The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of the Board. These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices.
In accordance with F.S. 218.415, this investment policy applies to all cash and investments held or controlled by the district with the exception of pension monies, trust funds, and monies related to the issuance of debt where there are other existing policies, resolutions or indentures in effect governing the investment of such monies. Monies held by State agencies (e.g. Department of Education) are not subject to the provisions of this policy.
The investment policy shall apply to all funds held or controlled by the Board.
Investment Oversight Committee
The Superintendent shall establish an investment oversight committee whose members shall be comprised of a minimum of six individuals, three of whom shall be Board personnel and three non-Board personnel with relevant financial expertise. The Manager, Cash & Investments shall serve as an ex-officio resource to the investment oversight committee. The committee will meet bi-annually to formulate and review the control procedures and investment performance criteria as set forth in this policy.
The Superintendent or designee is authorized to make transfers from financial institution to financial institution or within a financial institution for the purpose of investing or divesting Board funds. For the purposes of this policy, the term "financial institution" has the same definition of F.S. 280.02(13).
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, is appointed as designee of the Superintendent and is authorized and empowered for and on behalf of the Board to a) conduct investment transactions in accounts at financial institutions as provided under Authorized Investment Institutions and Dealers and b) conduct other banking/financial transactions in financial institutions designated as Qualified Public Depositories under F.S. 280.02(26). Accounts at said institutions shall be established by the two signatures of the Chief Business Officer and the Manager, Accounting Services. The district may employ an investment advisor to assist in managing the district’s cash and investments. Any such investment advisor must be registered under the Investment Advisors Act of 1940. Any such advisor shall serve as a fiduciary.
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, shall have the authority, under the conditions set forth herein, to make individual investment decisions and to direct the third party custodian to act on said decisions, consistent with this policy.
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, shall have the authority, under the conditions set forth herein, to establish services and execute transactions to, from, and between established Board accounts that are consistent with this policy.
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, shall be designated, under the conditions set forth herein, as the custodian of the facsimile signatures of the Superintendent and Chairman of the Board. As custodian, the Manager, Cash & Investments will oversee the creation of any device or mechanism to apply said facsimile signatures to warrants drawn on Board accounts.
Appropriate fidelity bonding will be maintained by the Board to cover the Manager, Cash & Investments, the Chief Business Officer, and other designated staff members who are in any way involved in the movement of Board funds from one financial institution account to another.
The investment objectives of the Board are safety of capital, liquidity of funds, and investment income, in that order.
A. The foremost objective of this investment program is the safety of the principal of those monies within the portfolios. The investments should be structured to provide for the safety of principal and allow the Board to meet its obligations in timely manner.
B. The portfolios shall be managed in such a manner that monies are available to meet reasonably anticipated cash flow requirements in an orderly manner. Periodical cash flow analyses will be completed in order to ensure that the portfolios are positioned to provide sufficient liquidity.
C. The district shall diversify investments whenever possible without negatively affecting the safety of principal and liquidity characteristics. Investment transactions shall seek to keep capital losses at a minimum, whether they are from securities defaults or erosion of market value. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
D. Investment portfolios shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed.
Prudent and Ethical Standards
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, shall adopt and be guided by the "Prudent Person Rule" which states that, "Investments should 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 from the investment." The "Prudent Person Rule" shall be applied in the context of managing Board funds.
While the standard of prudence to be used by District employees in the management of Board funds, is the "Prudent Person" standard, any person or firm hired or retained to invest, monitor, or advise concerning these assets shall be held to the higher standard of "Prudent Expert." This standard shall be that in investing and reinvesting moneys and in acquiring, retaining, managing, and disposing of investments of these funds, the contractor shall exercise: the judgment, care, skill, prudence, and diligence under the circumstances then prevailing, which persons of prudence, discretion, and intelligence, acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims by diversifying the investments of the funds, so as to minimize the risk, considering the probable income as well as the probable safety of their capital.
Ethics and Conflicts of Interest
Employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. Also, employees involved in the investment process shall disclose to the Board any material financial interests in financial institutions that conduct business with the Board, and they shall further disclose any material personal financial/investment positions that could be related to the performance of the Board's investment program.
