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Town of Rock Hall, MD
Kent County
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Table of Contents
Table of Contents
[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.]
GENERAL REFERENCES
Ethics — See Ch. 15.
Retirement plan — See Ch. 49.
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:
(a) 
Depositing a like amount of bonds in escrow covering the deposits; or
(b) 
Giving, as security for the deposits, any of the following collateral:
[1] 
An obligation of or guaranteed by the United States or any of its agencies; or
[2] 
An obligation insured by the United States.
(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.
I. 
Any investment portfolio created under the Maryland Local Government Investment Pool defined under Article 95, Subsection G, of the Code that is administered by the Office of the State Treasurer.
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.