15-045 RESOLUTION NO. 15-045
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF SOUTHLAKE, TEXAS, REVIEW OF INVESTMENT
POLICY AND INVESTMENT STRATEGIES.
WHEREAS, Section 2256.005 (e) of the Public Funds Investment Act (the
"Act") directs the governing body of an investing entity to review its investment policy and
investment strategies not less than annually; and
WHEREAS, the City of Southlake's financial advisor has reviewed the
investment policy against recent changes to the Act and has not identified any necessary changes
to the investment policy; and
WHEREAS, there are not any recommended changes to the investment policy.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF
THE CITY OF SOUTHLAKE, TEXAS:
Section 1. The City Council of Southlake has reviewed the Investment Policy and investment
strategies and hereby adopts the Investment Policy dated September 2015, as attached to this
resolution. The Investment Policy amends and supersedes the Investment Policy adopted by the
City in September 2014.
Section 2. This resolution shall be effective immediately upon adoption.
PASSED AND APPROVED this 16-r day of ,SeP-1-66.-,10.er , 2015.
CITY OF SOUTHLAKE, TEXAS
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CITY OF
SOUTH LAKE
TEXAS
INVESTMENT POLICY
Amended September 2015
CITY OF SOUTHLAKE, TEXAS
INVESTMENT POLICY
TABLE OF CONTENTS
I. Purpose 1
A. Formal Adoption
B. Scope
C. Review and Amendment
II. Investment Strategy 1
A. Operating Funds
B. Debt Service Funds
C. Debt Service Reserve Funds
D. Special Projects, Special Purpose, or Construction Funds
III. Responsibility and Control 2
A. Delegation of Authority and Training
B. Internal Controls
C. Ethics and Conflict of Interest
D. Prudent Investment Management
IV. Investment Objectives 3
A. Safety of Principal
B. Liquidity
C. Yield
D. Public Trust
V. Investment Portfolio 5
A. Eligible Investments
B. Unauthorized Investments
VI. Safekeeping and Custody 8
A. Collateralization
B. Allowable Collateral and Collateral Levels
C. Monitoring Collateral Adequacy and Additional Collateral Securities
D. Collateral Substitution
E. Safekeeping
F. Delivery versus Payment
VII. Selection of Banks and Dealers 11
A. Depository Selection
B. Investment Advisors
C. Selection of Investment Broker/Dealers and Advisors
D. Approved Broker/Dealers and Investment Advisors
VIII. Reporting 12
A. Quarterly Reporting
Appendix "A" - Certification 14
Appendix "B" - Glossary of Common Treasury Terminology 15
I. PURPOSE
A. Formal Adoption. The purpose of this document is to set forth specific
investment policy and strategy guidelines for the City of Southlake, Texas in
order to achieve the goals of safety, liquidity, yield, and public trust for all
investment activity. This Investment Policy is authorized by the City Council
in accordance with Chapter 2256, Texas Government Code (the "Public
Funds Investment Act").
B. Scope. This Investment Policy applies to all the investment activities of the
City, excluding funds governed by Council approved trust agreements and
assets administered for the benefit of the City by outside agencies. In
addition to this Policy, bonds funds (as defined by the Internal Revenue
Service) shall be managed by their governing ordinance and all applicable
State and Federal Law.
C. Review and Amendment. The City Council of the City of Southlake shall
review its investment strategies and policy not less than annually.
II. INVESTMENT STRATEGY
The City of Southlake maintains one portfolio in which all funds under the City's control are
pooled for investment purposes. Within the pooled portfolio are fund components, each
having an investment strategy as described below:
A. Investment strategies for operating funds are to assure that anticipated cash
flows are matched with adequate investment liquidity. The secondary
objective is to create a portfolio structure which will experience minimal
volatility during economic cycles. This may be accomplished by purchasing
high quality, short to medium term securities which will complement each
other. A dollar weighted-average maturity of 365 days or less will be
calculated using the stated final maturity date of each security.
B. Investment strategies for debt service funds shall have as the primary
objective the assurance of investment liquidity adequate to cover the debt
service obligation on the required payment date. Securities purchased shall
not have a stated maturity date which exceeds the debt service payment
date.
C. Investment strategies for debt service reserve funds shall have as the
primary objective the ability to generate a dependable revenue stream to the
appropriate debt service fund from securities with a low degree of volatility.
Securities should be of high quality and, except as may be required by the
bond ordinance specific to an individual issue, of short to medium term
maturities.
D. Investment strategies for special projects, special purpose, or construction
fund portfolios will have as their primary objective the assurance that
anticipated cash flows are matched with adequate investment liquidity.
