[HISTORY: Adopted by the Mayor and Council
of the Town of Rock Hall 10-5-1995 by Res. No. 95-08. Amendments noted where
applicable.]
The purpose of this statement of investment
policy is to establish guidelines for the safeguarding and efficient
management of all short-term investment balances of the Town of Rock
Hall. This investment policy applies to all short-term, operating
and reserve funds as accounted for in the town's Comprehensive Financial
Report as well as any new funds as provided by town ordinance.
The primary investment objectives for all funds
covered by this investment policy shall be, in order of priority,
as follows:
A.
Safety. The safeguarding of principal shall be the
foremost objective of the investment program, and other objectives
shall be subordinated to the attainment of this objective.
B.
Liquidity. The investment portfolio shall be managed
at all times with sufficient liquidity to meet all daily and seasonal
needs, as well as special projects and other operational requirements,
either known or which might be reasonably anticipated.
C.
Return of investment. The investment portfolio shall
be managed with the objective of obtaining no less than a market rate
of return over the course of budgetary and economic cycles, taking
into account the constraints contained here and the cash flow patterns
of the town.
A.
Prudence.
(1)
In recognition of its fiduciary role in the management
of all public funds entrusted to its care, it shall be the policy
of the town that all investment balances be invested with the same
care, skill, prudence and diligence, under circumstances then prevailing,
that a prudent and knowledgeable person would exercise when undertaking
an enterprise of like character and aims, not for speculation, but
for investment, considering the probable safety of the capital as
well as the probable income derived.
(2)
Further, it shall be the policy of the town that all
investments and investment practices meet or exceed all statutes and
guidelines governing the investment of public funds in Maryland, including
the Code of Maryland and guidelines established by the State Treasurer
and the Government Accounting Standards Board (GASB).
B.
Ethics. Officers and employees involved in the investment
process shall refrain from personal business activity that could conflict
with the proper execution and management of the investment program,
or that could impair their ability to make impartial decisions. Employees
and investment officials shall disclose any material interests in
financial institutions with which they conduct business. They shall
further disclose any personal financial/investment positions that
could be related to the performance of the investment portfolio. Employees
and officers shall attempt to refrain from undertaking personal investment
transactions with the same individual with whom business is conducted
on behalf of their entity.
C.
Delegation of authority.
(1)
Authority to manage the town's investment program
is granted under state law (Article 95 of the Annotated Code of Maryland,
and Title 6 of the State Finance and Procurement Article of the Annotated
Code of Maryland) and County Code.
(2)
Responsibility for the operation of the investment
program is hereby delegated to the Mayor and Council, who shall establish
and maintain written administrative procedures and internal controls
for the operation of the investment program, consistent with this
investment policy. Such procedure shall include:
(a)
Explicit delegation of authority to persons
responsible for investment transactions. No person may engage in an
investment transaction except as provided under the terms of this
policy and the procedures established by the Mayor and Council.
(b)
Procedures should include reference to safekeeping,
repurchase agreements, wire transfer agreements, collateral depository
agreements and banking services agreements.
(c)
The Director of Finance shall be responsible
for all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate officials involved in investment
of county funds.
The following investment types and quality levels
are approved for use by the town in the investment of public funds:
A.
Obligations for which the United States has pledged
its faith and credit, including United States Treasury bills, notes,
bonds and other direct obligations of the United States government.
B.
Obligations that a federal agency or a federal instrumentality
has issued in accordance with an act of Congress, including but not
limited to the Federal Farm Credit Bank, Federal Home Loan Bank, Federal
National Mortgage Association, Government National Mortgage Association,
Federal Home Loan Mortgage Corporation and Student Loan Marketing
Association.
C.
Repurchase Agreements collateralized in an amount
not less than 102% of the principal amount by an obligation of the
United States of its agencies or instrumentalities if the collateral
is held by a custodian other than the seller designated by the buyer.
D.
Banker's acceptances guaranteed by a financial institution
with a short-term debt rating in the highest letter and numerical
rating by at least one nationally recognized statistical rating organization
as designated by the Securities and Exchange Commission.
E.
Certificates of deposit.
(1)
Certificates of deposit or other interest-bearing
time deposits or savings accounts in any bank in the State of Maryland
or savings and loan association or building and loan association,
provided that such deposits are insured or the bank or association
has collateralized the deposit by:
(2)
Commercial banks must have a short-term rating of
at least investment grade from the appropriate bank rating agency.
