in writing and signed by a trust officer, an assistant trust officer, or some other officer of the member bank whose authority to act for the trust department generally or to issue instruc tions relating to such securities lias been satisfactorily certified to us by the member bank. 11. A ll instructions with reference to other securities should be in writing over authorized signature (s) on behalf o f the bank for account o f which such securities are handled. The instructions should indicate whether the securities are owned by the bank or its customers. In exceptional circumstances or emergencies we will aceept and act upon instructions transmitted by telegraph or telephone on the understand ing, in either instance, that written confirmation o f such instructions over authorized signature (s) will be mailed to us promptly. Telegrams should be forwarded prepaid, should be in the American Bankers Association code wherever possible, and should be duly tested by the appropriate word taken from the list of special test words supplied by us. A ll telephonic instructions should also include such a test word, and whenever securities are to be delivered against receipt to other than a bank, additional confirmation will be required in the form o f a telegram promptly dispatched, including the test word used in the telephonic instructions. Charges and expenses 12. W e make no charge for any of the services described in the preceding paragraphs o f this circular except that— (a) A ny necessary out-of-pocket expenses, such as postage or express charges on outgoing shipments and insurance on incoming and outgoing shipments, will be charged to the bank on whose behalf such expenses are incurred; no such charge will be made, however, for shipping and insurance costs incurred in connection with the collection o f maturing coupons detached from securities held in safekeeping for member banks. (b) W e make a charge of $1.50 for each transaction involving the receipt or delivery, or the exchange or transfer, o f a security upon the instructions of a member bank if the security does not belong to the member bank but is handled by the member bank fo r account of a customer. This charge does not apply if the securities involved are handled by us as fiscal agent of the United States. (c) W e make a charge of $1.50 fo r each draft with securities attached received by us from a member bank or nonmember clear ing bank if the securities do not belong to the bank but are handled by the bank for account of a customer. Risk of loss Shipments of securities 13. Except in the case o f the shipments to us referred to in para graph 24, any bank or other person shipping, or causing the shipment 4 of, securities to us shall by such action be deemed to have agreed that the risk o f loss on such shipments occurring prior to the actual delivery thereof to us by the post office, express company, or other carrier is not assumed by us but is on the sender. Likewise, except in the case o f the shipments by us referred to in paragraphs 23 and 24, any bank or other person ordering shipments o f securities from us shall by such action be deemed to have agreed that in making such shipments we undertake merely to make delivery to the post office, express company, or other carrier, and that the risk o f loss occurring subsequently to such delivery is not assumed by us but is on the bank or other person ordering the shipment to be made. Securities held in safekeeping 14. A ny bank or other person depositing securities with us, either directly or through others, shall by such action be deemed to have agreed that we (a) will be responsible only for the exercise of the same diligence with which we care for our own property; (b) will not be liable for any loss of such securities when a loss is due to any cause other than lack of such diligence; (c) will not be responsible for the genuineness, validity, or alteration of or any defect in such securities ; and (d ) will not be obligated to maintain any form o f insurance for the account of the depositor in relation to securities held in custody for it. Insurance of securities held in safekeeping 15. iSecurities held by us in safekeeping for member banks are insured under our Bankers Blanket Bond, but the amount of such bond is relatively small in comparison with the total amount o f money and securities held by us for our own account and for account of others. Such bond is carried primarily for our own protection, and accordingly, in the event o f loss the amount recovered thereunder will be first applied against the loss of property held for our own account, and the excess only will be available for pro rata distribution against losses o f property held for account o f others. I f additional insurance protection is desired by a member bank, it should make its own arrangements for such insurance. Insurance of shipments of securities Insurance available 16. W e hold certain open registered mail insurance policies under which shipments o f securities made by us by registered mail and shipments o f securities consigned to us by registered mail may be