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Guide for Collateral in lieu of Surety bonds
B
ACKGROUND
The information contained in this guide is presented as a general overview of collateral
program operations for federal agencies accepting collateral in lieu of a surety bond (31 CFR
Part 225). It does not supersede or replace any requirements contained in:
a) Specific Treasury Fiscal Service Collateral Program agreements, regulations, and
policies, or
b) Federal Reserve Bank Operating Circulars, clearing memos, or other guidelines.
The guide may be periodically updated to reflect current information. A more comprehensive
version of this guide, directed toward financial institutions, will be available through a link
on the Federal Reserve Financial Services website at http://www.frbservices.org
.
If you have any questions regarding the Treasury’s CFR Part 202 and CFR Part 225
collateral programs; including pledging collateral, collateral eligibility, collateral program
account set-up, and collateral account maintenance procedures, please contact Treasury
Collateral Management and Monitoring Operations Support (TCMM) at 1-888-568-7343 (select
menu option 2, and then select menu option 1).
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G
LOSSARY OF TERMS
Amount To Be Collateralized (ATBC): The required amount that government agencies
(31 CFR Part 202 and 225) and the U.S. Trustees for Bankruptcy or the Bankruptcy
courts (31 CFR Part 225) have provided to the Federal Reserve as the amount to be
secured with collateral by a depositary.
Borrower-In-Custody (BIC): Also referred to as Off-Premise Collateral (OPC). BIC
refers to an arrangement by which a depositary pledges certain types of acceptable assets
as collateral to secure public funds. The depositary is permitted to retain possession of
the collateral on its own premises, subject to the terms and conditions agreed upon
between the Treasury, the Reserve Bank, and the depositary.
Bureau of the Fiscal Service (Fiscal Service): A bureau of the Treasury with regulatory
responsibility for establishing acceptable collateral and for determining the valuation of
collateral for Treasury Fiscal Service collateral programs. Fiscal Service provides central
payment services to federal program agencies, operates the federal government’s
collections and deposit systems, provides government-wide accounting and reporting
services, and manages the collection of delinquent debt owed to the federal government.
Collateral: A marketable security or financial asset that has been determined by the
Treasury and reviewed by a Reserve Bank as acceptable for pledging to a Treasury
collateral program. Depending on the program, the pledgor or obligor provides collateral
to secure deposit balances at risk to the Treasury or a Federal agency or in lieu of
performance bonds.
Collateral Management System (CMS): An application operated by the Reserve Banks
that maintains a record of and values collateral pledged in Fedwire book-entry, non-
Fedwire book-entry, or in definitive (physical) form for all Treasury collateral programs
administered by the Reserve Banks. Reserve Banks process collateral transactions
maintained and valued in this system. Collateral held at the Depository Trust Company
(DTC), with an authorized third-party custodian, in a Reserve Bank vault, or through an
OPC agreement (BIC arrangement) is reflected and valued in CMS.
Computer Interface: A communications link between computers at a financial
institution and a Reserve Bank.
Depositary: A financial institution authorized to secure public money on deposit and
submit a bond secured by government obligations as collateral in lieu of bonds with
sureties.
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Depository Trust Company (DTC): A national clearinghouse for settling trades in
corporate and municipal securities and performing securities custody services for its
participating financial institutions and broker-dealers. DTC is an authorized third-party
custodian for the Reserve Banks and the Treasury. DTC is a subsidiary of the Depository
Trust and Clearing Corporation (DTCC).
Collateral Account: An account at a Reserve Bank (a) used to hold collateral or (b) in
which is recorded the receipt of an advice of custody evidencing that collateral is held by
or for the pledgor subject to the security interest of the pledgee. In Fedwire and in other
related documents, this collateral account is also referred to as a Restricted Securities
Account.
Treasury Collateral Management and Monitoring (TCMM): A centralized
application operated by a Federal Reserve Bank to monitor securities and other financial
assets pledged as collateral to various Treasury programs.
TCMM Operations: Manages monitoring functions for collateral pledged to the
Treasury and government agencies.
Performs new collateral account set-up, account maintenance, and collateral
withdrawals.
Provides customer support for obligors/pledgors and government agencies as
custodian and in its role as Fiscal Agent for the United States Treasury.
Retains records for all collateral functions and related activities.
Third-Party Custodian: A financial institution acting as a custodian holding pledged
assets as collateral approved by a Reserve Bank acting as the Treasury’s fiscal agent.
Treasury Support Center (TSC): A centralized Reserve Bank function that provides
customer service for various Treasury programs.
