HomeMy WebLinkAbout20030595 RESOLUTION
RE: ADOPT WELD COUNTY INVESTMENT POLICY
WHEREAS, the Board of County Commissioners of Weld County, Colorado, pursuant to
Colorado statute and the Weld County Home Rule Charter, is vested with the authority of
administering the affairs of Weld County, Colorado, and
WHEREAS, the Department of Finance and Administration has presented an
Investment Policy to the Board of County Commissioners of Weld County, for consideration and
approval, and
WHEREAS, after review, the Board deems it advisable to adopt said policy, a copy of
which is attached hereto and incorporated herein by reference.
NOW, THEREFORE, BE IT RESOLVED by the Board of County Commissioners of
Weld County, Colorado, that the Weld County Investment Policy be, and hereby is, adopted.
The above and foregoing Resolution was, on motion duly made and seconded, adopted
by the following vote on the 5th day of March, A.D., 2003.
BOARD OF COUNTY COMMISSIONERS
A �I /�, WE COUNTY,/COLO DO
ATTEST: fa e,Y"�`f / /' t D ' E. Long, Ch it
Weld County Clerk to thg Boarr4 a, �
< ' c f? 1 I Robert D. asden, Pro-Tem
BY: ee rn i
Deputy Clerk to the Board
M. J. eile
AP AS TO EXCUSED
Willis H. Jerke
ount Attor y WA `/
Glenn Vaad
Date of signature: //
2003-0595
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WELD COUNTY
INVESTMENT POLICY
I. INTRODUCTION
Section 6-1 of the Weld County Home Rule charter was amended by the Weld County
voters on November 8, 2001, making the office of County Treasurer appointed by the
Board of Weld County Commissioners, effective January 1, 2003. The County
Commissioners, in consultation with the County's auditors, decided per a resolution dated
October 7, 2002, to place the Weld County Treasurer's Office under the Division of
Finance and Administration, and to combine the position of County Treasurer with the
existing Controller's position.
In order to fulfill their fiduciary responsibilities concerning the Treasurer's investments
the Board of Weld County Commissioners decided that an oversight committee, known as
the Investment Advisory Committee, should be created which includes the Treasurer,
Chief Deputy Treasurer, Director of Finance and Administration, Chair, and Chair Pro-
tem of the Board of Weld County Commissioners.
This Investment Policy replaces any previous Investment Policy or Investment Procedures
of Weld County. The investment guidelines outlined below have been written to comply
with various regulatory requirements under which Weld County operates.
This Investment Policy was endorsed and adopted by the Weld County Investment
Advisory Committee on February 12, 2003. The Board of Weld County Commissioners
adopted the policy on March 5, 2003.
II. SCOPE
The following investment policy addresses the methods, and procedures which must be
exercised to ensure effective and judicious fiscal and investment management of the
County's funds. This policy shall apply to the investment management of all financial
assets and funds under control of the County except for its employee retirement system
fund, which is organized and administered separately by the Weld County Retirement
Board. These investment transactions/activities are accounted for in the government's
annual financial report and include the following:
• General fund,
• Special Revenue funds,
• Debt Service funds.
• Capital Projects funds,
• Enterprise fund,
• Internal Service funds,
• Trust and Agency funds - Expendable Trust funds & Agency funds, and
• Any new fund created by the governing body. unless specifically exempted by the
governing body
2003-0595
III. INVESTMENT OBJECTIVES
All funds which are held for future disbursement shall be deposited and invested by the
County in accordance with Colorado State Statutes and ordinances and resolutions
enacted by the Board of Weld County Commissioners in a manner to accomplish the
following objectives:
1. Safety of Funds: Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. The objective will be to mitigate
credit risk and interest rate risk.
a) Credit Risk. The County will minimize credit risk, the risk of loss due to the
failure of the security issuer, by
• Limiting investments to the safest types of securities;
• Pre-qualifying the financial institutions, broker/dealers, and advisors
with which the County does business, and
• Diversifying the investment portfolio so that potential losses on individual
securities will be minimized.
b) Interest Rate Risk: The County will minimize the risk that the market value
of securities in the portfolio will fall due to changes in general interest rates
by:
• Structuring the investment portfolio so that securities mature sufficiently
close to cash requirements for ongoing operations, thereby minimizing the
potential need to sell securities on the open market prior to maturity and
• Investing operating funds primarily in short- to intermediate-term
securities, approved local government investment pools, approved money
market mutual funds and repurchase agreements.
