[HISTORY: Adopted by the Mayor and Council of the Town of Snow Hill 1-9-1996
by Res. No. 1996-1. Amendments noted where applicable.]
GENERAL REFERENCES
Ethics — See Ch. 16.
The purpose of this statement of investment policy is to establish guidelines
for the safeguarding and efficient management of all short-term investment
balances for the Town of Snow Hill, Maryland. This investment policy applies
to all short-term, operating and reserve funds as accounted for in the town's
audited financial statement as well as any new funds as provided for by ordinance
or resolution. This policy does not cover the financial assets of any retirement
plan(s) the town may participate in.
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 on 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 herein and the cash flow patterns of the town.
A.
Prudence.
(1)
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.
(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 Governmental
Accounting Standards Board (GASB).
B.
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.
C.
Delegation of authority.
(1)
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.
(2)
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:
(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 Director of Finance.
(b)
Procedures should include reference to safekeeping, repurchase
agreements, wire transfer agreements, collateral depository agreements and
banking services agreements.
(c)
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.
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.
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 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.
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 either the SEC or the Treasurer.
E.
Deposits.
(1)
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:
(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 SEC. Not more than 50% 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 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.
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 or trust
or its custodian holds the collateral.
I.
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.
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:
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 Mayor and Council by the Director of Finance.
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.
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.
B.
Transactions in 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. 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%
|
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
(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.
(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 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.
(2)
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.
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 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
record keeping.
(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 1 5C3-1 (uniform net capital rule). The following
is a breakdown of the types of institutions eligible for inclusion on the
approved list:
(1)
Primary government dealers.
(a)
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.
(b)
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 sufficient capital to fulfill its
commitment 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 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.)
(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 appropriate
benchmark, as determined by the Director of Finance or his designated appointee,
on a regular basis, but at least quarterly.
The town's investment policy shall be adopted by the Mayor and
Council, effective January 9, 1996. It shall be the practice of the Mayor
and Council to review the policy on at least twice a year, beginning six months
from the date of adoption of the policy.