These portfolios should include at least 10% in highly liquid securities to
allow for flexibility and unanticipated project outlays. The stated final
maturity dates of securities held should not exceed the estimated project
completion date.
III. RESPONSIBILITY AND CONTROL
A. Delegation of Authority and Training. The Chief Financial Officer and Deputy
Director of Finance are designated as Investment Officer(s) of the City and
are responsible for investment decisions and activities. The Chief Financial
Officer will retain ultimate responsibility for investment decisions. The Chief
Financial Officer, the Deputy Director of Finance, and any members of the
Investment Committee must attend an investment training session on the Act
not less than once in a two-year period that begins on the first day of the
City's fiscal year and consists of the two consecutive fiscal years after that
date, and receive not less than 14-8 hours of instruction relating to
investment responsibilities under this subchapter from an independent
source approved by the Southlake City Council.
B. Internal Controls. The Investment Officer is responsible for establishing and
maintaining an internal control structure designed to ensure that the assets
of the City are protected from loss, theft or misuse. The internal control
structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that
the cost of a control should not exceed the benefits likely to be derived. The
City, in conjunction with its annual financial audit, shall perform a compliance
audit of management controls on investments and adherence to the City's
investment policy and strategy.
C. Ethics and Conflicts of Interest. City staff 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 the ability to
make impartial investment decisions. The Investment Officer who has a
personal business relationship with an entity seeking to sell an investment to
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the City shall file a statement disclosing that personal business interest with
the Texas Ethics Commission and the City Council. For purposes of this
subsection, an investment officer has a personal business relationship with a
business organization if:
1. The Investment Officer owns 10 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 10 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.
D. Prudent Investment Management. The designated Investment Officer(s)
shall exercise the judgment and care, under prevailing circumstances,that a
prudent person would exercise in the management of the person's own
affairs. Unless authorized by law, a person may not deposit, withdraw,
transfer, or manage in any other manner the funds of the City.
Investment Officers, acting in accordance with written procedures and
exercising the proper standard of care, shall be relieved of personal
responsibility for an individual security's credit risk or market price changes,
provided that this Policy and written procedures were followed. In
determining whether an Investment Officer has exercised the proper
standard of care, all investments over which the individual had responsibility
will be considered rather than a single investment.
IV. INVESTMENT OBJECTIVES
The City of Southlake shall manage and invest its cash with four objectives, listed in order
of priority: Safety, Liquidity, Yield, and Public Trust. The safety of the principal invested
always remains the primary objective. All investments shall be designed and managed in a
manner responsive to the public trust and consistent with State and Local law.
A. Safety of Principal. The City shall seek to control the risk of loss due to the
failure of a security issuer or grantor. Such risk shall be controlled by
investing only in the safest types of securities as defined in Section V-A of
this Policy, through portfolio diversification by investment type and maturity,
and by collateralization as required by law.
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1. Diversification by Investment Type. Diversification by investment type
shall be maintained by ensuring an active and efficient secondary
market in portfolio investments and by controlling the market and
opportunity risks associated with specific investment types. Bond
proceeds may be invested in a single security or investment which
exceeds the City's maximum percentages if the Investment Officer
determines that such an investment is necessary to comply with
Federal arbitrage restrictions or to facilitate arbitrage record keeping
and calculation. Diversification by investment type shall be
established by the following maximum percentages of investment type
to the total investment portfolio:
a. U.S. Government Securities 100%
b. Municipal Obligations 50%
c. Repurchase Agreements 50%
d. Certificates of Deposit 100%
e. Bankers Acceptances 20%
f. Commercial Paper 20%
g. Money Market Mutual Funds 50%
h. Eligible Investment Pools 100%
2. Diversification by Investment Maturity. In order to minimize risk of
loss due to interest rate fluctuations, investment maturities will not
exceed the anticipated cash flow requirements of the funds. The City
of Southlake intends to match the holding periods of investment funds
with liquidity needs of the City. The maximum final stated maturity of
any investment shall not exceed five years. Maturity guidelines by
fund are as follows:
a. Operating Funds. The weighted average days to maturity for
the operating fund portfolio shall be 365 days or less and the
maximum allowable maturity shall be three years. If funds are
comingled for investment purposes into a "General Operating
Fund," the final maturity on any single bond shall not exceed
the five-year limit imposed on Debt Service Reserve Funds.
b. Debt Service Funds. Debt Service Funds shall be invested to
ensure adequate funding for each consecutive debt service
payment. The Investment Officer shall invest in such a
manner as not to exceed an "unfunded"debt service date with
the maturity of any investment. An unfunded debt service date
is defined as a coupon or principal payment date that does not
have cash or investment securities available to satisfy said
payment.