Maturity and Liquidity Requirements
Investment of Board funds shall be made 1) so as to provide sufficient liquidity to meet the obligations of the Board as they come due and 2) in accordance with the investment objectives listed under Investment Objectives above. The Manager, Cash & Investments will comply with the "Prudent Person Rule" as outlined in Prudent and Ethical Standards above when evaluating investments for addition to the managed investment portfolio, particularly with regard to maturity, liquidity, risk, diversification, security type, and issuer.
For the investment of Operating Funds, and of the extent possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash flow requirements. Investments of current short-term funds shall have maturities of no longer than eighteen (18) months.
Investment of Core Funds, including bond reserves, construction monies, and other non-operating funds, shall have a term appropriate to the need for monies and in accordance with debt covenants, but in no event shall exceed five (5) years.
In the case of monies which are construction proceeds of tax-exempt debt issues, such investments shall be invested in accordance with the requirements of the financing documents and shall not exceed three (3) years.
Competitive Bid Requirement
When appropriate, feasible and practicable, the purchase and sale of investment securities shall be competitively bid. Documentation will be retained for all bids, with the winning bid clearly identified. The competitive bid requirement does not apply to investments authorized under "Authorized Investments" below, or to the purchase of specific investment securities held by a limited number of dealers, or in situations where a competitive bid will not result in a lower price to the District.
Sale of Securities
When the Board invested funds are needed in whole or part for the purposes originally intended or for more optimal investments, the Manager, Cash & Investments may sell such investments at the then prevailing market prices and place the proceeds into the proper Board account or fund.
Authorized Investment Institutions and Dealers
A. Authorized District staff and investment advisors shall only purchase securities (does not apply to investments authorized under "Authorized Investments" above from financial institutions including institutions qualified as public depositories by the Treasurer of the State of Florida, institutions designated as "Primary Securities Dealers" by the Federal Reserve Bank of New York, or such other financial institutions approved by the Superintendent with appropriate subsequent notification to the Board.
B. Authorized District staff and investment advisors shall only enter into repurchase agreements with financial institutions that are State qualified public depositories and primary securities dealers as designated by the Federal Reserve Bank of New York.
All investments shall be made subject to the District’s cash flow needs, such cash flows are subject to revisions as market conditions, and the District's needs change. However, when the invested monies are needed in whole or in part for the purpose originally intended or for more optimal investments, the Superintendent may sell the investment at the then-prevailing market price and place the proceeds into the proper account at the District's custodian.
The Manager, Cash & Investments, under the supervision of the Chief Business Officer shall maintain bank accounts for all funds not otherwise invested. All such bank accounts shall be in banks organized under the laws of Florida and/or in national banks organized under the laws of the United States and doing business in, and situated in, the state of Florida. All such deposits must be in banks designated "Qualified Public Depositories", and must be secured by the Florida Security for Public Deposits Act, Chapter 280 F.S. This policy does not limit the amount of District funds that may be placed in demand deposits with Qualified Public Depositories.
The following are eligible investments and overall allocation and maturity limits for the District, from which the Superintendent shall establish specific allocation limits on security types, issuers, and maturities. The Superintendent shall review such limits periodically and shall have the option to further restrict investment percentages from time to time based on market conditions, risk, and diversification investment strategies. The percentage allocations requirements for investment types and issuers shall be calculated based on the original cost of each investment and the amount of investable funds available at the time investments are entered into. Investments not listed in this policy are prohibited without prior approval by the Board.
A. The Florida State Board of Administration’s; Local Government Surplus Funds Trust Fund ("Florida Prime") or other intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act as provided in section 163.01 F.S. Eligible Pools shall be rated "AAAm" or "AAA" by Standard & Poor's, or the equivalent by another Rating Agency.
Not more that 50% may be invested in any single pool (including Florida Prime), and not more that 50% in all such pools.
