(a) Policy. It is the policy of the City to invest public funds in a manner which will provide a market rate of return throughout budgetary and economic cycles taking into account the safety and liquidity objectives of the City and conforming to applicable state and local statues governing the investment of public funds.
(b) Scope. This investment policy applies to all financial assets of the City. Funds available for investment include all funds of the City as accounted for in the City's Comprehensive Annual Financial Report. The Director of Finance is authorized to pool cash balances from the several different funds of the City for investment purposes. The interest earned from investments will be credited to the fund proportionate to the amount invested.
(c) Prudence.
(1) The standard of prudence to be used by the Director of Finance in the context of managing the overall portfolio shall be the prudent investor rule, which states “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.”
(2) The Director of Finance and staff, acting in accordance with written procedures and exercising due diligence, shall not be held personally responsible for a specific security's credit risk or market price changes, provided that these deviations are reported as soon as practical and that appropriate action is taken to control adverse developments.
(d) Objectives. The primary objectives, in order of priority, of the City's investment activities shall be:
(1) Safety. Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To attain this objective, the City will diversify its investments by investing funds among a variety of individual securities and financial institutions.
(2) Liquidity. The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements, which might be reasonably anticipated.
(3) Return on investments. The City's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the cash flow characteristics of the portfolio.
(e) Delegation of Authority.
(1) Authority to manage the City's investment program is delegated to the Director of Finance per the City Charter. The Director of Finance shall establish written procedures for the operation of the investment program consistent with this investment policy. Such procedures shall include 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. The Director of Finance shall be responsible for all transactions undertaken and shall establish a system of controls to regulate activities of subordinate staff members.
(2) The City may retain the services of an investment advisor, provided the advisor is licensed by the Division of Securities under Ohio R.C. 1707.141 or is registered with the Securities and Exchange Commission, and possesses experience in public funds investment management, specifically in the area of State and local government investment portfolios, or the advisor is an eligible institution mentioned in Ohio R.C. 135.03.
(f) Ethics and Conflicts of Interest. The Director of Finance and any other employee of the City who is 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. The Director of Finance and any other employee of the City who is involved in the investment process shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the City, and she (he) shall further disclose any personal financial investment positions that could be related to the performance of the City's portfolio. The Director of Finance and any other employee of the City who is involved in the investment process shall subordinate her (his) personal investment transactions to those of the City, particularly with regard to the time of purchases and sales and shall refrain from undertaking personal investment transactions with the same individual with whom business in conducted on behalf of the City.
(g) Authorized Financial Institutions and Dealers.
(1) The Director of Finance shall maintain a list of financial institutions authorized to provide investment services. In addition, a list of approved security broker/dealers which may include “Primary Dealers” or “Regional Dealers” that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform capital rule) will be maintained. No public deposit shall be made except in a qualified public depository as designated by the City.
(2) All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must provide:
A. Certification of having read the City's investment policy. Their signature will be required indicating they have received, read, understand, and will abide by its contents when recommending or selling investments to the City.
(h) Authorized Investments. The Director of Finance may invest on behalf of and in the name of the City in eligible securities and deposits, which are defined in Ohio R.C. Chapter 135 as amended. Eligible investments include but are not limited to:
(1) U.S. government securities. Bills, notes, bonds, debentures, or any other obligations or securities issued by the U.S. Treasury or any other obligation guaranteed as to principal and interest by the United States.
(2) U.S. agency or instrumentality securities. Bonds, notes, debentures, or any other obligations or securities issued by any Federal government agency or instrumentality, including but not limited to the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA). All Federal agency securities shall be direct issuances of Federal government agencies or instrumentalities. Investments in derivatives and in stripped principal or interest obligations of eligible obligations are strictly prohibited.
(3) Time certificates of deposit, savings accounts, and deposit accounts. Interest-bearing time certificates of deposit, savings accounts, and deposit accounts of any eligible public depository as defined by the Ohio Revised Code, provided that any such deposits and savings accounts are properly insured or secured by collateral as prescribed in division (j) of this Investment Policy or such certificate of deposit is exempt from pledging requirements as permitted under Ohio R.C. 135.144 (commonly referred to as the CDARS program).
(4) Repurchase agreements (repo's). Before transacting a repurchase agreement with a particular broker/dealer or eligible institution, a Master Repurchase Agreement must be entered into between the City and such broker or eligible institution. The term of a repurchase agreement may not exceed 30 days. Each Master Repurchase Agreement will provide for:
A. Collateralization of each repurchase agreement in accordance with the Ohio Revised Code. The market value of the collateral shall not be less than 102% of the principal amount of each repurchase agreement and the collateral shall be marked to market daily.
(5) State government securities. Bonds and other obligations of the State of Ohio.
(6) Investment pools. The State of Ohio investment pool, otherwise known as STAR Ohio and as defined in Ohio R.C. 134.45(E)(2), is the only authorized investment pool.
(7) No-load money market mutual funds. No-load money market mutual funds consisting exclusively of obligations described in divisions (h)(1) and (2) above and repurchase agreements secured by such obligations, provided that investments in no-load money market mutual funds are made only through financial institutions eligible for deposit as authorized by Ohio R.C. 135.03.