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Definitions of abbreviations used in discussing collateral:
ATBC - Amount To Be Collateralized
BIC - Borrower-in-Custody
BPD - Bureau of the Public Debt
CFR - Code of Federal Regulations
CMS - Collateral Management System
DTC - Depository Trust Company
DTCC - Depository Trust and Clearing Corporation
FMS - Financial Management Service
OPC - Off-Premise Collateral
TCMM - Treasury Collateral Management and Monitoring
TSC - Treasury Support Center
UST - United States Trustee for Bankruptcy
WOS - Wholesale Operations Site
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TITLE 31 CFR PART 225 - ACCEPTANCE OF BONDS SECURED BY
GOVERNMENT OBLIGATIONS IN LIEU OF BONDS WITH SURETIES
Purpose and Requirements
Title 31 CFR Part 225 (225 program) permits government agencies, United States
Trustees for Bankruptcy (UST), or Bankruptcy courts to accept bonds secured by
government obligations in lieu of bonds secured with sureties. The acceptability and
valuation of collateral for the 225 program is governed by Title 31 CFR Part 380. The
agency official accepting these bonds on behalf of the government agency, UST, or
Bankruptcy court is referred to as the bond official. Bonds may be required by the above
entities from financial institutions that are acting as depositaries or by nonfinancial
businesses (both referred to as pledgors or obligors). The bond provides the government
with protection should the pledgor default on an obligation to the government agencies,
UST, or Bankruptcy courts.
Under this program, the pledgor has the option of pledging certain government
obligations to secure the underlying bond requirement. The pledgor deposits a par
amount of securities with a Reserve Bank or a Reserve Bank-authorized custodian that
will provide the same monetary value to the bond official as a bond with sureties, should
the pledgor default on the underlying obligation. Any agreements or other requirements
for this program are the responsibility of the bond official. Reserve Banks act as the
custodian of the collateral pledged.
Acceptable Collateral
Acceptable collateral is currently limited to only public debt obligations of the United
States government whose principal and interest are unconditionally guaranteed by the
United States government (excluding stripped components). This collateral are certain
classes of transferable securities that are acceptable as collateral to secure obligations in
lieu of a surety bond, or to secure deposits of Bankrupt estates under the jurisdiction of
the U.S. Trustees Office or a Bankruptcy court or judge.
For a current listing of acceptable collateral, pledgors should refer to the TreasuryDirect
website at:
http://www.treasurydirect.gov/instit/statreg/collateral/collateral_acc225Acceptablecollatera
l.pdf
For more specific questions about acceptable collateral, institutions should contact
TCMM Operations Support at 1-888-568-7343 (select menu option 2, and then select
menu option 1).
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Collateral Valuation
The Reserve Banks use pricing vendors that currently reprice marketable fixed income
securities pledged under Treasury collateral programs on a daily basis at the opening of
business each day. For paydown securities, new factors are applied to Fedwire securities
when they are received from the issuer and to collateral recorded in CMS when they are
received from the pricing vendor(s). Margins are also applied to priced and non-priced
marketable securities based on asset type to adjust the market valuation for collateral
requirement purposes.
A copy of the current collateral margin table for the 225 program is available on the
TreasuryDirect website at:
http://www.treasurydirect.gov/instit/statreg/collateral/225%20Margins%20Table%20(06.03.14
).pdf
This table identifies the appropriate margin values for acceptable collateral as approved
by the Treasury.
For more specific questions about acceptable collateral and its valuation, depositaries
should contact TCMM Operations Support at 1-888-568-7343 (select menu option 2, and
then select menu option 1).
Collateral Account Maintenance
Opening an Account
Collateral accounts opened under the 225 program are divided into two distinct
groupings:
U.S. Trustees for Bankruptcy (UST)
Account designations for the UST have been standardized across all Reserve Banks. All
UST 225 program collateral accounts begin with the letter “S.” Each UST region is
assigned a region number, which occupies the next two characters, and each office within
a region is assigned an alpha character for the last character of the collateral account
number (e.g., S01A refers to the UST for Region 1 and the Boston office).
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For a depositary to establish an existing UST 225 program collateral account under its
Fedwire securities account structure, the depositary must contact the UST to ensure that
all necessary forms are completed and obtain the 225 program collateral account number
assigned to that UST office. Then the agency should contact the Federal Reserve to give
written authorization to have the UST 225 program collateral account opened on the
Fedwire Securities Service.
Other Government Agencies and Bankruptcy Courts
Account designations for government agency and Bankruptcy court 225 program
collateral accounts have been standardized across all the Reserve Banks. These accounts
also have established alphanumeric accounts that begin with the letter “S” to identify the
account as part of the 225 program. The government agency is established as the owner
of the account and the obligor includes, but is not limited to, an individual, a trust, an
estate, a partnership, a corporation, and a sole proprietor. The bond official at the
government agency must contact the Federal Reserve for instructions on how to establish
a 225 program account.
For a depositary to establish an existing Bankruptcy court account, the depositary needs
to ensure that all necessary forms are completed with the respective Bankruptcy court. A
contact name at the Bankruptcy court should be obtained. The depositary should also
obtain the four-digit alphanumeric character 225 program collateral account number from
the Bankruptcy court. If the Bankruptcy court does not have a 225 program collateral
account currently established, the bond official should contact the Federal Reserve to set
up a 225 program collateral account.
