[Federal Register Volume 78, Number 147 (Wednesday, July 31, 2013)]
[Rules and Regulations]
[Pages 46425-46445]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18178]



[[Page 46425]]

Vol. 78

Wednesday,

No. 147

July 31, 2013

Part II





Department of the Treasury





-----------------------------------------------------------------------





Fiscal Service





-----------------------------------------------------------------------





31 CFR Part 356





 Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and 
Bonds; Final Rule

Federal Register / Vol. 78 , No. 147 / Wednesday, July 31, 2013 / 
Rules and Regulations

[[Page 46426]]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 356

[Docket No. Fiscal-BPD-2013-0001]


Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, 
and Bonds

AGENCY: Fiscal Service, Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends Treasury's marketable securities 
auction rules to accommodate the public offering of a new type of 
marketable security with a floating rate interest payment. In addition, 
the amendment makes certain technical clarifications and conforming 
changes.

DATES: Effective July 31, 2013.

ADDRESSES: Treasury has established a docket for this action under 
Docket ID Number Fiscal-BPD-2013-0001 in the www.regulations.gov Web 
site. This final rule is available for downloading from 
www.treasurydirect.gov. It is also available for public inspection and 
copying at the Treasury Library, 1500 Pennsylvania Avenue NW., Annex, 
Room 1020, Washington, DC 20220. To visit the library, call (202) 622-
0990 for an appointment.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena, Executive Director, 
or Chuck Andreatta, Associate Director, Government Securities 
Regulations Staff, Bureau of the Fiscal Service, Department of the 
Treasury, (202) 504-3632.

SUPPLEMENTARY INFORMATION:

I. Background

    The Department of the Treasury (``Treasury'') is issuing an 
amendment to 31 CFR part 356 \1\ (the ``Uniform Offering Circular'') to 
accommodate offerings of a new type of marketable security, referred to 
as a Treasury floating rate note, whose index rate will be indexed to 
13-week Treasury bill auction rates. Treasury views issuance of 
floating rate notes as consistent with its mission to borrow at the 
lowest cost over time, manage the maturity profile of our marketable 
debt outstanding, expand the Treasury investor base, and provide a 
financing tool that gives debt managers additional flexibility. 
Treasury decided to establish a floating rate note program after 
carefully considering the long-term supply and demand dynamics for 
these securities and with significant consultation with market 
participants.
---------------------------------------------------------------------------

    \1\ 31 CFR part 356 is generally referred to as the Uniform 
Offering Circular (UOC). The UOC, together with the auction 
announcement for each Treasury securities auction, sets out the 
terms and conditions for the sale and issuance by Treasury to the 
public of marketable Treasury bills, notes, and bonds.
---------------------------------------------------------------------------

    Treasury floating rate notes will be indexed to the most recent 13-
week Treasury bill auction High Rate \2\ (stop out rate), and converted 
to a simple-interest money market yield computed on an actual/360 
basis, subject to an appropriate lockout period,\3\ which initially 
will be two business days (see appendix D). In its May 2013 Quarterly 
Refunding Statement, Treasury announced its intention to begin 
auctioning floating rate notes in either the fourth quarter of 2013 or 
the first quarter of 2014.\4\ Treasury's initial auction will be of 
two-year floating rate notes. Treasury will announce specific terms and 
conditions of each issue, such as the auction date, issue date, and 
public offering amount, prior to each auction. Over time, Treasury may 
consider offering additional maturities of floating rate notes.
---------------------------------------------------------------------------

    \2\ The High Rate is the highest accepted discount rate in a 
marketable Treasury bill auction and is announced on the auction 
results press release. Treasury awards securities in Treasury bill 
auctions at the price that corresponds to the High Rate.
    \3\ A lockout period for floating rate notes is a period of time 
prior to the auction settlement or payment of interest. Any 13-week 
Treasury bill auction that takes place during this period will be 
excluded from the calculation of accrued interest for determining 
the settlement or interest payment amount.
    \4\ The May 2013 Quarterly Refunding Statement, dated May 1, 
2013, can be accessed at: http://www.treasury.gov/press-center/press-releases/Pages/jl1921.aspx.
---------------------------------------------------------------------------

II. Consultation and Request for Comments

    Treasury announced at its February 2012 Quarterly Refunding that it 
was studying the possibility of issuing a floating rate note with an 
interest rate that is indexed and periodically reset.\5\ In determining 
the final terms and conditions for a floating rate note, Treasury 
sought input from a wide range of participants, particularly concerning 
the demand for the product, how the security should be structured, its 
liquidity, the most appropriate index, and operational issues that 
should be considered related to the issuance of this type of debt.
---------------------------------------------------------------------------

    \5\ The February 2012 Quarterly Refunding Statement, dated 
February 1, 2012, can be accessed at: http://www.treasury.gov/press-center/press-releases/Pages/tg1405.aspx.
---------------------------------------------------------------------------

    On March 19, 2012, Treasury issued a Notice and Request for 
Information (RFI) to the public with a closing date for comments of 
April 18, 2012.\6\ Treasury received 14 comment letters in response to 
the RFI.\7\ Commenters broadly supported issuance of this type of 
security. Based on the response to the RFI and additional feedback, 
Treasury announced in its August 2012 Quarterly Refunding Statement 
that it planned to develop a floating rate note program to complement 
the existing suite of securities issued and to support its broader debt 
management objectives.\8\
---------------------------------------------------------------------------

    \6\ 77 FR 16116 (March 19, 2012).
    \7\ The comment letters are available to the public for 
inspection and downloading at the TreasuryDirect Web site. http://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_comltr_td_floating rate note.htm.
    \8\ The August 2012 Quarterly Refunding Statement, dated August 
1, 2012, can be accessed at: http://www.treasury.gov/press-center/press-releases/Pages/tg1663.aspx.
---------------------------------------------------------------------------

    On December 5, 2012, Treasury issued an Advance Notice of Proposed 
Rulemaking (ANPR) to invite public comment on the design details, terms 
and conditions, and other features relevant to the sale and issuance of 
this new type of security.\9\ The closing date for comments was January 
22, 2013.
---------------------------------------------------------------------------

    \9\ 77 FR 72278 (December 5, 2012).
---------------------------------------------------------------------------

III. Comments Received in Response to the Advance Notice of Proposed 
Rulemaking

    Treasury received 16 comment letters in response to the ANPR \10\--
one from a securities industry trade association, eight from primary 
dealers, two from private citizens, and one each from a non-primary 
dealer, a derivatives clearing house, a derivatives exchange, an 
investment manager, and an advisory service. Overall, there was a 
consensus on many features of the security as proposed in the ANPR, 
including the reset frequency, frequency of interest payments, interest 
rate determination, initial maturity range, and auction technique. 
There was also an expressed belief that, if appropriately structured, a 
Treasury floating rate note would be an attractive investment for a 
broad base of institutional investors including money market funds, 
securities lenders, corporations, and foreign central banks.
---------------------------------------------------------------------------

    \10\ The comment letters are available to the public for 
inspection and downloading at the TreasuryDirect Web site. http://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_advance_floating_rate.htm.
---------------------------------------------------------------------------

    Regarding the index rate, the ANPR specifically requested comments 
on the use of either (1) the 13-week Treasury bill auction High Rate 
(stop out rate) converted into a simple actual/360 interest rate, or 
(2) a Treasury general collateral overnight repurchase agreement rate 
(the ``Treasury GC Rate''). All but one of the commenters addressed 
this issue, with nine favoring some form of repurchase agreement rate, 
and six preferring an index based on 13-

[[Page 46427]]

week Treasury bills. Commenters preferring the Treasury bill index also 
preferred the actual/360 basis over any other method for converting the 
auction High Rate.
    Most commenters preferred that the index rate be reset daily, and 
that interest payments be made quarterly. Commenters also widely 
supported having a new issue of floating rate notes every quarter with 
two subsequent monthly reopenings. Regarding the timing of settlement, 
a large majority who expressed a preference favored mid-month 
settlement over end-of-month settlement. There was also general 
consensus that the interest rate should be floored at zero percent.
    In the ANPR, Treasury stated that it intends to start the floating 
rate note program with a two-year maturity. Most commenters agreed that 
this was a good maturity to start with, and suggested eventual 
expansion to longer maturities of up to 10 years.
    Regarding the lockout periods, the ANPR noted that the current 
convention in the floating rate note market is for interest payments to 
be set five business days in advance of their payment dates. This 
standard practice dates from the late 1980s and was put in place for 
operational reasons. The ANPR stated that, given technological 
advancements, Treasury believes that one-business-day notice of 
interest payments should suffice. Four commenters stated that one 
business day was sufficient. One commenter stated that no lockout 
period was needed. Two commenters said that two business days was the 
most beneficial, while another commenter suggested two to three days 
``for maximum operational clarity.'' One commenter advocated seven 
business days.
    A commenter stated that, ``at least initially, a two-day lockout 
period would be optimal for operational efficiency. The benefit of an 
initial two-day lockout period is that it would accommodate both the 
firms that are currently able to absorb a shorter lockout period in 
their current operational flow, as well as firms that would have to 
make operational adjustments. In addition, buyside members also 
indicated that a two-day lockout period would be optimal to achieve 
operational efficiency.''

