Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Farmer Mac Investment Eligibility, 8860-8867 [2016-03626]
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8860
Proposed Rules
Federal Register
Vol. 81, No. 35
Tuesday, February 23, 2016
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1218
[Document No. AMS–SC–15–0076]
Blueberry Promotion, Research and
Information Order; Continuance
Referendum
Agricultural Marketing Service
USDA.
ACTION: Referendum order.
AGENCY:
This document directs that a
referendum be conducted among
eligible producers and importers of
highbush blueberries to determine
whether they favor continuance of the
Blueberry Promotion, Research and
Information Order (Order).
DATES: The referendum will be
conducted by mail ballot from July 5
through July 28, 2016. To be eligible to
vote, blueberry producers and importers
must have produced or imported 2,000
pounds or more of highbush blueberries
during the representative period of
January 1 through December 31, 2015,
paid assessments during that period,
and must currently be producers or
importers of highbush blueberries
subject to assessment under the Order.
Ballots must be received by the
referendum agents no later than the
close of business on July 28, 2016, to be
counted.
ADDRESSES: Copies of the Order may be
obtained from: Referendum Agent,
Promotion and Economics Division,
Specialty Crops Program, AMS, USDA,
1400 Independence Avenue SW., Room
1406–S, Stop 0244, Washington, DC
20250–0244, telephone: (202) 720–9915;
facsimile: (202) 205–2800; or contact
Maureen Pello at (503) 632–8848 or via
electronic mail: Maureen.Pello@
ams.usda.gov.
FOR FURTHER INFORMATION CONTACT:
Maureen Pello, Marketing Specialist,
PED, SC, AMS, USDA, 1400
Independence Avenue SW., Room
1406–S, Stop 0244, Washington, DC
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20250–0244; telephone: (202) 720–9915,
(503) 632–8848 (direct line); facsimile:
(202) 205–2800; or electronic mail:
Maureen.Pello@ams.usda.gov.
SUPPLEMENTARY INFORMATION: Pursuant
to the Commodity Promotion, Research
and Information Act of 1996 (7 U.S.C.
7411–7425) (Act), it is hereby directed
that a referendum be conducted to
ascertain whether continuance of the
Order (7 CFR part 1218) is favored by
eligible producers and importers of
highbush blueberries. The Order is
authorized under the Act.
The representative period for
establishing voter eligibility for the
referendum shall be the period from
January 1 through December 31, 2015.
Persons who produced or imported
2,000 pounds or more of highbush
blueberries during the representative
period, paid assessments during that
period, and are currently highbush
blueberry producers or importers
subject to assessment under the Order
are eligible to vote. Persons who
received an exemption from
assessments for the entire representative
period are ineligible to vote. The
referendum will be conducted by mail
ballot from July 5 through July 28, 2016.
Section 518 of the Act authorizes
continuance referenda. Under
§ 1218.71(b) of the Order, the U.S.
Department of Agriculture (USDA) must
conduct a referendum every 5 years to
determine whether persons subject to
assessment favor continuance of the
Order. The last referendum was held in
2011. USDA would continue the Order
if continuance is favored by a majority
of the producers and importers voting in
the referendum, who also represent a
majority of the volume of blueberries
represented in the referendum.
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
chapter 35), the referendum ballot has
been approved by the Office of
Management and Budget (OMB) and
assigned OMB No. 0581–0093. It has
been estimated that there are
approximately 1,860 producers and 180
importers who will be eligible to vote in
the referendum. It will take an average
of 15 minutes for each voter to read the
voting instructions and complete the
referendum ballot.
Referendum Order
Maureen Pello, Marketing Specialist,
and Heather Pichelman, Director, PED,
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SC, AMS, USDA, Stop 0244, Room
1406–S, 1400 Independence Avenue
SW., Washington, DC 20250–0244, are
designated as the referendum agents to
conduct this referendum. The
referendum procedures at 7 CFR
1218.100 through 1218.107, which were
issued pursuant to the Act, shall be used
to conduct the referendum.
The referendum agent will mail the
ballots to be cast in the referendum and
voting instructions to all known, eligible
highbush blueberry producers and
importers prior to the first day of the
voting period. Persons who produced or
imported 2,000 more pounds of
highbush blueberries during the
representative period, paid assessments
during that period, and are currently
highbush blueberry producer or
importers subject to assessment under
the Order are eligible to vote. Persons
who received an exemption from
assessments during the entire
representative period are ineligible to
vote. Any eligible producer or importer
who does not receive a ballot should
contact the referendum agent no later
than one week before the end of the
voting period. Ballots must be received
by the referendum agent by 4:30 p.m.
Eastern time, July 28, 2016, in order to
be counted.
List of Subjects in 7 CFR Part 1218
Administrative practice and
procedure, Advertising, Blueberry
promotion, Consumer information,
Marketing agreements, Reporting and
recordkeeping requirements.
Authority: 7 U.S.C. 7411–7425; 7 U.S.C.
7401.
Dated: February 18, 2016.
Erin Morris,
Associate Administrator.
[FR Doc. 2016–03806 Filed 2–22–16; 8:45 am]
BILLING CODE 3410–02–P
FARM CREDIT ADMINISTRATION
12 CFR Part 652
RIN 3052–AC86
Organization; Funding and Fiscal
Affairs, Loan Policies and Operations,
and Funding Operations; Farmer Mac
Investment Eligibility
Farm Credit Administration.
Proposed rule.
AGENCY:
ACTION:
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Federal Register / Vol. 81, No. 35 / Tuesday, February 23, 2016 / Proposed Rules
The Farm Credit
Administration (FCA, Agency, us, our,
or we) proposes to amend our
regulations governing the eligibility of
non-program investments held by the
Federal Agricultural Mortgage
Corporation (Farmer Mac). We propose
to revise these regulations to comply
with section 939A of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act or DFA)
by removing references to, and
requirements relating to, credit ratings.
We are also proposing a delayed
compliance date for the rule.
DATES: You may send us comments by
April 25, 2016.
ADDRESSES: We offer a variety of
methods for you to submit comments on
this proposed rule. For accuracy and
efficiency reasons, commenters are
encouraged to submit comments by
email or through the Agency’s Web site.
As facsimiles (fax) are difficult for us to
process and achieve compliance with
section 508 of the Rehabilitation Act, we
are no longer accepting comments
submitted by fax. Regardless of the
method you use, please do not submit
your comment multiple times via
different methods. You may submit
comments by any of the following
methods:
• Email: Send us an email at regcomm@fca.gov.
• FCA Web site: https://www.fca.gov.
Select ‘‘Public Commenters,’’ then
‘‘Public Comments,’’ and follow the
directions for ‘‘Submitting a Comment.’’
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Laurie A Rea, Director, Office
of Secondary Market Oversight, Farm
Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia, or on our Web site at
https://www.fca.gov. Once you are in the
Web site, select ‘‘Public Commenters,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Reading Submitted
Public Comments.’’ We will show your
comments as submitted, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
email addresses to help reduce Internet
spam.
FOR FURTHER INFORMATION CONTACT:
Joseph T. Connor, Associate Director for
Policy and Analysis, Office of
Secondary Market Oversight, Farm
Credit Administration, McLean, VA
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SUMMARY:
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22102–5090, (703) 883–4364, TTY
(703) 883–4056;
or
Laura McFarland, Senior Counsel,
Office of General Counsel, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4020, TTY
(703) 883–4056.
SUPPLEMENTARY INFORMATION:
I. Objective
The purpose of this proposed rule is
to replace references to credit rating
agencies in existing Farmer Mac
investment regulations with other
appropriate standards to determine the
creditworthiness of investments and to
revise exposure limits for investments
involving one obligor. Section 939A of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act or DFA) requires agencies to remove
references to, and requirements relating
to, credit ratings. This proposal would
substitute other appropriate standards of
creditworthiness. The proposed rule
would also replace the table in existing
regulations that sets forth criteria for
non-program investment eligibility with
standards that place a greater emphasis
on management’s due diligence
responsibility in ascertaining credit
quality of non-program investments so
that only high quality investments are
purchased and held. The proposed rule
would also clarify how other nonprogram investments are treated and
revise exposure limits for investments
involving one obligor. We are also
proposing a delayed compliance date for
the rule.
II. Background
Farmer Mac is an institution of the
Farm Credit System, regulated by FCA
through the FCA Office of Secondary
Market Oversight (OSMO). Farmer Mac
was established and chartered by
Congress to create a secondary market
for agricultural real estate mortgage
loans, rural housing mortgage loans, and
rural utilities loans, and it is a
stockholder-owned instrumentality of
the United States. Title VIII of the Farm
Credit Act of 1971, as amended, (Act)
governs Farmer Mac.1
On July 21, 2010, the Dodd-Frank Act
was enacted, and section 939A of the
Dodd-Frank Act requires Federal
agencies to review all regulatory
references to nationally recognized
statistical ratings organizations (NRSRO
or credit rating agency) and replace
those references with other appropriate
standards for determining
1 Public Law 92–181, 85 Stat. 583, 12 U.S.C. 2001
et seq.
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creditworthiness.2 The Dodd-Frank Act
further provides that, to the extent
feasible, agencies should adopt a
uniform standard of creditworthiness
for use in regulations, taking into
account the entities regulated and the
purposes for which such regulated
entities would rely on the
creditworthiness standard.
The existing rules on non-program
investments for Farmer Mac are
contained in 12 CFR part 652, subpart
A, and rely, in part, on NRSRO credit
ratings to characterize relative credit
quality of various instruments. On June
16, 2011, we issued an Advance Notice
of Proposed Rulemaking (ANPRM)
soliciting comments on suitable
alternatives to NRSRO credit ratings.3
On November 18, 2011, as part of
another rulemaking, we again requested
comment on potential sources of
market-derived information that could
be used to replace NRSRO credit ratings
in part 652 of our rules.4 In developing
this proposed rule, we considered all
suggestions from comments received
and incorporated those we believed best
addressed the objective of this
rulemaking. In addition to these
comments, we also considered the
creditworthiness standards we proposed
in a separate rulemaking for Farm Credit
banks and associations 5 in compliance
with provisions in the Dodd-Frank Act
directing agencies, to the extent feasible,
to adopt a uniform standard of
creditworthiness among regulated
entities.