(8) Commercial paper. Notes issued by any entity that is defined in Ohio R.C. 1705.01(D) and has assets exceeding five hundred million dollars($500,000,000) and all other limitations imposed by Ohio R.C. 135.14(7)(a). The maturity of the notes is limited to 270 days after purchase.
(9) Bankers acceptances. Bankers acceptances of banks that are members of the federal deposit insurance corporation to which obligations both of the following apply:
A. The obligations are eligible for purchase by the Federal reserve system;
B. The obligations mature no later than 180 days after purchase.
(i) Competitive Offers and Bids. All transactions will be completed on a competitive basis, whenever possible, with offerings and bids being solicited and recorded from three dealers. The purpose of soliciting competitive offers and bids is to ensure that a market rate is obtained by placing Authorized Financial Dealers and Institutions in competition with one another. The right is reserved to reject any offer or bid yielding the highest return on any investment if inconsistent with the City's investment strategy or objectives. The Director of Finance will award transactions at his/her discretion.
(j) Safekeeping and Collateralization.
(1) If practical, investment securities purchased by the City will be delivered by either book entry or physical delivery, and held by a third party custodian, designated by the Director of Finance and evidenced by safekeeping receipts. In lieu of a third party custodian, securities may be safekept with the dealer or bank from whom the purchase is made. The custodian shall issue a safekeeping receipt to the City listing the specific instrument, rate, maturity and other pertinent information.
(2) Collateral will be required on two types of investments: certificates of deposit and repurchase agreements. The collateralization level will be as defined by the Ohio Revised Code. Collateral is limited to eligible securities defined in Ohio R.C. 135.18 and 135.181. Each financial institution with which the City has deposits shall provide a quarterly statement reflecting the securities pledged including the market value of such securities.
(k) Diversification. The Director of Finance will diversify the portfolio to avoid incurring unreasonable risks. In accordance with the Ohio Revised Code, commercial paper and bankers acceptances are limited to a maximum of 25% of the portfolio. No transaction needs to be executed when a maturity in the portfolio causes the percentage to exceed the limit set forth above. Subsequent investment transactions will work toward returning to compliance.
(l) Maturity. To the extent possible, the Director of Finance will attempt to match the term to maturity of individual investments with anticipated cash flow requirements. Maturities will normally be spread over a two-year range. The maximum maturity is five years, except commercial paper and bankers acceptances which will be limited to 180 days.
(m) Internal Control and Continuing Education.
(1) The Director of Finance is responsible for establishing and maintaining an internal control structure designed to reasonably ensure that the assets of the entity are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgments by management.
(2) Compliance with policies and procedures will be independently reviewed during required audits by or on behalf of the Auditor of the State of Ohio. This review will provide internal control by assuring compliance with policies and procedures.
(3) The Finance Director will annually complete the continuing education programs provided by the Treasurer of State of Ohio. Furthermore, no investment shall be made in commercial paper or bankers acceptances unless the Finance Director has completed the additional training approved by the Auditor of the State of Ohio.
(n) Performance Standards. The investment portfolio will be designed to obtain a market rate of return throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the cash flow characteristics of the portfolio. The City's investment strategy is passive. Given this strategy, the benchmark used by the Director of Finance to determine whether market yields are being achieved shall be the rolling average of the six-month U.S. Treasury bill.
(o) Reporting. The Director of Finance is charged with the responsibility of providing reports on investment activity and returns on the pooled balance of funds. These reports will be prepared on a monthly basis and submitted to City Council. The reports will provide a clear picture of the status of the current investment portfolio and should include the following:
(1) A listing of individual securities held at the end of the reporting period by authorized investment category.
(2) Percentage of the portfolio represented by each investment category.
(p) Investment Policy Adoption. The City's investment policy shall be adopted by ordinance and modifications must be approved by City Council. A copy of the approved investment policy shall be filed with the Auditor of State.
(q) Glossary.
(1) “Agencies.” Federal agency securities and/or Government-sponsored enterprises or instrumentalities.
(2) “Asked.” The price at which securities are offered.
(3) “Bankers' acceptance (BA).” A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
(4) “Benchmark.” A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration or maturity of the portfolio's investments.
(5) “Bid.” The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer.
(6) “Broker.” A broker brings buyers and sellers together for a commission.
(7) “CDARs.” Certificate of Deposit Account Registry program allows CD depositors with balances of up to fifty million dollars ($50,000,000) to have their entire balances insured by the FDIC. CDARS is run through the Promontory Interfinancial Network, which is led by a former comptroller of the currency, a former Federal Reserve vice chairman and other leading figures in the industry. The Bank of New York Mellon provides the administrative web that supports CDARS, such as issuance, custody, settlement and record keeping.
(8) “Certificate of Deposit (CD).” A time deposit with a specific maturity evidenced by a certificate.
(9) “Collateral.” Securities pledged by a bank to secure deposits of public monies.
(10) “Commercial paper.” An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory. Maturities typically range from overnight to 270 days. Commercial paper is available in a wide range of denominations, can be either discounted or interest-bearing, and usually has a limited or nonexistent secondary market.
