U.S. Treasury Securities-State and Local Government Series, 15440-15450 [2024-04380]

Agencies

• DEPARTMENT OF THE TREASURY
• Bureau of the Fiscal Service

[Federal Register Volume 89, Number 43 (Monday, March 4, 2024)]
[Rules and Regulations]
[Pages 15440-15450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04380]


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DEPARTMENT OF THE TREASURY

Bureau of the Fiscal Service

31 CFR Part 344

[FISCAL-2022-0002]
RIN 1530-AA25


U.S. Treasury Securities--State and Local Government Series

AGENCY: Bureau of the Fiscal Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
final rule to amend the regulations governing State and Local 
Government Series (SLGS) securities. SLGS securities are non-marketable 
Treasury securities that are available for purchase only by issuers of 
tax-advantaged securities. The final rule amends the SLGS regulations 
to prevent impermissible uses of the SLGS program, most notably the use 
of program flexibilities by tax-advantaged entities, usually a state or 
local government, investing in SLGS securities to create impermissible 
cost-free options. The final rule amends the existing regulations to 
prevent such activity. In addition, the final rule makes administrative 
changes to increase efficiencies in the program.

DATES: This final rule is effective August 26, 2024.

FOR FURTHER INFORMATION CONTACT: Mike Goodwin, Division Director, Jared 
Waters, Program Manager, Brian Metz, Senior Counsel, or Elizabeth 
Spears, Senior Counsel, via email at [email protected], by 
telephone at (304) 480-5299, or via U.S. Mail at Bureau of the Fiscal 
Service, P.O. Box 396, Parkersburg, WV 26106-1328.

SUPPLEMENTARY INFORMATION:

I. Overview of Rulemaking

    On September 30, 2022, Treasury published a notice of proposed 
rulemaking (NPRM) with request for comments (87 FR 59353, September 30, 
2022), proposing amendments to the regulations governing U.S. Treasury 
securities of the State and Local Government Series (SLGS). The 
proposed amendments addressed certain practices of investors in SLGS 
securities that Treasury considers to be an inappropriate use of the 
SLGS securities program. The comment period ended on November 29, 2022, 
and Treasury received two comment letters. After careful consideration 
of the comments, Treasury is now issuing a final rule.
    The NPRM proposed amendments to the SLGS regulations to address 
impermissible uses of the SLGS program, most notably the misuse of 
program flexibilities by tax-advantaged entities, usually a state or 
local government, investing in SLGS securities to create impermissible 
cost-free options. The NPRM proposed amendments designed to stop such 
activity. Additionally, the NPRM proposed administrative changes to 
increase efficiencies in the program.
    In the final rule, Treasury is adopting all but one of the proposed 
amendments. In response to the public comments, Treasury is providing 
additional detail and clarification herein.
    The following discussion provides background on previous related 
rulemakings, explains the NPRM's proposed amendments, addresses the 
public comments on those proposed amendments, and describes the final 
rule.

II. Background

    SLGS securities are a type of non-marketable Treasury security that 
is available for purchase by state and local governments and other 
issuers (as defined in 31 CFR 344.1) of tax-advantaged bonds (Issuers). 
SLGS

[[Page 15441]]

securities have been issued by Treasury since 1972. The purpose of the 
SLGS program is to assist state and local government Issuers in 
complying with yield restriction and rebate requirements applicable to 
tax-advantaged bonds under the Internal Revenue Code.
    Generally, the arbitrage requirements under the Internal Revenue 
Code provide that with certain exceptions, the proceeds of a tax-
advantaged bond may not be invested at a yield that is materially 
higher than the yield on the bond (26 CFR 1.148-2). In the limited 
circumstances in which bond proceeds may be invested above the bond 
yield, the bond issuer generally is required to rebate to the Federal 
Government any earnings in excess of the bond yield.
    SLGS securities may only be purchased with eligible funds (defined 
in 31 CFR 344.1). For SLGS Time Deposit securities (defined in 31 CFR 
344.4) that bear interest, purchasers may generally select any maturity 
period from 30 days to 40 years and any interest rate that does not 
exceed the applicable SLGS rate for that maturity published in the 
daily SLGS rate table. Since 2005, the maximum SLGS rates have been set 
at the current Treasury borrowing rate less one basis point. Purchasers 
of SLGS securities have the flexibility to structure the securities 
with specified payment dates and yields.
    In 1996, Treasury amended the regulations governing SLGS securities 
to eliminate certain requirements that had been introduced at various 
times since 1972, and to make the program a more flexible and 
competitive investment vehicle for Issuers (61 FR 55690, October 28, 
1996). Under the 1996 regulations, Treasury also added a provision to 
permit Issuers to subscribe for SLGS securities and subsequently cancel 
the subscription, without a penalty, under certain circumstances. This 
additional flexibility led to unintended consequences in the SLGS 
program, primarily the creation of cost-free options.
    Subsequently, in a series of regulatory amendments, Treasury has 
instructed that Issuers cannot use the flexibilities in the program, 
such as the ability to subscribe for SLGS and marketable securities and 
to select interest rates and maturities on SLGS securities, in a manner 
that either creates a cost-free option or is not necessary for the 
Issuer's compliance with yield restriction and rebate requirements. In 
1997, Treasury amended the regulations to prohibit the use of the SLGS 
program to create a cost-free option in certain circumstances (62 FR 
46444, September 3, 1997). Treasury stated in the preamble to the 
rulemaking that it was inappropriate to use the SLGS securities program 
as an option and provided examples of unacceptable practices. These 
practices included, among others, subscribing for SLGS securities for 
an advance refunding escrow and simultaneously purchasing marketable 
securities for the same escrow, with the plan that the marketable 
securities would be sold if interest rates declined or the SLGS 
subscription would be canceled if interest rates did not decline.
    In 2004, Treasury proposed further amendments. In a proposed rule 
published in September 2004 (69 FR 58756, September 30, 2004) (2004 
NPRM), Treasury indicated that it had become aware of several other 
practices involving SLGS securities that are also inappropriate uses of 
the securities and contrary to the purpose of the program. Several 
regulatory amendments were proposed to address these practices and 
other miscellaneous items. The 2004 NPRM addressed the redemption 
before maturity or sale of securities to reinvest at a higher yield, as 
well as the cancellation of subscriptions for the purchase of SLGS 
securities and re-subscribing at a higher yield when interest rate 
movements were favorable.
    The 2004 NPRM reiterated that Treasury views the practice of 
requesting redemption of SLGS securities before maturity to take 
advantage of relatively infrequent updates to SLGS interest rates as an 
inappropriate use of SLGS securities. Even if undertaken to eliminate 
negative arbitrage (where bond proceeds have been invested at a yield 
that is less than the yield on the Issuer's bond), Treasury considers 
the practice to be a cost-free option and inconsistent with the purpose 
of the SLGS program. Treasury noted that there is a direct cost of such 
actions to Treasury because Treasury is not being compensated for the 
value of the option; that the practice results in volatility in 
Treasury's cash balances and increases the difficulty of cash balance 
forecasting and thereby increases Treasury's borrowing costs; and that 
there are administrative costs. The 2004 NPRM proposed a new provision 
making it impermissible to purchase a SLGS security with a maturity 
longer than is reasonably necessary to accomplish a governmental 
purpose of the Issuer. After reviewing the public comments and 
considering other measures being taken to stop the creation of cost-
free options, Treasury decided not to implement the rule against 
purchasing securities with maturities longer than reasonably necessary 
to accomplish a governmental purpose.
    The 2005 final rule (70 FR 37904, June 30, 2005) addressed several 
inappropriate practices that provided SLGS investors cost-free options 
or arbitrage opportunities that are not available in marketable 
securities. Those practices imposed substantial costs on the Federal 
Government. The amendments in the 2005 final rule were intended to make 
investments in SLGS securities more closely resemble investment 
opportunities available in Treasury marketable securities.
    While implementation of the 2005 final rule put an end to many of 
the impermissible practices, Treasury still observed misuses within the 
SLGS program whereby program flexibilities were used to create cost-
free options. For these reasons, the September 30, 2022 NPRM proposed 
the amendments described below to eliminate certain practices that 
persisted after Treasury's previous rule amendments. Treasury intends 
these amendments to also address new, yet similar, types of 
transactions that may also create impermissible cost-free options. 
Treasury believes that the amendments proposed in the NPRM retain 
sufficient flexibility for Issuers to appropriately select maturities 
and interest payment dates (a principal reason that SLGS securities are 
an attractive investment vehicle for Issuers) without creating cost-
free options.
    The final rule amendments will apply only to SLGS subscriptions 
started on or after August 26, 2024, the effective date of the final 
rule.