After the 225 program collateral account is verified or established, the agency will need
to provide the Federal Reserve with written authorization to have the 225 program
collateral account opened for its account on the Fedwire Securities Service.
Closing an Account
A depositary must contact the Federal Reserve to close a 225 program collateral account.
The Federal Reserve will verify with the bond official that there is no further need for the
account. Once the Federal Reserve has verified that the bond official no longer requires
collateral, the Federal Reserve will have the account closed.
If a government agency no longer requires a 225 program collateral account, the bond
official should contact TCMM Operations Support at 1-888-568-7343 (select menu
option 2, and then select menu option 2).
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Amount To Be Collateralized (ATBC)
After an account has been opened, the bond official will provide the Federal Reserve with
an amount representing the amount of collateral value required for the designated
depositary. This amount is referred to as the ATBC and can be increased or decreased by
the bond official via TCMM or by contacting the Federal Reserve. If a depositary
disputes this amount, it should directly contact the bond official. The Federal Reserve
cannot change the ATBC requirement without written directions to do so from the bond
official.
Collateral Monitoring
Collateral held under the 225 program is monitored based on the collateral value pledged,
not par value. Depositaries pledging collateral under the 225 program need to ensure that
the current collateral value will be sufficient to cover the ATBC. The TCMM application
receives real-time updates throughout the business day until the close of TCMM (refer to
TCMM Operating Hours as listed in the Additional Resources Section).
Collateral Deficiencies
A collateral deficiency occurs when the current collateral value is less than the
account’s ATBC. Collateral deficiencies may occur in a 225 program collateral account
for the following reasons:
a) Collateral held in the account was revalued
b) Collateral held in the account received a periodic principal paydown (e.g.,
mortgage-backed securities)
c) Collateral held in the account either matured or was called
d) The bond official increased the ATBC for the account.
When a deficient account is identified during TCMM’s collateral monitoring process, the
Federal Reserve will inform the depositary that additional collateral must be deposited as
soon as possible. If the account is held under the government agency structure, the bond
official will be informed that there is a deficiency in the account due to one of the above
mentioned reasons (a-d).
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Mergers and Acquisitions
If a depositary (the non-survivor) participating in the 225 program is merging into
another depositary (the survivor), instructions concerning the disposition of collateral
held under any 225 program collateral account(s) for the non-survivor should be included
in the merger information provided by the survivor to its local Reserve Bank, which will
forward the information for further processing.
If the legal and operational mergers occur on different dates, the non-survivor’s account
will have the recognized insurance coverage for its 225 account balances for the first six
months after the legal merger date. The survivor will be responsible for ensuring that
sufficient collateral is pledged for the non-survivor’s account by the end of the sixth
month after the legal merger date. The non-survivor’s account may be retained for up to
one year after the legal merger date.
If the survivor requests that the collateral be transferred before the operational merger
date, it should contact TCMM Operations Support at 1-888-568-7343 (select menu option
2, and then select menu option 1) for further instructions.
Prior to the operational merger date, the Federal Reserve will contact the bond officials
for the 225 program collateral account(s) involved to verify ATBCs and obtain
authorization to move the collateral. On the operational merger date after receiving
authorization from the respective bond official(s), the Federal Reserve will authorize the
transfer of any securities held under the non-survivor’s account to the survivor’s
appropriate 225 program collateral account(s).
Please contact TCMM Operations Support at 1-888-568-7343 (select menu option 2, and
then select menu option 1) to discuss any specific questions regarding the 225 collateral
program.
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A
DDITIONAL RESOURCES
Bureau of the Fiscal Service
https://www.fiscal.treasury.gov/fsservices/gov/rvnColl/tcmm/rvnColl_tcmm.htm
This website provides the CFR sections, procedural instructions, and other program
information, including recent developments. You can also sign up to receive e-mail
notification when certain areas of the site are updated.
TreasuryDirect
http://www.treasurydirect.gov/instit/statreg/collateral/collateral.htm
Find the latest information on acceptable collateral for each Treasury collateral
program, as well as information on collateral valuation. Sign up for e-mail
notification when certain areas of the site are updated.
Financial Services
http://www.frbservices.org
This website gives information on Treasury collateral programs and the Fedwire
Securities Service. The Treasury Services information page will have information on
the Treasury’s collateral programs and the Reserve Bank collateral services. The
Fedwire Securities page will give current information on the Fedwire Securities
Service and provides a Fedwire Securities Guide.
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PROCESSING TIME FRAMES
Processing Time Frames for Treasury Collateral Management and Monitoring
Opening of TCMM…………………………………………..…. 8:00 a.m. ET
Closing time for TCMM……………………………………..…. 6:00 p.m. ET
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