III. Section-by-Section
The proposed rule would revise
portfolio diversification requirements
and revise the credit quality standards
for eligible non-program investments
that Farmer Mac may hold by replacing
the reliance on NRSRO credit ratings
and clarifying terminology.
A. Definitions [Existing § 652.5]
In § 652.5, we propose removing
existing terminology, adding new terms,
and revising existing definitions. We
propose removing as obsolete several
terms from the list of definitions in
§ 652.5. We also propose removing
terms from § 652.5 because they do not
require a separate definition. The
specific terms we propose removing are:
• ‘‘Contingency Funding Plan (CFP)’’,
• ‘‘Eurodollar time deposit’’,
2 Public Law 111–203, 124 Stat. 1376, (H.R. 4173),
July 21, 2010.
3 76 FR 35138, June 16, 2011.
4 Refer to Proposed rule, ‘‘Federal Agricultural
Mortgage Corporation Funding and Fiscal Affairs;
Farmer Mac Investments and Liquidity
Management’’ (76 FR 71798, Nov. 18, 2011).
5 79 FR 43301, July 25, 2014.
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• ‘‘Final maturity’’,
• ‘‘General obligations’’,
• ‘‘Liability Maturity Management
Plan (LMMP)’’,
• ‘‘Liquid investments’’,
• ‘‘Liquidity reserve’’,
• ‘‘Nationally Recognized Statistical
Rating Organization (NRSRO)’’,
• ‘‘Revenue bond’’, and
• ‘‘Weighted average life (WAL).’’
We propose making conforming
changes to § 652.20 to remove these
terms where they appear.
We next propose adding two new
terms to the list of definitions to address
other proposed changes in this
rulemaking: ‘‘Diversified investment
fund’’ and ‘‘Obligor.’’ We propose to
define a ‘‘diversified investment fund’’
(DIF) as an investment company
registered under section 8 of the
Investment Company Act of 1940, 15
U.S.C. 80a–8. We selected this
definition based on our current use of it
in § 615.5140(a)(8) of our investment
rules for Farm Credit banks and
associations. We propose to define the
term ‘‘obligor’’ because our current
regulations use this term but do not
define it. We propose defining ‘‘obligor’’
as an issuer, guarantor, or other person
or entity who has an obligation to pay
a debt, including interest due, by a
specified date or when payment is
demanded. This definition would
include the debtor or immediate party
that is obligated to pay a debt, as well
as a guarantor of the debt. The proposed
definition would also clarify that both a
DIF and the entity or entities obligated
to pay the underlying debt are treated as
a single obligor. This clarification is
intended to ensure DIF investments do
not become an excessively concentrated
part of the investment portfolio.
Lastly, we propose changing three
existing terms and their definitions to
improve clarity: ‘‘Government agency’’,
‘‘Government-sponsored agency’’, and
‘‘mortgage securities.’’ We propose
replacing the existing term
‘‘Government-sponsored agency’’ with
‘‘Government-sponsored enterprise
(GSE)’’ and defining a GSE as an entity
established or chartered by the U.S.
Government to serve public purposes
specified by the U.S. Congress but
whose debt obligations are not explicitly
guaranteed by the full faith and credit
of the U.S. Government. We also
propose replacing ‘‘Government
agency’’ with ‘‘U.S. Government
agency.’’ The proposed definition for
U.S. Government agency would explain
that it means an instrumentality of the
United States Government whose
obligations are fully guaranteed as to the
timely payment of principal and interest
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by the full faith and credit of the U.S.
Government. Finally, we propose
replacing the term ‘‘mortgage securities’’
with ‘‘mortgage-backed securities
(MBS)’’ as this term is more widely used
in the financial sector. We propose
applying the existing definition for
‘‘mortgage securities’’ to the new MBS
term. We propose a conforming change
to the definition of ‘‘asset-backed
securities’’, which uses ‘‘mortgage
securities’’ in its definition.
B. Concentration Risk [New
§ 652.10(c)(5)]
We propose revising existing § 652.10
to address concentration risk through
portfolio diversification and obligor
limits in new paragraph (c)(5). Portfolio
diversification is crucial to safe and
sound investment management and is
achieved by the appropriate distribution
of risk exposures across reasonably
uncorrelated industries and obligors.
When a portfolio is properly diversified,
a crisis within one industry sector or the
sudden weakening or default of one
obligor should not significantly
destabilize the financial condition of the
investor. In new § 652.10(c)(5), we
propose specifying that Farmer Mac’s
investment policies address
concentration risk by setting
diversification standards. We propose
that the diversification calculation used
when setting these standards be based
on the carrying value of the investment
on Farmer Mac’s balance sheet. By
carrying value, we mean the amount an
investment contributes to the asset
section of Farmer Mac’s balance sheet
under GAAP, net of any impairment
estimate or valuation allowance. We
believe the carrying value would, when
applied for this purpose, appropriately
capture the value of capital at risk for an
investment at any given time. We also
propose the following parameters for
Farmer Mac’s establishment of these
standards:
• Basing calculation of an
investment’s compliance with
diversification requirements on the
investment’s carrying value;
• Limiting investments in one obligor
to no more than 10 percent of regulatory
capital, unless the investments are
obligations backed by U.S. Government
agencies or GSEs; and
• Limiting the percentage of GSEissued mortgage-backed securities that
may comprise Farmer Mac’s entire
investment portfolio to 50 percent.
We believe these parameters will not
require changes in the current
investment portfolio held by Farmer
Mac and discuss them more fully below.
We believe by placing specific
diversification limits within the section
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that generally requires Farmer Mac to
set diversification limits will improve
the organization of the rule.
We also propose removing the
reference to geographic areas in existing
§ 652.10(c)(1)(i). Farmer Mac should
consider diversification by geographic
location of issuer as appropriate based
on the nature of its investment portfolio.
For example, in the case of investments
in municipal securities, geographic
location might be an important
consideration. However, we propose
removing this specific category in the
regulation to avoid misinterpretation.
For example, we do not see the need to
restrict obligors solely on the basis of
where they happen to be headquartered
or the location of an issuer’s operations.
The proposed change in the level of the
single obligor limit is discussed below
in section III.B.1.
1. Obligor Limit
We propose to move the obligor limit
from § 652.20(d)(1) and reduce the
current limit to 10 percent of regulatory
capital. The proposed 10-percent obligor
limit in new § 652.10(c)(5)(i) would
enhance Farmer Mac’s long-term safety
and soundness by ensuring that if an
obligor were to default, only a modest
portion of capital would be at risk.
Currently, the proposed 10-percent
obligor limit equates to an amount that
is less than Farmer Mac’s capital
surplus and well within its risk-bearing
capacity based on its current level of
regulatory capital. Whereas, the current
25-percent obligor limit could expose
Farmer Mac to financial challenges if it
experienced an event of multiple
defaults in its liquidity portfolio during
a short time period (e.g., such as during
the 2008 financial crisis), given the
historical relationship between Farmer
Mac’s capital surplus over the minimum
requirement and the dollar value of the
25-percent limit. Thus, we expect that
the proposed 10-percent maximum will
provide reasonable assurance that a
single default will not significantly
increase the risk of Farmer Mac’s being
unable to comply with the minimum
capital requirement.
This proposed obligor limit would
recognize that the credit performance of
a single obligor (unlike, for example, a
single industry sector) is binary in
nature, (i.e., the investment is either
performing or it is in default) with
potentially very low recovery rates. For
that reason, we believe a cautious
approach is warranted regarding the
management of exposure concentrations
in an individual obligor. We also believe
the proposed obligor limit retains
sufficient flexibility for Farmer Mac to
manage its investment portfolio and still
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maintain adequate diversification.
While the proposed obligor limit would
be a regulatory maximum, Farmer Mac
should consider establishing lower
obligor limits to fit its overall risk
profile and risk-bearing capacity,
including earnings capacity, as well as
the risks in individual types and classes
of investments.
We seek specific comments and
suggestions on how FCA might modify
or adjust the obligor limit to make it
more risk sensitive while achieving the
overarching objectives of the limit for
example, by scaling or risk-weighting
assets based on internal or standardized
models or other criteria such as the
magnitude of Farmer Mac’s surplus over
the minimum capital requirement.
The proposed § 652.10(c)(5) would
retain the existing exemption from the
obligor limit, currently located in
§ 652.20(d)(1), for investments that are
backed by a U.S. Government agency or
GSEs.
2. Asset Class Limits
Existing § 652.20(a) contains a table
identifying nine asset classes with
different investment portfolio limits.
These nine asset classes are:
• Obligations of the United States,
• Obligations of GSEs,
• Municipal Securities,
• International and Multilateral
Development Bank Obligations,
• Money Market Instruments,
• Mortgage Securities,
• Asset-Backed Securities,
• Corporate Debt Securities, and
• DIFs.
Of these, some asset classes have
investment portfolio limits of 15
percent, 20 percent, 25 percent, and 50
percent.
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a. GSE-Issued Mortgage-Backed
Securities Limit
We propose moving to new
§ 652.10(c)(5)(ii) the current
§ 652.20(a)(6) 50-percent limit on the
volume of GSE-issued mortgage-backed
securities that may be held in Farmer
Mac’s investment portfolio. We believe
the risk posed by GSE-backed MBS is
significantly lower than other asset
classes both in terms of default risk and
liquidity risk, which supports retaining
this relatively high limit. We also
believe this limit is better situated
within our rules with other risk
tolerance provisions.
asset class portfolio limits contained in
the table except the previously
discussed 50-percent portfolio limit for
GSE-issued securities. This is because
existing § 652.10(c)(1)(i) already
requires Farmer Mac to establish within
its investment policy concentration
limits for ‘‘asset classes or obligations
with similar characteristics.’’ We expect
that Farmer Mac will review their
investment policy limits at least
annually and make adjustments based
on their current risk profile and riskbearing capacity, which may suggest
lower limits than the current regulatory
parameters. Nonetheless, we recognize
there may be value in maintaining
regulatory limits and, therefore, invite
specific comment on whether the
following existing asset class limitations
should be retained in full or part:
• Municipal Securities: Revenue
bonds limit of 15 percent,
• Money Market Instruments: Noncallable term Federal funds and
Eurodollar time deposits limit of 20
percent,
• Money Market Instruments: Master
notes limit of 20 percent,
• Mortgage Securities: NonGovernment agency or Governmentsponsored agency securities that comply
with 15 U.S.C. 77d(5) or 15 U.S.C.