IV. Summary of Terms, Conditions, and Features

    After taking into consideration the comments received, Treasury is 
adopting as a final rule this amendment to the Uniform Offering 
Circular setting out the terms, conditions, and features of Treasury 
floating rate notes.
    Floating rate notes will be issued with maturities of at least one 
year, but not more than ten years. Floating rate notes may be sold at 
discount, par, or premium, and will pay interest quarterly on the last 
calendar day of the month.
    Auctions of Treasury floating rate notes will generally be 
conducted in the same manner as other marketable Treasury securities 
auctions. The auctions will be conducted as single-price auctions in 
which competitive bidders will bid in terms of a desired discount 
margin (positive, negative, or zero), expressed as a percentage with 
three decimals, e.g., 1.230 percent. The spread on the first issuance 
of a particular floating rate note will be set at the highest accepted 
discount margin in that auction. Auctions will include both competitive 
and noncompetitive bidding, a minimum purchase amount of $100, a 
maximum noncompetitive bid amount of $5 million, and a 35-percent 
maximum award limitation. The award methodology will be the same as for 
other Treasury marketable securities auctions.\11\
---------------------------------------------------------------------------

    \11\ See Sec.  356.20(a).
---------------------------------------------------------------------------

    Reopening auctions will be conducted in the same manner as new 
issuances, except that the spread on a floating rate note offered in a 
reopening auction will be the spread determined in the first auction of 
that security. Bidders in reopening auctions will bid on a discount 
margin basis and those who are awarded securities will be required to 
pay accrued interest from the dated date, or last interest payment 
date, to the reopening issue date.
    The index for floating rate notes will be the weekly High Rate 
(stop out rate) of 13-week Treasury bill auctions. The interest rate 
will be the spread plus the index rate, which will reset daily based on 
the most recent auction of 13-week bills and will be subject to a 
minimum daily interest accrual rate of zero percent. After analyzing 
the comments received, Treasury determined that a minimum spread was 
unnecessary. The use of a zero-percent minimum daily interest accrual 
rate will prevent floating rate note investors from having to remit an 
interest payment to Treasury during unusual interest rate environments, 
including those with expectations for deeply negative interest rates.
    Treasury carefully considered the ANPR responses related to the 
selection of an index rate. While a majority of respondents favored 
using a repurchase agreement rate, Treasury weighed that input against 
the benefits of indexing to the established, well-understood, and 
highly liquid 13-week Treasury bill market. At this time, Treasury 
believes that using the 13-week Treasury bill auction rate as the index 
will best achieve the goal of funding the government at the lowest 
possible cost over time. However, the selection of the 13-week Treasury 
bill auction rate as the index does not preclude Treasury from amending 
the Uniform Offering Circular in the future to provide for a floating 
rate note issuance that uses an alternative index.
    Although the index rate will reset daily, given the current 13-week 
Treasury bill auction schedule, the rate will effectively change once a 
week. The index rate will change on the day following a 13-week bill 
auction regardless of whether that day is a business day or a non-
business day.
    Interest on floating rate notes will accrue daily throughout the 
interest payment period. In general, the interest accrual for a 
particular calendar day in an accrual period will be the spread 
determined at the time of a new floating rate note auction plus the 
index rate.
    The index rate is computed from the most recent 13-week Treasury 
bill auction High Rate that has been translated into a simple-interest 
money market yield computed on an actual/360 basis and rounded to nine 
decimal places. If, however, the most recent 13-week bill auction 
occurred during a lockout period for the applicable floating rate note, 
then the index rate is computed from the most recent 13-week bill 
auction that occurred prior to the lockout period. As previously 
mentioned, the minimum daily interest accrual rate will be zero 
percent.
    Treasury will provide notice of interest payments two business days 
prior to each interest payment date. For purposes of calculating 
auction settlement amounts and quarterly interest payments, floating 
rate notes will initially have a two-business-day lockout period prior 
to their auction settlement date or an interest payment date. 
Therefore, a 13-week Treasury bill auction that takes place during the 
lockout period will be excluded from the calculation of accrued 
interest for purposes of determining that settlement amount or interest 
payment. Any changes in the index rate that would otherwise have 
occurred during the lockout period will occur on the first calendar day 
following the end of the lockout period. We will provide sufficient 
notice if we change the length of the lockout period for future 
floating rate note issuances.
    Although most commenters preferred mid-month settlement, the issue 
date for newly issued Treasury floating rate

[[Page 46428]]

notes will normally be on the last calendar day of a month because this 
timing better accommodates Treasury's financing needs. Reopening 
issuances of floating rate notes will occur on the last Friday of a 
month. In both cases, if the regular issue day is a non-business day, 
issuance will occur on the next business day. The auction announcement 
for each floating rate note will contain the specific details of that 
offering.
    Floating rate notes will not be eligible for stripping.\12\ The 
notes will be eligible, however, to serve as collateral for Treasury's 
Fiscal Service collateral programs.
---------------------------------------------------------------------------

    \12\ Stripping means separating a security's interest and 
principal components so they can be traded separately.
---------------------------------------------------------------------------

    This final rule makes the necessary revisions to accommodate the 
sale and issuance of floating rate notes. Accordingly, Treasury is 
amending sections 356.2; 356.5; 356.12; 356.14; 356.15; 356.20; 356.21; 
356.23; 356.30, 356.31, 356.32; Appendix A, Section II; Appendix B, 
Sections I and IV; Appendix C, Section II; and Appendix D, Section II 
of 31 CFR 356.

V. Section by Section Summary

    Section 356.2 has been amended by adding definitions of 13-week 
bill, Discount margin, Index rate, and Spread. The definition of Index 
has been amended to add that, in addition to the term meaning the 
Consumer Price Index for inflation protected securities, Index also 
means the High Rate on auctions of 13-week Treasury bills for floating 
rate notes. The definition of Interest rate has been expanded to define 
how the interest rate is determined for floating rate notes. Conforming 
changes have also been made to the definitions of Competitive bid, 
Multiple-price auction, Noncompetitive bid, Single-price auction, and 
Weighted-average to add discount margin as an allowable basis for 
bidding in addition to discount rate and yield.
    Section 356.5 has been amended by adding a new paragraph (b)(3) to 
add floating rate notes as a new type of security that Treasury 
auctions. The footnote to this section has also been amended by 
changing the term ``fixed-principal'' to ``non-indexed'' to distinguish 
regular Treasury notes and bonds from inflation-protected securities 
and floating rate notes. The term ``fixed-principal'' has been changed 
to ``non-indexed'' throughout this entire part.
    Section 356.12 has been amended by adding a new subparagraph 
(c)(1)(iv) to provide the competitive bidding format for floating rate 
notes.
    Section 356.20 has been amended to create a new paragraph (c) that 
explains how interest rates for floating rate notes are determined.
    Section 356.30 has been amended to allow for quarterly interest 
payments, since all other Treasury notes, bonds, and inflation-
protected securities pay interest semiannually.
    Section 356.31 has been amended to make it clear that floating rate 
notes are not eligible for stripping.
    Section 356.32 has been amended by adding a new paragraph (c) to 
provide a brief mention of special federal income tax rules for 
floating rate notes.
    Appendix B, Section I has been reorganized to add a new subsection 
C that describes the indexing and interest payment processes for 
floating rate notes, how the interest rate is determined, how interest 
accrues, and various floating rate index contingencies. New subsection 
D has been amended to add a new paragraph 6 that directs readers to 
section IV, paragraphs C and D of the appendix for discussion of how 
accrued interest is calculated for floating rate notes. A new Section 
IV has been added that provides the formulas for converting discount 
margins to equivalent prices for floating rate notes.
    A new Section II has been added to Appendix C to address various 
investment considerations for Treasury floating rate notes. 
Specifically, Section II discusses interest variability, secondary 
market trading, tax considerations, and indexing issues.
    Appendix D has been amended to revise the title, designate the 
current text as Section I, and add a new Section II that adds a 
description of the floating rate note index.
    Conforming changes are also made to paragraphs 356.12(c)(2); 
356.14(d); 356.15(e); 356.20(a)(1) and (a)(2) and new paragraphs (d)(1) 
and (d)(2); 356.21(a) and (b); 356.23(b)(2); and Appendix A, Section 
II, paragraph (d)(1) to add discount margin as an allowable basis for 
bidding.

VI. Procedural Requirements

    Executive Order 12866. This final rule is not a ``significant 
regulatory action'' pursuant to Executive Order 12866.
    Administrative Procedure Act (APA). Because this rule relates to 
public contracts and procedures for United States securities, the 
notice, public comment, and delayed effective date provisions of the 
Administrative Procedure Act are inapplicable, pursuant to 5 U.S.C. 
553(a)(2).
    Regulatory Flexibility Act. As no notice of proposed rulemaking is 
required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
601, et seq.) do not apply.
    Paperwork Reduction Act. There is no new collection of information 
contained in this final rule, and, therefore, the Paperwork Reduction 
Act does not apply. The Office of Management and Budget has approved 
the collections of information already contained in 31 CFR part 356, 
under control number 1535-0112. Under the Paperwork Reduction Act, an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid OMB 
control number.

