Government Securities Act Regulations: Large Position Reporting Rules, 33145-33159 [2014-13482]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 111 (Tuesday, June 10, 2014)]
[Proposed Rules]
[Pages 33145-33159]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13482]


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DEPARTMENT OF THE TREASURY

17 CFR Part 420

[Docket No. Treas-DO-2014-0002]


Government Securities Act Regulations: Large Position Reporting 
Rules

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

ACTION: Proposed rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
notice of proposed rulemaking to solicit public comment on proposed 
amendments to Treasury's rules for reporting large positions in certain 
Treasury securities. The large position reporting rules are issued 
under the Government Securities Act (GSA) for the purposes of 
monitoring the impact in the Treasury securities market of 
concentrations of positions in Treasury securities and otherwise 
assisting the Securities and Exchange Commission (SEC) in enforcing the 
GSA. In addition, the large position reports provide Treasury with 
information to better understand supply and demand dynamics in certain 
Treasury securities. The proposed amendments are designed to improve 
the information available to Treasury and simplify the reporting 
process for many entities subject to the large position reporting 
rules.

DATES: Submit comments on or before August 9, 2014.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    Use the Federal eRulemaking Portal (www.regulations.gov) and follow 
the instructions for submitting comments through the Web site. You may 
download this proposed rule from www.regulations.gov or 
www.treasurydirect.gov.

Paper Comments

    Send paper comments to Department of the Treasury, Bureau of the 
Fiscal Service, Government Securities Regulations Staff, 401 14th 
Street SW., Washington, DC 20227.

[[Page 33146]]

    Please submit your comments using only one method, along with your 
full name and mailing address. We will post all comments to 
www.regulations.gov and on the TreasuryDirect Web site at 
www.treasurydirect.gov. The proposed rule and comments will also be 
available for public inspection and copying at the Treasury Department 
Library, Treasury Annex Room 1020, 1500 Pennsylvania Avenue NW., 
Washington, DC 20220. To visit the library, call (202) 622-0990 for an 
appointment. In general, comments received, including attachments and 
other supporting materials, are part of the public record and are 
available to the public. Do not submit any information in your comments 
or supporting materials that you consider confidential or inappropriate 
for public disclosure.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena, Executive 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: Treasury is proposing amendments to the 
large position reporting (LPR) rules to improve the information 
reported so that Treasury can better understand supply and demand 
dynamics in certain Treasury securities. Specifically, the proposed 
amendments would: (1) Request that central banks (including U.S. 
Federal Reserve Banks for their own account), foreign governments, and 
international monetary authorities voluntarily submit large position 
reports (Reports) when they meet or exceed the reporting threshold(s); 
(2) replace the current $2 billion minimum reporting threshold with a 
percentage standard; (3) replace the concept of the ``reportable 
position'' with a requirement that defined reporting entities \1\ must 
file a Report if any one of seven criteria is met; (4) revise the 
format for the reporting of positions in the specified Treasury 
security and establish a two-column format for the reporting of gross 
``obligations to receive'' and gross ``obligations to deliver;'' (5) 
expand the components of a position to include futures, options on 
futures, and options; (6) provide an option for reporting entities to 
identify the type(s) of business engaged in by the reporting entity and 
any of its aggregating entities with positions in the specified 
Treasury security, and to identify their overall investment strategy 
with respect to positions in the specified Treasury security; and (7) 
consolidate relevant guidance in the LPR rules.
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    \1\ 17 CFR 420.2(i).
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    The proposed amendments to the LPR rules reflect Treasury's 
continuing need to obtain relevant information from reporting entities 
while minimizing the cost and burden on those entities. We believe 
these amendments are consistent with the findings of Congress that 
``(1) the liquid and efficient operation of the government securities 
market is essential to facilitate government borrowing at the lowest 
possible cost to taxpayers; and (2) the fair and honest treatment of 
investors will strengthen the integrity and liquidity of the government 
securities market.'' \2\ In this proposed rule, we first provide 
background on the current LPR rules and then describe the proposed 
amendments to those rules.
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    \2\ Public Law 103-202, 107 Stat. 2344 (1993) [15 U.S.C. 78o-
5(f)].
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Table of Contents

I. Background
    A. Statutory Authority
    B. Who is Subject to the Large Position Reporting Rules
    C. Rulemaking
II. Current Large Position Reporting Rules
    A. Reporting and Recordkeeping Requirements
    1. On-Demand Reporting System
    2. Notice Requesting Large Position Reports
    3. Control
    4. Components of a Position
    5. Recordkeeping
    B. Calls for Large Position Reports
III. Proposed Amendments to the Large Position Reporting Rules
    A. Balancing of Regulatory and Market Needs
    B. Section 420.1--Applicability
    C. Section 420.2--Definitions
    1. Large Position Threshold
    2. Reporting Requirement
    3. Tri-party Repurchase Agreement Shells
    D. Changes to the Large Position Report
    1. Reporting Format
    2. Gross Reporting
    3. Futures and Options Contracts
    4. Components of a Position
    5. Optional Administrative Information
    E. Consolidated Guidance
    F. Request for Comment
IV. Paperwork Reduction Act
V. Special Analysis

