[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: 31CFR344.7]

[Page 282]
 
                  TITLE 31--MONEY AND FINANCE: TREASURY
 
         CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
 
PART 344_U.S. TREASURY SECURITIES_STATE AND LOCAL GOVERNMENT SERIES
--Table of Contents
 
                   Subpart C_Demand Deposit Securities
 
Sec.  344.7  What are Demand Deposit securities?

    Source: 70 FR 37911, June 30, 2005, unless otherwise noted.


    Demand Deposit securities are one-day certificates of indebtedness 
that are automatically rolled over each day until you request 
redemption.
    (a) How are the SLGS rates for Demand Deposit securities determined? 
Each security shall bear a variable rate of interest based on an 
adjustment of the average yield for three-month Treasury bills at the 
most recent auction. A new rate is effective on the first business day 
following the regular auction of three-month Treasury bills and is shown 
in the SLGS rate table. Interest is accrued and added to the principal 
daily. Interest is computed on the balance of the principal, plus 
interest accrued through the preceding day.
    (1) How is the interest rate calculated? (i) First, you calculate 
the annualized effective Demand Deposit rate in decimals, designated 
``I'' in Equation 1, as follows:
[GRAPHIC] [TIFF OMITTED] TR30JN05.001



(Equation 1)

Where:

I = Annualized effective Demand Deposit rate in decimals.
P = Average auction price for the most recently auctioned 13-week 
Treasury bill, per hundred, to six decimals.
Y = 365 (if the year following issue date does not contain a leap year 
day) or 366 (if the year following issue date does contain a leap year 
day).
DTM = The number of days from date of issue to maturity for the most 
recently auctioned 13-week Treasury bill.
MTR = Estimated marginal tax rate, in decimals, of purchasers of tax-
exempt bonds.
TAC = Treasury administrative costs, in decimals.

    (ii) Then, you calculate the daily factor for the Demand Deposit 
rate as follows:

DDR = (1 + I)1/Y -1


(Equation 2)

    (2) Where can I find additional information? Information on the 
estimated average marginal tax rate and Treasury administrative costs 
for administering Demand Deposit securities, both to be determined by 
Treasury from time to time, will be published in the Federal Register.
    (b) What happens to Demand Deposit securities during a Debt Limit 
Contingency? At any time the Secretary determines that issuance of 
obligations sufficient to conduct the orderly financing operations of 
the United States cannot be made without exceeding the statutory debt 
limit, we will invest any unredeemed Demand Deposit securities in 
special ninety-day certificates of indebtedness. Funds invested in the 
ninety-day certificates of indebtedness earn simple interest equal to 
the daily factor in effect at the time Demand Deposit security issuance 
is suspended, multiplied by the number of days outstanding. When regular 
Treasury borrowing operations resume, the ninety-day certificates of 
indebtedness, at the owner's option, are:
    (1) Payable at maturity;
    (2) Redeemable before maturity, provided funds are available for 
redemption; or
    (3) Reinvested in Demand Deposit securities.