CAK(LEGAL) - APPROPRIATIONS AND REVENUE SOURCES: INVESTMENTS

Written Policies

  1. A list of the types of authorized investments in which the investing entity's funds may be invested;
  2. The maximum allowable stated maturity of any individual investment owned by the entity;
  3. For pooled fund groups, the maximum dollar-weighted average maturity allowed based on the stated maturity date of the portfolio;
  4. Methods to monitor the market price of investments acquired with public funds;
  5. A requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis; and
  6. Procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the provisions of Government Code 2256.021 [see Loss of Required Rating, below].

Gov't Code 2256.005(b)

Annual Review

Investment Strategies

  1. Understanding of the suitability of the investment to the financial requirements of the entity;
  2. Preservation and safety of principal;
  3. Liquidity;
  4. Marketability of the investment if the need arises to liquidate the investment before maturity;
  5. Diversification of the investment portfolio; and
  6. Yield.

Gov't Code 2256.005(d)

Investment Officer

Investment Training

Board Members

  1. Investment controls;
  2. Security risks;
  3. Strategy risks;
  4. Market risks;
  5. Diversification of investment portfolio; and
  6. Compliance with the Public Funds Investment Act.

Gov't Code 2256.007

Other College Officials

  1. Attend at least one training session from an independent source approved by the governing body of the local government or a designated investment committee advising the investment officer as provided for in the investment policy of the local government and containing at least ten hours of instruction relating to the treasurer's or officer's responsibilities under Government Code Chapter 2256, Subchapter A within 12 months after taking office or assuming duties; and
  2. Attend an investment training session not less than once in a two-year period that begins on the first day of that local government's fiscal year and consists of the two consecutive fiscal years after that date, and receive not less than ten hours of instruction relating to investment responsibilities under Chapter 2256, Subchapter A from an independent source approved by the governing body of the local government or a designated investment committee advising the investment officer as provided for in the investment policy of the local government.

Gov't Code 2256.008(a), (c)

Standard of Care

  1. Preservation and safety of principal;
  2. Liquidity; and
  3. Yield.
  1. The investment of all funds, or funds under the entity's control over which the officer had responsibility rather than a consideration as to the prudence of a single investment; and
  2. Whether the investment decision was consistent with the written investment policy of the entity.

Gov't Code 2256.006

Personal Interest

  1. The investment officer owns ten percent or more of the voting stock or shares of the business organization or owns $5,000 or more of the fair market value of the business organization;
  2. Funds received by the investment officer from the business organization exceed ten percent of the investment officer's gross income for the previous year; or
  3. The investment officer has acquired from the business organization during the previous year investments with a book value of $2,500 or more for the personal account of the investment officer.

Gov't Code 2256.005(i)

Quarterly Reports

  1. Describe in detail the investment position of the entity on the date of the report;
  2. Be prepared jointly by all investment officers of the entity;
  3. Be signed by each investment officer of the entity;
  4. Contain a summary statement for each pooled fund group (i.e., each internally created fund of an investing entity in which one or more institutional accounts of the investing entity are invested) that states the:
    1. Beginning market value for the reporting period;
    2. Ending market value for the period; and
    3. Fully accrued interest for the reporting period;
  5. State the book value and market value of each separately invested asset at the end of the reporting period by the type of asset and fund type invested;
  6. State the maturity date of each separately invested asset that has a maturity date;
  7. State the account or fund or pooled group fund in the state agency or local government for which each individual investment was acquired; and
  8. State the compliance of the investment portfolio of the state agency or local government as it relates to the investment strategy expressed in the agency's or local government's investment policy and relevant provisions of Government Code Chapter 2256.

Education Code 51.0032; Gov't Code 2256.001(9), .023

Selection of Broker

Authorized Investments

Gov't Code 2256.003(a)–(b), .005(j)

Obligations

  1. Obligations, including letters of credit, of the United States or its agencies and instrumentalities, including the Federal Home Loan Banks;
  2. Direct obligations of this state or its agencies and instrumentalities;
  3. Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States;
  4. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the state of Texas, the United States, or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or by the explicit full faith and credit of the United States;
  5. Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent;
  6. Bonds issued, assumed, or guaranteed by the state of Israel;
  7. Interest-bearing banking deposits that are guaranteed or insured by:
    1. The FDIC or its successor; or
    2. The National Credit Union Share Insurance Fund or its successor; and
  8. Interest-bearing banking deposits other than those described by item 7 if:
    1. The funds invested in the banking deposits are invested through a broker with a main office or branch office in this state that the investing entity selects from a list the governing body or designated investment committee of the entity adopts as required by Government Code 2256.025 or a depository institution with a main office or branch office in this state that the investing entity selects;
    2. The selected broker or depository institution arranges for the deposit of the funds in the banking deposits in one or more federally insured depository institutions, regardless of where located, for the investing entity's account;
    3. The full amount of the principal and accrued interest of the banking deposits is insured by the United States or an instrumentality of the United States; and
    4. The investing entity appoints as the entity's custodian of the banking deposits issued for the entity's account the selected depository institution, an entity described by Government Code 2257.041(d), or a clearing broker dealer registered with the Securities and Exchange Commission and operating under Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3).

Gov't Code 2256.009(a)

  1. Obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal.
  2. Obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest.
  3. Collateralized mortgage obligations that have a stated final maturity date of greater than ten years.
  4. Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.

