CITY COUNCIL AGENDA ITEM
Meeting Date: June 13, 2006
Subject/Title: Adopt a Resolution amending the Investment Policy No. 10-4
and delegating management responsibility for the investment program to the
Prepared by: Liz Ybarra, Accountant I
Submitted by: Pamela Ehler, Director of Finance and Information Systems
Adopt a Resolution amending the Investment Policy No. 10-4 and delegating
management responsibility for the investment program to the Treasurer.
On October 22, 1991, the City Council adopted an Investment Policy that set
parameters for the types of investments the City may utilize for all funds
(except retirement funds).
On June 14, 2005, the investment Policy 10-4 was presented for the required
annual review. Resolution 2005-129 was passed updating the City’s Investment
Section 12 of the City’s Investment Policy requires annual review of the
Policy by the City Council at a public meeting. Section 5 of the Policy
requires delegation of investment management responsibility to the Treasurer
for a one-year period.
The Investment Policy No. 10-4 was last reviewed by the City Council at a
public meeting and delegation of investment management was given to the
Treasurer on June 14, 2005.
Legislative changes to the California Government Code affecting local agency
investments revised Government Code 53646. This Government Code section no
longer mandates but now encourages local agencies to provide an annual
review of the Investment Policy at a public meeting. Although, Government
Code 53646 no longer mandates annual review of the policy, it is staff’s
belief that review of the Policy by the City Council at a public meeting is
a prudent practice and for that reason, the language in Section 12 which
requires annual review has not been changed.
Government Code 53646 now includes additional reporting requirements that
have been added to Section 12 of the Policy. As a result, Cities must
provide a copy of the Investment Policy to the California Debt and
Investment Advisory Commission (CDIAC) no later then 60 days after the close
of the second quarter of each calendar year and after any amendments to the
References to Government Code Section 53635 have been deleted because it has
been changed to apply solely to Counties. Section 7.11 has been updated to
reflect the fact that the LAIF Investment Advisory Board set the maximum per
account that can be invested in LAIF.
In order to facilitate your review, changes to the Policy have been
displayed in red.
Investment Policy No. 10-4 Exhibit A
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD AMENDING THE
INVESTMENT POLICY NO. 10-4 AND DELEGATING MANAGEMENT RESPONSIBILITY FOR THE
INVESTMENT PROGRAM TO THE TREASURER
WHEREAS, on October 22, 1991, the City Council adopted an Investment Policy
that set parameters for the types of investments the City may utilize for
all funds (except retirement funds); and
WHEREAS, on June 14, 2005, the investment Policy 10-4 was presented for the
required annual review. Resolution 2005-129 was passed updating the City’s
Investment Policy; and
WHEREAS, Section 12 of the City’s Investment Policy requires annual review
of the Policy by the City Council at a public meeting and Section 5 of the
Policy requires delegation of investment management responsibility to the
Treasurer for a one-year period; and
WHEREAS, although, the language in Government Code 53646 no longer mandates
annual review of the policy, it is staff’s belief that review of the Policy
by the City Council at a public meeting is a prudent practice. For that
reason, the language in Section 12 which requires annual review has not been
WHEREAS, Cities must now provide a copy of the Investment Policy to the
California Debt and Investment Advisory Commission (CDIAC) no later then 60
days after the close of the second quarter of each calendar year and after
any amendments to the policy; and
WHEREAS, references to Government Code Section 53635 have been deleted
because it has been changed to apply only to Counties; and
WHEREAS, Section 7.11 has been updated to reflect the fact that the LAIF
Investment Advisory Board set the maximum per account that can be invested
NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood
does hereby amend the Investment Policy No. 10-4 a copy of which is attached
as Exhibit A.
