Treasury’s large position rules (17 CFR Part 420), which were issued in final
form on September 12, 1996 (61 FR 48338), establish recordkeeping and reporting
requirements for entities that control large positions in certain Treasury securities. The
rules put in place an on-demand reporting system which, in response to a notice by
Treasury requesting large position information, requires large position reports to be filed
by entities that control a position in a particular Treasury security or securities equaling or
exceeding the specified large position threshold. The rules are effective March 31, 1997.
The rules are intended to improve the information available to Treasury and other
regulators regarding concentrations of control and to ensure that regulators have the tools
necessary to monitor the Treasury securities market. Large positions, in and of
themselves, are not inherently harmful, and there is no presumption of manipulative or
illegal intent on the part of the controlling entity merely because it is required to submit a
large position report in response to these rules.
As we move closer to the implementation date of the rules, we are providing
additional clarifying information and guidance to help market participants complete the
necessary actions to put in place policies, procedures and processes so that they will be in
compliance with the rules. The information provided below is a summary of the most
frequently asked questions, together with the answers that Treasury staff has provided in
response to those questions. The Qs & As are grouped by category within the various
sections of the rules. The Qs & As are not a substitute for the rules and as such should be
used in conjunction with the actual regulations. Further, this information does not
constitute a formal interpretation of the large position rules.
The Qs & As can be downloaded from Public Debt's web site at the following
address: www.publicdebt.treas.gov. Any questions regarding the large position rules
should be directed to the Government Securities Regulations Staff at 202-219-3632.
Section 420.1 - Applicability
1. Q. Who is subject to the large position rules?
A. With the exception of foreign official organizations and the Federal
Reserve Banks, Treasury’s large position recordkeeping and reporting rules apply to all
entities, foreign and domestic, that may control a reportable position in a recently-issued
Treasury security. This includes but is not limited to: government securities brokers and
dealers; registered investment companies; registered investment advisers; custodians,
including depository institutions, that exercise investment discretion; hedge funds;
pension funds; insurance companies; foreign banks; and foreign affiliates of U.S. entities.
Treasury places great importance on, and takes very seriously, compliance with its
rules, especially those that are intended to strengthen the integrity of the Treasury
securities market by combating manipulation and fraud. It is important for all market
participants to recognize that the rules create a requirement for affected entities to
maintain records and report information on large positions. In considering the issue of
obtaining large position information from foreign entities, the Treasury expects that U.S.
regulators will work with foreign securities and banking regulators through
Memorandums Of Understanding and other means when, and if, such actions become
necessary.
2. Q: Are foreign aggregating entities subject to the large position requirements?
A: Yes, with very limited exceptions (see question 1), foreign investors are
subject to the requirements. It is impractical to exempt foreign investors from the large
position rules since the potential exists for these entities to amass large positions in
Treasury securities. Further, the granting of such an exemption could cause U.S.- based
entities to move their securities holdings overseas to foreign firms.
Section 420.2 - Definitions
Recently-Issued
3. Q. What is considered the most recent issue within the definition of "recently-
issued?"
A. "Recently-issued" Treasury securities are defined in the rules and are
determined by the frequency of the issue. For those securities that are issued on a
quarterly or more frequent basis (i.e., bills and notes), the three most recent issues are
considered "recently-issued." For example, in early April, the March, February, and
January 2-year notes would be "recently-issued," with the March 2-year note being the
most recent issue. For those securities that are issued less frequently than quarterly (i.e.,
currently just bonds), the two most recent issues would be “recently-issued.”
For all Treasury securities, a when-issued security -- a security announced to be
issued or auctioned but as yet unissued -- would be included in the definition of "recently-
issued" and would be considered the most recent issue. A when-issued security is always
the most recent issue. For example, on February 5, 1997, Treasury announced the auction
and issuance of 30-year Treasury bonds. The auction date was set for February 13, with
settlement on February 18. With the commencement of when-issued trading after the
announcement on February 5, that 30-year bond would be considered the most recent
issue of that maturity category. It would remain the most recent issue until the
announcement of the next issue of 30-year bonds (assuming it was not reopened).
Reporting Entities, Aggregating Entities, Designated Filing Entities
4. Q. When a reporting entity has the right to appoint a majority of the board of
Directors for an outside entity, but has not exercised the right, does the outside entity fall
within the definition of an affiliate or aggregating entity of the reporting entity?