I. Background

A. Statutory Authority

    In response to short squeezes in two-year Treasury notes that 
occurred in the government securities market in 1990-1991,\3\ Congress 
included a large position reporting provision in the 1993 amendments to 
the GSA.\4\ This provision grants Treasury the authority to prescribe 
rules requiring specified persons holding, maintaining, or controlling 
large positions in to-be-issued or recently-issued \5\ Treasury 
securities to file reports regarding such positions and to keep records 
when required by Treasury. The provision was intended to improve the 
collection of information by Treasury regarding large positions in 
Treasury securities held by market participants. Such information 
allows Treasury to monitor the impact of concentrations of positions in 
the Treasury securities market. This information is also made available 
to the Federal Reserve Bank of New York (FRBNY), as Treasury's agent, 
and the SEC.\6\ Treasury believes that large positions in Treasury 
securities are not inherently problematic and there is no presumption 
of manipulative or illegal intent merely because a reporting entity's 
position is large enough to be subject to Treasury's LPR rules.
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    \3\ Joint Report on the Government Securities Market, Department 
of the Treasury, Securities and Exchange Commission, and Board of 
Governors of the Federal Reserve System (1992). See 
www.treasurydirect.gov. Market participants use the term ``squeeze'' 
to refer to a shortage of supply relative to demand for a particular 
security, as evidenced by a movement in its price to a level that is 
out of line with prices of comparable securities--either outright 
trading quotations or in financing arrangements.
    \4\ See note 2, supra.
    \5\ Treasury may request information on securities that fall 
outside of these timeframes if such ``information is necessary and 
appropriate for monitoring the impact of concentrations of positions 
in Treasury securities.'' (See 17 CFR 420.2(g)(5)).
    \6\ 15 U.S.C 78o-5(f)(1).
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    The GSA specifically provides that Treasury shall not be compelled 
to disclose publicly any information required to be kept or reported 
for large position reporting. In particular, such information is 
exempted by the GSA from disclosure under the Freedom of Information 
Act.\7\
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    \7\ 15 U.S.C. 78o-5(f)(6).
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B. Who Is Subject to the Large Position Reporting Rules

    Treasury's LPR rules apply to all persons and entities, foreign and 
domestic, that control a reportable position in a Treasury security, 
including: Government securities brokers and dealers; registered 
investment companies; registered investment advisers; custodians, 
including depository institutions, that exercise investment discretion; 
hedge funds; pension funds; insurance companies; and foreign affiliates 
of U.S. entities.
    The current rules provide an exemption for foreign central banks, 
foreign governments, and international

[[Page 33147]]

monetary authorities (collectively, ``foreign official 
organizations'').\8\ U.S. Federal Reserve Banks are also exempt for the 
portion of any reportable position they control for their own 
account.\9\
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    \8\ 17 CFR 420.1(b).
    \9\ 17 CFR 420.1(c).
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C. Rulemaking

    Treasury published final rules in 1996 that established 
recordkeeping and reporting requirements related to large positions in 
certain Treasury securities.\10\ The LPR rules were subsequently 
amended in 2002 to improve the collection of information in the Report 
by requiring more detailed reporting of certain components of the 
formula for determining a reportable position, adding a second 
memorandum item that requires the reporting of the gross par amount of 
``fails to deliver,'' and modifying the definition of ``gross financing 
position'' to eliminate the optional exclusion in the calculation of 
the amount of securities received through certain financing 
transactions.\11\
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    \10\ 61 FR 48338 (September 12, 1996).
    \11\ 67 FR 77412 (December 18, 2002).
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II. Current Large Position Reporting Rules

A. Reporting and Recordkeeping Requirements

1. On-Demand Reporting System
    An ``on-demand'' reporting system, rather than a regular, ongoing 
system of reporting, provides Treasury with the information necessary 
to understand supply and demand dynamics in the Treasury securities 
market, while minimizing the potential impact on the market's 
efficiency and liquidity and the cost to taxpayers of funding the 
federal debt. It also minimizes the cost and burden to those reporting 
entities affected by the LPR rules.
2. Notice Requesting Large Position Reports
    Reports must be filed with FRBNY in response to a notice \12\ from 
Treasury requesting large position information on a specific issue of a 
Treasury security. The Reports must be filed by defined reporting 
entities controlling positions that equal or exceed the reporting 
threshold specified in the notice. FRBNY must receive the Reports 
before noon Eastern time on the fourth business day after the issuance 
of the notice calling for large position information.
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    \12\ The notice is in the form of a Treasury press release that 
is posted to the Treasury and TreasuryDirect Web sites, subsequently 
published in the Federal Register, and also disseminated via social 
media, major news and financial publications, and wire services. An 
electronic mailing list that distributes the notice to subscribers 
is also available at www.treasurydirect.gov.
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3. Control
    Treasury defines ``control'' as the authority to ``exercise 
investment discretion over the purchase, sale, retention, or financing 
of specific Treasury securities.'' \13\ Investment discretion can be 
exercised by the beneficial owner, a custodian, or an investment 
adviser. The party responsible for making investment decisions, 
regardless of where securities are held, is the relevant reporting 
entity for large position reporting because the actions and objectives 
of the decision maker are what we are trying to determine.
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    \13\ 17 CFR 420.2(b).
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4. Components of a Position
    Under the current rules, a ``reportable position is the sum of the 
net trading positions, gross financing positions, and net fails 
positions in a specified issue of Treasury securities collectively 
controlled by a reporting entity.'' \14\ Specific components of these 
positions are identified at Sec.  420.2.\15\ All position amounts are 
currently required to be reported on a trade date basis at par value.
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    \14\ 17 CFR 420.2(h).
    \15\ See 17 CFR 420.2 for definitions of gross financing 
position, net fails position, and net trading position.
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5. Recordkeeping
    The recordkeeping requirements provide that any reporting entity 
controlling at least $2 billion of a particular Treasury security must 
maintain and preserve certain records that enable it to compile, 
aggregate, and report large position information.\16\
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    \16\ 17 CFR 420.4.
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B. Calls for Large Position Reports

    Treasury has conducted 14 calls since the LPR rules became 
effective in 1996.\17\ We are proposing certain amendments to the rules 
based on the experience gained from these calls.
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    \17\ So that market participants remain knowledgeable about the 
LPR rules, specifically how to calculate and report a reportable 
position, Treasury ``tests'' the reporting system by requesting 
Reports annually, regardless of market conditions for a particular 
security. See 60 FR 65223 (December 18, 1995).
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III. Proposed Amendments to the Large Position Reporting Rules

A. Balancing of Regulatory and Market Needs

    Treasury has attempted to strike a balance between achieving the 
purposes and objectives of the GSA's LPR requirements and minimizing 
costs and burdens on reporting entities. We believe that the amendments 
being proposed continue to achieve this balance by improving the type 
of information collected through the Reports while simplifying the 
reporting process for many reporting entities.
    Treasury staff has also consulted staff of the Securities and 
Exchange Commission, the Board of Governors of the Federal Reserve 
System, and the Federal Reserve Bank of New York in developing this 
proposal.

