HomeMy WebLinkAboutMINUTES - 01211997 - C43 TO: BOARD OF SUPERVISORS s.E...c_
Contra
FROM: Alfred P. Lomeli Treasurer-Tax Collector �`'
�. Costa
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DATE: Januar 7 1997 '�`\- *°
January ' County
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SUBJECT: INVESTMENT POLICY
SPECIFIC REOUEST(S)OR RECOMMENDATION(S)8 BACKGROUND AND JUSTIFICATION
RECOMMENDED ACTION:
ACCEPT the Contra Costa County Investment Policy dated January 1997.
FINANCIAL IMPACT:
None
REASONS FOR RECOMMENDATION:
After the formation of the Treasury Oversight Committee, one of the first priorities was
to review the Contra Costa County Investment Policy and recommend any changes
and/or additions to the County Treasurer.
At the November 12, 1996, meeting, the Treasury Oversight Committee recommended
several changes to the existing policy. Those changes were reviewed and approved by
the County Treasurer. Therefore, the policy being presented is the new and revised
version that will be used by the County Treasurer. This policy will be reviewed
annually.
CONSEQUENCES OF NEGATIVE ACTION:
In order for the County Treasurer to do his investments, it is necessary to have
guidelines. This policy has been reviewed and approved by the Treasury Oversight
Committee which was formed to review, comment and advise the County Treasurer
and Board of Supervisors on the county investments and related activity in the
Treasurer's Office.
CONTINUED ON ATTACHMENT: X YES SIGNATURE: �.o (\j —
RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATURE(S):
ACTION OF BOARD ON APPROVED AS RECOMMENDED OTHER
APPROVED the recommendations as set forth above, and REFERRED to the
Finance Committee the request of the Treasury Oversight Committee to
accept the continuation of the Contra Costa County Investment Policy.
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A TRUE
UNANIMOUS(ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN
AY NOES: AND ENTERED ON THE MINUTES OF THE BOARD
ABNT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN.
ATTESTED 1JAI I®,w d J X17 1397
Contact: Clarissa. V.. iavler PHIL TCHELOR,CL K OF THE BOARD OF
CC: County P.ciminlstrator, SUPERVISORS AND COUNTY ADMINISTRATOR
Auditor-Controller
Treasurer-Tax Collector
Treasury Oversight Committee (c/o Treasurer) BY '
,DEPUTY
cq-D
CONTRA COSTA COUNTY
INVESTMENT POLICY
JANUARY 1997
TABLE OF CONTENTS
OBJECTIVES AND STANDARDS 1
AUTHORIZED INVESTMENTS 2
FURTHER RESTRICTIONS AND LIMITATIONS 6
INVESTMENT MATURITY 7
QUALITY OF INVESTMENT INSTRUMENTS, ISSUERS
AND SOURCES 7
SAFEKEEPING AND CUSTODY 8
AUTHORIZED BROKERS AND DEALERS 9
LIMITS ON RECEIPT OF HONORARIA, GIFTS, AND GRATUITIES 10
INVESTMENT REPORT 13
PLEDGE REPORT 13
REVERSE REPURCHASE AGREEMENTS 13
TREASURER'S CHARGES 14
NON-MANDATED DEPOSITS INTO THE TREASURY 15
BROKERS AND ISSUERS 16
GLOSSARY 17
C,�3
INVESTMENT POLICY
OBJECTIVES AND STANDARDS:
' 553600.3. Standard for governing bodies or persons authorized to
make investment decisions for local agencies.
Governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public
funds pursuant to this chapter are trustees and therefore fiduciaries
subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, and managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, that a prudent person acting in a like
capacity and familiarity with those matters would use in the conduct of
funds of a like character and with like aims, to safeguard the principal and
maintain the liquidity needs of the agency. Within the limitations of this
section and considering individual investments as part to an overall
strategy, a trustee is authorized to acquire investments as authorized by
law.
553600.5. Trustee's objectives regarding funds.
When investing, reinvesting, purchasing, acquiring, exchanging, selling,
and managing public funds, the primary objective of a trustee shall be to
safeguard the principal of the funds under its control. The secondary
objective shall be to meet the liquidity needs of the depositor. The third
objective shall be to achieve a return on the funds under its control.
' Numbers refer to government code numbers and section.