BE IT FURTHER RESOLVED that the City Council of the City of Brentwood does
hereby delegate management responsibility for the investment program to the
PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at
a regular meeting held on the 13th day of June 2006 by the following vote:
Investment Policy No. 10-4 Exhibit A
TABLE OF CONTENTS
1. Introduction 2
2. Scope 2
3. Prudence 2
4. Objectives 2
4.1 Safety 2
4.2 Liquidity 2
4.3 Return on Investment 2
5. Delegation of Authority 3
6. Ethics and Conflict of Interest 3
7. Permitted Investment Instruments 3
7.1 U.S. Treasuries 3
7.2 U.S. Agency Obligations 3
7.3 California State & Local Agency Obligations 3
7.4 Repurchase Agreements 3
7.5 Reverse Repurchase Agreements 4
7.6 Bankers’ Acceptances 4
7.7 Commercial Paper 5
7.8 Medium-Term Notes 5
7.9 Time Deposits 5
7.10 Negotiable Certificates of Deposit 5
7.11 State of California’s Local Agency Investment Fund 6
7.12 Insured Savings Account or Money Market Account 6
7.13 California Asset Management Program 6
7.14 Money Market Funds 6
8. Prohibited Investments 6
9. Maximum Maturity 6
10. Reporting Requirements 7
11. Safekeeping and Custody 7
12. Annual Review of Policy 7
13. Glossary of Terms 7
The purpose of this document is to identify various policies and procedures
that enhance opportunities for a prudent and systematic investment policy
and to organize and formalize investment-related activities.
The investment policies and practices of the City of Brentwood are based on
state law and prudent money management. All funds will be invested in
accordance with the City of Brentwood's Investment Policy, and California
Government Code Sections 53601 and 53646 53601.1, 53601.5, and 53635. and
53635.5. The investment of bond proceeds will be further restricted by the
provisions of relevant bond documents.
It is intended that this policy cover all funds (except retirement funds)
and investment activities under the direction of the Brentwood City Council.
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.
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 an
overall portfolio. 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
in a timely fashion and appropriate action is taken to control adverse
The primary objectives, in priority order, of the investment activities of
the City of Brentwood shall be:
4.1 Safety. Safety of principal is the foremost objective of the investment
program. Investments of the City of Brentwood shall be undertaken in a
manner that seeks to ensure preservation of capital in the portfolio.
4.2 Liquidity. The investment portfolio of the City of Brentwood will remain
sufficiently liquid to enable the City to meet its cash flow requirements.
4.3 Return On Investment. The investment portfolio of the City of Brentwood
shall be designed with the objective of attaining a market rate of return on
its investments consistent with the constraints imposed by its safety
objective and cash flow considerations.
5. Delegation of Authority
The management responsibility for the investment program is hereby delegated
to the Treasurer for a one-year period, subject to review and renewable
annually. The Treasurer shall monitor and review all investments for
consistency with this investment policy. No person may engage in an
investment transaction except as provided under the limits of this policy.
The Treasurer may delegate its investment decision making and execution
authority to an investment advisor. The advisor shall follow the policy and
such other written instructions as are provided.
6. Ethics and Conflict of Interest
Officers and employees involved in the investment process shall refrain from
personal business activities that could conflict with proper execution of
the investment program, or which could impair their ability to make
7. Permitted Investment Instruments
7.1 U.S. Treasuries: Government obligations for which the full faith and
credit of the United States are pledged for the payment of principal and
7.2 U.S. Agency Obligations: 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
7.2.1 Any mortgage pass through security issued and guaranteed by a Federal
Agency with a maximum final maturity of five years. Purchase of securities
authorized by this subdivision may not exceed 20 percent of the City's
7.3 California State & Local Agency Obligations: Obligations of the State of
California or any local agency within the state, including bonds payable
solely out of revenues from a revenue-producing property owned, controlled
or operated by the state or any local agency or by a department, board,
agency or authority of the state or any local agency; provided that the
obligations are rated in one of the two highest categories by a nationally
recognized statistical-rating service organization (NRSRO).
7.4 Repurchase Agreements: Repurchase Agreements used solely as short-term
investments not to exceed 90 days.
The following collateral restrictions will be observed: Only U.S. Treasury
securities or Federal Agency securities as described in 7.1 and 7.2 will be
acceptable collateral. All securities underlying Repurchase Agreements must
be delivered to the City's custodian bank versus payment or be handled under
a tri-party repurchase agreement. The total of all collateral for each
Repurchase Agreement must equal or exceed, on the basis of market value plus
accrued interest, 102 percent of the total dollar value of the money
invested by the City of Brentwood for the term of the investment. For any
Agreement with a term of more than one day, the value of the underlying
securities must be reviewed on a regular basis.