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c. Debt Service Reserve Funds. Market conditions, Bond
Resolution constraints and Arbitrage regulation compliance will
be considered when formulating Reserve Fund strategy.
Maturity limitation shall generally not exceed the call provisions
of the Bond Ordinance and shall not exceed the final maturity
of the bond issue. All Debt Service Reserve Fund investment
maturities shall not exceed five years.
d. Special Project, Special Purpose, and Construction Funds.
The funds used for construction and capital improvement
programs have reasonable predictable draw down schedules.
Therefore investment maturities shall generally follow the
anticipated cash flow requirements. Investment pools and
money market mutual funds shall provide readily available
funds generally equal to one month's anticipated cash flow
needs, or a competitive yield alternative for short term fixed
maturity investments. A singular repurchase agreement may
be utilized if disbursements are allowed in the amount
necessary to satisfy any expenditure request, this investment
structure is commonly referred to as a flexible repurchase
agreement. All earnings will be segregated and made
available for any necessary payments to the U.S. Treasury.
3. Collateralization. Collateralization of securities will be made in
compliance with Section VI of this Policy.
B. Liquidity. Liquidity shall be achieved by anticipating cash flow requirements,
by investing in securities with active secondary markets and by investing in
eligible money market mutual funds and local government investment pools.
A security may be liquidated to meet unanticipated cash requirements,to re-
deploy cash into other investments expected to outperform current holdings,
or otherwise to adjust the portfolio.
C. Yield. The City of Southlake's investment portfolio shall be designed with the
objective of attaining a market rate of return throughout budgetary and
economic cycles, taking into account investment risk constraints and cash
flow characteristics of the portfolio.
D. Public Trust. Investments shall 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 investment, considering the probable safety of capital as
well as the probable income to be derived.
V. INVESTMENT PORTFOLIO
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A. Eligible Investments. Investments described below are authorized by
Chapter 2256, Texas Government Code as eligible securities for the City.
City funds governed by this Policy may be invested in:
1. Obligations of the United States or its agencies and instrumentalities
including FHLB Letters of Credit(LOCs), excluding principal-only and
interest-only mortgage backed securities, and collateralized mortgage
obligations and real estate mortgage investment conduits.
2. Direct obligations of the State of Texas, or its agencies and
instrumentalities.
3. Other obligations, the principal and interest on which are
unconditionally guaranteed or insured by, or backed by the full faith
and credit of, the State of Texas or the United States or their
respective agencies and instrumentalities, including any securities
insured by the Federal Deposit Insurance Corporation (FDIC) and
excluding all securities specifically listed as "Unauthorized
Investments" in section V.B. of this Policy.
4. Obligations of states, agencies, counties, cities, and other political
subdivisions of any State having been rated as to investment quality
by a nationally recognized investment rating firm and having received
a rating of not less than "A" or its equivalent.
5. Fully collateralized repurchase agreements having a defined
termination date, placed through a primary government securities
dealer, as defined by the Federal Reserve, or a financial institution
doing business in this state, and secured by obligations described in
Section V-A 1 above which are eligible investments under the Public
Funds Investment Act, pledged with a third party approved by the
City, and having a market value of not less than the principal amount
of the funds disbursed. The term includes direct security repurchase
agreements and reverse repurchase agreements structured in
compliance with the Texas Government Code. All City repurchase
agreement transactions shall be governed by a signed Master
Repurchase Agreement. The term of any reverse repurchase
agreement shall not exceed 90 days.
6. Certificates of deposit issued by a depository institution with its main
office or a branch office in the State of Texas that is :
a. guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor; or, secured by obligations that
are described by Section V-A 1 through 4 above, which are
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intended to include all direct Federal agency or instrumentality
issued mortgage backed securities, but excluding those
mortgage backed securities of the nature described in Section
V-B, that have a market value of not less than the principal
amount of the certificates or in any other manner and amount
provided by law for deposits of the City;
b. governed by a Depository Contract, as described in Section
VII-A, that complies with Federal and State regulation to
properly secure a pledged security interest; and,
c. solicited for bid orally, in writing, electronically, or any
combination of those methods.
d. In addition to the City's authority to invest funds in certificates
of deposit and share certificates stated above, an investment
in certificates of deposit made in accordance with the following
conditions is an authorized investment under Tex. Govt. Code
Sec. 2256.010 (b): (1) the funds are invested by the City
through a clearing broker registered with the Securities and
Exchange Commission (SEC) and operating pursuant to SEC
rule 15c3-3 (17 C.F.R. Section 240.15c3-3)with its main office
or branch office in Texas and selected from a list adopted by
the Investment Committee as required by Section 2256.025; or
a depository institution that has its main office or a branch
office in this state and that is selected by the Investment
Committee; (2) the selected broker or depository institution
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 City; (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; (4) the selected broker or depository
institution acts as custodian for the City with respect to the
certificates of deposit issued for the account of the City.