1
INSTRUMENTS AUTHORIZED FOR INVESTMENT:
853601. Instruments authorized for investment.
(a) Bonds issued by the local agency, including bonds payable solely
out of the revenues from a revenue-producing property owned, controlled,
or operated by the local agency or by a department, board, agency, or
authority of the local agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United States
are pledged for the payment of principal and interest.
(c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a revenue-
producing property owned, controlled, or operated by the state or by a
department, board, agency, or authority of the state.
(d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely out
of the revenues from a revenue-producing property owned, controlled, or
operated by the local agency, or by a department, board, agency, or
authority of the local agency.
(e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank Board, the Tennessee Valley Authority,
or in obligations, participations or other instruments of, or issued by, or
fully guaranteed as to principal and interest by, the Federal National
Mortgage Association; or in guaranteed portions of Small Business
Administration notes; or in obligations, participations, or other
instruments of, or issued by, a federal agency or a United States
government-sponsored enterprise.
(f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances. Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus money that may be invested pursuant to this
section. However, no more than 30 percent of the agency's surplus funds
may be invested in the bankers acceptances of any one commercial bank
pursuant to this section. This subdivision does not preclude a municipal
utility district from investing any surplus money in its treasury in any
manner authorized by the Municipal Utility District Act (Division 6
(commencing with Section 11501) of the Public Utilities Code).
2
(g) Commercial paper of "prime" quality of the highest ranking or of the
highest letter and numerical rating as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation. Eligible paper is
further limited to issuing corporations that are organized and operating
within the Unites States and having total assets in excess of five hundred
million dollars ($500,000,000) and having an "A" or higher rating for the
issuer's debt, other than commercial paper, if any, as provided for by
Moody's Investors Service, Inc., or Standard and Poor's Corporation.
Purchases of eligible commercial paper may not exceed 180 days
maturity nor represent more than 10 percent of the outstanding paper of
an issuing corporation. Purchases of commercial paper may not exceed
15 percent of the agency's surplus money that may be invested pursuant
to this section. An additional 15 percent, or a total of 30 percent of the
agency's surplus money, may be invested pursuant to this subdivision.
The additional 15 percent may be invested only if the dollar-weighted
average maturity of the entire amount does not exceed 31 days. "Dollar-
weighted average maturity" means the sum of the amount of each
outstanding commercial paper investment multiplied by the number of
days to maturity, divided by the total amount of outstanding commercial
paper.
(h) Negotiable certificates of deposits issued by a nationally or state-
chartered bank or a state or federal association (as defined by Section
5102 of the Financial Code) or by a state-licensed branch of a foreign
bank. Purchases of negotiable certificates of deposit may not exceed 30
percent of the agency's surplus money which may be invested pursuant to
this section. For purposes of this section, negotiable certificates of
deposits do not come within Article 2 (commencing with Section 53630),
except that the amount so invested shall be subject t0-the limitations of
Section 53638.
(1) Investments in repurchase agreements or reverse repurchase
agreements of any securities authorized by this section, as long as the
agreements are subject to this subdivision, including, the delivery
requirements specified in this section.
(1) "Repurchase Agreement" means a purchase of securities
by the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date and for a
specified amount and the counterparty will deliver the underlying
securities to the local agency by book entry, physical delivery, or by third
party custodial agreement. The transfer of underlying securities to the
counterparty bank's customer book-entry account may be used for book-
entry delivery.
3
(A) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue date,
and maturity.
(B) Investments in repurchase agreements may be made,
on any investment authorized in this section, when the term of the
agreement does not exceed one year. The market value of securities that
underlay a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value shall
be adjusted no less than quarterly. However, the value of the securities
underlying a repurchase agreement may be 100 percent of the sales price
so long as the securities are marked-to-market daily.
(2) "Reverse repurchase agreement" means a sale of
securities by the local agency pursuant to an agreement by which the
local agency will repurchase the securities on or before a specified date
and includes other comparable agreements. _
Reverse repurchase agreements may be utilized only
when either of the following conditions are met:
The security to be sold on reverse repurchase agreement
has been owned and fully paid for by the local agency for a minimum of
30 days prior to sale; the total of all reverse repurchase agreements on
investments owned by the local agency does not exceed 10 percent of the
base value,of the portfolio; and the agreement does not exceed a term of
92 days, unless the agreement includes a written codicil guaranteeing a
minimum earning or spread for the entire period between the sale of a
security using a reverse repurchase agreement and the final maturity date
of the same security.
(3) Repurchase agreements and reverse repurchase
agreements shall be made with primary dealers of the Federal Reserve
Bank of New York.
(j) Medium-term notes of a maximum of five years maturity issued by
corporations organized and operating within the United States or by
depository institutions licensed by the United States or any state and
operating within the United States. Notes eligible for investment under
this subdivision shall be rated in a' rating category of "A" or its equivalent
or better by a nationally recognized rating service. Purchases of medium-
term notes may not exceed 30 percent of the agency's surplus money
which may be invested pursuant to this section.
4
(k) Notwithstanding anything to the contrary contained in this
section, Section 53635, or any other provision of law, moneys held by
a trustee or fiscal agent and pledged to the payment or security of bonds
or other indebtedness, or obligations under a lease, installment sale, or
other agreement of a local agency, or certificates of participation in those
bonds, indebtedness, or lease installment sale, or other agreements, may
be invested in accordance with the statutory provisions governing the
issuance of those bonds, indebtedness, or lease installment sale, or other
agreement, or to the extent not inconsistent therewith or if there are no
specific statutory provisions, in accordance with the ordinance,
resolution, indenture, or agreement of the local agency providing for
the issuance.
(1) Notes, bonds, or other obligations that are at all times secured by
a valid first priority security interest in securities of the types listed by
Section 53651 as eligible securities for the purpose of securing local
agency deposits having a market value at least equal to that required by _
Section 53652 for the purpose of securing local agency deposits. The
securities serving as collateral shall be placed by delivery or book entry
into the custody of a trust company or the trust department of a bank
which is not affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the requirements of
the Uniform Commercial Code or federal regulations applicable to the
types of securities in which the security interest is granted.
(m) Any mortgage pass-through security, collaterialized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable pass-through
certificate, or consumer receivable-backed bond of a maximum of five
years maturity. Securities eligible for investment under this subdivision
shall be issued by an issuer having an "A" or higher rating for the issuer's
debt as provided by a nationally recognized rating service and rated in a
rating category of "AA" or its equivalent or better by a nationally
recognized rating service. Purchase of securities authorized by this
subdivision may not exceed 20 percent of the agency's surplus money
that may be invested pursuant to this section.
5
FURTHER RESTRICTIONS / LIMITATIONS BY GOVERNMENT CODE
AND COUNTY TREASURER
Further Restrictions Set By Treasurer.
A. Reverse repurchase agreements will be used strictly for the
purpose of supplementing income with a limit of ten percent (10%) of the
total portfolio without prior approval of the Treasurer.
B. Swaps and Trades will each be approved on a per trade basis.by
Treasurer or Chief Investment Officer.
C. SBA loans require prior approval of the Treasurer in every
transaction.
D. Repurchase Agreements will generally be limited to Wells Fargo
Bank, Bank of America, or other institutions that tri-party agreements have
been executed with the County treasury. Collateral will be held by a third
party to the transaction which may include the trust department of
particular banks. Collateral will be only securities that comply with
Government Code 53601.
E. Securities purchased through brokers will be held in safekeeping at
the Bank of New York or as designated by the specific contract(s) for
government securities and tri-party repurchase agreements.
F. Bank C.D.'s will be collateralized at 105% by government securities
or 150% by current mortgages. There will be no waiver of the first
$100,000 collateral except by special arrangement with the Treasurer.
553601.6. Prohibited investments by government code.
(a) A local agency shall not invest any funds pursuant to this article in
inverse floaters, range notes, or interest-only strips that are derived
from a pool of mortgages.
(b) A local agency shall not invest any funds pursuant to this article in any
security that could result in zero interest accrual if held to maturity.
However, a local agency may hold prohibited instruments until their
maturity dates. The limitation in this subdivision shall not apply to local
agency investments in shares of beneficial interest issued by diversified
management companies registered under the Investment Company Act of
1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for
investment pursuant to subdivision (k) of Section 53601.
6
553601 Instruments authorized for investments: Maturity
. . . .Where this section does not specify a limitation on the term or
remaining maturity at the time of the investment, no investment shall be
made in any security, other than a security underlying a repurchase or
reverse repurchase agreement authorized by this section, that at the time
of the investment has a term remaining to maturity in excess of five
years, unless the legislative body has granted express authority to make
that investment either specifically or as a part of an investment program
approved by the legislative body no less than three months prior to the
investment . . . .
Quality of Investment Instruments, Issuers and Sources
Regular financial review and analysis of issuers and sources of securities
such as banks and brokerage firms shall be performed. These will be
based on credit rating services' evaluations, financial documents such as
audits, form 10-Q filings to the Securities and Exchange Commission, and
other reliable financial information.
SAFEKEEPING & CUSTODY
853601. Instruments authorized for investment.
A local agency purchasing or obtaining any securities prescribed in
this section, in a negotiable, bearer, registered, or nonregistered format,
shall require delivery of the securities to the local agency, including those
purchased for the agency by financial advisors, consultants, or managers
using the agency's funds, by book entry, physical delivery, or by third
party custodial agreement. The transfer of securities to the counterparty
bank's customer book entry account may be used for book entry delivery.
For purposes of this section "counterparty" means the other party to the
transaction. A counterparty bank's trust department or separate
safekeeping department may be used for,the physical delivery of the
security if the security is held in the name of the local agency. . . . . . .
In compliance with this section, the securities of Contra Costa County
and its agencies shall be in safekeeping at Bank of New York, a
counterparty bank's trust department or as defined in the debt indenture,
and contract.
8
AUTHORIZED BROKERS AND DEALERS:
Securities for Contra Costa County and its agencies shall be purchased
from the following:
1. Primary dealers of the Federal Reserve Bank of New York and
their subcontracts.
2. Banks and financial institutions who sell and buy instruments
authorized for investments per Government Code 563601 et.
seq. and their subcontracts.
3. Issuers of securities authorized by Government Code 53601 et.
seq.
Securities shall not be purchased from brokers, brokerages, dealers, or
securities firms who within any consecutive 48-month period following
January 1, 1996, made a political contribution in an amount exceeding the Y
limitations contained in Rule G-37 of the Municipal Securities Rulemaking
Board, to the local treasurer, any member of the governing board of the
local agency, or any candidate for those offices.
9
LIMITS ON THE RECEIPT OF HONORARIA, GIFTS, AND GRATUITIES
Gift Prohibitions:
All state and local officials who are listed in Government Code Section
87200, and candidates for those elective offices (except judges and
judicial candidates), are prohibited from accepting a gift or gifts
aggregating more than $280 in a calendar year from a single source.
In addition, elected state officers, candidates for state offices, and state
board and commission members are subject to a $10 per calendar month
limit on gifts from lobbyists and lobbying firms registered with the
Secretary of State.
Honorarium Prohibition:
All state and local officials who are listed in Government Code Section
87200, and candidates for those elective offices (except judges and
judicial candidates), are prohibited from accepting any honorarium for any
speech given, article published, or attendance at any public or private
conference, convention, meeting, social event, meal, or like gathering.
Exceptions:
• The $280 gift limit and honorarium prohibition do not apply to a
part-time member of the governing board of a public institution of higher
education, unless the member is also an elected official.
• For state board and commission members, the $280 gift limit and
honorarium prohibition are applicable only if the member would be
required to report the receipt of income or gifts from the source on his or
her statement of economic interests. The $10 gift limit is applicable only
to lobbyists and lobbying firms registered to lobby the board or
commission member's agency.
Disqualification:
Public officials are, under certain circumstances, required to disqualify
themselves from making, participating in, or attempting to influence
governmental decisions which will affect any of their financial interests,
not just those which they are required to disclose on a statement of
economic interests.
10
Enforcement:
The Fair Political Practices Commission may impose penalties for
statements of economic interests which are filed late. The fine is $10 per
day, beginning the day after the filing deadline, up to a maximum of $100.
Late filing penalties can be reduced or waived under certain
circumstances.
In addition, the Fair Political Practices Commission may initiate
investigations with respect to any suspected violation of the Political
Reform Act. Other law enforcement agencies (the Attorney General or
district attorney) may initiate investigations under certain circumstances.
If violations are found, the Commission may initiate administrative
enforcement proceedings which could result in the imposition of monetary
penalties of up to $2,000 per violation. In lieu of administrative
prosecution, a civil action may be brought for negligent or intentional
violations by the appropriate civil prosecutor (the Commission, Attorney
General or district attorney) where the measure of damages for most
violations is the amount of value not properly reported. Persons who
violate the conflict of interest disclosure provisions of the Political Reform
Act can also be subject to discipline by their agency, including dismissal.
Finally, a knowing or willful violation of any provision of the Political
Reform Act is a misdemeanor. Persons convicted of a misdemeanor may
be disqualified for four years from the date of the conviction from serving
as a lobbyist or running for elective office, in addition to other penalties
which may be imposed. The Act also provides for numerous civil
penalties, including monetary penalties and damages, and injunctive relief
from the courts.
FURTHER AMENDMENTS TO THE CONFLICT OF INTEREST CODES
(Per a Contra Costa County Board of Supervisors Order dated
February 6, 1996):
Amend all local Conflict of Interest Codes as follows:
Pursuant to Government Code sections 87302 and 87306 et. seq., this
Board hereby amends every local Conflict of Interest Code previously
approved by the Board of Supervisors to add the following:
"All other provisions of this Code notwithstanding, the following
provisions hereafter apply:
1. No designated employee shall accept any honorarium.
11
Subdivisions (b), (c), and (e) of Government Code section 89502
shall apply to the prohibitions in this section. This section shall not limit
or prohibit payments, advances, or reimbursements for travel and related
lodging and subsistence authorized by Government Code section 89506.
2. No designated employee shall accept any gifts with a total
value of more than two hundred eighty dollars ($280) in a calendar year
from any single source.
Subdivision (d) of Government Code section 89504 shall apply to
this section.
This amendment is necessary to assure that all local codes comply with
recent amendments to Government Code section 89502.
12
1. INVESTMENT REPORT.
The Treasurer will submit a quarterly report in compliance with and as
defined by Government Code Section 16481.2.
II. PLEDGE REPORT
Any security(s) that is (are) pledged or loaned for any purpose shall be
reported in the Quarterly Investment Report. The transaction detail will,be
provided, including purpose, beginning and termination dates and all
parties to the contract. The security(s) description(s) as to type, name,
maturity date, coupon rate, CUSIP, and other material information will be
included.
II1. REVERSE REPURCHASE AGREEMENTS
All reverse repurchase agreements entered into, whether active or
inactive by the end of each quarter, shall be reported in the Treasurer's
Quarterly Investment Report.
13
METHODOLOGY OF CALCULATING AND APPORTIONING TREASURY
COSTS:
A. Regular and Routine Investments:
1. $20 per investment transaction; i.e., $20 at placement and $20
at maturity.
2. .00333 of interest income; i.e.; $3.33 per $1,000 of interest
income.
Charged quarterly by journal entry.
B. Special Reports and Research
Actual staff time and materials.
C. Special Bank Transactions
Actual bank fee schedule
14
NON-MANDATED DEPOSITS INTO THE TREASURY
Following are the terms and conditions for deposit of funds for investment
purposes by entities that are not legally required to deposit their funds in
the County Treasury.
1. Resolution by the County Board of Supervisors authorizing the
acceptance of outside participants by the County Treasury.
2. Resolution by the legislative or governing body of the local agency
authorizing the investment of funds pursuant to Government Code
53684.
3. Treasury investments will be directed transactions.
Withdrawal of funds in the treasury shall coincide with investment
maturities or authorized sale of securities by the legislative or governing
body of the local agency.
15
BROKERS AND ISSUERS
American Express
Bank of America
Bank of the West
Bankers Trust
Barclays
Bear Stearns
Citicorp
Civic Bank of Commerce
Commercial Bank of Fremont
CS First Boston
Dean Witter
Donaldson Lufkin Jenrette
First Commercial Bank
Foresight Capital Management
General Electric
Glendale Federal Bank
Goldman Sachs
Government Perspectives
Great Western Bank
Home Savings of America
John Deere Co
JP Morgan
Lehman
Mechanics Bank
Mellon Bank
Merrill Lynch
Morgan Stanley
Nationsbank Corporation
Nikko Securities
Paine Webber
Prudential Securities
Salomon Brothers
Smith Barney
Sumitomo Bank
Union Bank of California
Wells Fargo Bank
Westamerica Bank
Note: The County Treasury will not be limited to the above list. Others will be included
as long as all conditions for authorized brokers and dealers set forth in this policy are
met. Additionally, deletions and additions are based on the maintenance of required
credit quality as rated by Standard and Poor's, Moody's, GFI (Gerry Findley
Incorporated) and other recognized rating services and reliable financial sources.
16
cy�3
GLOSSARY
Agencies - a colloquial term for securities issued by the of the federal agencies.
