For the purpose of this chapter, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
(a) "Agencies." Securities issued for Federal agencies of the government.
(b) "Banker's acceptance (BA)." A draft, bill, or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
(c) "Broker." A broker brings buyers and sellers together for the commission paid by the initiator of the transaction or by both sides. He does not position. In the money market, brokers are active in markets in which banks buy and sell money and in inter-dealer markets.
(d) "Collateral." Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public moneys.
(e) "Certificate of deposit (CD)." A time deposit with a specific maturity evidenced by a certificate. Large denomination CD's are typically negotiable.
(f) "Dealer." A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
(g) "Delivery versus payment." There are two methods of delivery of securities: Delivery versus payment and delivery versus receipt (also called free). Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities.
(h) "Diversification."Dividing investment funds among a variety of securities offering independent returns.
(i) "Federal credit agencies." Agencies of the Federal Government set up to supply credit to various classes of institutions and individuals, e.g., S & L's small business firms, students, farmers, farm cooperatives, and exporters.
(j) "Federal Deposit Insurance Corporation (FDIC)." A Federal agency that insures bank deposits, currently up to $100,000 per deposit.
(k) "Liquidity." A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes.
(l) "Local government investment pool (LGIP)." The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
(m) "Master repurchase agreements." A written contract covering all future transactions between the parties to repurchase - reverse repurchase agreements that established each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower.
(n) "Maturity." The date upon which the principal or stated value of an investment becomes due and payable.
(o) "Portfolio." Collection of securities held by an investor.
(p) "Prudent person rule." An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the state, the so-called legal list. In other states, the trustee may invest in a security, if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital.
(q) "Primary dealer." A group of government securities dealers that submit daily reports of market activity and positions and or monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) registered securities broker-dealers, banks, and a few unregulated firms.
(r) "Rate of return." The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return.
(s) "Qualified public depositories." A financial institution which does not claim exemption from the payment of any sales or exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this State, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits.
(t) "Repurchase agreement (RP or Repo)." A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RPs extensively to finance their positions. Exception: When the Federal Reserve is said to be doing RPs, it is lending money, that is increasing bank reserves.
(u) "Safekeeping." A service to customers rendered by banks for a fee whereby securities and valuables of ail types and descriptions are held in the bank's vaults for protection.
(v) "SEC Rule 15C3-1." See uniform net capital rule.
(w) "Securities & Exchange Commission." Agency created by Congress to protect investors in securities transactions by administering securities legislation.
(x) "Treasury Bills." A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year.
(y) "Treasury Bond." Long-term U. S. Treasury securities having initial maturity's of more than ten years.
(z) "Treasury Investment Board." A board consisting of the Mayor, Law Director, Village Administrator, and Finance Director established to meet and approve potential investments that the Village is considering making.
(aa) "Treasury Notes." Intermediate term coupon bearing U. S. Treasury securities having initial maturity's of one to ten years.
(bb) "Yield." The rate of annual income return on an investment, expressed as a percentage.
(1) "Income yield" is obtained by dividing the current dollar income by the current market price for the security.
(2) "Net yield" or "yield to maturity" is the current income yield minus any premium above par or plus any discount force par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
(cc) "Uniform net capital rule." Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
(Ord. 1418. Passed 5-22-00.)