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HomeMy WebLinkAboutSubmittal-Back Up Document-City of Miami Investment PolicyCITY OF MIAMI INVESTMENT POLICY AUGUST 23, 2007 4-4 0 - Sul) n)i +-i-Ci I -HICCUP b tum .Q/11+ - Ci+y k. rv1 \InvnfiNCif i 1)61iL' __w__ RE 2 10.23 2o14. Submitted into the public record for item(s) g_E . 3 on l b. 9 2) • 14- . City Clerk Table of Contents Page I. PURPOSE 3 II. SCOPE 3 III. INVESTMENT OBJECTIVES 3 IV. DELEGATION OF AUTHORITY 4 V. STANDARDS OF PRUDENCE 4 VI. ETHICS AND CONFLICTS OF INTEREST 5 VII. INTERNAL CONTROLS AND INVESTMENT PROCEDURES 5 VIII. CONTINUING EDUCATION 5 IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 5 X. MATURITY AND LIQUIDITY REQUIREMENTS 6 XI. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS 6 XII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION 7 XIII. DERIVATIVES AND REVERSE REPURCHASE AGREEMENTS 14 XIV. PERFORMANCE MEASUREMENTS 15 XV. REPORTING 15 XVI. THIRD -PARTY CUSTODIAL AGREEMENTS 16 XVII. INVESTMENT POLICY ADOPTION 16 XVIII. GLOSSARY OF TERMS 17 City of Miami Investment Policy Page 2 Investment Policy City of Miami, Florida I. PURPOSE Submitted into the public record for item(s) J .E .3 on City Clerk The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of the City of Miami, Florida (hereinafter "City"). These policies are designed to safeguard the City's funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices. II. SCOPE In accordance with Section 218.415, Florida Statues, this investment policy applies to all cash and investments held or controlled by the City and shall be identified as "general operating funds" of the City with the exception of the City's Pension Funds, Deferred Compensation & Section 401(a) Plans, and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Additionally, any future revenues, which have statutory investment requirements conflicting with this Investment Policy and funds held by state agencies (e.g., Department of Revenue), are not subject to the provisions of this policy. III. INVESTMENT OBJECTIVES Safety of Principal The foremost objective of this investment program is the safety of the principal of those funds within the portfolios. Investment transactions shall seek to keep capital losses at a minimum, whether they are from securities defaults or erosion of market value. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. From time to time, securities may be traded for other similar securities to improve yield, maturity or credit risk. For these transactions, a loss may be incurred for accounting purposes, provided any of the following occurs with respect to the replacement security: A. Yield has been increased, or B. Maturity has been reduced, or lengthen C. Quality of the investment has been improved. City of Miami Investment Policy Page 3 Submitted into the public redorcfor item(s) (?t. $ City Clerk Maintenance of Liquidity The portfolios shall be managed in such a manner that funds are available to meet reasonably anticipated cash flow requirements in an orderly manner. Periodical cash flow analyses will be completed in order to ensure that the portfolios are positioned to provide sufficient liquidity. Return on Investment Investment portfolios shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. IV. DELEGATION OF AUTHORITY In accordance with the City's Administrative Policies, the responsibility for providing oversight and direction in regard to the management of the investment program resides with the City's Finance Director. The management responsibility for all City funds in the investment program and investment transactions is delegated to the Finance Director or designee. The Finance Director shall establish written procedures for the operation of the investment portfolio and a system of internal accounting and administrative controls to regulate the activities of employees. The City may employ an Investment Advisor to assist in managing some of the City's portfolios. Such Investment Advisor must be registered under the Investment Advisors Act of 1940. V. STANDARDS OF PRUDENCE The standard of prudence to be used by investment officials shall be the "Prudent Person" standard and shall be applied in the context of managing the overall investment program. Investment officers acting in accordance with written procedures and this 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 expectation are reported to the Director of Finance in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. The "Prudent Person" rule states the following: 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 from the investment. While the standard of prudence to be used by investment officials who are officers or employees is the "Prudent Person" standard, any person or firm hired or retained to invest, monitor, or advise concerning these assets shall be held to the higher standard of "Prudent Expert". The standard shall be that in investing and reinvesting moneys and in acquiring, retaining, managing, and disposing of investments of these funds, the contractor shall exercise: the judgment, care, skill, prudence, and diligence under the circumstances then prevailing, which persons of prudence, discretion, and intelligence, acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims by diversifying the investments of the funds, so as to minimize the risk, considering the probable income as well as the probable safety of their capital. City of Miami Investment Policy Page 4 Submitted into the public record for item(s) iLC . 