Fed Operating Circ 7 2002 Operating
Table of Contents
Circular
7
BOOK-ENTRY SECURITIES ACCOUNT
MAINTENANCE AND TRANSFER SERVICES
Page
1.0 Purpose, Scope and Effect of this Circular ....................................... 1
2.0 Governing Regulations ..................................................... 1
3.0 Definitions .............................................................. 1
4.0 Securities Account Maintenance .............................................. 2
4.1 Securities Account Location and Identification
of the Administrative Reserve Bank ..................................... 2
4.2 Unrestricted Securities Accounts ........................................ 3
4.3 t~estricted Securities Accounts ......................................... 3
5.0 Terms of Access .......................................................... 4
6.0 The l~oles of the l~eserve Banks in a Book-Entry Securities Transfer ................... 4
7.0 Execution of Transfers ...................................................... 4
7.1 Debits and Credits .................................................. 4
7.2 Conditions of Access ................................................ 5
7.3 Format and Content of Transfer Messages ................................. 5
8.0 Security Procedures ....................................................... 6
9.0 Settlement of Book-Entry SecuritiesTransfers .................................... 6
10.0 Limitations on Transfers of Book-Entry Securities ................................. 6
10.1 General Restrictions on Transfers ....................................... 6
10.2 Amount Limitations on Transfers ....................................... 6
10.3 Improper Use of the Reversal Code ..................................... 7
11.0 Transfer Hours and Extensions ............................................... 7
12.0 Notices ................................................................ 7
13.0 Requesting As-of Adjustments ................................................ 8
Operating
Table of Contents
Circular
7
BOOK-ENTRY SECURITIES ACCOUNT
MAINTENANCE AND TRANSFER SERVICES
Table of Contents (continued) Page
14.0 Transfer and Securities Account Maintenance Fees ................................. 8
14.1 Fees ............................................................. 8
14.2 Billing of Fees ..................................................... 8
15.0 Emergency Conditions ..................................................... 8
15.1 Failure of a Participant's Equipment ..................................... 8
15.2 Failure of l~eserve Bank Equipment ..................................... 8
16.0 Limitations on Liability ..................................................... 9
17.0 Multiple Master Accounts ................................................... 9
18.0 Right to Amend .......................................................... 9
19.0 Effect of this Circular on Previous Circulars ...................................... 9
Appendices
Appendix A - Applicable Regulatory Citations Governing
Book-Entry Securities of Agencies, Instrumentalities,
and Establishments of the United States ............................ 10
Appendix B - Fedwire Operating Hours For Book-Entry SecuritiesTransfers ........... 11
Appendix C - Custody Agreement For Book-Entry Securities ...................... 12
Appendix D - Automated Claim Adjustment for Mortgage-Backed Securities ........... 16
Operating Federal Reserve System Operating Circular No. 7
(~ircular January 7, 2002
?
1.0 PURPOSE, SCOPE AND tions, or others, that the Reserve Banks
EFFECT OF THIS have determined is eligible to be held in
CIRCULAR a Securities Account and is eligible for
Transfer.
1.1 This Operating Circular ("Circular")
sets forth the terms under which the 3.§ The Fedwire® Book-Entry
Federal Reserve Bank of (City) main- Securities transfer system ("Fedwire")~
tains Securities Accounts and effects means the electronic facility operated by the
Transfers of Book-Entry Securities for Reserve Banks for maintaining Securities
Participants. By maintaining a Securities Accounts and for effecting Transfers.
Account, a Participant agrees to all the
provisions of this Circular, as amended 3.6 Free Transfer means a Transfer that
from time to time. Capitalized terms does not involve any credit or debit to a
are defined in Paragraph 3. Master Account other than a transaction
fee.
1.2 Each Reserve Bank has issued a
Circular No. 7 identical to this one. 3.? Master Account means an account
with reserve and/or clearing balances on
the books of a Reserve Bank. A Master
2.0 GOVERNING Account is a Funds Account for purposes
REGULATIONS of the regulations listed in Appendix A.
A Master Account does not contain Book-
2.1 This Circular incorporates by refer- Entry Securities.
ence the current provisions of the regula-
tions listed in Appendix A as such regula- 3.8 On-Line Access means a connection
tions are amended from time to time. for the transmission of aTransfer Message
directly to or from a Reserve Bank by elec-
tronic data transmission, excluding facsimile
3.0 DEFINITIONS and oral transmission by telephone.
3.1 For purposes of this Circular, the 3.9 On-Line Participant means a
following definitions apply. Participant with On-Line Access.
3.2 Administrative Reserve Bank with 3.10 Off-line Access means a connection
respect to a Participant means the Reserve other than On-Line Access for sending and
Bank in whose District the Participant receiving Transfer Messages to or from a
is located. Reserve Bank such as by written, facsimile,
or telephone voice instruction.
3.3 Board means the Board of Governors
of the Federal Reserve System. 3.11 Off-line Participant means a
Participant with Off-line Access.
3.4 Book-Entry Security means a
marketable security issued in electronic 3.12 Participant means an entity that
form by the United States Government maintains a Securities Account with a
(the "Treasury"), any agency or instrumen- Reserve Bank in the entity's name. Subject
tality thereof, certain international organiza- to the Reserve Banks' and the Board of
1. Fedwire is a registered service mark of the Federal l~eserve Banks.
Operating Governor's risk reduction policies, where 3.16 Securities Account means an
Circu[ar applicable, entities authorized by law, account at a Reserve Bank containing
regulation, policy, or agreement to be Book-Entry Securities.
Participants include:
3.17 Sender means the Participant sending
(a) depository institutions as defined aTransfer Message.
in Section 19 (b) (1) (A) of the Federal
t~eserve Act, as amended (12 U.S.C. 3.18 Transfer means the electronic move-
§461 (b)(1) (A)); Pent over Fedwire of a par amount of
Book-Entry Securities by debit to the
(b) agencies and branches of foreign designated Securities Account of the
banks as defined in Section l(b) of the Sender and by credit to the designated
International Banking Act of 1978, as Securities Account of the Receiver, or
amended (12 U.S.C. §§3101(1) and (3)); by debit to one Securities Account of a
Participant and credit to another Securities
(c) member banks of the Federal l~eserve Account of that same Participant, in which
System pursuant to l~egulation H issued case that Participant is both a Sender and
by the Board (12 C.ER. Part 208); a Receiver. ATransfer is either a Free
Transfer or a Transfer Against Payment.
(d) the Treasury and any entity specifi-
cally authorized by Federal statute to use 3.19 Transfer Message means an instruc-
the l~eserve Banks as fiscal agents or tion of a Participant to a Reserve Bank to
depositories; effect aTransfer.
(e) entities designated by the Secretary of 3.20 Transfer Against Payment means a
the Treasury in accordance with Section Transfer that is effected with a credit to the
15 of the Federal Reserve Act (12 U.S.C, Master Account of the Sender and a debit
§391); to the Master Account of the Receiver, for
the amount of the payment.
(f) foreign central banks, foreign mone-
tary authorities, foreign governments, and 3.21 Unrestricted Securities Account
certain international organizations; means a Securities Account used to main-
tain Book-Entry Securities for a Participant
(g) entities authorized under Section 25, and does not include a Restricted Securities
Paragraph 3, and Section 25A of the Account.