2. Liquidity of Funds: The investment portfolio shall remain sufficiently liquid to meet
all operating requirements that may be reasonably anticipated. To ensure that
adequate funds are available to pay the County's projected financial obligations,
investments will be purchased that reasonably match the anticipated cash
disbursements of the County.
Since all possible cash demands cannot be anticipated, the portfolio shall consist
largely of securities with active secondary or resale markets so that the potential for
a realized loss, if an early liquidation of a security is necessary, will be minimized.
A core of stable funds may be identified through cash flow analysis that is available
for investing in longer-term securities. Although the market value of these longer--
term securities may fluctuate significantly, the fluctuation will not affect the
liquidity of the portfolio since they can be held to maturity in all but extreme
circumstances.
3. Yield: The County's portfolio shall earn a competitive market rate of return on
available funds throughout budgetary and economic cycles. In meeting this
objective, investment management personnel will take into account the County's
investment risk constraints and cash flow needs.
The County's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The County recognizes that no
investment is totally free of risk and that the investment activities of the County are a
matter of public record. Accordingly, the County recognizes that occasional measured
losses are inevitable in a diversified portfolio and shall be considered within the context of
the overall portfolio's return, provided that this policy has been followed and that the sale
of a security prior to maturity is in the best long-term interest of the County.
Securities shall not be sold prior to maturity with the following exceptions:
• A declining credit security could be sold early to minimize loss of principal;
• A security swap would improve the quality yield or target duration in the portfolio, or
• Liquidity needs of the portfolio require that the security be sold.
IV. DELEGATION OF AUTHORITY
Authority to manage the investment program is granted to the Controller/Treasurer
derived from Article 11 of the Weld County Home Rule Charter. Responsibility for the
operation of the investment program is hereby delegated to the Controller/Treasurer, who
shall carry out established written procedures and internal controls for the operation of
the investment program consistent with this investment policy. Procedures shall include
references to: safekeeping, delivery vs. payment, investment accounting, repurchase
agreements and banking services contracts. No person may engage in an investment
transaction except as provided under the terms of this policy and the procedures
established by the Controller/Treasurer. The Controller/Treasurer shall be responsible for
all transactions undertaken and shall establish a system of controls to regulate the
activities of subordinate officials.
The Controller/Treasurer may engage the support services of outside professionals, so
long as it can be demonstrated that these services produce a net financial advantage and
necessary financial protection of the County's resources. Such services may include
engagement of financial advisors in conjunction with debt issuance, portfolio management
support, special legal representation, third party custodial services, and appraisal of
independent rating services.
V. PRUDENCE AND INDEMNIFICATION
The standard of prudence, as defined by the Colorado Revised Statutes, to be used for
managing the County's assets is the "prudent investor" rule applicable to a fiduciary,
which states that a prudent investor "shall exercise the judgment and care, under
circumstances then prevailing, which men of prudence, discretion, and intelligence
exercise in the management of the property of another, not in regard to speculation but in
regard to the permanent disposition of funds, considering the probable income as well as
the probable safety of their capital" (CRS 15-1-304, Standard for Investments.)
The Director of Finance, Controller/Treasurer and other authorized persons acting in
accordance with written procedures and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk or market price changes
provided deviations from expectations are reported in a timely fashion and the liquidity
and the sale of securities are carried out in accordance with the terms of this policy. The
Controller/Treasurer will be responsible for ensuring that sufficient liquidity exists to
maintain the County's operations in the event of adverse market conditions or claims.
VI. ETHICS AND CONFLICTS OF INTEREST
As noted in Section 16-9 (2) (b) of the Weld County Home Rule Charter: "Neither the
Treasurer nor employees of the Treasurer's Office shall have any proprietary interest in
any financial institution in which the County maintains deposits."