III. Proposals, Comments, and Final Rule

    Treasury received two public comment letters on the NPRM: one from 
a nonprofit organization and bar association representing attorneys who 
work in the municipal bond market, and one from an independent 
municipal advisory firm. In general, the commenters objected to 
proposed rule amendments that would reduce flexibilities in the 
program. Commenters expressed concern that certain of the proposed 
amendments were vague or insufficiently clear. The commenters also made 
certain suggestions pertaining to items outside of the scope of the 
NPRM's proposed amendments. Comments within the scope of the NPRM are 
addressed below.

A. Proposals To Address Impermissible Use of Flexibilities in the 
Program To Create Cost-Free Options

    In the NPRM, Treasury explained that, despite prior rule amendments 
to

[[Page 15442]]

explicitly prohibit the creation of cost-free options within the SLGS 
program, it has observed misuse where purchasers buy long-term SLGS 
securities and then redeem the security before maturity when interest 
rates move in a favorable manner to capture a redemption premium. To 
eliminate the creation of cost-free options, Treasury proposed imposing 
a requirement that the term of the SLGS security subscribed for is no 
longer than reasonably necessary for the Issuer's governmental purpose 
(as defined in Sec.  344.1 of the proposed rule) for its purchase of 
the security and that Issuers must hold Time Deposit securities for a 
minimum amount of time before requesting an early redemption.
1. No Maturity Longer Than Necessary
    To eliminate the cost-free option, the final rule adds a new 
restriction on maturity lengths in Sec.  344.2(f)(1)(iv) that will be 
evidenced by a duration certification under Sec.  344.2(e)(3) requiring 
the Issuer to certify that the length of the maturity of a SLGS 
security subscribed for is no longer than reasonably necessary for the 
underlying governmental purpose of the investment. To further explain 
what it considers to be the creation of an impermissible a cost-free 
option, Treasury is amending the non-exhaustive list of impermissible 
transactions in Sec.  344.2(f)(1) by adding a new functional 
description. This description exhibits an impermissible practice of 
purchasing or redeeming prior to maturity a SLGS security with a term 
that is longer than is reasonably necessary to accomplish the 
governmental purpose.
    Creating a subscription in the SLGSafe system (the secure internet 
site through which subscribers submit SLGS securities transactions) 
currently requires several certifications before a subscription can be 
completed; however, there is currently not a certification on the term 
of the SLGS security. The NPRM proposed a new duration certification 
which is intended to address a practice where an Issuer, in response to 
the direction of interest rates, purchases a SLGS security with a term 
longer than necessary for its governmental purpose, and then redeems 
the security before maturity to collect a premium.
    The current rule at Sec.  344.2(e) requires the Issuer or its agent 
to make: (1) an agent certification, and (2) a yield certification upon 
submitting a subscription for purchase of SLGS securities. Both 
certifications are currently incorporated into the subscription process 
within the SLGSafe system. The new duration certification will be added 
to the existing certifications in SLGSafe and will not require any 
additional paperwork or other administrative burden. Demand Deposit 
securities (as defined in 31 CFR 344.7) have a maturity of one day and 
will not be subject to the duration certification.
    Treasury received comments from both commenters on the proposed 
duration certification. One commenter expressed concern that the 
duration certification requirement is vague and may cause confusion, 
while the other commenter requested further details on the process by 
which an Issuer would fulfill the certification requirement and 
requested that the requirement not impose an additional cost or burden 
on the Issuer.
    Treasury has considered these comments and has determined that 
implementation of the duration certification is necessary to help stop 
inappropriate uses of the program. The duration certification requires 
that the term of the security subscribed for must be ``reasonably'' 
necessary for the Issuer's governmental purpose (as defined in Sec.  
344.1). The duration certification requirement provides needed clarity 
but also allows for some limited flexibility in matching the security 
term to the governmental purpose. At the time of subscription, Issuers 
should have a reasonable understanding of their maturity requirements 
for a particular subscription. Additionally, by incorporating the 
duration certification into the existing subscription process, in which 
other required certifications (Sec.  344.2(e)) already exist, there is 
no additional burden or expense for Issuers. In this final rule, 
Treasury has updated the duration certification language in Sec.  
344.2(e) to better match the requirement in Sec.  344.2(f)(1).
2. Impermissible Practices
    Transactions that impermissibly take advantage of the flexibilities 
afforded to Issuers in the SLGS program to create cost-free options are 
prohibited. The final rule includes additional examples of 
impermissible practices in Sec.  344.2(f)(2). However, the list of 
examples in the regulation is non-exhaustive. These restrictions are 
necessary to curb the use of the SLGS program as a cost-free option. 
Previous efforts to eliminate the creation of cost-free options within 
the program have not adequately addressed these activities, and no 
alternatives have been identified that would be workable to achieve 
this goal.
    There were no comments on the proposed addition of examples of 
impermissible practices, and accordingly Treasury adopts the amendment 
as proposed.
3. Increase in Minimum Holding Period Before Notification for Early 
Redemption of Time Deposit Securities
    In the NPRM, Treasury proposed requiring a minimum 14-day holding 
period after a Time Deposit security has been issued and before the 
Issuer may request an early redemption of a Time Deposit note or bond. 
Treasury is adopting this change as proposed. Under the current 
regulations, the Issuer may request early redemption of a Time Deposit 
security as early as the day after Treasury issues the SLGS security. 
While a request for early redemption may be submitted as soon as the 
day after issue, a Time Deposit security that is a certificate of 
indebtedness of 30 days or more has a minimum 25-day holding period for 
redemption, and a Time Deposit security that is a note or bond has a 
minimum 30-day holding period for redemption. Treasury is not amending 
these minimum holding periods for redemption; however, Treasury is 
increasing the holding period, as proposed, prior to an Issuer being 
permitted to request an early redemption of a Time Deposit security 
that is a note or bond. In other words, the minimum holding period for 
requesting early redemption is increased, while the minimum holding 
period for early redemption remains the same. For example, currently a 
Time Deposit security that is a note or bond issued on the first day of 
a month may not be early redeemed prior to the 31st of that month, and 
notice of the early redemption may be submitted as early as the second 
day of that month. Under the final rule, that same Time Deposit 
security still may not be early redeemed prior to the 31st of the month 
of issuance, but notice of early redemption may not be submitted until 
the 15th day of that month (after the minimum 14-day holding period).
    Because the interest rate used to calculate a premium or discount 
on an early redemption of a Time Deposit security is fixed as of the 
date that the early redemption of the security is requested, there are 
currently opportunities for Issuers to use the early redemption 
flexibility to generate premiums within the SLGS program. Treasury 
considers this to be the creation of a cost-free option and therefore 
impermissible. Increasing the minimum holding period before an Issuer 
may request early redemption will deter the creation of this type of