Gov't Code 2256.009(b)

Certificates of Deposit and Share Certificates

  1. Guaranteed or insured by the FDIC or its successor or the National Credit Union Share Insurance Fund or its successor;
  2. Secured by obligations described by Government Code 2256.009(a) above, including mortgage-backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal amount of the certificates, but excluding those mortgage-backed securities of the nature described by Section 2256.009(b); or
  3. Secured in accordance with Government Code Chapter 2257 or in any other manner and amount provided by law for the deposits of the investing entity.
  1. The funds are invested by an investing entity through a broker that has its main office or a branch office in this state and is selected from a list adopted by the investing entity as required by Government Code 2256.025, or a depository institution that has its main office or a branch office in this state and that is selected by the investing entity;
  2. The broker or depository institution selected by the investing entity arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the investing entity;
  3. The full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States; and
  4. The investing entity appoints the depository institution selected by the investing entity under paragraph a above or a clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. 240.15c3-3) as custodian for the investing entity with respect to the certificates of deposit issued for the account of the investing entity.

Gov't Code 2256.010(a)–(b)

Repurchase Agreements

  1. Has a defined termination date;
  2. Is secured by a combination of cash and obligations of the United States or its agencies and instrumentalities;
  3. Requires the securities being purchased by the entity or cash held by the entity to be pledged to the entity, held in the entity's name, and deposited with the entity or a third party selected and approved by the entity; and
  4. Is placed through a primary government securities dealer, as defined by the Federal Reserve or a financial institution doing business in Texas.

Gov't Code 2256.011

Securities Lending Program

  1. The value of securities loaned must not be less than 100 percent collateralized, including accrued income, and the loan must allow for termination at any time;
  2. The loan must be secured by:
    1. Pledged securities described by Government Code 2256.009;
    2. Pledged irrevocable letters of credit issued by a bank that is organized and existing under the laws of the United States or any other state and continuously rated by at least one nationally recognized investment rating firm at not less than A or its equivalent; or
    3. Cash invested in accordance with Government Code 2256.009, 2256.013, 2256.014, or 2256.016;
  3. The terms of the loan require that the securities being held as collateral be pledged to the investing entity, held in the investing entity's name, and deposited at the time the investment is made with the entity or with a third party selected by or approved by the investing entity; and
  4. The loan must be placed through a primary government securities dealer, as defined by 5 C.F.R. 6801.102(f), as that regulation existed on September 1, 2003, or a financial institution doing business in this state.

Gov't Code 2256.0115

Banker's Acceptance

  1. Has a stated maturity of 270 days or fewer from the date of issuance;
  2. Will be, in accordance with its terms, liquidated in full at maturity;
  3. Is eligible for collateral for borrowing from a Federal Reserve Bank; and
  4. Is accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A-1 or P-1 or an equivalent rating by at least one nationally recognized credit rating agency.

Gov't Code 2256.012

Commercial Paper

  1. Has a stated maturity of 270 days or fewer from the date of issuance; and
  2. Is rated not less than A1-1 or P-1 or an equivalent rating by at least two nationally recognized credit rating agencies, or by one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any state.

Gov't Code 2256.013

Mutual Funds

  1. Is registered with and regulated by the Securities and Exchange Commission;
  2. Provides the investing entity with a prospectus and other information required by the Securities and Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); and
  3. Complies with federal Securities and Exchange Commission Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.).
  1. Is registered with the Securities and Exchange Commission;
  2. Has an average weighted maturity of less than two years; and
  3. Either has a duration of one year or more and is invested exclusively in obligations approved by Government Code Chapter 2256, Subchapter A, regarding authorized investments (Public Funds Investment Act) or has a duration of less than one year and the investment portfolio is limited to investment grade securities, excluding asset-backed securities.

Gov't Code 2256.014

Guaranteed Investment Contracts

  1. Has a defined termination date;
  2. Is secured by obligations described by Government Code 2256.009(a)(1), excluding those obligations described by Section 2256.009(b), in an amount at least equal to the amount of bond proceeds invested under the contract; and
  3. Is pledged to the entity and deposited with the entity or with a third party selected and approved by the entity.
  1. The governing body of the entity must specifically authorize guaranteed investment contracts as eligible investments in the order, ordinance, or resolution authorizing the issuance of bonds;
  2. The entity must receive bids from at least three separate providers with no material financial interest in the bonds from which proceeds were received;
  3. The entity must purchase the highest yielding guaranteed investment contract for which a qualifying bid is received;
  4. The price of the guaranteed investment contract must take into account the reasonably expected drawdown schedule for the bond proceeds to be invested; and
  5. The provider must certify the administrative costs reasonably expected to be paid to third parties in connection with the guaranteed investment contract.

Gov't Code 2256.015

Investment Pools

Hedging Transactions

  1. A principal amount of at least $250 million in outstanding long-term indebtedness, long-term indebtedness proposed to be issued, or a combination of outstanding long-term indebtedness and long-term indebtedness proposed to be issued; and
  2. Outstanding long-term indebtedness that is rated in one of the four highest rating categories for long-term debt instruments by a nationally recognized rating agency for municipal securities, without regard to the effect of any credit agreement or other form of credit enhancement entered into in connection with the obligation.

Funds from Mineral Rights

Change in Law

Loss of Required Rating

Investment of Debt Service Funds

Education Code 45.112

General Deposits

Sellers of Investments

  1. Received and reviewed the investment policy of the entity; and
  2. Acknowledged that the business organization has implemented reasonable procedures and controls in an effort to preclude investment transactions conducted between the entity and the organization that are not authorized by the entity's policy, except to the extent that this authorization is dependent on an analysis of the makeup of the entity's entire portfolio, requires an interpretation of subjective investment standards, or relates to investment transactions of the entity that are not made through accounts or other contractual arrangements over which the business organization has accepted discretionary investment authority.

Gov't Code 2256.005(k)–(l)

Donations

Electronic Funds Transfer

Private Auditor

Tyler Junior College

CAK(LEGAL)-LJC

UPDATE 33

DATE ISSUED: 12/12/2017