3 on City Clerk VI. ETHICS AND CONFLICTS OF INTEREST Employees 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. Also, employees involved in the investment process shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the City, and they shall further disclose any material personal financial/investment positions that could be related to the performance of the City's investment program. VII. INTERNAL CONTROLS AND INVESTMENT PROCEDURES The Finance Director shall establish a system of internal controls and operational procedures that are in writing and made a part of the City's operational procedures. The internal controls should be designed to prevent losses of funds, which might arise from fraud, employee error, and misrepresentation, by third parties, or imprudent actions by employees. The written procedures should include reference to safekeeping, repurchase agreements, separation of transaction authority from accounting and recordkeeping, wire transfer agreements, banking service contracts, collateral/depository agreements, and "delivery -vs -payment" procedures. No person may engage in an investment transaction except as authorized under the terms of this policy. Independent auditors as a normal part of the annual financial audit to the City shall conduct a review of the system of internal controls to ensure compliance with policies and procedures. VIII. CONTINUING EDUCATION The Finance Director, Treasurer, and appropriate staff shall annually complete 8 hours of continuing education in subjects or courses of study related to investment practices and products. IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS Authorized City staff shall only purchase securities from the following financial and investment institutions. A. Certificates of Deposit or Savings Accounts These investments may only be purchased from public depositories qualified by the Treasurer of the State of Florida, in accordance with Chapter 280, Florida Statutes. B. Overnight Repurchase Agreement Collateral for the City's "Sweep Accounts" shall be held at City's depository bank that must be a State Qualified Public Depository. City of Miami Investment Policy Page 5 Submitted into the p blic record for item(s) e on I b' qvIq- • City Clerk C. All Other Investments For purchases and sales of securities by the City, dealers designated as "Primary Securities Dealers" by the Federal Reserve Bank of New York or from direct issuers of commercial paper and bankers' acceptances will be utilized, and all approved non -primary securities dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule) must provide the following information prior to executing investment trades with the City: 1. Annual financial statement, as well as most recent quarterly statement. 2. Regulatory history, through either the Office of the Comptroller of the Currency for dealer banks, or the NASD for securities firms. 3. Statement of any pending lawsuits materially affecting the firm's business. Each Dealer's representative will be required to complete the "City's Investment Firm Certification Form" prior to the City conducting any business with the Dealer or its representative. X. MATURITY AND LIQUIDITY REQUIREMENTS To the extent possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash flow requirements. A. Maturity Guidelines Securities purchased by or on behalf of the City shall have a final maturity of five (5) years or less from the date of purchase. The overall weighted average duration of principal return for the portfolio shall be less than three (3) years. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the Master Repurchase Agreement. B. Liquidity Requirements In order to meet the day-to-day expenditure needs of the City, $3,000,000 will be the targeted cash balance in the City's depository bank. All funds in the depository bank will be "swept" each night into a fully collateralized repurchase agreement account. XI. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS After the Finance Director or Designee has determined the approximate maturity date based on cash flow needs and market conditions and has analyzed and selected one or more optimal types of investments, a minimum of three (3) qualified banks and/or approved broker/dealers must be contacted and asked to provide bids/offers on securities in questions. Bids will be held in confidence until the bid deemed to best meet the investment objectives is determined and selected. However, if obtaining bids/offers are not feasible and appropriate, securities may be purchased utilizing the comparison to current market price method on an exception basis. Acceptable current market price providers include, but are not limited to: A. Telerate Information System City of Miami Investment Policy Page 6 Submitted into the public record for item(s) 12E • �7 on 1 6./3- 14- . City Clerk B. Bloomberg Information Systems C. Wall Street Journal or a comparable nationally recognized financial publication providing daily market pricing D. Daily market pricing provided by the City's custodian or their correspondent institutions The Finance Director or designee shall utilize the competitive bid process to select the securities to be purchased or sold. Selection by comparison to a current market price, as indicated above, shall only be utilized when, in judgment of the Finance Director or designee, competitive bidding would inhibit the selection process. Examples of when this method may be used include: A. When time constraints due to unusual circumstances preclude the use of the competitive bidding process B. When no active market exists for the issue being traded due to the age or depth of the issue C. When a security is unique to a single dealer, for example, a private placement D. When the transaction involves new issues or issues in the "when issued" market Overnight sweep repurchase agreements will not be bid, but may be placed with the City's depository bank relating to the demand account for which the repurchase agreement was purchased. XII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION Investments should be made subject to the cash flow needs and such cash flows are subject to revisions as market conditions and the City's needs change. However, when the invested funds are needed in whole or in part for the purpose