[[Page 15443]]

impermissible cost-free option by increasing the interest rate risk to 
a more meaningful level than exists under current regulations. It is 
Treasury's view that even more than de minimis risk to the Issuer does 
not change the fact that this is still a cost-free option and, either 
with or without risk, is an impermissible practice.
    One commenter expressed concern that the minimum holding period 
could have an unintended negative impact on Issuers whose circumstances 
have changed or may require cash proceeds sooner than the proposed 14-
day minimum holding period. Treasury believes this concern is 
misplaced, because Treasury is not changing the length of time that a 
Time Deposit security must be held prior to early redemption. The 
change is only to the amount of time that the security must be held 
prior to the Issuer making the request for early redemption. Therefore, 
Treasury adopts the amendment as proposed.
4. Specifying the Maturity of Time Deposit Securities
    The NPRM proposed requiring that all Issuers must provide a 
maturity date at the start of a subscription, rather than by the time 
of completion of the subscription. The NPRM proposed that when starting 
a Time Deposit security subscription under Sec.  344.5(b)(5) and 
completing a subscription under Sec.  344.5(e)(2), the Issuer must 
separately itemize the maturity date(s) by individual Time Deposit 
security. If necessary, Issuers could still adjust the maturities of 
each of the Time Deposit securities, within certain parameters as 
described below.
    One commenter expressed concern that adding this requirement could 
cause a problem for Issuers that know the minimum settlement 
requirement, but do not know the full details at the time of starting 
the subscription. The commenter's concern appears to be that this 
requirement may be overly burdensome and result in additional potential 
errors in the subscription details.
    The NPRM did not propose adding additional requirements to the 
overall information necessary to issue a SLGS security. Specifying the 
term of a Time Deposit security has always been a requirement prior to 
issuance of that security in the SLGSafe system. Treasury is merely 
adjusting the time at which the security information must be provided 
from the time of issuance to the start of a SLGS subscription. 
Consequently, there is no additional burden placed upon an Issuer as to 
the type of information that must be provided to Treasury. Further, 
with respect to the risk of potential errors in the information that 
will be needed to start the SLGS subscription, SLGSafe will continue to 
include flexibility for the Issuer to adjust the initial established 
term of the security, within certain limits, to better match the 
projected needs of the Issuer that may change in the time between the 
start of the subscription and the issuance of the security. If the 
Issuer's circumstances change such that the built-in flexibilities are 
inadequate to address the needed correction, the Issuer may contact 
Treasury and request a waiver under the rules to allow for an 
adjustment to the maturity date. Treasury will carefully review the 
waiver request and any relevant supporting information, as it currently 
does with waiver requests, to ensure that there is no creation of an 
impermissible cost-free option. The request should explain any time 
exigencies so that Treasury can timely reply to the request. Therefore, 
Treasury adopts the rule amendment as proposed.
5. Limiting Maturity Adjustments on Time Deposit Securities
    The NPRM proposed limiting Issuer adjustments to the maturity of a 
Time Deposit security before issuance. While this flexibility is an 
attractive feature of the SLGS program, it is also a flexibility where 
Treasury has observed repeated misuses of the program to create cost-
free options. The NPRM proposed a new restriction that the Issuer 
cannot change the maturity date on a Time Deposit security by more than 
30 days for certificates of indebtedness, six months for notes, and one 
year for bonds. The proposed rule amendments retain the Issuer's 
flexibility in setting the maturity of SLGS securities, while removing 
the ability to alter maturities beyond the time required to accomplish 
a governmental purpose. The flexibility retained in this provision will 
allow appropriate amendments to subscriptions for the purchase of SLGS 
securities while curbing efforts to create impermissible cost-free 
options.
    One commenter requested that Treasury provide clear direction on 
the permissible and impermissible adjustments that may be made to the 
maturity of a Time Deposit security prior to issuance. Treasury 
believes the final rule provides clarity regarding these terms.
    For example, an Issuer that subscribes for a certificate of 
indebtedness Time Deposit security with a maturity of 60 days may amend 
the maturity of that security prior to issuance by either lengthening 
or shortening the term by up to 30 days, such that the amended term may 
be any length between 30 days and 90 days, subject to other applicable 
rule requirements. A certificate of indebtedness subscribed for with a 
term of 360 days may be amended prior to issuance such that the term 
may be any length between 330 days and 390 days, subject to other 
applicable rule requirements. An Issuer that subscribes for a note Time 
Deposit security with a term of 5 years may amend the maturity prior to 
issuance by either lengthening or shortening the term by up to 6 
months, such that the term may be any length between 4 years and 6 
months, and 5 years and 6 months, subject to other applicable rule 
requirements. An Issuer that subscribes for a bond Time Deposit 
security with a term of 15 years may amend the maturity prior to 
issuance by either lengthening or shortening the term by up to 1 year, 
such that the term may be any length between 14 years and 16 years, 
subject to other applicable rule requirements.
    The amount that a maturity can be adjusted is based on the term of 
the Time Deposit security as originally subscribed for, not the term of 
the resulting security after adjustment. For example, a note Time 
Deposit originally subscribed for with a term of 9 years and 7 months 
could be adjusted to a term of 10 years and 1 month. Even though the 
resulting security after adjustment is a bond Time Deposit security, 
the restriction on the amount of the adjustment is based on the Time 
Deposit security prior to any adjustment, which was a note Time Deposit 
security in this example.
    Additionally, Time Deposit securities whose maturities are adjusted 
more than once prior to issuance remain subject to the adjustment 
restriction based on the term of the security originally subscribed 
for, not on the term after the adjustments. For example, where a Time 
Deposit security was originally subscribed for with a term of 10 years, 
the maturity can be adjusted multiple times within SLGSafe prior to 
issuance; however, regardless of any maturity adjustments prior to 
issuance, the maximum term of the security remains 10 years and 6 
months, and the minimum term remains 9 years and 6 months. Treasury 
reiterates that in addition to complying with these adjustment 
restrictions, the final maturity chosen must be no longer than 
reasonably necessary for the underlying governmental purpose of the 
investment, as required by the new duration certification described 
above.
    While this provision permits changes to the term of a Time Deposit 
security, Treasury emphasizes that such flexibilities are intended to 
address

[[Page 15444]]

situations when there is a change related to the governmental purpose 
after a subscription is started and prior to the issuance of the 
security, such as changes in projections of when the funds will be 
needed to meet disbursement or payment needs. Such flexibility is not 
provided for the purpose of adjusting maturities in response to 
movements in interest rates, anticipated movements in interest rates, 
or for any reason other than a change in circumstances that requires an 
adjustment to the maturity date. A change made to the maturity date for 
any other reason, even if the change complies with the adjustment 
restrictions described in this section, is prohibited under the final 
rule as the creation of an impermissible cost-free option.
6. Changing Principal Amounts on Time Deposit Securities
    Treasury's current regulation provides that the aggregate principal 
amount originally specified in a SLGS subscription cannot be changed by 
more than 10 percent. The NPRM proposed to apply the 10 percent limit 
to each Time Deposit security rather than to a SLGS subscription as a 
whole. The ``limiting maturity adjustments on Time Deposit Securities'' 
proposed amendment would be ineffective if Issuers could simply 
``shift'' subscribed for amounts from one Time Deposit security to 
another Time Deposit security with a significantly different maturity 
date.
    Both commenters expressed concerns about the proposed change. One 
commenter noted that it could cause problems for Issuers that subscribe 
for SLGS securities when the minimum settlement amount is known but the 
full details for the subscription are not known at the time of starting 
a subscription. The other commenter expressed concern that this change 
would negatively impact the flexibility of Issuers to adjust 
subscriptions at the Time Deposit security level prior to issuance. The 
commenter also stated that maximum flexibility in refining 
subscriptions allows for optimal utilization of the SLGS program.
    Even with the proposed amendment, appropriate flexibilities for 
Issuers remain. The current requirement on the amount that a SLGS 
subscription as a whole may be adjusted (+/-10%) is not being amended. 
The amendment requires that the Time Deposit security specific 
information that is required in all subscriptions prior to issue date, 
must be provided at the start of a SLGS subscription. The amendment is 
tailored to avoid the creation of impermissible cost-free options. 
Further, if the circumstances of an Issuer change such that the 
remaining flexibility is inadequate to address a necessary correction, 
the Issuer can contact Treasury and request a waiver under the rules to 
allow for a larger adjustment to the principal amount on the specific 
Time Deposit securities required. Therefore, Treasury adopts amendment 
as proposed.
7. Changing Principal Amounts on Demand Deposit Securities
    In the NPRM, Treasury did not propose any amendments pertaining to 
the principal amounts for Demand Deposit securities. Accordingly, there 
were no comments relating to the rule as it pertains to Demand Deposit 
securities, and they will remain subject to the current rule that the 
aggregate principal amount may not be changed by more than 10 percent 
above or below the amount originally specified in the subscription.

