[Federal Register Volume 79, Number 130 (Tuesday, July 8, 2014)]
[Rules and Regulations]
[Pages 38451-38456]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15731]


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DEPARTMENT OF THE TREASURY

17 CFR Parts 400, 401, 402, 403, 405, 420, 449, and 450

[Docket No. BPD GSRS 11-01]
RIN 1535-AA02


Government Securities Act Regulations; Replacement of References 
to Credit Ratings and Technical Amendments

AGENCY: Office of the Assistant Secretary for Financial Markets, 
Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing in final 
form an amendment to the regulations issued under the Government 
Securities Act of 1986, as amended (GSA), to replace references to 
credit ratings in the regulations with alternative requirements. 
Section 939A of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) requires Federal agencies to remove 
from their applicable regulations any reference to or requirement of 
reliance on credit ratings and to substitute a standard of 
creditworthiness as the agency determines appropriate for such 
regulations. This final rule amendment provides a substitute standard 
of creditworthiness for use in the liquid capital rule required by GSA 
regulations. It also contains several non-substantive, technical 
amendments to Treasury's GSA regulations to update certain information 
or to delete certain requirements that are no longer applicable.

DATES: The amendments will become effective August 7, 2014.

ADDRESSES: This final rule is available on the Bureau of the Fiscal 
Service's Web site at http://www.treasurydirect.gov. It is also 
available for public inspection and copying at the Treasury Department 
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, 
Chuck Andreatta, Associate Director, or Kevin Hawkins, Government 
Securities Advisor, Department of the Treasury, Bureau of the Fiscal 
Service, Government Securities Regulations Staff, (202) 504-3632 or 
email us at govsecreg@fiscal.treasury.gov.

SUPPLEMENTARY INFORMATION: We are amending Treasury's liquid capital 
rule for registered government securities brokers and dealers under the 
GSA regulations at 17 CFR part 402 to remove references to credit 
ratings and substitute a standard of creditworthiness. We are issuing 
this amendment in order to comply with the requirements of the Dodd-
Frank Act.\1\ We are not narrowing or broadening the scope of financial 
instruments that would qualify for beneficial treatment under the 
existing liquid capital rule. Section 939A(a) of the Dodd-Frank Act 
requires that Federal agencies, to the extent applicable, ``review (1) 
any regulation issued by such agency that requires the use of an 
assessment of the credit-worthiness of a security or money market 
instrument; and (2) any references to or requirements in such 
regulations regarding credit ratings.'' Section 939A(b) requires the 
agency to modify any regulations identified to ``remove any reference 
to or requirement of reliance on credit ratings and to substitute in 
such regulations such standard of credit-worthiness'' as the agency 
determines to be appropriate for such regulations.\2\
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Section 939A of the Dodd-Frank Act.
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I. Current Liquid Capital Rule

    Treasury's liquid capital rule (17 CFR 402.2) prescribes minimum 
regulatory capital requirements for registered government securities 
brokers and dealers. In general, the liquid capital rule is a minimum 
ratio requirement of liquid capital to risk, as measured using various 
``haircuts,'' \3\ which are designed to account for the market risk 
inherent in a government securities broker's or dealer's securities 
positions and create a buffer of liquidity to protect against other 
risks associated with its securities business. Specifically, a 
government securities broker or dealer may not permit its liquid 
capital to be below an amount equal to 120 percent of ``total 
haircuts,'' which is the sum of ``credit risk haircuts'' and ``market 
risk

[[Page 38452]]

