(a) Definitions. As used in this section the following words and terms shall have the meanings respectively ascribed to them:
(1) “Broker”. A broker brings buyers and sellers together, for a commission.
(2) “Certificate of Deposit” means a time deposit with a specific maturity evidenced by a certificate. Large denominations are negotiable.
(3) “Collateral” means 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 monies.
(4) “Dealer”. A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his or her own account.
(5) “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 the delivery of securities with an exchange of money for the securities. Delivery versus receipt is the delivery of securities with an exchange of a signed receipt for the securities.
(6) “Diversification” means dividing the investment funds among a variety of securities offering independent returns.
(7) “Federal Credit Agencies” means 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.
(8) “Federal Deposit Insurance Corporation (FDIC)” means a Federal agency that insures bank deposits, currently up to one hundred thousand dollars ($100,000) per deposit.
(9) “Federal Reserve System” means the central bank of the United States created by Congress and consisting of a seven-member Board of Governors in Washington, D.C., twelve regional banks and about 5,700 commercial banks that are members of the system.
(10) “Liquidity” means a liquid asset 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 ask prices is narrow and a reasonable size can be done at those quotes.
(11) “Local Government Investment Pool” means the aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
(12) “Master Repurchase Agreement” means a written contract covering all future transactions between parties to repurchase reverse repurchase agreements that establish 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.
(13) “Maturity” means the date upon which the principal or-stated value of an investment becomes due and payable.
(14) “Portfolio” means a collection of securities held by an investor.
(15) “Primary Dealer” means a group of government securities dealers that submits daily reports of market activity and positions and 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 brokers/dealers, banks and a few unregulated firms.
(16) “Prudent Person Rule” means 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.
(17) “Qualified Public Depositories” means a financial institution which does not claim 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.
(18) “Rate of Return” means 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.
(19) “Repurchase Agreement (RP or REPO)” means 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 or her for this. Dealers use RP extensively to finance their positions. Exception: When the Federal Reserve Bank is said to be doing RP, it is lending money, that is, increasing bank reserves.
(20) “Safekeeping” means a service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection.
(21) “Sec Rule 15c3-1" : See Uniform Net Capital Rule.
(22) “Securities and Exchange Commission” means an agency created by Congress to protect investors in securities transactions by administering securities legislation.
(23) “Treasury Bills” means 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.
(24) “Treasury Bonds” means long-term U.S. Treasury securities having initial maturities of more than ten years.
(25) “Treasury Investment Board” means a board consisting of the Mayor, the Clerk-Treasurer and the Solicitor, established to meet and review investments that the Village is making.
(26) “Treasury Notes” means intermediate term coupon-bearing U.S. Treasury, securities having initial maturities of one to ten years.
(27) “Uniform Net Capital Rule” means Securities and Exchange Commission requirement that member firms as well as nonmember brokers/dealers in securities maintain a maximum ratio of indebtedness to liquid capital of fifteen to one; 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, which is one reason that new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
(28) “Yield” means the rate of annual income return on an investment, expressed as a percentage.
A. “Income Yield” is obtained by dividing the current dollar income by the current market price for a security.
B. “Net Yield” or “Yield to Maturity” is the current income yield minus any premium above par or plus any discount from par in the purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
(b) Policy. It is the policy of the Village of North Kingsville to invest all funds in a manner which will provide the highest return on investments with the maximum security while meeting the daily cash flow demand of the Village of North Kingsville and conforming to all State of Ohio and Village of North Kingsville statutes governing the investment of public funds.
(c) Scope. This investment policy applies to all the investment activities of the General Fund, all Special Revenue Funds, the Capital Project Fund, the Enterprise Fund and Special Assessment Funds of the Village of North Kingsville.
(d) Prudence. Investments shall 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.
The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriated action is taken to control adverse developments.
(e) Objective. The Village of North Kingsville's investment objectives are to insure that the investment of funds is accomplished in a safe and secure manner by investing these funds in accordance with all State of Ohio and Village of North Kingsville laws, maintaining sufficient liquidity to meet all cash flow needs and receiving the best rate of return.
(f) Delegation of Authority. The Village of North Kingsville, as a statutory municipality, derives its investment objectives from Ohio R.C. Chapter 135 and related sections of Ohio R.C. Chapter 733.
The Clerk-Treasurer reviews the cash position and determines the best possible investments and when they shall be made. The Clerk-Treasurer has total responsibility for the investment portfolio. No other person may engage in an investment transaction, except under terms of this policy.