78c(a)(41) and Commercial mortgagebacked securities combined 15-percent
limit,
• Asset-Backed Securities limit of 25
percent, and
• Corporate Debt Securities limit of
25 percent.
We are also interested in whether any of
these limits should be changed and, if
so, to what degree. We ask that your
comment on this issue include the
rationale for your suggestion(s).
C. Non-Program Investments [Existing
§§ 652.20 and 652.25; New § 652.23]
1. Eligible Non-Program Investments
[§ 652.20]
We propose replacing the existing
§ 652.20, including removing the ‘‘NonProgram Investment Eligibility Criteria
Table,’’ with investment eligibility
requirements that place greater
responsibility on Farmer Mac
management. The replacement of this
section will result in removal of all
references to NRSRO credit ratings from
§ 652.20.
b. Other Asset Class Limits
a. Eligible Non-Program Investment
Categories [§ 652.20(a)]
In section III.C.1 of this preamble, we
discuss the proposed removal of the
investment table at § 652.20(a), while
retaining some of its requirements. We
have not proposed retaining any of the
Our existing regulation at § 652.20(a)
contains a detailed listing of eligible
investment asset classes and types of
investments within each asset class. The
existing regulation imposes final
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maturity limits, investment portfolio
limits, and other requirements for many
of these investments, including credit
rating requirements that are based on
NRSRO credit ratings. To replace this
provision, we propose general categories
of eligible non-program investments that
Farmer Mac may purchase and hold.
The proposed general categories are:
• Non-convertible senior debt
securities,
• Certain money market instruments,
• Certain ABS/MBS backed by a U.S.
Government-agency or GSE guarantee,
• Certain senior position mortgage
related securities,
• Obligations of development banks
where the United States is a voting
member of the bank, and
• Certain diversified investment
funds.
As proposed in new § 652.20(a)(1), nonconvertible senior debt securities (e.g.,
investments in senior debt securities
that cannot be converted to any other
type of securities) would be eligible
under the proposed provision. This
investment category would include nonconvertible U.S. Government agency
senior debt securities, including U.S.
Treasury securities, and senior nonconvertible GSE bonds. Senior debt
securities could be secured by a specific
pool of collateral or may be unsecured
with priority of claims over other types
of debt securities of the issuer, but
would not include those that are
convertible into a non-senior security or
an equity security.
In proposed new paragraph (a)(3) and
(a)(4), fully government-guaranteed ABS
or MBS that are guaranteed as to the
payment of principal and interest by a
U.S. Government agency or GSE would
be eligible securities because of their
high credit quality. Farmer Mac would
have to verify that securities labeled
‘‘government guaranteed’’ are fully
guaranteed as to the payment of
principal and interest. Similarly, a GSE
‘‘wrap’’ (guarantee) would not make a
security eligible under this proposed
provision unless it is a guarantee of all
principal and interest of the security.
While partial guarantees would not
satisfy this proposed requirement, they
could be eligible under other criteria.
We propose in new paragraph (a)(5)
permitting investments in ABS and
MBS that are not fully guaranteed, but
only the senior-most position of such
instruments. By senior-most position,
we mean the tranche of a structured
instrument that is last to experience
losses in the event of default and that
such losses be shared on a pro rata basis
by investors in that tranche. In addition,
we propose that for a position in an
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MBS to be eligible, the MBS must satisfy
the securities law definition of
‘‘mortgage related security’’.6
Collateralized debt obligations (CDOs),
which are re-securitizations that have
evolved for the MBS market, would be
eligible under this criterion if their
underlying collateral is comprised only
of the senior-most positions of other
securitizations. The underlying
collateral of most CDOs consists of
lower-rated tranches from other
securitizations, and these CDOs would
not be eligible under this criterion.
Further, private placements may be
eligible under this proposed criterion, as
long as they satisfy all of the proposed
investment eligibility requirements.7 We
note, however, that private placements
are generally not liquid and would
therefore need to be acquired for an
authorized purpose unrelated to
liquidity.
We also propose in new paragraph
(a)(7) that shares of a DIF would be
eligible if the DIF’s portfolio consists
solely of securities that are eligible
under these eligibility criteria. While
the proposal for DIF eligibility is
unchanged from the existing regulation,
we are proposing more restrictive
portfolio diversification limits on DIF
investments than currently exist.
b. Investment Quality [§ 652.20(b)]
We want to retain high
creditworthiness standards for Farmer
Mac eligible non-program investments.8
Accordingly, we propose in
§ 652.20(b)(1) requiring that obligors
(whether debtor or guarantor) have
strong capacity to meet the financial
commitment for the expected life of the
investment. This standard would apply
to all investments, including those that
are currently not subject to a NRSRO
credit rating requirement. In general, we
would view an investment as having
met this standard if the expected
average cumulative default rate of
issuers of similar credit quality is low
based on historical default data.9 We
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
6 15
U.S.C. 78c(a)(41).
7 Private placement refers to the sale of securities
to a relatively small number of sophisticated
investors without registration with the Securities
and Exchange Commission and, in many cases,
without the disclosure of detailed financial
information or a prospectus.
8 Our existing regulations governing Farmer Mac
require that certain eligible investments meet the
highest or the second highest whole-letter NRSRO
rating (e.g., ‘‘AAA’’ or ‘‘AA’’ for Standard & Poors
ratings, without regard to ‘‘+’’ or ‘‘¥’’ levels within
individual whole-letter ratings).
9 One potential source of historical data for this
purpose is the publicly available report entitled
‘‘Annual Default Study: Corporate Bond Default and
Recovery Rates’’ which includes data since 1920
and is published by Moody’s Investors Service.
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would expect Farmer Mac to document
the source of its historical data and basis
for investment criteria.
In addition to imposing standards on
obligors, we also propose in
§ 652.20(b)(2) requiring an eligible
investment to exhibit low credit risk
and other risk characteristics consistent
with the purposes for which it is held.
We are not proposing to require that
other risks in the investment be low in
all cases. Instead, the risk characteristics
in the investment must be consistent
with the purposes for which the
investment is held. For instance, if an
investment is held for the purpose of
liquidity, it would have to be readily
marketable 10 and would generally have
to have low price volatility. On the
other hand, an investment that is high
quality but has high price volatility and
questionable marketability may not be
appropriate for a liquidity investment.
Instead, it might be used effectively to
manage interest rate risk. Finally, we
propose moving to paragraph (b)(3) the
existing requirement that the
denomination of all investments must
be in U.S. dollars.
2. Other Non-Program Investments [New
§ 652.23]
We propose moving the existing
§ 652.20(e) provisions on seeking FCA
approval for non-program investments
that are not already identified in the
regulation as an ‘‘eligible non-program
investment’’ to new § 652.23. The
proposed new § 652.23 explains the
minimum considerations we give to
such requests and reiterates our
authority to impose in writing and
enforce conditions of approval. We also
add clarifying language that these
investments, once approved, will be
considered ‘‘eligible non-program
investments’’ for purposes of applying
the provisions in subpart A of part 652.
We believe moving this aspect of the
rule to its own section will make the
provision easier to find and, along with
the proposed clarifications, will
facilitate the process by which such
requests are submitted and reviewed.
3. Ineligible Investments [Existing
§ 652.25]
We are proposing revisions to existing
§ 652.25 to conform with other proposed
changes in this rulemaking and to add
clarity. We propose adding language to
clarify that this section applies to both
those eligible non-program investments
identified in the rule and to individual
However, other sources including internally
modeled forecasts could be used.
10 Under § 652.40(b), investments used to satisfy
the liquidity reserve requirement must be ‘‘readily
marketable,’’ as defined by that provision.
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non-program investments that we
approved on request. We also propose
clarifying that those investments that
were ineligible when purchased may
not be used for liquidity purposes, but
must still be included as part of the
investment portfolio limit until their
divestiture. We further propose
removing the quarterly reporting
requirements for investments that lose
their eligibility after purchase.
4. Reservation of FCA Authority
[Existing § 652.25(d); New § 652.27]
We propose moving the existing
§ 652.25(d) provisions addressing FCArequired divestiture of an investment to
new § 652.27. We believe moving this
aspect of the rule to its own section will
make the provision easier to find and
reduce confusion on its applicability. In
addition, we propose to make explicit
our authority, on a case-by-case basis, to
determine that a particular investment
imposes inappropriate risk,
notwithstanding that it satisfies the
investment eligibility criteria. The
proposal also provides that FCA will
notify Farmer Mac as to the proper
treatment of any such investment. We
also propose conforming changes due to
other proposed changes in this
rulemaking to clarify that FCA-required
divestiture may be based on a failure to
comply with applicable regulations or
written conditions of approval issued in
connection with individual nonprogram investments that we approved
on request.
D. Liquidity Reserve Requirements
[Table to § 652.40(c)]
We propose to make conforming
changes in the Table to § 652.40(c).
These changes would incorporate the
proposed terminology changes of
§ 652.5. In addition, we propose changes
to clarify that MBS must be fully
guaranteed by a U.S. Government
agency to qualify for Level 2 liquidity
and fully guaranteed by a GSE to qualify
for Level 3 liquidity.
IV. Compliance Date
In order to provide Farmer Mac with
sufficient time to bring itself into
compliance with these new
requirements, we are proposing a 6month compliance transition period. We
invite your specific comments on this
compliance timeframe.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.), FCA hereby certifies that this
proposed rule will not have a significant
economic impact on a substantial
number of small entities. Farmer Mac
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23FEP1
Federal Register / Vol. 81, No. 35 / Tuesday, February 23, 2016 / Proposed Rules
has assets and annual income in excess
of the amounts that would qualify it as
a small entity. Therefore, Farmer Mac is
not a ‘‘small entity’’ as defined in the
Regulatory Flexibility Act.
List of Subjects
12 CFR Part 652
Agriculture, Banks, Banking, Capital,
Investments, Rural areas.
