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(A) Delivery vs. payment. All trades of marketable securities will be executed (cleared and settled) on a delivery vs. payment (DVP) basis to ensure that securities are deposited in the entity's safekeeping institution prior to the release of funds.
(B) Third-party safekeeping. Securities will be held by an independent third-party safekeeping institution selected by the city. All securities will be evidenced by safekeeping receipts in the name of the city. The safekeeping institution shall annually provide a copy of its most recent report on internal controls - Service Organization Control Reports (formerly 70, or SAS 70) prepared in accordance with the Statement on Standards for Attestation Engagements (SSAE) No. 16 (effective June 15, 2011).
(C) Internal controls. Designated officials shall establish a system of internal controls, which shall be documented in writing. Internal controls shall be reviewed by the city’s Investment Advisor and the city’s independent auditor when conducting the city’s annual audit as required by law. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the city.
(Ord. O-1-2024, passed 2-6-24)
(A) Investment types and credit guidelines. The city may invest and reinvest money subject to its control and jurisdiction in:
(1) Obligations of the United States and of its agencies and instrumentalities, including obligations subject to repurchase agreements, if delivery of these obligations subject to repurchase agreements is taken either directly or through an authorized custodian. These investments may be accomplished through repurchase agreements reached with sources including but not limited to national or state banks chartered in Kentucky;
(2) Obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States or a United States government agency, including but not limited to: 1. United States Treasury; 2. Export-Import Bank of the United States; 3. Farmers Home Administration; 4. Government National Mortgage Corporation; and 5. Merchant Marine bonds;
(3) Obligations of any corporation of the United States government, including but not limited to: 1. Federal Home Loan Mortgage Corporation; 2. Federal Farm Credit Banks; 3. Bank for Cooperatives; 4. Federal Intermediate Credit Banks; 5. Federal Land Banks; 6. Federal Home Loan Banks; 7. Federal National Mortgage Association; and 8. Tennessee Valley Authority;
(4) Certificates of deposit or other interest-bearing accounts issued through a bank or savings and loan institution having a physical presence in Kentucky which are insured by the Federal Deposit Insurance Corporation or similar entity or which are collateralized, to the extent uninsured, by any obligations, including surety bonds, permitted by KRS 41.240(4);
(5) Uncollateralized certificates of deposit issued by any bank or savings and loan institution having a physical presence in Kentucky rated in one of the three highest categories by a competent rating agency;
(6) Bankers’ acceptances for banks rated in one of the three highest categories by a competent rating agency;
(7) Commercial paper rated in the highest category by a competent rating agency;
(8) Bonds or certificates of indebtedness of this state and of its agencies and instrumentalities;
(9) Securities issued by a state or local government, or any instrumentality of agency thereof, in the United States, and rated in one of the three highest categories by a competent rating agency;
(10) Shares of mutual funds and exchange traded funds, each of which shall have the following characteristics: 1. The mutual fund shall be an open-end diversified investment company registered under the Federal Investment Company Act of 1940, as amended; 2. The management company of the investment company shall have been in operation for at least five years; and 3. All of the securities in the mutual fund shall be eligible investments pursuant to this section;
(11) Individual equity securities if the funds being invested are managed by a professional investment manager regulated by a federal regulatory agency. The individual equity securities shall be included within the Standard and Poor’s 500 Index, and a single sector shall not exceed 25% of the equity allocation; and
(12) Individual high-quality corporate bonds that are managed by a professional investment manager that: 1. Are issued, assumed, or guaranteed by a solvent institution created and existing under the laws of the United States; 2. Have a standard maturity of no more than ten years; and 3. Are rated in the three highest rating categories by at least two competent credit rating agencies.
(B) Public project/economic development. The designated officials and/or city may provide interest bearing loans for public and private entities where the funds are to be used for the advancement of public purposes and economic development within the city. Such investments shall be fully collateralized by a first mortgage on real estate. The funding shall not exceed 75% of the value of the mortgaged collateral. Funding will only be available to those public and/or private entities who meet minimum financial requirements as may be determined by the designated officials and/or city in their absolute discretion. The designated officials and/or the city may in their absolute discretion establish any and all other regulations relating to a recipient’s qualifications, amounts of loans granted, payment terms, collateralization requirements, and the like.
(C) Collateralization. Where allowed or required by state law full collateralization will be required on all demand deposit accounts, including checking accounts and negotiable (as authorized by respective state statutes) and non-negotiable certificates of deposit. Acceptable collateral for bank deposits and repurchase agreements shall include only:
(1) Obligations of the U.S. government, its agencies and GSEs, including mortgage-backed securities; or
(2) Obligations of any state, city, county or authority rated at least AA by two nationally-recognized statistical rating organizations.
(Ord. O-1-2024, passed 2-6-24)
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. The city shall mitigate credit risk by adopting the following:
(A) The amount of money invested at any time by the city in any one of the categories of investments authorized by subsection (A)(5), (6), (7), (11), and (12) of § 42.08 shall not exceed 20% of the total amount of money invested by the city;
(B) The amount of money invested at any one time by the city in the categories of investments authorized in § 42.08(A)(10), (11), and (12) shall not, aggregately, exceed 40% of the total money invested unless the investment is in a mutual fund consisting solely of the investments authorized under § 42.08(A)(1), (2), (3), (8), or (10) of this section, or any combination thereof;
(C) The city shall purchase any investment authorized by § 42.08(A) on a margin basis or through the use of any similar leveraging technique; and
(D) At the time the investment is made, no more than 5% of the total amount of money invested by the city shall be invested in any one issuer unless:
(1) The issuer is the United States government or an agency or instrumentality of the United States government, or an entity which has its obligations guaranteed by either the United States government or an entity, agency, or instrumentality of the United States government;
(2) The money is invested in a certificate of deposit or other interest-bearing accounts as authorized by § 42.08(A)(4) and (5);
(3) The money is invested in bonds or certificates of indebtedness of this state
and its agencies and instrumentalities as authorized in § 42.08(A)(8); or
(4) The money is invested in securities issued by a state or local government, or any instrumentality or agency thereof, in the United States as authorized in § 42.08(A)(9).
(Ord. O-1-2024, passed 2-6-24)
The designated officials, upon request from City Council, shall file an investment report that summarizes recent market conditions, economic developments and anticipated investment conditions. The report shall summarize the investment strategies employed in the most recent quarter, and describe the portfolio in terms of investment securities, maturities, risk characteristics and other features. The report shall explain the quarter’s total investment return and compare the return with budgetary expectations. The report shall include an appendix that discloses all transactions during the past quarter. The report shall be in compliance with state law and shall be distributed as required by law. Each quarterly report shall indicate any areas of policy concern and suggested or planned revision of investment strategies. Copies shall be transmitted to the independent auditor. Within 40 days of the end of the fiscal year, the designated officials shall present a comprehensive annual report for the City Council on the investment program and investment activity. The annual report shall include both 12-month and quarterly comparisons of return and shall suggest policies and improvements that might be made in the investment program. Alternatively, this report may be included within the annual comprehensive annual financial report.
(Ord. O-1-2024, passed 2-6-24)
(A) Exemption. Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy. Provided, however, the designated officials shall have full authority to terminate any noncompliant investment currently held by the city as they may deem appropriate in their discretion.
(B) Amendments. This policy shall be reviewed on an annual basis. Any changes must be approved by the designated officials and any other appropriate authority, as well as the individuals charged with maintaining internal controls. The designated officials annual report as provided for in § 42.11 herein shall include any recommended changes which the designated officials may deem appropriate.
(Ord. O-1-2024, passed 2-6-24)