B. Section 420.1--Applicability

    Treasury's LPR rules currently provide an exemption for foreign 
central banks, foreign governments, and international monetary 
authorities (collectively ``foreign official organizations''). U.S. 
Federal Reserve Banks are also exempt for the portion of any reportable 
position they control for their own account. Foreign official 
organizations were exempted from the LPR rules issued in 1996 because 
they did not typically control large positions in Treasury securities 
and subjecting them to the reporting requirement would have presented 
legal and jurisdictional issues.\18\ Since that time, foreign official 
organizations have significantly increased their participation in the 
Treasury securities market and have an interest in a liquid and well-
functioning Treasury securities market.
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    \18\ 61 FR 48342 (September 12, 1996).
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    Treasury is therefore proposing to eliminate these exemptions and 
request that all foreign official organizations as well as U.S. Federal 
Reserve Banks for their own accounts voluntarily submit Reports if they 
meet or exceed the reporting threshold(s). Treasury believes that the 
voluntary submission of Reports by these entities is consistent with 
the purposes of the GSA and will help Treasury to better understand 
supply and demand dynamics in the Treasury securities market. This in 
turn will benefit these entities by helping the Treasury securities 
market to remain liquid and efficient. As is the case with all Reports, 
these voluntary Reports would be submitted only in response to a call 
for large position reports. Treasury requests for Reports are 
infrequent.\19\
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    \19\ See note 17, supra.
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C. Section 420.2--Definitions

1. Large Position Threshold
    The current definition of ``large position threshold'' \20\ 
contains references to the term ``reportable position.'' The proposed 
amendments to

[[Page 33148]]

the LPR rules no longer include the concept of a reportable position, 
and therefore, Treasury is proposing to delete references to the term 
``reportable position'' in the definition of ``large position 
threshold.''
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    \20\ 17 CFR 420.2(d).
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    The current definition of ``large position threshold'' also 
establishes a minimum reporting threshold of $2 billion. The GSA 
requires that the LPR rules specify ``the minimum size of positions 
subject to reporting under this subsection, which shall be no less than 
the size that provides the potential for manipulation or control of the 
supply or price, or the cost of financing arrangements, of an issue or 
the portion thereof that is available for trading.'' \21\
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    \21\ See note 2, supra.
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    Treasury is proposing to replace the current $2 billion minimum 
reporting threshold with a minimum threshold that is 10 percent of the 
outstanding amount of the specified Treasury security. Given the large 
range of issue sizes among various Treasury securities, making the 
minimum reporting threshold a percentage of the amount of the security 
outstanding may be a better indicator of concentrations of control. A 
percentage threshold will potentially allow for a threshold that is 
less than the current $2 billion minimum. We will state the dollar 
amount of the reporting threshold(s) in the notice and press release 
announcing a call for Reports. Treasury is not proposing, however, to 
amend the $2 billion threshold that triggers the LPR recordkeeping 
requirement.\22\
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    \22\ 17 CFR 420.4(a)(1).
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2. Reporting Requirement
    Under the current LPR rules, an entity must submit a Report if its 
reportable position meets or exceeds the large position threshold. The 
reportable position is the sum of the net trading, gross financing, and 
net fails positions. This calculation could result in a reportable 
position that falls below the large position threshold if an entity's 
net trading position is a large negative number.
    Treasury proposes replacing the concept of the reportable position 
with a reporting requirement that entities must file a Report if any 
one of seven criteria is met.\23\ For certain reporting criteria 
Treasury may announce different thresholds. For example, Treasury may 
have a different threshold for settlement fails than for other 
reporting criteria. Applying the large position threshold(s) to several 
different criteria may provide greater insight into gross exposures 
large enough to potentially impact the liquidity of the security, 
regardless of how the position was acquired. However, under no 
circumstances will a large position threshold be less than 10 percent 
of the amount outstanding of the specified Treasury security.
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    \23\ See Appendix B to the proposed rule, ``Sample Large 
Position Report,'' for the proposed criteria.
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3. Tri-Party Repurchase Agreement Shells
    The proposed amendments introduce the term ``tri-party repurchase 
agreement shell.'' A tri-party repurchase agreement (repo) shell is an 
account created on the books of a tri-party repo agent bank following 
confirmation of a tri-party repo transaction between a cash lender and 
a collateral provider. Each shell has a unique account number and an 
eligibility rule set based on an agreement between the cash lender and 
the collateral provider. The rule set defines the type of securities 
that are eligible for the shell as well as associated haircuts. 
Collateral is allocated and held for the duration of the transaction in 
the tri-party repo shell. The shell must be fully collateralized at all 
times and collateral providers may remove collateral from the shell 
only if shell-eligible collateral of equal value is allocated into the 
shell in its place.