haircuts'' calculated by each government securities broker or 
dealer.\4\
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    \3\ A ``haircut'' in the context of Treasury's liquid capital 
rule refers to a deduction in the market value of securities or 
other instruments held by a government securities broker or dealer 
as part of net worth for calculating its liquid capital.
    \4\ See Sec.  402.2(a) and (g). The market risk haircut equals 
the sum of the Treasury market risk haircut and other securities 
haircut. The credit risk haircut equals the sum of the total 
counterparty exposure haircut, the total concentration of credit 
haircut, and the credit volatility haircut.
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    In describing the method for registered government securities 
brokers and dealers to calculate their minimum capital requirements, 
the liquid capital rule categorizes certain dollar-denominated 
securities, debt instruments, and derivative instruments as ``Treasury 
market risk instruments.'' \5\ These instruments receive a more 
favorable capital treatment than instruments that are more susceptible 
to changes in value due to market fluctuations, which receive a higher 
``other securities haircut.'' \6\ The definition of Treasury market 
risk instruments includes commercial paper which, in order to receive 
the more favorable haircut treatment of Treasury market risk 
instruments, must be of no more than one year to maturity [and] rated 
in one of the three highest categories by at least two nationally 
recognized statistical rating organizations.\7\
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    \5\ See Sec.  402.2(e). The Treasury market risk haircut 
methodology quantifies risk by placing positions in the categories 
corresponding to their remaining term to maturity and applying 
different haircut factors to positions grouped in the categories.
    \6\ See Sec.  402.2a(b).
    \7\ See Sec.  402.2(e)(1)(v), Sec.  402.2a(c)--Instructions to 
Schedule A--Liquid Capital Requirement Summary Computation, Line 3--
Haircuts on credit exposure, paragraph c, and Sec.  402.2a(c)--
Instructions to Schedule B--Calculation of Net Immediate Position in 
Securities and Financings, Columns 3 and 4, paragraph (5), as 
amended.
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    The liquid capital rule includes three references to a rating by a 
nationally recognized statistical rating organization (NRSRO), i.e., a 
credit rating, each in regard to commercial paper. NRSROs are credit 
rating agencies that are subject to Securities and Exchange Commission 
(SEC) registration and oversight.\8\ At present, there are three 
registered government securities brokers and dealers, none of which 
currently or routinely hold commercial paper.
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    \8\ 72 FR 33564 (June 18, 2007).
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II. The Proposed Rule

    On September 27, 2011, Treasury published a proposed rule amendment 
\9\ in which we proposed to replace references to credit ratings in our 
liquid capital rule, all of which pertain to commercial paper, with a 
substitute standard of creditworthiness. In place of these references, 
we proposed amending the term ``Treasury market risk instrument'' in 
the liquid capital rule to include commercial paper that has only a 
minimal amount of credit risk as reasonably determined by the 
government securities broker or dealer pursuant to written policies and 
procedures the government securities broker or dealer establishes, 
maintains, and enforces to assess creditworthiness.\10\ In making an 
assessment of credit and liquidity risk, the government securities 
broker or dealer would be required to follow written policies and 
procedures that it would establish, maintain, and enforce. The 
government securities broker or dealer could consider the following 
factors, to the extent appropriate, with respect to commercial paper in 
making this assessment.\11\
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    \9\ 76 FR 59592 (September 27, 2011).
    \10\ Id. at 59595.
    \11\ This list of factors is not exhaustive or mutually 
exclusive. It is closely aligned with the list of factors in the 
SEC's recent amendments to Exchange Act Rule 15c3-1, and the Rule's 
appendices, to remove references to credit ratings in the SEC's Net 
Capital Rule. 79 FR 1522 (January 8, 2014).
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     Credit spreads (i.e., whether it is possible to 
demonstrate that a position in commercial paper is subject to a minimal 
amount of credit risk based on the spread between the commercial 
paper's yield and the yield of Treasury or other securities, or based 
on credit default swap spreads that reference the security);
     Price and/or yield (i.e., whether the price and yield of a 
security are consistent with other securities that the government 
securities broker or dealer has reasonably determined are subject to a 
minimal amount of credit risk and whether the price resulted from 
active trading);
     Liquidity (i.e., whether the commercial paper can be sold 
quickly at a minimal transaction cost);
     Securities-related research (i.e., whether providers of 
securities-related research believe the issuer of the commercial paper 
will be able to meet its financial commitments, generally, or 
specifically, with respect to the commercial paper held by the 
government securities broker or dealer);
     Internal or external credit risk assessments (i.e., 
whether credit assessments developed internally by the government 
securities broker or dealer or externally by a credit rating agency, 
irrespective of its status as an NRSRO, express a view as to the credit 
risk associated with a particular security);
     Default statistics (i.e., whether providers of credit 
information relating to securities express a view that the commercial 
paper has a probability of default consistent with other commercial 
paper with a minimal amount of credit risk);
     Inclusion on an index (i.e., whether a security, or issuer 
of the security, is included as a component of a recognized index of 
instruments that are subject to a minimal amount of credit risk); and
     Factors specific to the commercial paper market (e.g., 
general liquidity conditions). The range and type of specific factors 
considered by the government securities broker or dealer, and how 
frequently it updates its assessment, would vary depending on the 
particular commercial paper under review.
    If the government securities broker or dealer conducts an 
assessment of creditworthiness and determines that the commercial paper 
it holds has more than a minimal amount of credit risk, the government 
securities broker or dealer would not classify the commercial paper as 
a Treasury market risk instrument, and would apply the higher ``other 
securities haircut'' in its liquid capital computation. Similarly, if 
the government securities broker or dealer does not have written 
policies and procedures to assess creditworthiness, or chooses not to 
use its policies and procedures, it would apply the ``other securities 
haircut'' treatment to the commercial paper it holds.
    Under Treasury's GSA regulations that govern recordkeeping 
requirements,\12\ which generally incorporate the SEC's Rule 17a-4 
recordkeeping requirements for brokers and dealers,\13\ each government 
securities broker or dealer is required to preserve for a period of not 
less than three years, the first two years in an easily accessible 
place, the written policies and procedures that it establishes, 
maintains, and enforces for assessing credit risk for commercial paper. 
The SEC amended Rule 17a-4 to require brokers and dealers to preserve 
the written policies and procedures they establish, document, maintain, 
and enforce to assess creditworthiness.\14\ No amendment is necessary 
to Treasury's recordkeeping requirements in Sec.  404.3 because it 
incorporates by reference the SEC's Rule 17a-4, and through such 
incorporation Rule 17a-4 extends to registered government securities 
brokers and dealers.
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    \12\ See Sec.  404.3(a).
    \13\ See 17 CFR 240.17a-4.
    \14\ 79 FR 1522 (January 8, 2014).
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III. Comment Received in Response to the Proposed Rule