For the reasons stated in the
preamble, part 652 of chapter VI, title 12
of the Code of Federal Regulations is
proposed to be amended as follows:
PART 652—FEDERAL AGRICULTURAL
MORTGAGE CORPORATION FUNDING
AND FISCAL AFFAIRS
1. The authority citation for part 652
is revised to read as follows:
■
Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31,
8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of the
Farm Credit Act (12 U.S.C. 2183, 2243, 2252,
2279aa–11, 2279bb, 2279bb–1, 2279bb–2,
2279bb–3, 2279bb–4, 2279bb–5, 2279bb–6,
2279cc); sec. 514 of Pub. L. 102–552, 106
Stat. 4102; sec. 118 of Pub. L. 104–105, 110
Stat. 168; sec. 939A of Pub. L. 111–203, 124
Stat. 1326, 1887 (15 U.S.C. 78o–7 note) (July
21, 2010).
2. Amend § 652.5 by:
a. Removing the definitions for
‘‘Contingency Funding Plan (CFP)’’,
‘‘Eurodollar time deposit’’, ‘‘Final
maturity’’, ‘‘General obligations’’,
‘‘Government agency’’, ‘‘Governmentsponsored agency’’, ‘‘Liability Maturity
Management Plan (LMMP)’’, ‘‘Liquid
investments’’, ‘‘Liquidity reserve’’,
‘‘Mortgage securities’’, ‘‘Nationally
recognized statistical rating organization
(NRSRO)’’, ‘‘Revenue bond’’, and
‘‘Weighted average life (WAL)’’;
■ b. Revising the last sentence to the
definition for ‘‘Asset-backed securities
(ABS)’’; and
■ c. Adding alphabetically five
definitions to read as follows:
■
■
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
§ 652.5
Definitions.
For purposes of this subpart, the
following definitions will apply:
*
*
*
*
*
Asset-backed securities (ABS) * * *
For the purpose of this subpart, ABS
excludes mortgage-backed securities
that are defined below.
*
*
*
*
*
Diversified investment fund (DIF)
means an investment company
registered under section 8 of the
Investment Company Act of 1940.
*
*
*
*
*
Government-sponsored enterprise
(GSE) means an entity established or
chartered by the United States
Government to serve public purposes
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specified by the United States Congress
but whose debt obligations are not
explicitly guaranteed by the full faith
and credit of the United States
Government.
*
*
*
*
*
Mortgage-backed securities (MBS)
means securities that are either:
(1) Pass-through securities or
participation certificates that represent
ownership of a fractional undivided
interest in a specified pool of residential
(excluding home equity loans),
multifamily or commercial mortgages,
or
(2) A multiclass security (including
collateralized mortgage obligations and
real estate mortgage investment
conduits) that is backed by a pool of
residential, multifamily or commercial
real estate mortgages, pass through
MBS, or other multiclass MBS.
(3) This definition does not include
agricultural mortgage-backed securities
guaranteed by Farmer Mac itself.
*
*
*
*
*
Obligor means an issuer, guarantor, or
other person or entity who has an
obligation to pay a debt, including
interest due, by a specified date or when
payment is demanded. For a DIF, both
the DIF itself and the entities obligated
to pay the underlying debt are
considered a single obligor.
*
*
*
*
*
U.S. Government agency means an
instrumentality of the U.S. Government
whose obligations are fully guaranteed
as to the payment of principal and
interest by the full faith and credit of the
U.S. Government.
■ 3. Amend § 652.10 by:
■ a. Removing the word ‘‘four’’ in the
last sentence of the paragraph (c)
introductory text;
■ b. Removing the phrase ‘‘geographical
areas,’’ in paragraph (c)(1)(i); and
■ c. Adding a new paragraph (c)(5) to
read as follows:
§ 652.10
Investment management.
*
*
*
*
*
(c) * * *
(5) Concentration risk. Your
investment policies must set risk
diversification standards.
Diversification parameters must be
based on the carrying value of
investments.
(i) The Corporation’s maximum
allowable investments in any one
obligor may not exceed 10 percent of
Regulatory Capital. Only investments in
obligations backed by U.S. Government
agencies or GSEs may exceed the 10percent single obligor limit.
(ii) Not more than 50 percent of the
Corporation’s entire investment
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Frm 00006
Fmt 4702
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8865
portfolio may be comprised of GSEissued MBS.
*
*
*
*
*
■ 4. Section 652.20 is revised to read as
follows:
§ 652.20 Eligible non-program
investments.
(a) Eligible investments consist of:
(1) A non-convertible senior debt
security.
(2) A money market instrument with
a maturity of 1 year or less.
(3) A portion of an ABS or MBS that
is fully guaranteed by a U.S.
Government agency.
(4) A portion of an ABS or MBS that
is fully and explicitly guaranteed as to
the timely payment of principal and
interest by a GSE.
(5) The senior-most position of an
ABS or MBS that is not fully guaranteed
by a U.S. Government agency or fully
and explicitly guaranteed as to the
timely payment of principal and interest
by a GSE, provided that the MBS
satisfies the definition of ‘‘mortgage
related security’’ in 15 U.S.C. 78c(a)(41).
(6) An obligation of an international
or multilateral development bank in
which the U.S. is a voting member.
(7) Shares of a diversified investment
fund, if its portfolio consists solely of
securities that satisfy investments listed
in paragraphs (b)(1) through (b)(4) of
this section.
(b) Farmer Mac may only purchase
those eligible investments satisfying all
of the following:
(1) The obligor(s) of the investment
have strong capacity to meet financial
commitments for the life of the
investment. A strong capacity to meet
financial commitments exits if the risk
of default by the obligor(s) is very low.
Investments whose obligors are located
outside the U.S., and whose obligor
capacity to meet financial commitments
is being relied upon to satisfy this
requirement, must also be fully
guaranteed by a U.S. Government
agency.
(2) The investment must exhibit low
credit risk and other risk characteristics
consistent with the purpose or purposes
for which it is held. At a minimum,
obligors must have strong capacity to
meet financial commitments and
generally have a very low probability of
default throughout the term of the
investment even under severely adverse,
stressful conditions in the obligors’
business environment.
(3) The investment must be
denominated in U.S. dollars.
■ 5. Add a new § 652.23 to read as
follows:
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8866
§ 652.23
Federal Register / Vol. 81, No. 35 / Tuesday, February 23, 2016 / Proposed Rules
Other non-program investments.
(a) Farmer Mac may make a written
request for our approval to purchase and
hold other non-program investments
that do not satisfy the requirements of
§ 652.20. Your request for our approval
to purchase and hold other non-program
investments at a minimum must:
(1) Describe the investment structure;
(2) Explain the purpose and objectives
for making the investment; and
(3) Discuss the risk characteristics of
the investment, including an analysis of
the investment’s impact to capital.
(b) We may impose written conditions
in conjunction with our approval of
your request to invest in other nonprogram investments.
(c) For purposes of applying the
provisions of this subpart, except
§ 652.20, investments approved under
this section are treated the same as
eligible non-program investments unless
our conditions of approval state
otherwise.
■ 6. Section 652.25 is revised to read as
follows:
§ 652.25
Ineligible investments.
(a) Investments ineligible when
purchased. Non-program investments
that do not satisfy the eligibility criteria
set forth in § 652.20(a) or have not been
approved by the FCA pursuant to
§ 652.23 at the time of purchase are
ineligible. You must not purchase
ineligible investments. If you determine
that you have purchased an ineligible
investment, you must notify us within
15 calendar days after such
determination. You must divest of the
investment no later than 60 calendar
days after you determine that the
investment is ineligible unless we
approve, in writing, a plan that
authorizes you to divest the investment
over a longer period of time. Until you
divest of the investment, it may not be
used to satisfy your liquidity
requirement(s) under § 652.40, but must
continue to be included in the
§ 652.15(b) investment portfolio limit
calculation.
(b) Investments that no longer satisfy
eligibility criteria. If you determine that
a non-program investment no longer
satisfies the criteria set forth in § 652.20
or no longer satisfies the conditions of
approval issued under § 652.23, you
must notify us within 15 calendar days
after such determination. If approved by
the FCA in writing, you may continue
to hold the investment, subject to the
following and any other conditions we
impose:
(1) You may not use the investment to
satisfy your § 652.40 liquidity
requirement(s);
(2) The investment must continue to
be included in your § 652.15 investment
portfolio limit calculation; and
(3) You must develop a plan to reduce
the investment’s risk to you.
■ 7. Add a new § 652.27 to read as
follows:
§ 652.27 Reservation of authority for
investment activities.
FCA retains the authority to require
you to divest of any investment at any
time for failure to comply with
applicable regulations, for safety and
soundness reasons, or failure to comply
with written conditions of approval.
The timeframe set by FCA for such
required divestiture will consider the
expected loss on the transaction (or
transactions) and the effect on your
financial condition and performance.
FCA may also, on a case-by-case basis,
determine that a particular non-program
investment poses inappropriate risk,
notwithstanding that it satisfies the
investment eligibility criteria or
received prior approval from us. If so,
we will notify you as to the proper
treatment of the investment.
■ 8. Amend § 652.40 by revising the
table in paragraph (c) to read as follows:
§ 652.40 Liquidity reserve requirement and
supplemental liquidity.
*
*
*
*
*
TABLE TO § 652.40(C)
Discount
(multiply market value by)
Instruments
Level 1 .............................................
Level 2 .............................................
• Cash, including cash due from traded but not yet settled debt ........
• Overnight money market instruments, including repurchase agreements secured exclusively by Level 1 investments.
• Obligations of U.S. Government agencies with a final remaining
maturity of 3 years or less.
• GSE senior debt securities that mature within 60 days, excluding
securities issued by the Farm Credit System.
• Diversified investment funds comprised exclusively of Level 1 instruments.
• Additional Level 1 investments ..........................................................
Level 3 .............................................
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
Liquidity level
• Obligations of U.S. Government agencies with a final remaining
maturity of more than 3 years.
• MBS that are fully guaranteed by a U.S. Government agency .........
• Diversified investment funds comprised exclusively of Level 1 and
2 instruments.
• Additional Level 1 or Level 2 investments .........................................