All banks shall provide their most recent consolidated report of condition
at the request of the town.
F.
Commercial paper that has received the highest letter
and numerical rating by at least one nationally recognized statistical
rating organization as designated by the Securities and Exchange Commission.
Not more than 5% of the total funds available for investment may be
invested in commercial paper.
G.
Money market mutual funds registered under the Investment
Company Act of 1940, operated in accordance with Rule A-7 and having
the highest possible rating from at least one statistical rating organization
designated by the Securities and Exchange Commission. The management
company of the fund must take delivery of the collateral either directly
or through an authorized custodian.
H.
An obligation or security of, or other interest in,
any open-end or closed-end management-type investment company or investment
trust registered under the Investment Company Act of 1940, if the
portfolio thereof is limited to direct obligations of the United States
government and repurchase agreements fully collateralized thereby
and the investment company of trust or its custodian holds the collateral.
It is recognized that, prior to maturity date,
the market value of securities in the town portfolio may fluctuate
due to changes in market conditions. In view of this and the town's
primary investment objectives of preservation of principal and liquidity,
every effort shall be made to manage investment maturities so that
they precede or coincide with the expected need for funds. Accordingly,
the requirements established by the Code of Maryland and State Treasury
guidelines are further restricted as follows:
A.
Funds shall be invested at all times in keeping with
the daily and seasonal pattern of the town's cash balances, as well
as any other special factors or needs, in order to assure the availability
of funds on a timely and liquid basis. Cash flow projections will
be monitored and updated on an ongoing basis by the town and communicated
regularly to the investment manager(s). On a periodic basis, the town
will determine, based on cash flow projections, what the appropriate
average weighted maturity of the portfolio should be.
[Amended 3-8-2001 by Ord. No. 2001-01]
B.
Unless matched to a specific cash flow, the town will
not invest in securities maturing more than three years from the date
of purchase.
C.
Reserve funds may be invested in securities exceeding
three years if the maturity of such instruments are made to precede
or coincide with the expected need for funds, and only with the prior
approval of the Mayor and Council.
A.
CEO's, inverse-floating-rate securities, floating-rate
securities tied to a non-money-market instrument, IO's, PO's, Z-tranche
securities, residuals and other securities having unusual features
are expressly prohibited.
B.
Transactions of options, futures, options on futures,
margin buying and commodities are prohibited.
C.
Any other security not specifically authorized in
this document is expressly prohibited.
D.
Borrowing funds for the sole purpose of investing
is strictly forbidden.
The town will diversify its holdings by security
type and institution to avoid incurring unreasonable risks due to
excessive concentration in specific instruments, financial institutions
or issuers. Diversification standards are as follows:
Diversification of Instrument
|
Maximum Percent of Investment Portfolio
|
---|---|
United States government obligations
|
100%
|
United States government agencies and instrumentalities
|
50%
|
Repurchase agreements (primary dealers only)
|
70%
|
Bankers acceptances
|
40%
|
Certificates of deposit
|
50%
|
Money market mutual funds
|
70%
|
Maryland local government investment pool
|
50%
|
Commercial paper
|
5%
|
Primary government dealers (repurchase agreements)
|
50%
|
Commercial banks (certificates of deposit)
|
25%
|
Money market treasury funds
|
25%
|
Bankers acceptances, by institution
|
25%
|
A.
Safekeeping and custody.
(1)
All security transactions, including collateral for
repurchase agreements, entered into by the town shall be conducted
on a delivery-versus-payment (DIP) basis. Securities will be held
by the town or by the town's designated custodian. If held by a custodian,
the securities must be in the town's name or in the custodian's nominee
name and identifiable on the custodian's books as belonging to the
town. Further, if held by a custodian, the custodian must be a third
party, not a counterparty (buyer or seller) to the transaction. This
requirement does not apply to excess checking account funds invested
overnight in a bank "sweep" repurchase agreement or similar vehicle.
(2)
All repurchase agreements will be governed by a Master
Repurchase Agreement signed by the appropriate officials of the town
and the primary government dealer.
B.
Collateralization.
(1)
Collateralization will be required on two types of
investments: certificates of deposit and repurchase (and reverse)
agreements. In order to anticipate market changes and provide a level
of security for all funds, the collateralization level will be at
least 102% of market value of principal and accrued interest. Collateral
will always be held by an independent third party with whom the town
has a current custodial agreement.