insured, at the expense of the bank requesting the shipment by us or making the shipment to us,* as set forth in paragraphs 16 to 22, inclu sive. These policies cover all risks, except that they do not cover loss by theft by employees o f senders or addressees (except in a very limited class of circumstances and even in such circumstances the insurance afforded by such policies is excess insurance only), nor do they provide protection against so-called war or related risks. Such policies cover such shipments from the time the shipment leaves the office o f the sender until actual delivery has been made to the office of the addressee, whether delivery is effected in whole or in part by employees or agents o f the Post Office Department, the sender or the * As specified in paragraph 12 (a), no charge will be made, however, for insurance costs incurred in connection with the collection of maturing coupons detached from securities held in safekeeping for member banks. 5 addressee, and in the event o f nondelivery, until delivered at the proper address or a substituted address, or until returned to the sender. Coverage under these policies is limited to $10,000,000 on property dispatched from any one sender to any one addressee on any one train, boat, or other conveyance. War and related risks not covered 17. Such policies contain the following language with respect to war and related risks: a* « * p0}iCy (joes not insure against: (a) capture, seizure, arrest, restraint, detainment, confiscation, preemption, requisition or nationaliza tion, and the consequences thereof or of any attempt thereat, whether in time of peace or war and whether lawful or otherwise; any consequences of hostilities or warlike operations (whether there be a declaration of war or not) but the foregoing shall not exclude collision, explosion or con tact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or, in the case of a collision any other vessel involved therein, is performing) by a hostile act by or against a belligerent power, the term ‘power’ as used herein including any authority maintaining naval, military or air forces in association with a power; or any loss or damage caused by any weapon of war employing atomic fission or radioactive force whether in time of peace or war; (b) the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, piracy, risks of contraband or illegal transportation or trade, and seizure or destruction under quarantine or customs regulations.” Amount for which shipments insured 18. Shipments will be insured for the amount reported or declared, which amount may be more or less than the actual value o f the prop erty shipped, and in the event of loss the liability of the insurers shall be the replacement cost o f the lost property or the market value thereof at the time o f dispatch or at the time the loss becomes known to us, whichever of the foregoing shall be the measure of the actual loss sustained, but in no case shall the liability o f the insurers exceed in the aggregate the sum for which the lost property was reported or declared. Insurance of incoming registered mail shipments 19. Any bank shipping securities to us by registered mail for any purpose may have the shipment insured under our registered mail insurance policies for its account and risk, and at its expense, provided the following conditions are complied w ith: (a) Concurrently with a shipment to our Head Office, the sender should mail to our Head Office under separate cover an insurance declaration or notice o f shipment (Form Misc. 110) stat ing the amount of insurance to be effected. Concurrently with a shipment to our Buffalo Branch, the sender should mail such declaration or notice (Form Misc. I l l ) under separate cover to our Branch. Copies of these forms will be furnished by our Head Office or Branch upon request. (b) The contents o f the shipment shall be verified by at least one person and shall be enclosed in a strong wrapper, envelope, or cloth or canvas bag, well secured, and the package shall be sealed in a manner acceptable to the post office at the place o f mailing. 6 (e) The packing and sealing o f the package shall be done by an employee o f the sender and the sealed package shall be in charge o f a responsible person until deposited and registered at the post office, or shall be in the custody of an armored car service in transit from the office of the sender to the post office. In order fo r shipments to us to be insured they must be made by registered mail. In no circumstances can a shipment sent to us by ordinary mail be insured under our policies. Insurance of outgoing shipments 20. Except in the case o f shipments made by this Bank as fiscal agent o f the United States (referred to in paragraphs 23 and 24), whenever we have occasion to ship securities to or on behalf o f a bank the shipment will be made by registered m ail; and, unless we receive appropriate instructions to the contrary, we will arrange for shipments o f securities transferable by delivery to be insured under our registered mail insurance policies at the expense o f such bank.