Market value must be calculated each time there is a substitution of
The City of Brentwood or its trustee shall have a perfected first security
interest under the Uniform Commercial Code in all securities subject to
The City of Brentwood may enter into Repurchase Agreements with (1) primary
dealers in U.S. Government securities who are eligible to transact business
with, and who report to, the Federal Reserve Bank of New York, and (2)
California and non-California banking institutions having assets in excess
of $1 billion and in the highest short-term rating category as provided by a
The City of Brentwood will have specific written agreements with each firm
with which it enters into Repurchase Agreements.
7.5 Reverse Repurchase Agreements: Reverse repurchase agreements will not be
allowed without the prior approval of the City Council. If a reverse
repurchase agreement is approved, the following guidelines will be applied:
The City may invest in reverse repurchase agreements only with "primary
dealers" with which the City has entered into a master repurchase agreement
contract. The City may invest in reverse repurchase agreements with the
following conditions: The City may only use reverse repurchase agreements to
(1) cover a temporary cash shortage, or (2) augment earnings. Reverse
repurchase agreements may not be used to leverage the portfolio.
In addition, if a reverse repurchase agreement is authorized, it may be
utilized only if the security to be sold on reverse repurchase agreement has
been owned and fully paid for by the City for a minimum of 30 days prior to
the sale; the total of all reverse repurchase agreements on investments
owned by the City does not exceed 20% of the portfolio; and the agreement
does not exceed a term of 92 days, unless the agreement includes a written
codicil guaranteeing a minimum earning or spread for the entire period
between the sale of the security using a reverse repurchase agreement and
the final maturity date of the same security. The proceeds of the reverse
repurchase agreement may not be invested in securities whose maturity
exceeds the term of the Reverse Repurchase Agreement.
7.6 Bankers' Acceptances: Bankers' Acceptances issued by domestic or foreign
banks, which are eligible for purchase by the Federal Reserve System, the
short-term paper of which is rated in the highest category by a nationally
recognized statistical- rating organization.
Purchases of Banker's Acceptances may not exceed 180 days maturity or 40
percent of the City of Brentwood's investment portfolio. No more than 10
percent of the City's
investment portfolio may be invested in the Banker's Acceptances of any one
7.7 Commercial Paper: Commercial paper of “prime” quality of the highest
ranking or of the highest letter and number rating as provided for by a
nationally recognized statistical-rating organization (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 meets the following criteria: (A) Is organized and operating
in the United States as a general corporation. (B) Has total assets in
excess of five hundred million dollars ($500,000,000). (C) Has debt other
than commercial paper, if any, that is rated “A” or higher by a nationally
recognized statistical-rating organization (NRSRO).
(2) The entity meets the following criteria: (A) Is organized within the
United States as 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 “A-1” or higher, or the equivalent, by a
nationally recognized statistical-rating organization.
Eligible commercial paper shall have a maximum maturity of 270 days or less.
Local agencies, other than counties or a city and county, may invest no more
than 25 percent of their money in eligible commercial paper. Local agencies,
other than counties or a city and county, may purchase no more than 10
percent of the outstanding commercial paper of any single issuer. Counties
or a city and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635 53601.
7.8 Medium-Term Notes: Medium-term corporate notes defined as all corporate
and depository institution debt securities with a maximum remaining maturity
of five years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the U.S. or any
state and operating within the U.S. Medium-term notes shall be rated in a
rating category "AA-" or its equivalent or better by a nationally recognized
statistical-rating service. Purchase of medium-term corporate notes may not
exceed 30 percent of the City's investment portfolio.
7.9 Time Deposits: FDIC insured or fully collateralized time certificates of
deposit in financial institutions located in California, including U.S.
branches of foreign banks licensed to do business in California. All time
deposits must be collateralized in accordance with the California Government
Code section 53652. 53651, either at 150% by promissory notes secured by
first mortgages and first trust deeds upon improved residential property in
California eligible under section (m) or at 110% by eligible marketable
securities listed in subsections (a) through (l) and (n) and (o).
Purchase of time deposits shall not exceed 25% of the City's investment
7.10 Negotiable Certificates of Deposit: Negotiable certificates of deposit
or deposit notes issued by a nationally or state-chartered bank or a state
or federal savings and loan association or by a state-licensed branch of a
foreign bank; provided that the senior debt obligations of the issuing
institution are rated "AA" or better by a NRSRO.