    We received one comment letter on the proposed rule amendment from 
a

[[Page 38453]]

nonprofit public interest organization.\15\ The commenter believes the 
proposed rule ``is a commendable effort to implement Section 939A of 
the Dodd-Frank Act and to ensure that the liquid capital rule for 
government securities brokers and dealers includes appropriate 
standards of creditworthiness . . .'' The commenter, however, advocated 
strengthening the proposed rule in several areas.
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    \15\ Treasury's proposed rule amendment and Better Markets, 
Inc.'s comment letter, dated November 28, 2011, are available at 
http://www.treasurydirect.gov/instit/statreg/gsareg/gsareg.htm.
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    The commenter asserted that the proposed rule must establish an 
explicit and detailed list of mandatory factors that government 
securities brokers and dealers are required to apply in the credit 
analysis of commercial paper and that those factors must be set forth 
in the text of the rule itself. Merely providing a suggested list of 
optional factors that might be considered, ``is an exceedingly vague 
concept that allows for a wide range of interpretations,'' the 
commenter wrote. The minimal amount of credit risk standard we are 
adopting is intended, in part, to promote a heightened level of 
internal due diligence among government securities brokers and dealers. 
The standard therefore provides an appropriate degree of flexibility by 
allowing government securities brokers and dealers to use and evaluate 
a variety of factors in assessing the credit and liquidity risks 
associated with commercial paper for liquid capital. In addition, the 
factors relevant to a credit risk determination may vary in 
significance over time. For these reasons, we do not believe the 
specific factors described above should be included in the rule itself.
    The commenter also asserted that the rule should expand the list of 
factors used to assess creditworthiness. The commenter argued that the 
list must be more comprehensive, and must contain a catchall provision 
that requires government securities brokers and dealers to consider all 
material factors that bear on the creditworthiness of the commercial 
paper being evaluated, including the nature of the issuer, the terms of 
the security, and the financial and regulatory context in which the 
issuer is operating. We agree that a government securities broker or 
dealer might want to consider additional factors in evaluating the 
creditworthiness of commercial paper. Upon consideration of the 
comment, however, we determined that other factors should not be added 
to the list because it is not meant to be exhaustive and government 
securities brokers and dealers should tailor their written policies and 
procedures for assessing credit risk to their particular circumstances 
and consider those factors they deem appropriate, including factors 
that are not described above.
    The commenter further asserted that the rule must fully eliminate 
continued reliance on credit ratings, claiming that the factor 
referring to internal or external credit risk assessments would 
conflict with section 939A of the Dodd-Frank Act. We considered this 
comment, but determined that the minimal amount of credit risk standard 
that we are adopting is consistent with section 939A because it 
replaces the requirement that commercial paper must be ``rated in one 
of the three highest categories by at least two nationally recognized 
statistical rating organizations'' in order to receive the more 
favorable haircut treatment of Treasury market risk instruments. In 
place of that requirement, the minimal amount of credit risk standard 
provides flexibility to government securities brokers and dealers by 
allowing them to use and evaluate a variety of factors, which could 
include external credit risk assessments, in assessing the credit and 
liquidity risks of commercial paper.
    Finally, the commenter stated that the rule must require ``each 
government securities broker or dealer to create and maintain a record 
of each creditworthiness determination that it makes'' in order to 
promote compliance by government securities brokers and dealers and to 
increase the regulators' ability to monitor and enforce compliance with 
the liquid capital rule. As discussed above, through incorporation of 
SEC Rule 17a-4, as recently amended by the SEC,\16\ each government 
securities broker or dealer is required to preserve for a period of not 
less than three years, the first two years in an easily accessible 
place, the written policies and procedures that it establishes, 
maintains, and enforces for assessing credit risk for commercial paper. 
Although not required to maintain a record of each of its credit risk 
determinations for purposes of the liquid capital rule, a government 
securities broker or dealer should be able to support each of its 
credit risk determinations both for internal risk management purposes 
and in the context of an SEC or self-regulatory organization (SRO) 
examination. A government securities broker or dealer should maintain 
documentation of its credit risk determinations for this purpose. 
However, we believe that requiring government securities brokers and 
dealers to create and maintain a record of every creditworthiness 
determination could be overly burdensome.
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    \16\ 79 FR 1522 (January 8, 2014).
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IV. Final Rule