B. United States Government Securities: Negotiable direct obligations, or obligations the principal and interest of which are unconditionally guaranteed by the United States Government; including but not limited to Notes, Bills, Bonds, Strips, and State & Local Government Series securities (SLGS).
There shall be no limit on the amount of such investments. The final maturity of such investments shall be no longer than five (5) years from the date of purchase.
C. United States Government Agency Securities: bonds, debentures, notes or callables issued or guaranteed by the United States Governments agencies, provided such obligations are backed by the full faith and credit of the United States Government. Such securities will include, but not be limited to the following:
- United States Export-Import Bank
- Direct obligations or fully guaranteed certificates of beneficial ownership
- Farmer Home Administration
- Certificates of beneficial ownership
- Federal Financing Bank
- Discount notes, notes and bonds
- Federal Housing Administration Debentures
- General Services Administration
- United States Maritime Administration Guaranteed
- Title XI Financing
- New Communities Debentures
- United States Government guaranteed debentures
- United States Public Housing Notes and Bonds
- United States Government guaranteed public housing notes and bonds
- United States Department of Housing and Urban Development
- Project notes and local authority bonds
- Federal Farm Credit Bank (FFCB)
- Federal Home Loan Bank or its district banks (FHLB)
- Federal National Mortgage Association (FNMA)
- Federal Home Loan Mortgage Corporation (Freddie-Mac) including Federal Home Loan Mortgage Corporation participation certificates
- Such securities must constitute pre-refunded obligations escrowed in United States Treasury Securities, or must have long-term debt ratings in one of the three highest rating categories, and Outlooks in the "Positive" or "Stable" categories, by at least one nationally recognized rating agency. Securities with negative credit watch, or with a negative outlook by any rating agency are not eligible for purchase. Short-term ratings, where applicable, must be in the highest short-term rating category by at least one nationally recognized rating agency.
Such investments are limited to not more than 20% overall, and no more than 10% from any one agency. The final maturity of such investments shall be no longer than 5 years from the date of purchase.
Third Party Custodial Agreements
Securities purchased or otherwise acquired by the Board shall be properly designated as an asset of the Board and held in safe-keeping by a third party custodian. Said custodian shall issue trust receipts for all purchases and sales of securities in the Board’s custody account. Securities held in safekeeping shall not be withdrawn, in whole or in part, except by the Manager, Cash & Investments, under the supervision of the Chief Business Officer.
The Board shall execute a third party custodial agreement with a bank or other depository institution for the purpose of:
|A.||Establishing a securities custody account in which securities are deposited and held by the custodian|
|B.||Establishing the custodian as agent for the Board when settling purchases and sales of securities using the delivery versus payment method|
|C.||Empowering the custodian to inspect all securities delivered to the account and to verify the description, negotiability and good delivery form prior to payment|
|D.||Collecting and crediting interest and dividend payments to the Board’s security account due on securities held in the account as of the payable date|
|E.||Acting on the Board’s behalf in the redemption of all matured and called securities and crediting such proceeds in the custody account as received|
|F.||Establishing a mechanism for the wire transfers of temporarily idle funds held in the security account to Board accounts at other financial institutions|
|G.||Establishing a mechanism of transmitting and receiving instructions via the custodian, securities broker, and the Board|
|H.||Establishing the use of trust receipts as documentation for all securities transactions through the Depository Trust Company's Institutional Delivery System, the financial institution's Federal Reserve Account or a designated financial institution which has a correspondent relationship to the Board’s third party custodian|
|I.||Providing the Board a detailed transaction statement indicating all cash entries to the security account, beginning and ending principal balances, and beginning and ending income balances for the period|
|J.||Providing the Board (monthly and upon request) an asset statement indicating description, par value, book and market value of all securities held in the account|
Master Purchase Agreement
The Manager, Cash & Investments, under the supervision of the Chief Business Officer, shall be required to have a fully executed master repurchase agreement from all approved banking institutions and securities dealers' transacting repurchase agreements. All repurchase agreement transactions shall adhere to the requirements of the master repurchase agreement.