originally intended or for more optimal investments, the Finance Director or designee may sell the investment at the then -prevailing market price and place the proceeds into the proper account at the City's custodian. The following are the investment requirements and allocation limits on security types, issuers, and maturities as established by the City. Diversification strategies within the established guidelines shall be reviewed and revised periodically as necessary by the Investment Committee. The Investment Committee, Director of Finance or designee shall have the option to further restrict investment percentages from time to time based on market conditions, risk and diversification investment strategies. The percentage allocations requirements for investment types and issuers are calculated based on the original cost of each investment. Investments not listed in this policy are prohibited. A. The Florida Local Government Surplus Funds Trust Fund ("SBA") 1. Investment Authorization The Finance Director or designee may invest in the SBA. City of Miami Investment Policy Page 7 Submitted into the public record for item(s) 3 on f b 12,• 14 • City Clerk 2. Portfolio Composition A maximum of 100% of available funds may be invested in the SBA. B. United States Government Securities 1. Purchase Authorization The Finance Director or designee may invest in negotiable direct obligations, or obligations the principal and interest of which are unconditionally guaranteed by the United States Government. Such securities will include, but not be limited to the following: Cash Management Bills Treasury Securities — State and Local Government Series ("SLGS") Treasury Bills Treasury Notes Treasury Bonds Treasury Strips 2. Portfolio Composition A maximum of 100% of available funds may be invested in the United States Government Securities with the exception of Treasury Strips are limited to 10% of available funds. 3. Maturity Limitations The maximum length to maturity of any direct investment in the United States Government Securities is five (5) years from the date of purchase. C. United States Government Agencies 1. Purchase Authorization The Finance Director or designee may invest in bonds, debentures, notes or callables issued or guaranteed by the United States Governments agencies, provided such obligations are backed by the full faith and credit of the United States Government. Such securities will include, but not be limited to the following: United States Export — Import Bank -Direct obligations or fully guaranteed certificates of beneficial ownership Farmer Home Administration -Certificates of beneficial ownership Federal Financing Bank -Discount notes, notes and bonds Federal Housing Administration Debentures Goverrunent National Mortgage Association (GNMA) -GNMA guaranteed mortgage -backed bonds City of Miami Investment Policy Page 8 Submitted into the public record for item(s) {2 F . 3 on ( b • Z- • 14- . City Clerk -GNMA guaranteed pass -through obligations General Services Administration United States Maritime Administration Guaranteed -Title XI Financing New Communities Debentures -United States Govermnent guaranteed debentures United States Public Housing Notes and Bonds -United States Government guaranteed public housing notes and bonds United States Department of Housing and Urban Development -Project notes and local authority bonds 2. Portfolio Composition A maximum of 50% of available funds may be invested in United States Government agencies. 3. Limits on Individual Issuers A maximum of 10% of available funds may be invested in individual United States Government agencies. 4. Maturity Limitations The maximum length to maturity for an investment in any United States Government agency security is five (5) years from the date of purchase. D. Federal Instrumentalities (United States Government sponsored agencies) 1. Purchase Authorization The Finance Director or designee may invest in bonds, debentures, notes or callables issued or guaranteed by United States Government sponsored agencies (Federal Instrumentalities) which are non -full faith and credit agencies limited to the following: Federal Farm Credit Bank (FFCB) Federal Home Loan Bank or its City banks (FHLB) Federal National Mortgage Association (FNMA) Federal Home Loan Mortgage Corporation (Freddie -Macs) including Federal Home Loan Mortgage Corporation participation certificates 2. Portfolio Composition A maximum of 100% of available funds may be invested in Federal Instrumentalities. 3. Limits on Individual Issuers A maximum of 25% of available funds may be invested in any one issuer. 4. Maturity Limitations City of Miami Investment Policy Page 9 Submitted into the public record for item(s) 12E - 3 on I d • 23.14- . City Clerk The maximum length to maturity for an investment in any Federal Instrumentality security is five (5) years from the date of purchase. E. Interest Bearing Time Deposit or Saving Accounts 1. Purchase Authorization The Finance Director or designee may invest in non-negotiable interest bearing time certificates of deposit or savings accounts in banks organized under the laws of this state and/or in national banks organized under the laws of the United States and doing business and situated in the State of -Florida, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Chapter 280, Florida Statutes. Additionally, the bank shall not be listed with any recognized credit watch information service. 2. Portfolio Composition A maximum of 10% of available funds may be invested in non-negotiable interest bearing time certificates of deposit. 3. Limits on Individual Issuers A maximum of 10% of available funds may be deposited with any one issuer. 