List of Subjects in 31 CFR Part 356

    Bonds, Federal Reserve System, Government Securities, Securities.

    For the reasons set forth in the preamble, amend 31 CFR part 356 as 
follows:

PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS, 
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT 
SERIES NO. 1-93)

0
1. The authority citation for part 356 continues to read as follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.

0
2. In 31 CFR part 356, wherever it appears:
0
a. Remove `fixed-principal' and add in its place `non-indexed';
0
b. Remove `Fixed-principal' and add in its place `Non-indexed'; and
0
c. Remove `FIXED-PRINCIPAL' and add in its place `NON-INDEXED'.

Subpart A--General Information.

0
3. Amend Sec.  356.2 by:
0
a. Adding definitions in alphabetical order for 13-week bill, Discount 
margin, Index rate, and Spread; and
0
b. Revising the definitions of Competitive bid, Index, Multiple-price 
auction, Noncompetitive bid, Single-price auction, and Weighted-
average.
    The additions and revisions read as follows:


Sec.  356.2  What definitions do I need to know to understand this 
part?

    13-week bill means a Treasury bill where the security description 
is ``13-Week Bill'' as referenced on the Treasury auction announcement.
* * * * *
    Competitive bid means a bid to purchase a stated par amount of

[[Page 46429]]

securities at a specified yield, discount rate, or discount margin.
* * * * *
    Discount margin means the margin over the index that equates the 
present values of the assumed cash flows on a floating rate note to the 
sum of the price of and accrued interest on the floating rate note. The 
assumed cash flows are calculated based upon the index rate applicable 
to the dated date. Bidders in floating rate note auctions bid on the 
basis of discount margin. (See appendix B.)
* * * * *
    Index means the Consumer Price Index for inflation-protected 
securities. For floating rate notes, the index is the highest accepted 
discount rate on 13-week bills determined by Treasury auctions of those 
securities.
    Index rate means the simple-interest money market yield, computed 
on an actual/360 basis and rounded to nine decimal places, from the 
highest accepted discount rate of a 13-week bill auction as announced 
in the Treasury auction results press release. (See appendix B for 
methods and examples for computing the index rate.)
* * * * *
    Interest rate means the annual percentage rate of interest paid on 
the par amount (or the inflation-adjusted principal) of a specific 
issue of notes or bonds. For floating rate notes, the interest rate is 
the spread plus the index rate, which resets daily based on the most 
recent auction of 13-week bills, and is subject to a minimum daily 
interest accrual rate of zero percent. (See appendix B for methods and 
examples of interest calculations.)
* * * * *
    Multiple-price auction means an auction in which each successful 
competitive bidder pays the price equivalent to the yield, discount 
rate, or discount margin that it bid.
    Noncompetitive bid means, for a single-price auction, a bid to 
purchase a stated par amount of securities at the highest yield, 
discount rate, or discount margin awarded to competitive bidders. For a 
multiple-price auction, a noncompetitive bid means a bid to purchase 
securities at the weighted average yield, discount rate, or discount 
margin of awards to competitive bidders.
* * * * *
    Single-price auction means an auction in which all successful 
bidders pay the same price regardless of the yields, discount rates, or 
discount margins they each bid.
    Spread means the fixed amount over the life of a floating rate note 
that is added to the index rate in order to determine the interest rate 
of the floating rate note. The spread will be determined in the auction 
of a new floating rate note and is expressed in tenths of a basis point 
(i.e., to three decimals). Additionally, the spread will be equal to 
the high discount margin at the time a new floating rate note is 
auctioned.
* * * * *
    Weighted-average means the average of the yields, discount rates, 
or discount margins at which we award securities to competitive bidders 
in multiple-price auctions weighted by the par amount of securities 
allotted at each yield, discount rate, or discount margin.
* * * * *

0
4. In Sec.  356.5, in paragraph (b)(1), revise referenced footnote \1\ 
and add paragraph (b)(3) to read as follows:


Sec.  356.5  What types of securities does the Treasury auction?

* * * * *
    (b) * * *
    (1) * * *
    \1\ We use the term ``non-indexed'' in this part to distinguish 
such notes and bonds from ``inflation-protected securities'' and 
``floating rate notes.'' We refer to non-indexed notes and non-indexed 
bonds as ``notes'' and ``bonds'' in official Treasury publications, 
such as auction announcements and auction results press releases, as 
well as in auction systems.
* * * * *
    (3) Treasury floating rate notes. (i) Are issued with a stated 
spread to be added to the index rate for daily interest accrual 
throughout each interest payment period;
    (ii) Have a zero-percent minimum daily interest accrual rate;
    (iii) Have interest payable quarterly;
    (iv) Are redeemed at their par amount at maturity;
    (v) Are sold at discount, par, or premium depending on the auction 
results (See appendix B for price and interest payment calculations and 
appendix C for Investment Considerations.); and
    (vi) Have maturities of at least one year, but not more than ten 
years.
* * * * *

Subpart B--Bidding, Certifications, and Payment.

0
5. In Sec.  356.12, add paragraph (c)(1)(iv) and revise paragraph 
(c)(2) to read as follows:


Sec.  356.12  What are the different types of bids and do they have 
specific requirements or restrictions?

* * * * *
    (c)(1) * * *
    (iv) Treasury floating rate notes. A competitive bid must show the 
discount margin bid, expressed as a percentage with three decimals, for 
example, 0.290 percent. We will treat any missing decimals as zero, for 
example, a bid of 0.29 will be treated as 0.290. The discount margin 
bid may be positive, negative, or zero.
    (2) Maximum recognized bid. There is no limit on the maximum dollar 
amount that you may bid for competitively, either at a single yield, 
discount rate, or discount margin, or at different yields, discount 
rates, or discount margins. However, a competitive bid at a single 
yield, discount rate, or discount margin that exceeds 35 percent of the 
offering amount will be reduced to that amount. For example, if the 
offering amount is $10 billion, the maximum bid amount we will 
recognize at any one yield, discount rate, or discount margin from any 
bidder is $3.5 billion. (See Sec.  356.22 for award limitations.)
* * * * *

0
6. In Sec.  356.14, revise the first sentence of paragraph (d) to read 
as follows:


Sec.  356.14  What are the requirements for submitting bids for 
customers?

* * * * *
    (d) Competitive customer bids. For each customer competitive bid, 
the submitter must provide the customer's name, the amount bid, and the 
yield, discount rate, or discount margin. * * *
* * * * *

0
7. In Sec.  356.15, revise the first sentence of paragraph (e) to read 
as follows:


Sec.  356.15  What rules apply to bids submitted by investment 
advisors?

* * * * *
    (e) Proration of awards. Investment advisers that submit 
competitive bids in the names of controlled accounts are responsible 
for prorating any awards at the highest accepted yield, discount rate, 
or discount margin using the same percentage that we announce. * * *
* * * * *

Subpart C--Determination of Auction Awards; Settlement.

0
8. In Sec.  356.20, revise paragraph (a)(1) and (2), redesignate 
paragraph (c) as paragraph (d), add a new paragraph (c), and revise 
newly redesignated paragraphs (d)(1) and (2) to read as follows:

[[Page 46430]]

Sec.  356.20  How does the Treasury determine auction awards?

    (a) Determining the range and amount of accepted competitive bids--
(1) Accepting bids. First we accept in full all non-competitive bids 
that were submitted by the noncompetitive bidding deadline. After the 
closing time for receipt of competitive bids we start accepting those 
at the lowest yields, discount rates, or discount margins, through 
successively higher yields, discount rates, or discount margins, up to 
the amount required to meet the offering amount. When necessary, we 
prorate bids at the highest accepted yield, discount rate, or discount 
margin as described below. If the amount of noncompetitive bids would 
absorb all or most of the offering amount, we will accept competitive 
bids in an amount sufficient to provide a fair determination of the 
yield, discount rate, or discount margin for the securities we are 
auctioning.
    (2) Accepting bids at the high yield, discount rate, or discount 
margin. Generally, the total amount of bids at the highest accepted 
yield, discount rate, or discount margin exceeds the offering amount 
remaining after we accept the noncompetitive bids and the competitive 
bids at the lower yields, discount rates, or discount margins. In order 
to keep the total amount of awards as close as possible to the 
announced offering amount, we award a percentage of the bids at the 
highest accepted yield, discount rate, or discount margin. We derive 
the percentage by dividing the remaining par amount needed to fill the 
offering amount by the par amount of the bids at the high yield, 
discount rate, or discount margin and rounding up to the next hundredth 
of a whole percentage point, for example, 17.13%.
* * * * *
    (c) Determining the interest rate for floating rate notes. The 
interest rate will be the spread plus the index rate (as it may be 
adjusted on the calendar day following each auction of 13-week bills) 
subject to a minimum daily interest accrual rate of zero percent.
    (d) * * *
    (1) Single-price auctions. We award securities to both 
noncompetitive and competitive bidders at the price equivalent to the 
highest accepted yield, discount rate, or discount margin at which bids 
were accepted. For inflation-protected securities, the price for 
awarded securities is the price equivalent to the highest accepted real 
yield.
    (2) Multiple-price auctions--(i) Competitive bids. We award 
securities to competitive bidders at the price equivalent to each 
yield, discount rate, or discount margin at which their bids were 
accepted.
    (ii) Noncompetitive bids. We award securities to noncompetitive 
bidders at the price equivalent to the weighted average yield, discount 
rate, or discount margin of accepted competitive bids.