The following internal controls shall be implemented to prevent loss of funds from fraud, employee error, and misrepresentation by third parties, or imprudent actions by Board employees.
|A.||Board accounts at financial institutions can only be opened and closed on the signatures of the Chief Business Officer and of the Director, Accounting. The Manager, Cash & Investments is prohibited from opening or closing Board accounts.|
|B.||Transactions in, from and between Board accounts can only be executed by the Manager, Cash & Investments, or designated backup.|
|C.||The Board shall receive two copies of all transaction confirmations and investment account statements. One copy will be sent to the Manager, Cash & Investments and retained in the Cash Management Department files. The second copy will be sent under separate cover to the Chief Business Officer. The Chief Business Officer will review the confirmations and statements, initial them and return them to the Manager, Cash & Investments for retention in the Cash Management Department files.|
|D.||When the Manager, Cash & Investments completes a trade with a broker, the broker will immediately send the trade details to the Manager, Cash & Investments and the Board custodian.|
|E.||On a monthly basis, the staff accountant will reconcile all Board money market accounts and the custodial account, the Manager, Cash & Investments will review the reconciliations and the Chief Business Officer will review and approve them. All three individuals will sign the cover page and the document will be placed in the Cash Management Department files.|
The investment portfolio will be audited annually by the school district’s outside auditor, and by the Florida Auditor General’s office every third year.
The Manager, Cash & Investments shall complete eight hours annually of continuing education classes in subjects or courses of study related to cash management and/or investment practices and products.
In order to assist in the evaluation of the portfolio's performance, the District will use performance benchmarks for short-term and long-term portfolios. The use of benchmarks will allow the District to measure its returns against other investors in the same markets.
The Treasury Indices, SBA LGIP, and Money Fund Index or the weighted average performance of the ten (10) largest prime funds, or other money fund indices (such as government fund indices) as appropriate, will be used as benchmarks as compared to the portfolios' net book value rate of return for current short-term funds.
Investment performance of Funds that have a longer-term investment horizon will be compared to an index comprised of U.S. Treasury, government securities, or corporate securities as appropriate. The appropriate index will have a duration and asset mix that approximates the portfolios and will be utilized as a benchmark to be compared to the portfolios total rate of return.
The investment portfolio's performance shall be reported on a quarterly basis through a set of reports, the contents of which are described below. Said reports shall be presented to the Board at a regularly scheduled Board meeting. Reports shall include the following:
|A.||Asset value and income statement for the current quarter, fiscal year-to-date, and prior fiscal year|
|B.||Notes to value and income statement|
|C.||Period ending portfolio statement inclusive of security type and description, book value, market value, book value versus market value comparison, prepaid and accrued interest to date, and the total value of each security as well as the total value of all securities|
|D.||Management investment program income and rate of return statement for the current quarter, fiscal year-to-date, and prior fiscal year|
|E.||Pro forma income and rate of return statement for the alternative State Board of Administration investment for the current quarter, fiscal year-to-date, and prior fiscal year|
|F.||Any other reports the Board deems necessary, as well as those required by regulatory agencies
Electronic Transfer of Funds
Board funds may be moved into, out of, and between any Board account by electronic means, including Fedwire, ACH, or any other method as may be developed and put into practice by financial institutions for the purposes of transferring money between accounts or between financial institutions. Movement of Board funds by electronic means shall comply with F.S. Chapter 668.
Board funds shall only be electronically transferred for the following reasons:
|A.||Payment of legitimate obligations incurred in the course of Board business|
|B.||Receipt of Board revenue from local, State, and Federal sources|
|C.||Settlement of investment transactions, e.g. purchases, sales, or principal and interest distributions|
|D.||Transfers between Board accounts as needed for legitimate funds management activities|
The Manager, Cash & Investments, or designated backup, will execute electronic transfers of funds through qualified financial institutions as defined in Authority above. The Manager, Cash & Investments shall properly account for such transactions in the Board’s general ledger system.