4. The maximum maturity on any certificate shall be no greater than one (1) year from the date of purchase. F. Repurchase Agreements 1. Purchase Authorization a. The Finance Director or designee may invest in repurchase agreements composed of only those investments authorized in Section XII.B, C, and D. All repurchase agreements that are legal and authorized by this policy: a Master Repurchase Agreement must be signed with the bank or dealer. All firms are required to sign the City's Master Repurchase Agreement prior to the execution of a repurchase agreement transaction. b. A third party custodian with whom the City has a current custodial agreement shall hold the collateral for all repurchase agreements with a term longer than one (1) business day. A clearly marked receipt that shows evidence of ownership must be supplied to the Finance Director or designee and retained. c. Securities authorized for collateral must have maturities under ten (10) years and with market value for the principal and accrued interest of 102 percent of the value and for the term of the repurchase agreement. Immaterial short-term deviations from 102 percent requirement are permissible only upon the approval of the Finance Director or designee. City of Miami Investment Policy Page 10 Submitted into the public record for item(s) i2.E ..3 on . City Clerk d. The overnight sweep arrangement shall adhere to the agreement between the City and the City's depository bank. 2. Portfolio Composition A maximum of 20% of available funds may be invested in repurchase agreements excluding one (1) business day agreements and overnight sweep agreements. 3. Limits on Individual Issuers A maximum of 10% of available funds may be invested with any one institution excluding one (1) business day agreements and overnight sweep agreements. 4. Limits on Maturities The maximum length to maturity of any repurchase agreement is 90 days from the date of purchase. G. Commercial Paper 1. Purchase Authorization The Finance Director or designee may invest in commercial paper of any United States company that is rated, at the time of purchase by two of the three rating agencies, "Prime- 1" by Moody's, "A-1" by Standard & Poor's and F-1 by Fitch (prime commercial paper). If the commercial paper is backed by a letter of credit ("LOC"), the long-term debt of the LOC provider must be rated "A" or better by at least two nationally recognized rating agencies. 2. Portfolio Composition A maximum of 35% of available funds may be directly invested in prime commercial paper. 3. Limits on Individual Issuers A maximum of 10% of available funds may be invested with any one issuer. 4. Maturity Limitations The maximum length to maturity for prime commercial paper shall be 270 days from the date of purchase. H. Corporate Notes 1. Purchase Authorization The Finance Director or designee may invest in corporate notes issued by corporations organized and operating within the United States or by depository institutions licensed by City of Miami Investment Policy Page 11 Submitted into the public record for item(s) '2. �; • 3 on p �'3 141- . City Clerk the United States that have a long term debt rating, at the time or purchase, at a minimum "Aa" by Moody's and a minimum long tern debt rating of "AA" by Standard & Poor's. 2. Portfolio Composition A maximum of 25% of available funds may be directly invested in corporate notes. 3. Limits on Individual Issuers A maximum of 10% of available funds may be invested with any one issuer. 4. Maturity Limitations The maximum length to maturity for corporate notes shall be (2) two years from the date of purchase. Bankers' Acceptances 1. Purchase Authorization The Finance Director or designee may invest in Bankers' Acceptances issued by a domestic bank or a federally chartered domestic office of a foreign bank, which are eligible for purchase by the Federal Reserve System, at the time or purchase, the short- term paper is rated, at a minimum, "P-1" by Moody's Investors Services and "A-1" Standard & Poor's. 2. Portfolio Composition A maximum of 10% of available funds may be directly invested in Bankers' Acceptances 3. Limits on Individual Issuers A maximum of 5% of available funds may be invested with any one issuer. 4. Maturity Limitations The maximum length to maturity for Bankers' Acceptances shall be 180 days from the date of purchase. J. State and/or Local Government Taxable and/or Tax -Exempt Debt 1. Purchase Authorization The Finance Director or designee may invest in state and/or local government taxable and/or tax-exempt debt, general obligation and/or revenue bonds, rated at least "Aa" by Moody's and "AA" by Standard & Poor's for long -tern debt, or rated at least "MIG-2" by Moody's and "SP-2" by Standard & Poor's for short-term debt. 2. Portfolio Composition City of Miami Investment Policy Page 12 Submitted into the public record for item(s) 12,(i • ?J on I D. n. w- • City Clerk A maximum of 25% of available funds may be invested in taxable and tax-exempt General Obligation bonds. A maximum of 10% of available funds may be invested in taxable and tax-exempt Revenue and Excise tax bonds of the various municipalities of the State of Florida, provided none of such securities have been in default within five (5) years prior to the date of purchase. 3. Maturity Limitations A maximum length to maturity for an investment in any state or local government debt security is (2) two years from the date of purchase. K. Registered Investment Companies (Money Market Mutual Funds) 1. Investment Authorization The Finance Director or designee may invest in shares in open-end and no-load money market funds provided such funds are registered under the Federal Investment Company Act of 1940 and operate in accordance with 17 C.F.R. § 270.2a-7, which stipulates that money market funds must have an average weighted maturity of 90 days or less. 2. Portfolio Composition A maximum of 20% of available funds may be invested in money market funds. 3. Limits of Individual Issuers A maximum of 10% of available funds may be invested with any one money market fund. 4. Rating Requirements The money market funds shall be rated "AAm" or "AAm-G" or better by Standard & Poor's, or the equivalent by another rating agency. 