Item 4G - MemoItem 4G
CITY OF MEMORANDUM
SOUTHLAKE September 17, 2024
To: Alison Ortowski, City Manager
From: Sharen Jackson, Chief Financial Officer
Subject: Resolution No. 24-031, Annual review of investment policy and
investment strategies
Action
Requested: Approval of Resolution No. 24-031. The City of Southlake
Investment Policy requires that the governing body review its
investment policy and investment strategies annually.
Background
Information: Section 2256 — Public Funds Investment Act ("Act") of the
Texas Government Code establishes the requirements for a
local government investment policy. The City of Southlake
last reviewed its investment policy in September 2023. The
City's finance staff reviewed the investment policy against the
Act and no changes required by the Act were identified;
however, minor administrative changes were made.
Financial
Considerations: Approval of the Resolution will have no financial impact.
Investing activity will continue in the same manner as in the
past.
Strategic Link: F1 Safeguarding the public trust through a commitment to
thoughtful planning and responsible, conservative financial
management.
F2 Investing to provide & maintain high -quality public assets.
Citizen Input/
Board Review: None required
Legal Review: The investment policy has been reviewed by our financial
advisors for compliance with the law.
Alternatives: Deny or propose changes to current policy
Supporting
Documents: Resolution No. 24-031
City of Southlake Investment Policy dated September 2024
Approved Listing of Banks and Brokers
Staff
Recommendation: Approval of Resolution No. 24-031
RESOLUTION NO.24-031
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 identified no required changes to the investment
policy; and
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 2024, as attached to this
resolution. The Investment Policy amends and supersedes the Investment Policy adopted by the
City in September 2023.
Section 2. This resolution shall be effective immediately upon adoption.
PASSED AND APPROVED this day of , 2024.
CITY OF SOUTHLAKE, TEXAS
ATTEST:
Shawn McCaskill
Mayor
Amy Shelley
City Secretary
SOUTHLAKE
TEXAS
INVESTMENT POLICY
Amended September 2024
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....................................................................................6
A. Eligible Investments
B. Unauthorized Investments
VI.
Safekeeping and Custody........................................................................10
A. Collateral ization
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................................................................12
A. Depository Selection
B. Investment Advisors
C. Selection of Investment Broker/Dealers and Advisors
D. Approved Broker/Dealers and Investment Advisors
VIII.
Reporting..................................................................................................14
A. Quarterly Reporting
Appendix "A" - Certification.................................................................................16
Appendix "B" - Glossary of Common Treasury Terminology...............................17
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 Authoritv and Traininq. 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 8 hours (renewal) or
10 hours (initial year) 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
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personal business relationship with an entity seeking to sell an investment
to 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:
The officer has a personal business relationship with a business
organization offering to engage in an investment transaction with the
City (as defined in PFIA 2256.005 (i)(1-3)); or
2. The officer is related within the second degree by affinity or
consanguinity, as determined under Chapter 573 of the Texas
Government Code, to an individual seeking to transact investment
business with the entity. (PFIA 2256.005 (i))
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 with an
understanding of the suitability of the investment to the financial requirements of the
entity, and managed in a manner responsive to the public trust and consistent with State
and Local law.
A. Safetv 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 collateral ization as required by law.
1. Diversification by Investment Tvpe. 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%
i.
Insured Deposit Accounts
20%
2. Diversification by Investment Maturitv. 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 Proiect, 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. Collateral ization. Collateral ization 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.
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V. INVESTMENT PORTFOLIO
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:
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 to the City either directly or through
a joint account approved by the City or 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 :
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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
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 GentrG+ as described on Se
Vfl-A, that complies with Federal and State regulations 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,
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C. is eligible for collateral borrowing from a Federal Reserve
Bank; and,
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 365 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;
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.
11. Interest -bearing bank savings deposits issued by state and national
banks or savings banks or a state or federal credit union (having their
main or branch office in Texas) that are guaranteed or insured by the
Federal Deposit Insurance Corporation or the National Credit Union
Share Insurance Fund (or their successor organizations).
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.
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C. Downgrade Provision for Investment Ratinqs
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
A. Collateral ization. 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:
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.
Certificates of Deposit. Eligible securities for collateral ization 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.
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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:
Aqreement Maturities Greater Than One Business Dav
U.S. Treasury Securities 102%
U.S. Agency and Instrumentalities 103%
Mortgage Backed Securities 105%
Agreement Maturities of One Business Dav
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 collateral ization levels to verify market values
and total collateral positions. If the collateral pledged for a 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. Safekeepinq. 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
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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.
F. Delivery versus Pavment. 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
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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, requiring at least three competitive offers or bids, 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.
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:
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 Investment Pools and Investment Advisors. Investment Pools
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:
received and thoroughly reviewed this Investment Policy, and
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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 acknowledgment. The City Council or designated
investment committee shall review, revise and approve a list of qualified brokers
not less than annually.
VIII. REPORTING
A. Quarterly Reportinq. 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.
14
APPENDIX "A"
CERTIFICATION
I hereby certify that I have received and reviewed the entity's Investment Policy; and
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 Investment Policy, except to the extent that this authorization is dependent
on an analysis of the makeup of the entity's entire portfolio or requires an interpretation
of subjective investment standards. (PFIA 2556.005 (k-1)
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
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PRIMARY REPRESENTATIVE: NAME/TITLE
(please print)
PRIMARY REPRESENTATIVE SIGNATURE
910410
15
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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.
Bid. the price offered for securities
Broker. A broker brings buyers and
sellers together for a commission paid by
the initiator of the transaction or by both
sides; in contrast to a "principal" or a
"dealer", he does not own or take a
position in the security. In the money
market, brokers are active in markets in
which banks buy and sell money and in
inter -dealer markets.
Certificate of Deposit (CD). A time
deposit with a specific maturity
evidenced by a certificate.
Collateral. Securities, evidence of
deposit or other property which a
borrower pledges to secure repayment of
a loan. Also refers to securities pledged
by a bank to secure deposits of public
monies.
Commercial Paper. Short-term,
unsecured promissory notes issued by
corporations to finance short-term credit
needs. Commercial paper is usually sold
on a discount basis and has a maturity at
the time of issuance not exceeding nine
months.
Coupon. The annual rate of interest that
a bond's issuer promises to pay the
bondholder
CUSIP. A unique security identification
number assigned to securities
maintained and transferred on the
Federal Reserve book -entry system.
Dealer. A dealer, as opposed to a
broker, acts as a principal in all
transactions, buying and selling for his
own account.
Debenture. A bond secured only by the
general credit of the issuer.
Delivery versus Payment (DVP).
Delivery of securities with an exchange of
money for the securities.
Depository. The bank selected by the
City to provide depository services.
Discount. The difference between the
cost price of a security and its value at
maturity when quoted a lower than face
value. A security selling below original
offering price shortly after sale also is
considered to be at a discount.
Discount Securities. Non -interest
bearing money market instruments that
are issued at a discount and redeemed at
maturity for full face value, e.g., U.S.
Treasury Bills.
Diversification. Dividing investment
funds among a variety of securities
offering independent returns.
16
Federal Credit Agencies. Agencies e
the Federal geyernrneRt Set ,,n t0 UJppl)t
nredot to various nloccoc ^f inctitutiaRs
and individuals, e.g., say.nrrs and loans
cm. all buc;nooc firmc, &udontc, and
farms
Federal Deposit Insurance Corporation
(FDIC). A federal agency that insures
bank deposits, currently $250,000 per
deposit.
Federal Funds Rate. The rate of interest
at which Federal funds are traded. The
Federal Reserve currently sets this rate
through open -market operations.
Federal Home Loan Banks (FHLB).
Created in 1932, this system consists of
12 regional banks, which are owned by
private member institutions and
regulated by the Federal Housing
Finance Board. Functioning as a credit
reserve system, it facilitates extension of
credit through its owner -members in
order to provide access to housing and to
improve the quality of communities.
Federal Home Loan Bank issues are joint
and several obligations of the 12 Federal
Home Loan Banks.
was created by an act of Congress in
1970 as a shareholder -owned company
to further expand the secondary market
for mortgage loans in the United States.
Freddie Mac buys existing mortgages
and pools them together to create
mortgage -backed securities that can
then be sold to investors, thereby
providing liquidity to lenders who can
then make additional loans. Along with
Fannie Mae, Freddie Mac was placed
into government conservatorship in
September 2008, but continues full
operations under government control.
Freddie Mac securities are highly liquid
and share the same debt rating as the
U.S. Treasury.
l=edorcl Nksti9Ral "Mortgage nssoGiati„n
(FNIVIA-orFanni&-Ma_o). F N IVI o, a fog-! e ra I
cerpe at+on, is the largest Single nr'!1yider
of resodontial m9rtgage fuRdo in the
URitedoc. It is a prilate stoGkhch^elder-
GWRed on. The GGFPGratir�ns
n, irnhases include a variety of "djuctabin
mortgages and seGGR l I.Janc in additiOR
taxed -rate—rertaacec. FNIVIA's
widely aGGepted. FNN4A ac4umes and
guarcntsoc that all ceG grity helders will
reEeive-timely t paymen�vfpriR pal and
interest
rr'r'cc�'c �.
Federal National Mortgage Association
(FNMA or "Fannie Mae"): Fannie Mae
was chartered in 1938 under the Federal
National Mortgage Association Act to
provide a secondary market for mortgage
loans in the United States, by purchasing
existing home loans and pooling them
together to create mortgage -backed
securities that can them be sold to
investors, along with a guaranty of the
timely payment of principal and interest
on the underlying loans. Fannie Mae was
privatized in 1968 and operated as a
private stockholder -owned company for
17
40 years before the housing market
collapse forced them into federal
government conservatorship in
September 2008. Fannie Mae currently
continues operation under government
control and shares the same debt rating
as the U.S. Treasury. Fannie Mae debt
obligations are highly liquid.
Federal Open Market Committee
(FOMC). Consists of seven members of
the Federal Reserve Board and five of
the 12 Federal Reserve Bank Presidents.
The President of the New York Federal
Reserve Bank is a permanent member
while the other Presidents serve on a
rotating basis. The Committee
periodically meets to set Federal
Reserve guidelines regarding purchases
and sales of Government Securities in
the open -market as a means of
influencing the volume of bank credit and
money.
Federal Reserve System. The Central
Bank of the United States was created by
Congress and consists of a seven -
member Board of Governors in
Washington, D.C., 12 regional banks,
and about 5,700 commercial banks that
are members of the system.
Government Agency Issues. A general
term describing fixed and floating rate
debt securities issued by Federal
agencies, and instrumentalities,
including government sponsored
enterprises (GSEs). Such GSE
securities, including Fannie Mae, Freddie
Mac, FHLB and FFCB, are not direct
obligations of the Treasury and involve
government sponsorship or guarantees.
Joint Account. An account maintained by
a custodian bank and established on
behalf of two or more parties to engage
in aggregate repurchase agreement
transactions.
Liquidity. A liquid asset is one that can
be converted easily and rapidly into cash
without a substantial loss of value. In the
money market, a security is said to be
liquid if the difference between bid and
asked prices is narrow and reasonable
size can be done at those quotes.
Local Government Investment Pool
(LGIP). The aggregate of all funds from
political subdivisions that are placed in
the custody of the state managed pool, or
other qualifying pool(s) that meet state
statute criteria, for investment and
reinvestment.
Market Value. The price at which a
security is trading and could presumable
be purchased or sold.
Master Repurchase Agreement. To
protect investors, many public investors
will request that repurchase agreements
be preceded by a master repurchase
agreement between the investor and the
financial institution or dealer. The master
agreement should define the nature of
the transaction, identify the relationship
between the parties, establish normal
practices regarding ownership and
custody of the collateral securities during
the term of investment, provide remedies
in the case of default by either party and
clarify issues of ownership. The master
repurchase agreement protects the
investor by eliminating the uncertainty of
ownership and hence, allowing investors
to liquidate collateral if a bank or dealer
defaults during the term of the
agreement.
go
Maturity. The date upon which the
principal or stated value of an investment
becomes due and payable.
Money Market. The market in which
short-term debt instruments (bills,
commercial paper, bankers'
acceptances, etc.) are issued and traded.
Mutual Funds. Mutual fund providers are
investment companies that sell shares to
investors, offering investors
diversification and professional portfolio
management. Prices fluctuate with the
performance of the fund. Money market
mutual funds invest in short-term
securities such as treasury bills, bank
CD's and commercial paper.
Open Market Operations. Purchases
and sales of government and certain
other securities in the open market by the
New York Federal Reserve Bank as
directed by the FOMC in order to
influence the volume of money and credit
in the economy. Purchases inject
reserves into the bank system and
stimulate growth of money and credit;
sales have the opposite effect. Open
market operations are the Federal
Reserve's most important and most
flexible monetary policy tool.
Par. The value of a security as
expressed on its face (face value) without
consideration of a discount or premium.
Portfolio. Collection of securities held by
an investor.
Positive Yield Curve. A condition where
interest rates are higher on long-term
debt securities than on short-term debt
securities of the same quality.
Premium. The price that a security
demands over its par value. This is the
difference between the price of an
instrument and its value at maturity (par
value) when the price is higher than the
maturity.
Primary Dealer. A group of government
securities dealers that submit daily
reports of market activity and positions
and monthly financial statements to the
Federal Reserve Bank of New York and
are subject to its informal oversight.
Primary dealers include Securities and
Exchange Commission (SEC) registered
securities broker -dealers, banks and a
few unregulated firms.
Prudent Person Rule. An investment
standard. 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 their capital as well as
the probable income to be derived.
Qualified Public Depositories. A financial
institution which does not claim
exemption from the payment of any sales
or compensating use or ad valorem taxes
under the laws of this state, which has
segregated for the benefit of the
commission eligible collateral having a
value of not less than its maximum
liability and which has been approved by
the Public Deposit Protection
Commission to hold public deposits.
Rate of Return. The yield obtainable on
a security based on its purchase price or
its current market price. This may be the
amortized yield to maturity on a bond or
the current income return.
19
Rating. A formal opinion by an outside
professional service on the credit
reputation of an issuer and the
investment quality of its securities. This
opinion is expressed in letter values (e.g.,
AAA, Baal).
Repurchase Agreement (REPO). A
holder of securities sells these securities
to an investor with an agreement to
repurchase them at a fixed price on a
fixed date. The security "buyer" in effect
lends the "seller" money for the period of
the agreement, and the terms of the
agreement are structured to compensate
him for this. Dealers use REPO's
extensively to finance their positions.
Safekeeping. A service to customers
rendered by banks for a fee whereby
securities and valuables of all types and
descriptions are held in the bank's vaults
for protection.
SEC Rule 15C3-1. See uniform net
capital rule.
Secondary Market. A market made for
the purchase and sale of outstanding
issues following the initial distribution.
Securities and Exchange Commission
(SEC). Agency created by Congress to
protect investors in securities
transactions by administering securities
legislation.
Treasury Bills. A non -interest bearing
discount security issued by the U.S.
Treasury to finance the national debt.
Most bills are issued to mature in three
months, six months, or one year.
Treasury Bond. Long-term U.S.
Treasury securities having initial
maturities of more than ten years.
Treasury Notes. Intermediate term
coupon bearing U.S. Treasury securities
having initial maturities from one two to
ten years.
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
20
public issues are spread among
members of underwriting syndicates.
Liquid capital includes cash and assets
easily converted into cash.
Zero -Coupon Security. A security that
makes no periodic interest payments but
instead is sold at a deep discount from its
face- par value and matures at par. Thus,
earnings on a "zero" represent the
difference between the discounted
purchase amount and the par value
received at maturity.
21
CITY OF
SOUTH AKE
Listing of Approved Banks, Brokers and Government Pools
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
Independent Financial
Brokers and Advisory Services
Vining Sparks
Hilltop Securities Asset Management
Government Pools
TexPool
TexSTAR
Lone Star Investment Pool
Texas Class