|1.||Federal wire transfers (Fedwires) between Board accounts can be initiated and approved by the Manager, Cash & Investments.|
|2.||Repetitive templates of Fedwire instructions to non-Board accounts shall be established by a Board employee who is not a member of the Cash Management Department, using software provided by the Board’s financial institution. The Manager, Cash & Investments shall be prohibited from altering such repetitive templates.|
|3.||Fedwires to non-Board accounts can be initiated and approved by the Manager, Cash & Investments, provided repetitive templates, as established in paragraph 2 above are used.|
|1.||Authorized Board vendors will be paid only via ACH Credit transactions. An ACH Credit transaction is where money is sent from a Board account to the Board vendor's appropriate bank account.|
|2.||ACH Debit transactions are prohibited unless the counterparty to the transaction is another governmental entity. An ACH Debit transaction is where money is retrieved from a Board account by the counterparty’s financial institution.|
|3.||Authorized Board vendors to be paid via ACH will be set up to receive such payments in the Board’s vendor system by procurement department personnel.|
|4.||Payment of employee wages via direct deposit will comply with procedures established by the payroll department.|
|C.||Other Electronic Funds Transfer Transaction Types
|Other electronic funds transfer transactions, through either an established method or any method that may be developed in the future are permitted so long as such transactions are structured so that Board funds may not be transferred to non-Board accounts at the sole discretion of the Manager, Cash & Investments. Instructions to transfer funds electronically to non-Board accounts shall be established by a Board employee who is not a member of the Cash Management department. Said instructions can then be used by the Manager, Cash & Investments to execute an electronic transfer of funds.|
GLOSSARY OF CASH AND INVESTMENT MANAGEMENT TERMS
Accrued Interest: Interest earned but which has not yet been paid or received.
Agency: See "Federal Agency Securities."
Ask Price: Price at which a broker/dealer offers to sell a security to an investor. Also known as "offered price."
Asset-Backed Securities (ABS): A fixed-income security backed by notes or receivables against assets other than real estate. Generally, issued by special purpose companies that "own” the assets and issue the ABS. Examples include securities back by auto loans, credit card receivables, home equity loans, manufactured housing loans, farm equipment loans, and aircraft leases.
Average Life: The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding.
Bankers’ Acceptance (BA’s): A draft or bill of exchange drawn and accepted by a bank. Frequently used to finance shipping of international goods. Used as a short-term credit instrument, bankers’ acceptances are traded at a discount from face value as a money market instrument in the secondary market on the basis of the credit quality of the guaranteeing bank.
Basis Point: One hundredth of one percent (0.01). Thus one percent equals 100 basis points.
Bearer Security: A security whose ownership is determined by the holder of the physical security. Typically, there is no registration on the issuer’s books. Title to bearer securities is transferred by delivery of the physical security or certificate. Also known as "physical securities."
Benchmark Bills: In November 1999 Federal National Mortgage Association (FNMA) introduced its Benchmark Bills program, a short-term debt securities issuance program to supplement its existing discount note program. The program includes a schedule of larger, weekly issued in three- and six-month maturities and biweekly issues in the one year for Benchmark Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA conducts a weekly auction for each Benchmark Bill maturity and accepts both competitive and non-competitive bids through a web-based auction system. This program is in addition to the variety of other discount note maturities, with rates posted on a daily basis, which FNMA offers. FNMA’s Benchmark Bills are unsecured general obligations that are issued in book-entry form through the Federal Reserve banks. There are no periodic payments of interest on Benchmark Bills, which are sold at a discount from the principal amount and payable at par at maturity. Issues under the Benchmark program constitute the same credit standing as other FNMA discount notes; they simply add organization and liquidity to the short-term agency discount note market.
Benchmark Notes/Bonds: Benchmark Notes and Bonds are a series of FNMA "bullet" maturities (non-callable issued according to a pre-announced calendar. Under its Benchmark Notes/Bonds program two-, three-, five-, ten-, and thirty-year new issues having a minimum size of $1 billion, with re-openings based on investor demand to building a yield curve in Benchmark Notes and Bonds in maturities ranging from two to thirty years. The liquidity emanating from these large size issues has facilitated favorable financing opportunities through the development of a liquid overnight and term repo market. Issues under the Benchmark program constitute the same credit standing as other FNMA issues; they simply add organization and liquidity to the intermediate- and long-term agency.