0
9. In Sec.  356.21, revise the section heading, the first three 
sentences of paragraph (a), and the last sentence of paragraph (b) to 
read as follows:


Sec.  356.21  How are awards at the high yield, discount rate, or 
discount margin calculated?

    (a) Awards to submitters. We generally prorate bids at the highest 
accepted yield, discount rate, or discount margin under Sec.  
356.20(a)(2) of this part. For example, if 80.15% is the announced 
percentage at the highest yield, discount rate, or discount margin, we 
award 80.15% of the amount of each bid at that yield, discount rate, or 
discount margin. A bid for $100 million at the highest accepted yield, 
discount rate, or discount margin would be awarded $80,150,000 in this 
example. * * *
    (b) Awards to customers. * * * For example, if 80.15% is the 
announced percentage at the highest yield, discount rate, or discount 
margin, then each customer bid at that yield, discount rate, or 
discount margin must be awarded 80.15%.

0
10. In Sec.  356.23, revise paragraph (b)(2) to read as follows:


Sec.  356.23  How are the auction results announced?

* * * * *
    (b) * * *
    (2) The range of accepted yields, discount rates, or discount 
margins.
* * * * *

Subpart D--Miscellaneous Provisions.

0
11. In Sec.  356.30, revise the fourth sentence of paragraph (a) to 
read as follows:


Sec.  356.30  When does the Treasury pay principal and interest on 
securities?

    (a) * * * Interest is payable on a semiannual or quarterly basis on 
the interest payment dates specified in the auction announcement 
through the maturity date. * * *
* * * * *

0
12. In Sec.  356.31, revise the first sentence of paragraph (a) and the 
paragraph (b) heading to read as follows:


Sec.  356.31  How does the STRIPS program work?

    (a) General. Notes or bonds (other than Treasury floating rate 
notes) may be ``stripped''--divided into separate principal and 
interest components. * * *
    (b) Treasury non-indexed securities (notes and bonds other than 
Treasury inflation-protected securities or Treasury floating rate 
notes) * * *

0
13. In Sec.  356.32, add paragraph (c) to read as follows:


Sec.  356.32  What tax rules apply?

* * * * *
    (c) Treasury floating rate notes. Special federal income tax rules 
for floating rate notes are set forth in Internal Revenue Service 
regulations.

0
14. In Appendix A to Part 356, Section II, revise paragraph (d)(1) to 
read as follows:

Appendix A to Part 356--Bidder Categories

* * * * *

II. How to Obtain Separate Bidder Recognition

* * * * *
    (d) * * *
    (1) Exchanging any of the following information with any other 
part of the corporate [partnership] structure: (a) Yields, discount 
rates, or discount margins at which it plans to bid; (b) amounts of 
securities for which it plans to bid; (c) positions that it holds or 
plans to acquire in a security being auctioned; and (d) investment 
strategies that it plans to follow regarding the security being 
auctioned, or
* * * * *

0
15. In Appendix B to Part 356:
0
a. Amend the introductory listing of sections by redesignating sections 
IV and V as sections V and VI, and adding new section IV;
0
b. In section I., redesignate subsection C as subsection D and add new 
subsection C;
0
c. In newly redesignated subsection D, add paragraph 6;
0
d. Redesignate sections IV and V as sections V and VI; and
0
e. Add new section IV.
    The additions read as follows:

Appendix B to Part 356--Formulas and Tables

* * * * *

IV. Formulas for Conversion of Floating Rate Note Discount Margins to 
Equivalent Prices

* * * * *

I. Computation of Interest on Treasury Bonds and Notes

* * * * *

C. Treasury Floating Rate Notes

    1. Indexing and Interest Payment Process. We issue floating rate 
notes with a daily interest accrual feature. This means that the 
interest rate ``floats'' based on changes in the representative 
index rate. We pay interest on

[[Page 46431]]

a quarterly basis. The index rate is the High Rate of the 13-week 
Treasury bill auction announced on the auction results press release 
that has been converted into a simple-interest money market yield 
computed on an actual/360 basis and rounded to nine decimal places. 
Interest payments are based on the floating rate note's variable 
interest rate from, and including, the dated date or last interest 
payment date to, but excluding, the next interest payment or 
maturity date. We make quarterly interest payments by accruing the 
daily interest amounts and adding those amounts together for the 
interest payment period.
    2. Interest Rate. The interest rate on floating rate notes will 
be the spread plus the index rate (as it may be adjusted on the 
calendar day following each auction of 13-week bills).
    3. Interest Accrual. In general, accrued interest for a 
particular calendar day in an accrual period is calculated by using 
the index rate from the most recent auction of 13-week bills that 
took place before the accrual day, plus the spread determined at the 
time of a new floating rate note auction, divided by 360, subject to 
a zero-percent minimum daily interest accrual rate. However, a 13-
week bill auction that takes place in the two-business-day period 
prior to a settlement date or interest payment date will be excluded 
from the calculation of accrued interest for purposes of the 
settlement amount or interest payment. Any changes in the index rate 
that would otherwise have occurred during this two-business-day 
period will occur on the first calendar day following the end of the 
period.
    4. Index Contingencies.
    (i) If Treasury were to discontinue auctions of 13-week bills, 
the Secretary has authority to determine and announce a new index 
for outstanding floating rate notes.
    (ii) If Treasury were to not conduct a 13-week bill auction in a 
particular week, then the interest rate in effect for the notes at 
the time of the last 13-week bill auction results announcement will 
remain in effect until such time, if any, as the results of a 13-
week Treasury auction are again announced by Treasury. Treasury 
reserves the right to change the index rate for any newly issued 
floating rate note.
* * * * *

D. Accrued Interest

* * * * *
    6. For a floating rate note, if accrued interest covers a 
portion of a full quarterly interest payment period, we calculate 
accrued interest as shown in section IV, paragraphs C and D of this 
appendix.
* * * * *

IV. Formulas for Conversion of Floating Rate Note Discount Margins to 
Equivalent Prices

Definitions for Newly Issued Floating Rate Notes

P = the price per $100 par value.
T0 = the issue date.
N = the total number of quarterly interest payments.
i and k = indexes that identify the sequence of interest payment 
dates.
Ti = the ith quarterly interest payment date.
Ti - Ti-1 = the number of days between the 
interest payment date Ti and the preceding interest 
payment date.
TN = the maturity date.
r = the index rate applicable to the issue date.
s = the spread.
m = the discount margin.

    A. For newly issued floating rate notes issued at par:

Formula:
[GRAPHIC] [TIFF OMITTED] TR31JY13.000

Example:

    The purpose of this example is to demonstrate how a floating 
rate note price is derived at the time of original issuance. 
Additionally, this example depicts the association of the July 31, 
2012 issue date and the two-business-day lockout period. For a new 
two-year floating rate note auctioned on July 25, 2012, and issued 
on July 31, 2012, with a maturity date of July 31, 2014, and an 
interest accrual rate on the issue date of 0.215022819% (index rate 
of 0.095022819% plus a spread of 0.120%), solve for the price per 
100 (P). This interest accrual rate is used for each daily interest 
accrual over the life of the security for the purposes of this 
example. In a new issuance (not a reopening) of a floating rate 
note, the discount margin determined at auction will be equal to the 
spread.

Definitions:

T0 = July 31, 2012.
N = 8.
TN = July 31, 2014.
r = 0.095022819%.
s = 0.120%.
m = 0.120%.

    As of the issue date the latest 13-week bill, auctioned at least 
two days prior, has the following information:

                                       Table 1--13-Week Bill Auction Data
----------------------------------------------------------------------------------------------------------------
                                                         Auction  clearing
   Auction date        Issue date       Maturity date          price        Auction high rate      Index rate
----------------------------------------------------------------------------------------------------------------
      7/23/2012          7/26/2012         10/25/2012          99.975986             0.095%       0.095022819%
----------------------------------------------------------------------------------------------------------------

    The rationale for using a 13-week bill auction that has occurred 
at least two days prior to the issue date is due to the two-
business-day lockout period. This lockout period applies only to the 
issue date and interest payment dates, thus any 13-week bill auction 
that occurs during the two-day lockout period is not used for 
calculations related to the issue date and interest payment dates. 
The following sample calendar depicts this relationship for the 
floating rate note issue date.

