HomeMy WebLinkAboutResolution_10-22_3/10/2022RESOLUTION NO. 10-22
A RESOLUTION OF THE VILLAGE COUNCIL OF THE VILLAGE OF
TEQUESTA, FLORIDA, ADOPTING THE VILLAGE'S REVISED
INVESTMENT POLICY IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 218.415, FLORIDA STATUTES; SUPERSEDING PRIOR
RESOLUTIONS; PROVIDING FOR CONFLICTING RESOLUTIONS;
PROVIDING AN EFFECTIVE DATE; AND FOR OTHER PURPOSES.
WHEREAS, Section 218.415, Florida Statutes, is an act relating to investment of
public funds, requiring that certain investment activity of units of local government shall
be consistent with a written investment plan providing for establishment of certain
investment policies which place priority on the safety of principal and liquidity of funds;
and
WHEREAS, the Village desires to adopt investment policies consistent with the
provisions of Section 218.415, Florida Statutes, providing scope; providing for investment
objectives; providing for performance measurement; requiring a description of the level
of prudence and ethical standards to be followed; providing for a listing of authorized
investments; providing for establishment of maturity and liquidity requirements; providing
for portfolio composition; providing for appropriate diversification to minimize risk;
providing for specification of authorized investment institutions and dealers; providing for
third -party custodial agreements; providing for repurchase agreements; providing for
competitive bidding; providing for establishment of internal controls and operational
procedures, providing for reports; and providing for conformance.
NOW, THEREFORE, BE IT RESOLVED BY THE VILLAGE COUNCIL OF THE
VILLAGE OF TEQUESTA, PALM BEACH COUNTY, FLORIDA, AS FOLLOWS:
Section 1: Resolution No. 10-22, revising the Investment Policy of the Village of
Tequesta, Florida is hereby approved and adopted as submitted and attached hereto as
"Exhibit A".
Section 2: All resolutions or parts of resolutions in conflict with the provisions of
this resolution are hereby repealed to the extent of such conflict.
Section 3: This Resolution shall become effective immediately upon passage.
EXHIBIT A
VILLAGE OF TEQUESTA, FLORIDA
INVESTMENT POLICY
Directive No. 01-21/22
Effective Date
March 10, 2022
Table of Contents
LPURPOSE................................................................................................................1
I/. SCOPE.....................................................................................................................1
III. INVESTMENT OBJECTIVES.................................................................................. 1
IV. DELEGATION OF AUTHORITY.............................................................................. 2
V. STANDARDS OF PRUDENCE............................................................................ 2
Vl. ETHICS AND CONFLICTS OF INTEREST............................................................. 3
Vll. INTERNAL CONTROLS AND INVESTMENT PROCEDURES ............................... 3
Vlll. CONTINUING EDUCATION.................................................................................... 4
IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS ............................. 4
X. MATURITY AND LIQUIDITY REQUIREMENTS..................................................... 5
Xl. RISK AND DIVERSIFICATION................................................................................ 5
Xll. MASTER REPURCHASE AGREEMENT................................................................ 5
Xlll. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS ........................... 5
XIV. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION .................... 6
XV, DERIVATIVES AND REVERSE REPURCHASEAGREEMENTS ......................... 12
XVI. PERFORMANCE MEASUREMENTS................................................................. 13
XVII. REPORTING........................................................................................................13
XVIII. THIRD -PARTY CUSTODIAL AGREEMENTS ................................................. 14
XIX. INVESTMENT POLICY ADOPTION.................................................................... 14
APPENDIX A: Glossary of Cash and Investment Management Terms
APPENDIX B: Investment Pool/Fund Questionnaire
Investment Policy
Village of Tequesta, Florida
I. PURPOSE
The purpose of this policy is to set forth the investment objectives and
parameters for the management of the funds of the Village of Tequesta,
(hereinafter "Village"). These policies are designed to ensure the prudent
management of public funds, the availability of operating and capital funds
when needed, and an investment return competitive with comparable funds
and financial market indices.
II. SCOPE
In accordance with Section 218.415, Florida Statutes, this investment policy
applies to all cash and investments held or controlled by the Village and shall
be identified as "general operating funds" or "portfolio" of the Village with the
exception of the Village's Pension Funds and funds related to the issuance
of debt where there are other existing policies or indentures in effect for such
funds. Additionally, any future revenues, which have statutory investment
requirements conflicting with this Investment Policy and funds held by state
agencies (e.g., Department of Revenue), are not subject to the provisions of
this policy.
III. INVESTMENT OBJECTIVES
Safety of Principal
The foremost objective of this investment program is the safety of the
principal of those funds within the portfolio. Investment transactions shall
seek to keep capital losses at a minimum, whether they are from securities
defaults or erosion of market value. To attain this objective, diversification is
required in order that potential losses on individual securities do not exceed
the income generated from the remainder of the portfolio.
Maintenance of Liquidity
The portfolios shall be managed in such a manner that funds are available
to meet reasonably anticipated cash flow requirements in an orderly manner.
Periodic cash flow analyses will be completed in order to ensure that the
portfolio is positioned to provide sufficient liquidity.
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Return on Investment
The investment portfolio shall be designed with the objective of attaining a
market rate of return throughout budgetary and economic cycles, taking into
account the investment risk constraints and liquidity needs. Return on
investment is of least importance compared to the safety and liquidity
objectives described above. However, return is attempted through active
management where the Investment Advisor utilizes a total return strategy
(which includes both realized and unrealized gains and losses in the
portfolio). This total return strategy seeks to increase the value of the portfolio
through reinvestment of income and capital gains. The core of investments
is limited to relatively low risk securities in anticipation of earning a fair return
relative to the risk being assumed. Despite this, an Investment Advisor may
trade to recognize a loss from time to time to achieve a perceived relative
value based on its potential to enhance the total return of the portfolio.
IV. DELEGATION OF AUTHORITY
In accordance with the Village's Charter, the responsibility for providing
oversight and direction in regard to the management of the investment
program resides with the Village Manager. The management responsibility
for all Village funds in the investment program and investment transactions
is delegated to the Village's Finance Director. The Finance Director shall
establish written procedures for the operation of the investment portfolio and
a system of internal accounting and daily procedures for investment trades
and to regulate the activities of employees. The Village may employ an
Investment Manager to assist in managing some of the Village's portfolios.
Such Investment Manager must be registered under the Investment
Advisers Act of 1940.
V. STANDARDS OF PRUDENCE
The standard of prudence to be used by investment officials shall be the
"Prudent Person" standard and shall beapplied in the context of managing the
overall investment program. Investment officers acting in accordance with
written procedures and this 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 expectation are
reported to the Village Council in a timely fashion and the liquidity and the
sale of securities are carried out in accordance with the terms of this policy.
The "Prudent Person" rule states the following:
Investments should be made with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation, but for
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investment, considering the probable safety of their capital as well as the
probable income to be derived from the investment.
While the standard of prudence to be used by investment officials who are
officers or employees is the "Prudent Person" standard, any person or firm
hired or retained to invest, monitor, or advise concerning these assets shall
be held to the higher standard of "Prudent Expert". The standard shall be
that in investing and reinvesting moneys and in acquiring, retaining,
managing, and disposing of investments of these funds, the contractor shall
exercise: the judgment, care, skill, prudence, and diligence under the
circumstances then prevailing, which persons of prudence, discretion, and
intelligence, acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of like character and with like aims by
diversifying the investments of the funds, so as to minimize the risk,
considering the probable income as well as the probable safety of their
capital.
VI. ETHICS AND CONFLICTS OF INTEREST
Employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment
program, or which could impair their ability to make impartial investment
decisions. Also, employees involved in the investment process shall disclose
to the Village Clerk, in accordance with the appropriate state statutes
governing conflicts of interest, any material financial interests in financial
institutions that conduct business with the Village, and they shall further
disclose any material personal financial/investment positions that could be
related to the performance of the Village's investment program.
VII. INTERNAL CONTROLS AND INVESTMENT PROCEDURES
The Finance Director shall establish a system of internal controls and
operational procedures that are in writing and made a part of the Village's
operational procedures. The internal controls should be designed to
prevent losses of funds, which might arise from fraud, employee error, and
misrepresentation, by third parties, or imprudent actions by employees.