A. No, the outside entity does not fall within the definition of affiliate or
aggregating entity simply because the reporting entity has the right to appoint a majority
of its board of Directors. The entity would fall within the definition of affiliate or
aggregating entity when the reporting entity exercises its right and appoints a majority of
the board of Directors to the entity.
5. Q. If the general partner of an aggregating entity personally invests in an
outside entity, is that outside entity considered part of the aggregating entity for purposes
of the rule?
A. Subject to other applicable restrictions contained in the rule, the outside
entity would not be considered part of the aggregating entity unless the general partner
owned more than 50% of the partnership and more than 50% of the outside entity.
6. Q. Can a designated filing entity submit separate large position reports for
each aggregating entity within its reporting entity, or must it consolidate the report to be
filed on behalf of the reporting entity?
A. A reporting entity must select one entity from its aggregating entities (i.e.,
the designated filing entity) as the entity designated to compile and file a consolidated
report on behalf of the entire reporting entity. A designated filing entity is not required to
be a distinct legal entity.
7. Q. Can an individual be its own designated filing entity?
A. Yes, an individual can be her/his own designated filing entity. An
individual can also be the designated filing entity of a reporting entity consisting of
multiple entities.
8. Q. Can an entity be a designated filing entity for two separate reporting
entities?
A. No, each separate reporting entity must select one entity from among its
own aggregating entities as the entity designated to compile and file a report on its behalf.
This is designed to prevent the exchange of information related to transactions in
Treasury securities between separate reporting entities.
Section 420.3 - Reporting
Reporting Requirements and Turn-Around Time
9. Q. What procedures will Treasury use to issue and disseminate the notice
requesting large position reports?
A: Treasury will provide notice requesting large position reports by issuing a
press release and subsequently publishing a notice in the Federal Register. The press
release will be made available to major news and financial organizations and electronic
wire services for dissemination. The announcement requesting large position reports will
also be provided to PSA The Bond Market Trade Association, the Investment Company
Institute and the British Bankers’ Association, as they requested, so that they can
distribute the announcement to their members. It is the responsibility of market
participants to take the necessary actions to be aware of requests by the Treasury for large
position reports.
10. Q: When will the large position reports be due?
A: Large position reports must be received by the Federal Reserve Bank of
New York before noon Eastern time on the fourth business day after the issuance of the
Treasury press release calling for large position information. The actual date on which
reports are due will be provided in the press release.
11. Q: Where should the large position reports be filed?
A: Large position reports must be filed with the Market Reports Division of
the Federal Reserve Bank of New York, 33 Liberty Street, 4th Floor, New York, NY.
The reports may be filed by facsimile at 212-720-8028 or delivered hard copy.
12. Q: When Treasury makes a request for large position reporting on a particular
security, will $2 billion be the large position threshold?
A: Probably not. The large position threshold specified in any actual request
for large position information will likely be in excess of $2 billion. The $2 billion level is
an absolute minimum reporting amount (floor) below which reports will not be requested.
13. Q: Are position amounts on the large position report recorded on a trade date
basis or settlement date basis?
A: All position amounts on the large position report (including the
memorandum item) must be reported on a trade date basis, at par in millions of dollars,
and as of the close of business of the reporting date(s) specified in the notice. For
Treasury inflation-indexed securities, the par amount is the stated value of a security at
original issuance.
14. Q: Can Treasury issue a request for large position information for more than
one CUSIP (i.e., security) and/or for more than one reporting date in a single request?
A: Yes, Treasury can request large position reports for more than one CUSIP
and also for more than one reporting date. In those instances, separate large position
information must be submitted for each CUSIP and each reporting date.
15. Q. What if one or more of a reporting entity’s foreign affiliates is closed (due
to a holiday) during the reporting time frame?
A: Treasury is sympathetic to the concerns regarding the time and effort
needed to compile, aggregate, and file the large position reports, particularly where
reporting entities have foreign affiliates. However, significant changes were made in the
final rules to reduce the burdens associated with complying with the large position rules.
Accordingly, all reportable positions of foreign affiliates must be included in the large
position report to meet the three and one-half business day reporting requirement,
regardless of holidays.