[[Page 46432]]

[GRAPHIC] [TIFF OMITTED] TR31JY13.001

Computing the Projected Cash Flows

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 2--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Issue Date: T0 = 7/31/2012........................  ....................
1st Interest Date: T1 = 10/31/2012................          T1 - T0 = 92
2nd Interest Date: T2 = 1/31/2013.................          T2 - T1 = 92
3rd Interest Date: T3 = 4/30/2013.................          T3 - T2 = 89
4th Interest Date: T4 = 7/31/2013.................          T4 - T3 = 92
5th Interest Date: T5 = 10/31/2013................          T5 - T4 = 92
6th Interest Date: T6 = 1/31/2014.................          T6 - T5 = 92
7th Interest Date: T7 = 4/30/2014.................          T7 - T6 = 89
8th Interest & Maturity Dates: T8 = 7/31/2014.....          T8 - T7 = 92
------------------------------------------------------------------------

Let
ai = 100 x max(r + s,0)/360

and

Ai = ai x (Ti - Ti-1) + 100 x 1{i=8{time} 

ai represents the daily projected interest, for a $100 par value, 
that will accrue between the future interest payment dates 
Ti-1 and Ti, where i = 1,2, . . . ,8. ai's are 
computed using the spread s = 0.120% obtained at the auction, and 
the fixed index rate of r = 0.095022819% applicable to the issue 
date (7/31/2012). For example:

a1 = 100 x max(0.00095022819 + 0.00120,0)/360 = 
0.000597286

Ai represents the projected cash flow the floating rate note holder 
will receive, for a $100 par value, at the future interest payment 
date Ti, where i = 1,2, . . . ,8. Ti - Ti-1 is the number 
of days between the future interest payment dates Ti-1 
and Ti. To account for the payback of the par value, the variable 
1{i=8{time}  takes the value 1 if the payment date is the 
maturity date, or 0 otherwise. For example:

Ai = 92 x 0.000597286 = 0.054950312

and

A8 = 92 x 0.000597286 + 100 = 100.054950312


[[Page 46433]]


Let

Bi = 1 + (r + m) x (Ti - Ti - 1)/360

Bi represents the projected compound factor between the future dates 
Ti-1 and Ti, where i = 1,2, . . . ,8. All Bi's 
are computed using the discount margin m = 0.120% (equals the spread 
determined at the auction), and the fixed index rate of r = 
0.095022819% applicable to the issue date (7/31/2012). For example:

B3 = 1 + (0.00095022819 + 0.00120) x 89/360 = 
1.000531584.

The following table shows the projected daily accrued interest 
values for $100 par value (ai's), cash flows at interest payment 
dates (Ai's), and the compound factors between payment dates (Bi's).

                               Table 3--Projected Cash Flows and Compound Factors
----------------------------------------------------------------------------------------------------------------
                  i                               ai                       Ai                       Bi
----------------------------------------------------------------------------------------------------------------
1....................................              0.000597286              0.054950312              1.000549503
2....................................              0.000597286              0.054950312              1.000549503
3....................................              0.000597286              0.053158454              1.000531584
4....................................              0.000597286              0.054950312              1.000549503
5....................................              0.000597286              0.054950312              1.000549503
6....................................              0.000597286              0.054950312              1.000549503
7....................................              0.000597286              0.053158454              1.000531584
8....................................              0.000597286            100.054950312              1.000549503
----------------------------------------------------------------------------------------------------------------

Computing the Price

    The price is computed as follows:
    [GRAPHIC] [TIFF OMITTED] TR31JY13.002
    
    B. For newly issued floating rate notes issued at a premium:
Formula:

[[Page 46434]]

[GRAPHIC] [TIFF OMITTED] TR31JY13.003

Example:

    The purpose of this example is to demonstrate how a floating 
rate note auction can result in a price at a premium given a 
negative discount margin and spread at auction. For a new two-year 
floating rate note auctioned on July 25, 2012, and issued on July 
31, 2012, with a maturity date of July 31, 2014, solve for the price 
per 100 (P). In a new issue (not a reopening) of a floating rate 
note, the discount margin established at auction will be equal to 
the spread. In this example, the discount margin determined at 
auction is -0.150%, but the floating rate note is subject to a daily 
interest rate accrual minimum of 0.000%.

Definitions:

T0 = July 31, 2012.
N = 8.
TN = July 31, 2014.
r = 0.095022819%.
s = -0.150%.
m = -0.150%.
    As of the issue date the latest 13-week bill, auctioned at least 
two days prior, has the following information:

                                       Table 1--13-Week Bill Auction Data
----------------------------------------------------------------------------------------------------------------
                                                         Auction  clearing
   Auction date        Issue date       Maturity date          price        Auction high rate      Index rate
----------------------------------------------------------------------------------------------------------------
      7/23/2012          7/26/2012         10/25/2012          99.975986             0.095%       0.095022819%
----------------------------------------------------------------------------------------------------------------

                                                                                               [GRAPHIC] [TIFF OMITTED] TR31JY13.004
                                                                                               
Computing the Projected Cash Flows

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 2--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Issue Date: T0 = 7/31/2012........................  ....................
1st Interest Date: T1 = 10/31/2012................          T1 - T0 = 92
2nd Interest Date: T2 = 1/31/2013.................          T2 - T1 = 92
3rd Interest Date: T3 = 4/30/2013.................          T3 - T2 = 89
4th Interest Date: T4 = 7/31/2013.................          T4 - T3 = 92
5th Interest Date: T5 = 10/31/2013................          T5 - T4 = 92
6th Interest Date: T6 = 1/31/2014.................          T6 - T5 = 92
7th Interest Date: T7 = 4/30/2014.................          T7 - T6 = 89
8th Interest & Maturity Dates: T8 = 7/31/2014.....          T8 - T7 = 92
------------------------------------------------------------------------


[[Page 46435]]

Let

ai = 100 x max(r + s,0)/360

and

Ai = ai x (Ti - Ti - 1) + 
100x1{i=8{time} 

ai Represents the daily projected interest, for a $100 par value, 
that will accrue between the future interest payment dates Ti 
- 1 and Ti where i = 1,2, . . . ,8. ai's are 
computed using the spread s = - 0.150%, and the fixed index rate of 
r = 0.095022819% applicable to the issue date (7/31/2012). For 
example:

ai = 100 x max(0.00095022819-0.00150,0)/360 = 100 x 0/360 
= 0.000000000

    Ai represents the projected cash flow the floating rate note 
holder will receive, for a $100 par value, at the future interest 
payment date Ti, where i = 1,2, . . ., 8. Ti - Ti-1 is 
the number of days between the future interest payment dates 
Ti-1 and Ti. To account for the payback of the par value, 
the variable 1{i=8{time}  takes the value 1 if 
the payment date is the maturity date, or 0 otherwise. For example:

A1 = 92 x 0.000000000 = 0.000000000

and

A8 = 92 x 0.000000000 + 100 = 100.000000000

Let

Bi = 1 + (r + m) x (Ti-Ti-1)/360

    Bi represents the projected compound factor between the future 
dates Ti-1 and Ti, where i = 1,2, . . ., 8. All Bi's are 
computed using the discount margin m = -0.150% (equals the spread 
obtained at the auction), and the fixed index rate of r = 
0.095022819% applicable to the issue date (7/31/2012). For example:

B3 = 1 + (0.00095022819-0.00150) x 89/360 = 0.999864084.

    The following table shows the projected daily accrued interests 
for $100 par value (ai's), cash flows at interest payment dates 
(Ai's), and the compound factors between payment dates (Bi's).

                               Table 3--Projected Cash Flows and Compound Factors
----------------------------------------------------------------------------------------------------------------
                  i                               ai                       Ai                       Bi
----------------------------------------------------------------------------------------------------------------
1....................................              0.000000000              0.000000000              0.999859503
2....................................              0.000000000              0.000000000              0.999859503
3....................................              0.000000000              0.000000000              0.999864084
4....................................              0.000000000              0.000000000              0.999859503
5....................................              0.000000000              0.000000000              0.999859503
6....................................              0.000000000              0.000000000              0.999859503
7....................................              0.000000000              0.000000000              0.999864084
8....................................              0.000000000            100.000000000              0.999859503
----------------------------------------------------------------------------------------------------------------

Computing the Price

    The price is computed as follows:
    [GRAPHIC] [TIFF OMITTED] TR31JY13.005
    
Definitions for Reopenings of Floating Rate Notes and Calculation 
of Interest Payments

IPi = the quarterly interest payment at date 
Ti.
PD = the price that includes the accrued interest per $100 par value 
as of the reopening issue date.
AI = accrued interest per $100 par value as of the reopening issue 
date.
PC = the price without accrued interest per $100 par value as of the 
reopening issue date.
T-1 = the dated date if the reopening occurs before the 
first interest payment date, or, otherwise, the latest interest 
payment date prior to the reopening issue date.
T0 = the reopening issue date.
N = the total number of remaining quarterly interest payments as of 
the reopening issue date.
i and k = indexes that identify the sequence of interest payment 
dates relative to the issue date. For example T1, 
T2, and T3 represent the first, second, and 
the third interest payment dates after the issue date respectively, 
while T-1 represents the preceding interest payment date 
before the issue date.
j = an index that identifies days between consecutive interest 
payment dates.
Ti = the ith remaining quarterly interest 
payment date.
Ti - Ti-1 = the number of days between the 
interest payment date Ti and the preceding interest 
payment date.
TN = the maturity date.