Benchmark: A market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance, and duration of the actual portfolio’s investments.
Bid Price: Price at which a broker/dealer offers to purchase a security from an investor.
Bond Market Association (BMA): The bond market trade association represents the largest securities markets in the world. In addition to publishing a Master Repurchase Agreement, widely accepted as the industry standard document for Repurchase Agreements, the BMA also recommends bond market closures and early closes due to holidays.
Bond: Financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash flows, including periodic interest payments, and a principal repayment.
Book Entry Securities: Securities that are recorded in a customer’s account electronically through one of the financial markets electronic delivery and custody systems, such as the Fed Securities wire, DTC, and PTC 9as opposed to bearer or physical securities). The trend is toward a certificate-free society in order to cut down on paperwork and to diminish investors. Concerns about the certificates themselves. The vast majority of securities are now book entry securities.
Book Value: The value at which a debt security is reflected on the holder’s records at any point in time. Book value is also called "amortized cost" as it represents the original cost of an investment adjusted for amortization of premium or accretion of discount. Also called "carrying value." Book value can vary over time as an investment approaches maturity and differs from "market value” in that it is not affected by changes in market interest rates.
Broker/Dealer: A person or firm transacting securities business with customers. A "broker" acts as an agent between buyers and sellers, and receives a commission for these services. A "dealer” buys and sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities, whereas a broker merely matches up buyers and sellers. See also "Primary Dealer."
Bullet Notes/Bonds: Notes or bonds that have a single maturity date and are non-callable.
Call Date: Date at which a call option may be or is exercised.
Call Option: The right, but not the obligation, of an issuer of a security to redeem a security at a specified value and at a specified date or dates prior to its stated maturity date. Most fix-income balls are a par, but can be at any previously established price. Securities issued with a call provision typically carry a higher yield than similar securities issued without a call feature. There are three primary types of calls options:
- European - one-time calls
- Bermudan - periodically on a predetermined schedule (quarterly, semi-annual, annual), and
- American - continuous callable at any time on or after the call date.
- Financial instruments whose return profile is linked to, or derived from the movement of one or more underlying index or security, and may include a leveraging factors, or
- Financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities, or commodities).
Derivative Security: Financial instrument created from, or whose value depends upon one or more underlying assets or indexes of asset values.
Designated Bond: FFCBs regularly issued, liquid, non-callable securities that generally have a two or three year original maturity. New issues of Designated Bonds are $1 billion or larger. Re-openings of existing Designated Bond issues are generally a minimum of $100 million. Designated Bonds are offered through a syndicate of two to six dealers. Twice each month the funding corporation announces its intention to issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a Designated Bond. Issues under the Designated Bond program constitute the same credit standing as other FFCB issues; they simply add organization and liquidity to the intermediate – and long-term agency market.
- Raising or lowering bank reserve requirements,
- Raising or lowering the target Fed Funds Rate and Discount Rate, and
- In open marketing operations by buying and selling government securities.
The Federal Reserve System is made up of 12 Federal Reserve district banks, their branches, and many national and state banks throughout the nation. It is headed by the seven member board of governors known as the "Federal Reserve Board” and headed by its chairman.
Fiduciary: A fiduciary is responsible for managing the assets of another person, or of a group of people. Asset managers, bankers, accountants, executors, board members, and corporate officers can all be considered fiduciaries when entrusted in good faith with the responsibility of managing another party’s assets. Essentially, a fiduciary is a person or organization that owes to another the duties of good faith and trust.
Financial Industry Regulatory Authority, Inc. (FINRA): a private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets. The government also has a regulatory arm for investments, the Securities and Exchange Commission.
Fiscal Agent/Paying Agent: A bank or trust company that acts, under a trust agreement with a corporation or municipality, in the capacity of general treasurer. The agent performs such duties as making coupon payments, paying rents, redeeming bonds, and handling taxes relating to the issuance of bonds.