Purchase of negotiable certificates of deposit may not exceed 30 percent of
the City of Brentwood's investment portfolio.
7.11 State of California's Local Agency Investment Fund: The City may invest
in the Local Agency Investment Fund (LAIF) established by the State
Treasurer for the benefit of local agencies. The City may invest up to the
maximum of $40,000,000 per account as permitted by the LAIF Investment
Advisory Board. permitted under Section 16429.1 of the Government Code
($40,000,000). The LAIF portfolio should be reviewed periodically.
7.12 Insured Savings Account or Bank Money Market Account
7.13 California Asset Management Program
7.14 Money Market Funds: Shares of beneficial interest issued by diversified
management companies that are money market funds registered with the
Securities and Exchange Commission under the Investment Company Act of 1940
(15 U.S. C. Sec. 80a-1, et seq.). The company must have met either of the
following criteria: (1) attained the highest ranking letter and numerical
rating provided by not less than two nationally recognized rating services
or (2) have an investment advisor registered with the Securities and
Exchange Commission with not less than five years' experience managing money
market mutual funds with assets under management in excess of $500,000,000.
The purchase price of shares shall not exceed 15 percent of the investment
portfolio of the City of Brentwood.
Credit criteria listed in this section refers to the credit of the issuing
organization at the time the security is purchased. The maximum percentage
limitations apply at the time of purchase.
8. Prohibited Investments
The City may only invest in those obligations authorized by this policy and
shall not invest any funds in inverse floaters, range notes, or
interest-only strips that are derived from a pool of mortgages, or in any
security that could result in zero interest accrual if held to maturity.
9. Maximum Maturity
Investment maturities shall be based on a review of cash flow forecasts.
Maturities will be scheduled so as to permit the City of Brentwood to meet
all projected obligations.
Unless otherwise noted within this investment policy, the City may not
invest in a security that exceeds five (5) years from the date of purchase.
10. Reporting Requirements
The City Treasurer or outside Investment Advisor shall generate and present
to the Brentwood City Council monthly reports for accounting and management
purposes. Required elements of this report will include:
Description of investment instrument
Interest rate or yield to maturity
Current market value as of the date of the report and the source of this
Overall portfolio yield based on cost
List of all transactions during the past month
On a quarterly basis, within 30 days following the end of the quarter, a
quarterly report will be prepared and rendered to the Brentwood City
Council. This report will provide data similar to the monthly data as well
as any narrative necessary for clarification. Also, the quarterly report
shall state compliance of the portfolio to the statement of investment
policy, or manner in which the portfolio is not in compliance. In addition,
the City Treasurer will include in this report a statement denoting the
ability of the City to meet its expenditure requirements for the next six
months, or provide an explanation as to why sufficient money shall, or may,
not be available.
11. Safekeeping and Custody
The assets of the City of Brentwood shall be secured through the third-party
custody and safekeeping procedures. Bearer instruments shall be held only
through third-party institutions. Collateralized securities such as
repurchase agreements shall be purchased using the delivery vs. payment
12. Annual Review of Policy
The Treasurer shall annually render to the City Council this Statement of
Investment Policy, which shall be considered at a public meeting. Any
changes in the policy shall also be considered by the City Council at a
public meeting. In addition, a copy of the Investment Policy shall be
provided to the California Debt and Investment Advisory Commission (CDIAC)
no later then 60 days after the close of the second quarter of each calendar
year and after any amendments to the policy.
13. Glossary of Terms Attachments
13.1 Glossary: Except as other provided in this policy, whenever the words
defined or described in the Glossary attached to this policy are used in
this policy, they shall have the same meaning attributed to them in the
Glossary. However if there is a conflict between a definition contained in
the Glossary and a definition of those same works in Sections 53600 et. seq.
of the Government Code, the definition in the Government Code shall govern.