D. Changes to the Large Position Report

1. Reporting Format
    The current LPR rules require entities to calculate their total 
reportable position as of the close of business on the report date. 
Treasury is proposing a revised format for an entity to report its 
positions and settlement obligations in the specified Treasury 
security, including: (1) Positions at the opening of the Federal 
Reserve System's Fedwire[supreg] Securities Service (Fedwire),\24\ (2) 
settlement obligations created prior to and on the report date, and (3) 
positions at the close of Fedwire. The proposed reporting format would 
provide Treasury a better understanding of reporting entities' 
positions in the specified Treasury security leading up to the report 
date, their settlement obligations created prior to or on the report 
date, and their positions at the end of the report date.
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    \24\ The Federal Reserve System's Fedwire Securities Service is 
a book-entry securities transfer system that provides safekeeping, 
transfer, and delivery-versus-payment settlement services. The 
Fedwire Securities Service operates daily from 8:30 a.m. to 3:30 
p.m. Eastern Time.
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2. Gross Reporting
    Under the current rules, reporting entities are required to net 
obligations to receive and deliver in the net trading and net fails 
positions. For transactions between different reporting entities, 
Treasury is proposing using a two-column format for positions to be 
reported on a gross basis in order to separate settlement ``obligations 
to receive'' and ``obligations to deliver.'' For example, settlement 
fails resulting from an obligation to receive would be reported 
separately from settlement fails resulting from an obligation to 
deliver. This format would potentially make it easier for Treasury to 
understand a reporting entity's trading activity, including what 
positions it might control in the future. This approach may also be 
easier for many reporting entities to understand because it may align 
more closely with the way they typically maintain their records.
    To avoid multiple counting, aggregating entities that are part of 
the same reporting entity would be required to net receive and deliver 
obligations resulting from intercompany transactions.
3. Futures and Options Contracts
    Currently, the LPR rules only require the reporting of positions in 
futures contracts that require the delivery of the specified Treasury 
security. We are proposing to expand the components of a position to 
also include futures, options on futures, and options contracts for 
which the specified Treasury security is deliverable. The components 
would include contracts that require delivery of the specified Treasury 
security as well as contracts that allow for the delivery of several 
securities.
4. Components of a Position
    As part of an ongoing effort to improve the information Treasury 
receives in response to a call for Reports, we routinely discuss ways 
to improve the LPR rules with market participants. Feedback from these 
discussions suggests that the current rules and formula could be 
modified to more closely align with the way reporting entities 
typically maintain their records and also may provide more meaningful 
information for Treasury.
    Accordingly, we are proposing to replace the current components of 
a total reportable position with the following report components:
    a. Positions in the Security Being Reported at the Opening of 
Fedwire on the Report Date, including positions:
    i. In accounts of the reporting entity;
    ii. In tri-party repurchase agreement shells;
    iii. As collateral or margin against financial derivatives and 
other

[[Page 33149]]

contractual obligations of the reporting entity; and
    iv. Controlled by any other means.
    b. Settlement Obligations Attributable to Purchase and Sale 
Contracts Negotiated Prior to and on the Report Date (excluding 
settlement fails), including:
    i. Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for cash settlement 
(T+0);
    ii. Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for regular 
settlement (T+1);
    iii. Obligations to receive or deliver, on the report date, the 
security being reported attributable to forward contracts, including 
when-issued contracts, for forward settlement (T+n, n>1);
    iv. Obligations to receive, on the report date, the security being 
reported attributable to Treasury auction awards; and
    v. Obligations to receive or deliver, on the report date, principal 
STRIPS \25\ derived from the security being reported attributable to 
contracts for cash settlement, regular settlement, when-issued 
contracts, and forward contracts.
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    \25\ STRIPS (Separate Trading of Registered Interest and 
Principal of Securities) means Treasury's program under which 
eligible securities are authorized to be separated into principal 
and interest components, and transferred separately. See 31 CFR 
356.2.
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    c. Settlement Obligations Attributable to Delivery-versus-Payment 
Financing Contracts (including repurchase agreements and securities 
lending agreements) Negotiated Prior to and on the Report Date 
(excluding settlement fails), including:
    i. Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to overnight agreements;
    ii. Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to term agreements opened on, or due to 
close on, the report date;
    iii. Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to open agreements opened on, or due to 
close on, the report date.
    d. Settlement Fails from Days Prior to the Report Date (Legacy 
Obligations), including:
    i. Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, arising out of settlement fails on days prior to the 
report date.
    e. Settlement Fails as of the Close of Fedwire on the Report Date, 
including:
    i. Obligations to receive or deliver, on the business day following 
the report date, the security being reported, and principal STRIPS 
derived from the security being reported, arising out of settlement 
fails on the report date.
    f. Positions in the Security Being Reported at the Close of Fedwire 
on the Report Date, including positions:
    i. In accounts of the reporting entity;
    ii. In tri-party repurchase agreement shells;
    iii. As collateral or margin against financial derivatives and 
other contractual obligations of the reporting entity; and
    iv. Controlled by any other means.
    g. Quantity of Continuing Delivery-versus-Payment Financing 
Contracts for the Security Being Reported, including the:
    i. Net amount of security being reported lent out on term 
repurchase agreements that were opened before the report date and that 
were not due to close until after the report date, and on open 
repurchase agreements that were opened before the report date and that 
were not closed on the report date.
    h. Futures and Options Contracts, including the:
    i. Net long position, immediately prior to the opening of futures 
and options trading on the report date, in futures, options on futures, 
and options contracts on which the security being reported is 
deliverable; and
    ii. Net long position, immediately following the close of futures 
and options trading on the report date, in futures, options on futures, 
and options contracts on which the security being reported is 
deliverable.
    All amounts should be reported as positive numbers and at par in 
millions of dollars.
5. Optional Administrative Information
    Treasury is providing an option for reporting entities to identify 
the type(s) of business engaged in by the reporting entity and its 
aggregating entities with respect to positions in the specified 
Treasury security by checking the appropriate box. The types of 
businesses listed in the proposed Report are: Broker or dealer, 
government securities broker or dealer, municipal securities broker or 
dealer, futures commission merchant, bank holding company, non-bank 
holding company, bank, investment adviser, commodity pool operator, 
pension trustee, non-pension trustee, and insurance company. Reporting 
entities could identify as many business types as applicable. If the 
reporting entity is engaged in a business that is not listed, it could 
select ``other'' and provide a description of its business with regard 
to the specified Treasury security. Knowing the type(s) of business in 
which the reporting entity is engaged would help Treasury better 
understand the Treasury security positions included in the entity's 
Report.
    Treasury is also providing an option for reporting entities to 
identify their overall investment strategy with respect to positions in 
the specified Treasury security by checking the appropriate box. Active 
investment strategies would include those that involve purchasing, 
selling, borrowing, lending, and financing positions in the security 
prior to maturity. Passive investment strategies would include those 
that involve holding the security until maturity. A combination of 
active and passive strategies would involve applying the aforementioned 
active and passive strategies to all or a portion of a reporting 
entity's positions in the security.