The written procedures should include reference to safekeeping,
repurchase agreements, separation of transaction authority from
accounting and record keeping, wire transfer agreements, banking
service contracts, collateral/depository agreements, and "delivery vs.
payment" procedures. No person may engage in an investment
transaction except as authorized under the terms of this policy.
Independent auditors as a normal part of the annual financial audit for the
Village shall conduct a review of the system of internal controls to ensure
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compliance with policies and procedures.
VIII. CONTINUING EDUCATION
The Finance Director and appropriate staff shall annually complete a
minimum 8 hours of continuing education in subjects or courses of study
related to investment practices and products.
IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS
Authorized Village staff shall only purchase securities from financial
institutions, which are Qualified Institutions by the Village or institutions
designated as "Primary Dealers" by the Federal Reserve Bank of New
York. Authorized Village staff shall only enter into repurchase
agreements with financial institutions that are Qualified Institutions and
Primary Dealers as designated by the Federal Reserve Bank of New
York. The Village's Investment Advisor(s) shall utilize and maintain its
own list of approved primary and non -primary securities dealers. The
Finance Director and/or designee shall maintain a list of financial
institutions and broker/dealers that are approved for investment purposes
and only firms meeting the following requirements will be eligible to serve
as Qualified Institutions:
1) regional dealers that qualify under Securities and Exchange
Commission Rule 15C3-1 (uniform net capital rule);
2) Must provide their most recent Financial and Operational Combined
Uniform Single (FOCUS) report showing a minimum net capital of
$10,000,000 on either Line 3750 or Line 3760 of the report
3) registered as a dealer under the Securities Exchange Act of
1934;
4) member of the Financial Industry Regulatory Authority, Inc.
(FINRA);
5) registered to sell securities in Florida; and
6) The firm and assigned broker have been engaged in the
business of effecting transactions in U.S. government and
agency obligations for at least five (5) consecutive years.
7) Public Depositories qualified by the Treasurer of the State of
Florida, in accordance with Chapter 280, Florida Statutes.
Qualified institutions must have the ability to confirm trades through an
electronic trading platform and must complete a broker agreement prior to
initial trade. All brokers, dealers and other financial institutions deemed to
be Qualified Institutions shall be provided with current copies of the Village's
Investment Policy. A current audited financial statement is required to be on
file for each financial institution and broker/dealer with which the Village
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transacts business. An annual review of dealers will be conducted at the
end of each fiscal year.
X. MATURITY AND LIQUIDITY REQUIREMENTS
To the extent possible, an attempt will be made to match investment
maturities with known cash needs and anticipated cash flow requirements.
Investments of current operating funds should have maturities of no longer
than twenty-four (24) months.
Investments of bond reserves, construction funds, and other non -operating
funds ("core funds") shall have a final maturity of five and one-half (5.50)
years or less from the date of purchase. The overall weighted average
duration of principal return for the portfolio shall be less than three (3) years.
The maturities of the underlying securities of a repurchase agreement will
follow the requirements of the Master Repurchase Agreement.
XI. RISK AND DIVERSIFICATION
Assets held shall be diversified to control risks resulting from over
concentration of assets in a specific maturity, issuer, instruments, dealer, or
bank through which these instruments are bought and sold. The Finance
Director shall determine diversification strategies within the established
guidelines.
XII. MASTER REPURCHASE AGREEMENT
The Finance Director will require all approved institutions and dealers
transacting repurchase agreements to execute and perform as stated in the
Securities Industry and Financial Markets Association (SIFMA) Master
Repurchase Agreement. All repurchase agreement transactions will adhere
to requirements of the SIFMA Master Repurchase Agreement.
XIII. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS
After the Finance Director or the Investment Advisor has determined the
approximate maturity date based on cash flow needs and market conditions
and has analyzed and selected one or more optimal types of investments, a
minimum of three (3) Qualified Institutions and/or Primary Dealers must be
contacted and asked to provide bids/offers on securities in questions. Bids
will be held in confidence until the bid deemed to best meet the investment
objectives is determined and selected.
However, if obtaining bids/offers are not feasible and appropriate, securities
may be purchased utilizing the comparison to current market price method
on an exception basis. Acceptable current market price providers include,
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but are not limited to:
A. Tradeweb
B. Bloomberg Information Systems
C. Wall Street Journal or a comparable nationally recognized financial
publication providing daily market pricing
D. Daily market pricing provided by the Village's custodian or their
correspondent institutions
The Finance Director or the Investment Advisor shall utilize the competitive bid
process to select the securities to be purchased or sold. Selection by comparison
to a current market price, as indicated above, shall only be utilized when, in the
judgment of the Finance Director or the Investment Advisor, competitive bidding
would inhibit the selection process.
Examples of when the Village may use this method include:
1. When time constraints due to unusual circumstances preclude the use
of the competitive bidding process
2. When no active market exists for the issue being traded due to the age
or depth of the issue
3. When a security is unique to a single dealer, for example, a private
placement
4. When the transaction involves new issues or issues in the "when issued"
market
Overnight sweep investments or repurchase agreements will not be bid, but
may be placed with the Village's depository bank relating to the demand
account for which the sweep investments or repurchase agreement was
purchased.
XIV. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION
Investments should be made subject to the cash flow needs and such cash
flows are subject to revisions as market conditions and the Village's needs
change. However, when the invested funds are needed in whole or in part
for the purpose originally intended or for more optimal investments, the
Finance Director or designee may sell the investment at the then -prevailing
market price and place the proceeds into the proper account at the Village's
custodian.
The following are the investment requirements and allocation limits on
security types, issuers, and maturities as established by the Village. The
Finance Director or designee shall have the option to further restrict
investment percentages from time to time based on market conditions, risk
and diversification investment strategies. The percentage allocations
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requirements for investment types and issuers are calculated based on the
original cost of each investment, at the time of purchase. Investments not
listed in this policy are prohibited.
The allocation limits and security types do not apply to the investment of debt
proceeds. These investments shall be governed by the debt covenant
included in the debt instrument.
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Permitted Investments
ziecrar -_
Maximum Maximum
Minimum
Allocation Issuer
Rating Maximum
Sector/Security Type Limit (%) Limit (%)
Requirement' Maturity
United States Treasury Securities 100%
5.5 Years
GNMA 40%
(5.50 Years
Other US Government Guaranteed (e.g., AID,
avg life for
GTC) 100% 100%
N/A GNMA)
Federal Agency/GSE: FNMA, FHLMC, FHLB,
FFCB) 40%
Federal Agency/GSE other than those above 75% 10%
N/A 5.50 Years
5.50 Years
Agency Mortage-Backed Securities (MBS)
25%
40%3
N/A
Avg. Life
Highest ST or
three highest LT
rating categories
(A-1/P-1, A-/A3,
Corporate Notes
50%2
5%
or equivalent)
2 Years
Highest ST or
three highest LT
rating categories
(SP-1/MIG 1, A-
/A3, or
Municipals
25%
5%
equivalent)
5.50 Years
Non -Negotiable Interest Bearing Time Deposits
50%
25%
N/A
1 Year
Highest fund
rating by all
NRSRO's who
.Local Government Surplus Funds Trust Fund
rate the fund
(AAAm/AAA-mf,
("Florida PRIME")
50%
N/A
or equivalent)
N/A
Highest fund
quality and
volatility rating
categories by all
NSRO's, if rated
(AAAm/AAAf,
Intergovernmental Investment Pools
50%
N/A
S1, or
equivalent)
N/A
SEC Registered Money Market Mutual Funds
50%
AAAm
;Repurchase Agreements
50%
N/A
Highest ST
Rating Category
(A-1/P-1, or
Commercial Paper
35%2
5%
equivalent)'
270 Days
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Notes
1. Rating by at least one SEC -registered Nationally Recognized Statistical Rating
Organization ("NRSRO'), unless otherwise noted. ST=Short-term; LT=Long-term.
2. Maximum allocation to all corporate and bank credit instruments is 50%
combined.
3. Maximum exposure to any one Federal agency, including the combined holdings
of Agency debt and Agency MBS is 40%.
4. The maturity limit for MBS and ABS is based on the expected average life at time
of settlement, measured using Bloomberg or other industry standard methods.
5. Maximum exposure to Florida Prime and Intergovernmental Pools is a combined
50%.
