Fort Walton Beach Council agenda — 01-08-13--regular — reading text

Adopted January R. 2013 Packet Pg. 71  F1 2. 1. b City of Fort Walton Beach, FL INVESTMENT POLICY 2. Separation of transaction authority from accounting and record keeping - By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. 3. Custodial safekeeping - Securities purchased from any bank or dealer including appropriate collateral ( as defined by state law) shall be placed with an independent third parry for custodial safekeeping. 4. Avoidance of physical delivery securities - Book -entry securities are much easier to transfer and account for since aemal delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. 5. 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. 6. 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 by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and if the safekeeping institution has a list of authorized signatures. 7. 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 parry making and receiving wire transfers. Inverse Floater. A floating rate security structured in such a way that it reacts inversely to the direction of interest rates. Considered risky as their value moves in the opposite direction of normal fixed -income investments and whose interest rate can fall to zero. Investment Advisor. An individual or firm that provides professional advice managing portfolios, investment recommendations and /or research in exchange for a management fee. Investment Consultant An investment advisor who helps investors with long -term investment planning. An investment consultant, unlike a broker, does more in -depth work on formulating clients' investment strategies, helping them fulfill their needs and goals. The idea behind an investment consultant is that they be par[ of the client' s investment strategy for a long period of time. The consultant's job is to actively monitor the client's investments and continue to work with the client as goals change over time Investment Adviser Act of 1940. Federal legislation that sets the standards by which investment companies, such as mumal funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations. Investment Grade. Bonds considered suitable for preservation of invested capital; bonds rated a minimum of Baa3 by Moody' s, BBB- by Standard & Poor' s, or BBB- by Fitch. Although " BBB" rated bonds are considered investment grade, most public agencies cannot invest in securities rated below " A" Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a relative measure of cash and near -cash items in a portfolio of assets. Also, a term describing the marketability of a money market security correlating to the narrowness of the spread between the bid and ask prices. Local Government Investment Pool ( LGIP). An investment by local governments in which their money is pooled as a method for managing local funds, ( i. e., Florida State Board of Administration' s Florida Prime Fund). Long -Term Core Investment Program. Funds that are not needed within a one year period. Market Value. The fair market value of a security or commodity. The price at which a willing buyer and seller would pay for a security. Ord— ce 1975, Ade, i, d rawaw s, 2013 Packet Pg. 72  12. 1. b City of Fort Walton Beach, FL INVESTMENT POLICY Mark-to-market. Adjusting the value of an asset to its market value, reflecting in the process unrealized gains or losses. Master Repurchase Agreement. A widely accepted standard agreement form published by the Bond Market Association ( BMA) that is used to govem and document Repurchase Agreements and protect the interest of parties in a repo transaction. Maturity Date. Date on which principal payment of a financial obligation is to be paid. Medium Term Notes ( MTN' s). Used frequently to refer to corporate notes of medium maturity ( 5 -years and 0meA under). Technically, any debt security issued by a corporate or depository institution with a maturity from I to 10 ry years and issued under an MTN shelf registration. Usually issued in smaller issues with varying coupons and maturities, and underwritten by a variety of broker/ dealers ( as opposed to large corporate deals issued and 2 underwritten all at once in large size and with a fixed coupon and maturity). a Money Market. The market in which short- term debt instruments ( bills, commercial paper, bankers' acceptance, etc.) are issued and traded. a Money Market Mutual Fund ( MMF). A type of mutual fund that invests solely in money market instmmenls, such as: U. S. Treasury bills, commercial paper, bankers' acceptances, and repurchase agreements. Money market N mutual funds are registered with the SEC under the Investment Company Act of 1940 and are subject " rule 2a -7" m which significantly limits average maturity and credit quality of holdings. MMF' s are managed to maintain a stable net asset value ( NAV) of $1. 00. Many MMFs carry ratings by a NRSRO. m Moody' s Investors Service. One of several NRSROs that provide credit ratings on corporate and municipal debt M I8511eS. Mortgage Backed Securities ( MBS). Mortgage -backed securities represent an ownership interest in a pool of mortgage loans made by financial institutions, such as savings and loans, commercial banks, or mortgage a 1° companies, to finance the borrower' s purchase of a home or other real estate. The majority of MRS are issued and /or guaranteed by GNMA, FNMA and FHLMC. There are a variety of MBS structures, some of which can be U very risky and complicated. All MBS have reinvestment risk as actual principal and interest payments are dependent on the payment of the underlying mortgages which can be prepaid by mortgage holders To refinance i and lower rates or simply because the underlying property was sold. c Mortgage Pass -Through Securities. A pool of residential mortgage loans with the monthly interest and principal distributed to investors on a pro -rata basis. Largest issuer is GNMA. NvE c Municipal Note/Bond. A debt instrument issued by a state or local government unit or public agency. The vast in majority of municipals are exempt from state and federal income tax, although some non -qualified issues are taxable. Mutual Fund. Portfolio of securities professionally managed by a registered investment company that issues A shares to investors. Many different types of mutual funds exist ( bond, equity, money fund); all except money market funds operate on a variable net asset value (NAV). c v Negotiable Certificate of Deposit ( Negotiable CD). Large denomination CDs ($ 100, 000 and larger) that are u issued in bearer fo= and can be traded in the secondary market. Net Asset Value. The market value of one share of an investment company, such as a mutual food. This figure is calculated by totaling a fund's assets which includes securities, cash, and any accrued earnings, subtracting this from the fund' s liabilities and dividing this total by the number of shares outstanding, This is calculated once a day based on the closing price for each security in the food's portfolio. ( See below.) Total assets) - ( Liabilities)]/( Number of shares outstanding) Ordinance 1875, Adopad January 8, 2013 Packet Pg. 73  12. 1. b City of Fort Walton Beach, FL INVESTMENT POLICY NRSRO. A " Nationally Recognized Statistical Rating Organization." A designated rating organization that the SEC has deemed a strong national presence in the U. S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody' s, S & P, Fitch and Duff & Phelps. Offered Price. See also " Ask Price." c Open Market Operations. Federal Reserve monetary policy tactic entailing the purchase or sale of government securities in the open market by the Federal Reserve System from and to primary dealers in order to influence the d money supply, credit conditions, and interest rates. a c Par Value. Face value, stated value or maturity value of a security. u