VII. ELIGIBLE INVESTMENTS AND TRANSACTIONS
All investments will be made in accordance with the Colorado Revised Statutes (CRS) as
follows CRS 11-10.5-101, et seq. Public Deposit Protection Act, CRS 11-47.101, et seq.
Savings and Loan Association Public Deposit Protection Act; CRS 11-60-101, et seq. U.S.
Agency Obligations; CRS 24-75-601, et seq. Funds-Legal Investments for Governmental
Units; CRS 24-75-603, et seq. Depositories; and CRS 24-75-701, et seq. Local
Governments-Local Government Pooling. (Reference Annex 1.) Any revisions on
extensions of these sections of the CRS will be assumed to be part of this policy
immediately upon being enacted.
This investment policy further restricts the investment of County funds to the following
types of securities and transactions:
1. Treasury Obligations: Treasury bills,Treasury notes,Treasury bonds and Treasury
STRIPS with maturities not exceeding five years from the date of purchase.
2. Federal Instrumentality Securities: Debentures, discount notes, global securities,
callable securities and stripped principal on coupons with maturities not exceeding
five years from the date of purchase issued by the following only: Federal National
Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB), Federal Home
Loan Banks (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), and
Student Loan Marketing Association (SLMA). For the purposes of this paragraph, a
"weighted average life" will not constitute a stated final maturity. To be approved,
federal instrumentality securities must be rated AAA by either Moody's or Standard
86 Poor's.
3. Eligible Bankers Acceptances with an original maximum maturity not exceeding 90
days, issued on domestic banks or branches of foreign banks domiciled in the U.S.
and operating under U.S. banking laws with a minimum of$250 million combined
capital and surplus (CRS 24-75-601.1f), whose senior long-term debt is rated, at
the time of purchase AA by Standard&Poor's,Aa by Moody's. on AA by Fitch IBCA,
Duff and Phelps and deposits of the issuing bank must be insured by the Federal
Deposit Insurance Corporation (FDIC).
4. Repurchase Agreements with a defined termination date of 180 days or less
collateralized by U. S. Treasury and agency securities listed in item 1 and 2 above
with a maturity not exceeding 10 years. Title must transfer to the County of Weld
or the County must have a perfected security interest. For the purpose of this
section, the term "collateral" shall mean "purchased securities" under the terms of
the County's approved Master Repurchase Agreement. The purchased securities
shall have a fixed coupon rate and an original minimum market value including
accrued interest of 102 percent of the dollar value of the transaction and the
collateral maintenance level shall be 102 percent. Collateral shall be held in the
County's custodial bank as safekeeping agent, and the market value of the
collateral securities shall be marked-to-the-market daily based on that day's bid
price.
Repurchase Agreements shall be entered into only with dealers who have executed
a Master Repurchase Agreement with the County and who are recognized as
Primary Dealers with the Market Reports Division of the Federal Reserve Bank of
New York. A copy of the County's approved Master Repurchase Agreement is
included in Annex III and a list of dealers who have an executed Master Repurchase
Agreements with the County are listed in Annex III.
Approved counterparties to repurchase agreements shall have at least a short-term
debt rating of A-1 or the equivalent and a long-term debt rating of A or the
equivalent from one on more nationally recognized organizations which regularly
rates such obligations.
5. Local Government Investment Pools authorized under CRS 24-75-701, 702 which:
1) are "no-load" (i.e., no commission fees shall be charged on purchases on sales of
shares); 2) have an objective of maintaining a constant daily net asset value per
share (usually $1.00 per share); 3) limit assets of the fund to securities authorized
in this investment policy; 4) have a maximum stated maturity and weighted average
maturity in accordance with Federal Securities Law Regulation 2A-7; and 5) have a
rating of AAAm by Standard & Poor's or AAA by Moody's or AAA/V-1+ by Fitch
IBCA, Duff& Phelps.
6. Time Certificates of Deposit or savings accounts in state or national banks or in
state or federally chartered savings and loans which are state approved depositories
per CR5 24-75-603, et seq. (as evidenced by a certificate issued by the State
Banking Board) and are insured by the FDIC. Certificates of deposit which exceed
the FDIC insured amount shall be collateralized in accordance with the Colorado
Public Deposit Protection Act.