1) U.S. Treasury & Government Guaranteed - U.S. Treasury obligations,
and obligations the principal and interest of which are backed or
guaranteed by the full faith and credit of the U.S. Government.
2) Federal Agency/GSE - Debt obligations, participations or other
instruments issued or fully guaranteed by any U.S. Federal agency,
instrumentality or government -sponsored enterprise (GSE).
3) Supranationals - U.S. dollar denominated debt obligations of a multilateral
organization of governments where U.S. is a shareholder and voting
member.
4) Corporates - U.S. dollar denominated corporate notes, bonds or other debt
obligations issued or guaranteed by a domestic or foreign corporation,
financial institution, non-profit, or other entity.
5) Municipals - Obligations, including both taxable and tax-exempt, issued or
guaranteed by any State, territory or possession of the United States,
political subdivision, public corporation, authority, agency board,
instrumentality or other unit of local government of any State or territory.
6) Agency Mortgage Backed Securities - Mortgage -backed securities (MBS),
backed by residential, multi- family or commercial mortgages, that are issued
or fully guaranteed as to principal and interest by a U.S. Federal agency or
government sponsored enterprise, including but not limited to pass-throughs,
collateralized mortgage obligations (CMOs) and REMICs.
7) Non -Negotiable Certificate of Deposit and Savings Accounts - Non-
negotiable interest bearing time certificates of deposit, or savings accounts
in banks organized under the laws of this state or in national banks organized
under the laws of the United States and doing business in this state, provided
that any such deposits are secured by the Florida Security for Public
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Deposits Act, Chapter 280, Florida Statutes.
8) Commercial Paper - U.S. dollar denominated commercial paper issued or
guaranteed by a domestic or foreign corporation, company, financial
institution, trust or other entity, including both unsecured debt and asset -
backed programs.
9) Repurchase Agreements - Repurchase agreements (Repo or RP) that meet
the following requirements:
a. Must be governed by a written SIFMA Master Repurchase Agreement
which specifies securities eligible for purchase and resale, and which
provides the unconditional right to liquidate the underlying securities
should the Counterparty default or fail to provide full timely repayment.
b. Counterparty must be a Federal Reserve Bank, a Primary Dealer as
designated by the Federal Reserve Bank of New York, or a nationally
chartered commercial bank.
c. Securities underlying repurchase agreements must be delivered to a
third party custodian under a written custodial agreement and may be
of deliverable or tri-party form. Securities must be held in the Village's
custodial account or in a separate account in the name of the Village.
d. Acceptable underlying securities include only securities that are direct
obligations of, or that are fully guaranteed by, the United States or any
agency of the United States, or U.S. Agency -backed mortgage related
securities.
e. Underlying securities must have an aggregate current market value of
at least 102% (or 100% if the counterparty is a Federal Reserve Bank)
of the purchase price plus current accrued price differential at the
close of each business day.
f. Final term of the agreement must be 1 year or less.
10) Money Market Funds - Shares in open-end and no-load money market mutual
funds, provided such funds are registered under the Investment Company Act of
1940 and operate in accordance with Rule 2a- 7.
A thorough investigation of any money market fund is required prior to
investing, and on an annual basis. Appendix B is a questionnaire that
contains a list of questions, to be answered prior to investing, that cover the
major aspects of any investment pool/fund. A current prospectus must be
obtained.
11) Fixed -Income Mutual Funds and ETFs - Shares in open-end and no-load
fixed -income mutual funds or exchange -traded funds (ETFs) whose underlying
investments would be permitted for purchase under this policy and all its
restrictions.
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12) Local Government Investment Pools - State, local government or privately -
sponsored investment pools that are authorized pursuant to state law.
A thorough investigation of any intergovernmental investment pool is
required prior to investing, and on an annual basis. Appendix B is a
questionnaire that contains a list of questions, to be answered prior to
investing, that cover the major aspects of any investment pool/fund. A
current prospectus must be obtained.
13) The Florida Local Government Surplus Funds Trust Funds ("Florida
Prime") A thorough investigation of the Florida Prime is required prior to
investing, and on an annual basis. Appendix B is a questionnaire that contains
a list of questions, to be answered prior to investing, that cover the major aspects
of any investment pool/fund. A current prospectus or portfolio report must be
obtained.
General Investment and Portfolio Limits
1. General investment limitations
a. Investments must be denominated in U.S. dollars and issued for legal sale
in U.S. markets.
b. Minimum ratings are based on the highest rating by any one Nationally
Recognized Statistical Ratings Organization ("NRSRO"), unless
otherwise specified.
c. All limits and rating requirements apply at time of purchase.
d. Should a security fall below the minimum credit rating requirement for
purchase, the Investment Advisor will notify the Finance Director.
e. The maximum maturity (or average life for MBS/ABS) of any investment
is 5.50 years. Maturity and average life are measured from settlement
date. The final maturity date can be based on any mandatorycall, put,
pre -refunding date, or other mandatory redemption date.
2. General portfolio limitations:
a. The maximum effective duration of the aggregate portfolio is 3 years.
3. The following investments are NOT PERMITTED, unless specifically authorized
by statute and with prior approval of the Village Council:
a. Trading for speculation
b. Derivatives (other than callables and traditional floating or variable -rate
instruments)
c. Mortgage -backed interest -only structures (I/Os)
d. Inverse or leveraged floating-rate and variable -rate instruments
e. Currency, equity, index and event -linked notes (e.g. range notes), or
other structures that could return less than par at maturity
f. Private placements and direct loans, except as may be legally permitted
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by Rule 144A or commercial paper issued under a 4(2) exemption from
registration
g. Convertible, high yield, and non-U.S. dollar denominated debt
h. Short sales
i. Use of leverage
j. Futures and options
k. Mutual funds, other than fixed -income mutual funds and ETFs, and
money market funds
I. Equities, commodities, currencies and hard assets
XV. DERIVATIVES AND REVERSE REPURCHASE AGREEMENTS
Investment in any derivative products or the use of reverse repurchase
agreements requires specific Village Council approval prior to their use,
unless otherwise specified in Section XII of this Investment Policy. If the
Village Council approves the use of derivative products, the Finance Director
shall develop sufficient understanding of the derivative products and have
the expertise to manage them. A "derivative" is defined as a financial
instrument the value of which depends on, or is derived from, the value of
one or more underlying assets or indices or asset values. If the Village
Council approves the use of reverse repurchase agreements or other forms
of leverage, the investment shall be limited to transactions in which the
proceeds are intended to provide liquidity and for which the Finance Director
has sufficient resources and expertise to manage them.
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XVI. PERFORMANCE MEASUREMENTS
In order to assist in the evaluation of the portfolios' performance, the Village
will use performance benchmarks for short-term and long-term portfolios.
The use of benchmarks will allow the Village to measure its returns against
other investors in the same markets.
A. Investment performance of funds designated as short-term funds and other
funds that must maintain a high degree of liquidity will be compared to the
S&P Rated GIP Index Government 30-Day Gross of Fees yield will be used
as a benchmark as compared to the portfolios' net book value rate of return
for current operating funds.
B. Investment performance of funds designated as core funds and other non -
operating funds that have a longer -term investment horizon will be
compared to the Bank of America Merrill Lynch 1-3 Year U.S. Treasury Note
Index and the portfolio's total rate of return will be compared to this
benchmark. The appropriate index will have a duration and asset mix that
approximates the portfolios and will be utilized as a benchmark to be
compared to the portfolios' total rate of return.
C. Other indices may be used from time to time to measure portfolio
performance.
XVII. REPORTING
The Finance Director and/or Investment Advisor shall provide the Village
Manager with a "Quarterly Investment Report" that summarizes but not
limited to the following:
A. Recent market conditions, economic developments and anticipated
investment conditions.
B. The investment strategies employed in the most recent quarter.
C. A description of all securities held in investment portfolios at month -end.
D. The total rate of return for the quarter and year-to-date versus
appropriate benchmarks.
E. Any areas of policy concern warranting possible revisions to current or
planned investment strategies. The market values presented in these
reports will be consistent with accounting guidelines in GASB Statement
31.
