PART 344—U.S. TREASURY SECURITIES—STATE AND LOCAL GOVERNMENT SERIES Authority: 26 U.S.C. 141 note; 31 U.S.C. 3102, 3103, 3104, and 3121. Source: 65 FR 55405, Sept. 13, 2000, unless otherwise noted. Subpart A—General Information Source: 70 FR 37911, June 30, 2005, unless otherwise noted. § 344.0 What does this part cover? (a) What is the purpose of the SLGS securities offering? (b) What types of SLGS securities are governed by this part? (1) Time Deposit securities (i) Certificates of indebtedness; (ii) Notes; or (iii) Bonds. (2) Demand Deposit securities (c) In what denominations are SLGS securities issued? (1) Time Deposit securities (2) Demand Deposit securities (d) How long is the offering in effect? [70 FR 37911, June 30, 2005, as amended at 89 FR 15447, Mar. 4, 2024] § 344.1 What special terms do I need to know to understand this part? As appropriate, the definitions of terms used in this part are those found in the relevant portions of the Internal Revenue Code and the Income Tax Regulations. Fiscal Service's Web site http://www.slgs.gov. Business day(s) Cost-free option Current Treasury borrowing rate Day(s) Eligible source of funds (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 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, Issuer Marketable security, SLGS rate SLGS rate table Tax-advantaged bond “We,” “us,” or “the Secretary” Yield You your [70 FR 37911, June 30, 2005, as amended at 77 FR 33635, June 7, 2012; 89 FR 15447, Mar. 4, 2024] § 344.2 What general provisions apply to SLGS securities? (a) What other regulations apply to SLGS securities? (1) The electronic transactions and funds transfers provisions for United States securities, part 370 of this subchapter, “Electronic Transactions and Funds Transfers Related to U.S. Securities'; and (2) The appendix to subpart E to part 306 of this subchapter, for rules regarding computation of interest. (b) Where are SLGS securities held? (c) Besides Fiscal Service, do any other entities administer SLGS securities? (d) Can SLGS securities be transferred? i.e., (e) What certifications must the issuer or its agent provide? Agent certification. (2) Yield certifications (i) Purchase of SLGS securities. (A) Marketable securities to SLGS securities. (B) Time deposit securities to SLGS securities. (ii) Early redemption of SLGS securities. (3) Duration certification. (4) Eligibility certification. (f) What are some practices involving SLGS securities that are not permitted? Impermissible transactions. (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) Examples Simultaneous purchase of marketable and SLGS securities. (ii) Sale of marketable securities conditioned on interest rates. (iii) Sale of marketable securities not conditioned on interest rates. (iv) Simultaneous subscription for SLGS securities and sale of option to purchase marketable securities. (v) Early redemption of time deposit security and subsequent purchase of marketable security. (A) The yield on the second Time Deposit security does not exceed the yield that is used to determine the amount of redemption proceeds for the first Time Deposit security; and (B) The second Time Deposit security is not redeemed before maturity and therefore the re-investment of the principal and interest received on the second Time Deposit security is not subject to the yield limitation in paragraph (f)(1)(iii) of this section. This transaction constitutes a permissible use of the SLGS program. (vi) Early redemption of time deposit security and simultaneous purchase of marketable security. (vii) Purchase of SLGS security with maturity longer than reasonably necessary. (g) When and how do I pay for SLGS securities? (h) What happens if I need to make an untimely change or do not settle on a subscription? (1) Upon whom is the penalty imposed? (2) What occurs if Treasury exercises the option to waive the penalty? Federal Register. (i) What happens at maturity? (j) How will I receive payment? (k) How do I contact Fiscal Service? (l) Will the offering be changed during a debt limit or disaster contingency? (m) What are some of the rights that Treasury reserves in administering the SLGS program? (1) To reject any SLGSafe Application for Internet Access; (2) To reject any electronic message or other message or request, including requests for subscription and redemption, that is inappropriately completed or untimely submitted; (3) To refuse to issue any SLGS securities in any case or class of cases; (4) To revoke the issuance of any SLGS securities and to declare the subscriber or the issuer ineligible thereafter to subscribe for securities under the offering if the Secretary deems that such action is in the public interest and any security is issued on the basis of an improper certification or other misrepresentation (other than as the result of an inadvertent error) or there is an impermissible transaction under § 344.2(f); or (5) To review any transaction for compliance with this part, including requiring a subscriber or the issuer to provide additional information, and to determine an appropriate remedy under the circumstances. (n) Are there any situations in which Treasury may waive these regulations? (o) Are SLGS securities callable by Treasury? [70 FR 37911, June 30, 2005, as amended at 89 FR 15447, Mar. 4, 2024] SLGSafe ® Service § 344.3 What provisions apply to the SLGSafe Service? (a) What is the SLGSafe Service? (b) Is SLGSafe use mandatory? (c) What terms and conditions apply to SLGSafe? (1) SLGSafe Application for Internet Access and SLGSafe User Acknowledgment; and (2) SLGSafe User's Manual. (d) Who can apply for SLGSafe access? (e) How do I apply for SLGSafe access? (f) What are the conditions of SLGSafe use? (1) Assume the sole responsibility and the entire risk of use and operation of your electronic connection; (2) Agree that we may act on any electronic message to the same extent as if we had received a written instruction bearing the signature of your duly authorized officer; (3) Submit electronic messages and other transaction requests exclusively through SLGSafe, except to the extent you establish to the satisfaction of Fiscal Service that good cause exists for you to submit such subscriptions and requests by other means; and (4) Agree to submit transactions manually if we notify you that due to problems with hardware, software, data transmission, or any other reason, we are unable to send or receive electronic messages through SLGSafe. (g) When is the SLGSafe window open? [70 FR 37911, June 30, 2005, as amended at 89 FR 15449, Mar. 4, 2024] Subpart B—Time Deposit Securities Source: 70 FR 37911, June 30, 2005, unless otherwise noted. § 344.4 What are Time Deposit securities? Time Deposit securities are issued as certificates of indebtedness, notes, or bonds. (a) What are the maturity periods? (1) Certificates of indebtedness that do not bear interest. (2) Certificates of indebtedness that bear interest. (3) Notes. (4) Bonds. (b) How do I select the SLGS rate? (1) When is the SLGS rate table released? (2) How do I lock-in a SLGS rate? (3) Where can I find the SLGS rate table? (c) How are interest computation and payment dates determined? [70 FR 37911, June 30, 2005, as amended at 89 FR 15449, Mar. 4, 2024] § 344.5 What other provisions apply to subscriptions for Time Deposit securities? (a) When is my subscription due? Example 1 to paragraph (a): (b) How do I start the subscription process? (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 § 344.2(e). (c) Under what circumstances can I cancel a subscription? (d) How do I change a subscription? (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? (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®) system, describe the issue exactly as designated in the “issue description” field of EMMA®, 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 § 344.2(e). (f) When must I complete the subscription? [70 FR 37911, June 30, 2005, as amended at 89 FR 15449, Mar. 4, 2024] § 344.6 How do I redeem a Time Deposit security before maturity? (a) What is the minimum time a security must be held? (2) Certificates of indebtedness of 30 days or more. (3) Notes or bonds. (b) Can I request partial redemption of a security balance? (c) Do I have to submit a request for early redemption? (d) How do I calculate the amount of redemption proceeds for subscriptions on or after October 28, 1996? (1) Interest. (2) Redemption value. (e) How do I calculate the amount of redemption proceeds for subscriptions from September 1, 1989, through October 27, 1996? (1) Interest. (2) Market charge. (f) How do I calculate the amount of redemption proceeds for subscriptions from December 28, 1976, through August 31, 1989? (1) Interest. (2) Market charge. [70 FR 37911, June 30, 2005, as amended at 89 FR 15449, Mar. 4, 2024] Subpart C—Demand Deposit Securities Source: 70 FR 37911, June 30, 2005, unless otherwise noted. § 344.7 What are Demand Deposit securities? Demand Deposit securities are one-day certificates of indebtedness that are automatically rolled over each day until you request redemption. (a) How is the rate for Demand Deposit securities determined? (1) How is the interest rate calculated? (Equation 1) Where: I = Annualized effective Demand Deposit rate in decimals. If the rate is determined to be negative, such rate will be reset to zero. P = Average auction price for the most recently auctioned 13-week Treasury bill, per hundred, to six decimals. Y = 365 (if the year following issue date of the 13-week Treasury bill does not contain a leap year day) or 366 (if the year following issue date of the 13-week Treasury bill does contain a leap year day). DTM = The number of days from date of issue to maturity for the most recently auctioned 13-week Treasury bill. MTR = Estimated marginal tax rate, in decimals, of purchasers of tax-exempt bonds. TAC = Treasury administrative costs, in decimals. (ii) Then, you calculate the daily factor for the Demand Deposit rate as follows: DDR I 1/Y (Equation 2) (2) Where can I find additional information? Federal Register. (b) What happens to Demand Deposit securities during a debt limit contingency? (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. [70 FR 37911, June 30, 2005, as amended at 77 FR 33635, June 7, 2012; 89 FR 15449, Mar. 4, 2024] § 344.8 What other provisions apply to subscriptions for Demand Deposit securities? (a) When is my subscription due? (b) How do I start the subscription process? (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 § 344.2(e)(1), if the subscription is submitted by an agent of the issuer. (c) Under what circumstances