GLOSSARY OF TERMS
ACCRUED INTEREST: Interest that is due on a bond or other fixed income
security since the last interest payment was made. This often occurs for
bonds purchased on the secondary market, since bonds usually pay interest
every six months, but the interest is accrued by the bondholders on a
day-to-day basis. When a bond is sold, the buyer pays the seller the market
price plus the accrued interest, for which the buyer will be reimbursed when
the issuer pays next pays interest. Accrued interest is calculated on a
30-day month/360-day year for corporate bonds and municipal bonds, and on
actual-calendar-days for Government bonds. Income bonds and bonds in default
trade without accrued interest. When calculating accrued interest on a bond
that is being sold, it is conventional to consider the time period from the
most recent payment up to, but not including, the date on which the bond
sale is settled.
AGENCIES: Federal agency securities and/or Government-sponsored enterprises.
BANKER’S ACCEPTANCE: 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 insurer.
BOND: A certificate of debt that is issued by a government or corporation in
order to raise money with a promise to pay a specified sum of money at a
fixed time in the future and carrying interest at a fixed rate. Generally, a
bond is a promise to repay the principal along with interest (coupons) on a
specified date (maturity).The main types of bonds are corporate bond,
municipal bond, treasury bond, treasury note, treasury bill, and zero-coupon
bond. It is a tradable debt instrument that might be sold at above or below
par (the amount paid out at maturity), and are rated by bond rating services
such as Standard & Poor's and Moody's Investors Service, to specify
likelihood of default. The Federal government, states, cities, corporations,
and many other types of institutions sell bonds. It is relatively more
secured than equity and has priority over shareholders if the company
becomes insolvent and its assets are distributed.
COLLATERAL: Assets pledged by a borrower to secure a loan or other credit,
and subject to seizure in the event of default.
COMMERCIAL PAPER: An unsecured obligation issued by a corporation or bank to
finance its short-term credit needs, such as accounts receivable and
inventory. Maturities typically range from 2 to 270 days. Commercial paper
is available in a wide range of denominations, can be either discounted or
interest-bearing, and usually have a limited or nonexistent secondary
market. Commercial paper is usually issued by companies with high credit
ratings, meaning that the investment is almost always relatively low risk.
CUSTODIAN: An agent, bank, trust company, or other organization which holds
and safeguards an individual's, mutual fund's, or investment company's
assets for them.
DELEGATION OF AUTHORITY: Management responsibility for the investment
DEPOSITORY INSTITUTION: A central repository through which members
electronically transfer stock and bond certificates (a clearinghouse
FDIC: Federal Deposit Insurance Corporation. A federal agency that insures
bank deposits, currently up to $100,000 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 that are members of
INTEREST RATE: Interest per year divided by principal amount, expressed as a
INVESTMENT: Interest per year divided by principal amount, expressed as a
INVESTMENT ADVISOR: A person or organization employed by an individual or
mutual fund to manage assets or provide investment advice.
LAIF: Local Agency Investment Fund – The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer
for investment and reinvestment.
LETTERS OF CREDIT: A document issued by a bank which guarantees the payment
of a customer's drafts for a specified period and up to a specified amount.
LIMITED LIABILITY COMPANY: LLC. A type of company whose owners and managers
receive the limited liability and (usually) tax benefits of an S Corporation
without having to conform to the S corporation restrictions.
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 sales of reasonable size can be done at those quotes.
MARKET VALUE: The price at which a security is trading and could presumably
be purchased or sold.
MARKETABLE SECURITIES: Securities that can be easily converted into cash.
Such securities will generally have highly liquid markets allowing the
security to be sold at a reasonable price very quickly.
MATURITY: The date upon which the principal or stated value of an investment
becomes due and payable.
MOODY’S: One of the most prominent credit rating agencies in the U.S.
MUTUAL FUNDS: An open-ended fund operated by an investment company which
raises money from shareholders and invests in a group of assets, in
accordance with a stated set of objectives. Mutual funds raise money by
selling shares of the fund to the public, much like any other type of
company can sell stock in itself to the public. Mutual funds then take the
money they receive from the sale of their shares (along with any money made
from previous investments) and use it to purchase various investment
vehicles, such as stocks, bonds and money market instruments. In return for
the money they give to the fund when purchasing shares, shareholders receive
an equity position in the fund and, in effect, in each of its underlying
securities. For most mutual funds, shareholders are free to sell their
shares at any time, although the price of a share in a mutual fund will
NEGOTIABLE CERTIFICATES OF DEPOSIT: A CD with a very large denomination,
usually $1 million or more. These are usually bought by institutional
investors who are interested in low-risk investments. Negotiable
certificates of deposit are usually in bearer form, and have secondary
markets that are highly liquid.