A. Liquid Capital Rule

    We are adopting amendments to Treasury's liquid capital rule (17 
CFR 402.2) to remove references to NRSRO credit ratings and to 
substitute a standard of creditworthiness based on a minimal amount of 
credit risk as determined by the government securities broker or dealer 
pursuant to reasonably designed written policies and procedures. The 
final rule amendments include several modifications to the proposed 
rule text in regard to the policies and procedures adopted by the 
government securities broker or dealer for assessing creditworthiness, 
as described below.
    We have added the words ``and monitor'' to the minimal amount of 
credit risk standard to clarify that, after the initial 
creditworthiness determination, a commercial paper position must 
continue to have only a minimal amount of credit risk to remain 
qualified for the lower haircut and that monitoring must be done in 
accordance with the firm's policies and procedures.\17\ Government 
securities brokers and dealers may not permit their liquid capital to 
be below an amount equal to 120 percent of total haircuts.\18\ 
Therefore, a government securities broker or dealer must monitor its 
commercial paper position to ensure that it is applying the appropriate 
haircut. A government securities broker's or dealer's written policies 
and procedures for assessing whether an issuance of commercial paper 
has only a minimal amount of credit risk must include a process that is 
reasonably designed to ensure that its credit determinations are 
current, and address the frequency with which it reviews and reassesses 
its credit determinations. We expect that a government securities 
broker's or dealer's process for monitoring its credit determinations 
will be customized to the size and activities of the firm to ensure 
that it maintains the required amount of liquid capital at ``all 
times.'' \19\
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    \17\ See Sec.  402.2(e)(1)(v), Sec.  402.2a(c)--Instructions to 
Schedule A--Liquid Capital Requirement Summary Computation, Line 3--
Haircuts on credit exposure, paragraph c, and Sec.  402.2a(c)--
Instructions to Schedule B--Calculation of Net Immediate Position in 
Securities and Financings, Columns 3 and 4, paragraph (5), as 
amended.
    \18\ See Sec.  402.2(a) and (g).
    \19\ See 17 CFR 240.15c3-1(a).