[[Page 46436]]

rj's = the effective index rates for days between the 
last interest payment date and the reopening issue date.
r = the index rate applicable to the reopening issue date.
s = the spread.
m = the discount margin.
    C. Pricing and accrued interest for reopened floating rate notes

Formula:
[GRAPHIC] [TIFF OMITTED] TR31JY13.006

Example:

    The purpose of this example is to determine the floating rate 
note prices with and without accrued interest at the time of the 
reopening auction. For a two-year floating rate note that was 
originally auctioned on July 25, 2012, with an issue date of July 
31, 2012, reopened in an auction on August 30, 2012 and issued on 
August 31, 2012, with a maturity date of July 31, 2014, solve for 
accrued interest per 100 (AI), the price with accrued interest per 
100 (PD) and the price without accrued interest per 100 
(PC). Since this is a reopening of an original issue from 
the prior month, Table 2 as shown in the example is used for accrued 
interest calculations. In the case of floating rate note reopenings, 
the spread on the security remains equal to the spread that was 
established at the original auction of the floating rate notes.

Definitions:

T-1 = July 31, 2012.
T0 = August 31, 2012.
N = 8.
TN = July 31, 2014.
r = 0.105027876%.
s = 0.120%.
m = 0.100%.

    The following table shows the past results for the 13-week bill 
auction.

                                       Table 1--13-Week Bill Auction Data
----------------------------------------------------------------------------------------------------------------
                                                                      Auction
          Auction date              Issue date     Maturity date     clearing      Auction  high    Index rate
                                                                       price      rate (percent)     (percent)
----------------------------------------------------------------------------------------------------------------
7/23/2012.......................       7/26/2012      10/25/2012       99.975986           0.095     0.095022819
7/30/2012.......................        8/2/2012       11/1/2012       99.972194           0.110     0.110030595
8/6/2012........................        8/9/2012       11/8/2012       99.974722           0.100     0.100025284
8/13/2012.......................       8/16/2012      11/15/2012       99.972194           0.110     0.110030595
8/20/2012.......................       8/23/2012      11/23/2012       99.973167           0.105     0.105028183
8/27/2012.......................       8/30/2012      11/29/2012       99.973458           0.105     0.105027876
----------------------------------------------------------------------------------------------------------------



[[Page 46437]]

[GRAPHIC] [TIFF OMITTED] TR31JY13.007

    The following table shows the index rates applicable for the 
accrued interest.

                                         Table 2--Applicable Index Rate
----------------------------------------------------------------------------------------------------------------
                                                                                     Applicable floating rate
                                                                  Number of days -------------------------------
                 Accrual starts                    Accrual ends     in accrual                      Index rate
                                                                      period       Auction date      (percent)
----------------------------------------------------------------------------------------------------------------
7/31/2012.......................................       7/31/2012               1       7/23/2012     0.095022819
8/1/2012........................................        8/6/2012               6       7/30/2012     0.110030595
8/7/2012........................................       8/13/2012               7        8/6/2012     0.100025284
8/14/2012.......................................       8/20/2012               7       8/13/2012     0.110030595
8/21/2012.......................................       8/27/2012               7       8/20/2012     0.105028183
8/28/2012.......................................       8/30/2012               3       8/27/2012     0.105027876
----------------------------------------------------------------------------------------------------------------

Computing the Accrued Interest

    The accrued interest as of the new issue date (8/31/2012) for a 
$100 par value is:

AI = 1 x 100 x max (0.00095022819 + 0.00120,0)/360
    + 6 x 100 x max (0.00110030595 + 0.00120,0)/360
    + 7 x 100 x max (0.00100025284 + 0.00120,0)/360
    + 7 x 100 x max (0.00110030595 + 0.00120,0)/360
    + 7 x 100 x max (0.00105028183 + 0.00120,0)/360
    + 3 x 100 x max (0.00105027876 + 0.00120,0)/360

AI = 1x0.000597286
+ 6x0.000638974
+ 7x0.000611181
+ 7x0.000638974
+ 7x0.000625078
+ 3x0.000625077
AI = 0.000597286 + 0.003833844 + 0.004278267 + 0.00472818 + 
0.004375546 + 0.001875231
AI = 0.019432992 = $0.019433

Computing the Projected Cash Flows

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 3--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Original Issue Date: T-1 = 7/31/2012..............  ....................
New Issue Date: T0 = 8/31/2012....................         T0 - T-1 = 31
1st Interest Date: T1 = 10/31/2012................          T1 - T0 = 61
2nd Interest Date: T2 = 1/31/2013.................          T2 - T1 = 92
3rd Interest Date: T3 = 4/30/2013.................          T3 - T2 = 89
4th Interest Date: T4 = 7/31/2013.................          T4 - T3 = 92
5th Interest Date: T5 = 10/31/2013................          T5 - T4 = 92
6th Interest Date: T6 = 1/31/2014.................          T6 - T5 = 92
7th Interest Date: T7 = 4/30/2014.................          T7 - T6 = 89
8th Interest & Maturity Dates: T8 = 7/31/2014.....          T8 - T7 = 92
------------------------------------------------------------------------

Let

a1 = 100 x max(r + s, 0)/360
and

Ai = ai x (Ti - Ti-1) + 
100x1{i=8{time} 

    a1 represents the daily projected interest, for a $100 par 
value, that will accrue between the future interest payment dates 
Ti-1 and T1, where i=1,2,...,8. ai's are 
computed using the spread s = 0.120% obtained at the original 
auction, and the fixed index rate of r = 0.105027876% applicable to 
the new issue date (8/31/2012). For example:

ai = 100 x max(0.00105027876 + 0.00120,0)/360 = 0.000625077

    Ai represents the projected cash flow the floating rate note 
holder will receive, less

[[Page 46438]]

accrued interest, for a $100 par value, at the future interest 
payment date Ti, where i=1,2,...,8. Ti-1 is the number of 
days between the future interest payment dates Ti-1 and 
Ti. To account for the payback of the par value, the variable 
1{i=8{time}  takes the value 1 if the payment 
date is the maturity date, or 0 otherwise. For example:

Ai = 61x0.000625077 = 0.038129697

    and

A8 = 92x0.000625077 + 100 = 100.057507084

    Let

Bi = 1 + (r + m)x(Ti-1)/360

    Bi represents the projected compound factor between the future 
dates Ti-1 and Ti, where i=1,2,...,8. All Bi's are 
computed using the discount margin m = 0.100% obtained at the 
reopening auction, and the fixed index rate of r = 0.105027876% 
applicable to the new issue date (8/31/2012). For example:

B3 = 1 + (0.00105027876 + 0.00100)x89/360 = 1.000506874

    The following table shows the projected daily accrued interests 
for $100 par value (ai's), cash flows at interest payment dates 
(Ai's), and the compound factors between payment dates (Bi's).

                               Table 4--Projected Cash Flows and Compound Factors
----------------------------------------------------------------------------------------------------------------
                  i                               ai                       Ai                       Bi
----------------------------------------------------------------------------------------------------------------
1....................................              0.000625077              0.038129697              1.000347408
2....................................              0.000625077              0.057507084              1.000523960
3....................................              0.000625077              0.055631853              1.000506874
4....................................              0.000625077              0.057507084              1.000523960
5....................................              0.000625077              0.057507084              1.000523960
6....................................              0.000625077              0.057507084              1.000523960
7....................................              0.000625077              0.055631853              1.000506874
8....................................              0.000625077            100.057507084              1.000523960
----------------------------------------------------------------------------------------------------------------

Computing the Price

    The price with accrued interest is computed as follows:
    [GRAPHIC] [TIFF OMITTED] TR31JY13.008
    

[[Page 46439]]


    D. For calculating interest payments:

Example:

    For a new issue of a two-year floating rate note auctioned on 
July 25, 2012, and issued on July 31, 2012, with a maturity date of 
July 31, 2014, and a first interest payment date of October 31, 
2012, calculate the quarterly interest payments (IPI) per 
100. In a new issuance (not a reopening) of a new floating rate 
note, the discount margin determined at auction will be equal to the 
spread. The interest accrual rate used for this floating rate note 
on the issue date is 0.215022819% (index rate of 0.095022819% plus a 
spread of 0.120%) and this rate is used for each daily interest 
accrual over the life of the security for the purposes of this 
example.
[GRAPHIC] [TIFF OMITTED] TR31JY13.010

    Example 1: Projected interest payment as of the original issue 
date.