E. Consolidated Guidance

    The current LPR rules specify the positions that entities are 
required to report, however, additional guidance on the treatment of 
specific transactions is contained in the preambles to the previous 
proposed and final rules and a list of Frequently Asked Questions and 
Answers available on the TreasuryDirect Web site. The proposed 
amendments consolidate certain guidance in the rules themselves, which 
may help to simplify the reporting process and make the reporting 
requirements clearer.

F. Request for Comment

    Treasury welcomes comments on all of these proposed amendments, in 
particular whether: (1) The proposed amendments would accomplish the 
goal of providing Treasury with more useful information regarding 
supply and demand dynamics in certain Treasury securities; (2) the 
effect, if any, the proposed amendments would have on reporting 
entities in calculating their positions; (3) based on the proposed 
amendments, the current three and a half business day reporting 
timeframe would be sufficient to allow reporting entities to complete 
the proposed Report; (4) establishing a minimum LPR threshold that is 
10 percent of the outstanding amount of the specified Treasury security 
is appropriate; (5) announcing different thresholds for certain 
reporting criteria is appropriate; (6) the proposed treatment of fails 
is appropriate; (7) including options in the

[[Page 33150]]

positions that are required to be reported is appropriate or whether 
there are other amounts or positions that would be meaningful to 
include; (8) other business types of reporting entities should be 
identified on the report; and (9) $2 billion is the appropriate 
threshold that triggers the LPR recordkeeping requirement. We invite 
comments on the effect of these proposed amendments, including any 
operational or system modifications that may be needed. We also welcome 
comments on any other aspects of the proposed amendments and how to 
improve the LPR rules.

IV. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (Act) requires that collections 
of information prescribed in the proposed amendments to the LPR rules 
be submitted to the Office of Management and Budget (OMB) for review 
and approval.\26\ In accordance with that requirement, Treasury has 
submitted the collection of information contained in this notice of 
proposed rulemaking for review. Under the 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. Comments on the collection of information may be submitted 
electronically to oira.submission@omb.eop.gov, or may be mailed to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Attention: Desk Officer for Department of the Treasury, 
Washington, DC 20503; and to the Government Securities Regulations 
Staff, Bureau of the Fiscal Service, at the address specified at the 
beginning of this document.
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    \26\ 44 U.S.C. 3507(d).
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    The collection of information in the proposed amendments is 
contained in proposed Sec.  420.3. The proposed amendments require a 
reporting entity that meets any one of seven criteria to submit a 
Report to FRBNY. Although we cannot be certain of the number of 
entities that would be required to report their positions as a result 
of a call for such Reports, we believe few reporting entities would 
actually have to file Reports because the minimum reporting threshold 
remains high. In fact, the actual reporting threshold(s) in a specific 
call for large position reports may exceed the minimum reporting 
threshold. Moreover, we expect that our requests for information will 
continue to be infrequent.
    Treasury does not believe that reporting entities would find 
reporting the additional opening position information and separately 
reporting gross obligations to deliver and receive overly burdensome 
because this approach may align more closely with the way many 
reporting entities typically maintain their records. In addition, 
reporting entities must collect much of this information to calculate 
their reportable position under the current LPR rules. Because the 
proposed amendments would require more detailed information to be 
provided by entities that file reports, we are increasing the annual 
reporting burden in our submission to OMB by 104 hours, representing an 
increase from eight hours to ten hours per reporting entity and an 
increase from 12 to 20 reporting entities.
    The collection of information is intended to enable the Treasury 
and other regulators to better understand supply and demand dynamics in 
certain Treasury securities. This information would help the Treasury 
securities market remain liquid and efficient and facilitate government 
borrowing at the lowest possible cost to taxpayers.
    Treasury invites further comments on: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
Treasury's functions, including whether the information has practical 
utility; (2) the accuracy of Treasury's estimate of the burden; (3) 
enhancement of the quality, utility, and clarity of information to be 
collected; and (4) minimizing the information collection burden on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Estimated total annual reporting burden: 200 hours.
    Estimated annual number of respondents: 20.
    Estimated annual frequency of response: 1.

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.
    The proposed amendments reflect Treasury's continuing interest in 
meeting its informational needs while minimizing the cost and burden on 
those entities affected by the regulations. The proposed amendments 
retain the on-demand reporting system, adopted in 1996, which is less 
burdensome than a regular reporting system. Based on the limited impact 
of the proposed amendments, it is our view that the proposed 
regulations are not a ``significant regulatory action'' for the 
purposes of Executive Order 12866.
    In addition, we certify under the Regulatory Flexibility Act (5 
U.S.C. 601, et seq.) that the proposed amendments to the current 
regulations would not have a significant economic impact on a 
substantial number of small entities. We believe that small entities 
will not control positions of 10 percent or greater in any particular 
Treasury security. The inapplicability of the proposed amendments to 
small entities indicates there is no significant impact. As a result, a 
regulatory flexibility analysis is not required.

List of Subjects in 17 CFR Part 420

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

    For the reasons stated in the preamble, we propose that 17 CFR part 
420 be revised to read as follows:

PART 420--LARGE POSITION REPORTING

Sec.
420.1 Applicability.
420.2 Definitions.
420.3 Reporting.
420.4 Recordkeeping.
420.5 Effective date.
Appendix A to Part 420--Separate Reporting Entity.
Appendix B to Part 420--Sample Large Position Report.

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


Sec.  420.1  Applicability.