5. Due Diligence Requirements A thorough review of any money market fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed by the Finance Director or designee that will contain a list of questions that covers the major aspects of any investment pool/fund. L. Intergovernmental Investment Pool 1. Investment Authorization City of Miami Investment Policy Page 13 Submitted into the public record for item(s) 7 on i b 113. 14- . City Clerk The Finance Director or designee may invest in intergovernmental investment pools that are authorized pursuant to the Florida Interlocal Cooperation Act, as provided in Section 163.01, Florida Statutes and provided that said funds contain no derivatives. 2. Portfolio Composition A maximum of 25% of available funds may be invested in intergovernmental investment pools. 3. Due Diligence Requirements A thorough review of any investment pool/fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed by the Finance Director or Designee that will contain a list of questions that covers the major aspects of any investment pool/fund. M. Investment of Surplus Funds The City's Investment Policy established and adopted May 10, 2001 pursuant to Resolution N. 01-448, is amended to authorize investment of surplus funds in rated or unrated bonds, notes or instruments backed by the full faith and credit of the government of Israel, and to prohibit investments in any companies with business operations in Sudan or Iran provided that such revisions satisfies specified fiduciary standards. XIII. DERIVATIVES AND REVERSE REPURCHASE AGREEMENTS The City may invest in investment products that include the use of derivatives as long as the dollar amount invested by the investment product is minuscule to the total dollar amount invested by the investment product. The Finance Director or designee shall develop sufficient understanding of the derivative products and have the expertise to manage them. A "derivative" is defined as a financial instrument the value of which depends on, or is derived from, the value of one or more underlying assets or indices or asset values. If the Finance Director approves the use of reverse repurchase agreements or other forms of leverage, the investment shall be limited to transactions in which the proceeds are intended to provide liquidity and for which the City has sufficient resources and expertise to manage them. XIV. PERFORMANCE MEASUREMENTS In order to assist in the evaluation of the portfolios' performance, the City will use performance benchmarks for short -tern and long-term portfolios. The use of benchmarks will allow the City to measure its returns against other investors in the same markets. A. The short-term investment portfolio shall be designed with the annual objective of exceeding the weighted average return (net book value rate of return) of the Florida Local Government Surplus Funds Trust Fund (SBA). B. The long-term investment portfolio shall be designed with the annual objective of exceeding the return of the Merrill Lynch 1-3 Year Treasury Index compared to the portfolio's total rate of return. The Merrill Lynch 1-3 Year Treasury Index represents all U.S. Treasury securities City of Miami Investment Policy Page 14 Submitted into the public record for item(s) 2 t • 9 on I . City Clerk maturing over one year, but less than three years. This maturity range is an appropriate benchmark based on the objectives of the City. XV. REPORTING A. The Finance Director or designee will prepare quarterly investment reports. Schedules in the quarterly report should include the following: 1. A listing of individual securities held at the end of the reporting period 2. Percentage of available funds represented by each investment type 3. Coupon, discount or earning rate 4. Average life or duration and final maturity of all investments 5. Par value, and market value B. Annual Investment Report On an annual basis, the Finance Director shall prepare and submit to the City Commission a written report on all invested funds. The annual report shall provide all, but not limited to, the following: a complete list of all invested funds, name or type of security in which the funds are invested, the amount invested, the maturity date, earned income, the book value, the market value and the yield on each investment. The annual report will show performance on both a book value and total rate of return basis and will compare the results to the above -stated performance benchmarks. All investments shall be reported at fair value per GASB standards. Investment reports shall be available to the public. C. Investment Committee The City shall have an investment committee comprised of the Finance Director, Assistant Finance Director, Treasurer, and Investment Coordinator to report to this committee as often as requested. Reports shall be prepared and distributed to the committee quarterly. XVI. THIRD -PARTY CUSTODIAL AGREEMENTS Securities, with the exception of certificates of deposits, shall be held with a third party custodian; and all securities purchased by, and all collateral obtained by; the City should be properly designated as an asset of the City. The securities must be held in an account separate and apart from the assets of the financial institution. A third party custodian is defined as any bank depository chartered by the Federal Government, the State of Florida, or any other state or territory of the United States which has a branch or principal place of business in the State of Florida as defined in Section 658.12, Florida Statutes, or by a national association organized and existing under the laws of the United States which is authorized to accept and execute trusts and which is doing business in the State of Florida. Certificates of deposits will be placed in the provider's safekeeping department for