On an annual basis, the Finance Director shall submit to the Village Council
a written report on all invested funds. The annual report shall provide all, but
not limited to, the following: a complete list of all invested funds, name or
type of security in which the funds are invested, the amount invested, the
maturity date, earned income, the book value, the market value, the yield on
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each investment.
The annual report will show performance on both a book value and total rate
of return basis and will compare the results to the above -stated performance
benchmarks. All investments shall be reported at fair value per GASB
Statement 31. Investment reports shall be available to the public.
XVIII. THIRD -PARTY CUSTODIAL AGREEMENTS
Securities, with the exception of certificates of deposits, shall be held with a
third party custodian; and all securities purchase by, and all collateral
obtained by; the Village should be properly designated as an asset of the
Village. The securities must be held in an account separate and apart from
the assets of the financial institution. A third party custodian is defined as
any bank depository chartered by the Federal Government, the State of
Florida, or any other state or territory of the United States which has a branch
or principal place of business in the State of Florida, or by a national
association organized and existing under the laws of the United States which
is authorized to accept and execute trusts and which is doing business in the
State of Florida. Certificates of deposits will be placed in the provider's
safekeeping department for the term of the deposit.
The custodian shall accept transaction instructions only from those persons
who have been duly authorized by the Village Manager and which
authorization has been provided, in writing, to the custodian. No withdrawal
of securities, in whole or in part, shall be made from safekeeping, shall be
permitted unless by such a duly authorized person.
The custodian shall provide the Finance Director with safekeeping
statements that provide detail information on the securities held by the
custodian. On a monthly basis, the custodian will also provide reports that
list all securities held for the Village, the book value of holdings and the
market value as of month -end.
Security transactions between a broker/dealer and the custodian involving
the purchase or sale of securities by transfer of money or securities must be
made on a "delivery vs. payment" basis, if applicable, to ensure that the
custodian will have the security or money, as appropriate, in hand at the
conclusion of the transaction. Securities held as collateral shall be held free
and clear of any liens.
XIX. INVESTMENT POLICY ADOPTION
The Investment Policy shall be adopted by resolution. The Finance Director
and the Village Manager shall review the policy annually and the Village
Council shall approve any modification made thereto. Any inconsistencies
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between the current portfolio and this policy will be considered acceptable
as long as corrective measures are completed to adjust the portfolio in
accordance with this policy.
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Appendix A
Glossary of Cash and Investment
Management Terms
The following is a glossary of key investing terms, many of which appear in the
Village's investment policy. This glossary clarifies the meaning of investment terms
generally used in cash and investment management. This glossary has been
adapted from the GFOA Sample Investment Policy and the Association of Public
Treasurers of the United States and Canada's Model Investment Policy.
Accrued Interest. Interest earned but which has not yet been paid or received.
Agency. See "Federal Agency Securities."
Ask Price, Price at which a broker/dealer offers to sell a security to an investor.
Also known as "offered price."
Asset Backed Securities (ABS), A fixed -income security backed by notes or
receivables against assets other than real estate. Generally issued by special
purpose companies that "own" the assets and issue the ABS. Examples include
securities backed by auto loans, credit card receivables, home equity loans,
manufactured housing loans, farm equipment loans, and aircraft leases.
Average Life. The average length of time that an issue of serial bonds and/or term
bonds with a mandatory sinking fund feature is expected to be outstanding.
Bankers' Acceptance (BA's). A draft or bill of exchange drawn upon and
accepted by a bank. Frequently used to finance shipping of international goods.
Used as a short-term credit instrument, bankers' acceptances are traded at a
discount from face value as a money market instrument in the secondary market
on the basis of the credit quality of the guaranteeing bank.
Basis Point. One hundredth of one percent, or 0.01%. Thus 1% equals 100 basis
points.
Bearer Security. A security whose ownership is determined by the holder of the
physical security. Typically, there is no registration on the issuer's books. Title to
bearer securities is transferred by delivery of the physical security or certificate.
Also known as "physical securities."
Benchmark Bills: In November 1999, FNMA introduced its Benchmark Bills
program, a short-term debt securities issuance program to supplement its existing
discount note program. The program includes a schedule of larger, weekly issues
in three- and six-month maturities and biweekly issues in one-year for Benchmark
Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA
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conducts a weekly auction for each Benchmark Bill maturity and accepts both
competitive and non-competitive bids through a web based auction system. This
program is in addition to the variety of other discount note maturities, with rates
posted on a daily basis, which FNMA offers. FNMA's Benchmark Bills are
unsecured general obligations that are issued in book- entry form through the
Federal Reserve Banks. There are no periodic payments of interest on Benchmark
Bills, which are sold at a discount from the principal amount and payable at par at
maturity. Issues under the Benchmark program constitute the same credit standing
as other FNMA discount notes; they simply add organization and liquidity to the
short-term Agency discount note market.
Benchmark Notes/Bonds. Benchmark Notes and Bonds are a series of FNMA
"bullet" maturities (non -callable) issued according to a pre -announced calendar.
Under its Benchmark Notes/Bonds program, 2, 3, 5, 10, and 30- year maturities
are issued each quarter. Each Benchmark Notes new issue has a minimum size
of $4 billion, 30- year new issues having a minimum size of $1 billion, with re -
openings based on investor demand to further enhance liquidity. The amount of
non -callable issuance has allowed FNMA to build a yield curve in Benchmark
Notes and Bonds in maturities ranging from 2 to 30 years. The liquidity emanating
from these large size issues has facilitated favorable financing opportunities
through the development of a liquid overnight and term repo market. Issues under
the Benchmark program constitute the same credit standing as other FNMA
issues; they simply add organization and liquidity to the intermediate- and long-
term Agency market.
Benchmark. A market index used as a comparative basis for measuring the
performance of an investment portfolio. A performance benchmark should
represent a close correlation to investment guidelines, risk tolerance, and duration
of the actual portfolio's investments.
Bid Price. Price at which a broker/dealer offers to purchase a security from an
investor.
Bond. Financial obligation for which the issuer promises to pay the bondholder
(the purchaser or owner of the bond) a specified stream of future cash -flows,
including periodic interest payments and a principal repayment.
Book Entry Securities. Securities that are recorded in a customer's account
electronically through one of the financial markets electronic delivery and custody
systems, such as the Fed Securities wire, OTC, and PTC (as opposed to bearer
or physical securities). The trend is toward a certificate -free society in order to cut
down on paperwork and to diminish investors' concerns about the certificates
themselves. The vast majority of securities are now book entry securities.
Book Value. The value at which a debt security is reflected on the holder's records
at any point in time. Book value is also called "amortized cost" as it represents the
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original cost of an investment adjusted for amortization of premium or accretion of
discount. Also called "carrying value." Book value can vary over time as an
investment approaches maturity and differs from "market value" in that it is not
affected by changes in market interest rates.
Broker/Dealer. A person or firm transacting securities business with customers.
A "broker" acts as an agent between buyers and sellers, and receives a
commission for these services. A "dealer" buys and sells financial assets from its
own portfolio. A dealer takes risk by owning inventory of securities, whereas a
broker merely matches up buyers and sellers. See also "Primary Dealer."
Bullet Notes/Bonds. Notes or bonds that have a single maturity date and are non -
callable.
Call Date. Date at which a call option may be or is exercised
Call Option. The right, but not the obligation, of an issuer of a security to redeem
a security at a specified value and at a specified date or dates prior to its stated
maturity date. Most fixed -income calls are a par, but can be at any previously
established price. Securities issued with a call provision typically carry a higher
yield than similar securities issued without a call feature. There are three primary
types of call options (1) European - one-time calls, (2) Bermudan - periodically on
a predetermined schedule (quarterly, semi-annual, annual), and (3) American -
continuously callable at any time on or after the call date. There is usually a notice
period of at least 5 business days prior to a call date.
Callable Bonds/Notes. Securities which contain an imbedded call option giving
the issuer the right to redeem the securities prior to maturity at a predetermined
price and time.
Certificate of Deposit (CD). Bank obligation issued by a financial institution
generally offering a fixed rate of return (coupon) for a specified period of time
(maturity). Can be as long as 10 years to maturity, but most CDs purchased by
public agencies are one year and under.
Collateral. Investment securities or other property that a borrower pledges to
secure repayment of a loan, secure deposits of public monies, or provide security
for a repurchase agreement.
Collateralization. Process by which a borrower pledges securities, property, or
other deposits for securing the repayment of a loan and/or security.