    (a) This part is applicable to all persons that participate in the 
government securities market, including, but not limited to: Government 
securities brokers and dealers, depository institutions that exercise 
investment discretion, registered investment companies, registered 
investment advisers, pension funds, hedge funds, and insurance 
companies that may control a position in a recently-issued marketable 
Treasury bill, note, or bond as those terms are defined in Sec.  420.2.
    (b) Notwithstanding paragraph (a) of this section, Treasury 
requests that central banks (including U.S. Federal Reserve Banks for 
their own account), foreign governments, and international monetary 
authorities voluntarily submit large position reports when they meet or 
exceed the reporting threshold(s).

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Sec.  420.2  Definitions.

    For the purposes of this part:
    Aggregating entity means a single entity (e.g., a parent company, 
affiliate, or organizational component) that is combined with other 
entities, as specified in the definition of ``reporting entity'' of 
this section, to form a reporting entity. In those cases where an 
entity has no affiliates, the aggregating entity is the same as the 
reporting entity.
    Control means having the authority to exercise investment 
discretion over the purchase, sale, retention, or financing of specific 
Treasury securities. Only one entity should be considered to have 
investment discretion over a particular position.
    Large position threshold means the minimum dollar par amount of the 
specified Treasury security that a reporting entity must control in 
order for the entity to be required to submit a large position report. 
Treasury will announce the large position threshold(s), which may vary 
with each notice of request to report large position information and 
with each specified Treasury security. Treasury may announce different 
thresholds for certain reporting criteria. Under no circumstances will 
a large position threshold be less than 10 percent of the amount 
outstanding of the specified Treasury security.
    Recently-issued means:
    (1) With respect to Treasury securities that are issued quarterly 
or more frequently, the three most recent issues of the security.
    (2) With respect to Treasury securities that are issued less 
frequently than quarterly, the two most recent issues of the security.
    (3) With respect to a reopened security, the entire issue of a 
reopened security (older and newer portions) based on the date the new 
portion of the reopened security is issued by Treasury (or for when-
issued securities, the scheduled issue date).
    (4) For all Treasury securities, a security announced to be issued 
or auctioned but unissued (when-issued), starting from the date of the 
issuance announcement. The most recent issue of the security is the one 
most recently announced.
    (5) Treasury security issues other than those specified in 
paragraphs (1) and (2) of this definition, provided that such large 
position information is necessary and appropriate for monitoring the 
impact of concentrations of positions in Treasury securities.
    Reporting entity means any corporation, partnership, person, or 
other entity and its affiliates, as further provided herein. For the 
purposes of this definition, an affiliate is any: Entity that is more 
than 50% owned, directly or indirectly, by the aggregating entity or by 
any other affiliate of the aggregating entity; person or entity that 
owns, directly or indirectly, more than 50% of the aggregating entity; 
person or entity that owns, directly or indirectly, more than 50% of 
any other affiliate of the aggregating entity; or entity, a majority of 
whose board of directors or a majority of whose general partners are 
directors or officers of the aggregating entity or any affiliate of the 
aggregating entity.
    (1) Subject to the conditions prescribed in appendix A to this 
part, one aggregating entity, or a combination of aggregating entities, 
may be recognized as a separate reporting entity.
    (2) Notwithstanding this definition, any persons or entities that 
intentionally act together with respect to the investing in, retention 
of, or financing of Treasury securities are considered, collectively, 
to be one reporting entity.
    Reporting requirement means that an entity must file a large 
position report when it meets any one of seven criteria contained in 
appendix B to this part.
    Tri-party repurchase agreement (repo) shell means an account 
created on the books of a tri-party repo agent bank following 
confirmation of a tri-party repo transaction between a cash lender and 
a collateral provider. Each shell has a unique account number and an 
eligibility rule set based on an agreement between the cash lender and 
the collateral provider. The rule set defines the type of securities 
that are eligible for the shell as well as associated haircuts. 
Collateral is allocated and held for the duration of the transaction in 
the tri-party repo shell. The shell must be fully collateralized at all 
times and collateral providers may remove collateral from the shell 
only if shell-eligible collateral of equal value is allocated into the 
shell in its place.


Sec.  420.3  Reporting.

    (a) A reporting entity must file a large position report if it 
meets the reporting requirement as defined in Sec.  420.2 of this part. 
Treasury will provide notice of the large position threshold(s) by 
issuing a press release and subsequently publishing the notice in the 
Federal Register. Such notice will identify the Treasury security issue 
to be reported (including, where applicable, identifying the related 
STRIPS principal component); the date or dates for which the large 
position information must be reported; and the applicable large 
position threshold(s) for that issue. A reporting entity is responsible 
for taking reasonable actions to be aware of such a notice.
    (b) A reporting entity shall select one entity from among its 
aggregating entities (i.e., the designated filing entity) as the entity 
designated to compile and file a report on behalf of the reporting 
entity. The designated filing entity shall be responsible for filing 
any large position reports in response to a notice issued by Treasury 
and for maintaining the additional records prescribed in Sec.  420.4.
    (c)(1) In response to a notice issued under paragraph (a) of this 
section requesting large position information, a reporting entity that 
controls an amount of the specified Treasury security that equals or 
exceeds one of the specified large position thresholds stated in the 
notice shall compile and report the amounts of the reporting entity's 
positions in the order specified, as follows:
    (i) Part I. Positions in the Security Being Reported at the Opening 
of Fedwire[supreg] on the Report Date, including positions:
    (A) In accounts of the reporting entity;
    (B) In tri-party repurchase agreement shells;
    (C) As collateral or margin against financial derivatives and other 
contractual obligations of the reporting entity; and
    (D) Controlled by any other means.
    (ii) Part II. Settlement Obligations Attributable to Purchase and 
Sale Contracts Negotiated Prior to and on the Report Date (excluding 
settlement fails), including:
    (A) Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for cash settlement 
(T+0);
    (B) Obligations to receive or deliver, on the report date, the 
security being reported attributable to contracts for regular 
settlement (T+1);
    (C) Obligations to receive or deliver, on the report date, the 
security being reported attributable to forward contracts, including 
when-issued contracts, for forward settlement (T+n, n>1);
    (D) Obligations to receive, on the report date, the security being 
reported attributable to Treasury auction awards; and
    (E) Obligations to receive or deliver, on the report date, 
principal STRIPS derived from the security being reported attributable 
to contracts for cash settlement, regular settlement, when-issued 
contracts, and forward contracts.
    (iii) Part III. Settlement Obligations Attributable to Delivery-
versus-Payment

