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FED E R A L R ESER VE BANK O F NEW YORK r Circular No. 7 3 6 6 "I L March 27, 1974 J RULES ON OPEN MARKET OPERATIONS IN BANKERS’ ACCEPTANCES — Revocation of Regulations B and C — Changes in FOMC Regulation and Authorization T o A ll M em ber Banks, and O thers Concerned, in the Second Federal R eserve D istrict: Following is the text of a statement issued March 26 by the Board of Governors of the Federal Reserve System: T he Federal R eserve announced today a realignment and m odernization o f its rules relating to open market operations in bankers’ acceptances. T h e actions are effective A p ril 1. N o m ajor change in System operations in bankers’ acceptances is expected to result from this action, which eliminates outdated provisions in the rules and broadens somewhat the scope o f bankers’ acceptances eligible for purchase by the Federal Reserve. Bankers’ acceptances are prim arily negotiable time drafts drawn to finance the international or dom estic shipment or storage o f good s and are termed accepted when a bank assumes the obligation to make payment at maturity. In com panion actions, the B oard of G overnors rescinded its R egulation B— relating to open market purchases of bills o f exchange and acceptances— while the Federal O pen M arket Committee ( F O M C ) incorporated the m ajor elements of that regulation, with some technical changes, into its rules on the conduct of open market operations. T he new rules authorize the Federal R eserve Bank o f N ew Y o r k to buy (ou tright or under repurchase agreem ent) and sell “ prim e” bankers’ acceptances with maturities o f up to nine months at the time of acceptance th a t: 1. A rise out o f the current shipment o f good s between countries or within the U nited States, or 2. A rise out o f the storage within the United States o f good s under contract o f sale or expected to m ove into the channels o f trade within a reasonable time and that are secured throughout their life by a warehouse receipt or similar docum ent conveying title to the underlying goods. T he new rules eliminate the present requirement that banks have in their possession shipping docum ents conveying or securing title at the time they accept drafts covering the shipment o f good s within the U nited States. T h is would rem ove a presently existing difference between the docum entation required fo r interna tional and dom estic shipment o f g ood s in this respect. T he amendments also rem ove dollar exchange bills from the list o f acceptances authorized fo r System purchase, since these instruments are seldom u sed ; increase from six to nine months the maturity of accep tances eligible for purchase by the Federal R e se r v e ; and broaden the definition of such acceptances to include those that finance the storage o f any good s rather than “ readily marketable staples.” In taking this action, the F O M C also instructed the System ’s staff to continue its studies to determine whether Federal R eserve open market operations in bankers’ acceptances should be expanded to encom pass all types of “ prim e” acceptances, including finance bills. T h e B oard last year applied a reserve require ment to finance bills. In another action, the Board of G overnors announced the revocation o f its R egulation C entitled “ A cceptances by M em ber Banks o f Drafts or Bills of E xch an ge.” T his regulation is outdated and in its present form prim arily repeats the provision o f the Federal R eserve A ct relating to this area. Enclosed are copies of the Board’s Orders effecting the revocation of Regulations B and C, effective April 1, 1974. In addition, printed on the following pages are the texts of the amend- ments, also effective April 1, 1974, to the F O M C ’s Regulation Relating to Open Market Oper ations of Federal Reserve Banks and to its Authorization for Domestic Open Market Operations, in the form in which they were submitted for publication in the Federal Register. Additional copies of this circular and its enclosures will be furnished upon request. A lfred H a y e s , President. T IT L E 12— B A N K S A N D B A N K I N G C H A P T E R II— F E D E R A L R E S E R V E S Y S T E M S U B C H A P T E R B— F E D E R A L O P E N M A R K E T C O M M IT T E E P A R T 270— O P E N M A R K E T O P E R A T I O N S O F F E D E R A L R E S E R V E B A N K S Purchase of Bankers’ Acceptances T h e Federal O pen M arket Committee has amended its R egulation Relating to O pen M arket O perations o f Federal R eserve Banks (P a rt 2 7 0 ), effective A p ril 1, 1974. P rior to this amendment, the Regulation autho rized the purchase and sale of bankers’ acceptances w hich w ere eligible fo r purchase and sale as provided in R egulation B of the B oard o f G overnors (1 2 C F R 2 0 2 ). E ffective the same date, the B oard o f G overnors has revoked R egulation B. B eginning A p ril 1, 1974, purchase and sale of bankers’ acceptances by Federal R eserve Banks will be conducted pursuant to p ro v i sions o f paragraphs 