Federal Reserve Act (12 U.S.C. §§601
(Third), 611); and
4.0 SECURITIES ACCOUNT
(h) any other entity authorized by a MAINTENANCE
l~eserve Bank to use Fedwire Book-
Entry Securities services. 4.1 SECURITIES ACCOUNT
LOCATION AND
3.13 Receiver means the Participant IDENTIFICATION OF
receiving a Book-Entry Security as a THE ADMINISTRATIVE
result of a Transfer. RESERVE BANK
4.1.1 A Participant may have one or more
3,14 Reserve Bank means one of the Securities Accounts at its Administrative
12 Federal Reserve Banks and its branches. Reserve Bank, subject to the terms required
by the Administrative Reserve Bank.
3.15 Restricted Securities Account Securities Accounts may be restricted
means a Securities Account used for pledg- or unrestricted.
ing Book-Entry Securities to a pledgee on
the books of a Reserve Bank in accordance 4.1.2 A Participant's Administrative Reserve
with this Circular. Bank is the l~eserve Bank in whose district
the Participant is located. For purposes of
2
Operating this Circular, a Participant is located in the 4.3.2 Restricted Securities Accounts include,
Circular Federal Reserve District as determined but are not limited to, the following:
under the procedure described in 12 C.ER.
Part 204 even if the Participant would not (a) Restricted Securities Accounts in
otherwise be subject to Part 204. A foreign which the Reserve Bank holds Book-
central bank Sender or Receiver is located Entry Securities in its individual capacity:
in the Second Federal Reserve District.
(i) as collateral for advances (includ-
4.2 UNRESTRICTED SECURITIES ing extension of intra-day credit) by
ACCOUNTS the Reserve Bank to the Participant;
4.2.1 A Participant may hold Book-Entry
Securities it owns, as well as Book-Entry (ii) as collateral to secure the exer-
Securities it holds for the account of its cise of trust powers within a state or
customers, in one or more Unrestricted deposits of funds of public entities
Securities Accounts. Regardless of the corn- (including states, municipalities, and
bination or number of Unrestricted other political subdivisions -- see
Securities Accounts maintained by a Appendix C);
Participant, all Book-Entry Securities held
in an Unrestricted Securities Account are (iii) as collateral for bankruptcy funds
held by a Reserve Bank for, and subject to, on deposit with the Participant pur-
the sole order of the Participant. suant to 11 U.S.C. §345; and
4.2.2 A Reserve Bank does not reflect in (iv) for such other purposes as the
its records any interest of a Participant's Reserve Bank may designate; and
customers in Book-Entry Securities held
by the Reserve Bank for the Participant (b) Restricted Securities Accounts in
in an Unrestricted Account, and is not which a Reserve Bank holds Book-Entry
responsible for the accuracy or content Securities in its capacity as fiscal agent of
of the records of a Participant with respect the United States:
to Book-Entry Securities held by the (i) as collateral to secure balances
Participant for the account of its cus-
tomers. A Participant shall not represent held by the Participant in Treasury
to its customers that the Reserve Bank's Tax and Loan accounts under 31
C.ER. Part 203, as amended from
records reflect the interests of the
Participant's customers, time to time (Treasury Circular 92);
4.2.3 Any name used by a Participant or a (ii) as collateral for revenues and
Reserve Bank to identify an Unrestricted funds of the United States, and any
funds the deposit of which is subject
Securities Account is for convenience only
and does not alter the Reserve Bank's right to the control or regulation of the
to treat the Participant as exclusively enti- United States or any of its officers,
tied to exercise the rights and powers with agents, or employees pursuant to 31
respect to the Book-Entry Securities in C.ER. Part 202, as amended from
such Securities Accounts. time to time (Treasury Circular 176);
4.3 RESTRICTED SECURITIES (iii) as security in lieu of a surety on
ACCOUNTS penal or other bonds, pursuant to 31
C.ER. Part 225, as amended from
4.3.1 A Participant may hold Book-Entry time to time (Treasury Circular 154);
Securities pledged as collateral in one or and
more Restricted Securities Accounts.
Credits of Book-Entry Securities to, and (iv) for such other purposes as
debits from, Restricted Securities Accounts the Secretary of the Treasury may
may require the intervention of the Reserve
approve, subject to Treasury circulars
Bank and may require the approval of the or other relevant instructions.
pledgee.
3
Operating 4.3.3 Proceeds of Book-Entry Securities, 6.0 THE ROLES OF THE
Circular including interest payments on Book-Entry RESERVE BANKS
Securities, held in a Restricted Securities IN A BOOK-ENTRY
Account at maturity or call may be held by SECURITIES TRANSFER
a Reserve Bank in a non-interest-bearing
account until substitute collateral is posted {~. 1 m Participant's Administrative Reserve
or the pledge is released. Bank may instruct any other Reserve Bank
concerning the other Reserve Bank's han-
dling of a Transfer Message affecting the
5.0 TERMS OF ACCESS Participant's Securities Account(s) and
Master Account.
5.1 Each Participant is responsible for all
access to, and all debits and credits to, its
Securities Accounts and its Master Account. 7.0 EXECUTION OF
m Participant may use the services of a TRANSFERS
third-party service provider, as described in
and subject to Paragraph 18 and Appendix 7.1 DEBITS AND CREDITS
C of Operating Circular 6 on Funds 7.1.1 Book-Entry Securities are credited to
Transfers through Fedwire. a Participant's Securities Account in accor-
dance with Reserve Bank policies and,
§.2 A Participant must maintain a Master when relevant, the regulations and policies
Account at a Reserve Bank to be a Sender of the issuers of the Book-Entry Securities,
or a Receiver of Transfers Against Payment; including whenever a Participant:
the Administrative Reserve Bank reserves
the right: (1) to require a Participant to (a) is a Receiver, or receives Book-Entry
maintain a balance in its Master Account Securities moved from the TREASURY
or to pledge collateral sufficient at all times DIRECT System (described at 31 C.ER.
