HomeMy WebLinkAboutRES NO 114-2021POLICY RESOLUTION NO. 1 1 4 2 0 2 1
A RESOLUTION OF THE COUNCIL OF THE
CITY OF BAKERSFIELD ADOPTING THE
INVESTMENT POLICY.
WHEREAS, Section 53646 of the California Government Code requires the
Treasurer or Chief Fiscal Officer to render an annual statement of Investment Policy to
the legislative body of the local agency; and
WHEREAS, the City of Bakersfield desires to adopt an Investment Policy in
conformance with the California Government Code.
NOW, THEREFORE, BE IT RESOLVED, by the Council of the City of
Bakersfield as follows:
The Council of the City of Bakersfield hereby adopts the Investment Policy as set
forth in Exhibit "A" attached hereto and made a part hereof.
......... 000 ..........
--Pagel of 2--
ORIGNAL
I HEREBY CERTIFY that the foregoing Resolution/4r&i a was passed
and adopted, by the Council of the City of Bakersfield at a regular meeting thereof held
on JUL 14 20P1 by the following vote:
NOES:
ABS IN:
BSENP
COUNCILMEMBER
COUNCILMEMBER,
COUNCILMEMBER
COUNCILMEMBER
✓ ✓ ✓ ✓ v-
GONZALES, WEEK SMITH, FREEMAN, GRAY, PARLIER
J LIE DRIMAKIS, CMC
CITY CLERK and Ex Officio
Clerk of the Council of the City of Bakersfield
APPROVED:
JUL 1 t 2021
By
I. AM mw2ol-
KAREN GOH
Mayor
APPROVED AS TO FORM:
VIRGINIA GENNARO, CITY ATTORNEY
iHUA RUDNICK
uty City Attorney II
--Page 2 of 2--
ORIGINAL
4 4.
CITY OF BAKERSFIELD
INVESTMENT POLICY
INTRODUCTION
This Investment Policy is intended to provide guidelines for the prudent investment of the City
of Bakersfield's temporary idle cash, and outline the policies for maximizing the efficiency of
the City's cash management system.
It is the policy of the City of Bakersfield to invest public funds in a manner which will provide
safety of principal and at least a market rate of return while meeting the daily cash flow demands
of the City. Investments will conform to all statutes governing the investment of public funds.
The primary goals of this policy are:
• To assure compliance with all Federal, State and Local laws governing the investment of
public funds under the control of the City Treasurer.
• To maintain the principal value of financial assets and ensure ample liquidity to meet
operating expenditures.
• Within the constraints of safety and liquidity, and within the parameters of this
Investment Policy generate a market rate of return.
The ultimate goal is to enhance the economic status of the City of Bakersfield while protecting
the safety of its financial assets.
II SCOPE
This policy applies to the investment activities of the City of Bakersfield and related entities.
Idle cash in all funds is pooled for investment purposes except tax exempt bond proceeds, which
are separated for arbitrage record keeping as required by Federal tax law and the Firemen's
Disability and Retirement Fund which is administered separately under the City of Bakersfield
Municipal Code Section 2.92. Other Post -Employment Benefits (OPEB) are administered by a
separate Investment Policy per Resolution 008-07.
Investments made on a pooled basis include monies of the City of Bakersfield, the
Redevelopment Successor Agency and the Public Financing Authority. The pooled funds are
accounted for
in the City of Bakersfield's Comprehensive Annual Financial Report (CAFR) and include:
OXX General Funds
1XX Special Revenue Funds
2XX Debt Service Funds
3XX Capital Project Funds
4XX Enterprise Funds
5XX Internal Service Funds
6XX Fiduciary -Agency Funds
Any new fund created, unless specifically exempted.
All debt issue proceeds will be invested in accordance with the associated trust indenture, and in
such a manner that facilitates arbitrage rebate calculations.
III PRUDENCE
Investments shall be made in the context of the "prudent investor" standard:
Investments shall be made with judgement and care, under circumstance then
prevailing which persons of prudence, discretion and intelligence exercise in the
management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to
be derived.
The prudent investment diversification for the City's temporary idle cash vs. the Firemen's
Disability and Retirement Fund (FDRF) is different. Up to 40% of the retirement fund may be
invested in securities of a single agency of the four United States Government Agencies
authorized in this policy. This exception to investment diversification among the highest quality
securities is deemed prudent and necessary in order to increase the available options for keeping
retirement funds fully invested at or above the 4.0 percent actuarial rate of return.
IV OBJECTIVE
Criteria for selecting investments and the order of priority are:
• Safe - Safety of principal is the foremost objective of the investment program. The
City only operates in those investments that are considered very safe. The City shall seek
to preserve principal by mitigating the two types of risk, credit risk and market risk.
Credit Risk - Potential loss due to the failure of an issuer of a security.
Market Risk - Potential decrease in the value of securities due to changes in the
general level of interest rates.
• Liquidity - Liquidity refers to the "ability to easily sell" at any moment in time with a
minimal risk of losing some portion of principal and interest. Liquidity is an important
investment quality should the need for cash occur unexpectedly.
Yield -Yield is the potential dollar earnings an investment can provide and is sometimes
described as the rate of return. The City's investment portfolio shall have the objective of
attaining a comparative performance measurement or an acceptable rate of return
throughout budgetary and economic cycles. These measurements should be
commensurate with the City's investment risk constraints identified in the Investment
Policy and the cash flow characteristics of the portfolio.
V DELEGATION OF AUTHORITY
In accordance with the City of Bakersfield Municipal Code, subsequent resolutions, -and
California Government Code Section ' 53607, the City Council assigns the responsibility of
investing unexpended cash to the Finance Director. The duties prescribed by the City Charter
state that the Finance Director shall separate the custody of moneys from the accounting of
moneys. Therefore, the City Treasurer, who reports to the Finance Director, shall be responsible
for all investment transactions undertaken and shall establish a system of controls to regulate the
City's investment activities. In the absence of the City Treasurer, the authority to execute
investment transactions will be restricted to the Finance Director, Assistant Finance Director and
the Treasury Supervisor.
VI ETHICS AND CONFLICTS OF INTEREST
All officials involved with the City of Bakersfield's investment program shall exercise their
fiduciary responsibly as custodians of the public trust. The City Treasurer, or when appropriate
the Treasury Supervisor, shall avoid any transactions that might impair public confidence in the
City's ability to manage the investment of public funds in an effective manner. The City
Treasurer, Treasury Supervisor, or any other official charged with the responsibility of making
investment decisions, shall have no vested interest in any investment being made involving
public funds of the City, and shall gain no financial benefit from such investment decisions.
VII AUTHORIZED BROKER/ DEALERS AND BANKS
All financial institutions that desire to do business with the City shall be evaluated by the City
Treasurer to determine if they are adequately capitalized, meet California Government Code
requirements and agree to abide by the conditions set forth in the City of Bakersfield Investment
Policy. Whenever reasonable and in keeping with Government Code, investments are placed
locally.
Broker/dealers are investigated to determine if there is pending legal action against the firm or
the individual broker who would be the City's contact and that the firm offers securities
appropriate to the City's needs. All broker/dealers, which may include "primary" dealers or
regional dealers that qualify under Securities & Exchange Commission Rule 15c3-1 (Uniform
Net Capital Rule), who desire to become authorized bidders for City investment transactions
must supply the City Treasurer with the following:
• Current audited financial statements
• Account authorization forms
• Proof of National Association of Securities Dealers certification
• Completed broker/dealer questionnaire
• Certification of having read and agreement to abide by the City of Bakersfield
Investment Policy
All banks that desire to become authorized bidders for time certificates of deposit (TCD) must be
a qualified public depository as established by State Law and supply the City Treasurer with the
following:
• Current audited financial statements
• Depository contracts
• A copy of the latest FDIC call report
• Certification of having read and agreement to abide by the City of Bakersfield
Investment Policy
Broker/dealer account authorizations and depository contracts will be executed by the City of
Bakersfield Finance Director as required by City Charter. The City Treasurer will maintain a list
of authorized broker/dealers and banks that are approved to do business with the City. An
annual review of the financial condition of authorized financial institutions will be conducted by
the City Treasurer.
VIII AUTHORIZED & SUITABLE INVESTMENTS
The City of Bakersfield's investment program is governed by the California Government Code
Sections 53600 et seq. Within the context of these limitations, the following investments are
authorized, as further limited herein (Single Asterisk * denotes term or percentage imposed by
State statute; Double Asterisk ** denotes term or percentage utilized by the City of Bakersfield
which is more restrictive than statute):
A. United States Treasury Bills, Notes and Bonds
United State Treasury Bills, Notes and Bonds are securities which have the full
faith and credit of the United States pledged for payment of principal and interest.
Although there is no percentage limitation of the dollar amount that can be
invested in these categories, the "prudent investor" standard shall apply.
Maturities are limited to five* years from settlement date.
Treasury Bills (T -Bills) are short-term debt obligations of the
United States Government, issued weekly with maturities up to one
year. T -Bills are considered to have virtually no credit risk and to
be the most liquid short-term fixed income instrument. Prices on
6` -n
� m
`v o
ORIG NAL
T -Bills are quoted on a discount basis. The difference between the
discount price and the full face value paid at maturity equals the
total return.
Treasury Note (T -Notes) are initially issued by the auction
process with two, five and ten year maturities. T -Notes like Bills
have virtually no credit risk and have liquidity through an active
secondary market. T -Notes are issued at Par ($1,000) with a
coupon or fixed rate of interest. The price or market value will
fluctuate above or below par depending on the coupon rate and
whether interest rates are rising or falling. T -Notes mature at par.
Treasury Bonds (T -Bonds) are initially issued by the auction
process with thirty year maturities and have characteristics similar
to T -Notes.
B. United States Government Agencies
United States Government agencies include the Federal Farm Credit Bank System
(FFCB), the Federal Home Loan Bank (FHLB), the Federal Home Loan
Mortgage Corporation (FHLMC), and the Federal National Mortgage Association
(FNMA). Government agencies issue debt in the form of discount notes, much
like T -Bills, and notes and bonds similar to T -Notes and T -Bonds. While agency
debt is not a direct obligation of the U.S. government, it is rated AA. At the time
of purchase no more than 20%** of the portfolio may be invested in any single
agency name. Maturities are limited to five* years from settlement date.
C. Bankers Acceptance
Bankers Acceptance (BA) is a time draft or bill of exchange, issued from a letter
of credit, and is normally used to finance international trade. When the accepting
bank stamps "accepted" on the draft the bank guarantees payment of the draft at a
specified future date and thereby creates an acceptance. BA's are considered
extremely safe in that there has never been a default on a BA. BA's trade on a
discount basis and may not exceed 180* days to maturity. No more than 10%**
of the portfolio may be invested in BA's issued by any one bank. No more than
40%* of the portfolio may be invested in this category. Eligible BA's are those
issued by banks with a short term rating of the highest letter and number rating
provided for by a nationally recognized statistical -rating organization.
D. Commercial Paper
Commercial Paper (CP) is a short-term promissory note. CP is sold on a discount
basis. The maximum maturity is 270 days with most issued in the 30-50 day
maturity range. Eligible CP is "prime" quality of the highest letter and number
rating provided for by a nationally recognized statistical -rating organization. CP is
issued by domestic corporations having assets in excess of $500 million and
having an A or higher rating on its debt, other than CP, as provided by Standard
and Poor's or Moody's. Purchases of eligible CP may not exceed 270* days to
maturity. No more than 10%* of the portfolio may be invested in CP issued by
any one corporation. No more than 25%* of the portfolio may be invested in this
category.
E. Repurchase Agreements
Repurchase Agreements, commonly called Repos, consist of two simultaneous
transactions. One is the purchase of securities by an investor (City of Bakersfield)
from a bank or dealer. The other is the commitment by the bank or dealer to
repurchase the securities at the same price plus interest at some mutually agreed
future date. Normally the securities are U.S. Treasury notes or bonds and are held
by a Federal Reserve Bank. Repos can be done with banks or dealers with which
the City has entered into a master repurchase contract that specifies terms and
conditions of repurchase agreements. The maturity of Repos shall not exceed
90** days. No more than 30%** of the portfolio may be invested in this
category.
F. Local Agency Investment Fund
Local Agency Investment Fund (LAIF) is a State of California managed
investment pool for local agencies within the State. Investments may be up to the
maximum permitted by State Law or 40%** of the portfolio whichever is less.
The maximum amount of deposit in any one account is $50 million. Due diligence
will be exercised in monitoring the performance of LAIF on a continual basis.
G. Time Certificates of Deposit
Time Certificates of Deposit (TCD's) are similar to a savings certificate that
anyone can purchase at a bank where there is a fixed rate of interest and a
specified maturity date. In the public funds area, TCD's are collateralized in
accordance with California Government Code and are non-negotiable. At the
time of purchase no more than 10%** of the portfolio may be in TCD's of any
one institution. Maturity is limited to five* years. No more than 40%** of the
portfolio may be invested in this category. Section 53652 of the California
Government Code also specifies that the City will have a deposit contract with
each depository.
H. Public Agency Savings Account - Demand Deposits
Public Agency Savings Account - Demand Deposits are similar to a savings
account that anyone can open at a bank. The interest rate is specified at the time
of deposit, but is subject to change. All funds can be withdrawn on demand. Like
public TCD's, public agency savings accounts are collateralized in accordance
with California Government Code requirements. No more than 30%** of the
portfolio may be invested in this category.
I. Mutual Funds
Mutual Funds are money market funds meeting criteria prescribed in California
Government Code Section 53601 and related legislation. Investment in this
category is limited to funds that invest in U.S. Government Securities and
maintain a net asset value of one (daily liquidity). The purchase price of shares
shall not include any commission that these companies may charge. No more
than 10%* of the portfolio may be invested in the shares of any one mutual fund.
No more than 20%* of the portfolio may be invested in this category. Due
diligence will be exercised in the selection and performance monitoring of mutual
funds on a continual basis.
City of Bakersfield
Summary Of Maximum Percent and Term Limitations
By Investment Type:
U.S. Treasury Bills, Notes and Bonds
U.S. Government Agency Obligations
Bankers Acceptances(1)
Commercial Paper(3)
Repurchase Agreements
Local Agency Investment Fund
Time Certificates of Deposit
Public Agency Demand Accounts
Mutual Funds
Percent Term
0 to 100%
5 Years
20% per agency
5 Years
40%(2)
180 Days
25%(2)
270 Days
30%
90 Days
40%
N/A
40%(2)
5 Years
30%
N/A
20%(2)
N/A
(1) Short-term debt rating of the highest letter and number rating provided for by a nationally
recognized statistical -rating organization.
(2) No more than 10% of the portfolio may be invested in any one entity from these categories.
(3) Highest letter and number rating provided for by a nationally recognized statistical -rating
organization.
Should any investment percentage and portfolio limitation be exceeded due to the unexpected
fluctuation in portfolio size, the affected securities may be held to avoid losses. When market
values are such that no loss is indicated, the City Treasurer shall consider restructuring the
portfolio basing the decision in part on the expected length of time the portfolio will be
imbalanced.
�gAKr9
�n
c� U
ORIGINAL
Any State of California legislative action that further restricts allowable maturities, investment
type or percentage allocations, will be incorporated into this Investment Policy and supersede
any and all previous applicable language.
IX UNAUTHORIZED INVESTMENTS
Ineligible investments are those that are not described herein, including but not limited to,
negotiable time certificates of deposit, non-government agency medium term corporate notes and
reverse repurchase agreements.
X INVESTMENT PORTFOLIO REVIEW
The securities held by the City must be in compliance with Section VIII Authorized & Suitable
Investments at the time of purchase. The City Treasurer shall review the portfolio quarterly to
identify any securities that are no longer in compliance. The City'Treasurer shall establish
procedures to report to the Finance Director and City Council, should one exist, any major and
critical incidence of noncompliance identified through the review of the portfolio.
XI INVESTMENT POOLS / MUTUAL FUNDS
A thorough investigation of the pool/fund is required prior to investing, and on a continual
basis. There shall be a questionnaire completed which will provide the following information:
1. A description of eligible investment securities, and a written statement of investment policy
and objectives.
2. A description of interest calculations and how it is distributed, and how gains and losses are
treated.
3. A description of how the securities are safeguarded (including the settlement processes), and
how often the securities are priced and the program audited.
4. A description of who may invest in the program, how often, what size deposit and
withdrawals are allowed.
5. A schedule of when statements and portfolio listings will be provided.
6. A description of how the pool/fund utilizes reserves, retained earnings, etc.
7. A fee schedule, including when and how fees are assessed.
8. The eligibility of the pool/fund to invest in bond proceeds and a description of its practices.
XII COLLATERALIZATION
Collateralization will be required on two types of investments, time certificates of deposit and
repurchase agreements. Investment in time certificates of deposit shall be insured up to
$250,000 by the Federal Deposit Insurance Corporation (FDIC). Investments in time certificates
of deposit in excess of $250,000 shall be properly collateralized. When a depository pledges
government securities as collateral, section 53652 of the California Government Code requires
the securities to have a market value of at least 10% in excess of the City's deposit or 50% in
excess of the City's deposit when mortgages are pledged as collateral. Repo collateralization
will be at least 102% of market value of principal and accrued interest. Investments held with
L
r- F5
ORIGINAL
Third Parties holding collateral for the investment shall be properly collateralized in accordance
with collateralization requirements of the California Government Code.
XIII SAFEKEEPING AND CUSTODY
All securities owned by the City shall be held in safekeeping by a third party custodian
designated by the City Treasurer and evidenced by safekeeping receipts. All security
transactions entered into by the City of Bakersfield shall be conducted on a delivery -versus -
payment (DVP) basis. Securities shall be delivered to the City by book entry, physical delivery
or by third party custodial agreement.
Upon purchase or maturity of investment securities, standing settlement instructions are provided
to the servicing banks and broker/dealers involved in the transactions. Adherence to those
standing settlement instructions ensures accurate and timely settlement of investment security
transactions. Standing settlement instructions are restricted in nature, ensuring investment
settlements are within established guidelines.
XIV DIVERSIFICATION
To reduce credit and market risk in the overall portfolio, the City will diversify its investments
by security type, maturity date and issuer. With the exception of U.S. Treasury securities,
diversification is also achieved by the portfolio percentages and maturity limitations indicated in
the Authorized & Suitable Investments section of this policy.
XV MAXIMUM MATURITIES
To the extent possible, and within the five year maximum maturity required by California
Government Code, the City of Bakersfield will attempt to match investment maturities with
anticipated cash flow requirements.
As required by California Government Code Section 53601, any investment term longer than
five years requires express authority by the City Council to make that investment. This authority
must be granted no less than three months prior to making the investment. Investments with
terms longer than five years will be limited to the lesser of $10 million or 10% of the portfolio at
the time the investment is made.
o��AK��s
� m
v p
ORIG NAL
XVI INTERNAL CONTROL
Investment transactions are reviewed by the City's external auditor as part of the annual audit.
This review verifies compliance with the City of Bakersfield Investment Policy and the
California Government Code.
XVII PERFORMANCE STANDARDS
The cash management system is designed to accurately monitor and forecast expenditures and
revenues, thus ensuring'the investment of monies to the fullest extent possible, including.the
estimated float for the Active Account and the Payroll Account. The City attempts to obtain the
highest interest yields possible as long as investments meet the criteria required for safety and
liquidity, do not exceed a term of five years (unless otherwise authorized by the City Council)
and are within portfolio percentage limitations.
The City strives to maintain the level of investment of all funds as near 100% as possible through
daily and projected cash flow determinations. The basic premise underlying the City of
Bakersfield Investment Policy is, and will continue to be, to ensure that the money is always safe
and available when needed.
Because the investment portfolio is designed to operate on a "hold -to -maturity" premise (or
passive investment style) and because of the safety, liquidity, and yield priorities, the benchmark
that will be used by the City Treasurer to determine whether market yields are being achieved
shall be the yield on the U.S. Treasury Bill or Note maturing closest to the weighted average
maturity of the City's overall portfolio.
XVIII REPORTING
The City Treasurer shall provide the City Council monthly investment reports which provide a
clear picture of the status of the current investment portfolio. The Monthly Investment Report
shall include the following:
• A listing of individual securities held at the end of the reporting period by
authorized investment category
• Final maturity of all investments listed
• Coupon, discount or earnings rate
• Par value and market value
• Transactions completed during the month
• Percentage of the portfolio represented by each investment category
• A statement of compliance with the Investment Policy
• A statement denoting the ability to meet the pool's expenditure requirements for
the next six months, or an explanation as to why sufficient money shall, or may,
not be available
XIX INVESTMENT POLICY ADOPTION
This Investment Policy shall be reviewed annually by the City Council to ensure its consistency
with the overall objectives of Safety, Liquidity and Yield, its relevance to current financial and
economic trends, and ability to meet the cash flow operational needs of the City. As part of the
City Council's annual review of the City's Investment Policy, and in accordance with the
requirement of the California Government Code, the City Council shall adopt the City's
Investment Policy by Resolution on an annual basis.