Collateralized Mortgage Obligation (CMO). A security that pools together
mortgages and separates them into short, medium, and long-term positions (called
tranches). Tranches are set up to pay different rates of interest depending upon
their maturity. Interest payments are usually paid monthly. In "plain vanilla" CMOs,
principal is not paid on a tranche until all shorter tranches have been paid off. This
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system provides interest and principal in a more predictable manner. A single pool
of mortgages can be carved up into numerous tranches each with its own payment
and risk characteristics.
Commercial Paper. Short term unsecured promissory note issued by a company
or financial institution, issued at a discount and matures for par or face value.
Usually a maximum maturity of 270 days and given a short-term debt rating by
one or more NRSROs.
Convexity. A measure of a bond's price sensitivity to changing interest rates. A
high convexity indicates greater sensitivity of a bond's price to interest rate
changes.
Corporate Note, A debt instrument issued by a corporation with a maturity of
greater than one year and less than ten years.
Counterparty. The other party in a two party financial transaction. "Counterparty
risk" refers to the risk that the other party to a transaction will fail in its related
obligations. For example, the bank or broker/dealer in a repurchase agreement.
Coupon Rate. Annual rate of interest on a debt security, expressed as a
percentage of the bond's face value.
Current Yield. Annual rate of return on a bond based on its price. Calculated as
(coupon rate / price), but does not accurately reflect a bond's true yield level.
Custody. Safekeeping services offered by a bank, financial institution, or trust
company, referred to as the "custodian." Service normally includes the holding and
reporting of the customer's securities, the collection and disbursement of income,
securities settlement, and market values.
Dealer. A dealer, as opposed to a broker, acts as a principal in all transactions,
buying and selling for his/her own account.
Delivery Versus Payment (DVP). Settlement procedure in which securities are
delivered versus payment of cash, but only after cash has been received. Most
security transactions, including those through the Fed Securities Wire system and
OTC, are done DVP as a protection for both the buyer and seller of securities.
Depository Trust Company (DTC). A firm through which members can use a
computer to arrange for securities to be delivered to other members without
physical delivery of certificates. A member of the Federal Reserve System and
owned mostly by the New York Stock Exchange, the Depository Trust Company
uses computerized debit and credit entries. Most corporate securities, commercial
paper, CDs, and BAs clear through DTC.
Derivatives. (1) Financial instruments whose return profile is linked to, or derived
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from, the movement of one or more underlying index or security, and may include
a leveraging factor, or (2) financial contracts based upon notional amounts whose
value is derived from an underlying index or security (interest rates, foreign
exchange rates, equities, or commodities). For hedging purposes, common
derivatives are options, futures, interest rate swaps, and swaptions.
Derivative Security. Financial instrument created from, or whose value depends
upon, one or more underlying assets or indexes of asset values.
Designated Bond. FFCB's regularly issued, liquid, non -callable securities that
generally have a 2 or 3 year original maturity. New issues of Designated Bonds are $1
billion or larger. Re -openings of existing Designated Bond issues are generally a
minimum of $100 million. Designated Bonds are offered through a syndicate of two to
six dealers. Twice each month the Funding Corporation announces its intention to
issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a
Designated Bond. Issues under the Designated Bond program constitute the same
credit standing as other FFCB issues; they simply add organization and liquidity to the
intermediate- and long-term Agency market.
Discount Notes. Unsecured general obligations issued by Federal Agencies at a
discount. Discount notes mature at par and can range in maturity from overnight to
one year. Very large primary (new issue) and secondary markets exist.
Discount Rate. Rate charged by the system of Federal Reserve Banks on overnight
loans to member banks. Changes to this rate are administered by the Federal Reserve
and closely mirror changes to the "fed funds rate."
Discount Securities. Non -interest bearing money market instruments that are issued
at discount and redeemed at maturity for full face value. Examples include: U.S.
Treasury Bills, Federal Agency Discount Notes, Bankers' Acceptances, and
Commercial Paper.
Discount. The amount by which a bond or other financial instrument sells below its
face value. See also "Premium.11
Diversification. Dividing investment funds among a variety of security types,
maturities, industries, and issuers offering potentially independent returns.
Dollar Price. A bond's cost expressed as a percentage of its face value. For example,
a bond quoted at a dollar price of 95'/z, would have a principal cost of $955 per $1,000
of face value.
Duff & Phelps. One of several NRSROs that provide credit ratings on corporate and
bank debt issues.
Duration. The weighted average maturity of a security's or portfolio's cash -flows,
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where the present values of the cash -flows serve as the weights. The greater the
duration of a security/portfolio, the greater its percentage price volatility with respect
to changes in interest rates. Used as a measure of risk and a key tool for managing a
portfolio versus a benchmark and for hedging risk. There are also different kinds of
duration used for different purposes (e.g. MacAuley Duration, Modified Duration).
Fannie Mae. See "Federal National Mortgage Association."
Fed Money Wire. A computerized communications system that connects the Federal
Reserve System with its member banks, certain U. S. Treasury offices, and the
Washington D.C. office of the Commodity Credit Corporation. The Fed Money Wire is
the book entry system used to transfer cash balances between banks for themselves
and for customer accounts.
Fed Securities Wire. A computerized communications system that facilitates book
entry transfer of securities between banks, brokers and customer accounts, used
primarily for settlement of U.S. Treasury and Federal Agency securities.
Fed. See "Federal Reserve System."
Federal Agency Security. A debt instrument issued by one of the Federal Agencies.
Federal Agencies are considered second in credit quality and liquidity only to U.S.
Treasuries.
Federal Agency. Government sponsored/owned entity created by the U.S.
Congress, generally for the purpose of acting as a financial intermediary by
borrowing in the marketplace and directing proceeds to specific areas of the
economy considered to otherwise have restricted access to credit markets. The
largest Federal Agencies are GNMA, FNMA, FHLMC, FHLB, FFCB, SLMA, and
TVA.
Federal Deposit Insurance Corporation (FDIC). Federal agency that insures
deposits at commercial banks, currently to a limit of $250,000 per depositor per
bank.
Federal Farm Credit Bank (FFCB). One of the large Federal Agencies. A
government sponsored enterprise (GSE) system that is a network of cooperatively -
owned lending institutions that provides credit services to farmers, agricultural
cooperatives and rural utilities. The FFCBs act as financial intermediaries that
borrow money in the capital markets and use the proceeds to make loans and
provide other assistance to farmers and farm -affiliated businesses. Consists of the
consolidated operations of the Banks for Cooperatives, Federal Intermediate
Credit Banks, and Federal Land Banks. Frequent issuer of discount notes, agency
notes and callable agency securities. FFCB debt is not an obligation of, nor is it
guaranteed by the U.S. government, although it is considered to have minimal
credit risk due to its importance to the U.S. financial system and agricultural
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industry. Also issues notes under its "designated note" program.
Federal Funds (Fed Funds). Funds placed in Federal Reserve Banks by
depository institutions in excess of current reserve requirements, and frequently
loaned or borrowed on an overnight basis between depository institutions.
Federal Funds Rate (Fed Funds Rate). The interest rate charged by a depository
institution lending Federal Funds to another depository institution. The Federal
Reserve influences this rate by establishing a "target" Fed Funds rate associated
with the Fed's management of monetary policy.
Federal Home Loan Bank System (FHLB). One of the large Federal Agencies.
A government sponsored enterprise (GSE) system, consisting of wholesale banks
(currently twelve district banks) owned by their member banks, which provides
correspondent banking services and credit to various financial institutions,
financed by the issuance of securities. The principal purpose of the FHLB is to add
liquidity to the mortgage markets. Although FHLB does not directly fund
mortgages, it provides a stable supply of credit to thrift institutions that make new
mortgage loans. FHLB debt is not an obligation of, nor is it guaranteed by the U.S.
government, although it is considered to have minimal credit risk due to its
importance to the U.S. financial system and housing market. Frequent issuer of
discount notes, agency notes and callable agency securities. Also issues notes
under its "global note" and "TAP" programs.
Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One
of the large Federal Agencies. A government sponsored public corporation (GSE)
that provides stability and assistance to the secondary market for home mortgages
by purchasing first mortgages and participation interests financed by the sale of
debt and guaranteed mortgage backed securities. FHLMC debt is not an obligation
of, nor is it guaranteed by the U.S. government, although it is considered to have
minimal credit risk due to its importance to the U.S. financial system and housing
market. Frequent issuer of discount notes, agency notes, callable agency
securities, and MBS. Also issues notes under its "reference note" program.
Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the
large Federal Agencies. A government sponsored public corporation (GSE) that
provides liquidity to the residential mortgage market by purchasing mortgage loans
from lenders, financed by the issuance of debt securities and MBS (pools of
mortgages packaged together as a security). FNMA debt is not an obligation of,
nor is it guaranteed by the U.S. government, although it is considered to have
minimal credit risk due to its importance to the U.S. financial system and housing
market. Frequent issuer of discount notes, agency notes, callable agency
securities and MBS. Also issues notes under its "benchmark note" program.
Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve
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System.
Federal Reserve System (the Fed). The independent central bank system of the
United States that establishes and conducts the nation's monetary policy. This is
accomplished in three major ways: (1) raising or lowering bank reserve
requirements, (2) raising or lowering the target Fed Funds Rate and Discount Rate,
and (3) in open market operations by buying and selling government securities.
The Federal Reserve System is made up of twelve Federal Reserve District Banks,
their branches, and many national and state banks throughout the nation. It is
headed by the seven member Board of Governors known as the "Federal Reserve
Board" and headed by its Chairman.
Financial Industry Regulatory Authority, Inc. (FINRA). A private corporation
that acts as a self -regulatory organization (SRO). FINRA is the successor to the
National Association of Securities Dealers, Inc. (NASD). Though sometimes
mistaken for a government agency, it is a non -governmental organization that
performs financial regulation of member brokerage firms and exchange markets.
The government also has a regulatory arm for investments, the Securities and
Exchange Commission (SEC).
Fiscal Agent/Paying Agent. A bank or trust company that acts, under a trust
agreement with a corporation or municipality, in the capacity of general treasurer.
The agent performs such duties as making coupon payments, paying rents,
redeeming bonds, and handling taxes relating to the issuance of bonds.
Fitch Investors Service, Inc. One of several NRSROs that provide credit ratings
on corporate and municipal debt issues.
Floating Rate Security (FRN or "floater"). A bond with an interest rate that is
adjusted according to changes in an interest rate or index. Differs from variable -
rate debt in that the changes to the rate take place immediately when the index
changes, rather than on a predetermined schedule. See also "Variable Rate
Security."
Freddie Mac. See "Federal Home Loan Mortgage Corporation."
Ginnie Mae. See "Government National Mortgage Association."
Global Notes: Notes designed to qualify for immediate trading in both the
domestic U.S. capital market and in foreign markets around the globe. Usually
large issues that are sold to investors worldwide and therefore have excellent
liquidity. Despite their global sales, global notes sold in the U.S. are typically
denominated in U.S. dollars.
Government National Mortgage Association (GNMA or "Ginnie Mae"). One of
the large Federal Agencies. Government -owned Federal Agency that acquires,
packages, and resells mortgages and mortgage purchase commitments in the
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form of mortgage -backed securities. Largest issuer of mortgage pass -through
securities. GNMA debt is guaranteed by the full faith and credit of the U.S.
government (one of the few agencies that are actually full faith and credit of the
U.S. government).
Government Securities. An obligation of the U.S. government, backed by the full
faith and credit of the government. These securities are regarded as the highest
quality of investment securities available in the U.S. securities market. See
"Treasury Bills, Notes, Bonds, and SLGS."
Government Sponsored Enterprise (GSE). Privately owned entity subject to
federal regulation and supervision, created by the U.S. Congress to reduce the
cost of capital for certain borrowing sectors of the economy such as students,
farmers, and homeowners. GSEs carry the implicit backing of the U.S.
government, but they are not direct obligations of the U.S. government. For this
reason, these securities will offer a yield premium over U.S. Treasuries. Examples
of GSEs include: FHLB, FHLMC, FNMA, and SLMA.
Government Sponsored Enterprise Security. A security issued by a
Government Sponsored Enterprise. Considered Federal Agency Securities.
Index. A compilation of statistical data that tracks changes in the economy or in
financial markets.
Interest -Only (10) STRIP. A security based solely on the interest payments from
the bond. After the principal has been repaid, interest payments stop and the value
of the security falls to nothing. Therefore, IOs are considered risky investments.
Usually associated with mortgage -backed securities.
Internal Controls. An internal control structure ensures that the assets of the
entity are protected from loss, theft, or misuse. The internal control structure is
designed to provide reasonable assurance that these objectives are met. The
concept of reasonable assurance recognizes that 1) the cost of a control should
not exceed the benefits likely to be derived and 2) the valuation of costs and
benefits requires estimates and judgments by management. Internal controls
should address the following points:
1. Control of collusion - Collusion is a situation where two or more
employees are working in conjunction to defraud their employer.
2. Separation of transaction authority from accounting and record
keeping - A separation of duties is achieved by separating the person who
authorizes or performs the transaction from the people who record or
otherwise account for the transaction.
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3. Custodial safekeeping - Securities purchased from any bank or dealer
including appropriate collateral (as defined by state law) shall be placed with
an independent third party for custodial safekeeping.
4. Avoidance of physical delivery securities - Book -entry securities are
much easier to transfer and account for since actual delivery of a document
never takes place. Delivered securities must be properly safeguarded
against loss or destruction. The potential for fraud and loss increases with
physically delivered securities.
5. Clear delegation of authority to subordinate staff members -
Subordinate staff members must have a clear understanding of their
authority and responsibilities to avoid improper actions. Clear delegation of
authority also preserves the internal control structure that is contingent on
the various staff positions and their respective responsibilities.
6. Written confirmation of transactions for investments and wire
transfers - Due to the potential for error and improprieties arising from
telephone and electronic transactions, all transactions should be supported
by written communications and approved by the appropriate person. Written
communications may be via fax if on letterhead and if the safekeeping
institution has a list of authorized signatures.
7. Development of a wire transfer agreement with the lead bank and third -
party custodian - The designated official should ensure that an agreement
will be entered into and will address the following points: controls, security
provisions, and responsibilities of each party making and receiving wire
transfers.
Inverse Floater. A floating rate security structured in such a way that it reacts
inversely to the direction of interest rates. Considered risky as their value moves
in the opposite direction of normal fixed -income investments and whose interest
rate can fall to zero.
Investment Advisor. A company that provides professional advice managing
portfolios, investment recommendations, and/or research in exchange for a
management fee.
Investment Adviser Act of 1940. Federal legislation that sets the standards by
which investment companies, such as mutual funds, are regulated in the areas of
advertising, promotion, performance reporting requirements, and securities
valuations.
Investment Grade. Bonds considered suitable for preservation of invested capital,
including bonds rated a minimum ofBaa3 by Moody's, BBB- by Standard & Poor's,
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or BBB- by Fitch. Although "BBB" rated bonds are considered investment grade,
most public agencies cannot invest in securities rated below "A."
Liquidity. Relative ease of converting an asset into cash without significant loss
of value. Also, a relative measure of cash and near -cash items in a portfolio of
assets. Additionally, it is a term describing the marketability of a money market
security correlating to the narrowness of the spread between the bid and ask
prices.
Local Government Investment Pool (LGIP). An investment by local
governments in which their money is pooled as a method for managing local funds,
(e.g., Florida State Board of Administration's Florida Prime Fund).
Long -Term Core Investment Program. Funds that are not needed within a one-
year period.
Market Value. The fair market value of a security or commodity. The price at which
a willing buyer and seller would pay for a security.
Mark -to -market. Adjusting the value of an asset to its market value, reflecting in
the process unrealized gains or losses.
Master Repurchase Agreement. A widely accepted standard agreement form
published by the Securities Industry and Financial Markets Association (SIFMA)
that is used to govern and document Repurchase Agreements and protect the
interest of parties in a repo transaction.
Maturity Date. Date on which principal payment of a financial obligation is to be
paid.
Medium Term Notes (MTN's). Used frequently to refer to corporate notes of
medium maturity (5-years and under). Technically, any debt security issued by a
corporate or depository institution with a maturity from I to 10 years and issued
under an MTN shelf registration. Usually issued in smaller issues with varying
coupons and maturities, and underwritten by a variety of broker/dealers (as
opposed to large corporate deals issued and underwritten all at once in large size
and with a fixed coupon and maturity).