to cover Transfers Against Payment for Part 357.20 et seq.) to its Securities
which the Participant is the Receiver, Account;
(2) to limit a Receiver to Free Transfers,
or (3) to limit Transfers Against Payment (b) purchases Book-Entry Securities on
or to rejectTransfer Messages. original issue; or
5.3 A Participant that does not have or
is not permitted to have a Master Account (c) converts eligible definitive securities
in its own name may only be a Sender or a to book-entry form or from one book-
entry form to another book-entry form
Receiver of Free Transfers, and must desig- (e.g., stripping and reconstituting)
nate a correspondent (on a form provided '
by the Administrative Reserve Bank) with
a Master Account on a Reserve Bank's 7.1.2 Book-Entry Securities are debited
books which shall be credited for principal to a Participant's Securities Account in
and interest payments on Book-Entry accordance with Reserve Bank policies,
Securities, and debited for transaction fees and when relevant the instruction of the
as described in Paragraph 14;a Reserve issuer, including whenever:
Bank will reject Transfer Messages for
Transfers Against Payment to a Participant (a) a l~eserve Bank effects a Transfer
that does not have a Master Account or for a Participant that is a Sender, or
that is only permitted to be a Receiver a Participant requests that Book-
of Free Transfers. Entry Securities be moved into the
TREASURY DIRECT System;
(b) Book-Entry Securities held in a
Securities Account mature or are
called for redemption; or
Operating (c) a Participant converts eligible Book- 7.2.4 On-Line Access. An On-line
Circular Entry Securities to bearer or registered Participant must manage its access in order
definitive securities or from one book- to receive timely acknowledgment of cred-
entry form to another book-entry form its and debits to its Securities Accounts and
(e.g., stripping and reconstituting), its Master Account during Fedwire operat-
ing hours. If a Participant fails to manage its
7.1.3 The Sender's Master Account is cred- communications connection in such a man-
ited and the Receiver's Master Account is ner, a Reserve Bank may limit any attempts
debited for the amount specified by the to send acknowledgments of credits and
Sender in any transfer Against Payment debits to the Participant's computer. In such
sent by the Sender. cases, the Participant should dial into the
Reserve Bank's computer when its connec-
7.1.4 The Sender and the Receiver of a tion is reestablished.
Transfer irrevocably authorize and instruct
the Reserve Bank(s) involved in the Transfer 7.2.5 Off-line Access. A Sender must pro-
to debit the Sender's designated Securities vide Transfer Messages in writing, by fac-
Account and credit the Receiver's desig- simile transmission, or by telephone under
nated Securities Account for the par an authorized name on file with the appro-
amount of the Book-Entry Securities, and priate Reserve Bank handling the off-line
to credit the Sender's Master Account and Transfers. The Reserve Bank shall call the
debit the Receiver's Master Account for Participant's place of business to verify a
the payment in the case of a Transfer Transfer Message or other instruction and
Against Payment. may require verification of allTransfer
Messages or other instructions.
7.1.5 If a Transfer is returned in accor-
dance with this Circular, the Sender and 7.3 FORMAT AND CONTENT
the Receiver of the Transfer irrevocably OF TRANSFER MESSAGES
authorize and instruct the Reserve Bank(s) 7.3.1 ATransfer Message must be in the
involved in the Transfer to debit and credit media and format the Reserve Banks pre-
the Sender's and the Receiver's Securities scribe. A Reserve Bank will not act on
Accounts and their corresponding Master instructions in a Transfer Message other
Accounts in order to offset any debits or than information required by the format
credits previously made in connection with specifications. The Reserve Banks are not
the Transfer. responsible for the accuracy of a routing
number contained in or verbally supplied
7.2 CONDITIONS OF ACCESS from a publication, list or automated file
7.2.1 The Reserve Banks provide issued or maintained by a Reserve Bank if
Participants with On-line Access or the routing number becomes inaccurate
Off-line Access but reserve the right to after the effective date of the publication,
terminate a Participant's access without list, or automated file.
prior notice.
7.3.2 Atransfer Message must use the
7.2.2 The Reserve Banks may record by identifying number of the Sender and the
audio recording device any telephone call Receiver associated with its head office in
relating to aTransfer, the Administrative Reserve Bank's District
or, for a Sender or Receiver authorized to
have Securities Account(s) with multiple
7.2.3 A Participant, whether on-line or
off-line, shall indemnify the Reserve Banks Reserve Banks, the appropriate identify-
for any loss incurred by a Reserve Bank as ins number associated with the Securities
a result of the Participant's delay in sending Account on the books of a Reserve Bank
or receiving a Transfer, if the delay results other than the Administrative Reserve
Bank. If the appropriate identifying number
from the Participant's failure to be able to
is not used, the Transfer will be rejected.
send or receive a Transfer to or from the
Reserve Banks.
Operating 7.3.3 If aTransfer Message does not ten agreement on a form provided by
CJrcuJar designate which Securities Account of a Reserve Bank, its correspondent's) Master
the Receiver is to be credited, the Transfer Account on the due date (or the next
will be rejected, business day, if the payment date falls on
a weekend or holiday) to the extent there
7.3.4 A Reserve Bank is entitled to rely are available funds of the issuer.
on any Transfer Message or instruction
(whether or not authorized) that it reason- 9.3 Credits of principal and interest
ably believes to be genuine, payments on Book-Entry Securities to a
Master Account are final, subject only to
a Reserve Bank's right to debit or credit
8.0 SECURITY the Master Account (without further
PROCEDURES authorization or instruction) to correct
any payment errors.
8.1 A Participant shall prevent any disclo-
sure, except on a "need to know" basis, of
any aspects of the security procedures agreed 10.0 LIMITATIONS ON
to by it with a Reserve Bank. The Participant TRANSFERS OF
shall notify a Reserve Bank immediately BOOK-ENTRY
if the confidentiality of these security pro- SECURITIES
cedures is compromised, and shall act to
prevent the security procedure from being 10.1 GENERAL RESTRICTIONS
further compromised. ON TRANSFERS
10.1.1 Transfers are not authorized on or
after the date of maturity of a particular
9.0 SETTLEMENT OF issue, or on or after the redemption date
BOOK-ENTRY of a bond or note that has been called for
SECURITIES redemption. Certain issues may contain
TRANSFERS restrictions which do not allow Transfers for
a specified time period prior to maturity.
9.1 Finality. Unless a Transfer is rejected
in accordance with this Circular, all debits 10.1.2 A Reserve Bank will not accept
and credits in connection with aTransfer instructions from a Sender (or a Receiver)
become final at the time the debits and to credit (or debit) a correspondent's Master
credits are posted to both the Sender's and Account for a payment in connection with
the Receiver's Securities Accounts and, in a Transfer Against Payment.
the case of Transfer Against Payment, their
corresponding Master Accounts. Notice of 10.~. AMOUNT LIMITATIONS
the Transfer is conclusive evidence that the ON TRANSFERS
debit(s) and credit(s) were made. Transfers
may be reversed only by a separate Transfer 10.2.1There is a par amount maximum
of $50 million for Transfers (the "Limit").
effected by a Transfer Message using the
reversal code, or Transfers may be returned The Limit applies to allTransfers, as well
by the Administrative Reserve Bank in as to transfers with the Federal Reserve's
accordance with Paragraph 7.2.5(b). A Open Market Desk, except as provided
Reserve Bank reserves the right to debit in Paragraph 10.2.2.A Reserve Bank will
or credit Securities Accounts (without reject a Transfer Message with a par amount
further authorization or instruction) to greater than the Limit.
correct any Transfer errors. 10.2.2 The Limit on Transfers does not
9.3 Subject to Paragraph 4.3.3, and apply to:
unless otherwise instructed by the issuer, the
Reserve Bank credits payments of principal (a) transactions, including the original
issuance of Book-Entry Securities and
and interest on Book-Entry Securities to
the Participants (or, subject to prior writ- requests to strip and reconstitute Book-
Entry Securities, to or from a Reserve
6
Operating Bank in its capacity as fiscal agent of the Reserve Banks will issue a notice iden-
Circular the United States, Federal and Federally- tifying these early close days, and, in addi-
sponsored agencies, or international tion, will issue a reminder to all Participants
organizations; and approximately two weeks in advance of
each early close day.