7. Money Market Mutual Funds registered under the Investment Company Act of
1940 which: 1) are "no-load" (i.e., no commission fee shall be charged on purchases
or sales of shares); 2) have a policy to maintain a constant daily net asset value per
share (usually $1.00); 3) limit assets of the fund to those securities authorized in
this Policy; 4) have a maximum stated maturity and weighted average maturity in
accordance with Federal Securities Regulation 2A-7; and 5) are rated either AAAm
by Standard & Poor's or AAA by Moody's or Fitch Investors Service.
It is the intent of the County that the foregoing list of authorized securities be strictly
interpreted. Any deviation from this list must be pre-approved by the Board of Weld
County Commissioners in writing.
VIII. INVESTMENT DIVERSIFICATION
It is the intent of the County to diversify the investments within the portfolio to avoid
incurring unreasonable risks inherent in over-investing in specific instruments, individual
financial institutions or maturities. The asset allocation in the portfolio should, however,
be flexible depending upon the outlook for the economy, the securities market, and the
County's anticipated cash flow needs.
A minimum of 50% of the investable assets of the County will be maintained in those
securities listed in items 1, 2, 4, and 5 under Eligible Investments and Transactions.
IX. INVESTMENT MATURITY AND LIQUIDITY
Investments shall be limited to maturities not exceeding five years unless otherwise
approved in writing by the Board of Weld County Commissioners for special circumstances
(e.g. the reinvestment of bond proceeds). In addition, the weighted average maturity of the
total portfolio shall at no time exceed 1 year. The County shall maintain at least 5% of its
total investment portfolio in instruments maturing in 90 days or less.
In the case of callable securities, the first call date shall be used as the maturity date for
investment purposes if, due to the level of interest rates, the security is likely to be called
prior to maturity. If due to the level of interest rates, the callable security is likely to go to
maturity, then that date will be used as the final maturity. In all cases for accounting
purposes, however, the final maturity date of the callable securities shall be used as the
maturity of the security in order to disclose the maximum maturity liability in the
County's financial reports.
X. COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with broker/dealers who
have been authorized by the County. At least three broker/dealers shall be contacted for
each transaction and their bid and offering prices shall be recorded.
If the County is offered a security for which there is no other readily available competitive
offering, quotations for comparable or alternative securities will be documented.
When purchasing original issue instrumentality securities,no competitive offerings will be
required as all dealers in the selling group offer those securities at the same original issue
price.
XI. SELECTION OF BROKER/DEALERS AND FINANCIAL INSTITUTIONS ACTING AS
BROKER/DEALERS
The Controller/Treasurer shall maintain a list of authorized broker/dealers and financial
institutions which are approved for investment purposes, and it shall be the policy of the
County to purchase securities only from those authorized institutions and firms.
To be eligible, a firm/bank must meet at least one of the following criteria:
1. Be recognized as a Primary Dealer by the Market Reports Division of the Federal
Reserve Bank of New York,
2. Report voluntarily to the Market Reports Division of the Federal Reserve Bank of
New York,
3. Meet the securities dealer's capital adequacy requirements of the New York Federal
Reserve Bank and provide written certification to the County that the requirements
have been met on a continuous basis for the previous twelve-month period. (The
capital requirements are found in the New York Federal Reserve Bank publication
entitled, Capital Adequacy Guidelines for Governmental Securities Dealers), or
4. Be an FDIC member and meet criteria in Section XII, "Selection of Banks and
Savings and Loans as Depositories and Providers of General Banking Services.
Broker/dealers and other financial institutions will be selected by the
Controller/Treasurer on the basis of their expertise in public cash management and their
ability to provide service to the County's account. Each broker/dealer, bank or savings
and loan that has been authorized by the Controller/Treasurer shall be required to submit
and annually update a County approved Broker/Dealer Information Request Form which
includes the firm's most recent financial statements. The Treasurer/Controller shall
maintain a file of the most recent Broker/Dealer Information Forms submitted by each
firm approved for investment purposes. Broker/Dealers shall also attest in writing that
they have received a copy of this policy. A list of approved Broker/Dealers is included in
Annex IV to this policy.