7. Bankers' acceptances that:
a. have stated maturities of 270 days or fewer,
b. will be liquidated in full at maturity,
c. is eligible for collateral borrowing from a Federal Reserve
Bank; and,
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d. 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 the 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.
8. Commercial paper with a stated maturity of 270 days or less from the
date of issuance that either:
a. is rated not less than "A-1", "P-1", or the equivalent by at least
two nationally recognized credit rating agencies; or
b. is rated at least "A-1", "P-1", or the equivalent by at least 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
thereof.
9. Money market mutual funds regulated by the Securities & Exchange
Commission, with a dollar weighted average portfolio maturity of 60
days or less, that fully invests dollar-for-dollar all City funds without
sales commissions or loads; and, whose investment objectives
include seeking to maintain a stable net asset value of$1 per share.
The City may not invest funds under its control in an amount that
exceeds 10% of the total assets of any individual money market
mutual fund or exceeds 80% of its monthly average fund balance,
excluding bond proceeds and reserves and other funds held for debt
service in money market mutual funds. This Securities and Exchange
Commission regulated fund is required to provide the City with a
prospectus and other information required by the Securities Exchange
Act of 1934 (15 U.S.C. Section 78a et seq.) or the Investment
Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.).
10. Eligible Investment Pools as defined in Section 2256.016 of the Texas
Government Code provided that:
a. investment in the particular pool has been authorized by the
City Council;
b. the pool shall have furnished the Investment Officer an offering
circular containing the information required by Section
2256.016(b) of the Texas Government Code;
c. the pool shall furnish to the Investment Officer investment
transaction confirmations with respect to all investments made
with it;
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d. the pool shall furnish to the Investment Officer monthly reports
that contain the information required by Section 2256.016(c)of
the Texas Government Code;
e. the pool's investment objectives shall be to maintain a stable
net asset value of one dollar ($1);
f. whose investment philosophy and strategy are consistent with
this Policy and the City's ongoing investment strategy; and
g. the pool provides evidence of credit rating no lower than "AAA"
or"AAA-m" by at least one nationally recognized credit rating
service.
h. The net asset value (NAV) of the pool shall be maintained
between 99.50 and 100.50.
B. Unauthorized Investments. The following investments are specifically
prohibited by State Law:
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 10 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.
C. Downgrade Provision for Investment Ratings
An Investment that requires a minimum rating does not qualify as an
authorized investment during the period the investment does not have the
minimum rating. The City shall take all prudent measures that are consistent
with its investment policy to liquidate an investment that does not have the
minimum rating.
VI. SAFEKEEPING AND CUSTODY
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A. Collateralization. Consistent with the requirements of State Law, the City
requires all bank deposits to be federally insured or collateralized with eligible
securities. Financial institutions serving as City Depositories will be required
to sign a Depository Agreement with the City and City's safekeeping agent.
The safekeeping portion of the Agreement shall define the City's rights to the
collateral in case of default, bankruptcy, or closing and shall establish a
perfected security interest in compliance with Federal and State regulations,
including:
1. the Agreement must be in writing;
2. the Agreement has to be executed by the Depository and the City
contemporaneously with the acquisition of the asset;
3. the Agreement must be approved by the Depository's Board of
Directors or loan committee, and a copy of the meeting minutes must
delivered to the City; and,
4. the Agreement must be part of the Depository's "official record"
continuously since its execution.
Repurchase agreements must also be secured in accordance with State Law. Each
counter party to a repurchase transaction is required to sign a copy of the Security
Industry and Financial Markets Association Master Repurchase Agreement. An
executed copy of the Agreement must be on file before the City will enter into any
transactions with a counter party.
B. Allowable Collateral and Collateral Levels.
1. Certificates of Deposit. Eligible securities for collateralization of
deposits are defined by the Public Funds Collateral Act, as amended,
and meet the constraints of this Policy. The market value of the
principal portion of collateral pledged for certificates of deposit must at
all times be equal to or greater than the par value of the certificate of
deposit plus accrued interest, less the applicable level of FDIC
insurance.