B. Proposals To Address Administrative Updates and Changes to the 
Program

1. Purpose of the SLGS Program
    In the NPRM, Treasury proposed reinserting language that the 
purpose of the SLGS program is ``to assist in complying with applicable 
provisions of the Internal Revenue Code'' as it appeared prior to the 
amendments made in 2005. At that time, Treasury updated the stated 
purpose of the SLGS program based on commentors' views that it was 
vague. However, the 2005 amendment was perceived as causing confusion 
among Issuers that interpreted the amendment to mean that the program 
could be used for broader, unintended purposes, such as eliminating 
negative arbitrage, in contravention of the rule against cost-free 
options.
    Treasury received no comments on the proposed amendment to Sec.  
344.0(a) stating the purpose of the SLGS program and adopts the 
amendment as proposed.
2. Definitions Updates
    The NPRM proposed amendments to certain definitions used in the 
SLGS program, including revisions to some existing definitions and the 
addition of new definitions to help clarify various provisions in the 
rules.
    The NPRM proposed amending the definition of ``business day'' in 
Sec.  344.1 to clarify which days normal processing of SLGS securities 
transactions will occur. Treasury received no comments on the proposed 
amendment and adopts the change as proposed.
    The NPRM proposed amending the definition of ``Issuer'' in Sec.  
344.1 to update the definition to better align with the IRS arbitrage 
regulations. Treasury received no comments on the proposed amendment 
and adopts the change as proposed.
    The NPRM proposed amending the definition of ``eligible source of 
funds'' to better align with the relevant portions of the Internal 
Revenue Code and the Income Tax Regulations. Treasury received no 
comments on the proposed amendment and adopts the change as proposed.
    The NPRM proposed adding a definition of ``cost-free option'' in 
Sec.  344.1 that states that ``the use of any provision(s) in the SLGS 
program to exploit movements in interest rates, including, but not 
limited to, those designed to provide marginal flexibility to Issuers 
in structuring their SLGS investments'' constitutes a cost-free option, 
which is prohibited in the rules. One commenter expressed concern that 
the definition may be overly broad and suggested stating that the 
definition of a cost-free option is specific to SLGS and other Treasury 
obligations. Treasury intentionally drafted the definition of cost-free 
option broadly to encompass all situations in which impermissible 
actions could be taken by Issuers to exploit the movement in interest 
rates. Past behavior by Issuers supports this broad definition. These 
misuses have primarily arisen through the creation of inappropriate 
cost-free options. Treasury notes, however, that the definitions set 
out in Sec.  344.1 are specific to the SLGS program and do not purport 
to apply outside of part 344. Therefore, Treasury adopts the addition 
of the definition of cost-free option as proposed.
    In the NPRM, Treasury proposed adding a definition of ``marketable 
security'' in Sec.  344.1 that closely aligns with the example 
published in the SLGS Frequently Asked Questions. Treasury received no 
comments on the proposed amendment and adopts the addition of the 
definition of marketable security as proposed.
    The NPRM proposed adding a definition of ``tax-advantaged bond'' in 
Sec.  344.1 that corresponds with the definition of the types of bonds 
to which the relevant portions of the Internal Revenue Code and the 
Income Tax Regulations (generally 26 U.S.C. 148 and 26 CFR 1.148-0 
through 1.148-11) apply. Treasury received no comments on the proposed 
amendment and adopts the addition of the definition of tax-advantaged 
bond as proposed.
    The NPRM proposed adding a definition of ``governmental purpose'' 
in Sec.  344.1 clarifying that using the SLGS program to create cost-
free options is not a permitted governmental purpose.

[[Page 15445]]

Treasury received no comments on the proposed amendment and adopts the 
addition of the definition of governmental purpose as proposed.
3. Certification of Eligibility To Purchase
    The NPRM proposed adding a new Sec.  344.2(e)(4) that would add a 
certification on the Issuer's eligibility to purchase SLGS securities. 
This certification would require the Issuer to notify Treasury if, at 
any point while SLGS securities are outstanding, the issuer becomes 
ineligible to purchase SLGS securities or the funds used to purchase 
SLGS securities are no longer ``an eligible source of funds.'' The 
notification requirement would apply to all outstanding SLGS securities 
(e.g., Time Deposit, Demand Deposit, and special 90-day certificates of 
indebtedness). Once Treasury receives notification that funds used to 
purchase a SLGS security are no longer ``an eligible source of funds,'' 
reinvestment of those funds after maturity into another SLGS security 
will not be permitted. Because Demand Deposit SLGS are one-day 
certificates of indebtedness that are automatically rolled over each 
day until redemption is requested, Treasury will deem the notification 
to be a request to redeem those outstanding Demand Deposit securities 
that are affected by the ineligibility under Sec.  344.9, as amended. 
The Issuer would not be required to early redeem Time Deposit 
securities that are outstanding at the time of the notification because 
Time Deposit securities are longer-term securities that would have been 
purchased with an eligible source of funds at the time of issuance. 
Likewise, special 90-day certificates of indebtedness purchased with 
funds that are no longer considered ``an eligible source of funds'' 
would be redeemed either upon maturity (i.e., would not be rolled into 
a new special 90-day certificate of indebtedness) or upon reversion to 
Demand Deposit securities and would not have to be early redeemed.
    One commenter on the proposed rule asked for additional detail on 
the process through which an Issuer would certify its eligibility to 
purchase SLGS securities. Additionally, the commenter suggested that 
the regulations would be enhanced by clarifying any timing requirements 
associated with the notification. Treasury anticipates incorporating 
the eligibility certification into the existing certification process 
within the SLGSafe system that is used to subscribe for the purchase of 
SLGS securities. Treasury further clarifies that an Issuer must notify 
Treasury when the Issuer receives a ``final adverse determination'' 
letter from the IRS informing the Issuer that the funds status has 
changed and the funds are no longer considered proceeds from a tax-
advantaged bond. If an Issuer has any question about a particular 
instance or IRS determination, that Issuer may contact Treasury with 
its specific details and seek further guidance on what, if anything, is 
required under the eligibility certification.
    After considering this comment, Treasury has decided to adopt the 
amendment as proposed.
4. SLGS Rate Table
    In the NPRM, Treasury proposed amending Sec.  344.4(b)(1) to state 
that Treasury will post the SLGS rate table ``by 10 a.m. Eastern Time 
each business day or as soon as practicable thereafter,'' to provide 
Treasury more flexibility in those rare instances where the SLGS rate 
table cannot be released to the public by 10 a.m. Eastern Time. The 
amendment would provide that if no SLGS rate table has been published 
by 11 a.m. Eastern Time, then the SLGS rate table for the preceding 
business day would apply.
    One commenter on the proposed rule stated that the amendment to the 
time for posting the SLGS rate table would increase ambiguity 
surrounding the timing for when the SLGS rates may be published and 
could adversely affect Issuers that price bonds in the market before 11 
a.m. Eastern Time. The commenter suggested that the provision should 
not be amended. Treasury appreciates the concerns expressed in the 
comment, and the proposal would maintain the general expectation that 
the SLGS Rate Table would be published by 10 a.m. each business day. 
However, there may be rare situations where it is not feasible for 
Treasury to post the SLGS rates by 10 a.m. (for example due to an 
operational issue such as internet connectivity), and the proposed 
amendment would provide Treasury limited flexibility in posting the 
rates shortly thereafter. Additionally, the SLGS window remains open 
until 10 p.m. Eastern Time each business day and provides ample time 
for Issuers to finalize pricing and enter a subscription in the SLGSafe 
system. Therefore, Treasury adopts the amendment as proposed.
5. Lead Time for the Establishment of the Issue Date
    The NPRM proposed amending the lead time for an Issuer to subscribe 
for SLGS securities from 60 to 45 calendar days. Moving the 
subscription date closer to the issue date would provide more accurate 
pricing for SLGS securities and would narrow the window of time in 
which an impermissible cost-free option could be created. Since less 
than 4 percent of SLGS subscriptions are started more than 45 days in 
advance of issue date, the impact of the proposed reduction in 
subscription lead time on Issuers should be minimal.
    Treasury received comments from both commenters suggesting that 
maintaining the existing 60-day lead time would benefit Issuers in bond 
pricing and issuance especially during times of an impending debt limit 
contingency. In light of the other amendments in the final rule that 
are designed to reduce the opportunity to create impermissible cost-
free options, Treasury accepts these comments and is not amending the 
current 60-day lead time for subscriptions to be submitted in SLGSafe.
6. Subscription Process
    The NPRM proposed amendments to update Sec. Sec.  344.5(e) and 
344.8(e), which detail the information necessary for an issuer to start 
and complete the subscription process for Time Deposit and Demand 
Deposit securities, respectively. Updates are required due to the 
changes implemented by this rule. These amendments will help reduce 
opportunities to create impermissible cost-free options.
    One commenter stated that some Issuers that currently subscribe for 
SLGS in time to account for the minimum settlement requirement do not 
know the full details of their subscription at the time of initial 
subscription. The commenter noted that requiring these Issuers to 
provide full subscription details at the time of initial subscription 
may be overly burdensome and result in potential errors in subscription 
details.
    The proposed amendments would not add new requirements to the 
overall information necessary to issue a SLGS security. The maturity 
date for a Time Deposit security has always been a requirement prior to 
issuance. Treasury is only adjusting the time at which the Time Deposit 
security information must be provided, from the time of issuance to the 
start of a SLGS subscription. Hence, there is no additional burden on 
an Issuer as to the type of information that must be provided to 
Treasury. As to the concern about potential errors, Treasury is 
building in flexibility to allow the Issuer to adjust the previously 
established maturity of each Time Deposit security to better match the 
projected needs of the Issuer prior to the issuance of that security. 
If there are