XII. SELECTION OF BANKS AND SAVINGS AND LOANS (DESIGNATION UNDER CRS
11-47-101) AS DEPOSITORIES AND PROVIDERS OF GENERAL BANKING
SERVICES
The Controller/Treasurer shall maintain a list of authorized banks, savings and loans,
and public asset pools as depositories for Weld County funds (Annex V) which are
approved by the Board of Weld County Commissioners by resolution per CRS 30-10-708 to
provide depository and other banking services for the County. To be eligible for
authorization, a bank or savings and loan must be a member of the FDIC and must meet
the minimum credit criteria (described below) of credit analysis provided by commercially
available bank rating services. Banks or savings and loans failing to meet the minimum
criteria, or in the judgment of the Controller/Treasurer no longer offering adequate safety
to the County, will be removed from the list. The list will be updated annually to insure
current compliance. Depositories shall be selected through the County's procurement
process, which shall include a formal request for proposal issued every five years.
The County shall utilize the commercially available bank rating services of PMA Financial
Network, Inc. or Sheshunoff Public Finance Bank Rating Service to perform a credit
analysis on banks and savings and loans seeking authorization. Data obtained from the
bank rating services will include factors covering overall rating, liquidity policy, credit risk
policy, interest rate policy, profitability, and capital policy.
To be eligible for designation to provide banking services, a financial institution shall meet
the following criteria:
1. Have a Sheshunoff Public Finance Peer Group Rating of 30 or better on a scale of
zero to one hundred with one hundred being the highest quality for the most recent
reporting quarter before the time of selection; or
2. Have a PMA Financial Network, Inc. overall rating of three or better on a scale of
one to five with one being the highest quality for the most recent reporting quarter
before the time of selection.
3. Qualify as a depository of public funds in Colorado as defined in CR3 24-75-603
and CRS 11-47-118, and provide the County certification of such qualification.
The Controller/Treasurer shall obtain a copy of the Federal Financial Institutions
Examination Council (FFIEC) Consolidated reports of Condition and Income (Call Report)
on each approved financial institution after the end of the June and December calendar
quarters. The Controller/Treasurer shall also maintain a file of the most recent credit
rating analysis reports performed for each approved financial institution by one of the
rating firms listed above. A list of approved banks is included in Annex V. A credit
analysis will be performed at least semi-annually on all approved banks and savings and
loans.
XIII. SAFEKEEPING AND CUSTODY
The Treasurer/Controller shall approve one or more financial institutions to provide
safekeeping and custodial services for the County. A County approved Safekeeping
Agreement shall be executed with each custodian bank prior to utilizing that bank's
safekeeping services. To be eligible for designation as the County's safekeeping and
custodian bank, a financial institution shall meet the following criteria:
1. Have a Sheshunoff Public Finance Peer Group Rating of 20 or better on a scale of
zero to one hundred with one hundred being the highest quality for the most recent
reporting quarter before the time of selection; or
2. Have a PMA Financial Network, Inc. overall mating of three minus or better on a
scale of one to five with one being the highest quality for the most recent reporting
quarter before the time of selection.
Custodian banks will be selected on the basis of their ability to provide service to the
County's account and the competitive pricing of their safekeeping related services.
Custodian banks shall be selected through the County's procurement process,which shall
include a formal request for proposal issued every five years.
The Controller/Treasurer shall obtain a copy of the FFIEC Consolidated Reports of
Condition and Income (Call Report) to the County on each approved safekeeping financial
institution after the end of the June and December calendar quarters. The
Controller/Treasurer shall also maintain a file of the credit rating analysis reports
performed for each approved financial institution. A list of approved banks is included in
Annex V.
It is the intent of the County that all purchased securities be perfected in the name of the
County. Sufficient evidence to title shall be consistent with modern investment, banking
and commercial practices.