(b) Debits or credits to Restricted
Securities Accounts on a Reserve 11.2 A Participant requiring an extension
Bank's books, of Fedwire operating hours should contact
its Administrative Reserve Bank as soon
10.2.3 Participants should establish proce- as possible. A request for an extension
dures to ensure that large Transfers are not received less than twenty minutes before
delayed until late in the day. Specifically, the scheduled Fedwire closing time will
each Participant should encourage its cus- not be granted. An extension may be
tomers to provide delivery instructions to it granted only if:
as soon as practical after a trade is executed
and to deliver Book-Entry Securities as (a) there is a failure of Reserve Bank
soon as (par amount) lots of Book-Entry and/or Fedwire network equipment;
Securities at the Limit are in position.
(b) there is a significant operating prob-
10.3. IMPROPER USE OF THE lem at a bank or major dealer; or
REVERSAL CODE
10.3.1 A Participant must not send aTransfer (c) the extension is deemed necessary, in
Message for the first time during the rever- the Administrative Reserve Bank's view,
sal period by using the reversal code. A to prevent market disruption (i.e., the
Receiver of such an improper Transfer that dollar value of delayed transfers exceeds
is unable to reverse it by a reversing Transfer $500,000,000).
Message to the Sender may request an as-of
adjustment as discussed in Paragraph 13.1. 11.3 When requesting an extension, the
Participant will be required to state the
10.3.2 No misuse of the reversal code has dollar amount and volume of unprocessed
occurred if a Transfer effected by a Transfer Transfer Messages and to assess the severity
Message sent initially and properly during of any operating problems.
the origination period using the origination
code is reversed one or more times by a 11.4 Every extension of Fedwire is broad-
Transfer Message using the reversal code. cast electronically to all Reserve Banks and
However, a Reserve Bank will not handle any all On-line Participants.
request for compensation arising from such a
use of the reversal code; this must be handled
directly by the Sender and the Receiver. 12.0 NOTICES
12.1 The Reserve Bank sends to a location
11.0 TRANSFER HOURS AND specified by a Participant a notice following
EXTENSIONS each credit or debit to the Participant's
Securities Account(s).The notice is not a
11.1 A Reserve Bank effects Transfers negotiable or a transferable receipt but is
in accordance with the schedule of operat- merely confirmation of a completed Transfer.
lng hours in Appendix B. However, the The Reserve Bank sends an On-line
Reserve Banks may decide in their sole Participant an electronic notice, and an Off-
discretion to open or close Fedwire at an Line Participant a printed notice, of each
earlier time, or to extend Fedwire, to facil- debit or credit to its Securities Account(s).
itate special market needs. The Reserve The F~eserve Bank also attempts to notify
Banks may also close Fedwire early on an Off-Line Participant by telephone of
certain days when the United States each debit or credit to its securities account
Government securities market observes resulting from a secondary market Transfer.
partial- or full-day holidays. Annually, The Reserve Bank will make no attempt to
7
Operating notify an Off-Line Participant by telephone amended from time to time. Fees are
Circular regarding either of the two following types not assessed for the following Restricted
of transactions (1) the credit of securities Securities Accounts, nor for Transfers
received upon original issue since the issuer affecting the following Restricted Securities
has already notified the participant of the Accounts:TreasuryTax and Loan (TT&L),
securities to be deposited; (2) the debit of Loans and Discounts, and Circular 176.
securities at maturity or when called for
redemption. 14.2 BILLING OF FEES
14.2.1 The Participant's (or, subject to prior
12.2 After 3:30 p.m. eastern time (absent written agreement on a form provided by a
an extension of Fedwire), each On-line Reserve Bank, its correspondent's) Master
Participant is provided with: Account is debited for fees for Treasury
Book-Entry Securities daily. These fees are
(a) a summary of funds debited or cred- assessed by Treasury and may not be offset
ited to the Participant's Master Account as against earnings credits.
a result of Transfers Against Payment; and
14.2.2 Fees for Book-Entry Securities other
(b) a summary of net balances for each than Treasury Book-Entry Securities are
Book-Entry Security issue for which billed monthly and debited to the Partic-
there was activity, ipant's (or, subject to prior written agree-
ment on a form provided by a l~eserve Bank,
12.3 Each Participant also receives infor- its correspondent's) Master Account. These
mation detailing principal and/or interest fees may be offset against earnings credits.
payments credited to its (or its correspon-
dent's) Master Account. 14.2.3 A Participant that does not have a
Master Account is not relieved of its liability
12.4 A Participant must notify the Reserve for any fees it incurs by using Fedwire.
Bank in writing of an exception to any
notice, summary, or statement as soon as
possible (in no event later than 10 calendar 15,0 EMERGENCY
days from the date of the notice, summary, CONDITIONS
or statement).
15.1 FAILURE OF A
PARTICIPANT'S
13.0 REQUESTING AS-OF EQUIPMENT
ADJUSTMENTS 15.1.1 On-line Participants are responsible
for developing their own contingency and
13.1 A Participant may request that its
recovery plans, such as back-up computer
Administrative l~eserve Bank make an as-of
and operations facilities, to ensure their abil-
adJustment for improper use of the reversal
ity to continue Fedwire operations in the
code, and for delays and operational errors event of equipment failure or other opera-
caused by a Reserve Bank. The Participant tional interruption. The Reserve Banks
must submit written documentation sup- assume no responsibility for providing any
porting the request within two business days back-up access facilities for Participants.
of the transaction giving rise to the request.
15.2 FAILURE OF RESERVE
BANK EQUIPMENT
14.0 TRANSFER AND
SECURITIES ACCOUNT 15.2.1 In the event of an emergency or
MAINTENANCE FEES failure of a Reserve Bank's computer or
operations facilities,Transfers may be
14.1 FEES delayed until the emergency or failure is
resolved. During extended disruptions, the
14.1.1 The fees imposed for non-Treasury l~eserve Bank's Fedwire operations may be
Book-entry Securities services are listed in relocated to a back-up site. Participants
the Reserve Banks' fee schedule as
8
Operating should refer to the l~eserve Bank's contin- direct losses resulting from the l~eserve
Circu[ar gency guidelines regarding Participant Bank's handling of the Transfer, that are
requirements and responsibilities during proximately caused by the l~eserve Bank's
contingency operations, failure to exercise ordinary care or act in
good faith, subject to the first, third, and
15.2.2 On-line Participants should be pre- fourth sentences of Paragraph 16.1.
pared to reconcile their positions up to
the point of the failure under the l~eserve 16.3 The Administrative l:~eserve Bank
Bank's instructions, may in its discretion satisfy an obligation
of any of the l~eserve Banks to pay interest
15.2.3 A l~eserve Bank will notify On-line hereunder by providing an as-of adjustment
Participants of an operating problem at or by paying compensation.