[[Page 15446]]

significant changes to an Issuer's circumstances and the SLGS program's 
flexibilities are inadequate to address the necessary changes, the 
Issuer can contact Treasury and request a waiver under the rules to 
allow for an adjustment to the Time Deposit security's maturity date. 
Therefore, Treasury adopts the amendment as proposed.
7. Identification of the Tax-Advantaged Bond Issue
    The NPRM noted that under the current rule, the underlying tax-
advantaged bond issue must be identified when the Issuer ``starts'' and 
``completes'' the subscription for SLGS securities. This requirement 
has been in the current regulation since the 2005 rule required the 
Issuer to enter a description of the Issuer's tax-exempt bond issue, 
such as ``Water and Sewer Revenue Bonds Series 2004'' (70 FR 37904, 
37907, June 30, 2005). Subsequently, the Municipal Securities 
Rulemaking Board (MSRB) launched its Electronic Municipal Market Access 
(EMMA[supreg]) system, and EMMA has now become the official repository 
for municipal securities disclosures.
    Given that EMMA generally contains information about state and 
local government bonds, the NPRM proposed requiring that if a bond 
issue is registered in EMMA, the Issuer must adhere to the naming 
convention supplied in the ``issue description'' field on the 
``Security Information'' tab in EMMA at https://emma.msrb.org when 
describing the tax-advantaged bond in SLGSafe. If the EMMA website 
amends its naming convention, the Issuer would supply the updated 
registration as it is presented in EMMA or its successor system.
    The Issuer would be able to input the ``EMMA registration'' into 
SLGSafe at the time the subscription is started, but that information 
could be changed or updated at any time. This would allow additional 
time for the Issuer to update the description field if the bond issue 
has not yet been registered with EMMA when the subscription is started. 
Coordinating the EMMA registration information with the underlying bond 
issuance field in SLGSafe will assist Treasury in determining if the 
amounts are an ``eligible source of funds'' that may be used to 
purchase SLGS securities.
    One commenter on the proposed amendment expressed concern that the 
requirement to provide EMMA registration information may prevent 
Issuers from using the SLGS program because the requirement to identify 
a single bond issue eliminates Issuers' ability to invest commingled 
debt service reserve funds. Treasury is not amending its rules to 
change which funds can be used to purchase SLGS securities, including 
comingled funds. If the funds qualify as an eligible source of funds, 
the proposed amendment does not change their eligibility. Treasury 
intends to provide capability within SLGSafe for an Issuer to enter 
EMMA information for multiple registrations if needed.
    A commenter also raised concerns that in many instances, an escrow 
trustee will file the subscription for SLGS securities. Given the 
escrow trustee's limited role in most bond issues, the commenter 
suggested that the additional identification requirement may cause 
confusion or result in faulty subscriptions for SLGS securities. An 
escrow trustee, acting as an agent on behalf of the Issuer, should be 
privy to the information surrounding an EMMA registration. Therefore, 
Treasury believes that requiring an agent for the Issuer to provide 
this information during the subscription process should not be unduly 
burdensome or costly.
    Another commenter expressed concern that Issuers may use naming 
conventions other than the EMMA registration's naming convention for 
use within their own records and that requiring Issuers to change their 
naming conventions to those used in the EMMA registration could cause 
problems. To implement this amendment, Treasury is requiring that the 
EMMA registration information be entered in the existing ``Underlying 
Bond Issue'' field within SLGSafe, while retaining flexibility for 
Issuers to continue current practices used when subscribing for SLGS 
securities. The amendment requires the same information, a description 
of the bond issuance, including the required EMMA description (where 
available), while allowing flexibility for the Issuer to include its 
own naming convention.
    Finally, a commenter noted that there are instances when the name 
of the issue is incorrectly entered on EMMA. Because Treasury may use 
this information to identify the underlying bond issue, the EMMA 
information provided should appear exactly as it does in the EMMA 
system. If there are any updates or corrections in the EMMA system, an 
Issuer must update the EMMA information in SLGSafe as soon as possible.
    For these reasons, Treasury adopts the amendment as proposed.
8. Special Zero Interest Securities and Subscriptions on or Before 
December 27, 1976
    The NPRM proposed removing subpart D of the current rule, as 
special zero interest securities were discontinued by Treasury on 
October 28, 1996, and all outstanding SLGS securities issued on or 
before December 27, 1976, matured by November 1, 2013. Treasury 
received no comments on this proposal and is removing Sec. Sec.  
344.5(e)(4) and 344.6(g) as proposed.
9. Debt Limit Contingency
a. Treasury's Discretion To Leave Demand Deposit Securities Invested or 
To Invest in Special 90-Day Certificates of Indebtedness
    The NPRM noted that the current SLGS rules state that at any time 
the Secretary determines that issuance of obligations sufficient to 
conduct the orderly financing operations of the United States cannot be 
made without exceeding the statutory debt limit, Treasury must invest 
any unredeemed Demand Deposit securities in special 90-day certificates 
of indebtedness. Treasury proposed amending Sec.  344.7(b) to provide 
the Secretary with the flexibility to exercise discretion to either 
leave the unredeemed Demand Deposit securities invested or to invest 
them in special 90-day certificates of indebtedness.
    Treasury received no comments and therefore adopts the amendment as 
proposed.
b. Terms Applying to Invested Demand Deposit Securities
    The NPRM proposed clarifying Sec.  344.7(b)(1) to provide that 
Demand Deposit securities during a debt limit contingency remain 
subject to the normal terms and conditions that apply to Demand Deposit 
securities.
    Treasury received no comments and therefore adopts the amendment as 
proposed.
c. Terms Applying to Special 90-Day Certificates of Indebtedness
    The NPRM proposed to clarify Sec.  344.7(b)(2) to provide that 
special 90-day certificates of indebtedness that are issued during a 
debt limit contingency remain subject to the same redemption rules as 
Demand Deposit securities. As proposed, Treasury would roll over 
special 90-day certificates of indebtedness, along with accrued 
interest, into new special 90-day certificates of indebtedness when a 
debt limit contingency period lasts longer than 90 days.