16. Q. Is a custodian required to report on positions it holds in a safekeeping
capacity?
A. No, a custodian is not required to report on such positions, provided it
does not have the authority to exercise control (i.e., investment discretion) over the
purchase, sale, retention or financing of specific Treasury securities. However, if the
custodian has the authority to exercise control, the custodian would be required to report
on such positions.
17. Q. Does a custodian have an obligation to inform its customers of the large
position recordkeeping and reporting requirements?
A. No, under Treasury’s large position rules, neither a custodian nor an
executing broker-dealer is obligated to inform its customers of these recordkeeping and
reporting requirements.
18. Q. Will Treasury release the large position information to the public?
A. No, the Government Securities Act Amendments of 1993, which granted
Treasury the authority to write these rules, specifically provide that Treasury will not be
compelled to disclose publicly any information required to be kept or reported. In
particular, such information is exempt from disclosure under the Freedom of Information
Act.
Gross Financing Position
19. Q. Two aggregating entities are part of the same reporting entity and are not
recognized as separate bidders in Treasury auctions. If the two aggregating entities
conduct intercompany financing transactions with one another involving the same
security (i.e., the same CUSIP and par amount), must both of these transactions be
included in the gross financing position of the reporting entity’s large position report?
A. In this case, the reporting entity need only count the security once when
preparing a large position report. This approach allows firms to avoid multiple counting
within a reporting entity. For example, assume that aggregating entity A and
aggregating entity B are part of the same reporting entity. Aggregating entity A enters
into a reverse repo and receives $100 million of a security as collateral. It then repos out
the $100 million security to aggregating entity B. The reporting entity, upon submitting a
large position report for the CUSIP used in this example, would not have to include both
$100 million transactions when aggregating and reporting its gross financing position --
even though both aggregating entities would have conducted reverse repos.
Similarly, assume that aggregating entity A has a $100 million proprietary long
position and repos out the security to aggregating entity B. The reporting entity need
only include the security once when it aggregates information for a large position report.
The $100 million is either included in its net trading position (attributable to aggregating
entity A’s proprietary long position) or in its gross financing position (attributable to
aggregating entity B’s reverse repo).
20. Q. Two aggregating entities are part of two different reporting entities but are
affiliated within a larger organizational structure (they have received recognition as
separate bidders or separate reporting entities). If the two aggregating entities conduct
intercompany financing transactions with each other involving the same security (same
CUSIP and par amount), how must these transactions be treated by the respective
reporting entities when aggregating gross financing position information for large
position reports?
A. Even though the transactions involve the same security, they must be
included in the large position computations of each aggregating entity’s respective
reporting entity. If aggregating entities A and B conduct transactions as described in
question 19 and are affiliated but part of separate reporting entities, the reporting entity
for aggregating entity A would have to count the $100 million security in its large
position computation as either a gross financing position or a net trading position, while
the reporting entity for aggregating entity B would be required to include the $100
million security in its gross financing position. This approach applies in all cases where
aggregating entities A and B belong to separate reporting entities -- regardless of whether
they are affiliated.
The rules require this type of reporting even though the security is no longer in the
possession of aggregating entity A -- the security has been contemporaneously reported out
to aggregating entity B -- since both reporting entities control the security (based on the
definition of control in the large position rules). This approach will result in some
multiple counting by reporting entities, but the resulting multiple counting will provide
additional information about entities that have various legal claims to a security and that
may potentially benefit from any possible market disruptions.
21. Q. When a reporting entity enters into a reverse repurchase transaction (i.e.,
receives collateral), and the counterparty has the right to substitute the collateral, how is
this collateral treated for purposes of the gross financing position computation?
A. The reporting entity may exclude such collateral from its gross financing
position computation. The rules provide for an optional exclusion whereby a reporting
entity may exclude from its gross financing position the par value of securities received
through reverse repos under one or more of the following conditions: the counterparty
retains the right to substitute securities; the securities are subject to third party custodial
relationships; or the transactions are hold-in-custody agreements. However, this optional
exclusion is not limited to reverse repos; it applies to all components of the gross
financing position in which securities are received as collateral (e.g., collateral for
financial derivatives or other securities transactions).