• GSE senior debt securities with maturities exceeding 60 days, excluding senior debt securities of the Farm Credit System.
• MBS that are fully guaranteed by a GSE as to the timely repayment of principal and interest.
• Money market instruments maturing within 90 days.
• Diversified investment funds comprised exclusively of Levels 1, 2,
and 3 instruments.
• Qualifying securities backed by Farmer Mac program assets
(loans) guaranteed by the United States Department of Agriculture
(excluding the portion that would be necessary to satisfy obligations to creditors and equity holders in Farmer Mac II LLC).
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E:\FR\FM\23FEP1.SGM
100 percent.
100 percent.
97 percent.
95 percent.
95 percent.
Discount for each Level 1 investment applies.
97 percent.
95 percent.
95 percent.
Discount for each Level 1 or Level
2 investment applies.
93 percent for all instruments in
Level 3.
23FEP1
Federal Register / Vol. 81, No. 35 / Tuesday, February 23, 2016 / Proposed Rules
8867
TABLE TO § 652.40(C)—Continued
Liquidity level
Instruments
Discount
(multiply market value by)
Supplemental Liquidity ....................
• Eligible investments under § 652.20 and those approved under
§ 652.23.
90 percent except discounts for
Level 1, 2 or 3 investments
apply to such investments held
as supplemental liquidity.
Dated: February 12, 2016.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2016–03626 Filed 2–22–16; 8:45 am]
BILLING CODE 6705–01–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–77172; File No. S7–27–15]
RIN 3235–AL55
Transfer Agent Regulations; Extension
of Comment Period
Securities and Exchange
Commission.
ACTION: Advance notice of proposed
rulemaking; Concept release; Request
for comment; extension of comment
period.
AGENCY:
The Securities and Exchange
Commission (‘‘Commission’’) is
extending the comment period for the
Advance Notice of Proposed
Rulemaking, Concept Release and
Request for Comment with respect to
transfer agent regulations. The original
comment period is scheduled to end on
February 29, 2016. The Commission is
extending the time period in which to
provide the Commission with comments
by 45 days, until April 14, 2016. This
action will allow interested persons
additional time to analyze the issues
and prepare their comments.
DATES: Comments on the document
published December 31, 2015 (80 FR
81948) must be in writing and received
by April 14, 2016.
ADDRESSES: Comments may be
submitted by any of the following
methods:
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
SUMMARY:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/concept.shtml);
• Send an email to rule-comments@
sec.gov. Please include File Number S7–
27–15 on the subject line; or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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16:43 Feb 22, 2016
Jkt 238001
Paper Comments
• Send paper comments to: Brent J.
Fields, Secretary, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number S7–27–15. This file number
should be included on the subject line
if email is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
concept.shtml). Comments are also
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available.
FOR FURTHER INFORMATION CONTACT:
Moshe Rothman, Branch Chief, Thomas
Etter, Special Counsel, Catherine
Whiting, Special Counsel, Mark
Saltzburg, Special Counsel, or Elizabeth
de Boyrie, Counsel, Office of Clearance
and Settlement, Division of Trading and
Markets, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–7010 at (202)
551–5710.
SUPPLEMENTARY INFORMATION: The
Commission has requested comment in
its Advance Notice of Proposed
Rulemaking, Concept Release and
Request for Comment (‘‘Release’’) with
respect to transfer agent regulations.1
The Release identifies and seeks
comment in various areas, including
registration and reporting requirements,
safeguarding of funds and securities,
standards for restrictive legends, and
cybersecurity. Additionally, the Release
generally seeks comment on a broad
range of topics in the transfer agent
space, including the processing of book
entry securities, recordkeeping for
1 Securities Exchange Act Release No. 76743
(December 22, 2015), 80 FR 81948 (December 31,
2015).
PO 00000
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Fmt 4702
Sfmt 4702
beneficial owners, administration of
issuer plans, and the role of transfer
agents to mutual funds and
crowdfunding. The Release originally
provided that comments must be
received by February 29, 2016. The
Commission has received requests to
extend the comment period.2 The
Commission believes that extending the
comment period would be appropriate
in order to provide the public additional
time to consider and comment on the
issues addressed in the Release.
Therefore, the Commission is extending
the public comment period for 45 days,
until April 14, 2016.
By the Commission.
Dated: February 18, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–03733 Filed 2–22–16; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 172
[Docket No. FDA–2015–F–4317]
Center for Science in the Public
Interest, Natural Resources Defense
Council, Center for Food Safety,
Consumers Union, Improving Kids’
Environment, Center for Environmental
Health, Environmental Working Group,
Environmental Defense Fund, and
James Huff; Filing of Food Additive
Petition; Extension of Comment Period
AGENCY:
Food and Drug Administration,
HHS.
Notification; extension of
comment period.
ACTION:
2 See letters from Todd May, President, Securities
Transfer Association, dated January 7, 2016; Martin
McHale, President, U.S. Equity Services,
Computershare, dated January 15, 2016; Cristeena
G. Naser, Vice President and Senior Counsel, Center
for Securities, Trust & Investment of the American
Bankers Association, dated January 22, 2015; Alvin
Santiago, President, Shareholder Services
Association, dated January 27, 2016; Thomas F.
Price, Manager Director, Securities Industry and
Financial Markets Association, dated February 2,
2016.
E:\FR\FM\23FEP1.SGM
23FEP1
Agencies
[Federal Register Volume 81, Number 35 (Tuesday, February 23, 2016)]
[Proposed Rules]
[Pages 8860-8867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03626]
=======================================================================
-----------------------------------------------------------------------
FARM CREDIT ADMINISTRATION
12 CFR Part 652
RIN 3052-AC86
Organization; Funding and Fiscal Affairs, Loan Policies and
Operations, and Funding Operations; Farmer Mac Investment Eligibility
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
[[Page 8861]]
SUMMARY: The Farm Credit Administration (FCA, Agency, us, our, or we)
proposes to amend our regulations governing the eligibility of non-
program investments held by the Federal Agricultural Mortgage
Corporation (Farmer Mac). We propose to revise these regulations to
comply with section 939A of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act or DFA) by removing references
to, and requirements relating to, credit ratings. We are also proposing
a delayed compliance date for the rule.
DATES: You may send us comments by April 25, 2016.
ADDRESSES: We offer a variety of methods for you to submit comments on
this proposed rule. For accuracy and efficiency reasons, commenters are
encouraged to submit comments by email or through the Agency's Web
site. As facsimiles (fax) are difficult for us to process and achieve
compliance with section 508 of the Rehabilitation Act, we are no longer
accepting comments submitted by fax. Regardless of the method you use,
please do not submit your comment multiple times via different methods.
You may submit comments by any of the following methods:
Email: Send us an email at reg-comm@fca.gov.
FCA Web site: https://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
``Submitting a Comment.''
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Laurie A Rea, Director, Office of Secondary Market
Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean,
VA 22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia, or on our Web site at https://www.fca.gov. Once you
are in the Web site, select ``Public Commenters,'' then ``Public
Comments,'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove email addresses to help reduce Internet spam.
FOR FURTHER INFORMATION CONTACT:
Joseph T. Connor, Associate Director for Policy and Analysis, Office of
Secondary Market Oversight, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4364, TTY (703) 883-4056;
or
Laura McFarland, Senior Counsel, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4056.
SUPPLEMENTARY INFORMATION:
I. Objective
The purpose of this proposed rule is to replace references to
credit rating agencies in existing Farmer Mac investment regulations
with other appropriate standards to determine the creditworthiness of
investments and to revise exposure limits for investments involving one
obligor. Section 939A of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act or DFA) requires agencies to remove
references to, and requirements relating to, credit ratings. This
proposal would substitute other appropriate standards of
creditworthiness. The proposed rule would also replace the table in
existing regulations that sets forth criteria for non-program
investment eligibility with standards that place a greater emphasis on
management's due diligence responsibility in ascertaining credit
quality of non-program investments so that only high quality
investments are purchased and held. The proposed rule would also
clarify how other non-program investments are treated and revise
exposure limits for investments involving one obligor. We are also
proposing a delayed compliance date for the rule.
II. Background
Farmer Mac is an institution of the Farm Credit System, regulated
by FCA through the FCA Office of Secondary Market Oversight (OSMO).
Farmer Mac was established and chartered by Congress to create a
secondary market for agricultural real estate mortgage loans, rural
housing mortgage loans, and rural utilities loans, and it is a
stockholder-owned instrumentality of the United States. Title VIII of
the Farm Credit Act of 1971, as amended, (Act) governs Farmer Mac.\1\
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\1\ Public Law 92-181, 85 Stat. 583, 12 U.S.C. 2001 et seq.
---------------------------------------------------------------------------
On July 21, 2010, the Dodd-Frank Act was enacted, and section 939A
of the Dodd-Frank Act requires Federal agencies to review all
regulatory references to nationally recognized statistical ratings
organizations (NRSRO or credit rating agency) and replace those
references with other appropriate standards for determining
creditworthiness.\2\ The Dodd-Frank Act further provides that, to the
extent feasible, agencies should adopt a uniform standard of
creditworthiness for use in regulations, taking into account the
entities regulated and the purposes for which such regulated entities
would rely on the creditworthiness standard.
---------------------------------------------------------------------------
\2\ Public Law 111-203, 124 Stat. 1376, (H.R. 4173), July 21,
2010.
---------------------------------------------------------------------------
The existing rules on non-program investments for Farmer Mac are
contained in 12 CFR part 652, subpart A, and rely, in part, on NRSRO
credit ratings to characterize relative credit quality of various
instruments. On June 16, 2011, we issued an Advance Notice of Proposed
Rulemaking (ANPRM) soliciting comments on suitable alternatives to
NRSRO credit ratings.\3\ On November 18, 2011, as part of another
rulemaking, we again requested comment on potential sources of market-
derived information that could be used to replace NRSRO credit ratings
in part 652 of our rules.\4\ In developing this proposed rule, we
considered all suggestions from comments received and incorporated
those we believed best addressed the objective of this rulemaking. In
addition to these comments, we also considered the creditworthiness
standards we proposed in a separate rulemaking for Farm Credit banks
and associations \5\ in compliance with provisions in the Dodd-Frank
Act directing agencies, to the extent feasible, to adopt a uniform
standard of creditworthiness among regulated entities.