All investment securities, except non-negotiable certificates of deposit and money market
funds, purchased by the County will be delivered by either book entry or physical delivery
and will be held in third-party safekeeping by a County approved custodian bank, its
correspondent New York bank or the Depository Trust Corporation (DTC).
The County's perfected ownership of all book entry securities shall be evidenced by a
safekeeping receipt on a related document issued to the County by the custodian bank
that acts as the County's safekeeping agent. The safekeeping receipt shall state that the
securities are held in the Federal Reserve system either in a Customer Account/1030 for
the custodian bank which will name the County as"customer" or in a Trust Account/1050
with the trust department named as agent for the County.
All non-book entry (physical delivery) securities shall be held by the custodian bank's
correspondent bank in New York City and the custodian bank shall issue a safekeeping
receipt or a related document to the County evidencing that the securities are held by the
correspondent bank for the County. The County may utilize the services of the Depository
Trust Corporation (DTC) as a depository for delivery of non-wireable securities.
All custodies securities that are registered shall be registered in the name of the County or
in the name of a nominee of the County or in the name of the custodian or its nominee or,
if in a clearing corporation, in the name of the clearing corporation or its nominee.
The County's custodian will be required to furnish the County with monthly reports of
holdings of custody securities as well as an account analysis report of monthly securities
activity.
XIV. PERFORMANCE BENCHMARKS
The County of Weld shall use as a goal a dynamic benchmark rate of return for the
County's investment portfolio that corresponds to the yield for the current U.S. Treasury
security that matches the weighted average maturity of the portfolio. However, it is
intended that the benchmark yield should not be less than the monthly average yield of
the Colorado Local Government Liquid Asset Trust (COLOTRUST) measured on an
annualized basis. All fees involved with managing the portfolio should be included in the
computation of the portfolio's rate of return.
The Controller/Treasurer shall present to the Investment Advisory Committee of Weld
County , at least semi-annually, a review of the portfolio's adherence to appropriate risk
levels and a comparison between the portfolio's total return and the established
investment objectives and goals.
XV. REPORTING
Accounting and reporting on the County's investment portfolio shall conform to Generally
Accepted Accounting Principles (GAAP) and the Governmental Accounting Standards
Board (GASB) recommended practices. On a monthly basis, an investment report shall be
prepared and submitted to the Director of Finance, who will provide it to the County
Commissioners in a timely manner, listing the investments held by the County, the
current market valuation of the investments and performance results. The report shall
include a summary of investment earnings during the period. A record shall be
maintained by the County of all bids and offerings for security transactions in order to
ensure that the County receives competitive pricing.
Reports prepared by outside advisors shall be sent to the Treasure/Controller.
XVII. POLICY REVISIONS
This investment policy shall he reviewed annually by the Director of Finance and
Controller/Treasurer and may be amended by the Investment Advisory Committee of Weld
County as conditions warrant. The data contained in the annexes to this policy may be
updated by the Controller/Treasurer as necessary, provided the changes in no way affect
the substance or intent of this policy.
Annex I
Authorized Personnel
The following persons are authorized to transact investment business and wire funds for
investment purposes on behalf of the Weld County:
Donald Warden, Director of Finance
Claud Hanes, Comptroller/Treasurer
Ken Sigley, Chief Deputy Treasurer
Annex II
Applicable Statutes
The following Colorado Revised Statutes are applicable to the investment operations of the
County of Weld:
CRS 11-10.5-101, et seq., Public Deposit Protection Act;
CRS11-47-101, et seq., Savings and Loan Association Public Deposit
Protection Act;
CRS 11-47-118, et seq., Public moneys to be deposited only in eligible public
depositories;
CRS 11-60-101, et seq., U.S. Agency Obligations;
CRS 24-75-601, et. Seq., Funds-Legal Investments for Governmental Units;
CRS 24-75-603, et seq., Depositories;
CRS 24-75-701, et seq., Local Governments-Local Government Pooling.
CRS 30-10-708, et. Seq. Deposit of Funds in Banks and Savings and Loan
Associations
Annex III
Master Repurchase Agreement
The attached Master Repurchase Agreement and Annex has been approved by the County
of Weld.