* It is not our practice to arrange for the insurance o f shipments of securities that are not transferable by delivery. In the case of securities transferable by delivery it is our practice, in the absence o f instructions, to declare such securities for insurance in the amounts set forth below: (a) securities accompanying a draft, fo r the amount of the draft, (b ) detached matured or maturing coupons, for their face amount, and (c ) other securities, for their face amount or approximate market value, whichever is higher, plus (i) the face amount of all attached matured coupons, (ii) the amount o f interest accrued to the date o f shipment on attached unmatured coupons, and (iii) three per cent o f the face amount o f the securities. Use of other insurance policies 21. Since shipments o f securities will be insured at the expense o f the bank with which we deal,* it is suggested that banks holding registered mail insurance policies o f their own may find it more con venient to insure shipments o f securities under their own policies. Making claim for loss 22. In the event o f loss o f all or part o f a shipment insured under our policies, we will make claim on behalf o f the sender or the addressee, as the case may be, for the amount involved. The post office registry receipt covering each shipment to us should be carefully pre served by the sender in order that it may be available as evidence in the event o f loss. Shipments of securities made by this Bank as fiscal agent of the United States 23. Shipments of Treasury securities made by this Bank, as fiscal agent of the United States, upon original issue or in exchange for temporary certificates, are at the expense and risk of the United States under the Government Losses in Shipment Act, as amended, and the regulations issued thereunder. However, the interest and responsi bility of the United States in such shipments ceases upon delivery by the post office. A n addressee accepting delivery at the post office by agent or otherwise must, therefore, transport such shipments at its own * See footnote on page S. 7 risk from the post office to the office o f the addressee. I f the addressee bank does not carry insurance cohering this risk, we can arrange cover age for its benefit from the time the securities are receipted for by its agent, at a rate o f one cent per $L,000, subject to all the conditions of our registered mail insurance policies. A ny bank that desires such special coverage should so advise us. As pointed out in paragraph 16, such policies do not cover war or related risks or loss by theft of employees o f the addressee. In addition, such special insurance does not cover any claim for shortage or mysterious disappearance unless due to a known casualty in transit between the post office and the office of the addressee. Shipment of unissued, and paid, savings bonds 24. Stock of unissued savings bonds shipped by this Bank, as fiscal agent of the United States, to issuing agents is the property o f the United States, and hence such shipments are at the expense and risk of the United States, and the interest o f the Government does not cease upon delivery by the post office. Stock o f unissued savings bonds, spoiled bonds, and stubs o f issued bonds, in the possession of issuing agents, remain the prope rty o f the United States, and ship ments thereof to us, in accordance with our instructions to issuing agents, are at the expense and risk of the United States. Savings bonds paid by qualified paying agents, when shipped to us for redemption and in accordance with the instructions of the Treasury Department, are at the risk o f the United States. Commercial paper and bankers’ «*icceptances 25. Upon receipt o f appropriate instructions, we will also: (a) Hold in safekeeping, receive or deliver against payment or receipt, and ship, for account of a member bank, commercial paper and bankers’ acceptances owned solely by the member bank. (b) Purchase or sell, for account o f those member banks that do not have ready access to ordinary market facilities, prime bankers ’ acceptances endorsed by an acceptance dealer or a bank ing institution and eligible for purchase by us fo r our own account, provided that, in the judgment of this Bank, such transactions, for any one member bank, are occasional and in small amounts. The provisions of this circular applicable to securities owned solely by a member bank shall also be applicable to commercial paper and bankers’ acceptances, except that, because o f the nature of their contents, paragraphs 2, 8, 10, 21, and 24 are inapplicable to such instruments. General 26. A ny bank availing itself of our facilities referred to in this circular shall by such action be deemed to have agreed to all the terms and conditions o f this circular. The right is reserved to withdraw, add to, or amend at any time any of the provisions o f this circular. 27. This circular supersedes our Operating Circular No. 14, Revised May 15, 1964, and the First Supplement thereto, dated March 30, 1965. A lfred H a t e s , President. 8
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