T0 = July 31, 2012.
N = 8.
TN = July 31, 2014.
r = 0.095022819%.
s = 0.120%.
m = 0.120%.

    As of the issue date the latest 13-week bill, auctioned at least 
two days prior, has the following information:

                                                           Table 1--13-Week Bill Auction Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Auction        Auction high
                            Auction date                                Issue date     Maturity date    clearing price        rate          Index rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/23/2012..........................................................       7/26/2012       10/25/2012        99.975986           0.095%     0.095022819%
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                                         [GRAPHIC] [TIFF OMITTED] TR31JY13.011
                                                                                                                                         
Computing the Projected Cash Flows

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 2--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Issue Date: T0 = 7/31/2012........................  ....................
1st Interest Date: T1 = 10/31/2012................          T1 - T0 = 92
2nd Interest Date: T2 = 1/31/2013.................          T2 - T1 = 92
3rd Interest Date: T3 = 4/30/2013.................          T3 - T2 = 89
4th Interest Date: T4 = 7/31/2013.................          T4 - T3 = 92
5th Interest Date: T5 = 10/31/2013................          T5 - T4 = 92
6th Interest Date: T6 = 1/31/2014.................          T6 - T5 = 92
7th Interest Date: T7 = 4/30/2014.................          T7 - T6 = 89
8th Interest & Maturity Dates: T8 = 7/31/2014.....          T8 - T7 = 92
------------------------------------------------------------------------


[[Page 46440]]

    Using the spread s = 0.120%, and the fixed index rate of r = 
0.095022819% applicable to the issue date (7/31/2012), the first and 
seventh projected interest payments are computed as follows:

IP1 = 92x[100xmax(0.00095022819 + 0.00120,0)/360]
IP1 = 92x0.000597286 = 0.054950312

IP7 = 89x[100xmax(0.00095022819 + 0.00120,0)/360]
IP7 = 89x0.000597286 = 0.053158454

    The following table shows all projected interest payments as of 
the issue date.

                  Table 3--Projected Interest Payments
------------------------------------------------------------------------
                    i                          Dates            IPi
------------------------------------------------------------------------
1.......................................      10/31/2012     0.054950312
2.......................................       1/31/2013     0.054950312
3.......................................       4/30/2013     0.053158454
4.......................................       7/31/2013     0.054950312
5.......................................      10/31/2013     0.054950312
6.......................................       1/31/2014     0.054950312
7.......................................       4/30/2014     0.053158454
8.......................................       7/31/2014     0.054950312
------------------------------------------------------------------------

    Example 2: Projected interest payment as of the reopening issue 
date (intermediate values, including rates in percentage terms, are 
rounded to nine decimal places).
    This example demonstrates the calculations required to determine 
the interest payment due when the reopened floating rate note is 
issued. This example also demonstrates the need to calculate accrued 
interest at the time of a floating rate reopening auction. Since 
this is a reopening of an original issue from 31 days prior, Table 5 
as shown in the example is used for accrued interest calculations. 
For a two-year floating rate note originally auctioned on July 25, 
2012 with an original issue date of July 31, 2012, reopened by an 
auction on August 30, 2012 and issued on August 31, 2012, with a 
maturity date of July 31, 2014, calculate the quarterly interest 
payments (IPI) per 100. T-1 is the dated date 
if the reopening occurs before the first interest payment date, or 
otherwise the latest interest payment date prior to the new issue 
date.

T-1 = July 31, 2012.
T0 = August 31, 2012.
N = 8.
TN = July 31, 2014.
r = 0.105027876%.
s = 0.120%.
m = 0.100%.

    The following table shows the past results for the 13-week bill 
auction.

                                       Table 4--13-Week Bill Auction Data
----------------------------------------------------------------------------------------------------------------
                                                                                   Auction  high
          Auction date              Issue date     Maturity date      Auction          rate         Index rate
                                                                  clearing price     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
7/23/2012.......................       7/26/2012      10/25/2012       99.975986           0.095     0.095022819
7/30/2012.......................        8/2/2012       11/1/2012       99.972194           0.110     0.110030595
8/6/2012........................        8/9/2012       11/8/2012       99.974722           0.100     0.100025284
8/13/2012.......................       8/16/2012      11/15/2012       99.972194           0.110     0.110030595
8/20/2012.......................       8/23/2012      11/23/2012       99.973167           0.105     0.105028183
8/27/2012.......................       8/30/2012      11/29/2012       99.973458           0.105     0.105027876
----------------------------------------------------------------------------------------------------------------

                                                                                                  [GRAPHIC] [TIFF OMITTED] TR31JY13.012
                                                                                                  
    The following table shows the index rates applicable for the 
accrued interest.

                                         Table 5--Applicable Index Rate
----------------------------------------------------------------------------------------------------------------
                                                                                     Applicable floating rate
                                                                  Number of days -------------------------------
                 Accrual starts                    Accrual ends     in  accrual                     Index rate
                                                                      period       Auction date      (percent)
----------------------------------------------------------------------------------------------------------------
7/31/2012.......................................       7/31/2012               1       7/23/2012     0.095022819
8/1/2012........................................        8/6/2012               6       7/30/2012     0.110030595
8/7/2012........................................       8/13/2012               7        8/6/2012     0.100025284
8/14/2012.......................................       8/20/2012               7       8/13/2012     0.110030595
8/21/2012.......................................       8/27/2012               7       8/20/2012     0.105028183

[[Page 46441]]

 
8/28/2012.......................................       8/30/2012               3       8/27/2012     0.105027876
----------------------------------------------------------------------------------------------------------------

Computing the accrued interest

    The accrued interest as of 8/31/2012 for a $100 par value is:

AI = 1 x 100 x max (0.00095022819 + 0.00120,0)/360
+ 6 x 100 x max (0.00110030595 + 0.00120,0)/360
+ 7 x 100 x max (0.00100025284 + 0.00120,0)/360
+ 7 x 100 x max (0.00110030595 + 0.00120,0)/360
+ 7 x 100 x max (0.00105028183 + 0.00120,0)/360
+ 3 x 100 x max (0.00105027876 + 0.00120,0)/360

AI = 1 x 0.000597286
+ 6 x 0.000638974
+ 7 x 0.000611181
+ 7 x 0.000638974
+ 7 x 0.000625078
+ 3 x 0.000625077

AI = 0.000597286 + 0.003833844 + 0.004278267 + 0.004472818 + 
0.004375546 + 0.001875231

AI = 0.019432992 = $0.019433

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 6--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Original Issue Date: T-1 = 7/31/2012..............
New Issue Date: T0 = 8/31/2012....................         T0 - T-1 = 31
1st Interest Date: T1 = 10/31/2012................          T1 - T0 = 61
2nd Interest Date: T2 = 1/31/2013.................          T2 - T1 = 92
3rd Interest Date: T3 = 4/30/2013.................          T3 - T2 = 89
4th Interest Date: T4 = 7/31/2013.................          T4 - T3 = 92
5th Interest Date: T5 = 10/31/2013................          T5 - T4 = 92
6th Interest Date: T6 = 1/31/2014.................          T6 - T5 = 92
7th Interest Date: T7 = 4/30/2014.................          T7 - T6 = 89
8th Interest & Maturity Dates: T8 = 7/31/2014.....          T8 - T7 = 92
------------------------------------------------------------------------

    Using the original spread s = 0.120% (obtained on 7/25/2012), 
and the fixed index rate of r = 0.105027876% applicable to the new 
issue date (8/31/2012), the first and eighth projected interest 
payments are computed as follows:

IP1 = 0.019432992 + 61 x [100 x max (0.00105027876 + 
0.00120,0)/360]
IP1 = 0.019432992 + 61 x 0.000625077
IP1 = 0.019432992 + 0.038129697 = 0.057562689

and

IP8 = 92 x [100 x max (0.00105027876 + 0.00120,0)/360]
IP8 = 92 x 0.000625077 = 0.057507084

    The following table shows all projected interest payments as of 
the new issue date.

                  Table 7--Projected Interest Payments
------------------------------------------------------------------------
                    i                          Dates            IPi
------------------------------------------------------------------------
1.......................................      10/31/2012     0.057562689
2.......................................       1/31/2013     0.057507084
3.......................................       4/30/2013     0.055631853
4.......................................       7/31/2013     0.057507084
5.......................................      10/31/2013     0.057507084
6.......................................       1/31/2014     0.057507084
7.......................................       4/30/2014     0.055631853
8.......................................       7/31/2014     0.057507084
------------------------------------------------------------------------

Definitions for Newly Issued Floating Rate Notes with an Issue Date 
that Occurs after the Dated Date

PD = the price that includes accrued interest from the dated date to 
the issue date per $100 par value as of the issue date.
AI = the accrued interest per $100 par value as of the issue date.
PC = the price without accrued interest per $100 par value as of the 
issue date.
T-1 = the dated date.
T0 = the issue date.
N = the total number of remaining quarterly interest payments as of 
the new issue date.
i and k = indexes that identify the sequence of interest payment 
dates.
j = an index that identifies days between the dated date and the 
issue date.
Ti = the ith quarterly future interest payment date.
Ti - Ti-1 = the number of days between the 
interest payment date Ti and the preceding interest 
payment date.
TN = the maturity date.
rj's = the effective index rates for days between the dated date and 
the issue date.
r = the index rate applicable to the issue date.
s = the spread.
m = the discount margin.