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[[Page 38454]]

    Compared with reliance on NRSRO credit ratings, the minimal amount 
of credit risk standard is a more subjective approach to determining 
whether a lower haircut can be applied to commercial paper. Moreover, 
this standard provides flexibility to government securities brokers and 
dealers by allowing them to use and evaluate a variety of factors, both 
objective and subjective, in assessing the credit and liquidity risks 
associated with their commercial paper positions. However, we do not 
intend for the minimal amount of credit risk standard to result in a 
more liberal requirement that broadens the scope of the rule by 
allowing more positions to qualify for the lower haircuts. We note that 
credit ratings and market data (such as credit spreads and yields) can 
serve as useful benchmarks for evaluating whether the written policies 
and procedures of a government securities broker or dealer, as applied 
to the minimal amount of credit risk standard, are increasing the types 
of commercial paper to which it applies the lower haircuts as compared 
to the eliminated NRSRO credit rating standard.
    To reduce the potential subjectivity of the proposed minimal amount 
of credit risk standard, we modified the final rule to add new text 
that provides that reasonably designed, written policies and procedures 
should result in assessments of creditworthiness that typically are 
consistent with market data.\20\ In particular, this standard for 
evaluating the reasonableness of the policies and procedures of a 
government securities broker or dealer will require examiners under the 
SEC's rule \21\ to compare market data (e.g., external factors such as 
credit spreads) with the broker's or dealer's determinations that a 
commercial paper instrument has only a minimal amount of credit risk.
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    \20\ See Sec.  402.2a(c)--Instructions to Schedule A--Liquid 
Capital Requirement Summary Computation, Line 3--Haircuts on credit 
exposure, paragraph c, as amended.
    \21\ See 17 CFR 240.15c3-1(c)(2)(vi)(I) of Rule, as amended.
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    Under Treasury's Rule 404, the written policies and procedures of a 
government securities broker or dealer for assessing credit risk for 
commercial paper are subject to review in regulatory examinations by 
the SEC and SROs. Although not required to maintain a record of each 
credit risk determination for purposes of the liquid capital rule, the 
written policies and procedures of a government securities broker or 
dealer should specify with sufficient detail the steps the government 
securities broker or dealer will take in performing a credit assessment 
so that the SEC and SRO examiners can evaluate them.

B. Technical Amendments

    In addition, as part of our review of our Federal regulations 
required by Executive Order 13563, we are updating the GSA regulations 
by deleting certain requirements. Specifically, we are deleting the 
sections in our reporting requirements that refer to year 2000 (Y2K) 
readiness reports because they are no longer needed.\22\ We are also 
deleting references to various other requirements in the GSA 
regulations that are contingent on actions to be taken by specific 
dates in the past and therefore are no longer applicable. We are also 
replacing references to the Bureau of the Public Debt with references 
to the Bureau of the Fiscal Service,\23\ as well as updating the 
addresses for the Bureau and the Treasury Department Library. Finally, 
we are deleting references to the Office of Thrift Supervision because 
that agency no longer exists.
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    \22\ See Sec.  405.2(a)(11) through (14).
    \23\ The Bureau of the Public Debt and the Financial Management 
Service were consolidated and redesignated as the Bureau of the 
Fiscal Service by Treasury Order 136-01 on October 7, 2012. 78 FR 
31629 (May 24, 2013).
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V. Special Analysis

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. 
This rule has been designated a ``significant regulatory action,'' 
although not economically significant, under section 3(f) of Executive 
Order 12866. Accordingly, the rule has been reviewed by the Office of 
Management and Budget.
    This final amendment would potentially affect three registered 
government securities brokers or dealers, none of which currently or 
routinely holds commercial paper. For that reason, the amendment would 
not have a significant economic impact on a substantial number of small 
entities. Therefore, a regulatory flexibility analysis is not required 
under the Regulatory Flexibility Act (5 U.S.C. 601, et seq.).

List of Subjects

17 CFR Part 400

    Administrative practice and procedure, Banks, banking, Brokers, 
Government securities, Reporting and recordkeeping requirements.

17 CFR Part 401

    Banks, banking, Brokers, Government securities.

17 CFR Part 402

    Brokers, Government securities.

17 CFR Part 403

    Banks, banking, Brokers, Government securities.

17 CFR Part 405

    Brokers, Government securities, Reporting and recordkeeping 
requirements.

17 CFR Part 420

    Banks, banking, Brokers, Government securities, Reporting and 
recordkeeping requirements.

17 CFR Part 449

    Banks, banking, Brokers, Government securities, Reporting and 
recordkeeping requirements.