1. The cost of a control should not exceed, the benefits likely to be derived, and
2. The valuation of costs and benefits requires estimates and judgments by management. Internal controls should address the following points:
a. Control of collusion – Collusion is a situation where two or more employees are working in conjunction to defraud their employer.
b. Separation of transaction authority from accounting and recordkeeping – By separating the person who authorizes or performs the transaction for the people who record or otherwise account for the transaction, a separation of duties is achieved
c. Custodial safekeeping – Securities purchased from any bank or dealer including appropriated collateral (as defined by State law) shall be placed with an independent third party for custodial safekeeping.
d. Avoidance of physical delivery securities – Book-entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and low increases with physically delivered securities.
e. Clear delegation of authority to subordinate staff members – Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities.
f. Written confirmation of transactions for investments and wire transfers – due to the potential for error and improprieties arising from telephone and electronic transactions, all transactions should be supported ty written communications and approved by the appropriate pers. Written communications may be via fax if on letterhead if the safekeeping institution has a list of authorized signatures.
g. Development of a wire transfer agreement with the lead bank and third-party custodian – The designated official should ensure that an agreement will be entered into and will address the following points: controls, security provisions, and responsibilities of each party making and receiving wire transfers
Qualified Public Depository: Per F.S. 280, means any bank, savings bank, or savings association that:
- Is organized and exists under the laws of the United States, the laws of this Sate, or any other sated or territory of the united States;
- as its principal place of business in this State or has a branch office this State, which is authorized under the laws of this State or the United Stated to receive deposits in this State;
- Has deposit insurance under the provision of the Federal Deposit Insurance Act, as amended, 12 U.S.C. Section 1811 seq;
- Meets all requirements of F.S. 280;
Has been designed by the Treasurer as a qualified public depository.
Sinking Fund: A separate accumulation of cash or investments (including earnings on investments) in a fund in accordance with the terms of a trust agreement or indenture, funded by periodic deposits by the issuer (or other entity responsible for debt service), for the purpose of assuring timely availability of moneys for payment of debt service. Usually used in connection with term bonds.
Spread: The difference between the price of a security and similar maturity U. S. Treasury Investments, expressed in percentage terms or basis points. A spread can also be the absolute difference in yield between two securities. The securities can be in different markets or within the same securities market between difference credits, sectors, or other relevant factors.
Standard & Poor’s: One of several NRSROs that provide credit ratings on corporate and municipal debt issues.
STRIPS (Separate Trading of Registered Interest and Principal of Securities): Acronym applied to U. S. Treasury securities that have had their coupons and principal repayments separated into individual zero-coupon Treasury securities. The same technique and "strips” description can be applied to non-Treasury securities (e.g. FNMA strips).
Structured Notes: Notes that have imbedded into their structure options such as step-up coupons or derivative-based returns.
Swap: Trading one asset for another.
TAP Notes: Federal Agency notes issued under the FHLB TAP program. Launched in 6/99 as a refinement to the FHLB bullet bond auction process. In a break from the FHLB’s traditional practice of bringing numerous small issues to market with similar maturities, the TAP Issue Program uses the four most common maturities and reopens them up regularly through a competitive auction. These maturities (two, three, five, and ten-year) will remain open for the calendar quarter, after which they will be closed and a new series of TAP issues will be opened to replace them. This reduces the number of separate bullet bonds issued, but generates enhanced awareness and liquidity in the marketplace through increased issue size and secondary market volume.
Tennessee Valley Authority (TVA): One of the large Federal agencies. A wholly owned corporation of the United States government that was established in 1933 to develop the resources of the Tennessee Valley region in order to strengthen the regional and national economy and the national defense. Power operations are separated from non-power operations. TVA securities represent obligations of TVA, payable solely from TVA’s net power proceeds, and are neither obligations or nor guaranteed by the United States. TVA is currently authorized to issue debt up to $30 billion. Under this authorization, TVA may also obtain advances from the U.S. Treasury of up to $150 million. Frequent issuer of discount notes, agency notes, and callable agency securities.
F.S. 1001.42, 1001.43, 1011.18
Revised - March 7, 2017