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Financing Contracts (including repurchase agreements and securities 
lending agreements) Negotiated Prior to and on the Report Date 
(excluding settlement fails), including:
    (A) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to overnight agreements;
    (B) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to term agreements opened on, or due to 
close on, the report date; and
    (C) Obligations to receive or deliver, on the report date, the 
security being reported, and principal STRIPS derived from the security 
being reported, attributable to open agreements opened on, or due to 
close on, the report date.
    (iv) Part IV. Settlement Fails from Days Prior to the Report Date 
(Legacy Obligations), including obligations to receive or deliver, on 
the report date, the security being reported, and principal STRIPS 
derived from the security being reported, arising out of settlement 
fails on days prior to the report date.
    (v) Part V. Settlement Fails as of the Close of Fedwire on the 
Report Date, including obligations to receive or deliver, on the 
business day following the report date, the security being reported, 
and principal STRIPS derived from the security being reported, arising 
out of settlement fails on the report date.
    (vi) Part VI. Positions in the Security Being Reported at the Close 
of Fedwire on the Report Date, including:
    (A) In accounts of the reporting entity;
    (B) In tri-party repurchase agreement shells;
    (C) As collateral or margin against financial derivatives and other 
contractual obligations of the reporting entity; and
    (D) Controlled by any other means.
    (vii) Part VII. Quantity of Continuing Delivery-versus-Payment 
Financing Contracts for the Security Being Reported, including net 
amount of security being reported lent out on term repurchase 
agreements that were opened before the report date and that were not 
due to close until after the report date, and on open repurchase 
agreements that were opened before the report date and that were not 
closed on the report date.
    (viii) Part VIII. Futures and Options Contracts, including:
    (A) Net long position, immediately prior to the opening of futures 
and options trading on the report date, in futures, options on futures, 
and options contracts on which the security being reported is 
deliverable; and
    (B) Net long position, immediately following the close of futures 
and options trading on the report date, in futures, options on futures, 
and options contracts on which the security being reported is 
deliverable.
    (2) An illustration of a sample report is contained in Appendix B.
    (3) Each of the components of Part I-Part VIII shall be reported as 
a positive number or zero. All reportable amounts should be reported in 
the order specified above and at par in millions of dollars.
    (4) Each submitted large position report must include the following 
administrative information: Name of the reporting entity; address of 
the principal place of business; name and address of the designated 
filing entity; the Treasury security that is being reported; the CUSIP 
number for the security being reported; the report date or dates for 
which information is being reported; the date the report was submitted; 
name and telephone number of the person to contact regarding 
information reported; and name and position of the authorized 
individual submitting this report.
    Reporting entities have the option to identify the type(s) of 
business engaged in by the reporting entity and its aggregating 
entities with positions in the specified Treasury security by checking 
the appropriate box. The types of businesses include: Broker or dealer, 
government securities broker or dealer, municipal securities broker or 
dealer, futures commission merchant, bank holding company, non-bank 
holding company, bank, investment adviser, commodity pool operator, 
pension trustee, non-pension trustee, and insurance company. Reporting 
entities may select as many business types as applicable. If the 
reporting entity is engaged in a business that is not listed, it could 
select ``other'' and provide a description of its business with respect 
to positions in the specified Treasury security.
    Reporting entities also have the option to identify their overall 
investment strategy with respect to positions in the specified Treasury 
security by checking the appropriate box. Active investment strategies 
include those that involve purchasing, selling, borrowing, lending, and 
financing positions in the security prior to maturity. Passive 
investment strategies include those that involve holding the security 
until maturity. A combination of active and passive strategies would 
involve applying the aforementioned active and passive strategies to 
all or a portion of a reporting entity's positions in the specified 
Treasury security. Reporting entities may select the most applicable 
investment strategy.
    (5) The large position report must be signed by one of the 
following: The chief compliance officer; chief legal officer; chief 
financial officer; chief operating officer; chief executive officer; or 
managing partner or equivalent. The designated filing entity must also 
include in the report, immediately preceding the signature, a statement 
of certification as follows:

    By signing below, I certify that the information contained in 
this report with regard to the designated filing entity is accurate 
and complete. Further, after reasonable inquiry and to the best of 
my knowledge and belief, I certify that: (i) the information 
contained in this report with regard to any other aggregating 
entities is accurate and complete; and (ii) the reporting entity, 
including all aggregating entities, is in compliance with the 
requirements of 17 CFR part 420.

    (6) The report must be filed before noon Eastern time on the fourth 
business day following issuance of the press release.
    (d) A report to be filed pursuant to paragraph (c) of this section 
will be considered filed when received by the Federal Reserve Bank of 
New York. The report may be filed by facsimile or delivered hard copy. 
The Federal Reserve Bank of New York may in its discretion also 
authorize additional means of reporting.

    (e) A reporting entity that has filed a report pursuant to 
paragraph (c) of this section shall, at the request of Treasury or the 
Federal Reserve Bank of New York, timely provide any supplemental 
information pertaining to such report.


(Approved by the Office of Management and Budget under control number 
1535-0089)


Sec.  420.4  Recordkeeping.