[[Page 15447]]

    Treasury received no comments and therefore adopts the amendment as 
proposed.
d. End of a Debt Limit Contingency
    The NPRM noted that the current SLGS rules provide that at the end 
of a debt limit contingency, the Issuer has the option to keep the 
special 90-day certificates of indebtedness until maturity, redeem them 
before maturity, or reinvest them in Demand Deposit securities. 
Treasury proposed to amend Sec.  344.7(b)(2) to provide that when 
regular Treasury borrowing operations resume, Treasury would redeem any 
special 90-day certificates of indebtedness and reinvest the proceeds, 
along with accrued interest, in Demand Deposit securities. As a result, 
the Issuer would again hold the investment that the Issuer originally 
requested.
    Treasury received no comments and therefore adopts the amendment as 
proposed.
10. Notice Period for Redemption of Demand Deposit Securities
    In the NPRM, Treasury noted that Sec.  344.9(a) currently requires 
notice of one business day for redemption of Demand Deposit securities 
in the amount of $10 million or less and notice of three business days 
for redemptions of more than $10 million. To aid in Treasury's cash 
forecasting and cash management, Treasury proposed to amend Sec.  
344.9(a) to require notice of five business days for redemption of 
Demand Deposit securities and special 90-day certificates of 
indebtedness in the principal amount of $500 million or more.
    One commenter noted that the amendment would assist Treasury in its 
cash forecasting and cash management but could have complications for 
Issuers and limit Issuer flexibility. While Treasury recognizes that 
this amendment would slightly reduce the flexibility in redeeming 
Demand Deposit securities, it will provide material benefits to 
Treasury's cash forecasting and cash management processes, which 
require accurate projections of cash inflows and outflows. Furthermore, 
Treasury believes that for cash needs of $500 million or more, Issuers 
will generally have sufficient notice and can provide the same to 
Treasury. Finally, in the event of an emergency, an issuer can request 
a waiver of this provision and ask that Treasury allow for a redemption 
of a Demand Deposit security with less notice.
    Therefore, Treasury adopts the amendment as proposed.

C. Additional Comments Received Beyond the Scope of the Proposed 
Amendments

    In addition to those comments discussed above, commenters 
recommended additional amendments to the SLGS program. Such comments 
are beyond the scope of the NPRM and are not addressed here.
    Treasury notes that the delayed effective date of this final rule 
is intended to provide Issuers with sufficient time to review the final 
rule and make any necessary adjustments to their systems or processes.

IV. Procedural Requirements

A. Executive Order 12866

    This final rule is not a significant regulatory action for purposes 
of Executive Order 12866, dated September 30, 1993, as amended.

B. Administrative Procedure Act (APA)

    Because this rule relates to United States securities, which are 
contracts between Treasury and the owner of the security, this rule 
falls within the contract exception to the APA, 5 U.S.C. 553(a)(2). As 
a result, the notice, public comment, and delayed effective date 
provisions of the APA are inapplicable to this rule.

C. Regulatory Flexibility Act

    This final rule relates to matters of public contract and 
procedures for United States securities. Therefore, under 5 U.S.C. 
553(a)(2), the notice and public procedure requirements of the APA are 
inapplicable. Because a notice of proposed rulemaking is not required, 
the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., 
do not apply.

D. Paperwork Reduction Act (PRA)

    Neither the proposed rule, nor the final rule contain any new 
collection of information subject to the Paperwork Reduction Act.

E. Congressional Review Act (CRA)

    This rule is not a major rule pursuant to the CRA, 5 U.S.C. 801 et 
seq., because it is a minor amendment that is not expected to lead to 
any of the results listed in 5 U.S.C. 804(2). This rule will take 
effect on August 26, 2024, after publication in the Federal Register 
and after we submit a copy of it to Congress and the Comptroller 
General.

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, we amend 31 CFR part 344 
as follows:

PART 344--U.S. TREASURY SECURITIES--STATE AND LOCAL GOVERNMENT 
SERIES

0
1. The authority citation for part 344 continues to read as follows:

    Authority:  26 U.S.C. 141 note; 31 U.S.C. 3102, 3103, 3104, and 
3121.


0
2. Amend Sec.  344.0 by:
0
a. Revising paragraph (a); and
0
b. Removing paragraph (b)(3).
    The revision reads as follows:


Sec.  344.0   What does this part cover?

    (a) What is the purpose of the SLGS securities offering? The 
Secretary of the Treasury (the Secretary) offers for sale non-
marketable State and Local Government Series (SLGS) securities to 
provide issuers of tax-advantaged bonds with investments from any 
eligible source of funds (as defined in Sec.  344.1) to assist issuers 
in complying with applicable provisions of the Internal Revenue Code.
* * * * *

0
3. Amend Sec.  344.1 by:
0
a. Revising the definition of ``Business day(s)'';
0
b. Adding in alphabetical order a definition for ``Cost-free option'';
0
c. Revising the definition of ``Eligible source of funds'';
0
d. Adding in alphabetical order a definition for ``Governmental 
purpose'';
0
e. Revising the definition of ``Issuer'';
0
f. Adding in alphabetical order definitions for ``Marketable security'' 
and ``Tax-advantaged bond.''
    The revisions and additions read as follows:


Sec.  344.1   What special terms do I need to know to understand this 
part?

* * * * *
    Business day(s) means any day other than a Saturday or Sunday that 
the Federal Reserve Bank of New York is open for business.
    Cost-free option means the use of any provision(s) in the SLGS 
program to exploit movements in interest rates, including, but not 
limited to, those designed to provide marginal flexibility to issuers 
in structuring their SLGS investments.
* * * * *
    Eligible source of funds means:
    (1) Any amounts that are gross proceeds of an issue of tax-
advantaged bonds or are reasonably expected to become gross proceeds of 
such an issue of tax-advantaged bonds;
    (2) Any amounts that formerly were gross proceeds of a tax-
advantaged bond

[[Page 15448]]

issue, but no longer are treated as gross proceeds of such issue as a 
result of the operation of the universal cap on the maximum amount 
treated as gross proceeds under 26 CFR 1.148-6(b)(2);
    (3) Amounts held or to be held together with gross proceeds of one 
or more tax-advantaged bond issues in a refunding escrow, defeasance 
escrow, parity debt service reserve fund, or commingled fund (as 
defined in 26 CFR 1.148-1(b));
    (4) Proceeds of a bond issue that is not an issue of tax-advantaged 
bonds but that refunds, or is refunded by, an issue of tax-advantaged 
bonds; or
    (5) Any other amounts that are subject to yield limitations under 
the rules applicable to tax-advantaged bonds under the Internal Revenue 
Code (see title 26 of the U.S. Code and 26 CFR chapter I).
    Governmental purpose, under this part, means the issuer's expected 
use of the invested funds, including but not limited to, financing a 
construction project, repaying a prior issue of bonds, or funding a 
debt service reserve. Such use must be consistent with the purposes of 
the Income Tax Regulations in 26 CFR part 1 under section 148 of the 
Internal Revenue Code. Generating gain on the proceeds of a bond issue 
through the use of a cost-free option in purchasing and redeeming SLGS 
is not a permitted governmental purpose.
    Issuer refers to the government body or other entity that issues 
tax-advantaged bonds, or to a conduit borrower.
    Marketable security, with reference to the types of securities that 
issuers are permitted to purchase with an eligible source of funds, 
means any security other than a SLGS security. Examples of marketable 
securities include Treasury securities (other than SLGS securities) and 
Federal agency securities.
* * * * *
    Tax-advantaged bond means tax-advantaged bond as defined in 26 CFR 
1.150-1(b).
* * * * *