2. Repurchase Agreements. Securities underlying repurchase
agreements are limited to cash, U.S. Treasuries, , Agencies and
Instrumentalities obligations, which are eligible for wire transfer (i.e.
book entry) to the City's designated safekeeping agent through the
Federal Reserve System and meet the constraints of this Policy. A
repurchase agreement's security value shall be the par value plus
accrued interest, and the security's market value must be maintained
at the following minimum levels:
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Agreement Maturities Greater Than One Business Day
U.S. Treasury Securities 102%
U.S. Agency and Instrumentalities 103%
Mortgage Backed Securities 105%
Agreement Maturities of One Business Day
All Securities 100%
C. Monitoring Collateral Adequacy and Additional Collateral Securities.
1. Certificates of Deposit. The City shall require monthly reports with
market values of pledged securities from all financial institutions with
which the City has certificates of deposit. The Investment Officer will
monitor adequacy of collateralization levels to verify market values
and total collateral positions. If the collateral pledged fora certificate
of deposit falls below the par value of the deposit, plus accrued
interest less FDIC or other insurance, the institution issuing the
certificate of deposit(s) will be notified by the Investment Officer and
will be required to pledge additional securities no later than the end of
the next succeeding business day.
2. Repurchase Agreements. Weekly monitoring by the Investment
Officer of market values of all underlying securities purchased for City
repurchase transactions is required. More frequent monitoring may
be necessary during periods of market volatility. If the value of the
securities underlying a repurchase agreement falls below the margin
maintenance levels specified above, the Investment Officer will
request additional securities. If the repurchase agreement is
scheduled to mature within five business days and the amount is
deemed to be immaterial, then the request is not necessary.
D. Safekeeping. The City shall contract with a bank or banks for the
safekeeping of securities either owned by the City as part of its investment
portfolio or as part of its depository and repurchase agreements. All
collateral securing bank deposits must be held by a third-party banking
institution acceptable to and under contract with the City, or by the Federal
Reserve Bank. The securities purchased under a repurchase agreement
must be delivered to a third-party custodian with whom the City has
established a safekeeping agreement.
E. Collateral Substitution. Collateralized certificates of deposit and repurchase
agreements often require substitution of collateral. Substitution is allowable
for all transactions, but should be limited in the case of bank CDs, to
minimize potential administrative problems and transfer expense. In the case
of repurchase agreements involving a third-party who shall be contractually
responsible for monitoring movement of securities in and out of account.
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E.
F. Delivery versus Payment. The purchase of individual securities shall be
executed "delivery versus payment" (DVP) through the City's Safekeeping
Agent. By so doing, City funds are not released until the City has received,
through the Safekeeping Agent, the securities purchased. The security shall
be held in the name of the City or held on behalf of the City. The
Safekeeping Agent's records shall assure the notation of the City's
ownership of or explicit claim on the securities. The original copy of all
safekeeping receipts shall be delivered to the City.
VII. SELECTION OF BANKS AND DEALERS.
A. Depository Selection. A qualified depository shall be selected through the
City's banking services procurement process, which shall include a formal
request for proposal (RFP). The City shall permit consideration of
applications for a depository contract from banks, credit unions, or saving
associations that are doing business in Southlake, and from banks, credit
unions, and saving associations that are doing business in the cities
contiguous to Southlake. The centralization of depository services is
designed to maximize investment capabilities while minimizing service costs.
The selection of a depository shall be based on the financial institution
offering the most favorable terms and conditions at the least cost, while
adhering to the guidelines and provisions within the request for proposal. In
selecting a depository, the City shall give consideration to the financial
institution's credit characteristics, financial history, service capabilities, and
costs for required services. The City's depository contract shall be for three
years with an option to extend for an additional two years upon mutual
agreement of the depository and the City. Specialized services may be
contracted for by the City with another financial institution or company if the
depository cannot provide such service or charges more for the same service
with little or no appreciable benefit.
B. Investment Advisors. The City may contract with an investment advisor,who
shall adhere to the spirit, philosophy and specific term of this Policy and shall
invest within the same "Standard of Care". The investment advisor must be
registered with the Securities and Exchange Commission (SEC) under the
Investment Advisor's Act of 1940 as well as with the Texas State Securities
Board. Advisors may assist the City with the management of its funds and
other responsibilities including but not limited to, broker compliance,
competitive bidding, reporting and security documentation. If the City uses
an investment advisor, the advisor shall be responsible for performing due
diligence and providing its detailed list of qualified broker/dealers to the city
not less than annually.
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An appointed Investment Advisor shall act solely in an advisory and
administrative capacity, within the guidelines of this Investment Policy. At no
time shall the advisor take possession of securities or funds or otherwise be
granted discretionary authority to transact business on behalf of the City.