Money Market. The market in which short-term debt instruments (bills,
commercial paper, bankers' acceptance, etc.) are issued and traded.
Money Market Mutual Fund (MMF). A type of mutual fund that invests solely in
money market instruments, such as: U.S. Treasury bills, commercial paper,
bankers' acceptances, and repurchase agreements. Money market mutual funds
are registered with the SEC under the Investment Company Act of 1940 and are
subject to "rule 2a- 7" which significantly limits average maturity and credit quality
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of holdings. MMF's are managed to maintain a stable net asset value (NAY) of
$1.00. Many MMFs carry ratings by a NRSRO.
Moody's Investors Service. One of several NRSROs that provide credit ratings
on corporate and municipal debt issues.
Mortgage Backed Securities (MBS). Mortgage -backed securities represent an
ownership interest in a pool of mortgage loans made by financial institutions, such
as savings and loans, commercial banks, or mortgage companies, to finance the
borrower's purchase of a home or other real estate. The majority of MBS are
issued and/or guaranteed by GNMA, FNMA, and FHLMC. There is a variety of
MBS structures with varying levels of risk and complexity. All MBS have
reinvestment risk as actual principal and interest payments are dependent on the
payment of the underlying mortgages which can be prepaid by mortgage holders
to refinance and lower rates or simply because the underlying property was sold.
Mortgage Pass -Through Securities. A pool of residential mortgage loans with the
monthly interest and principal distributed to investors on a pro-rata basis. The largest
issuer is GNMA.
Municipal Note/Bond. A debt instrument issued by a state or local government unit
or public agency. The vast majority of municipals are exempt from state and federal
income tax, although some non -qualified issues are taxable.
Mutual Fund. Portfolio of securities professionally managed by a registered
investment company that issues shares to investors. Many different types of
mutual funds exist (e.g., bond, equity, and money market funds); all except money
market funds operate on a variable net asset value (NAV).
Negotiable Certificate of Deposit (Negotiable CD). Large denomination CDs
($100,000 and larger) that are issued in bearer form and can be traded in the
secondary market.
Net Asset Value. The market value of one share of an investment company, such
as a mutual fund. Th.is figure is calculated by totaling a fund's assets including
securities, cash, and any accrued earnings, then subtracting the total assets from
the fund's liabilities, and dividing this total by the number of shares outstanding.
This is calculated once a day based on the closing price for each security in the
fund's portfolio. (See below.)
[(Total assets) - (Liabilities)]/(Number of shares outstanding)
NRSRO. A "Nationally Recognized Statistical Rating Organization" (NRSRO) is a
designated rating organization that the SEC has deemed a strong national
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presence in the U.S. NRSROs provide credit ratings on corporate and bank debt
issues. Only ratings of a NRSRO may be used for the regulatory purposes of
rating. Includes Moody's, S&P, Fitch, and Duff & Phelps.
Offered Price. See also "Ask Price."
Open Market Operations. A Federal Reserve monetary policy tactic entailing the
purchase or sale of government securities in the open market by the Federal
Reserve System from and to primary dealers in order to influence the money
supply, credit conditions, and interest rates.
Par Value. The face value, stated value, or maturity value of a security.
Physical Delivery. Delivery of readily available underlying assets at contract maturity.
Portfolio. Collection of securities and investments held by an investor.
Premium. The amount by which a bond or other financial instrument sells above
its face value. See also "Discount."
Primary Dealer. A designation given to certain government securities dealer by the
Federal Reserve Bank of New York. Primary dealers can buy and sell government
securities directly with the Fed. Primary dealers also submit daily reports of market
activity and security positions held to the Fed and are subject to its informal
oversight. Primary dealers are the largest buyers and sellers by volume in the U.S.
Treasury securities market.
Prime Paper. Commercial paper of high quality. Highest rated paper is A-1+/A-1
by S&P and P-1 by Moody's.
Principal. Face value of a financial instrument on which interest accrues. May be
less than par value if some principal has been repaid or retired. For a transaction,
principal is par value times price and includes any premium or discount.
Prudent Expert Rule. Standard that requires that a fiduciary manage a portfolio
with the care, skill, prudence, and diligence, under the circumstances then
prevailing, that a prudent person acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with like
aims. This statement differs from the "prudent person" rule in that familiarity with
such matters suggests a higher standard than simple prudence.
Prudent Investor Standard. Standard that requires that when investing,
reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds,
a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic
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conditions and the anticipated needs of the agency, 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. More stringent than the "prudent person"
standard as it implies a level of knowledge commensurate with the responsibility
at hand.
Qualified Public Depository - Per Subsection 280.02(26), F.S., "qualified public
depository" means any bank, savings bank, or savings association that:
1. Is organized and exists under the laws of the United States, the laws of this
state or any other state or territory of the United States.
2. Has its principal place of business in this state or has a branch office in this
state which is authorized under the laws of this state or of the United States to
receive deposits in this state.
3. Has deposit insurance under the provision of the Federal Deposit Insurance
Act, as amended, 12 U.S.C. ss.1811 et seq.
4. Has procedures and practices for accurate identification, classification,
reporting, and collateralization of public deposits.
5. Meets all requirements of Chapter 280, F.S.
6. Has been designated by the Chief Financial Officer as a qualified public
depository.
Range Note. A type of structured note that accrues interest daily at a set coupon
rate that is tied to an index. Most range notes have two coupon levels; a higher
accrual rate for the period the index is within a designated range, the lower accrual
rate for the period that the index falls outside the designated range. This lower rate
may be zero and may result in zero earnings.
Rate of Return. Amount of income received from an investment, expressed as a
percentage of the amount invested.
Realized Gains (Losses). The difference between the sale price of an investment
and its book value. Gains/losses are "realized" when the security is actually sold,
as compared to "unrealized" gains/losses which are based on current market
value. See "Unrealized Gains (Losses)."
Reference Bills: FHLMC's short-term debt program created to supplement its
existing discount note program by offering issues from one month through one
year, auctioned on a weekly or on an alternating four -week basis (depending upon
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maturity) offered in sizeable volumes ($1 billion and up) on a cycle of regular,
standardized issuance. Globally sponsored and distributed, Reference Bill issues
are intended to encourage active trading and market -making and facilitate the
development of a term repo market. The program was designed to offer
predictable supply, pricing transparency, and liquidity, thereby providing
alternatives to U.S. Treasury bills. FHLMC's Reference Bills are unsecured general
corporate obligations. This program supplements the corporation's existing
discount note program. Issues under the Reference program constitute the same
credit standing as other FHLMC discount notes; they simply add organization and
liquidity to the short-term Agency discount note market.
Reference Notes: FHLMC's intermediate -term debt program with issuances of 2,
3, 5, 10, and 30-year maturities. Initial issuances range from $2 - $6 billion with re -
openings ranging $1 - $4 billion.
The notes are high -quality bullet structures securities that pay interest
semiannually. Issues under the Reference program constitute the same credit
standing as other FHLMC notes; they simply add organization and liquidity to the
intermediate- and long-term Agency market.
Repurchase Agreement (Repo). A short-term investment vehicle where an
investor agrees to buy securities from a counterparty and simultaneously agrees
to resell the securities back to the counterparty at an agreed upon time and for an
agreed upon price. The difference between the purchase price and the sale price
represents interest earned on the agreement. In effect, it represents a
collateralized loan to the investor, where the securities are the collateral. Can be
DVP, where securities are delivered to the investor's custodial bank, or "tri-party"
where the securities are delivered to a third party intermediary. Any type of security
can be used as "collateral," but only some types provide the investor with special
bankruptcy protection under the law. Repos should be undertaken only when an
appropriate Securities Industry and Financial Markets Association (SIFMA)
approved master repurchase agreement is in place.
Reverse Repurchase Agreement (Reverse Repo). A repo from the point of view
of the original seller of securities. Used by dealers to finance their inventory of
securities by essentially borrowing at short-term rates. Can also be used to
leverage a portfolio and in this sense, can be considered risky if used improperly.