another l~eserve Bank and, should the
problem be deemed critical, will give
instructions to On-line Participants. 17.0 MULTIPLE MASTER
ACCOUNTS
16.0 LIMITATIONS ON 17.1 Under certain circumstances a
LIABILITY Participant may have multiple Master
Accounts at its Administrative l~eserve
16.1 The l~eserve Banks are not liable for Bank with each Master Account having
the insolvency, neglect, misconduct, mistake, associated Securities Accounts and/or one
or default of any other entity or person, or more Master Accounts at l~eserve Banks
including a Participant. Except as other than its Administrative l~eserve Bank
otherwise specifically provided herein, the with each Master Account having associated
account-holding l~eserve Bank is liable Securities Accounts.
only for the actual direct loss sustained by
the immediate Participants to a transaction 17.2 Notwithstanding any provision of
proximately caused by the 1~eserve Banks' this Circular, during any period when a
failure to exercise ordinary care or act in Participant is authorized to maintain
good faith: with respect to l:~eserve Bank Securities Accounts at multiple l~eserve
liability to such Participants, only the Banks, any debit or credit made pursuant to
l~eserve Bank holding the Sender's this Circular will be made to the Securities
account is liable to the Sender and only Account and Master Account associated
the l~eserve Bank holding the l~eceiver's with the identifying number of the
account is liable to the l~eceiver. The Participant used in the Transfer.
amount of a l~eserve Bank's liability to a
Participant is limited to no more than the
dollar amount of the transaction plus rea- 18.0 RIGHT TO AMEND
sonable interest and incidental expenses,
unless the Participant's claim is based on 18.1 The l~eserve Banks reserve the right
delay of a transaction in which case the to amend this Circular at any time without
l~eserve Bank's liability is limited to rea- prior notice.
sonable interest and incidental expenses.
In no event shall a l~eserve Bank be liable
for consequential, indirect, incidental or 19.0 EFFECT OF THIS
special damages (including lost profits), CIRCULAR ON
however derived, and regardless of whether PREVIOUS CIRCULARS
the l~eserve Bank has been informed of the
possibility thereof. 19.1 This Circular amends and supersedes
all prior l~eserve Bank operating circulars
16.2 In addition to the liability of an
account-holding F~eserve Bank, a F~eserve on book-entry securities account mainte-
nance and transfer services including any
Bank handling an off-line Transfer is liable
supplements or appendices thereto issued
to its immediate Participant for the actual
prior to August 27, 2001.
9
Appendix A
APPLICABLE REGULATORY CITATIONS GOVERNING
BOOK-ENTRY SECURITIES OF AGENCIES, INSTRUMENTALITIES,
AND ESTABLISHMENTS OF THE UNITED STATES
· 12 C.ER. Part 615, Subpart O (Farm Credit System).
· 12 C.ER. Part 615, Subpart 1~ (Farm Credit System Financial Assistance Corporation).
· 12 C.E R. Part 615, Subpart S (Federal Agricultural Mortgage Corporation).
· 12 C.ER. Part 987 (Federal Home Loan Banks).
· 24 C.ER. Part 81 Subpart H (Federal Home Loan Mortgage Corporation).
· 24 C.ER. Part 81, Subpart H (Federal National Mortgage Association).
· 12 C.ER. Part 987 (Financing Corporation).
· 12 C.ER. Part 1511 (l:~esolution Funding Corporation).
· 31 C.EI~. Part 354 (Student Loan Marketing Association).
· 18 C.ER. Part 1314 (TennesseeValleyAuthority).
· 31 C.ER. Part 357, Subpart B (United States Department of the Treasury).
lO
Appendix B
FEDWIRE OPERATING HOURS FOR
BOOK-ENTRY SECURITIES TRANSFERS!
ON-LINE TRANSFERS
Opening of Fedwirez ............................................... 8:30 a.m. (ET)
Closing Time for Transfer Originationsz ................................. 3:15 p.m. (ET)
Closing Time for Transfer l~eversalsz ................................... 3:30 p.m. (ET)
Closing Time for Repositions Against Payment:~ ........................... 4:30 p.m. (ET)
Closing Time for Repositions Free of Payment3 ........................... 7:00 p.m. (ET)
OFF-LINE INSTRUCTIONS
Begin accepting instructions ......................................... 9:00 a.m. (ET)
Cut-off for accepting instructions for current days processing4 ................ 1:30 p.m. (ET)~
Cut-off for accepting instructions for future days processing ................. 4:00 p.m. (ET)~
1. The 1~eserve Banks observe standard legal holidays which include:All Saturdays, All Sundays, NewYear's Day (January 1),
Martin Luther King's Birthday (third Monday in January), President's Day (third Monday in February), Memorial
Day (last Monday in May), Independence Day (July 4), Labor Day (first Monday in September), Columbus Day (second
Monday in October),Veterans' Day (November 11),Thanksgiving Day (fourth Thursday in November), and Christmas
Day (December 25). If January 1, July 4, November 11, or December 25 fall on a Sunday, the next following Monday is a
standard l~eserve Bank holiday.
2. The l~eserve Banks may decide, in their sole discretion, to open or close Fedwire at an earlier time, or extend Fedwire,
to facilitate special market needs, t~eserve Banks may also close Fedwire early on certain days when the United States
Government securities market observes partial- or full-day holidays. Annually this Bank will issue a notice identifying
these early close days and, in addition, will notify all Participants of each scheduled early closing approximately two
weeks in advance of the closing.
3. Only available in NBES. "1:~eposition against payment" means the transfer of Book-Entry Securities against payment
between two accounts of the same Participant.
4. An attempt will be made to process Off-line instructions received after the cut-off time, but cannot be guaranteed.
The requesting Participant will be notified if the Transfer is not effected.
5. m l~eserve Bank, in its sole discretion, may extend this cutoff hour.
Appendix C
CUSTODY AGREEMENT FOR BOOK-ENTRY SECURITIES
This Appendix sets forth the terms under which this Bank holds Book-Entry Securities in custody for the
benefit of a state or local government or unit thereof to which the securities have been pledged. Unless
otherwise agreed in writing between this Bank and a Pledgee, this Appendix applies only to Book-Entry
Securities pledged for the purposes specified in Paragraphs 4.3.2(a)(ii) of this Operating Circular
("Circular").This Appendix constitutes an agreement, as described in the Applicable Regulations, regarding
the security interest of a non-Participant in Book-Entry Securities held by a Participant on the books of this
Bank. Each Reserve Bank has issued an Appendix C to Circular No. 7 identical to this one.
1.0 DEFINITIONS
In addition to the terms defined in the Circular, the terms defined in this Paragraph have the
following meanings when used in this Appendix.
(a) Applicable Regulations means the regulations of issuers of Book-Entry Securities listed in
Appendix A to this Circular.
(b) CollateralTransaction means the pledge of Book-Entry Securities by a Pledgor to a Pledgee;
the release of Pledged Securities to a Pledgor; or the substitution of the same par value amount
of new Pledged Securities for existing Pledged Securities that are released to the Pledgor.
(c) Pledged Security means a Book-Entry Security that is held in a Restricted Securities Account.
(d) Pledgee means the state or local government or unit thereof, to which Book- Entry Securities
have been pledged.
(e) Pledgor means the Participant that has pledged the Book-Entry Securities.