C. Selection of Investment Broker/Dealers and Advisors. Selection will be
performed by the Investment Officer, with ratification and approval by the
City Council. Selected Investment Advisors and Broker/Dealers shall provide
timely transaction confirmations and monthly portfolio reports. Prospective
Broker/Dealers shall provide financial and other information as requested by
the Investment Officer sufficient to evaluate their fiscal condition and ability
to service the City. The Investment Officer will establish criteria to evaluate
Investment Advisors and Broker/Dealers, including:
1. Adherence to the City's policies and strategies,
2. Investment performance and transaction pricing within accepted risk
constraints,
3. Responsiveness to the City's request for services, information and
open communication,
4. Understanding of the inherent fiduciary responsibility of investing
public funds, and
5. Similarity in philosophy and strategy with the City's objectives.
D. Approved Broker/Dealers and Investment Advisors. Broker/Dealers and
Investment Advisors eligible to transact investment business with the City
shall be presented a written copy of this Investment Policy. Additionally, the
registered principal of the business organization seeking to transact
investment business shall execute a Certification as shown in Appendix"A",
or a Certification similar in form, to the effect that the registered principal has:
1. received and thoroughly reviewed this Investment Policy, and
2. acknowledged that their organization has implemented reasonable
procedures and controls in an effort to preclude imprudent investment
activities with the City except to the extent that this authorization is
dependent on an analysis of the makeup of the City's entire portfolio
or requires an interpretation of subjective investment standards.
The City shall not enter into an investment transaction with a business organization
prior to receiving this written acknowledgement. The City Council or designated
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investment committee shall review, revise and approve a list of qualified brokers not
less than annually.
VIII. REPORTING
A. Quarterly Reporting. The Investment Officer shall submit a signed quarterly
investment report that describes in detail the investment position of the City
for the period. The report will include the following:
1. For each pooled fund group: ending book and market value, including
fully accrued interest for the reporting period.
2. The book value and market value of each investment end of the
period by type of asset and fund type invested.
3. The maturity date of each investment.
4. Fully accrued interest for the reporting period.
5. Statement of compliance of the portfolio as it relates to the investment
strategy, City investment policy and the Texas Public Funds
Investment Act.
6. If the City invests in other than money market mutual funds,
investment pools or accounts offered by its depository bank in the
form of certificates of deposit, or money market accounts or similar
accounts, the reports prepared by the investment officers shall be
formally reviewed at least annually by an independent auditor, and the
result of the review shall be reported to the City Council by that
auditor.
7. The City will seek a third party independent pricing source to
determine the value of the City's investment portfolio.
8. The City's independent auditor will review the quarterly investment
report for compliance with the Public Funds Investment Act and report
findings annually to the City Council.
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APPENDIX "A"
CERTIFICATION
I hereby certify that I have personally read and understand the investment policy and
master repurchase agreement, (if applicable), conditions of the City of Southlake, Texas,
and have implemented reasonable procedures and controls designed to fulfill those
objectives and conditions. Transactions between this firm and the City of Southlake will be
directed towards precluding imprudent investment activities and protecting the City from
credit or market risk.
All sales personnel of this firm dealing with the City of Southlake's account(s) have been
informed and will be routinely informed of the City's investment horizons, limitations,
strategy and risk constraints, whenever we are so informed by the City.
This firm pledges due diligence in informing the city of foreseeable risks associated with
financial transactions connected to this firm.
FIRM
REGISTERED PRINCIPAL OF FIRM
PRIMARY REPRESENTATIVE: NAME/TITLE
(please print)
PRIMARY REPRESENTATIVE SIGNATURE
DATE
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APPENDIX "B"
GLOSSARY OF
COMMON TREASURY TERMINOLOGY
Agencies. Federal agency securities. on the bonds face value. Also, a
certificate attached to a bond evidencing
Asked. The price at which securities are interest due on a payment date.
offered.
CUSIP. A unique security identification
Bid. the price offered for securities. number assigned to securities maintained
and transferred on the Federal Reserve
Broker. A broker brings buyers and book-entry system.
sellers together for a commission paid by
the initiator of the transaction or by both Dealer. A dealer, as opposed to a broker,
sides; in contrast to a "principal" or a acts as a principal in all transactions,
"dealer", he does not own or take a buying and selling for his own account.
position in the security. In the money
market, brokers are active in markets in Debenture. A bond secured only by the
which banks buy and sell money and in general credit of the issuer.
inter-dealer markets.
Delivery versus Payment. Delivery of
Certificate of Deposit (CD). A time securities with an exchange of money for
deposit with a specific maturity evidenced the securities.
by a certificate.
Depository. The bank selected by the
Collateral. Securities, evidence of deposit City to provide depository services.
or other property which a borrower
pledges to secure repayment of a loan. Discount. The difference between the
Also refers to securities pledged by a cost price of a security and its value at
bank to secure deposits of public monies. maturity when quoted a lower than face
value. A security selling below original
Commercial Paper. Short-term, offering price shortly after sale also is
unsecured promissory notes issued by considered to be at a discount.
corporations to finance short-term credit
needs. Commercial paper is usually sold Discount Securities. Non-interest bearing
on a discount basis and has a maturity at money market instruments that are issued
the time of issuance not exceeding nine at a discount and redeemed at maturity
months. for full face value, e.g., U.S. Treasury
Bills.
