[Code of Federal Regulations]
[Title 31, Volume 2]
[Revised as of July 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 31CFR357.12]

[Page 405-406]
 
                  TITLE 31--MONEY AND FINANCE: TREASURY
 
         CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
 
PART 357_REGULATIONS GOVERNING BOOK-ENTRY TREASURY BONDS, NOTES AND BILLS 
HELD IN LEGACY TREASURY DIRECT--Table of Contents
 
     Subpart B_Treasury/Reserve Automated Debt Entry System (TRADES)
 
Sec.  357.12  A Participant's Security Entitlement.

    (a) How is a Participant's Security Entitlement created? A Federal 
Reserve Bank indicates by book entry that a Book-entry Security has been 
credited to a Participant's Securities Account.
    (b) What else do I need to know about a Participant's Security 
Entitlement? See the following table:

------------------------------------------------------------------------
If a security interest in a security entitlement
             of a participant . . .                     Then . . .
------------------------------------------------------------------------
(1) Meets all of the following criteria:
    (i) is in favor of the United States          it is created; it is
    (ii) is marked on the books of a Federal       perfected; and it has
     Reserve Bank.                                 priority over any
    (iii) is to secure deposits of public money    other interest in the
     (including without limitation deposits to     securities.
     the Treasury tax and loan accounts, or
     other security interested required by
     Federal statute, regulation, or agreement).
------------------------------------------------------------------------

    (c) What is the effect of the marking of a security interest in 
favor of the United States in a Security Entitlement of a Participant on 
the books of a Federal Reserve Bank? Where a security interest in favor 
of the United States in a Security Entitlement of a Participant is 
marked on the books of a Federal Reserve Bank, such Reserve Bank may 
rely, and is protected in relying, exclusively on the order of an 
authorized Representative of the United States directing the transfer of 
the Security.
    (d) Who is an authorized Representative of the United States, for 
purposes of paragraph (c) in this section? The official designated in 
the applicable regulations or in an agreement to which a Federal Reserve 
Bank is a party, governing the security interest.
    (e)(1) Must the United States and the Federal Reserve Banks agree to 
act on behalf of any Person or to recognize the interest of any 
transferee of a security interest or other limited interest in favor of 
any Person? No, they need not agree to act or recognize any party's 
interest, except:
    (i) To the extent of any specific requirement of Federal law or 
regulation, or

[[Page 406]]

    (ii) To the extent set forth in any specific agreement with the 
Federal Reserve Bank on whose books the interest of the Participant is 
recorded.
    (2) May a security interest be created and perfected by a Federal 
Reserve Bank marking its books? Yes, a security interest in a Security 
Entitlement that is in favor of a Federal Reserve Bank or a Person may 
be created and perfected by a Federal Reserve Bank marking its books to 
record the security interest to the extent required by law, regulation, 
or an agreement with a Federal Reserve Bank or the Federal Reserve Bank 
Operating Circular.
    (3) Does this security interest have priority over other interests? 
A security interest in a Security Entitlement marked on the books of a 
Federal Reserve Bank has priority over any other interest in the 
securities, except a security in favor of the United States, as provided 
in table (b) of this section.
    (4) In addition to the method provided in paragraph (e)(2) of this 
section, may a security interest, including a security interest in favor 
of a Federal Reserve Bank, be perfected in another way? Yes, a security 
interest may be perfected by any method under applicable law as 
described in Sec. 357.10(b) or Sec. 357.11.
    (i) The applicable law governs the perfection, effect of perfection 
or non-perfection and priority of a security interest.
    (ii) A security interest in favor of a Federal Reserve Bank shall be 
treated as a security interest in favor of a clearing corporation in all 
respects under that law.
    (iii) A Federal Reserve Bank Operating Circular shall be treated as 
a rule adopted by a clearing corporation for these purposes.