(11) “Comprehensive Annual Financial Report (CAFR).” The official annual report for the City. It includes combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a details statistical section.
(12) “Coupon.” The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value.
(13) “Dealer.” A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
(14) “Debenture.” A bond secured only by the general credit of the issuer.
(15) “Delivery versus payment.” Delivery of securities in exchange for money.
(16) “Derivatives.”
A. 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 factor; or
B. Financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities).
(17) “Discount.” The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount.
(18) “Discount securities.” Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills.
(19) “Diversification.” Dividing investment funds among a variety of securities offering independent returns.
(20) “Federal credit agencies.” Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&Ls, small business firms, students, farmers, farm cooperatives, and exporters.
(21) “Federal Deposit Insurance Corporation (FDIC).” A Federal agency that insures bank deposits, currently up to two hundred fifty thousand dollars ($250,000) per deposit.
(22) “Federal Farm Credit Bank (FFCB).” The Farm Credit System is a nationwide network of borrower-owned lending institutions and affiliated service entities that lends to agricultural and rural America. The System is the oldest government-sponsored enterprise (GSE) created when Congress established authority for certain predecessor entities in 1916. For more than 90 years, the mission of the System has been to provide sound and dependable credit for agricultural producers, cooperatives, and certain farm-related businesses. The Farm Credit System's debt issuance programs (FFCB) provide the System banks with a variety of funding tools designed to effectively fund their loans to farmers, ranchers and agricultural cooperatives. In addition, the programs are designed to meet the demands of the market.
(23) “Federal funds rate.” The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations.
(24) “Federal Home Loan Banks (FHLB).” Government sponsored wholesale banks (currently 12 regional banks), which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district bank.
(25) “Federal Home Loan Mortgage Corporation (FHLMC).” A private stockholder-owned corporation chartered by Congress in 1974 to provide funding to the mortgage market. FHLMC buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and distributes the securities through the dealer community.
(26) “Federal National Mortgage Association (FNMA).” A private stockholder-owned corporation chartered by Congress in 1938 to provide funding to the mortgage market. FNMA buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and distributes the securities through the dealer community.
(27) “Federal Open Market Committee (FOMC).” Consists of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market as a means of influencing the volume of bank credit and money.
(28) “Federal Reserve System.” The central bank of the United States created by Congress and consisting of a seven-member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system.
(29) “Government National Mortgage Association (GNMA or Ginnie Mae).” Established by Congress in 1968, the Government National Mortgage Association, commonly known as Ginnie Mae, is a government-owned corporation within the Department of Housing and Urban Development (HUD). GNMA guarantees investor the timely payment of principal and interest on mortgage-backed securities backed by Federally insured or guaranteed loans, GNMA securities are the only mortgage-backed securities that offer the full faith and credit guaranty of the United States government.
(30) “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.
(31) “Market value.” The price at which a security is trading and could presumably be purchased or sold.
(32) “Master repurchase agreement.” A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes 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.
(33) “Maturity.” The date upon which the principal or stated value of an investment becomes due and payable.
(34) “Money market.” The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded.
(35) “No-load money market mutual fund.” An open-end mutual fund which invests in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund's Net Asset Value remains a constant one dollar ($1.00) per share to simplify accounting, but the interest rate does fluctuate. Money market funds are very liquid investments. A no-load money mutual fund doesn't impose a sales or redemption charge.
(36) “Offer.” The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid.
(37) “Open market operations.” Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool.
(38) “Portfolio.” Collection of securities held by an investor.
(39) “Primary dealer.” A group of government securities dealers who submit 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.
(40) “Prudent investor rule.” An investment standard that states 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.
(41) “Qualified public depositories.” As defined in Ohio R.C. 135.03, which includes any national bank or savings bank located in Ohio. However, no bank shall receive or have on deposit at any one time public moneys in an aggregate amount in excess of 30% of its total assets, as shown in its latest report to the superintendent of financial institutions or comptroller of the currency.
(42) “Rate of return.” The yield obtainable on a security based on its purchase price or its current market price.
(43) “Repurchase agreement (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 RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is, increasing bank reserves.
(44) “Safekeeping.” 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.
(45) “Secondary market.” A market made for the purchase and sale of outstanding issues following the initial distribution.
(46) “Securities and Exchange Commission.” Agency created by Congress to protect investors in securities transactions by administering securities legislation.
(47) “SEC Rule 15C3-1.” See Uniform Net Capital Rule.
(48) “Structured notes.” Notes issued by government-sponsored enterprises (FHLB, FNMA, SLMA, etc.) and corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve.
(49) “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.
(50) “Treasury bonds.” Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. government and having initial maturities of more than ten years.
(51) “Treasury notes.” Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. government and having initial maturities from two to ten years.
(52) “Uniform net capital rule.” Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a specified maximum ratio of indebtedness to liquid capital; 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.
(53) “Yield.” 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 the 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 purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
(Ord. 96-83. Passed 12-3-96; Ord. 2008-87. Passed 1-6-09; Ord. 2009-51. Passed 9-15-09.)