Coupon. The annual rate of interest that
a bond's issuer promises to pay the Diversification. Dividing investment funds
bondholder among a variety of securities offering
independent returns.
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Federal Credit Agencies. Agencies of the
Federal government set up to supply Federal National Mortgage Association
credit to various classes of institutions (FNMA or Fannie Mae). FNMA, a federal
and individuals, e.g., savings and loans, corporation, is the largest single provider
small business firms, students, and of residential mortgage funds in the
farmers. United States. It is a private stockholder-
owned corporation. The corporation's
Federal Deposit Insurance Corporation purchases include a variety of adjustable
(FDIC). A federal agency that insures mortgages and second loans in addition
bank deposits, currently $250,000 per to fixed-rate mortgages. FNMA's
deposit. securities are also highly liquid and are
widely accepted. FNMA assumes and
Federal Funds Rate. The rate of interest guarantees that all security holders will
at which Federal funds are traded. This receive timely payment of principal and
rate is currently set by the Federal interest.
Reserve through open-market operations.
Federal Open Market Committee
Federal Home Loan Banks (FHLB). (FOMC). Consists of seven members of
Created in 1932, this system consists of the Federal Reserve Board and five of the
12 regional banks, which are owned by 12 Federal Reserve Bank Presidents.
private member institutions and regulated The President of the New York Federal
by the Federal Housing Finance Board. Reserve Bank is a permanent member
Functioning as a credit reserve system, it while the other Presidents serve on a
facilitates extension of credit through its rotating basis. The Committee
owner-members in order to provide periodically meets to set Federal Reserve
access to housing and to improve the guidelines regarding purchases and sales
quality of communities. Federal Home of Government Securities in the open-
Loan Bank issues are joint and several market as a means of influencing the
obligations of the 12 Federal Home Loan volume of bank credit and money.
Banks.
Federal Reserve System. The central
Federal Home Loan Mortgage bank of the United States created by
Corporation (FHLMC or Freddie Mac). A Congress and consisting of a seven
stockholder-owned corporation, which member Board of Governors in
entered into government conservatorship Washington, D.C., 12 regional banks and
in September 2008, that provides a about 5,700 commercial banks that are
continuous flow of funds to mortgage members of the system.
lenders, primarily through developing and
maintaining an active nationwide Government Agency Issues. A general
secondary market in conventional term describing fixed and floating rate
residential mortgages. Freddie Mac debt securities issued by Federal
purchases a large volume of conventional agencies, and instrumentalities, including
residential mortgages and uses them to government sponsored enterprises
collateralize mortgage-backed securities. (GSEs). Such GSE securities, including
Fannie Mae, Freddie Mac, FHLB and
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FFCB, are not direct obligations of the Maturity. The date upon which the
Treasury and involve government principal or stated value of an investment
sponsorship or guarantees. becomes due and payable.
Liquidity. A liquid asset is one that can be Money Market. The market in which
converted easily and rapidly into cash short-term debt instruments (bills,
without a substantial loss of value. In the commercial paper, bankers'acceptances,
money market, a security is said to be etc.) are issued and traded.
liquid if the difference between bid and
asked prices is narrow and reasonable Mutual Funds. Mutual fund providers are
size can be done at those quotes. investment companies that sell shares to
investors, offering investors diversification
Local Government Investment Pool and professional portfolio management.
(LGIP). The aggregate of all funds from Prices fluctuate with the performance of
political subdivisions that are placed in the fund. Money market mutual funds
the custody of the state managed pool, or invest in short-term securities such as
other qualifying pool(s) that meet state treasury bills, bank CD's and commercial
statute criteria, for investment and paper.
reinvestment.
Open Market Operations. Purchases and
Market Value. The price at which a sales of government and certain other
security is trading and could presumable securities in the open market by the New
be purchased or sold. York Federal Reserve Bank as directed
by the FOMC in order to influence the
Master Repurchase Agreement. To volume of money and credit in the
protect investors, many public investors economy. Purchases inject reserves into
will request that repurchase agreements the bank system and stimulate growth of
be preceded by a master repurchase money and credit; sales have the
agreement between the investor and the opposite effect. Open market operations
financial institution or dealer. The master are the Federal Reserve's most important
agreement should define the nature of the and most flexible monetary policy tool.
transaction, identify the relationship
between the parties, establish normal Par. The value of a security as
practices regarding ownership and expressed on its face (face value)without
custody of the collateral securities during consideration of a discount or premium.
the term of investment, provide remedies
in the case of default by either party and Portfolio. Collection of securities held by
clarify issues of ownership. The master an investor.
repurchase agreement protects the
investor by eliminating the uncertainty of Positive Yield Curve. A condition where
ownership and hence, allowing investors interest rates are higher on long-term
to liquidate collateral if a bank or dealer debt securities than on short-term debt
defaults during the term of the securities of the same quality.
agreement.