1 ( b ) and 1 ( c ) of the C om m ittee’s A uthorization for D om estic O pen M arket O perations, as amended effective on that date. T h e new rules, as set forth in the A uthorization, eliminate outdated p r o visions in the present rules specified in R egulation B and broaden somewhat the scope o f bankers’ accep tances eligible for purchase by Federal R eserve Banks. T h e new rules eliminate the present requirement that banks have in their possession shipping docum ents con veyin g or securing title at the time they accept drafts coverin g the shipments o f good s within the U nited States. T h is w ould rem ove a presently existing difference between the docum entation required fo r inter national and dom estic shipment o f g ood s in this respect. T h e amendments also rem ove dollar exchange bills from the list o f acceptances authorized for System p u r chase, since these instruments are seldom u sed ; in crease from six to nine months the maturity of ac ceptances eligible fo r purchase by the Federal R e s e r v e ; and broaden the definition of such acceptances to include those that finance the storage o f any g ood s rather than “ readily marketable staples.” In amending the C om m ittee’s R egulation, the require ments of section 553, T itle 5, U nited States Code, with respect to notice, public participation and deferred ef fective date were not follow ed because the changes “ relieve a restriction” (see 5 U .S .C . 5 5 3 ( d ) ( 1 ) ) and follow in g such procedures w ould be unnecessary (see 5 U .S .C . 5 5 3 ( b ) ) . E ffective A p ril 1, 1974, section 2 7 0 .4 ( c ) ( 2 ) o f the R egulation Relating to O pen M arket O perations of Federal R eserve Banks is amended to r e a d : S E C T I O N 270.4— C O N D U C T O F O P E N M A R K E T O P E R A T IO N S (c ) In accordance with such limitations, terms, and conditions as are prescribed by law and in authoriza tions and directives issued by the Committee, the R e serve Bank selected by the Committee is authorized and directed— (2 ) T o buy and sell bankers’ acceptances in the open market fo r its ow n accou nt; By order o f the Federal O pen M arket Committee, effective A p ril 1, 1974. FED ERAL RESERVE SYSTEM FED ERAL OPEN M A R K E T C O M M IT T E E Authorization for Domestic Open Market Operations In accordance with section 2 7 1 .3 ( a ) ( 4 ) and ( 5 ) o f the R ules R egarding A vailability o f In form ation of the Federal O pen M arket Committee, there are set forth below paragraphs 1 ( b ) and 1 ( c ) o f the Com m ittee’s A uthorization for D om estic O pen M arket Operations, as amended by action of the Com m ittee effective A p ril 1, 1974: 1. T h e Federal O pen M arket Com m ittee authorizes and directs the Federal R eserve Bank o f N ew Y o rk , to the extent necessary to carry out the m ost recent dom estic policy directive adopted at a meeting of the C om m ittee: * * * “ ( b ) T o buy or sell in the open market, from or to acceptance dealers and foreign accounts maintained at the Federal R eserve Bank o f N ew Y o rk , on a cash, regular, or deferred delivery basis, for the account o f the Federal Reserve Bank of N ew Y o rk at market dis count rates, prim e bankers’ acceptances with maturities of up to nine months at the time o f acceptance that ( 1 ) arise out o f the current shipment of goods between countries or within the United States, or ( 2 ) arise out of the storage within the United States o f good s under contract o f sale or expected to m ove into the channels of trade within a reasonable time and that are secured throughout their life by a warehouse re ceipt or similar document conveying title to the underlying g o o d s ; provided that the aggregate amount o f bankers’ acceptances held at any one time shall not exceed $125 million. “ ( c ) T o buy U . S. G overnm ent securities, obliga tions that are direct obligations of, or fully guaranteed as to principal and interest by, any agency o f the U nited States, and prime bankers’ acceptances o f the types authorized for purchase under 1 ( b ) above, from nonbank dealers for the account of the Federal Reserve Bank o f N ew Y o r k under agreements for repurchase o f such securities, obligations, or acceptances in 15 calendar days or less, at rates that, unless otherwise expressly authorized by the Com m ittee, shall be deter mined by com petitive bidding, after applying reasonable limitations on the volum e of agreements with individual d ea lers; provided that in the event G overnm ent securi ties or agency issues covered by any such agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, they shall be sold in the market or transferred to the System O pen M a r ket A cc o u n t; and provided further that in the event bankers’ acceptances covered by any such agreement are not repurchased by the seller, they shall continue to be held by the Federal Reserve Bank or shall be sold in the open m arket.” B y order of the Federal O pen M arket Committee, effective A p ril 1, 1974.
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