17 CFR Part 450

    Banks, banking, Government securities, Reporting and recordkeeping 
requirements.

    For the reasons set out in the preamble, 17 CFR chapter IV is 
amended as follows:

PART 400--RULES OF GENERAL APPLICATION

0
1. The authority citation for part 400 continues to read as follows:

    Authority:  15 U.S.C. 78o-5.


0
2. In Sec.  400.2, revise the last sentence of paragraph (a), the first 
sentence of paragraph (c)(3)(vi), and the last sentence of paragraph 
(c)(7)(i) to read as follows:


Sec.  400.2  Office responsible for regulations; filing of requests for 
exemption, for interpretations and of other materials.

    (a) * * * The office responsible for implementing the regulations, 
including interpretations and action on requests for exemption, 
classification, or modification, is the Office of the Commissioner, 
Bureau of the Fiscal Service.
* * * * *
    (c) * * *
    (3) * * *
    (vi) An original and two copies of each request letter shall be 
submitted to

[[Page 38455]]

the Office of the Commissioner, Government Securities Regulations 
Staff, Bureau of the Fiscal Service, 5th Floor, 401 14th Street SW., 
Washington, DC 20227. * * *
    (7)(i) * * * These documents will be made available at the 
following location: Treasury Department Library, 1500 Pennsylvania 
Avenue NW., Annex, Room 1020, Washington, DC 20220.
* * * * *

0
3. In Sec.  400.3, revise the definition of Treasury to read as 
follows:


Sec.  400.3  Definitions.

* * * * *
    Treasury or Department means the Department of the Treasury, 
including in particular the Bureau of the Fiscal Service.

PART 401--EXEMPTIONS

0
4. The authority citation for part 401 continues to read as follows:

    Authority:  Sec. 101, Pub. L. 99-571, 100 Stat. 3209 (15 U.S.C. 
78o-5(a)(4)).


Sec. Sec.  401.7 and 401.8  [Removed]

0
5. Remove Sec. Sec.  401.7 and 401.8.


Sec.  401.9  [Redesignated as Sec.  401.7]

0
6. Redesignate Sec.  401.9 as Sec.  401.7.

PART 402--FINANCIAL RESPONSIBILITY

0
7. The authority citation for part 402 is revised to read as follows:

    Authority:  15 U.S.C. 78o-5(b)(1)(A), (b)(4), Pub. L. 111-203, 
124 Stat. 1376.



0
8. In Sec.  402.1, revise paragraph (f) to read as follows:


Sec.  402.1  Application of part to registered brokers and dealers and 
financial institutions; special rules for futures commission merchants 
and government securities interdealer brokers; effective date.

* * * * *
    (f) This part shall be effective July 25, 1987.

0
9. In Sec.  402.2, revise paragraphs (b), (c), and (e)(1)(v) to read as 
follows:


Sec.  402.2  Capital requirements for registered government securities 
brokers and dealers.

* * * * *
    (b)(1) Minimum liquid capital for brokers or dealers that carry 
customer accounts. Notwithstanding the provisions of paragraph (a) of 
this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and receives or holds funds or 
securities for those persons within the meaning of Sec.  240.15c3-
1(a)(2)(i) of this title, shall have and maintain liquid capital in an 
amount not less than $250,000, after deducting total haircuts as 
defined in paragraph (g) of this section.
    (2) Minimum liquid capital for brokers or dealers that carry 
customer accounts, but do not generally hold customer funds or 
securities. Notwithstanding the provisions of paragraphs (a) and (b)(1) 
of this section, a government securities broker or dealer that carries 
customer or broker or dealer accounts and is exempt from the provisions 
of Sec.  240.15c3-3 of this title, as made applicable to government 
securities brokers and dealers by Sec.  403.4 of this part, pursuant to 
paragraph (k)(2)(i) thereof (17 CFR 240.15c3-3(k)(2)(i)), shall have 
and maintain liquid capital in an amount not less than $100,000, after 
deducting total haircuts as defined in paragraph (g) of this section.
    (c)(1) Minimum liquid capital for introducing brokers that receive 
securities. Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, a government securities broker or dealer that introduces 
on a fully disclosed basis transactions and accounts of customers to 
another registered or noticed government securities broker or dealer 
but does not receive, directly or indirectly, funds from or for, or owe 
funds to, customers, and does not carry the accounts of, or for, 
customers shall have and maintain liquid capital in an amount not less 
than $50,000, after deducting total haircuts as defined in paragraph 
(g) of this section. A government securities broker or dealer operating 
pursuant to this paragraph (c)(1) may receive, but shall not hold 
customer or other broker or dealer securities.
    (2) Minimum liquid capital for introducing brokers that do not 
receive or handle customer funds or securities. Notwithstanding the 
provisions of paragraphs (a), (b), and (c)(1) of this section, a 
government securities broker or dealer that does not receive, directly 
or indirectly, or hold funds or securities for, or owe funds or 
securities to, customers, and does not carry accounts of, or for, 
customers and that effects ten or fewer transactions in securities in 
any one calendar year for its own investment account shall have and 
maintain liquid capital in an amount not less than $25,000, after 
deducting total haircuts as defined in paragraph (g) of this section.
* * * * *
    (e) * * *
    (1) * * *
    (v) Commercial paper of no more than one year to maturity and which 
has only a minimal amount of credit risk as determined by the 
government securities broker or dealer pursuant to reasonably designed 
written policies and procedures the government securities broker or 
dealer establishes, maintains, and enforces to assess and monitor 
creditworthiness. These policies and procedures should result in 
creditworthiness assessments that typically are consistent with market 
data;
* * * * *