2.0 GOVERNING LAW
2.1 The Bank provides custodial services in accordance with Paragraph 4.3.2(a)(ii) of the Circular
and this Appendix. The Bank's rights and obligations in providing custodial services pursuant to
this Appendix are governed solely by the Circular, this Appendix, and the Applicable l:~egulations.
2.2 Pledgor and Pledgee warrant that a pledge of Book-Entry Securities marked on the books of the
Bank under the provisions of this Appendix is in accordance with applicable law. If any provision
of any bond, security or pledge agreement between Pledgor and Pledgee, or any subsequent
waiver, modification or amendment of such agreement, imposes any duties on this Bank that
are inconsistent with the provisions of this Appendix, the provisions of this Appendix govern.
Provisions of state law that are inconsistent with, or in addition to, the provisions of this Appendix
are not binding on this Bank unless otherwise agreed in writing.
2.3 Under the Applicable Regulations, the security interest of a Pledgee is perfected by this Bank's
marking the security interest on its books, and the security interest has priority over any other
interest in the Pledged Securities, other than a security interest of the United States.
12
3.0 ESTABLISHMENT OF RESTRICTED SECURITIES ACCOUNT
3.1 This Bank will establish a l~estricted Securities Account for the benefit of a Pledgee once the
Pledgee has agreed to the terms of this Appendix and has provided such other information as
may be required by the Bank. Existing Pledgees may be required to execute a new agreement
with the Bank but, in the absence of such new agreement, are deemed to have agreed to the pro-
visions of this Appendix by continuing to hold Pledged Securities with the Bank. Forms for this
purpose are available from the Bank.
3.2 By initiating a CollateralTransaction, a Pledgor agrees to all the provisions of this Appendix, as
amended from time to time.
4.0 COLLATERAL TRANSACTIONS
4.1 A CollateralTransaction is initiated by the Pledgor and, except for the pledge of new Pledged
Securities, requires the prior approval of the Pledgee or its authorized representative. Collateral
Transaction requests and Pledgee authorizations are subject to verification procedures the Bank
specifies from time to time.
4.2 If a Pledged Security is unacceptable as collateral to a Pledgee, the Pledged Security will not
be released to the Pledgor without the authorization of the Pledgee. The Bank assumes no
responsibility to determine if a Pledged Security is acceptable to the Pledgee.
4.3 A Pledgee may provide the Bank with written standing instructions to permit substitutions of
like par value amounts of Pledged Securities without the consent of the Pledgee. A substitution
transaction involving a lesser par value amount of Pledged Securities requires Pledgee authoriza-
tion for the release of Pledged Securities. In the case of a substitution involving a pay-down
Book-Entry Security, par value refers to the outstanding book value of the securities at the time
of a substitution transaction.
4.4 The Bank issues a confirmation to the Pledgee and the Pledgor for each CollateralTransaction.
The confirmation is conclusive evidence of the Collateral Transaction reflected therein.
5.0 INTEREST PAYMENTS AND OTHER PROCEEDS
5.1 Pursuant to Paragraph 9.2 of the Circular, the Bank credits payments of interest on the Pledged
Securities to the Pledgor until the Bank receives (i) a written certification from the Pledgee or its
authorized representative that the Pledgor is in default under any underlying pledge or security
agreement between the Pledgor and the Pledgee, and (ii) written instructions directing the Bank
to hold the interest payments. The Bank holds the interest payments in a non-interest-bearing
account until collected in accordance with Paragraph 6 of this Appendix.
5.2 The Bank holds proceeds of Pledged Securities (other than interest payments) in a non-interest-
bearing account, pursuant to Paragraph 4.3.3 of the Circular, until:
(a) Pledged Securities are deposited in substitution for the proceeds or the proceeds are released
in accordance with Paragraph 4 of this Appendix; or
(b) the proceeds are collected in accordance with Paragraph 6 of this Appendix.
13
6.0 COLLECTION OF PLEDGED SECURITIES AND PROCEEDS
6.1 If the Pledgee or its authorized representative certifies in writing to the Bank that the Pledgor is in
default under any underlying pledge or security agreement between the Pledgor and the Pledgee,
and certifies that the Pledgee has satisfied any notice or other requirement to which the Pledgee
is subject, the Pledgee may instruct the Bank in writing to transfer specific amounts and issues of
Pledged Securities and, if applicable, specific amounts of interest payments or other proceeds of
Pledged Securities not previously credited to the Pledgor or otherwise released, to designated
accounts on the books of this Bank or another l~eserve Bank.
6.2 Promptly after receiving such certifications and instructions, the Bank will make the transfer
instructed by the Pledgee.
6.3 The Bank is not required to obtain the consent of the Pledgor for any such transfer and assumes
no responsibility for determining the validity of a Pledgee's declaration of the Pledgor's default or
of the underlying pledge or security agreement between the Pledgor and the Pledgee.
7.0 PROHIBITED ACTS
7.1 Notwithstanding any other provision of this Appendix or the Circular to the contrary, the Bank is
not required to perform any act directed or required by the Pledgee if the Bank is prohibited
from performing the act by law or by court order.
8.0 LIMITATIONS ON BANK'S LIABILITY AND DUTIES
8.1 The Bank is liable only for the actual direct loss sustained by a pledgee or pledgor proximately
caused by the l~eserve Bank's failure to exercise ordinary care or act in good faith in performing
its duties under this Appendix. In no event shall the l~eserve Bank be liable for consequential,
indirect, incidental or special damages (including lost profits), however derived, and regardless of
whether the l~eserve Bank has been informed of the possibility thereof. Both the Pledgee and the
Pledgor release and forever discharge the Bank from all other claims, demands, and liability of the
Pledgee or the Pledgor, or both, in connection with the Bank's performance of its duties under
this Appendix and indemnify the Bank for any claims of other parties, including costs of litigation
and reasonable attorneys' fees, with respect to Pledged Securities held by the Bank.
8.2 In particular, but not exclusively, the Bank has no duty to:
(a) act as escrow agent or in any other capacity not expressly provided for in this Appendix;
(b) determine the validity of the pledge of securities by the Pledgor to the Pledgee, including
whether any required bond, pledge, or security agreement has been executed;
(c) monitor the value of a Pledged Security, or the declining book value of a pay-down Pledged
Security subsequent to its pledge, or ensure that the type, amount, or value of a Pledged
Security is that which is required under state or local law;
(d) verify ownership, validity, or legality of the Pledged Securities;
(e) pay assessments as provided under state or local law;
(f) give notice of maturity, call, exchange offer, or the like, affecting the Pledged Securities;
14
(g) carry insurance against loss of the Pledged Securities; or
(h) inquire into the existence or continuance of the powers or authority of a public official who
is the Pledgee or is acting for the Pledgee or the successors in office to or any person repre-
sented to the Bank as authorized to act on behalf of the Pledgee. However, the Bank may
require a certificate from the proper authority showing that the public official, or any person
represented to the Bank as authorized to act on behalf of the Pledgee, is and continues to be
so authorized.
9.0 DISPUTES
In the event of notice of a conflicting claim with respect to Pledged Securities, the Bank may holgl the
Pledged Securities, including interest and proceeds, pending settlement of the dispute either by agree-
ment of the parties or by order of a court of competent jurisdiction.