the term of the deposit. City of Miami Investment Policy Page 15 Submitted into the public 2 record for item(s) (Z- (: • on b • i;3' w' • City Clerk The custodian shall accept transaction instructions only from those persons who have been duly authorized by the Director of Finance and which authorization has been provided, in writing, to the custodian. No withdrawal of securities, in whole or in part, shall be made from safekeeping, shall be permitted unless by such a duly authorized person. The custodian shall provide the Finance Director or designee with safekeeping receipts that provide detail information on the securities held by the custodian. In addition, the custodian shall report at least quarterly and the Finance Director or designee shall verify the reports. Security transactions between a broker/dealer and the custodian involving the purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment" basis, if applicable, to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. Only after receiving written authorization from the Director of Finance shall the City Treasurer be authorized to deliver securities "free". Securities held as collateral shall be held free and clear of any liens. XVII. INVESTMENT POLICY ADOPTION The investment policy shall be adopted by City resolution. The Director of Finance, Treasurer, and the Investment Committee shall review the policy annually and the City Commission shall approve any modification made thereto. PASSED AND ADOPTED BY THE CITY COMMISSION ON ATTEST: WALTER J. FOREMAN CITY CLERK Approved as to form and correctness ALEJANDRO VILARELLO CITY ATTORNEY JOE CAROLLO, MAYOR City of Miami Investment Policy Page 16 Submitted into the public record for item(s) oti City Clerk Glossary of Terms AGENCIES: Federal agency securities and/or Government -sponsored enterprises. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE {BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CALL FEATURE or CALLABE SECURITY: A security redeemable by the issuer before the scheduled maturity date. A security is usually called when interest rates fall so that the issuer can save money by floating a new security at lower rates. 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 that a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUALFINANCIAL REPORT (CAFR): The official annual report for the City of Miami .It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance - related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. 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: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. City of Miami Investment Policy Page 17 Submitted into the public recoil!, for item(s) • 3 on 1 2 ' llr . City Clerk DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at 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 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 FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small-business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) that lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve 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 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 that are members of the system. City of Miami Investment Policy Page 18 Submitted into the public record for item(s) n G 3 on I City Clerk FLORIDA STATUTES CHAPTER 280: The State Treasurer requires all qualified public depositories to deposit with the Treasurer or another banking institution eligible collateral equal to 50% to 125% of the average daily balance for each month of all public deposits in excess of any applicable deposit insurance held. The percentage of eligible collateral (generally, U.S. governmental, and agency securities, state or local government debt, or corporate bonds) to public deposits is dependant upon the depository's financial history and its compliance with Chapter 280, Florida Statutes. In the event of a failure of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, V A, or FmHA mortgages. The term "pass throughs" is often used to describe Ginnie Maes. 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 spread 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 Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase -reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the event of default by the seller -borrower. 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. OFFER: The price asked by a seller of securities. 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. PORTFOLIO: Collection of securities held by an investor. City of Miami Investment Policy Page 19 Submitted into the public 3 record for item(s) on City Clerk PRIMARY DEALER: A group of government securities dealers who 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. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state -the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. 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 the current income return. REPURCHASE AGREEMENT (RP OR 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 RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. 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. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations that have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative -based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. 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 BONDS: City of Miami Investment Policy Page 20 Submitted into the public record for item(s) f.t•3 on j b • Z12 • w— . City Clerk Long-term coupon -bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium -term coupon bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker -dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. 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 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 purchase to the date of maturity of the bond. City of Miami Investment Policy Page 21