Circular
New & Revised Federal Reserve Bank Operating Circulars
September 13, 2000
Circular No. 11274

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

The Federal Reserve System periodically reviews and updates the Federal Reserve Bank Operating Circulars, which govern the various services our customers use. This circular describes Operating Circular 12, Multilateral Settlement, adopted by the Federal Reserve Banks on March 29, 1999. It also describes revisions to Operating Circular 5, Electronic Access; Operating Circular 8, Collateral, and Operating Circular 9, Federal Tax Payments and Treasury Tax & Loan Depositaries. These operating circulars are uniform in all of the Federal Reserve Districts.

Easy Access to Operating Circulars

To facilitate easy access to the new and updated circulars, as well as all other FRB operating circulars (OC), please log on to the Federal Reserve's Financial Services Internet site at www.frbservices.org. This website contains the official current version of all Federal Reserve Bank operating circulars. The revised OC 5 will be available on this website beginning September 15, 2000, and the amendments to OC 8 and OC 9 will be available shortly thereafter. In addition, earlier versions of the operating circulars back to January 2, 1998 will be available on the website in the near future.

From this website you may read, download and print all the operating circulars. On the home page, just click on "Industry Topics" and then click on "Operating Circulars." In addition, operating circulars also may be accessed from the individual service areas on the site. If you are unable to access the circulars over the internet, please call the appropriate contact from the list on the following page and request a paper copy. It will be forwarded to you promptly.

Circular Summaries

To help you understand the scope of Operating Circular 12, and the revisions made to Operating Circular 5, and OCs 8 and 9, a brief summary of each is enclosed. These summaries do not describe all the provisions in the circulars or all the changes to them. Please refer to the circulars themselves, which are legal agreements governing transactions with Reserve Banks, for their exact terms.

Additional Information

To request a paper copy of an operating circular or for additional information about the content of the new and revised circulars, please contact our Business Development Office at (212) 720-6600 or the following:

For OC 5, Electronic Access, contact Mark Harris, Staff Director.

For OC 8, Collateral, contact Grace Jaiman, Staff Director.

For OC 9, Federal Tax Payments and Treasury Tax & Loan Depositaries, contact Judi Courtney, AVP, FRB St. Louis, at (314) 444-8630.

For OC 12, Multilateral Settlement, contact Henry F. Wiener, Vice President.

Summary of Changes for Operating Circulars

Operating Circular 5, Electronic Access, effective October 1, 2000

Operating Circular 5 is being revised primarily to address Internet access to Reserve Bank services and the use of Public Key Infrastructure technology.

Significant changes have been made throughout the circular. These changes include: (1) defining an "Access Control Feature" to include a digital certificate; (2) defining "Electronic Connections" to include internet or extranet connections; (3) incorporating by reference any Certification Practice Statement that the Reserve Banks publish (which currently may be accessed at the Financial Services website address noted above); (4) clarifying the warranty and liability provisions; (5) providing notice that an institution may need to use security measures, in lieu of commercial virus protection software, on computers that contain Fedline ® for Windows NT ®; (6) defining the conditions under which a Reserve Bank may immediately terminate services; and (7) clarifying the legal forum for disputes and applicable governing law.

Operating Circular 8, Collateral, and Operating Circular 9, Federal Tax Payments and Treasury Tax & Loan Depositaries, effective October 23, 2000

Operating Circulars 8 and 9 are being revised to implement TIP (Treasury Investment Program) and PATAX (a parallel system for paper tax deposits), two new automated Treasury systems. These systems will provide information about depositary balances on a more current basis, and improve the investment and collateral monitoring processes.

Significant changes have been made throughout Operating Circular 9. These changes include: (1) a new standard national cut off time of 5:00 p.m. ET for submitting tax deposits; (2) a new National Customer Service Area at the Federal Reserve Bank of St. Louis to provide customer service to all TT&L customers; and (3) a new Direct Investment option called Dynamic Investment that will allow excess Treasury funds to be invested with a depositary hourly, starting at noon ET. In addition, transactions will now post to Federal Reserve accounts throughout the day; capacity for Treasury investments will be based on the lesser of the balance limit set by the depositary and the total collateral value pledged; and account balances must now be fully collateralized throughout the day (or investments will be drawn down automatically).

TIP will also monitor collateral pledged under 31 CFR Part 202 (f/k/a the Circular 176 program). The changes to Operating Circular 8 reflect this improvement. The new National Customer Service Area at the Federal Reserve Bank of St. Louis will monitor (via TIP) collateral pledged under Part 202 and serve as a convenient central customer service point for depositaries. Collateral values will be calculated based on current market prices in accordance with 31 CFR Part 380 and other applicable Treasury instructions.

Operating Circular 12, Multilateral Settlement, effective March 29, 1999

Operating Circular No. 12, Multilateral Settlement, governs the national settlement service the Reserve Banks offer. The service provides same-day finality and is fully automated, with an online mechanism for submitting settlement information to the Settlement Reserve Bank. The circular does not replace agreements governing existing settlement arrangements until Settlers in an arrangement elect to move to the new service and specifically agree to the terms of the circular.

Under the circular, the Settlement Agent submits a Settlement File to the Processing Reserve Bank, which reviews the file to determine whether it passes initial edit checks. The Processing Reserve Bank then attempts to post the debits on the file. When that is successful, the credits are posted and both the debits and credits to Settler accounts are final. If a debit cannot be posted, the process may be run again, the Settlement Agent may arrange for additional funds to be supplied, or the settlement may be cancelled, with funds returned to accounts that had been debited.

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