10.0 TERMINATION OF AGREEMENT OR PLEDGE SECURITIES ACCOUNT
10.1 The Bank or the Pledgee may terminate this Agreement and close any t~estricted Securities
Account established under this Appendix by giving not less than 30 calendar days advance writ-
ten notice of termination to the other party and to the Pledgor.
10.2 The Bank may release Pledged Securities held by the Bank to the Pledgor at the end of the 30
day period. However, if, within the 30 day period, the Bank (a) receives written instructions
from the Pledgor to otherwise dispose of the Pledged Securities and (b) the Pledgee's separate writ-
ten approval thereof, the Bank will dispose of the Pledged Securities in accordance with these
instructions.
10.3 If, by reason of a merger or otherwise, a Pledgor's Book-Entry Securities account is transferred to
another l~eserve Bank, the Pledged Securities held by this Bank will be transferred to the other
l~eserve Bank, with 30 calendar days prior notice to affected Pledgees. If Pledged Securities are
transferred to this Bank pursuant to this provision, this Bank will hold the Pledged Securities
pursuant to the terms of this Appendix and the existing Pledgee Agreement with the transferor
l~eserve Bank but may require a new Pledgee agreement.
11.0 FEES
The Pledgor shall pay any fees for services provided under this Appendix, as announced by the Bank
from time to time.
12.0 AMENDMENT
The l~eserve Banks reserve the right to amend this Appendix at any time without prior notice.
Appendix D
AUTOMATED CLAIM ADJUSTMENT
FOR MORTGAGE-BACKED SECURITIES
This Appendix sets forth the terms under which a Reserve Bank offers Automated Claim Adjustment for
mortgage-backed securities.
1.0 DEFINITIONS
1.1 As used in this Appendix:
(a) ACAP means the automated claim adjustment process as set forth in this Appendix D.
(b) ACAP Account means the account that the ACAP Feature uses to effect transfers in
connection with Claim Adjustments.
(c) ACAP Feature means the function of the Fedwire Book-Entry Securities System used
to effect Claim Adjustments.
(d) Aggregate Amount or Aggregate Amount of Claims means the net debit or credit
amount of all Claims payable on a particular banking day with respect to a Participant's
Securities Account as a Sender or Receiver for Transfers as reported by the Reserve Bank
in a notification to the Participant pursuant to Paragraph 2.3 hereof.
(e) Beneficiary Date means the date on which the interest accrual for a Book-Entry Security
ends.
(f) Claim means the amount the Sender of a Transfer Message owes to the 1~eceiver as the result
of a Beneficiary Date that occurs on or after the Contract Date and before a later Settlement
Date for the Transfer.
(g) Claim Adjustment means the process in which the Reserve Bank debits the Sender's
Master Account or the Master Account of its correspondent, and credits the t~eceiver's
Master Account or the Master Account of its correspondent, to settle Claims arising from
Transfer Messages that invoke the ACAP Feature for Fail Tracking service.
(h) Contract Date means the date specified by the Sender in a Transfer Message as the date
agreed upon for settlement of the Transfer.
(i) Fail Tracking means the process in which the Reserve Bank identifies a Transfer with a
Settlement Date after the specified Contract Date as specified in the associated Transfer
Message.
(j) Payment Date means the date on which payments of principal and/or interest are made
with respect to a Book-Entry Security.
(k) Record Date means the date established by the issuer of a Book-Entry Security on which
the holder of record is identified for the payment of principal and/or interest.
(1) Settlement Date means the date on which the Reserve Bank processes aTransfer Message
(also known as the clearance date).
1.2 Defined terms used in this Appendix that are not defined in section 1.1 hereof have the meanings
set forth in Operating Circular 7.
2.0 FAIL TRACKING
2.1 Initiation and Authorization of Service
2.1.1 A Sender invokes the ACAP Feature for Fail Tracking services by sending a Transfer
Message that includes a Contract Date in accordance with the format prescribed by the
l~eserve Banks. The Fail Tracking service is not available for a Transfer Message indicating
that the Transfer is to be identified as a repurchase agreement.
2.1.2 By including a Contract Date in the prescribed format in aTransfer Message, the Sender
authorizes and instructs the l~eserve Bank to use the ACAP Feature to perform Fail
Tracking services with respect to the Transfer Message. The Fail Tracking services so
authorized include identifying a Claim in accordance with Paragraph 2.2 hereof and
settling the Aggregate Amount of Claims in accordance with Paragraph 3.0 hereof.
2.1.3 If the Sender uses a correspondent pursuant to Paragraph 5.3 of Operating Circular 7,
the Sender warrants that it has instructed and authorized its correspondent to accept
any debit or credit Aggregate Amounts in accordance with Paragraph 3.0 hereof.
2.2 FailTracking Claim Identification and Determination of Aggregate Amount of Claims
2.2.1 For each Transfer Message that invokes the ACAP Feature, the l~eserve Bank shall
determine whether the Settlement Date is later than the Contract Date specified in the
Transfer Message. When the Settlement Date is later than the specified Contract Date, the
l~eserve Bank shall deem the Transfer to be a fail transaction.
2.2.2 The l~eserve Bank shall identify for adjustment a Claim in a fail transaction for each
Beneficiary Date falling on or after the Contract Date but before the Settlement Date. A
Claim shall not be identified, however, for a Beneficiary Date with an associated Payment
Date that is more than six months before the Settlement Date.
2.2.3 For a Beneficiary Date with an associated Payment Date prior to the Settlement Date, the
l~eserve Bank shall process a Claim Adjustment on the next banking day. For a Beneficiary
Date with an associated Payment Date subsequent to the Settlement Date, the l~eserve
Bank shall process a Claim Adjustment on that Payment Date.
2.2.4 The amount of a Claim shall be the amount of principal and/or interest payable on the
Beneficiary Date with respect to the transferred Book-Entry Securities.
2.2.5 The l~eserve Bank shall aggregate the amount of the Claims to be debited with respect to
a Participant's Securities Account as Sender with the amount of the Claims to be credited
with respect to the same Participant's Securities Account as l~eceiver to determine the
Aggregate Amount of Claims with respect to that Participant's Securities Account for that
banking day.
2.3 Notification of Claims
2.3.1 The l~eserve Bank shall provide notice of a Claim pursuant to this paragraph 2.3 to each
Participant affected by that Claim.
2.3.2 The notice shall include: the date of the Claim Adjustment; the amount of each Claim,
identifying the Transfer Message to which it pertains; and the Aggregate Amount of
Claims, whether debit or credit, for that Participant's Securities Account.
2.3.3 The Reserve Bank shall provide notice hereunder to a Participant using the same medium
by which it notifies the Participant of Immediate Principal and Interest.
3.0 EFFECTING AGGREGATE AMOUNTS OF CLAIMS
3.1 Rejecting a Claim or Aggregate Amount
3.1.1 The Reserve Bank processing Claims may elect not to make Claim Adjustments for a
Participant, and the Reserve Bank holding the Participant's Master Account may reject a
Participant's debit Aggregate Amount, if: the Participant has failed, been suspended, been
closed, or the like; or, in the opinion of the Reserve Bank holding the Participant's Master
Account, the Participant does not, or will not at the end of the day, have in its Master
Account a balance of actually and finally collected funds sufficient to cover its debit
Aggregate Amount.