Safekeeping. Service offered for a fee,
holding of securities and other valuables
services.
usually by financial institutions, for the
Safekeeping is a component of custody
Secondary Market. Markets for the purchase and sale of any previously issued
financial instrument.
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Securities Industry and Financial Markets Association (SIFMA). The bond
market trade association representing the largest securities markets in the world.
In addition to publishing a Master Repurchase Agreement, widely accepted as the
industry standard document for Repurchase Agreements, the SIFMA also
recommends bond market closures and early closes due to holidays.
Securities Lending. An arrangement between and investor and a custody bank
that allows the custody bank to "loan" the investors investment holdings, reinvest
the proceeds in permitted investments, and shares any profits with the investor.
Should be governed by a securities lending agreement. Can increase the risk of a
portfolio in that the investor takes on the default risk on the reinvestment at the
discretion of the custodian.
Sinking Fond. A separate accumulation of cash or investments (including
earnings on investments) in a fund in accordance with the terms of a trust
agreement or indenture, funded by periodic deposits by the issuer (or other entity
responsible for debt service), for the purpose of assuring timely availability of
moneys for payment of debt service. Usually used in connection with term bonds.
Spread. The difference between the price of a security and similar maturity U.S.
Treasury investments, expressed in percentage terms or basis points. A spread
can also be the absolute difference in yield between two securities. The securities
can be in different markets or within the same securities market between different
credits, sectors, or other relevant factors.
Standard & Poor's. One of several NRSROs that provide credit ratings on
corporate and municipal debt issues.
STRIPS (Separate Trading of Registered Interest and Principal of Securities).
Acronym applied to U.S. Treasury securities that have had their coupons and principal
repayments separated into individual zero -coupon Treasury securities. The same
technique and "strips" description can be applied to non -Treasury securities (e.g.,
FNMA strips).
Structured Notes. Notes that have imbedded into their structure options such
as step-up coupons or derivative- based returns.
Supranational. Supranational organizations are international financial institutions
that are generally established by agreements among nations, with member
nations contributing capital and participating in management. These agreements
provide for limited immunity from the laws of member countries. Bonds issued by
these institutions are part of the broader class of Supranational, Sovereign, and
Non-U.S. Agency (SSA) sector bonds. Supranational bonds finance economic and
infrastructure development and support environmental protection, poverty
reduction, and renewable energy around the globe. For example, the World Bank,
International Finance Corporation (IFC), and African Development Bank (AfDB)
have "green bond" programs specifically designed for energy resource
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conservation and management. Supranational bonds, which are issued by multi-
national organizations that transcend national boundaries. Examples include the
World Bank, African Development Bank, and European Investment Bank.
Swap. Trading one asset for another.
TAP Notes: Federal Agency notes issued under the FHLB TAP program.
Launched in 6/99 as a refinement to the FHLB bullet bond auction process. In a
break from the FHLB's traditional practice of bringing numerous small issues to
market with similar maturities, the TAP Issue Program uses the four most common
maturities and reopens them up regularly through a competitive auction. These
maturities (2, 3, 5, and 10 year) will remain open for the calendar quarter, after
which they will be closed and a new series of TAP issues will be opened to replace
them. This reduces the number of separate bullet bonds issued, but generates
enhanced awareness and liquidity in the marketplace through increased issue size
and secondary market volume.
Tennessee Valley Authority (TVA). One of the large Federal Agencies. A wholly
owned corporation of the United States government that was established in 1933
to develop the resources of the Tennessee Valley region in order to strengthen
the regional and national economy and the national defense. Power operations
are separated from non -power operations. TVA securities represent obligations of
TVA, payable solely from TVA's net power proceeds, and are neither obligations
of nor guaranteed by the United States. TVA is currently authorized to issue debt
up to $30 billion. Under this authorization, TVA may also obtain advances from the
U.S. Treasury of up to $150 million. Frequent issuer of discount notes, agency
notes, and callable agency securities.
Total Return. Investment performance measured over a period of time that
includes coupon interest, interest on interest, and both realized and unrealized
gains or losses. Total return includes, therefore, any market value
appreciation/depreciation on investments held at period end.
Treasuries. Collective term used to describe debt instruments backed by the U.S.
government and issued through the U.S. Department of the Treasury. Includes
Treasury bills, Treasury notes, and Treasury bonds. Also a benchmark term used
as a basis by which the yields of non -Treasury securities are compared (e.g.,
"trading at 50 basis points over Treasuries").
Treasury Bills (T-Bills). Short-term direct obligations of the United States
government issued with an original term of one year or less. Treasury bills are sold
at a discount from face value and do not pay interest before maturity. The
difference between the purchase price of the bill and the maturity value is the
interest earned on the bill. Currently, the U.S. Treasury issues 4-week, 13-week,
and 26-week T-Bills.
Treasury Bonds. Long-term interest -bearing debt securities backed by the U.S.
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government and issued with maturities often years and longer by the U.S.
Department of the Treasury.
Treasury Notes. Intermediate interest -bearing debt securities backed by the U.S.
government and issued with maturities ranging from one to ten years by the U.S.
Department of the Treasury. The Treasury currently issues 2- year, 3-year, 5-year,
and 10-year Treasury Notes.
Trustee. A bank designated by an issuer of securities as the custodian of funds
and official representative of bondholders. Trustees are appointed to insure
compliance with the bond documents and to represent bondholders in enforcing
their contract with the issuer.
Uniform Net Capital Rule. SEC Rule 15c3-1 that outlines the minimum net capital
ratio (ratio of indebtedness to net liquid capital) of member firms and non-member
broker/dealers.
Unrealized Gains (Losses). The difference between the market value of an
investment and its book value. Gains/losses are "realized" when the security is
actually sold, as compared to "unrealized" gains/losses which are based on
current market value. See also "Realized Gains (Losses)."
Variable -Rate Security. A bond that bears interest at a rate that varies over time
based on a specified schedule of adjustment (e.g., daily, weekly, monthly, semi-
annually, or annually). See also "Floating Rate Note."
Weighted Average Maturity (or just "Average Maturity"). The average maturity of
all securities and investments of a portfolio, determined by multiplying the par or
principal value of each security or investment by its maturity (days or years),
summing the products, and dividing the sum by the total principal value of the
portfolio. A simple measure of risk of a fixed -income portfolio.
Weighted Average Maturity to Call. The average maturity of all securities and
investments of a portfolio, adjusted to substitute the first call date per security for
maturity date for those securities with call provisions.
Yield Curve. A graphic depiction of yields on like securities in relation to remaining
maturities spread over a time line. The traditional yield curve depicts yields on U.S.
Treasuries, although yield curves exist for Federal Agencies and various credit
quality corporates as well. Yield curves can be positively sloped (normal) where
longer -term investments have higher yields, or "inverted" (uncommon) where
longer -term investments have lower yields than shorter ones.
Yield to Call (YTC). Same as "Yield to Maturity," except the return is measured to
the first call date rather than the maturity date. Yield to call can be significantly
higher or lower than a security's yield to maturity.
Yield to Maturity (YTM). Calculated return on an investment, assuming all cash -
Page 33
flows from the security are reinvested at the same original yield. Can be higher or
lower than the coupon rate depending on market rates and whether the security
was purchased at a premium or discount. There are different conventions for
calculating YTM for various types of securities.
Yield. There are numerous methods of yield determination. In this glossary, see
also "Current Yield," "Yield Curve," "Yield to Call," and "Yield to Maturity."
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Appendix B
Investment Pool/Fund Questionnaire
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 withdrawal are allowed.
5. A schedule for receiving statements and portfolio listings.
6. Are reserves, retained earnings, etc. utilized by the pool/fund?
7. A fee schedule, and when and how is it assessed.
8. Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
Page 35
RESOLUTION
Date
10-22 03/10/2022
Motion Council Member Frank D'Ambra Second Council Member Laurie Brandon
FOR
AGAINST
ABSENT
CONFLICT
Mayor Molly Young
0
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Vice -Mayor Kyle Stone
Council Member Laurie Brandon
0
M
Council Member Frank D'Ambra
Council Member Aaron Johnson
rXI
1
0
The Mayor thereupon declared the Resolution duly passed and adopted.
MAYOR OF TEQUESTA:
Molly Young
ATTEST:
SEAL
IN
Lori McWilliams, MMC OF F..OQ!�q!
Village Clerk