The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal of Reserve N ew Y Bank ork r Circular No. 67181 L April 26, 1971 J Program for Further Expansion of Book-Entry Procedure for Treasury Securities To All Banking Institutions, and Others Concerned, in the Second Federal Reserve District : L ast Decem ber this Bank announced plans by the U.S. T reasury Department and the F ederal R eserve Banks fo r an accelerated program fo r the further expansion o f the book-entry procedure fo r T reasury securities. Since January 1, 1968, the book-entry procedure has been applicable to T reasury securities owned by a member bank and held fo r its sole account at a F ederal R eserve Bank in lieu o f the safekeeping o f definitive securities; the procedure has also been applicable to T reasury securities held at a R e serve Bank as collateral fo r advances by the R eserve Bank or as collateral to T reasury T ax and Loan A ccounts and related deposits. Over the years, the book-entry procedure has been expanded to apply to T reasury securities held in custody at R eserve Banks fo r various other categories o f safekeeping accounts, prim arily governm ental and foreign official accounts. A s o f the end o f 1970, over $100 billion in T reasury securities were held in book-entry form at the F ederal R eserve Banks. The rules and procedures g o v erning book-entry accounts at this Bank are set forth in this B a n k ’s O perating Circular No. 14, “ Safekeeping, H andling, and Shipment o f S ecu rities,” and O perating Circular No. 21, “ B ook -E n try T reasury S ecu rities.’ ’ A s indicated in the plans announced last D ecem ber, in connection with the em er gence o f a problem o f curtailed insurance coverage fo r Governm ent securities, the present program fo r the further expansion o f the book-entry procedure involves its extension to include T reasury securities held by member banks (a ) fo r account o f their custom ers, including custom ers which are nonbank prim ary dealers in Government secu rities, and (b ) as their “ d ea ler” inventory in those cases in which the bank is a prim ary dealer in Governm ent securities. Since Decem ber, the Treasury, the Internal Revenue Service, and the F ederal R eserve Banks have adopted several changes in applicable regulations and procedures to facilitate the implementation o f that program . The pur pose o f this circular is to report on such changes, and to advise you o f the current status o f the program and plans fo r its further expansion. In this D istrict, the program has involved two separate steps. The first provides fo r the extension o f the book-entry procedure to T reasury securities held by banks as prim ary dealers in Governm ent securities or as clearing agents or custodians fo r nonbank prim ary dealers and certain other custom ers, and that are cleared through this B a n k ’s Governm ent Securities Clearing Arrangem ent. T o facilitate this step, the T reasury adopted amendments, effective January 1, 3971, to Subpart 0 o f T reasury C ircular No. 300, “ General R egulations W ith R espect to United States S ecu rities” (31 C F R , P art 306), and the Internal Revenue Service adopted changes in the applicable Income T ax R egula tions and Revenue Rulings (T .D . 7081, Rev. Rul. 71-15 and Rev. Rul. 71-21, all published in 1971 Internal Revenue Bulletin No. 3 at 16-18). Since December, this Bank has been w ork ing with the banks participating in the Clearing Arrangem ent, as well as the Association o f P rim ary D ealers in U.S. Government Securities, with a view to determ ining general procedures fo r establishing the necessary new book-entry accounts and to integrating such accounts into the Clearing Arrangem ent. Such procedures have been agreed to, and the extended book-entry procedure is available to the twelve New Y o rk C ity banks partici pating in the Clearing Arrangem ent. The next step in the program w ill be the extension o f the book-entry procedure to securities held by all member banks fo r account o f their custom ers. In this connection, further changes have recently been made in Subpart 0 o f T reasury Circular No. 300 de signed to facilitate the operation o f the extended book-entry procedure and its applica tion to securities held by all member banks fo r account o f their custom ers. Such changes, together with the changes referred to above made by the T reasury and the Internal Revenue Service since last December, are reflected in a new basic revision o f Subpart O and its Attachm ent relating to tax matters. Copies o f the revised Subpart O, which became effective on A p ril 7, 1971, together with a new Attachm ent, are enclosed. The revised documents incorporate or reflect the follow ing changes in the rules applicable to the book-entry proced u re: (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-entrv securities, and the effecting of pledges in such securities, on the books of a member bank or other “ book-entry custodian.” (3) Subpart 0 lias been restructured to classify different types of book-entry accounts on the fyooks 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 bookentry procedure to securities held by dealers in Government securities; (b) to liberalize the identi fication requirements applicable to book-entry securities owned by member banks and held for investment purposes; and (c) to establish similar rules for tax identification purposes with respect to book-entry securities held by banks for account of their customers. The F ederal R eserve Banks are now preparing the detailed operating rules neces sary to im plem ent the extension o f the book-entry procedure to securities held b y all member banks fo r account o f their custom ers generally. It is contem plated that under such rules, it would be possible fo r every m em ber bank to open an additional book-entry account at its F ederal R eserve Bank fo r custom er securities. In general, it is also con templated that such securities would be held in a single account on the books o f the R eserve Bank in the name o f the member bank, and that the member bank w ould maintain the records necessary to distinguish the ownership rights o f its individual custom ers in such securities. W hen the operating rules governing the opening o f such accounts are com pleted, they will he published in the applicable operating circulars o f the R eserve Banks, which in this D istrict are this B an k ’s O perating Circulars Nos. 14 and 21. U ntil such publica tion, the book-entry procedure fo r securities held fo r account o f banks will, in general, continue to be lim ited to the three classes o f accounts outlined in the present operating circulars, i.e., securities owned by a bank and held (a ) in safekeeping, (b ) as collateral fo r R eserve Bank advances, and (c ) as collateral fo r T reasury T ax and L oan A ccounts and related deposits. A s indicated above, the principal exception to this relates to the book-entry accounts opened fo r the m ember banks participating in the Governm ent Se curities Clearing Arrangem ent ; the special procedures applicable to such accounts are governed by special terms and conditions between this Bank and the participating banks. P ending the com pletion o f the new operating circulars and the extension o f the bookentry procedure to securities o f custom ers held at all member banks, technical amend ments to this B a n k ’s O perating Circulars Nos. 14 and 21, as well as No. 12, “ A dvances and D iscoun ts,” have been made in order to con form such circulars to the recent changes in Subpart 0 relating to the capacity in which this Bank m aintains book-entry securities. Such amendments are set forth in the enclosed Supplem ents, dated A p ril 26, 1971, to such operating circulars. U ntil certain legal questions have been resolved in connection with the deposit o f T rea su ry securities held by m ember banks in trust accounts, it is not contem plated that such trust securities w ould be deposited in book-entry accounts. Such legal questions are being review ed; when they are resolved, it is anticipated that the book-entry p ro cedure w ill be available fo r securities held in trust accounts. A t this point, the book-entry procedure is applicable only to T rea su ry securities, pursuant to the provisions o f T reasu ry C ircular No. 300. Studies are now in progress to ap p ly book-entry systems to securities issued b y U. S. Governm ent agencies and co r porations, and it is expected that such systems w ill be available fo r such securities at a future date. W e would welcome any com ments or suggestions you m ay have with respect to our p rogram fo r the further expansion o f the book-entry procedure. I f you have any such comments or suggestions, or i f you have any questions regarding the program , the officers and staff o f our Governm ent Bond and Safekeeping D epartm ent would be pleased to review them with you. A lfr e d H ayes, President.
@FedFRASER