can I cancel a subscription? (d) How do I change a subscription? (e) How do I complete the subscription process? (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®) system, describe the issue exactly as designated in the “issue description” field of EMMA®, 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 § 344.2(e)(1) (agent certification), (e)(2)(i) (yield certification), and (e)(4) (eligibility certification). [70 FR 37911, June 30, 2005, as amended at 89 FR 15450, Mar. 4, 2024] § 344.9 How do I redeem a Demand Deposit security? (a) When must I notify Treasury to redeem a security? (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. (b) Can I request partial redemption of a security balance? (c) Do I have to submit a request for redemption? [70 FR 37911, June 30, 2005, as amended at 89 FR 15450, Mar. 4, 2024] Appendix A to Part 344—Early Redemption Market Charge Formulas and Examples for Subscriptions From December 28, 1976, Through October 27, 1996 (a) The amount of the market charge for bonds and notes subscribed for before October 28, 1996 can be determined by the following formula: (b) The application of this formula can be illustrated by the following example: (1) Assume that a $600,000 note is issued on July 1, 1985, to mature on July 1, 1995. Interest is payable at a rate of 8% on January 1 and July 1. (2) Assume that the note is redeemed on February 1, 1989, and that the current borrowing rate for Treasury at that time for the remaining period of 6 years and 150 days is 11%. (3) The increased annual borrowing cost is $18,000. ($600,000)x(11%-8%) (4) The market charge is computed as follows: (c) The amount of the market charge for certificates of indebtedness subscribed for before October 28, 1996 can be determined by the following formula: (d) The application of this formula can be illustrated by the following example: (1) Assume that a $50,000 certificate of indebtedness is issued on March 1, 1987, to mature on November 1, 1987. Interest is payable at a rate of 10%. (2) Assume that the certificate of indebtedness is redeemed on July 1, 1987, and that the current borrowing cost to Treasury for the 123-day period from July 1, 1987, to November 1, 1987, is 11.8%. (3) The increased annual borrowing cost is $900. ($50,000) × (11.8%−10%) (4) The market charge is computed as follows: Appendix B to Part 344—Formula for Determining Redemption Value for Securities Subscribed for and Early-Redeemed On or After October 28, 1996 (a) This formula results in a premium or discount to the issuer depending on whether the current Treasury borrowing rate at the time of early redemption is lower or higher than the stated interest rate of the early-redeemed SLGS security. The total redemption value for bonds and notes can be determined by the following two steps. First, calculate accrued interest payable in accordance with § 344.6(d)(1) using the following formula: Second, calculate the redemption value per § 344.6(d)(2) using the following formula: (b) The application of this formula can be illustrated by the following examples: (1) The first example is for a redemption at a premium. (i) Assume that an $800,000 2-year note is issued on December 10, 1996, to mature on December 10, 1998. Interest is payable at a rate of 7% on June 10 and December 10. (ii) Assume that the note is redeemed on October 21, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 1 year and 50 days is 6.25%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: Then, the redemption value is calculated as: (2) The second example is for a redemption at a discount and it uses the same assumptions as the first example, except the current Treasury borrowing cost is assumed to be 8.00%: (i) Assume that an $800,000 2-year note is issued on December 10, 1996, to mature on December 10, 1998. Interest is payable at a rate of 7% on June 10 and December 10. (ii) Assume that the note is redeemed on October 21, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 1 year and 50 days is 8.00%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: Then, the redemption value is calculated as: (c) The total redemption value for certificates of indebtedness can be determined by the following two steps. First, calculate accrued interest payable in accordance with § 344.6(d)(1) using the following formula: Second, calculate the redemption value per § 344.6(d)(2) using the following equation: (d) The application of this formula can be illustrated by the following examples. (1) First, for a redemption at a premium: (i) Assume that a $300,000 security is issued on December 5, 1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% is payable at maturity. (ii) Assume that the security is redeemed on April 9, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 26 days is 4.00%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: Then, the redemption value is calculated as: (2) Secondly, for a redemption at a discount: (i) Assume that a $300,000 security is issued on December 5, 1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% is payable at maturity. (ii) Assume that the security is redeemed on April 9, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 26 days is 6.25%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: Then, the redemption value is calculated as: