COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 1 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
1.0 Purpose:
This “ Investment Policy and Guidelines” ( the “Investment Policy”) Policy is intended to provide guidelines for the prudent investment of the City of Chula Vista’ s (the “City”) cash balances, and outline policies to assist in maximizing the efficiency of the City’s cash managementsystem, while meeting the daily cash flow demands of the City.
2.0 Policy:
The investment practices and policies of the City of Chula Vista are based upon state law and prudent money management.
3.0 Scope:
This Investment Policy applies to all financial assetsof the City of Chula Vista, as indicated in 3.1 below. These funds are accounted for in the City’ s Comprehensive Annual Financial Report.
3.1 Funds:
The Director of Finance/ Treasurer is responsible for investing the unexpended cash in the City Treasury for all funds, except for the employee’s retirement funds, which are administered separately, and those funds which are managed separately by trustees appointed under indenture agreements. The Director of Finance/Treasurerwill strive to maintain the level of investment of this cashas close as possible to 100%. These funds are described in the City’ s annual financial report and include:
General Fund
Special RevenueFunds
Capital Project Funds
Enterprise Funds
Trust and Agency Funds
Any new fund created by the legislative body, unless specifically exempted This Investment Policy applies to all transactions involving the financial assets and related activity of the foregoing funds.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 2 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
Bond proceeds shall be invested in the investments permitted by the applicable bond documents.
If the bond documents are silent as to the permitted investments, the bond proceeds will be invested in the securities permitted by this Policy. Notwithstanding the other provisions of this Policy, the percentage limitations listed elsewhere in this Policy do not apply to bond proceeds.
4.0 Prudence:
The standard of prudence to be used by the Director of Finance/Treasurer shall be the “ prudent investor standard”. This shall be applied in the context of managing an overall portfolio.
The “prudent investor standard” is applied to local agencies, pursuant to California Government Code Section 53600. 3 which provides, in pertinent part:
all governing bodies of local agencies or persons authorized to make investment decisionson behalf of thoselocal agenciesinvesting public funds pursuantto this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would usein the conduct of funds of a like characterand with like aims, to safeguard the principal and maintain the liquidity needs of the agency…”
4.1 Personal Responsibility:
The Director of Finance/Treasurer, Assistant Director of Finance, Treasury Manager and Finance Manager as investment officers acting in accordance with written procedures and the Investment Policy and exercising due diligence, shall be relieved of personal responsibility for an individual security ’s credit risk or market price changes, provided deviations from expectations are reported to the City Council in a timely fashion and appropriate action is taken to control adversedevelopments.
5.0 Objective:
Consistent with this aim, investments are made under the terms and conditions of California
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 3 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
Government Code Section 53600, et seq. Criteria for selecting investments and the absolute order of priority are:
5.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments of the City of Chula Vista shall beundertakenin a mannerthat seeksto ensurethepreservationof capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceedthe income generatedfrom the remainder of the portfolio.
5.2 Liquidity:
The City of Chula Vista’s investment portfolio will remain sufficiently liquid to enablethe City to meet all operating requirements which might be reasonably anticipated and to maintain compliance with any indenture agreement, asapplicable. Liquidity is essentialto the safety of principal.
5.3 Return on Investments:
The City of Chula Vista’s investment portfolio shall be designed with the objective of attaining a market- average rate of return throughout budgetary and economic cycles ( market interest rates), within the City’s Investment Policy’s risk parametersand the City’s cashflow needs. Seealso Section 16.0.
6.0 Delegation of Authority:
The City Council delegates responsibility for the investment program to the Director of Finance/ Treasurer for a period of one year. Subject to review, the City Council may renew the delegation of authority each year. The Director of Finance/Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls and written procedures to regulate the activities of subordinate officials. The responsibility for the day-to-day investment of City funds will be delegated to the Assistant Director of Finance or their designee. The Director of Finance/ Treasurer may delegateday-to-day investment decision making and execution authority to an investment advisor.
The advisor shall follow the Investment Policy and such other written instructions as are provided.
7.0 Ethics and Conflicts of Interest:
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
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220-01 03/01/2022 4 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
In addition to state and local statutes relating to conflicts of interest, all persons involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officers, including investment advisors, are required to file annual disclosure statements as required for “ public officials who manage public investments” [as defined and required by the Political Reform Act and related regulations, including Government Code Sections 81000, et seq., and the rules, regulations and guidelines promulgated by California’s Fair Political Practices Commission ( FPPC)].
8.0 Authorized Financial Dealers and Institutions:
For any transactions executed by the City, the City’ s Director of Finance/ Treasurer will maintain a list of the financial institutions and brokers/dealers authorized to provide investment and depository services and will perform an annual review of their financial condition. The City will utilize Moody’ s Securities or other such servicesto determine financially sound institutions with which to do business.
The City shall annually send a copy of the current Investment Policy to all financial institutions and brokers/dealersapproved to do businesswith the City.
As far as possible, all money belonging to, or in the custody of, a local agency, including money paid to the City’ s Director of Finance/ Treasurer or other official to pay the principal, interest, or penalties of bonds, shall be deposited for safekeeping in state or national banks, savings associations, federal associations, credit unions, or federally insured industrial loan companies in this state selected by the City’s Director of Finance/Treasurer; or may be invested in the investments setforth in Section 9.0. To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured industrial loan company shall have received an overall rating of not less than “satisfactory” in its most recent evaluation by the appropriate federal financial supervisory agency of its record of meeting the credit needs of California’s communities, including low- and moderate-income neighborhoods.
To provide for the optimum yield in the investment of City funds, the City’ s investment procedures shall encouragecompetitive bidding on transactions. Any transactionsnot executeddirectly with the issuer shall be made with approved brokers/ dealers. In order to be approved by the City, the broker/dealer must meet the following criteria: ( i) the broker/dealer must be a “primary” dealer or regional broker/ dealer that qualifies under Securities and Exchange Commission Rule 15C3- 1 (Uniform Net Capital Rule); ( ii) the broker/dealer must be experienced in institutional trading practices and
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 5 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
familiar with the California Government Code as related to investments appropriate for the City; and iii) all other applicable criteria, as may be established in the investment procedures. All brokers/ dealers and financial institutions who desire to become qualified bidders for investment transactions must submit documents relative to eligibility including U4 form for the broker, proof of Financial Industry Regulatory Authority ( FINRA) certification and a certification of having readandunderstoodthe City’s Investment Policy and agreeing to comply with the Investment Policy. The City’ s Director of Finance/Treasurershall determineif they areadequatelycapitalized (i.e. minimum capital requirements of $ 10,000, 000 and five years of operation).
If the City has an investment advisor, the investment advisor may use its own list of authorized issuers and broker/dealersto conduct transactionson behalf of the City.
9.0 Authorized and Suitable Investments:
The City is authorizedby California GovernmentCodeSection53600, et. seq., to invest in specific types of securities. Where this section specifies a percentage limitation for a particular security type, that percentageis applicable only on the date of purchase. Credit criteria listed in this section refers to the credit rating at the time the security is purchased. If an investment’ s credit rating falls below the minimum rating required at the time of purchase, the Director of Finance/Treasurerwill perform a timely review and decide whether to sell or hold the investment.
Investments not specifically listed below are deemed inappropriate and prohibited:
A. BANKERS’ ACCEPTANCES. A maximum of 40% of the portfolio may be invested in bankers’ acceptances. The maximum maturity is 180 days. No more than 30% of the agency’s moneys may be invested in the bankers’ acceptances of any one commercial bank. See Government Code Section 53601(g).
B. NEGOTIABLE CERTIFICATES OF DEPOSIT. A maximum of 30% of the portfolio may be invested in negotiable certificates of deposit ( NCD’ s). The maximum maturity of a NCD issue shall be 5 years. Theseareissuedby commercial banksand thrift institutions againstfunds depositedfor specified periods of time and earn specified or variable rates of interest. Negotiable certificates of deposit (NCD’s) differ from other certificates of deposit by their liquidity. NCD’s are traded actively in secondary markets. See Government Code Section 53601( i).
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 6 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
C. COMMERCIAL PAPER. Per Government Code Section 53601(h), a maximum of 25% of the portfolio may be invested in commercial paper. No more than 10% of the outstanding commercial paper of any single issuer may be purchased. The maximum maturity is 270 days. Commercial paper of prime quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph ( 1) or paragraph ( 2):
1) The entity meetsthe following criteria:
a. Is organized and operating in the United States as a general corporation. b. Has total assetsin excessof five hundred million dollars ($500,000,000). c. Has debt other than commercial paper, if any, that is rated in a rating category of “A” or higher, or the equivalent, by a NRSRO.
2) The entity meets the following criteria:
a. Is organized within the United Statesas a special purpose corporation, trust, or limited liability company.
b. Has program wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond.
c. Has commercial paper that is rated in a rating category of “ A-1” or higher, or the equivalent, by a NRSRO.
D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY WITHIN THE STATE OF CALIFORNIA. There is no limit on the percentageof the portfolio that can be invested in this category. See Government Code Section 53601( a) and 53601( e).
E. OBLIGATIONS OF THE UNITED STATES TREASURY. United States Treasury Notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United Statesare pledged for the payment of principal and interest. There is no limit on the percentage of the portfolio that can be invested in this category. SeeGovernment Code Section 53601(b).
F. FEDERAL AGENCIES. Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government -sponsored enterprises.
There is no limit on the percentage of the portfolio that can be invested in this category. See Government Code Section 53601(f).
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
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220-01 03/01/2022 7 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
G. REPURCHASE AGREEMENT, maximum term 1 year. Investments in repurchaseagreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed1 year. A Master RepurchaseAgreement must be signed with the bank or broker/dealer who is selling the securities to the City. There is no limit on the percentage of the portfolio that can be invested in this category. SeeGovernment Code Section 53601(j).
H. REVERSE-REPURCHASE AGREEMENTS ( RequiresCouncil approval for eachtransaction). Per Government Code Section 53601( j), reverse repurchase agreements or securities lending agreements may be utilized only when all of the following conditions are met:
a) The security to be sold on reverse repurchase agreement or securities lending agreement hasbeenowned and fully paid for by the local agency for a minimum of 30 days prior to sale.
b) The total of all reverse repurchase agreementsand securities lending agreementson investments owned by the local agency does not exceed 20% of the base value of the portfolio.
c) The agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeinga minimum earning or spreadfor the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreementand the final maturity dateof the samesecurity. d) Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counter party by way of a reverse repurchase agreement or securities lending agreement, shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverserepurchase agreement or securities lending agreement, unless the reverse repurchase agreement or securitieslending agreementincludes a written codicil guaranteeinga minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security.
e) Investmentsin reverserepurchaseagreements, securities lending agreements, or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security shall only be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state-chartered bank that hasor hashad a significant banking relationship with a local agency. f) For purposes of this policy, “ significant banking relationship” means any of the following activities of a bank:
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
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220-01 03/01/2022 8 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
i. Involvement in the creation, sale, purchase, or retirement of a local agency’s bonds, warrants, notes, or other evidence of indebtedness. ii. Financing of a local agency’s activities.
iii. Acceptance of a local agency’s securities or funds as deposits.
I. MEDIUM- TERM CORPORATE NOTES. A maximum of 30% of the portfolio may be invested in medium-term corporate notes, with a maximum remaining maturity of five yearsor less. Notes eligible for investment shall be rated in a rating category of “ A,” its equivalent or better by a NRSRO. SeeGovernment Code Section 53601(k). No more than 10% of theCity’s total investment assets may be invested in the commercial paper and the medium- term notes of any single issuer.
J. NON- NEGOTIABLE CERTIFICATES OF DEPOSIT. The maximum maturity is 5 years.
Certificates of deposit arerequired to be collateralized asspecified under Government Code Section 53630 et seq. The City, at its discretion, may waive the collateralization requirements for any portion that is covered by Federal Deposit Insurance Corporation ( FDIC) insurance. There is no limit on the percentage of the portfolio that can be invested in this category.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA. Including bonds payable solely out of revenuesfrom a revenue producing property owned, controlled or operated by the state, or by a department, board, agency or authority of the state. The maximum maturity is 5 years. There is no limit on the percentageof the portfolio that canbe invested in this category. SeeGovernment Code Section 53601( d).
L. OBLIGATIONS OF THE OTHER 49 STATES. Including bonds payable solely out of revenues from a revenue producing property owned, controlled or operated by any of these states, or by a department, board, agency or authority of the state. The maximum maturity is 5 years. There is no limit on the percentageof the portfolio that canbe invested in this category. SeeGovernment Code Section 53601( d).
M. MONEY MARKET FUNDS. A maximum of 20% of the portfolio may be invested in money market funds. No more than 10% of the agency’s funds may be invested in sharesof beneficial interest of any one mutual fund. Local agencies may invest in “ shares of beneficial interest” issued by diversified managementcompanies which invest in the securities and obligations as authorized by California Government Code Section 53601, subdivisions ( a) to ( k), inclusive, and subdivisions m) to (q), inclusive. They must have the highest rating from two NRSRO’s or have retained an
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
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220-01 03/01/2022 9 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years of experience managing money market mutual funds and with assetsunder managementin excessof $500,000,000. The purchaseprice of the sharesmay not include commission. See Government Code Section 53601( l).
N. SAN DIEGO COUNTY TREASURER’ S POOLED MONEY FUND. Also known as the San Diego County Investment Pool, the pool is a local government money fund created to invest the assets of the County of San Diego and other public agencies located within the County. The three primary objectives of the County Pool are to safeguardprincipal; to meet liquidity needsof Pool participants; and to achieve an investment return on the funds within the guidelines of prudent risk management. Investment in the County Pool is highly liquid and the City may invest with no portfolio percentage limit. See Government Code Section 27133.
O. THE LOCAL AGENCY INVESTMENT FUND ( LAIF). LAIF is a special fund of the California StateTreasury through which any local government may pool investments. The City may invest up to $ 75 million in this fund. Investments in LAIF are highly liquid and may be converted to cash within 24 hours. SeeGovernment Code Section 16429.1.
P. SHARES OF BENEFICIAL INTEREST ISSUED BY A JOINT POWERS AUTHORITY ( Local Government Investment Pools [ LGIP]). Per Government Code Section 53601( p), there is no limit on the percentageof the portfolio that can be invested in this category. LGIP’s organized pursuant to Government Code Section 6509. 7 that invests in the securities and obligations authorized in subdivisions (a) to (q) of California Government Code Section 53601, inclusive. Each sharewill represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section the joint powers authority issuing the shareswill have retained an investment adviser that meets all of the following criteria:
The adviser is registered or exempt from registration with the Securities and Exchange Commission.
The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions ( a) to (q) Government Code Section 53601, inclusive.
The adviser has assets under management in excess of five hundred million dollars 500, 000, 000).
Q. ASSET BACKED SECURITIES ( ABS). A maximum of 20% of the portfolio may be invested in ABS. The maximum maturity is five years. Securities eligible for investment under this subdivision
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
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220-01 03/01/2022 10 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
shall beratedin a rating categoryof “AA” or its equivalent or better by anNRSRO. ABS constitutes a mortgage pass-through security, collateralized mortgage obligation, mortgage- backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable- backed bond. See Government Code Section 53601( o).
R. SUPRANATIONALS. A maximum of 30% of the portfolio may be invested in supranationals. The maximum maturity is five years. Securities eligible for purchase under this subdivision shall be United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter- American Development Bank that are eligible for purchaseand sale within the United States. Investments under this subdivision shall be rated in a rating category of “ AA,” its equivalent or better by an NRSRO. See Government Code Section 53601(q).
S. PLACEMENT SERVICE DEPOSITS. A maximum of 30% of the portfolio may be invested in placement service deposits. The maximum maturity is 5 years. Deposits placed through a deposit placement service shall meet the requirements under Government Code Section 53601.8 and 53635. 8. The full amount of the principal and the interest that may be accrued during the maximum term of eachcertificate of deposit shall at all times be insured by federal deposit insurance.
T. COLLATERALIZED BANK DEPOSITS. Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by California Government Code Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by California Government Code Section 53652 for the purposeof securing local agencydeposits. The securitiesserving ascollateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the securedobligation. The maximum maturity is 5 years. There is no limit on the percentage of the portfolio that can be invested in this category.
SeeGovernment Code Section 53601(n) and 53630 et seq.
9.1 Investment Pools:
The City’s Director of Finance/Treasurer or designee shall be required to investigate all local government investment pools and money market mutual funds prior to investing and performing at least a quarterly review thereafter while the City is invested in the pool or the money market fund. LAIF is
COUNCIL POLICY
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SUBJECT: INVESTMENT POLICY AND
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220-01 03/01/2022 11 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
authorized under provisions in Section 16429.1 of the California Government Code as an allowable investment for local agencies even though some of the individual investments of the pool are not allowed asa direct investment by a local agency.
10.0 Portfolio Adjustments:
Should any investment listed in section 9.0 exceed a percentage-of-portfolio limitation due to an incident such as fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses. When no loss is indicated, the Director of Finance/Treasurer shall consider reconstructing the portfolio basing his or her decision on the expected length of time the portfolio will be unbalanced. If this occurs, the City Council shall be notified.
11.0 Collateralization:
Under provisions of the California Government Code, California banks, and savings and loan associations are required to secure the City’ s deposits by pledging letters of credit issued by the Federal Home Loan Bank of San Francisco with a value of 105% of the principal and accrued interest, government securities with a value of 110% of principal and accrued interest or first trust deed mortgage noteshaving a value of 150% of the City’s total deposits. Collateral will be handled asrequired by the California Government Code. The Director of Finance/ Treasurer, at his or her discretion, may waive the collateral requirement for deposits that are fully insured up to $250,000 by the Federal Deposit Insurance Corporation.
The market value of securities that underlay a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly.
Since the market value of the underlying securities is subject to daily market fluctuations, the investmentsin repurchaseagreementsshall be in compliance if the value of the underlying securities is brought back up to 102% no later than the next business day. Collateral will always be held by an independent third party. A clearly marked evidence of ownership ( safekeeping receipt) must be supplied to the City and retained. The right of collateral substitution is granted.
12.0 Safekeeping and Custody:
All City investments shall identify the City of Chula Vista as the registered owner, and all interest and principal paymentsand withdrawals shall indicate the City of Chula Vista as the payee. All securities
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
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220-01 03/01/2022 12 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
shall be safe kept with the City itself or with a qualified financial institution, contracted by the City as a third party. All agreements and statements will be subject to review annually by external auditors in conjunction with their audit. In the event that the City has a financial institution hold the securities, a separate custodial agreement shall be required. All deliverable securities shall be acquired by the safekeeping institution on a “Delivery- Vs-Payment” (DVP) basis. For RepurchaseAgreements, the purchase may be delivered by book entry, physical delivery or by third - party custodial agreement consistent with the Government Code. The transfer of securities to the counter party bank’s customer book entry account may be used for book entry delivery.
13.0 Diversification:
The City’ s investment portfolio will be diversified to avoid incurring unreasonable and avoidable risks associatedwith concentrating investments in specific security types, maturity segment, or in individual financial institutions. No more than 5% of the investment portfolio shall be in securities of any one issuerexceptfor U.S. Treasuries, U.S. Government Agency issues, and investment pools suchasLAIF, the San Diego County Pool, money market funds, and local government investment pools ( LGIP’ s).
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be mitigated by investing in those securities with an “A” or above rating and approved in the Investment Policy and by diversifying the investment portfolio so that the failure of any one issuer would not unduly harm the City’s cashflow.
B. Market risk, defined as the risk of market value fluctuations due to overall changesin the general level of interest rates, shall be mitigated by implementing a long- term investment strategy. It is explicitly recognizedherein, however, that in a diversified portfolio, occasionalmeasuredlossesare inevitable and must be considered within the context of overall investment return. The City’ s investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated.
14.0 Maximum Maturities:
To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. The City will not directly invest in securities maturing more than five ( 5) yearsfrom the date of purchase, unless, the legislative body has granted express authority to make that investment either specifically, or asa part of an investment program approvedby the City Council at leastthree (3)
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
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220-01 03/01/2022 13 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
months prior to the investment.
15.0 Internal Control:
The Director of Finance/Treasurershall establisha systemof internal controls designedto prevent loss of public funds due to fraud, employee error, or misrepresentation by third parties. No investment personnel, including aninvestment advisor, may engagein aninvestment transactionexceptasprovided for under the terms of this Investment Policy and the procedure established by the Director of Finance/Treasurer.
The external auditors shall annually review the investments with respectto the Investment Policy. This review will provide internal control by assuring compliance with policies and procedures for the investmentsthat areselectedfor testing. Additionally, accountreconciliation andverification of general ledger balances relating to the purchasing or maturing of investments and allocation of investments to fund balances shall be performed by the Finance Department and approved by the Director of Finance/ Treasurer. To provide further protection of City funds, written procedures prohibit the wiring of any City funds without the authorization of at least two of the following six designatedCity staff:
1. Director of Finance/Treasurer
2. Assistant Director of Finance
3. Treasury Manager
4. Finance Manager
5. RevenueManager
6. Budget and Analysis Manager
16.0 Performance Standards:
The investment portfolio shall be managed to attain a market- average rate of return throughout budgetary and economic cycles, taking into account the City’s investment risk constraints and cash flow. Investment return becomes a consideration only after the basic requirements of investment safety and liquidity have been met. In evaluating the performance of the City’s portfolio in complying with this policy, the City shall establish an appropriate performance benchmark and compare the return of its portfolio to the return of the benchmark.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
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220-01 03/01/2022 14 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
17.0 Reporting:
The Director of Finance/Treasurer shall submit a quarterly investment report to the City Council and City Manager following the end of each quarter. This report will include the following elements:
Type of investment
Institutional issuer
Purchasedate
Date of maturity
Amount of deposit or cost of the investment
Face value of the investment
Current market value of securities and source of valuation Rate of interest
Interest earnings
Statement relating the report to its compliance with the Statement of Investment Policy or the manner in which the portfolio is not in compliance
Statement on availability of funds to meet the next six month’ s obligations Monthly and year- to- date budget amounts for interest income Percentage of portfolio by investment type
Days to maturity for all investments
Comparative report on interest yields
Monthly transactions
Compare portfolio total return to market benchmark total return In addition, a commentary on capital marketsandeconomic conditions may be included with the report.
18.0 Investment Policy Review and Adoption:
This Investment Policy shall be reviewed at least annually by the Director of Finance/Treasurer to ensure its consistency with the overall objective of preservation of principal, liquidity, and return, and its relevanceto current law and financial and economic trends. Each fiscal year, the Finance Director shall provide a copy of the City’ s current Investment Policy and Guidelines to the City Council. By virtue of a resolution of the City Council of the City of Chula Vista, the Council shall acknowledge the receipt of the Policy for the respective fiscal year.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
POLICY
NUMBER
EFFECTIVE
DATE PAGE
220-01 03/01/2022 15 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
GLOSSARY
AGENCIES: Federalagency securities.
ASKED: The price at which securities areoffered. (The price at which a firm will sell a security to an investor.)
BANKERS’ ACCEPTANCE ( BA): A draft or bill or exchange accepted by a bank or trust company.
The accepting institution guaranteespayment of the bill, aswell asthe issuer. The drafts are drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. An acceptance is a high-gradenegotiable instrument.
BASIS POINT: One one-hundredth of a percent (i.e., 0.01 %).
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) BROKER: A broker brings buyers and sellers togetherfor a commission. He doesnot take a position.
CERTIFICATE OF DEPOSIT ( CD): A time deposit with a specific maturity evidenced by a certificate. Large- denomination CD’s are typically negotiable.
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 securedepositsof public monies.
COMMERCIAL PAPER: Short term unsecuredpromissory note issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paperis issuedby corporations such asGeneral Motors Acceptance Corporation, IBM, Bank of America, etc.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
DELIVERY VERSUS PAYMENT: There are two methodsof delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchangeof money for the securities. Delivery versusreceipt is delivery of securitieswith an exchange
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
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220-01 03/01/2022 16 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
of a signed receipt for the securities.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns.
FEDERAL AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions ( e.g., S&L’s, small businessfirms, students, farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION ( FDIC): A Federal agency that insures bank deposits, currently up to $ 250, 000 per deposit.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven-member Board of Governors in Washington, D.C.; 12 regional banks and about 5,700 commercial banks are members of the system.
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 spreadbetweenbid and asked prices is narrow and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND ( LAIF): The aggregate of all funds from political subdivisions that are placed in the custody of the StateTreasurerfor investment and reinvestment.
LOCAL GOVERNMENT INVESTMENT POOL ( LGIP): An investment pool offered by a state or local agency to public entities for the investment of public funds.
MARKET VALUE: The price at which a security is trading and could presumable be purchased or sold.
MATURITY: The date upon which the principal or statedvalue of an investment becomesdue and payable.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS ( NRSROs):
Credit rating agencies that issue credit ratings that the Securities and Exchange Commission ( SEC) permits other financial firms to use for certain regulatory purposes.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
GUIDELINES
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220-01 03/01/2022 17 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecuredobligations of the financial institution, bank or savings and loan, bought at par value with the promise to pay face value plus accrued interest at maturity. They are high-grade negotiable instruments, paying a higher interest rate than regular certificates of deposit.
OFFER: The price asked by a seller of securities. ( When you are buying securities, you ask for an offer).
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealerswho 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 INVESTOR STANDARD: An investment standard. In some states, the law requires that a fiduciary, suchasa trustee, may invest money only in a list of securities selectedby the custody state- the so-called “ legal list”. In other states, the trustee may invest in a security if it is one that would be bought by a prudent person of discretion and intelligence who is seeking a reasonableincome and preservation of capital.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price.
SAFEKEEPING: A serviceto customersrenderedby banksfor a fee whereby securitiesandvaluables of all types and descriptions are held in the bank’s vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.
SECURITIES & EXCHANGE COMMISSION ( SEC): Agency created by Congress to protect investors in securities transactions by administering securities legislation.
SEC RULE 15C3- 1: See “Uniform Net Capital Rule”.
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND
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220-01 03/01/2022 18 OF 18
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 ( 2/4/97); 19375 ( 2/16/99); 2000- 050 ( 2/15/00); 2001- 026 2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045 3/2/10); 2011- 020 ( 2/22/11); 2012- 034(3/13/12); 2013- 020 ( 2/26/13); 2014- 039 ( 3/11/14); 2014- 191 10/28/14); 2015-041 (3/03/2015); 2016-046 (03/15/2016); 2017-078 (05/23/2017); 2018-090 05/22/2018); 2019- 086 ( 05/21/2019); 2020- 024 ( 02/18/2020); 2021- 022 ( 02/16/2021); 2022- 052 03/01/2022)
TREASURY BILLS: A non-interest bearing discount security issuedby 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 10 years.
TREASURY NOTES: Intermediate-term coupon bearing U.S. Treasury having initial maturities of one year to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms aswell as nonmember broker/dealersin securities maintain a maximum ratio of indebtednessto 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 purchasesecurities, one reasonnew public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment, expressedas a percentage. (a) Income Yield is obtained by dividing the current dollar income by the current market price for 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 purchaseto the date of maturity of the bond.