---------------------------------------------------------------------------
\3\ 76 FR 35138, June 16, 2011.
\4\ Refer to Proposed rule, ``Federal Agricultural Mortgage
Corporation Funding and Fiscal Affairs; Farmer Mac Investments and
Liquidity Management'' (76 FR 71798, Nov. 18, 2011).
\5\ 79 FR 43301, July 25, 2014.
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III. Section-by-Section
The proposed rule would revise portfolio diversification
requirements and revise the credit quality standards for eligible non-
program investments that Farmer Mac may hold by replacing the reliance
on NRSRO credit ratings and clarifying terminology.
A. Definitions [Existing Sec. 652.5]
In Sec. 652.5, we propose removing existing terminology, adding
new terms, and revising existing definitions. We propose removing as
obsolete several terms from the list of definitions in Sec. 652.5. We
also propose removing terms from Sec. 652.5 because they do not
require a separate definition. The specific terms we propose removing
are:
``Contingency Funding Plan (CFP)'',
``Eurodollar time deposit'',
[[Page 8862]]
``Final maturity'',
``General obligations'',
``Liability Maturity Management Plan (LMMP)'',
``Liquid investments'',
``Liquidity reserve'',
``Nationally Recognized Statistical Rating Organization
(NRSRO)'',
``Revenue bond'', and
``Weighted average life (WAL).''
We propose making conforming changes to Sec. 652.20 to remove
these terms where they appear.
We next propose adding two new terms to the list of definitions to
address other proposed changes in this rulemaking: ``Diversified
investment fund'' and ``Obligor.'' We propose to define a ``diversified
investment fund'' (DIF) as an investment company registered under
section 8 of the Investment Company Act of 1940, 15 U.S.C. 80a-8. We
selected this definition based on our current use of it in Sec.
615.5140(a)(8) of our investment rules for Farm Credit banks and
associations. We propose to define the term ``obligor'' because our
current regulations use this term but do not define it. We propose
defining ``obligor'' as an issuer, guarantor, or other person or entity
who has an obligation to pay a debt, including interest due, by a
specified date or when payment is demanded. This definition would
include the debtor or immediate party that is obligated to pay a debt,
as well as a guarantor of the debt. The proposed definition would also
clarify that both a DIF and the entity or entities obligated to pay the
underlying debt are treated as a single obligor. This clarification is
intended to ensure DIF investments do not become an excessively
concentrated part of the investment portfolio.
Lastly, we propose changing three existing terms and their
definitions to improve clarity: ``Government agency'', ``Government-
sponsored agency'', and ``mortgage securities.'' We propose replacing
the existing term ``Government-sponsored agency'' with ``Government-
sponsored enterprise (GSE)'' and defining a GSE as an entity
established or chartered by the U.S. Government to serve public
purposes specified by the U.S. Congress but whose debt obligations are
not explicitly guaranteed by the full faith and credit of the U.S.
Government. We also propose replacing ``Government agency'' with ``U.S.
Government agency.'' The proposed definition for U.S. Government agency
would explain that it means an instrumentality of the United States
Government whose obligations are fully guaranteed as to the timely
payment of principal and interest by the full faith and credit of the
U.S. Government. Finally, we propose replacing the term ``mortgage
securities'' with ``mortgage-backed securities (MBS)'' as this term is
more widely used in the financial sector. We propose applying the
existing definition for ``mortgage securities'' to the new MBS term. We
propose a conforming change to the definition of ``asset-backed
securities'', which uses ``mortgage securities'' in its definition.
B. Concentration Risk [New Sec. 652.10(c)(5)]
We propose revising existing Sec. 652.10 to address concentration
risk through portfolio diversification and obligor limits in new
paragraph (c)(5). Portfolio diversification is crucial to safe and
sound investment management and is achieved by the appropriate
distribution of risk exposures across reasonably uncorrelated
industries and obligors. When a portfolio is properly diversified, a
crisis within one industry sector or the sudden weakening or default of
one obligor should not significantly destabilize the financial
condition of the investor. In new Sec. 652.10(c)(5), we propose
specifying that Farmer Mac's investment policies address concentration
risk by setting diversification standards. We propose that the
diversification calculation used when setting these standards be based
on the carrying value of the investment on Farmer Mac's balance sheet.
By carrying value, we mean the amount an investment contributes to the
asset section of Farmer Mac's balance sheet under GAAP, net of any
impairment estimate or valuation allowance. We believe the carrying
value would, when applied for this purpose, appropriately capture the
value of capital at risk for an investment at any given time. We also
propose the following parameters for Farmer Mac's establishment of
these standards:
Basing calculation of an investment's compliance with
diversification requirements on the investment's carrying value;
Limiting investments in one obligor to no more than 10
percent of regulatory capital, unless the investments are obligations
backed by U.S. Government agencies or GSEs; and
Limiting the percentage of GSE-issued mortgage-backed
securities that may comprise Farmer Mac's entire investment portfolio
to 50 percent.
We believe these parameters will not require changes in the current
investment portfolio held by Farmer Mac and discuss them more fully
below.
We believe by placing specific diversification limits within the
section that generally requires Farmer Mac to set diversification
limits will improve the organization of the rule.
We also propose removing the reference to geographic areas in
existing Sec. 652.10(c)(1)(i). Farmer Mac should consider
diversification by geographic location of issuer as appropriate based
on the nature of its investment portfolio. For example, in the case of
investments in municipal securities, geographic location might be an
important consideration. However, we propose removing this specific
category in the regulation to avoid misinterpretation. For example, we
do not see the need to restrict obligors solely on the basis of where
they happen to be headquartered or the location of an issuer's
operations. The proposed change in the level of the single obligor
limit is discussed below in section III.B.1.
1. Obligor Limit
We propose to move the obligor limit from Sec. 652.20(d)(1) and
reduce the current limit to 10 percent of regulatory capital. The
proposed 10-percent obligor limit in new Sec. 652.10(c)(5)(i) would
enhance Farmer Mac's long-term safety and soundness by ensuring that if
an obligor were to default, only a modest portion of capital would be
at risk. Currently, the proposed 10-percent obligor limit equates to an
amount that is less than Farmer Mac's capital surplus and well within
its risk-bearing capacity based on its current level of regulatory
capital. Whereas, the current 25-percent obligor limit could expose
Farmer Mac to financial challenges if it experienced an event of
multiple defaults in its liquidity portfolio during a short time period
(e.g., such as during the 2008 financial crisis), given the historical
relationship between Farmer Mac's capital surplus over the minimum
requirement and the dollar value of the 25-percent limit. Thus, we
expect that the proposed 10-percent maximum will provide reasonable
assurance that a single default will not significantly increase the
risk of Farmer Mac's being unable to comply with the minimum capital
requirement.
This proposed obligor limit would recognize that the credit
performance of a single obligor (unlike, for example, a single industry
sector) is binary in nature, (i.e., the investment is either performing
or it is in default) with potentially very low recovery rates. For that
reason, we believe a cautious approach is warranted regarding the
management of exposure concentrations in an individual obligor. We also
believe the proposed obligor limit retains sufficient flexibility for
Farmer Mac to manage its investment portfolio and still
[[Page 8863]]
maintain adequate diversification. While the proposed obligor limit
would be a regulatory maximum, Farmer Mac should consider establishing
lower obligor limits to fit its overall risk profile and risk-bearing
capacity, including earnings capacity, as well as the risks in
individual types and classes of investments.
We seek specific comments and suggestions on how FCA might modify
or adjust the obligor limit to make it more risk sensitive while
achieving the overarching objectives of the limit for example, by
scaling or risk-weighting assets based on internal or standardized
models or other criteria such as the magnitude of Farmer Mac's surplus
over the minimum capital requirement.
The proposed Sec. 652.10(c)(5) would retain the existing exemption
from the obligor limit, currently located in Sec. 652.20(d)(1), for
investments that are backed by a U.S. Government agency or GSEs.
2. Asset Class Limits
Existing Sec. 652.20(a) contains a table identifying nine asset
classes with different investment portfolio limits. These nine asset
classes are:
Obligations of the United States,
Obligations of GSEs,
Municipal Securities,
International and Multilateral Development Bank
Obligations,
Money Market Instruments,
Mortgage Securities,
Asset-Backed Securities,
Corporate Debt Securities, and
DIFs.
Of these, some asset classes have investment portfolio limits of 15
percent, 20 percent, 25 percent, and 50 percent.
a. GSE-Issued Mortgage-Backed Securities Limit
We propose moving to new Sec. 652.10(c)(5)(ii) the current Sec.
652.20(a)(6) 50-percent limit on the volume of GSE-issued mortgage-
backed securities that may be held in Farmer Mac's investment
portfolio. We believe the risk posed by GSE-backed MBS is significantly
lower than other asset classes both in terms of default risk and
liquidity risk, which supports retaining this relatively high limit. We
also believe this limit is better situated within our rules with other
risk tolerance provisions.
b. Other Asset Class Limits
In section III.C.1 of this preamble, we discuss the proposed
removal of the investment table at Sec. 652.20(a), while retaining
some of its requirements. We have not proposed retaining any of the
asset class portfolio limits contained in the table except the
previously discussed 50-percent portfolio limit for GSE-issued
securities. This is because existing Sec. 652.10(c)(1)(i) already
requires Farmer Mac to establish within its investment policy
concentration limits for ``asset classes or obligations with similar
characteristics.'' We expect that Farmer Mac will review their
investment policy limits at least annually and make adjustments based
on their current risk profile and risk-bearing capacity, which may
suggest lower limits than the current regulatory parameters.
Nonetheless, we recognize there may be value in maintaining regulatory
limits and, therefore, invite specific comment on whether the following
existing asset class limitations should be retained in full or part:
Municipal Securities: Revenue bonds limit of 15 percent,
Money Market Instruments: Non-callable term Federal funds
and Eurodollar time deposits limit of 20 percent,
Money Market Instruments: Master notes limit of 20
percent,
Mortgage Securities: Non-Government agency or Government-
sponsored agency securities that comply with 15 U.S.C. 77d(5) or 15
U.S.C. 78c(a)(41) and Commercial mortgage-backed securities combined
15-percent limit,
Asset-Backed Securities limit of 25 percent, and
Corporate Debt Securities limit of 25 percent.