0
10. In Sec.  402.2a, revise the Instructions to Schedule A--Liquid 
Capital Requirement Summary Computation, Line 3, paragraph c., and 
Instructions to Schedule B--Calculation of Net Immediate Position in 
Securities and Financing, Columns 3 and 4, paragraph (5) to read as 
follows:


Sec.  402.2a  Appendix A--Calculation of market risk haircut for 
purposes of Sec.  402.2(g)(2).

* * * * *

Instructions to Schedules A Through E

* * * * *

Schedule A--Liquid Capital Requirement Summary Computation

* * * * *
    Line 3--Haircuts on credit exposure:
* * * * *
    c. Enter the credit volatility haircut which equals a factor of 
0.15 percent applied to the larger of the gross long or gross short 
position in money market instruments qualifying as Treasury market risk 
instruments which mature in 45 days or more, in futures and forwards on 
these instruments that are settled on a cash or delivery basis, and in 
futures and forwards on time deposits described in Sec.  
402.2(e)(1)(vii), that mature in 45 days or more, settled on a cash or 
delivery basis. Money market instruments qualifying as Treasury market 
risk instruments are (1) marketable certificates of deposit with no 
more than one year to maturity, (2) bankers acceptances, and (3) 
commercial paper of no more than one year to maturity and which has 
only a minimal amount of credit risk as determined by the government 
securities broker or dealer pursuant to reasonably designed written 
policies and procedures the government securities broker or government 
securities dealer establishes, maintains, and enforces to assess and 
monitor creditworthiness. These policies and procedures should result 
in creditworthiness assessments that

[[Page 38456]]

typically are consistent with market data.
* * * * *

Schedule B--Calculation of Net Immediate Position in Securities and 
Financings

* * * * *
    (5) Commercial paper of no more than one year to maturity and which 
has only a minimal amount of credit risk as determined by the 
government securities broker or dealer pursuant to reasonably designed 
written policies and procedures the government securities broker or 
dealer establishes, maintains, and enforces to assess and monitor 
creditworthiness. These policies and procedures should result in 
creditworthiness assessments that typically are consistent with market 
data; and
* * * * *


Sec.  402.2e  [Removed]

0
11. Remove Sec.  402.2e.

PART 403--PROTECTION OF CUSTOMER SECURITIES AND BALANCES

0
12. The authority citation for part 403 is revised to read as follows:

    Authority:  Sec. 101, Pub. L. 99-571, 100 Stat. 3209; sec. 4(b), 
Pub. L. 101-432, 104 Stat. 963; sec. 102, sec. 106, Pub. L. 103-202, 
107 Stat. 2344 (15 U.S.C. 78o-5(a)(5), (b)(1)(A), (b)(4)).


Sec.  403.7  [Amended]

0
13. In Sec.  403.7, remove paragraphs (d) and (e).

PART 405--REPORTS AND AUDIT

0
14. The authority citation for part 405 continues to read as follows:

    Authority:  15 U.S.C. 78o-5 (b)(1)(B), (b)(1)(C), (b)(2), 
(b)(4).