0
4. Amend Sec.  344.2 by:
0
a. Revising paragraph (d) and paragraph (e)(2)(i) introductory text;
0
b. Adding paragraphs (e)(3) and (4);
0
c. Revising paragraph (f)(1), the second sentence of paragraph 
(f)(2)(iv), and the first sentence of paragraph (f)(2)(v) introductory 
text;
0
d. Adding paragraph (f)(2)(vii); and
0
e. Revising the last sentence of paragraph (g).
    The revisions and additions read as follows:


Sec.  344.2   What general provisions apply to SLGS securities?

* * * * *
    (d) Can SLGS securities be transferred? No. SLGS securities issued 
as any one type, i.e., Time Deposit or Demand Deposit, cannot be 
transferred for other securities of that type or any other type. 
Transfer of securities by sale, exchange, assignment, pledge, or 
otherwise is not permitted.
    (e) * * *
    (2) * * *
    (i) Purchase of SLGS securities. Upon submitting a subscription, or 
performing any other transaction for a SLGS security, a subscriber must 
certify that:
* * * * *
    (3) Duration certification. For each subscription to purchase a 
Time Deposit SLGS security, the subscriber must certify that the term 
of the SLGS security subscribed for is no longer than is reasonably 
necessary to accomplish the issuer's governmental purpose for its 
purchase of the SLGS security.
    (4) Eligibility certification. For each subscription to purchase a 
SLGS security, the subscriber must certify that if, at any point while 
SLGS securities are outstanding, the issuer becomes ineligible to 
purchase SLGS securities or the funds used to purchase SLGS securities 
are no longer an eligible source of funds, the issuer or agent thereof 
must, as soon as practicable, notify Treasury of such ineligibility. 
Such notification will be deemed to be a request for redemption of 
those outstanding Demand Deposit securities that are affected by the 
ineligibility.
    (f) * * *
    (1) Impermissible transactions. (i) To use the SLGS program to 
create a cost-free option (while the examples in paragraph (f)(2) of 
this section may specifically use marketable securities for 
illustration, creating a cost-free option via any means is prohibited);
    (ii) To purchase a SLGS security with any amount received from the 
sale or redemption (at the option of the holder) before maturity of any 
marketable security, if the yield on such SLGS security exceeds the 
yield at which such marketable security is sold or redeemed;
    (iii) To invest any amount received from the redemption before 
maturity of a Time Deposit security (other than a Zero Percent Time 
Deposit security) at a yield that exceeds the yield that is used to 
determine the amount of redemption proceeds for such Time Deposit 
security; or
    (iv) To purchase a SLGS security with a maturity that is longer 
than is reasonably necessary to accomplish the issuer's governmental 
purpose for its purchase of the SLGS security or to purchase a SLGS 
security with an intention to redeem such SLGS security earlier than is 
reasonably necessary to accomplish the issuer's governmental purpose 
for its purchase of the SLGS security.
    (2) * * *
    (iv) * * * To reduce or eliminate this negative arbitrage, the 
issuer subscribes for SLGS securities for purchase in 45 days. * * *
    (v) * * * On February 6, 2006, an issuer purchases a Time Deposit 
security using an eligible source of funds from a debt service reserve 
fund. * * *
* * * * *
    (vii) Purchase of SLGS security with maturity longer than 
reasonably necessary. An issuer may purchase SLGS securities to 
facilitate compliance with arbitrage yield restrictions for investments 
of various types of proceeds of tax[hyphen]advantaged bonds, including 
investments in refunding escrow funds, bond debt service reserve funds, 
or project construction funds, respectively. The determination of 
whether a maturity for a SLGS security is longer than is reasonably 
necessary depends on the issuer's governmental purpose for the 
issuance. Thus, the maturities of SLGS securities invested in a 
refunding escrow fund are reasonably necessary if they are no longer 
than those necessary to accomplish the defeasance of the underlying 
refunded bonds until the applicable redemption date or retirement date 
of the refunded bonds. Maturities of SLGS securities invested in a 
project construction fund are reasonably necessary if they are no 
longer than the reasonably expected construction period for the 
financed project, and early redemptions of such securities are 
reasonably necessary if they are reasonably related to construction 
draws for the financed project. Maturities of SLGS securities invested 
in a debt service reserve fund are reasonably necessary if they are no 
longer than the earlier of the permitted term of investments in that 
reserve fund under the bond documents or the term of the secured bonds. 
Early redemptions of SLGS securities with reasonably necessary 
maturities are permissible for the above bona fide business reasons, 
including changes in market interest rates. By contrast, the purchase 
of SLGS securities with maturities that are longer than the reasonably 
necessary maturities described above and associated early redemptions 
of those SLGS securities to obtain the funds within periods that would 
correspond to an issuer's bona fide governmental purpose for a SLGS

[[Page 15449]]

investment constitute impermissible practices under paragraph 
(f)(1)(iv) of this section. Thus, for example, if an issuer purchases 
SLGS securities to fund a refunding escrow to be used to defease and 
call refunded bonds at the first call date in five years, the issuer's 
purchase of SLGS securities with maturities beyond that five-year 
period and corresponding early redemptions of those SLGS securities 
within that five[hyphen]year period constitute an impermissible use of 
the SLGS program.
    (g) * * * Fiscal Service's American Bankers Association (ABA) 
Routing Number can be found on Fiscal Service's website under the SLGS 
frequently asked questions (FAQs).
* * * * *

0
5. Amend Sec.  344.3 by revising paragraph (e) to read as follows:


Sec.  344.3  What provisions apply to the SLGSafe Service?

* * * * *
    (e) How do I apply for SLGSafe access? Submit to Fiscal Service a 
completed SLGSafe Application for internet Access, which is found on 
Fiscal Service's website.
* * * * *

0
6. Amend Sec.  344.4 by revising paragraph (b)(1) to read as follows:


Sec.  344.4  What are Time Deposit securities?

* * * * *
    (b) * * *
    (1) When is the SLGS rate table released? We release the SLGS rate 
table to the public by 10 a.m. Eastern time each business day or as 
soon as practicable thereafter. If the SLGS rate table is not available 
by 11 a.m. Eastern time on any given business day, the SLGS rate table 
for the preceding business day applies.
* * * * *

0
7. Amend Sec.  344.5 by revising paragraphs (a), (b), (d), (e), and (f) 
to read as follows:


Sec.  344.5  What other provisions apply to subscriptions for Time 
Deposit securities?