Premium. The price that a security
demands over its par value. This is the
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difference between the price of an Rating. A formal opinion by an outside
instrument and its value at maturity (par professional service on the credit
value) when the price is higher than the reputation of an issuer and the
maturity. investment quality of its securities. This
opinion is expressed in letter values (e.g.,
Primary Dealer. A group of government AAA, Baal).
securities dealers that submit daily
reports of market activity and positions Repurchase Agreement (REPO). A
and monthly financial statements to the holder of securities sells these securities
Federal Reserve Bank of New York and to an investor with an agreement to
are subject to its informal oversight. repurchase them at a fixed price on a
Primary dealers include Securities and fixed date. The security "buyer" in effect
Exchange Commission (SEC) registered lends the "seller" money for the period of
securities broker-dealers, banks and a the agreement, and the terms of the
few unregulated firms. agreement are structured to compensate
him for this. Dealers use REPO's
Prudent Person Rule. An investment extensively to finance their positions.
standard. Investments shall be made
with judgment and care, under Safekeeping. A service to customers
circumstances then prevailing, which rendered by banks for a fee whereby
persons of prudence, discretion and securities and valuables of all types and
intelligence exercise in the management descriptions are held in the bank's vaults
of their own affairs, not for speculation, for protection.
but for investment, considering the
probable safety of their capital as well as SEC Rule 15C3-1. See uniform net
the probable income to be derived. capital rule.
Qualified Public Depositories. A financial Secondary Market. A market made for
institution which does not claim the purchase and sale of outstanding
exemption from the payment of any sales issues following the initial distribution.
or compensating use or ad valorem taxes
under the laws of this state, which has Securities and Exchange Commission
segregated for the benefit of the (SEC). Agency created by Congress to
commission eligible collateral having a protect investors in securities transactions
value of not less than its maximum liability by administering securities legislation.
and which has been approved by the
Public Deposit Protection Commission to
hold public deposits. Treasury Bills. A non-interest bearing
discount security issued by the U.S.
Rate of Return. The yield obtainable on a Treasury to finance the national debt.
security based on its purchase price or its Most bills are issued to mature in three
current market price. This may be the months, six months, or one year.
amortized yield to maturity on a bond or
the current income return. Treasury Bond. Long-term U.S.Treasury
securities having initial maturities of more
than ten years.
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Treasury Notes. Intermediate term Zero-Coupon Security. A security that
coupon bearing U.S. Treasury securities makes no periodic interest payments but
having initial maturities from one to ten instead is sold at a deep discount from its
years. face value.
U.S. Government Securities. Various
types of marketable securities issued by
the U.S. Treasury, including bills, notes,
and bonds. Such securities are direct
obligations of the U.S. Government and
differ mainly in the length of their maturity.
Weighted-Average Life. The weighted-
average life refers to the average amount
of time that will elapse from the date of a
security's issuance until each dollar of
principal is repaid to the investor.
Yield. The rate of annual income return
on an investment, expressed as a
percentage. (a) Income Yield is obtained
by dividing the current dollar income by
the current market price of the security.
(b) Net Yield or Yield to Maturity is the
current income yield minus any premium
above par or plus any discount from par
in purchase price, with the adjustment
spread over the period from the date of
purchase to the date of maturity of the
bond.
Uniform Net Capital Rule. Securities and
Exchange Commission requirement that
member firms as well as nonmember
broker-dealers in securities maintain a
maximum ratio of indebtedness to liquid
capital of 15 to 1; also called net capital
rule and net capital ratio. Indebtedness
covers all money owed to a firm, including
margin loans and commitments to
purchase securities, one reason new
public issues are spread among members
of underwriting syndicates. Liquid capital
includes cash and assets easily
converted into cash.
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1111 CITY OF
SOUTHLAKE
Finance Department
Listing of Approved Banks and Brokers
For Investment and Depository Services
Per the City of Southlake Investment Policy
Banks
Wells Fargo Bank N.A.
Bank of America
Bank of New York Mellon
Regions Bank
First Financial Bank
Comerica Bank
US Bank Trust N.A.
Frost Bank
J. P. Morgan Chase Bank
Capital One Bank
Bank of Texas
Federal Reserve Bank
Brokers and Advisory Services
Vining Sparks
First Southwest Asset Management