3.1.2 The Reserve Bank processing Claims may elect not to make Claim Adjustments for a
Participant through a correspondent, and the Reserve Bank holding the correspondent's
Master Account may reject a Participant's debit Aggregate Amount, if: the correspondent
has failed, been suspended, been closed, or the like; or, in the opinion of the Reserve Bank
holding the correspondent's Master Account, the correspondent's does not, or will not at
the end of the day, have in its Master Account a balance of actually and finally collected
funds sufficient to cover its debit Aggregate Amount.
3.2 Posting Debits
3.2.1 By 2:00 p.m. ET each banking day, the Reserve Bank shall attempt to process each debit
Aggregate Amount to the Participant's or correspondent's Master Account prior to
processing any credit Aggregate Amounts. If a debit passes all edits and is not rejected, the
Participant's or correspondent's Master Account shall be debited the full amount of the debit
Aggregate Amount and the Reserve Bank shall immediately credit the ACAP Account the
same amount. A debit made to a Master Account and a credit made to the ACAP Account
under this paragraph shall each be final and irrevocable at the time it is made. If a debit
Aggregate Amount is rejected, it shall be handled in accordance with paragraph 3.3, but
the Reserve Bank shall continue to process other debit Aggregate Amounts.
3.3 Rejected Debit Aggregate Amount
3.3.1 If a debit Aggregate Amount is rejected, the Reserve Bank processing Claims shall
promptly notify the Participant or the correspondent that the debit has been rejected.
The Participant or correspondent may arrange to deposit additional funds to its Master
Account. By 2:30 p.m. ET the Reserve Bank will again attempt to process the debit
Aggregate Amount. If at that time the debit Aggregate Amount passes all edits and is
not rejected, the Master Account of the Participant or correspondent Participant shall
be debited the amount of the debit Aggregate Amount and the Reserve Bank shall
immediately credit the ACAP Account the same amount. A debit made to a Master
Account and a credit made to the ACAP Account under this paragraph shall each be
final and irrevocable at the time it is made.
18
3.3.2 If a debit Aggregate Amount for one or more Participants or correspondents is again
rejected, however, the Reserve Bank shall cancel processing of the original group of
Aggregate Amounts. The Reserve Bank shall debit the ACAP Account the amount of
each debit Aggregate Amount that had resulted in a credit to the ACAP Account, and
credit the same amount to the Master Account of the Participant or correspondent with
the original debit Aggregate Amount. m debit made to the ACAP Account and a credit
made to a Master Account under this paragraph shall each be final and irrevocable at the
time it is made.
3.3.3 If the Reserve Bank cancels processing, the Reserve Bank shall remove from the ACAP
Feature all of the Claims (both debits and credits) included in the Aggregate Amounts
rejected on the second attempt and redetermine the Aggregate Amounts for the remaining
Participants and correspondents. The Reserve Bank shall notify the remaining Participants
that the Aggregate Amounts have been recalculated and provide updated information in
accordance with Paragraphs 2.3.2 and 2.3.3.
3.3.4 The Reserve Bank shall then restart the process of effecting the Aggregate Amounts of Claims.
If this process again does not result in full funding of the ACAP Account in accordance
with Paragraph 3.4, the Reserve Bank may, in its sole discretion, elect to again delete the
Claims Aggregate Amounts that were rejected, recalculate Aggregate Amounts, and start the
process again, or cancel the process of effecting Aggregate Amounts for the day.
3.3.5 If the Reserve Bank cancels the process of effecting Aggregate Amounts for a banking day,
the Reserve Bank shall notify all Participants of the cancellation. A Participant whose
Claims were not adjusted on the scheduled banking day, either because its Claims were
removed under Paragraph 3.3.3 or because processing was cancelled for the day, shall make
or seek payment of the Claims directly to or from the other Participant.
3.4 Posting Credit Aggregate Amounts
3.4.1 The ACAP Account is fully funded once the balance in the ACAP Account is equal to
the sum of all debit Aggregate Amounts. Once the ACAP Account has been fully funded,
the Reserve Bank shall debit the ACAP Account the amount of each credit Aggregate
Amount, and the Participant's or correspondent's Master Account shall be immediately
credited in the same amount. Each such debit to the ACAP Account and credit to a Master
Account shall be final and irrevocable at the time it is made.
4.0 LIMITATIONS ON RESERVE BANK'S LIABILITY AND DUTIES; INDEMNIFICATION
4.1 Limitations on Duties and Liability of Reserve Banks
4.1.1 The Reserve Banks are not liable for the insolvency, neglect, misconduct, mistake or
default of any other entity or person, including a Participant or a correspondent. Except
as otherwise specifically provided herein, the account-holding Reserve Bank is liable only
for the actual direct loss sustained by the immediate Participants or correspondents using
Claim Adjustment services proximately caused by the Reserve Banks' failure to exercise
ordinary care or act in good faith. With respect to this liability, only the Reserve Bank
holding the Sender's account is liable to the Sender and only the Reserve Bank holding
the Receiver's account is liable to the Receiver. The amount of a l:~eserve Bank's liability
to a Participant or correspondent is limited to no more than the dollar amount of a Claim
Adjustment plus reasonable interest and incidental expenses, unless the Participant's or
correspondent's claim is based on delay of a Claim Adjustment, in which case the Reserve
Bank's liability is limited to reasonable interest and incidental expenses. In no event shall a
19
Reserve Bank be liable for consequential, indirect, incidental or special damages (including
lost profits) however derived, and regardless of whether the Reserve Bank has been
informed of the possibility thereof.
4.1.2 In the event of an emergency or failure of a Reserve Bank's computer or operations facilities,
Claim Adjustments may be delayed until the emergency or failure is resolved. During
extended disruptions, the Reserve Bank's Fedwire operations may be relocated to a back-up
site. Participants and correspondents should refer to the Reserve Bank's contingency
guidelines regarding Participant requirements and responsibilities during contingency
operations.
4.1.3 A Participant using the ACAP Feature shall defend, indemnify, and hold the Reserve Banks
harmless from any claim, loss, liability, cost, or expense, made against them by any person,
including but not limited to Participant's correspondent, or incurred by them, including
but not limited to attorneys' fees and expenses of litigation, resulting from the Participant's
use of the ACAP Feature or the other services provided under this Appendix, or the acts
or omissions of the Participant or its agents, including but not limited to the Participant's
correspondent, excluding only: (i) any claim, loss, liability, cost, or expense arising solely
out of a Reserve Bank's failure to act in good faith or exercise ordinary care, and (ii) a
direct loss to the Reserve Bank holding the Participant's or correspondent's Master
Account resulting from an overdraft in that account caused by a final and irrevocable
debit under this Appendix.
5.0 FEES
5.1 The fees for the services provided under this Appendix are listed in the Reserve Bank's fee
schedule as amended from time to time and shall be debited as provided in Paragraph 14 of
Operating Circular 7.
6.0 AMENDMENT
6.1 The Reserve Banks reserve the right to amend this Appendix at any time without prior notice.
2o