Bankers Acceptances - Bankers Acceptance is a time bill of exchange drawn
on and accepted by a commercial bank to finance the exchange of goods.
When a bank "accepts" such a bill, the time draft becomes, in effect, a predated,
certified check payable to the bearer at some future specified date. Little risk is
involved for the investor because the commercial bank assumes primary liability
once the draft is accepted.
Basis Point - one basis point is equal to 1/100 of one percent. If interest rates
increase from 8.25% to 8.50%, the difference is referred to as a 25 basis point
increase.
Blue Sky Laws - common term for state securities law, which vary from state to
state. Generally refers to provision related to prohibitions against fraud, dealer
and broker regulations, and securities registration.
Book Value - refers to value of a held security as carried in the records of an
investor. May differ from current market value of the security.
Certificates of Deposit (C/D's) - C/D's are certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified rate of return. They are issued in two forms - negotiable and non-
negotiable.
A. Negotiable Certificates of Deposit
May be sold by one holder to another prior to maturity. This is possible
because the issuing bank agrees to pay the amount of the deposit plus
interest earned to the bearer of the certificate at maturity.
B. Non-Negotiable Certificates of Deposit
These certificates are collateralized and are not money market
instruments since they cannot be traded in the secondary market. They
are issued on a fixed maturity basis and often pay higher interest rates
than are permissible on other savings or time deposit accounts.
Commercial Paper - short-term, unsecured promissory notes issued in either
registered or bearer form, and usually backed by a line of credit with a bank.
Maturities do not exceed 270 days and generally average 30-45 days.
17
Coupon Rate - the annual rate of interest payable on a security expressed as a
percentage of the principal amount.
CUSIP Numbers - (Committee on Uniform Security Identification Procedures) -
Identification numbers assigned each maturity of a security issue, and usually
printed on the face of each individual security in the issue. The CUSIP numbers
are intended to facilitate identification and clearance of securities.
Liquidity - usually refers to the ability to convert assets (such as investments)
into cash.
Mark to Market - valuing the inventory of held securities at its current market
value.
Market Value - price at which a security can be traded in the current market.
Maturity - the date upon which the principal of a security becomes due and
payable to the holder.
Medium-Term Notes (MTNs) - Medium-Term Notes are corporate debt
obligations continuously offered in a broad range of maturities. MTNs were
created to bridge the gap between commercial paper and corporate bonds. The
key characteristic of MTNs is that they are issued on a continuous basis.
Money Market Instruments - private and government obligations of one year or
less.
Offer - the price of a security at which a person is willing to sell.
Par Value - the stated or face value of a security expressed as a specific dollar
amount marked on the face of the security; the amount of money due at maturity.
Par value should not be confused with market value.
Premium - the amount by which the price paid for a security exceeds par value,
generally representing the difference between the nominal interest rate and the
actual or effectivereturn to the investor.
Repurchase Agreement or RP or REPO - an agreement consisting of two
simultaneous transactions whereby the investor purchases securities from a
bank or dealer, and the bank or dealer agrees to repurchase the securities at the
same price on a certain future date. The interest rate on a RP is that which the
dealer pays the investor for the use of his funds. Reverse repurchase
agreements are the mirror image of RPs, when the bank or dealer purchases
securities from the investor under an agreement to sell them back to the
investor.
18
Settlement Date - the date used in price and interest computations, usually the
date of delivery.
SLUGS - an acronym for State and Local Government Series. SLUGS are
special United States Government securities sold by the Secretary of the
Treasury to states, municipalities and other local government bodies through
individual subscription agreements. The interest rates and maturities of SLUGS
are arranged to comply with arbitrage restrictions imposed under Section 103 of
the Internal Revenue Code. SLUGS are most commonly used for deposit, in
escrow in connection with the issuance of refunding bonds.
SWAP - Generally refers to an exchange of securities, with essentially the same
par value, but may vary in coupon rate, type of instrument, name of issuer and
number of days to maturity. The purpose of the swap may be to enhance yield,
to shorten the maturity, or any benefit deemed by the contracting parties.
Treasury Securities - debt obligations of the United States Government sold by
the Treasury Department in the forms of bills, notes, and bonds.
Bills - Short-term obligations which mature in one year or less, and are
sold at a discount in lieu of paying periodic interest.
Notes - Interest bearing obligations which mature between one year and
10 years.
Bonds - Interest bearing long-term obligations which generally mature in
10 years or more.
19