Sec.  405.2  [Amended]

0
15. In Sec.  405.2, remove paragraphs (a)(11) through (14) and 
redesignate paragraphs (a)(15) and (16) as paragraphs (a)(11) and (12), 
respectively.


Sec.  405.5  [Amended]

0
16. In Sec.  405.5, remove paragraph (a)(7).

PART 420--LARGE POSITION REPORTING

0
17. The authority citation for part 420 continues to read as follows:

    Authority:  15 U.S.C. 78o-5(f).


0
18. In Sec.  420.4, revise paragraph (a) to read as follows:


Sec.  420.4  Recordkeeping.

    (a) An aggregating entity that controls a portion of its reporting 
entity's reportable position in a recently-issued Treasury security, 
when such reportable position of the reporting entity equals or exceeds 
the minimum large position threshold, shall be responsible for making 
and maintaining the records prescribed in this section.
* * * * *

PART 449--FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934

0
19. The authority citation for part 449 continues to read as follows:

    Authority:  15 U.S.C. 78o-5(a), (b)(1)(B), (b)(4).


0
20. In Sec.  449.1, revise the last sentence to read as follows:


Sec.  449.1  Form G-FIN, notification by financial institutions of 
status as government securities broker or dealer pursuant to section 
15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.

    * * * The form is promulgated by the Board of Governors of the 
Federal Reserve System and is available from the Board of Governors of 
the Federal Reserve System, the Comptroller of the Currency, the 
Federal Deposit Insurance Corporation, and the SEC.

0
21. In Sec.  449.2, revise the last sentence to read as follows:


Sec.  449.2  Form G-FINW, notification by financial institutions of 
cessation of status as government securities broker or dealer pursuant 
to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and 
Sec.  400.6 of this chapter.

    * * * The form is promulgated by the Board of Governors of the 
Federal Reserve System and is available from the Board of Governors of 
the Federal Reserve System, the Comptroller of the Currency, the 
Federal Deposit Insurance Corporation, and the SEC.

0
22. In Sec.  449.3, revise the last sentence to read as follows:


Sec.  449.3  Form G-FIN-4, notification by persons associated with 
financial institutions that are government securities brokers and 
dealers pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange 
Act of 1934 and Sec.  400.4 of this chapter.

    * * * The form is promulgated by the Department of the Treasury and 
is available from the Board of Governors of the Federal Reserve System, 
the Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, and the SEC.

0
23. In Sec.  449.4, revise the last sentence to read as follows:


Sec.  449.4  Form G-FIN-5, notification of termination of association 
with a financial institution that is a government securities broker or 
dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange 
Act of 1934 and Sec.  400.4 of this chapter.

    * * * The form is promulgated by the Department of the Treasury and 
is available from the Board of Governors of the Federal Reserve System, 
the Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, and the SEC.

PART 450--CUSTODIAL HOLDINGS OF GOVERNMENT SECURITIES BY DEPOSITORY 
INSTITUTIONS

0
24. The authority citation for part 450 continues to read as follows:

    Authority:  Sec. 201, Pub. L. 99-571, 100 Stat. 3222-23 (31 
U.S.C. 3121, 9110); Sec. 101, Pub. L. 99-571, 100 Stat. 3208 (15 
U.S.C. 78o-5(b)(1)(A), (b)(4), (b)(5)(B)).


0
25. In Sec.  450.1, revise the second sentence of paragraph (b) to read 
as follows:


Sec.  450.1  Scope of regulations; office responsible.

* * * * *
    (b) * * * The office responsible for the regulations is the Office 
of the Commissioner, Bureau of the Fiscal Service.

0
26. In Sec.  450.3, revise the first sentence of paragraph (a) to read 
as follows:


Sec.  450.3  Exemption for holdings subject to fiduciary standards.

    (a) The Secretary has determined that the rules and standards of 
the Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, and the Federal Deposit Insurance Corporation governing 
the holding of government securities in a fiduciary capacity by 
depository institutions subject thereto are adequate. * * *

Matthew S. Rutherford,
Assistant Secretary for Financial Markets.
[FR Doc. 2014-15731 Filed 7-7-14; 8:45 am]
BILLING CODE 4810-39-P