We are also interested in whether any of these limits should be changed
and, if so, to what degree. We ask that your comment on this issue
include the rationale for your suggestion(s).
C. Non-Program Investments [Existing Sec. Sec. 652.20 and 652.25; New
Sec. 652.23]
1. Eligible Non-Program Investments [Sec. 652.20]
We propose replacing the existing Sec. 652.20, including removing
the ``Non-Program Investment Eligibility Criteria Table,'' with
investment eligibility requirements that place greater responsibility
on Farmer Mac management. The replacement of this section will result
in removal of all references to NRSRO credit ratings from Sec. 652.20.
a. Eligible Non-Program Investment Categories [Sec. 652.20(a)]
Our existing regulation at Sec. 652.20(a) contains a detailed
listing of eligible investment asset classes and types of investments
within each asset class. The existing regulation imposes final maturity
limits, investment portfolio limits, and other requirements for many of
these investments, including credit rating requirements that are based
on NRSRO credit ratings. To replace this provision, we propose general
categories of eligible non-program investments that Farmer Mac may
purchase and hold. The proposed general categories are:
Non-convertible senior debt securities,
Certain money market instruments,
Certain ABS/MBS backed by a U.S. Government-agency or GSE
guarantee,
Certain senior position mortgage related securities,
Obligations of development banks where the United States
is a voting member of the bank, and
Certain diversified investment funds.
As proposed in new Sec. 652.20(a)(1), non-convertible senior debt
securities (e.g., investments in senior debt securities that cannot be
converted to any other type of securities) would be eligible under the
proposed provision. This investment category would include non-
convertible U.S. Government agency senior debt securities, including
U.S. Treasury securities, and senior non-convertible GSE bonds. Senior
debt securities could be secured by a specific pool of collateral or
may be unsecured with priority of claims over other types of debt
securities of the issuer, but would not include those that are
convertible into a non-senior security or an equity security.
In proposed new paragraph (a)(3) and (a)(4), fully government-
guaranteed ABS or MBS that are guaranteed as to the payment of
principal and interest by a U.S. Government agency or GSE would be
eligible securities because of their high credit quality. Farmer Mac
would have to verify that securities labeled ``government guaranteed''
are fully guaranteed as to the payment of principal and interest.
Similarly, a GSE ``wrap'' (guarantee) would not make a security
eligible under this proposed provision unless it is a guarantee of all
principal and interest of the security. While partial guarantees would
not satisfy this proposed requirement, they could be eligible under
other criteria.
We propose in new paragraph (a)(5) permitting investments in ABS
and MBS that are not fully guaranteed, but only the senior-most
position of such instruments. By senior-most position, we mean the
tranche of a structured instrument that is last to experience losses in
the event of default and that such losses be shared on a pro rata basis
by investors in that tranche. In addition, we propose that for a
position in an
[[Page 8864]]
MBS to be eligible, the MBS must satisfy the securities law definition
of ``mortgage related security''.\6\ Collateralized debt obligations
(CDOs), which are re-securitizations that have evolved for the MBS
market, would be eligible under this criterion if their underlying
collateral is comprised only of the senior-most positions of other
securitizations. The underlying collateral of most CDOs consists of
lower-rated tranches from other securitizations, and these CDOs would
not be eligible under this criterion. Further, private placements may
be eligible under this proposed criterion, as long as they satisfy all
of the proposed investment eligibility requirements.\7\ We note,
however, that private placements are generally not liquid and would
therefore need to be acquired for an authorized purpose unrelated to
liquidity.
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\6\ 15 U.S.C. 78c(a)(41).
\7\ Private placement refers to the sale of securities to a
relatively small number of sophisticated investors without
registration with the Securities and Exchange Commission and, in
many cases, without the disclosure of detailed financial information
or a prospectus.
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We also propose in new paragraph (a)(7) that shares of a DIF would
be eligible if the DIF's portfolio consists solely of securities that
are eligible under these eligibility criteria. While the proposal for
DIF eligibility is unchanged from the existing regulation, we are
proposing more restrictive portfolio diversification limits on DIF
investments than currently exist.
b. Investment Quality [Sec. 652.20(b)]
We want to retain high creditworthiness standards for Farmer Mac
eligible non-program investments.\8\ Accordingly, we propose in Sec.
652.20(b)(1) requiring that obligors (whether debtor or guarantor) have
strong capacity to meet the financial commitment for the expected life
of the investment. This standard would apply to all investments,
including those that are currently not subject to a NRSRO credit rating
requirement. In general, we would view an investment as having met this
standard if the expected average cumulative default rate of issuers of
similar credit quality is low based on historical default data.\9\ We
would expect Farmer Mac to document the source of its historical data
and basis for investment criteria.
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\8\ Our existing regulations governing Farmer Mac require that
certain eligible investments meet the highest or the second highest
whole-letter NRSRO rating (e.g., ``AAA'' or ``AA'' for Standard &
Poors ratings, without regard to ``+'' or ``-'' levels within
individual whole-letter ratings).
\9\ One potential source of historical data for this purpose is
the publicly available report entitled ``Annual Default Study:
Corporate Bond Default and Recovery Rates'' which includes data
since 1920 and is published by Moody's Investors Service. However,
other sources including internally modeled forecasts could be used.
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In addition to imposing standards on obligors, we also propose in
Sec. 652.20(b)(2) requiring an eligible investment to exhibit low
credit risk and other risk characteristics consistent with the purposes
for which it is held. We are not proposing to require that other risks
in the investment be low in all cases. Instead, the risk
characteristics in the investment must be consistent with the purposes
for which the investment is held. For instance, if an investment is
held for the purpose of liquidity, it would have to be readily
marketable \10\ and would generally have to have low price volatility.
On the other hand, an investment that is high quality but has high
price volatility and questionable marketability may not be appropriate
for a liquidity investment. Instead, it might be used effectively to
manage interest rate risk. Finally, we propose moving to paragraph
(b)(3) the existing requirement that the denomination of all
investments must be in U.S. dollars.
---------------------------------------------------------------------------
\10\ Under Sec. 652.40(b), investments used to satisfy the
liquidity reserve requirement must be ``readily marketable,'' as
defined by that provision.
---------------------------------------------------------------------------
2. Other Non-Program Investments [New Sec. 652.23]
We propose moving the existing Sec. 652.20(e) provisions on
seeking FCA approval for non-program investments that are not already
identified in the regulation as an ``eligible non-program investment''
to new Sec. 652.23. The proposed new Sec. 652.23 explains the minimum
considerations we give to such requests and reiterates our authority to
impose in writing and enforce conditions of approval. We also add
clarifying language that these investments, once approved, will be
considered ``eligible non-program investments'' for purposes of
applying the provisions in subpart A of part 652. We believe moving
this aspect of the rule to its own section will make the provision
easier to find and, along with the proposed clarifications, will
facilitate the process by which such requests are submitted and
reviewed.
3. Ineligible Investments [Existing Sec. 652.25]
We are proposing revisions to existing Sec. 652.25 to conform with
other proposed changes in this rulemaking and to add clarity. We
propose adding language to clarify that this section applies to both
those eligible non-program investments identified in the rule and to
individual non-program investments that we approved on request. We also
propose clarifying that those investments that were ineligible when
purchased may not be used for liquidity purposes, but must still be
included as part of the investment portfolio limit until their
divestiture. We further propose removing the quarterly reporting
requirements for investments that lose their eligibility after
purchase.
4. Reservation of FCA Authority [Existing Sec. 652.25(d); New Sec.
652.27]
We propose moving the existing Sec. 652.25(d) provisions
addressing FCA-required divestiture of an investment to new Sec.
652.27. We believe moving this aspect of the rule to its own section
will make the provision easier to find and reduce confusion on its
applicability. In addition, we propose to make explicit our authority,
on a case-by-case basis, to determine that a particular investment
imposes inappropriate risk, notwithstanding that it satisfies the
investment eligibility criteria. The proposal also provides that FCA
will notify Farmer Mac as to the proper treatment of any such
investment. We also propose conforming changes due to other proposed
changes in this rulemaking to clarify that FCA-required divestiture may
be based on a failure to comply with applicable regulations or written
conditions of approval issued in connection with individual non-program
investments that we approved on request.
D. Liquidity Reserve Requirements [Table to Sec. 652.40(c)]
We propose to make conforming changes in the Table to Sec.
652.40(c). These changes would incorporate the proposed terminology
changes of Sec. 652.5. In addition, we propose changes to clarify that
MBS must be fully guaranteed by a U.S. Government agency to qualify for
Level 2 liquidity and fully guaranteed by a GSE to qualify for Level 3
liquidity.
IV. Compliance Date
In order to provide Farmer Mac with sufficient time to bring itself
into compliance with these new requirements, we are proposing a 6-month
compliance transition period. We invite your specific comments on this
compliance timeframe.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that this proposed rule will
not have a significant economic impact on a substantial number of small
entities. Farmer Mac
[[Page 8865]]
has assets and annual income in excess of the amounts that would
qualify it as a small entity. Therefore, Farmer Mac is not a ``small
entity'' as defined in the Regulatory Flexibility Act.
List of Subjects
12 CFR Part 652
Agriculture, Banks, Banking, Capital, Investments, Rural areas.
For the reasons stated in the preamble, part 652 of chapter VI,
title 12 of the Code of Federal Regulations is proposed to be amended
as follows:
PART 652--FEDERAL AGRICULTURAL MORTGAGE CORPORATION FUNDING AND
FISCAL AFFAIRS
0
1. The authority citation for part 652 is revised to read as follows:
Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31, 8.32, 8.33, 8.34,
8.35, 8.36, 8.37, 8.41 of the Farm Credit Act (12 U.S.C. 2183, 2243,
2252, 2279aa-11, 2279bb, 2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4,
2279bb-5, 2279bb-6, 2279cc); sec. 514 of Pub. L. 102-552, 106 Stat.
4102; sec. 118 of Pub. L. 104-105, 110 Stat. 168; sec. 939A of Pub.