XX INDEMNIFICATION OF INVESTMENT OFFICIALS
The standard of care to be used by investment officials shall be the "prudent investor" standard
and shall be applied in the context of managing the overall portfolio. The City Treasurer and his
designees' acting in accordance with established procedures and the City of Bakersfield
Investment Policy and exercising due diligence shall be relieved of personal responsibility for an
individual security's credit risk or market price changes, provided deviations from expectations
are reported in a timely fashion and appropriate action is taken to control adverse developments.
op W k�
XXI GLOSSARY
ACCRUED INTEREST: Interest earned but not yet received.
AGENCIES: Federal agency securities and/or Government-sponsored enterprises.
ASKED: The price at which securities are offered.
AUTHORIZED INVESTMENTS: A list of permitted investments by investment type
maintained as a component to an investment policy. Allowable investment listings will generally
include descriptions or parameters for investment diversification ratios, terms of maturity, and
quality ratings.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the issuer.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of the
investment portfolio. A benchmark should represent a close correlation to the level of risk and
the average duration of the portfolio's investments.
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a
bid.) See Offer.
BOND: A financial obligation for which the issuer promises to pay the bondholder a specified
stream of future cash flows, including periodic interest payments and a principal repayment.
BROKER: A broker brings buyers and sellers together for a commission.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a
Certificate. Large -denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAER): The official annual report
of the (entity). It includes five combined statements for each individual fund and account group
prepared in conformity with GAAP. It also includes supporting schedules necessary to
demonstrate compliance with finance -related legal and contractual provisions, extensive
introductory material, and a detailed Statistical Section.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on
the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment
date.
CUSTODY: A banking service that provides safekeeping for the individual securities in a
customer's investment portfolio under a written agreement which also calls for the bank to
collect and pay out income, to buy, sell, receive and deliver securities when ordered to do so by
the principal.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and
selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery
versus payment and delivery versus receipt. Delivery versus payment is delivery of securities
with an exchange of money for the securities. Delivery versus receipt is delivery of securities
with an exchange of a signed receipt for the securities.
DISCOUNT: The difference between the cost price of a security and its maturity when quoted at
lower than face value. A security selling below original offering price shortly after sale also is
considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued a
discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills.)
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that
insures bank deposits, currently up to $250,000 per entity.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is
currently pegged by the Federal Reserve through open -market operations.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread
between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL
GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political
subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading and could presumably be purchased
or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase—reverse repurchase agreements that establishes each party's
rights in the transactions. A master agreement will often specify, among other things, the right of
the buyer -lender to liquidate the underlying securities in the event of default by the seller
borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due
and payable.
MONEY MARKET: The market in which short-term debt instruments (bills, commercial
paper, bankers' acceptances, etc.) are issued and traded.
PORTFOLIO: Collection of securities held by an investor.
PRUDENT INVESTOR RULE: An investment standard. In some states the law requires that a
fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody
state—the so-called legal list. In other states the trustee may invest in a security if it is one which
would be bought by a prudent investor of discretion and intelligence who is seeking a reasonable
income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim
exemption from the payment of any sales or compensating use or ad valorem taxes under the
laws of this state, which has segregated for the benefit of the commission eligible collateral
having a value of not less than its maximum liability and which has been approved by the Public
Deposit Protection Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its
current market price. This may be the amortized yield to maturity on a bond the current income
return.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SEC RULE 15(C)3-1: See Uniform Net Capital Rule.
i- m
V P-
OAJGNAL
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
WEIGHTED AVERAGE MATURITY (WAM): The average maturity of all the securities
that comprise a portfolio that is typically expressed in days or years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
(a) INCOME YIELD is obtained by dividing the current dollar income by the current market
price for the security.
(b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium
above par or plus any discount from par in purchase price, with the adjustment spread over the
period from the date of purchase to the date of maturity of the bond.
14
O
r
0+RluiNAL