    E. Pricing and accrued interest for new issue floating rate 
notes with an issue date that occurs after the dated date

Formula:

[[Page 46442]]

[GRAPHIC] [TIFF OMITTED] TR31JY13.013

Example:

    The purpose of this example is to demonstrate how a floating 
rate note can have a price without accrued interest of less than 
$100 par value when the issue date occurs after the dated date. An 
original issue two-year floating rate note is auctioned on December 
29, 2011, with a dated date of December 31, 2011, an issue date of 
January 3, 2012, and a maturity date of December 31, 2013.
Definitions:

Dated date = 12/31/2011.
Issue date = 1/3/2012.
Maturity date = 12/31/2013.
Spread = 1.000% at auction.
Discount margin = 1.000%.

    As of the issue date the latest 13-week bill, auctioned at least 
two days prior, has the following information:

                                                           Table 1--13-WEEK BILL AUCTION DATA
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Auction        Auction high
                            Auction date                                Issue date     Maturity date    clearing price        rate          Index rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
12/27/2011.........................................................      12/29/2011        3/29/2012        99.993681           0.025%     0.025001580%
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                                         [GRAPHIC] [TIFF OMITTED] TR31JY13.014
                                                                                                                                         
    The following table shows the index rates applicable for the 
accrued interest.

                                         Table 2--Applicable Index Rate
----------------------------------------------------------------------------------------------------------------
                                                                Number of days      Applicable floating rate
               Accrual starts                   Accrual ends     in  accrual   ---------------------------------
                                                                    period        Auction date      Index rate
----------------------------------------------------------------------------------------------------------------
12/31/2011..................................        1/2/2012                3       12/27/2011     0.025001580%
----------------------------------------------------------------------------------------------------------------


[[Page 46443]]

Computing the accrued interest

    The accrued interest as of the new issue date (1/3/2012) for a 
$100 par value is:

AI = 3 x 100 x max (0.00025001580 + 0.01000,0)/360

AI = 3 x 0.002847227

AI = 0.008541681 = $0.008542

Computing the Projected Cash Flows

    The following table presents the future interest payment dates 
and the number of days between them.

                         Table 3--Payment Dates
------------------------------------------------------------------------
                       Dates                         Days between dates
------------------------------------------------------------------------
Dated Date: = T-1 = 12/31/2011....................
Issue Date: T0 = 1/3/2012.........................          T0 - T-1 = 3
1st Interest Date: T1 = 3/31/2012.................          T1 - T0 = 88
2nd Interest Date: T2 = 6/30/2012.................          T2 - T1 = 91
3rd Interest Date: T3 = 9/30/2012.................          T3 - T2 = 92
4th Interest Date: T4 = 12/31/2012................          T4 - T3 = 92
5th Interest Date: T5 = 3/31/2013.................          T5 - T4 = 90
6th Interest Date: T6 = 6/30/2013.................          T6 - T5 = 91
7th Interest Date: T7 = 9/30/2013.................          T7 - T6 = 92
8th Interest & Maturity Dates: T8 = 12/31/2013....          T8 - T7 = 92
------------------------------------------------------------------------

Let

ai = 100 x max(r + s, 0)/360

and

Ai = ai x (Ti - Ti-1) + 100 x 
1{i=8{time} 

    ai represents the daily projected interest, for a $100 par 
value, that will accrue between the future interest payment dates 
Ti-1 and Ti, where i = 1,2,...,8. ai's are computed using 
the spread s = 1.000% obtained at the auction, and the fixed index 
rate of r = 0.025001580% applicable to the issue date (1/3/2012). 
For example:

a1 = 100 x max(0.00025001580 + 0.01000,0)/360 = 
0.002847227

    Ai represents the projected cash flow the floating rate note 
holder will receive, less accrued interest, for a $100 par value, at 
the future interest payment date Ti, where i = 1,2,...,8. Ti - 
Ti-1 is the number of days between the future interest 
payment dates Ti-1 and T1. To account for the payback of 
the par value, the variable 1{i=8{time}  takes 
the value 1 if the payment date is the maturity date, or 0 
otherwise. For example:

A1 = 88 x 0.002847227 = 0.250555976

and

A8 = 92 x 0.002847227 + 100 = 100.261944884

Let

Bi = 1 + (r + m) x (Ti - Ti-1)/360

    Bi represents the projected compound factor between the future 
dates Ti-1 and Ti, where i = 1,2,...,8. All Bi's are 
computed using the discount margin m = 1.000% (equals the spread 
obtained at the auction), and the fixed index rate of r = 
0.025001580% applicable to the issue date (1/3/2012). For example:

B3 = 1 + (0.00025001580 + 0.01000) x 92/360 = 1.002619448

    The following table shows the projected daily accrued interests 
for $100 par value (ai 's), cash flows at interest payment dates (Ai 
's), and the compound factors between payment dates (Bi's).

                               Table 4--Projected Cash Flows and Compound Factors
----------------------------------------------------------------------------------------------------------------
                  i                               ai                       Ai                       Bi
----------------------------------------------------------------------------------------------------------------
1....................................              0.002847227              0.250555976              1.002505559
2....................................              0.002847227              0.259097657              1.002590976
3....................................              0.002847227              0.261944884              1.002619448
4....................................              0.002847227              0.261944884              1.002619448
5....................................              0.002847227              0.256250430              1.002562504
6....................................              0.002847227              0.259097657              1.002590976
7....................................              0.002847227              0.261944884              1.002619448
8....................................              0.002847227            100.261944884              1.002619448
----------------------------------------------------------------------------------------------------------------

Computing the price

    The price with accrued interest is computed as follows:

[[Page 46444]]

[GRAPHIC] [TIFF OMITTED] TR31JY13.015

* * * * *

0
16. In Appendix C, add Section II to read as follows:

Appendix C to Part 356--Investment Considerations

* * * * *

II. Floating Rate Notes

A. Interest Variability

    An investment in securities with interest determined by 
reference to a 13-week Treasury bill index involves risks not 
associated with an investment in a fixed interest rate security. 
Such risks include the possibility that:
     Changes in the index may or may not correlate to 
changes in interest rates generally or with changes in other 
indexes;
     any given interest payment may be more or less than the 
amount paid on prior interest payment dates;
     the resulting interest payments may be greater or less 
than those payable on other securities of similar maturities, and
     in the event of sustained falling interest rates, the 
amount of the quarterly interest payments will decrease.

B. Trading in the Secondary Market

    The Treasury securities market is the largest and most liquid 
securities market in the world. The market for Treasury floating 
rate notes, however, may not be as active or liquid as the market 
for Treasury non-indexed securities or Treasury inflation-protected 
securities. In addition, Treasury floating rate notes may not be as 
widely traded or as well understood as these other types of Treasury 
marketable securities. Prices for floating rate notes may not 
fluctuate in reaction to interest rate movements in the same manner 
as other Treasury securities. Lesser liquidity and fewer market 
participants may result in larger spreads between bid and asked 
prices for Treasury floating rate notes than the bid-asked spreads 
for other Treasury marketable securities with the same time to 
maturity. Larger bid-asked spreads normally result in higher 
transaction costs and/or lower overall returns. The liquidity of a 
Treasury floating rate note may be enhanced over time as we issue 
additional amounts or more entities participate in the market.

C. Tax Considerations

    Treasury floating rate notes are subject to specific tax rules 
provided by Treasury regulations issued under section 1275(d) of the 
Internal Revenue Code of 1986, as amended.

D. Indexing Issues

    The Bureau of the Fiscal Service publishes the High Rate 
immediately following a 13-week bill auction as part of the auction 
results. The 13-week bill is generally auctioned once per week. 
Treasury retains the flexibility to increase or decrease the 
frequency of 13-week bill auctions, which would affect the frequency 
of index rate resets. The High Rate is subject to various interest 
rate and market environments over which Treasury has no control. For 
a discussion of actions that Treasury would take in the event 
auctions of 13-week bills are discontinued or delayed, see appendix 
B, section I, paragraph C.4 of this part.


0
17. In Appendix D, revise the heading, designate the current text as 
section I. Consumer Price Index, and add section II to read as follows:

[[Page 46445]]

Appendix D to Part 356--Description of the Indexes

I. Consumer Price Index

* * * * *

II. Floating Rate Note Index

    The floating rate note index is the 13-week Treasury bill 
auction High Rate (stop out rate), and converted to the simple-
interest money market yield computed on an actual/360 basis.

Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2013-18178 Filed 7-30-13; 8:45 am]
BILLING CODE 4810-39-P