22. Q. Can a reporting entity reduce its gross financing position by the amount of
securities received in a reverse repurchase transaction in which the counterparty retains
the right to substitute securities subject to the approval of the reporting entity?
A. Yes, under such circumstances, the securities qualify for the “right to
substitution” condition of the optional exclusion. The reporting entity may therefore
exclude such securities from its gross financing computation.
23. Q. Is an overnight reverse repurchase transaction (i.e., unwound within 24
hours) considered analogous to a reverse repo involving “rights to substitution,” thus
permitting the optional exclusion to be available when computing and reporting the gross
financing position?
A. No, neither an overnight reverse repo nor any other type of overnight
financing qualifies for the optional exclusion, unless at least one of the previously
specified conditions is met (see question 21). This is because, as of the close of business
of the reporting date(s), which is when positions must be determined for large position
reports, an overnight reverse repo would be considered to be controlled by the reporting
entity. The Treasury specifically considered this topic when developing the rules and
determined that no differentiation would be made between reverse repos of varying
contract maturities (e.g., overnight vs. term reverse repos).
Section 420.4 - Recordkeeping
24. Q: If a reporting entity was not required to send a letter to Treasury stating
that it had or would have in place a recordkeeping system enabling it to meet the
requirements of the rule, is it required to have a recordkeeping system in place by
March 31, 1997? What about after March 31, 1997?
A: If a reporting entity determined that it did not control a position of $2
billion or more in a Treasury security during the period December 11, 1994 - December
11, 1996, and thus was not required to send a letter to Treasury, it is not subject to the
large position recordkeeping rules when they become effective March 31, 1997.
However, if a reporting entity were to control such a position after March 31, 1997, it
(and certain of its aggregating entities) would become immediately subject to the full
range of large position recordkeeping rules. Therefore, a reporting entity must take
reasonable steps to have in place a process to ensure that it can determine whether,
subsequent to March 31, 1997, it controls a position of $2 billion or more in any recently-
issued Treasury security (e.g., a process for monitoring its aggregate positions).
25. Q: Would a reporting entity that is subject to the large position rules fall out
of the recordkeeping requirements if it did not control a position equal to or greater than
the minimum large position threshold ($2 billion) for an extended period (e.g., one year)?
A: No, once a reporting entity becomes subject to the large position
recordkeeping rules, it must continue to make and maintain the required records even if it
did not reach the $2 billion large position threshold for an extended period of time.
26. Q. If funds, investment companies, or other entities are aggregated within a
reporting entity, and such reporting entity is subject to the recordkeeping requirements of
the rules, must the funds, investment companies, or other entities follow the
recordkeeping rules also?
A. If the funds, investment companies, or other entities do not have
investment discretion (e.g., if the authority to make and execute decisions regarding
buying, selling, or retaining securities resides with another entity, such as their
investment adviser), they are not deemed to have control of securities under the large
position rules. In such cases, it is the responsibility of the entity that has control of the
securities (i.e., the reporting entity), not such aggregating entities, to adhere to the
recordkeeping requirements of the rules. The reporting entity’s records must include
information concerning all securities for which it exercises investment discretion,
including the securities owned by other entities.
27. Q. An entity (such as a hedge fund, pension fund, or insurance company) is
not subject to federal securities recordkeeping rules but is required to follow the
recordkeeping requirements of the large position rules (section 420.4(c)). Is it
permissible for such an entity to have a third party make and maintain its records,
including making and maintaining the records at another location?
A. Yes, such an entity may have its records made by, and kept at, a third
party, including a third party that makes and maintains the records at another location
(e.g., the offices of an entity’s prime or clearing broker-dealer). However, the entity that
is subject to the recordkeeping rules, not the third party that has been contracted to make
and maintain the records, remains responsible for compliance with such rules.
Appendix A to Part 420 - Separate Reporting Entity
28. Q. Does an entity qualify as a separate reporting entity without having to
request such status if it already has received recognition as a separate bidder for purposes
of Treasury auctions?
A. Yes, an entity that receives recognition as a separate bidder for auction
purposes is also recognized as a separate reporting entity without having to request this
status. However, the entity must maintain procedures (i.e., Chinese walls) to prevent the
exchange of information related to secondary market transactions in Treasury securities,
not just auction-related transactions, with any other aggregating entity.