    (a) Recordkeeping responsibility of aggregating entities. 
Notwithstanding the provisions of paragraphs (b) and (c) of this 
section, an aggregating entity that controls a portion of its reporting 
entity's position in a recently-issued Treasury security, when such 
position of the reporting entity equals or exceeds $2 billion, shall be 
responsible for making and maintaining the records prescribed in this 
section.
    (b) Records to be made and preserved by entities that are subject 
to the recordkeeping provisions of the SEC, Treasury, or the 
appropriate regulatory agencies for financial institutions. As an 
aggregating entity, compliance by a registered broker or dealer, 
registered government securities broker or dealer,

[[Page 33153]]

noticed financial institution, depository institution that exercises 
investment discretion, registered investment adviser, or registered 
investment company with the applicable recordkeeping provisions of the 
SEC, Treasury, or the appropriate regulatory agencies for financial 
institutions shall constitute compliance with this section, provided 
that, if such entity is also the designated filing entity, it:
    (1) Makes and keeps copies of all large position reports filed 
pursuant to this part;
    (2) Makes and keeps supporting documents or schedules used to 
compute data for the large position reports filed pursuant to this 
part, including any certifications or schedules it receives from 
aggregating entities pertaining to their holdings of the reporting 
entity's position;
    (3) Makes and keeps a chart showing the organizational entities 
that are aggregated (if applicable) in determining the reporting 
entity's position; and
    (4) With respect to recordkeeping preservation requirements that 
contain more than one retention period, preserves records required by 
paragraphs (b)(1) through (3) of this section for the longest record 
retention period of applicable recordkeeping provisions.
    (c) Records to be made and preserved by other entities. (1) An 
aggregating entity that is not subject to the provisions of paragraph 
(b) of this section shall make and preserve a journal, blotter, or 
other record of original entry containing an itemized record of all 
transactions that contribute to a reporting entity's position, 
including information showing the account for which such transactions 
were effected and the following information pertaining to the 
identification of each instrument: The type of security, the par 
amount, the CUSIP number, the trade date, the maturity date, the type 
of transaction (e.g., a reverse repurchase agreement), and the name or 
other designation of the person from whom sold or purchased.
    (2) If such aggregating entity is also the designated filing 
entity, then in addition it shall make and preserve the following 
records:
    (i) Copies of all large position reports filed pursuant to this 
part;
    (ii) Supporting documents or schedules used to compute data for the 
large position reports filed pursuant to this part, including any 
certifications or schedules it receives from aggregating entities 
pertaining to their holdings of the reporting entity's position; and
    (iii) A chart showing the organizational entities that are 
aggregated (if applicable) in determining the reporting entity's 
position.
    (3) With respect to the records required by paragraphs (c)(1) and 
(2) of this section, each such aggregating entity shall preserve such 
records for a period of not less than six years, the first two years in 
an easily accessible place. If an aggregating entity maintains its 
records at a location other than its principal place of business, the 
aggregating entity must maintain an index that states the location of 
the records, and such index must be easily accessible at all times.


(Approved by the Office of Management and Budget under control number 
1535-0089)


Sec.  420.5  Applicability date.

    The provisions of this part shall be first applicable beginning 
March 31, 1997.

Appendix A to Part 420--Separate Reporting Entity

    Subject to the following conditions, one or more aggregating 
entity(ies) (e.g., parent, subsidiary, or organizational component) 
in a reporting entity, either separately or together with one or 
more other aggregating entity(ies), may be recognized as a separate 
reporting entity. All of the following conditions must be met for 
such entity(ies) to qualify for recognition as a separate reporting 
entity:
    (1) Such entity(ies) must be prohibited by law or regulation 
from exchanging, or must have established written internal 
procedures designed to prevent the exchange of information related 
to transactions in Treasury securities with any other aggregating 
entity;
    (2) Such entity(ies) must not be created for the purpose of 
circumventing these large position reporting rules;
    (3) Decisions related to the purchase, sale or retention of 
Treasury securities must be made by employees of such entity(ies). 
Employees of such entity(ies) who make decisions to purchase or 
dispose of Treasury securities must not perform the same function 
for other aggregating entities; and
    (4) The records of such entity(ies) related to the ownership, 
financing, purchase and sale of Treasury securities must be 
maintained by such entity(ies). Those records must be identifiable--
separate and apart from similar records for other aggregating 
entities.
    To obtain recognition as a separate reporting entity, each 
aggregating entity or group of aggregating entities must request 
such recognition from Treasury pursuant to the procedures outlined 
in Sec.  400.2(c) of this chapter. Such request must provide a 
description of the entity or group and its position within the 
reporting entity, and provide the following certification:

    [Name of the entity(ies)] hereby certifies that to the best of 
its knowledge and belief it meets the conditions for a separate 
reporting entity as described in Appendix A to 17 CFR Part 420. The 
above named entity also certifies that it has established written 
policies or procedures, including ongoing compliance monitoring 
processes, that are designed to prevent the entity or group of 
entities from:
    (1) Exchanging any of the following information with any other 
aggregating entity (a) positions that it holds or plans to trade in 
a Treasury security; (b) investment strategies that it plans to 
follow regarding Treasury securities; and (c) financing strategies 
that it plans to follow regarding Treasury securities, or
    (2) In any way intentionally acting together with any other 
aggregating entity with respect to the purchase, sale, retention or 
financing of Treasury securities.
    The above-named entity agrees that it will promptly notify 
Treasury in writing when any of the information provided to obtain 
separate reporting entity status changes or when this certification 
is no longer valid.

    Any entity, including any organizational component thereof, that 
previously has received recognition as a separate bidder in Treasury 
auctions from Treasury pursuant to 31 CFR part 356 is also 
recognized as a separate reporting entity without the need to 
request such status, provided such entity continues to be in 
compliance with the conditions set forth in appendix A to 31 CFR 
part 356.
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Matthew S. Rutherford,
Assistant Secretary for Financial Markets.
[FR Doc. 2014-13482 Filed 6-9-14; 8:45 am]
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