NRSRO: Nationally recognized statistical-rating organization.
PAR VALUE: The nominal dollar amount assigned to a security by the issuer.
For an equity security, par value is usually a very small amount that bears
no relationship to its market price, except for preferred stock, in which
case par value is used to calculate dividend payments. For a debt security,
par value is the amount repaid to the investor when the bond matures
(usually, corporate bonds have a par value of $1000, municipal bonds $5000,
and federal bonds $10,000). In the secondary market, a bond's price
fluctuates with interest rates. If interest rates are higher than the coupon
rate on a bond, the bond will be sold below par value (at a "discount"). If
interest rates have fallen, the price will be sold above par value.
PASS THROUGH SECURITY: A security representing pooled debt obligations, that
passes income from debtors to its shareholders. The most common type is the
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALERS: A designation given by the Federal Reserve System to
commercial banks or broker/dealers who meet specific criteria, including
capital requirements and participation in Treasury auctions.
PROMISSORY NOTES: A document signed by a borrower promising to repay a loan
under agreed-upon terms.
REPURCHASE AGREEMENTS: A hold 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. Deals use RP extensively to finance their positions.
RETURN ON INVESTMENT: ROI. A measure of a corporation's profitability, equal
to a fiscal year's income divided by common stock and preferred stock equity
plus long-term debt. ROI measures how effectively the firm uses its capital
to generate profit; the higher the ROI, the better.
REVERSE REPURCHASE AGREEMENTS: A purchase of securities with an agreement to
resell them at a higher price at a specific future date. This is a way to
borrow money and allow the securities to be held as collateral. Reverse
repos repurchases occur most often in government securities, and often also
in other securities that are highly valued and thus considered a good source
SECURITIES: Investment instruments, other than insurance policies or fixed
annuities, issued by a corporation, government, or other organization which
offers evidence of debt or equity. The official definition, from the
Securities Exchange Act of 1934, is: "Any note, stock, treasury stock, bond,
debenture, certificate of interest or participation in any profit-sharing
agreement or in any oil, gas, or other mineral royalty or lease, any
collateral trust certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust certificate,
certificate of deposit, for a security, any put, call, straddle, option, or
privilege on any security, certificate of deposit, or group or index of
securities (including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or in general, any
instrument commonly known as a 'security'; or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, or
warrant or right to subscribe to or purchase, any of the foregoing; but
shall not include currency or any note, draft, bill of exchange, or banker's
acceptance which has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal thereof the maturity
of which is likewise limited."
SEC: Securities and Exchange Commission – Agency created by Congress to
protect investors in securities transactions by administering securities
SPECIAL PURPOSE CORPORATION: A business interest formed solely in order to
accomplish some specific task or tasks. A business may utilize a special
purpose entity for accounting purposes, but these transactions must still
adhere to certain regulations.
SURETY BOND: A bond issued by an entity on behalf of a second party,
guaranteeing that the second party will fulfill an obligation or series of
obligations to a third party. In the event that the obligations are not met,
the third party will recover its losses via the bond.
TIME DEPOSITS: Savings account or CD held in a financial institution,
usually a bank, for a fixed term or with the understanding that the customer
can withdraw only by giving advanced notice.
TRANSACTIONS: An agreement between a buyer and a seller to exchange an asset
for payment. In accounting, any event or condition recorded in the book of
TRUST: A legal arrangement in which an individual (the trustor) gives
fiduciary control of property to a person or institution (the trustee) for
the benefit of beneficiaries.
TRUSTEE: An individual or organization which holds or manages and invests
assets for the benefit of another. The trustee is legally obliged to make
all trust-related decisions with the trustee's interests in mind, and may be
liable for damages in the event of not doing so. Trustees may be entitled to
a payment for their services, if specified in the trust deed. In the
specific case of the bond market, a trustee administers a bond issue for a
borrower, and ensures that the issuer meets all the terms and conditions
associated with the borrowing.
UNIFORM COMMERCIAL CODE: UCC. Set of laws regulating commercial
transactions, especially ones involving the sale of goods and secured
U.S. TREASURY: The department of the U.S. government that issues Treasury
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.