(2)
Acceptable collateral is specified under Title 6 of
the State Finance and Procurement Article of the Annotated Code of
Maryland, § 6-202. However, the third party trust custodian
has the right to reject otherwise acceptable collateral based on its
discretion concerning market conditions.
C.
Internal controls.
(1)
The town shall establish a system of internal controls,
which shall be documented in writing and reviewed with auditors. The
controls shall be designed to prevent losses of public funds arising
from fraud, employee error, misrepresentation by third parties, unanticipated
changes in financial markets or imprudent actions by employees and
investment officers of the town. An audit of the internal controls
of the investment operation is part of the annual financial audit
conducted by the town or an outside independent audit company.
(2)
The system of internal controls shall address the
following points:
(a)
Avoidance of collusion by employees.
(b)
Separation of transaction authority from accounting
and recordkeeping.
(c)
Avoidance of physical delivery of securities
wherever possible.
(d)
Clear delegation of authority to subordinate
staff members.
(e)
Written confirmation/communication of telephone
transactions for investments and wire transfers.
(f)
Development of a wire transfer agreement with
lead bank or third-party custodian.
D.
Authorized financial dealers and institution. The
town shall maintain a listing of financial institutions which are
approved for investment purposes. In addition, a list will also be
maintained of approved security broker/dealers selected by creditworthiness,
with a minimum capital requirement of $1,000,000 and at least five
years of operation. These may include primary dealers or regional
dealers that qualify under Securities and Exchange Commission Rule
l 5C3-1 (uniform net capital rule). The following is a breakdown of
the types of institutions eligible for inclusion on an approved list:
(1)
Primary government dealers. The town may purchase all authorized and suitable investments as listed in § 20-4 of this policy, except for certificates of deposit, from primary government dealers. All repurchase agreements entered into by the town will be with primary government dealers with the exception of those executed with the town's depository bank.
(2)
Other security dealers. The town may purchase United
States government securities, United States government agency securities
and bankers' acceptances from dealers other than primary government
dealers and from dealer banks which market these securities.
(a)
All dealers must agree to the town's policy
of delivery-versus-payment as described in this policy.
(b)
The firm must provide copies of its audited
financial statements, which are reviewed carefully to assure that
the firm is on sound financial footing. The firm must also have adequate
capital to fulfill its commitments under adverse market conditions.
(c)
The firm must be registered in the State of
Maryland with a record of responsible business practices and professional
integrity. The dealer must also provide adequate research facilities
and market-related information.
(d)
The town will deal only through knowledgeable
and experienced sales individuals. To meet this criterion, the firm
will send resume information on the salesperson with whom the town
will be dealing. The firm will also send a list of other governments
that buy and sell securities through their firm in order for the town
to obtain references.
(e)
All dealers, including primary government dealers,
are required to send the town an annual report on a yearly basis.
E.
Reporting.
(1)
A review of all investments and investment results
shall be presented by the investment manager(s) to the Mayor and Council,
or such parties as they may designate, on a quarterly basis or as
required. Said report shall include a succinct management summary
and provide a clear picture of the status of the current investment
portfolio and transactions made over the last quarter. The summary
will include a statement of the market value of the portfolio and
each security (marked to market).
(2)
The management summary will be prepared in a manner
which will allow the town to ascertain whether investment activities
during the reporting period have conformed to the investment policy.
The report will include the following:
(a)
A listing of individual securities held at the
end of the reporting period.
(b)
Unrealized gains or losses resulting from appreciation
or depreciation by listing the cost and market value of securities
over one year duration that are not intended to be held until maturity.
(c)
Average weighted yield to maturity of portfolio
on entity investments as compared to applicable benchmarks.
(d)
Listing of investment by maturity date.
(e)
The percentage of the total portfolio which
each type of investment represents.
F.
Performance standards. The portfolio should obtain
at least a market average rate of return during a market/economic
environment of stable interest rates. Portfolio performance should
be compared to an appropriate benchmark, as determined by the Mayor
and Council or their designated appointee, on a regular basis, but
at least quarterly.
The town's investment policy shall be adopted
by the Mayor and Council effective October 5, 1995. It shall be the
practice of the Mayor and Council to review the policy on at least
an annual basis, beginning one year from the date of adoption of this
policy.