Town of Snow Hill, MD Investment Policy and Procedures

In recognition of its fiduciary role in the management of public funds entrusted to its care, it shall be the policy of the Town of Snow Hill 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.

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 Governmental Accounting Standards Board (GASB).

Ethics. Elected officials, 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, elected officials, officers 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, elected officials, officers and investment officials shall attempt to refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf the Town of Snow Hill.

Delegation of authority.

Authority to manage the town's investment program is granted under state law (Article 95 and Title 6 of the State Finance and Procurement Article of the Annotated Code of Maryland) and the Town Charter.

Responsibility of the investment programs is hereby delegated to the Director of Finance and the Treasurer. The Director of Finance is to be appointed on a yearly basis by the Mayor with the approval of the Council. The Director of Finance is to be the Town Manager unless otherwise stated in the minutes of the Mayor and Council at the regular meeting. The Director of Finance and the Treasurer shall establish and maintain written administrative procedures and internal controls for the operation of the investment program, consistent with this investment policy. Such procedures shall include:

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 Director of Finance.

Procedures should include reference to safekeeping, repurchase agreements, wire transfer agreements, collateral depository agreements and banking services agreements.

The Director of Finance and the Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and employees involved in the investment of town funds.

§ 22-4 Allowable investments.

The following investment types and quality levels are approved for use by the town in the investment of public fund. The listed order of investments types does not necessarily indicate the importance of the investment nor the order in which investments are chosen by the Director of Finance.

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.

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.

Repurchase agreements collateralized in an amount not less than 102% of the principal amount of the obligation of the United States or its agencies or instrumentalities if the collateral is held by a custodian other than the seller designated by the buyer.

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 either the SEC or the Treasurer.

Deposits.

Certificates of deposit or other interest-bearing time deposits or savings accounts in any bank in the State of Maryland with an emphasis on banks located in the Town of Snow Hill, provided that such deposits are insured or the bank has collateralized the deposit by:

Depositing a like amount of bonds in escrow covering the deposits; or

Given as security for the deposits any of the following collateral:

[1]

Obligations of or guaranteed by the United States or any of its agencies;

[2]

An obligation of the United States; or

[3]

Obligations of other governmental agencies approved by the State of Maryland as acceptable forms of collateral at that time.

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.

Commercial paper that has received the highest letter and numerical rating by at least one nationally recognized statistical rating organization as designated by the SEC. Not more than 50% of the total funds available for investment may be invested in commercial paper.

Money market mutual funds registered under the Investment Company Act of 1940, operated in accordance with Rule 2A-7 and having the highest possible rating from at least one statistical rating organization designated by the SEC. The management company of the fund must take delivery of the collateral either directly or through an authorized custodian.

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 or trust or its custodian holds the collateral.

Any investment portfolio created under the Maryland Local Government Investment Pool defined under Article 95, § 22G of the Code that is administered by the Office of the State Treasurer.

§ 22-5 Maturity restrictions.

It is recognized that, prior to maturity date, the market value of securities in the town's 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 the State Treasury guidelines are further restricted as follows:

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 Mayor and Council by the Director of Finance.

Unless matched to a specific cash flow, the town will not invest in securities maturing more than three years from the date of purchase.

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.

§ 22-6 Prohibited securities, transactions and activities.

CMO's, inverse floating rate securities, floating rate securities tied to nonmoney market instrument, IO's, PO's Z-tranche securities, residuals and other securities having unusual features are expressly prohibited.

Transactions in options, futures, options on futures, margin buying and commodities are prohibited.

Any other security not specifically authorized in this document is expressly prohibited.

Borrowing funds for the sole purpose of investing is strictly forbidden.

§ 22-7 Diversification.

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. If total balance of cash assets is less than $500,000, no investment in instruments other than interest-bearing accounts and certificates of deposit is authorized. This determination is made on the current budget totals and can be amended by the Mayor and Council. Diversification standards are as follows:

Diversification by Instrument	Maximum Percent of Investable Portfolio
United States government obligations	100%
United States government agencies and instrumentalities	90%
Repurchase agreements (primary dealers only)	90%
Bankers acceptances	50%
Certificates of deposit	100%
Money market mutual funds	50%
Maryland Local Government Investment Pool	50%
Commercial paper	5%

Diversificaiton by Institution/Issuer	Maximum Percent of Investable Portfolio
Primary government dealers (repurchase agreements)	50%
Commercial banks (certificate of deposit)	50%
Money market treasury funds	25%
Bankers acceptances, by institution	25%

§ 22-8 Safekeeping, custody and additional requirements.

Safekeeping and custody.

All security transactions, including collateral for repurchase agreements, entered into by the town shall be conducted on a delivery-versus-payment (DVP) 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.

All repurchase agreements will be governed by a master repurchase agreement signed by the appropriate officials of the town and the primary government dealer.

Collateralization.

Collateralization will be required on the following 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 interest. Collateral will always be held by an independent third party with whom the town has a current custodial agreement.

Acceptable collateral is specified under § 6-202 of Title 6 of the State Finance and Procurement Article of the Annotated Code of Maryland. However, the third party trust custodian has the right to reject otherwise acceptable collateral based on their discretion concerning market conditions.

Internal controls.

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 an outside independent audit company.

The system of internal controls shall address the following points:

Avoidance of collusion by employees.

Separation of transaction authority from accounting and record keeping.

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.

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 1 5C3-1 (uniform net capital rule). The following is a breakdown of the types of institutions eligible for inclusion on the approved list:

Primary government dealers.

The town may purchase all authorized and suitable investments as listed in § 22-4 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.

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.

All dealers must agree to the town's policy of delivery-versus-payment as described in this policy.

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 sufficient capital to fulfill its commitment under adverse market conditions.

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.

Reporting.

A review of all investments and investment results shall be presented by the Finance Director to the Mayor and Council and all other parties as he/she 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.)

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 listing of individual securities held at the end of the reporting period.

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.