Wells Fargo Bank have an executed Master Repurchase Agreement on file with the County
of Weld:
Annex IV
Approved Broker-Dealers
The following broker/dealers have been approved by the County of Weld:
Annex V
Approved Designated Banks, Savings and Loans, and Public Asset Pools
See the attached Board of Weld County Commissioners resolution dated February 19,
2003, for those banks, savings and loans, and public asset pools that have been
approved as depositories for Weld County funds.
Annex VI
Approved Depositor and Custodian Banks
The following depositories have been approved by the County of Weld.
Wells Fargo Bank, N.A.
GLOSSARY OF TERMS
Bankers Acceptance
A banker's acceptance (BA) can be defined as a time draft drawn on and
accepted by a bank to pay a specified amount of money on a specified date. The
draft is a primary and unconditional liability of the accepting bank. Bankers'
acceptances typically are created for international trade transactions.
Commercial Paper
Commercial paper (CP) can be defined as a short-term unsecured promissory
note issued for a specified dollar amount with a maturity that can be tailored to
meet an investor's needs. Notes have maximum maturities of 270 days, with
the majority of CP being issued in the 30-50 day range. Most CP is sold at a
discount from face value although some can be interest bearing.
Federal Farm Credit Bank (FFCB)
The FFCB is a network of cooperatively owned lending institutions that provide
credit services to farmers and farm-affiliated businesses. The Farm Credit
Banks collectively issue consolidated system-wide discount notes, debentures
and medium term notes. These securities do not carry direct U.S. government
guarantees.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
FHLMC is a government-chartered corporation established in 1970 to help
maintain the availability of mortgage credit for residential housing. FHLM buys
qualified mortgage loans from the financial institutions that originate them,
securitizes the loans, and distributes the securities through the dealer
community. FHLMC also issues discount notes, debentures and medium term
notes that finance the purchase of the mortgages. These securities do not carry
direst U.S. government guarantees.
Federal National Mortgage Association (FNMA or Fannie Mae)
FNMA (Fannie Mae) is a congressionally chartered corporation, chartered in
1938. FNMA purchases conventional mortgages, pools them and sells them as
mortgage backed securities to investors on the open market. FNMA sells
debentures, discount notes and medium term notes to investors to finance their
purchase of conventional mortgages. These securities do not carry direct U.S.
government guarantees.
Money Market Mutual Funds (MMMFs)
MMMFs are an open-ended mutual fund, which invests only in money market
investment instruments. MMMFs are sponsored by private companies and are
regulated by and must be registered with the SEC. These funds fall under
Investment Company Act of 1940 and they must comply with Rule 2a-7, which
governs the credit quality, diversification practices, and maturities of portfolio
securities.
Repurchase Agreement (repo)
A repurchase agreement (repo or RP) is a simultaneous transaction whereby an
investor purchases securities (collateral) from a bank or a dealer for cash and
the bank or dealer contractually agrees to repurchase the collateral security at
the same price (plus interest) at a mutually agreed-upon future date. When the
repurchase agreement is executed, the parties agree to a specified interest rate,
or repo rate.
Student Loan Marketing Association (Sallie Mae(
Sallie Mae is a federally established corporation established in 1972 to provide
financing for the federal Guaranteed Student Loan Program. Sallie Mae
regularly enters the credit markets with short-term and non-guaranteed
discount notes with maturities under one year and an extensive program of
floating-rate notes with various maturities. These securities do not carry direct
U.S. government guarantees.
U.S. Treasury (Treasuries)
Treasuries are marketable (negotiable) securities that are issued by the U.S.
Treasury and carry the full faith and credit of the U S government. They are
issued in three types - - bills, notes, and bonds. Treasury hills have maturities
less than one year, do not have a coupon and are purchased at a discount to par
value. Treasury notes and bonds have coupons that pay semi-annual interest
and have original maturities of two years or greater.
U.S. Treasury STRIPS (Separately Traded Registered Interest and Principal Securities)
STRIPS are issued by the Treasury as zero-coupon securities and represent the
principal or interest payments from selected Treasury notes and bonds. They
carry the full faith and credit of the U.S. government.
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