(g) Conflict of Interest. The Clerk-Treasurer shall refrain from any personal business activity which could conflict with the proper execution of the investment program of the Village of North Kingsville.
The Clerk-Treasurer must disclose personal investments that could be affected by investment decisions made for the Village of North Kingsville.
(h) Authorized Financial Institutions and Dealers. The institution must be a bank or savings and loan association within the State of Ohio. The institution must be insured by the Federal Deposit Insurance Corporation.
Security dealers/brokers will be selected by credit worthiness from among those who are authorized to provide investment services in the State of Ohio. These may include primary dealers or regional dealers who qualify under Securities and Exchange Commission Rule 15c-1 (Uniform Net Capital Rule). No public deposits may be made except in a qualified public depository as established by the State of Ohio.
All financial institutions and brokers/dealers who desire to become qualified bidders for investment transactions must supply the Clerk-Treasurer with the following: audited financial statements, proof of National Association of Security Dealers certification, State of Ohio registration, a completed broker/dealer questionnaire, certification of having read the Village of North Kingsville investment policy and depository contracts.
An annual review of the financial condition and registration of qualified bidders will be conducted by the Clerk-Treasurer. A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the Village of North Kingsville invests.
(i) Authorized and Suitable Investments. The Village of North Kingsville is empowered by the State of Ohio to invest in the following types of securities:
(1) U.S. Treasury bills, notes, bonds or any other obligations guaranteed by the United States. (No stripped principal or interest obligations of such eligible obligations.)
(2) Bonds, notes, debentures or any other obligations or securities issued by any Federal government agency or instrumentality.
(3) Repurchase agreements with institutions that have signed a written master repurchase agreement which is on file in the Clerk-Treasurer's office and are eligible investments under State of Ohio statutes.
(4) Shares of the State Treasury Asset Reserve of Ohio (STAR Ohio).
All investments must mature within five years from date of settlement, unless the investment is matched to a specific obligation or debt.
(j) Collateralization. Certificates of Deposit (Time Deposits) must be backed by a collateral with a market value of at least 110 percent, less FDIC. The collateral for certificates of deposit may be held in a pool of securities as defined in Ohio R.C. 135.181.
The market value of securities subject held as collateral for an overnight repurchase agreement must exceed the principal value by at least two percent and the securities must be marked to market daily.
(k) Safekeeping and Custody. All security repurchase agreements by eligible security dealers must be transacted on a delivery versus payment basis. Securities will be held by a third party custodian designated by the Clerk-Treasurer and evidenced by safekeeping receipts.
According to Ohio S.B. 81, any repurchase agreement by an eligible institution does not require a delivery versus payment basis transaction.
(l) Diversification. The Village of North Kingsville will diversify its investments by security type and institution. With the exception of United States Treasury securities and authorized pools, no more than thirty percent of the Village of North Kingsville's total investment portfolio will be invested in a single security type or with a single financial institution.
(m) Maximum Maturities. Security purchases and holdings will be maintained within the statutory limits of the Ohio Revised Code. To the extent possible, the Village of North Kingsville will attempt to match its investments with anticipated cash flows required. Unless matched to a specific cash flow, the Village of North Kingsville will not directly invest in securities maturing more than two years from the date of purchase.
(n) Internal Controls. The Clerk-Treasurer is the only person able to invest. The Treasury Investment Board will review all investments at its semi-annual meetings.
The Auditor of State performs an audit, or allows the Village to hire an outside firm to do an audit, every two years.
(o) Performance Standards. An objective for the Village of North Kingsville's investment portfolio shall be to obtain a rate of return throughout budgetary and economic cycles commensurate with the portfolio's weighted average maturity composition. The benchmark used by the Clerk-Treasurer to determine what target yields are being met shall be the moving average of interest rates paid for the U.S. Treasury obligation most closely matching the portfolio's weighted average maturity, as reported in the monthly Federal Reserve Bulletin (Sch.H15).
(p) Reporting. The Clerk-Treasurer shall provide to Council a quarterly investment report which includes the following:
(1) A listing of individual securities held at the end of the reporting period by authorized investment category;
(2) The average life and final maturity of all investments held;
(3) The coupon, discount and earnings rate;
(4) The par value, amortized book value and market value; and
(5) The percentage of the portfolio represented by each investment category.
(q) Adoption; Annual Review by Council. The Village of North Kingsville's investment policy shall be adopted by Council of the Village of North Kingsville. The policy shall be reviewed annually by the Finance Committee and any modifications made must be approved by the Council of the Village of North Kingsville.
(Ord. O-96-051. Passed 1-6-97.)