    (a) When is my subscription due? The subscriber must set the issue 
date for the securities in the subscription. The issue date must be a 
business day. The issue date cannot be more than 60 days after the date 
we receive the subscription. If the subscription is for $10 million or 
less, we must receive a subscription at least 5 days before the issue 
date. If the subscription is for over $10 million, we must receive the 
subscription at least 7 days before the issue date.
    Example 1 to paragraph (a): If SLGS securities totaling $10 million 
or less will be issued on May 16th, we must receive the subscription no 
later than May 11th. If SLGS securities totaling more than $10 million 
will be issued on May 16th, we must receive the subscription no later 
than May 9th. In all cases, if SLGS securities will be issued on May 
16th, we will not accept the subscription before March 17th.
    (b) How do I start the subscription process? A subscriber starts 
the subscription process by entering into SLGSafe the following 
information:
    (1) The issue date;
    (2) The total principal amount;
    (3) The issuer's name and Taxpayer Identification Number;
    (4) A description of the tax-advantaged bond issue;
    (5) Separately itemized securities to be purchased, specifying 
principal amount, maturity date, interest rate, and first interest 
payment date (in the case of notes and bonds) for each; and
    (6) The certifications required by Sec.  344.2(e).
* * * * *
    (d) How do I change a subscription? You can change a subscription 
on or before 3 p.m. Eastern time, on the issue date. Changes to a 
subscription are acceptable with the following exceptions:
    (1) You cannot change the issue date; provided, however, you may 
change the issue date up to 7 days after the original issue date if you 
establish to the satisfaction of Treasury that such change is required 
as a result of circumstances that were unforeseen at the time of the 
subscription and are beyond the issuer's control (for example, a 
natural disaster);
    (2) You cannot change the principal amount originally specified for 
any security in the subscription by more than ten percent;
    (3) You cannot change an interest rate to exceed the maximum 
interest rate in the SLGS rate table that was in effect for a security 
of comparable maturity on the business day that you began the 
subscription process; and
    (4) You cannot change the maturity date originally specified for 
any security in the subscription by more than 30 days for certificates 
of indebtedness, 6 months for notes, and 1 year for bonds.
    (e) How do I complete the subscription process? The completed 
subscription must:
    (1) Be dated and submitted electronically by an official authorized 
to make the purchase;
    (2) Separately itemize securities specifying principal amount, 
maturity date, interest rate, and first interest payment date (in the 
case of notes and bonds) for each;
    (3) Describe the bond issue. If the tax-advantaged bond issue 
referenced in paragraph (b)(4) of this section is, or will be, 
registered or disclosed in the Municipal Securities Rulemaking Board's 
(MSRB) Electronic Municipal Market Access (EMMA[supreg]) system, 
describe the issue exactly as designated in the ``issue description'' 
field of EMMA[supreg], or successor system;
    (4) Include the issuer's address;
    (5) Include information on the financial institution that will 
transmit the funds for the purchase of the securities and information 
on the financial institution that will receive security principal and 
interest payments;
    (6) Not be more than ten percent above or below the aggregate 
principal amount originally specified in the subscription and not be 
more than ten percent above or below the originally subscribed for 
amount for each individual security;
    (7) Not deviate from the original subscribed for maturity date 
specified for any security in the subscription by more than 30 days for 
certificates of indebtedness, 6 months for notes, and 1 year for bonds;
    (8) Include the information required under paragraph (b) of this 
section, if not already provided; and
    (9) Include the certifications required by Sec.  344.2(e).
    (f) When must I complete the subscription? We must receive a 
completed subscription on or before 3 p.m. Eastern time on the issue 
date.

0
8. Amend Sec.  344.6 by:
0
a. Revising paragraph (a)(3); and
0
b. Removing paragraph (g).
    The revision reads as follows:


Sec.  344.6  How do I redeem a Time Deposit security before maturity?

    (a) * * *
    (3) Notes or bonds. A note or bond can be redeemed, at the owner's 
option, no earlier than 30 days after the issue date. Any request for 
redemption received within 14 days of the issue date will be rejected.
* * * * *

0
9. Amend Sec.  344.7 by revising paragraph (b) to read as follows:


Sec.  344.7  What are Demand Deposit securities?

* * * * *
    (b) What happens to Demand Deposit securities during a debt limit 
contingency? At any time the Secretary determines that issuance of 
obligations sufficient to conduct the orderly financing operations of 
the United States cannot be made without exceeding the statutory debt 
limit, we

[[Page 15450]]

may invest any unredeemed Demand Deposit securities in special 90-day 
certificates of indebtedness.
    (1) Funds left invested in Demand Deposit securities remain subject 
to the normal terms and conditions for such securities as set forth in 
this part.
    (2) Funds invested in 90-day certificates of indebtedness earn 
simple interest equal to the daily factor in effect at the time Demand 
Deposit security issuance is suspended, multiplied by the number of 
days outstanding. Ninety-day certificates of indebtedness are subject 
to the same request for redemption notification requirements as those 
for Demand Deposit securities and will be redeemed at par value plus 
accrued interest. If a 90-day certificate of indebtedness reaches 
maturity during a debt limit contingency, we will automatically roll it 
into a new 90-day certificate of indebtedness, along with accrued 
interest, that earns simple interest equal to the daily factor in 
effect at the time that the new 90-day certificate of indebtedness is 
issued, multiplied by the number of days outstanding. When regular 
Treasury borrowing operations resume, the 90-day certificates of 
indebtedness, along with accrued interest, will be reinvested in Demand 
Deposit securities.

0
10. Amend Sec.  344.8 by revising paragraphs (a), (b), and (e) to read 
as follows:


Sec.  344.8  What other provisions apply to subscriptions for Demand 
Deposit securities?

    (a) When is my subscription due? The subscriber must set the issue 
date in the subscription. You cannot change the issue date to require 
issuance earlier or later than the issue date originally specified; 
provided, however, you may change the issue date up to 7 days after the 
original issue date if you establish to the satisfaction of Treasury 
that such change is required as a result of circumstances that were 
unforeseen at the time of the subscription and are beyond the issuer's 
control (for example, a natural disaster). The issue date must be a 
business day. The issue date cannot be more than 60 days after the date 
we receive the subscription. If the subscription is for $10 million or 
less, we must receive the subscription at least 5 days before the issue 
date. If the subscription is for more than $10 million, we must receive 
the subscription at least 7 days before the issue date.
    (b) How do I start the subscription process? A subscriber starts 
the subscription process by entering into SLGSafe the following 
information:
    (1) The issue date;
    (2) The total principal amount;
    (3) The issuer's name and Taxpayer Identification Number;
    (4) A description of the tax-advantaged bond issue; and
    (5) The certifications required by Sec.  344.2(e)(1), if the 
subscription is submitted by an agent of the issuer.
* * * * *
    (e) How do I complete the subscription process? The completed 
subscription must:
    (1) Be dated and submitted electronically by an official authorized 
to make the purchase;
    (2) Describe the bond issue. If the tax-advantaged bond issue 
referenced in paragraph (b)(4) of this section is, or will be, 
registered or disclosed in the Municipal Securities Rulemaking Board's 
(MSRB) Electronic Municipal Market Access (EMMA[supreg]) system, 
describe the issue exactly as designated in the ``issue description'' 
field of EMMA[supreg], or successor system;
    (3) Include the issuer's address;
    (4) Include the information on the financial institution that will 
transmit the funds for the purchase of the securities;
    (5) Not be more than ten percent above or below the aggregate 
principal amount originally specified in the subscription;
    (6) Include the information required under paragraph (b) of this 
section, if not already provided; and
    (7) Include the certifications required by Sec.  344.2(e)(1) (agent 
certification), (e)(2)(i) (yield certification), and (e)(4) 
(eligibility certification).

0
11. Amend Sec.  344.9 by revising paragraph (a) to read as follows:


Sec.  344.9  How do I redeem a Demand Deposit security?

    (a) When must I notify Treasury to redeem a security? Demand 
Deposit securities can be redeemed at the owner's option, if we receive 
a request for redemption not less than:
    (1) One business day before the requested redemption date for total 
redemptions by an owner of $10 million or less;
    (2) Three business days before the requested redemption date for 
total redemptions by an owner of more than $10 million but less than 
$500 million; and
    (3) Five business days before the requested redemption date for 
total redemptions by an owner of $500 million or more.
* * * * *

Subpart D [Removed]

0
12. Remove subpart D.

    By the Department of the Treasury.
David Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2024-04380 Filed 3-1-24; 8:45 am]
BILLING CODE 4810-AS-P