L. 111-203, 124 Stat. 1326, 1887 (15 U.S.C. 78o-7 note) (July 21,
2010).
0
2. Amend Sec. 652.5 by:
0
a. Removing the definitions for ``Contingency Funding Plan (CFP)'',
``Eurodollar time deposit'', ``Final maturity'', ``General
obligations'', ``Government agency'', ``Government-sponsored agency'',
``Liability Maturity Management Plan (LMMP)'', ``Liquid investments'',
``Liquidity reserve'', ``Mortgage securities'', ``Nationally recognized
statistical rating organization (NRSRO)'', ``Revenue bond'', and
``Weighted average life (WAL)'';
0
b. Revising the last sentence to the definition for ``Asset-backed
securities (ABS)''; and
0
c. Adding alphabetically five definitions to read as follows:
Sec. 652.5 Definitions.
For purposes of this subpart, the following definitions will apply:
* * * * *
Asset-backed securities (ABS) * * * For the purpose of this
subpart, ABS excludes mortgage-backed securities that are defined
below.
* * * * *
Diversified investment fund (DIF) means an investment company
registered under section 8 of the Investment Company Act of 1940.
* * * * *
Government-sponsored enterprise (GSE) means an entity established
or chartered by the United States Government to serve public purposes
specified by the United States Congress but whose debt obligations are
not explicitly guaranteed by the full faith and credit of the United
States Government.
* * * * *
Mortgage-backed securities (MBS) means securities that are either:
(1) Pass-through securities or participation certificates that
represent ownership of a fractional undivided interest in a specified
pool of residential (excluding home equity loans), multifamily or
commercial mortgages, or
(2) A multiclass security (including collateralized mortgage
obligations and real estate mortgage investment conduits) that is
backed by a pool of residential, multifamily or commercial real estate
mortgages, pass through MBS, or other multiclass MBS.
(3) This definition does not include agricultural mortgage-backed
securities guaranteed by Farmer Mac itself.
* * * * *
Obligor means an issuer, guarantor, or other person or entity who
has an obligation to pay a debt, including interest due, by a specified
date or when payment is demanded. For a DIF, both the DIF itself and
the entities obligated to pay the underlying debt are considered a
single obligor.
* * * * *
U.S. Government agency means an instrumentality of the U.S.
Government whose obligations are fully guaranteed as to the payment of
principal and interest by the full faith and credit of the U.S.
Government.
0
3. Amend Sec. 652.10 by:
0
a. Removing the word ``four'' in the last sentence of the paragraph (c)
introductory text;
0
b. Removing the phrase ``geographical areas,'' in paragraph (c)(1)(i);
and
0
c. Adding a new paragraph (c)(5) to read as follows:
Sec. 652.10 Investment management.
* * * * *
(c) * * *
(5) Concentration risk. Your investment policies must set risk
diversification standards. Diversification parameters must be based on
the carrying value of investments.
(i) The Corporation's maximum allowable investments in any one
obligor may not exceed 10 percent of Regulatory Capital. Only
investments in obligations backed by U.S. Government agencies or GSEs
may exceed the 10-percent single obligor limit.
(ii) Not more than 50 percent of the Corporation's entire
investment portfolio may be comprised of GSE-issued MBS.
* * * * *
0
4. Section 652.20 is revised to read as follows:
Sec. 652.20 Eligible non-program investments.
(a) Eligible investments consist of:
(1) A non-convertible senior debt security.
(2) A money market instrument with a maturity of 1 year or less.
(3) A portion of an ABS or MBS that is fully guaranteed by a U.S.
Government agency.
(4) A portion of an ABS or MBS that is fully and explicitly
guaranteed as to the timely payment of principal and interest by a GSE.
(5) The senior-most position of an ABS or MBS that is not fully
guaranteed by a U.S. Government agency or fully and explicitly
guaranteed as to the timely payment of principal and interest by a GSE,
provided that the MBS satisfies the definition of ``mortgage related
security'' in 15 U.S.C. 78c(a)(41).
(6) An obligation of an international or multilateral development
bank in which the U.S. is a voting member.
(7) Shares of a diversified investment fund, if its portfolio
consists solely of securities that satisfy investments listed in
paragraphs (b)(1) through (b)(4) of this section.
(b) Farmer Mac may only purchase those eligible investments
satisfying all of the following:
(1) The obligor(s) of the investment have strong capacity to meet
financial commitments for the life of the investment. A strong capacity
to meet financial commitments exits if the risk of default by the
obligor(s) is very low. Investments whose obligors are located outside
the U.S., and whose obligor capacity to meet financial commitments is
being relied upon to satisfy this requirement, must also be fully
guaranteed by a U.S. Government agency.
(2) The investment must exhibit low credit risk and other risk
characteristics consistent with the purpose or purposes for which it is
held. At a minimum, obligors must have strong capacity to meet
financial commitments and generally have a very low probability of
default throughout the term of the investment even under severely
adverse, stressful conditions in the obligors' business environment.
(3) The investment must be denominated in U.S. dollars.
0
5. Add a new Sec. 652.23 to read as follows:
[[Page 8866]]
Sec. 652.23 Other non-program investments.
(a) Farmer Mac may make a written request for our approval to
purchase and hold other non-program investments that do not satisfy the
requirements of Sec. 652.20. Your request for our approval to purchase
and hold other non-program investments at a minimum must:
(1) Describe the investment structure;
(2) Explain the purpose and objectives for making the investment;
and
(3) Discuss the risk characteristics of the investment, including
an analysis of the investment's impact to capital.
(b) We may impose written conditions in conjunction with our
approval of your request to invest in other non-program investments.
(c) For purposes of applying the provisions of this subpart, except
Sec. 652.20, investments approved under this section are treated the
same as eligible non-program investments unless our conditions of
approval state otherwise.
0
6. Section 652.25 is revised to read as follows:
Sec. 652.25 Ineligible investments.
(a) Investments ineligible when purchased. Non-program investments
that do not satisfy the eligibility criteria set forth in Sec.
652.20(a) or have not been approved by the FCA pursuant to Sec. 652.23
at the time of purchase are ineligible. You must not purchase
ineligible investments. If you determine that you have purchased an
ineligible investment, you must notify us within 15 calendar days after
such determination. You must divest of the investment no later than 60
calendar days after you determine that the investment is ineligible
unless we approve, in writing, a plan that authorizes you to divest the
investment over a longer period of time. Until you divest of the
investment, it may not be used to satisfy your liquidity requirement(s)
under Sec. 652.40, but must continue to be included in the Sec.
652.15(b) investment portfolio limit calculation.
(b) Investments that no longer satisfy eligibility criteria. If you
determine that a non-program investment no longer satisfies the
criteria set forth in Sec. 652.20 or no longer satisfies the
conditions of approval issued under Sec. 652.23, you must notify us
within 15 calendar days after such determination. If approved by the
FCA in writing, you may continue to hold the investment, subject to the
following and any other conditions we impose:
(1) You may not use the investment to satisfy your Sec. 652.40
liquidity requirement(s);
(2) The investment must continue to be included in your Sec.
652.15 investment portfolio limit calculation; and
(3) You must develop a plan to reduce the investment's risk to you.
0
7. Add a new Sec. 652.27 to read as follows:
Sec. 652.27 Reservation of authority for investment activities.
FCA retains the authority to require you to divest of any
investment at any time for failure to comply with applicable
regulations, for safety and soundness reasons, or failure to comply
with written conditions of approval. The timeframe set by FCA for such
required divestiture will consider the expected loss on the transaction
(or transactions) and the effect on your financial condition and
performance. FCA may also, on a case-by-case basis, determine that a
particular non-program investment poses inappropriate risk,
notwithstanding that it satisfies the investment eligibility criteria
or received prior approval from us. If so, we will notify you as to the
proper treatment of the investment.
0
8. Amend Sec. 652.40 by revising the table in paragraph (c) to read as
follows:
Sec. 652.40 Liquidity reserve requirement and supplemental liquidity.
* * * * *
Table to Sec. 652.40(c)
------------------------------------------------------------------------
Discount
Liquidity level Instruments (multiply market
value by)
------------------------------------------------------------------------
Level 1....................... Cash, 100 percent.
including cash due
from traded but not
yet settled debt.
Overnight 100 percent.
money market
instruments,
including repurchase
agreements secured
exclusively by Level
1 investments.
Obligations 97 percent.
of U.S. Government
agencies with a final
remaining maturity of
3 years or less.
GSE senior 95 percent.
debt securities that
mature within 60
days, excluding
securities issued by
the Farm Credit
System.
Diversified 95 percent.
investment funds
comprised exclusively
of Level 1
instruments.
Level 2....................... Additional Discount for
Level 1 investments. each Level 1
investment
applies.
Obligations 97 percent.
of U.S. Government
agencies with a final
remaining maturity of
more than 3 years.
MBS that are 95 percent.
fully guaranteed by a
U.S. Government
agency.
Diversified 95 percent.
investment funds
comprised exclusively
of Level 1 and 2
instruments.
Level 3....................... Additional Discount for
Level 1 or Level 2 each Level 1 or
investments. Level 2
investment
applies.
GSE senior 93 percent for
debt securities with all instruments
maturities exceeding in Level 3.
60 days, excluding
senior debt
securities of the
Farm Credit System.
MBS that are
fully guaranteed by a
GSE as to the timely
repayment of
principal and
interest.
Money market
instruments maturing
within 90 days.
Diversified
investment funds
comprised exclusively
of Levels 1, 2, and 3
instruments.
Qualifying
securities backed by
Farmer Mac program
assets (loans)
guaranteed by the
United States
Department of
Agriculture
(excluding the
portion that would be
necessary to satisfy
obligations to
creditors and equity
holders in Farmer Mac
II LLC).
[[Page 8867]]
Supplemental Liquidity........ Eligible 90 percent
investments under except
Sec. 652.20 and discounts for
those approved under Level 1, 2 or 3
Sec. 652.23. investments
apply to such
investments
held as
supplemental
liquidity.
------------------------------------------------------------------------
Dated: February 12, 2016.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2016-03626 Filed 2-22-16; 8:45 am]
BILLING CODE 6705-01-P