29. Q. Conversely, does such an entity qualify as a separate bidder for auction
purposes without requesting such status if the entity has already received recognition as a
separate reporting entity for purposes of the large position rules?
A. No, the process does not work in the reverse direction. Therefore, an
entity that would like recognition as a separate reporting entity may want to consider
requesting recognition as a separate bidder for auction purposes and, if granted,
automatically obtain separate reporting entity recognition at the same time.
30. Q. Where a reporting entity consists of more than one aggregating entity, is
each aggregating entity that requests recognition as a separate reporting entity required to
send a separate written letter to Treasury?
A. No, more than one request may be contained in a letter. However, the
required information for each request, such as the certification, should be provided
separately for each requested reporting entity in the letter.
31. Q. Can organizational components that are not separate legal entities be
carved out as separate reporting entities?
A. Yes, since organizational components (e.g., bank trust departments) fall
within the definition of “aggregating entity,” they may be recognized as separate
reporting entities. As is the case with separate bidder recognition in the auctions,
organizational components are not required to be distinct legal entities.
Appendix B to Part 420 - Sample Large Position Report
32. Q. When submitting a large position report, is there a specific form that must
be used? What information must be submitted?
A. No, there is no specific form that is required. Rather than mandating a
specific form, Treasury permits reporting entities to develop their own large position
reports, provided that the reports contain all of the required information as detailed in the
rules. It is suggested that the following sample be used as a guide. Market participants
are advised to carefully read the rules to ensure that all the required information is
reported correctly. Failure to include any of the required information, including
administrative information, in the large position report will constitute non-compliance
with the rules.
33. Q. Can an individual sign a large position report as the authorized official if
he/she does not have one of the specific titles listed in the rules?
A. Yes, such an individual may sign a large position report as long as he or
she is the functional equivalent (i.e., has equivalent authority or responsibilities) of one of
the officials listed in the rules. For example, an entity’s treasurer may sign the report in
lieu of a chief financial officer if he or she acts as the entity’s top decision-maker
regarding the entity’s financial matters.
Sample Large Position Report
Formula for Determining a Reportable Position
($ Amounts in millions at par value as of trade date)
Security Being Reported: __________________
Date For Which Information is Being Reported: __________________
1. Net Trading Position $_________________
(Total of cash/immediate net settled positions; net when-issued positions; net
forward positions, including next day settling; net futures contracts that require delivery
of the specific security; and net holdings of STRIPS principal components of the
security.)
2. Gross Financing Position + $_______________
(Total of securities received through reverse repos (including forward settling
reverse repos), bonds borrowed, collateral for financial derivative transactions and for
other securities transactions which total may be reduced by the optional exclusion
described in . 420.2(c).)
3. Net Fails Position + $_______________
(Fails to receive less fails to deliver. If equal to or less than zero, report 0.)
4. TOTAL REPORTABLE POSITION =
$_______________
Memorandum: Report one total which includes the gross par amounts of securities
delivered through repurchase agreements, securities loaned, and as collateral for
financial derivatives and other securities transactions. Not to be included in item #2
(Gross Financing Position) as reported above. $______________
Administrative Information to be Provided in the Report
Name of Reporting Entity:
Address of Principal Place of Business:
Name and Address of the Designated Filing Entity:
Treasury Security Reported on:
CUSIP Number:
Date or Dates for Which Information Is Being Reported:
Date Report Submitted:
Name and Telephone Number of Person to Contact Regarding Information Reported:
Name and Position of Authorized Individual Submitting this Report (Chief Compliance
Officer; Chief Legal Officer; Chief Financial Officer; Chief Operating Officer; Chief
Executive Officer; or Managing Partner or Equivalent of the Designated Filing Entity
Authorized to Sign Such Report on Behalf of the Entity):
Statement of Certification: "By signing below, I certify that the information contained in
this report with regard to the designated filing entity is accurate and complete. Further,
after reasonable inquiry and to the best of my knowledge and belief, I certify: (i) that the
information contained in this report with regard to any other aggregating entities is
accurate and complete; and (ii) that the reporting entity, including all aggregating entities,
is in compliance with the requirements of 17 CFR Part 420."
Signature of Authorized Person Named Above:
February 25, 1997
Bureau of the Public Debt
Government Securities Regulations Staff
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