HomeMy WebLinkAboutRes 2021-18 Adopting Investment Policy
CITY OF WEST UNIVERSITY
PLACE, TEXAS
INVESTMENT
POLICYInvestment
Policy
EXHIBIT A
October 255, 20210
EXHIBIT A
City of West University Place
Investment PolicyInvestment Policy
Table of Contents
I. Policy 1
II. Purpose 1
III. Scope 1
IV. General Objectives
A. Safety 2
B. Liquidity 2-3
C. Public Trust 3
D. Yield 3
V. Standards of Care
A. Prudence 3
B. Ethics and Conflicts of Interest 4
C. Delegation of Authority 4
D. Training 4-5
E. Internal Controls 5
VI. Safekeeping and CustodyFinancial Counter-Parties
A. Authorized Financial Dealers and InstitutionsBroker/Dealers 5
A.B. Financi
al Institutions 5-6
B.C. Compet
itive Bids 6
C.D. Deliver
y vs. Payment 6
VII. Suitable and Authorized Investments
A. Eligible Investments 6-7
B. Collateralization 7
C. Existing Investments 8
VIII. Investment Parameters
A. Diversification 8
B. Maximum Maturities 8
IX. Investment Strategies 8-9
X. Reporting
A. Methods 9
B. Performance Standards 9
C. Marking to Market 9
EXHIBITS
A – Authorized Investment Officer and Investment Officialsials 10
B – Statement of Ethics and Conflicts of Interest 11
C – Approved Brokers/Dealers, Financial Institutions, and Investment Pools 12
D – Certification by Business Organization 13
E – Investment Strategies 14-18
EXHIBIT A
Glossary 189-27
EXHIBIT A
City of West University Place
Investment Policy
1
I. Policy
It is the policy of the City of West University Place (the “City”) to administer and
invest its funds in a manner that will preserve the principal, maintain liquidity, and
optimize interest earnings while meeting the daily cash flow requirements of the City.
The City will conform to all federal, state and local statutes, rules and regulations
governing the investment of the City’s funds. This The Investment Policy (“Policy”)
sets forth the investment program of the City and the guidelines to be followed in
achieving its objectives.
The City’s policy is to hold investments to maturity; however, securities may be sold
in order to minimize the potential loss of principal on a security whose credit quality
has declined; or to meet unanticipated liquidity needs of the City.
ANot less than annually, City Council shall adopt a written instrument by resolution
stating that it has reviewed the Investment Policy and investment strategies. and that
tThe written instrumentresolution so adopted shall record any changes made to the
Investment Policy or investment strategies.
II. Purpose
The purpose of this the policy Policy is to comply with Chapter 2256 of the Texas
Government Code (“Public Funds Investment Act” or “PFIA” or “Act”), which
requires each entity the City to adopt a written investment policy regarding the
investment of its funds and funds under its control. The investment pPolicy addresses
the methods, procedures and practices that must be exercised to ensure effective and
judicious fiscal management of the entity’s City’s funds.
III. Scope
This investment pe Policy applies to all funds and investments of the City. These
funds are accounted for in the City's Comprehensive Annual Financial Report and
include all funds managed by the City, including but not limited to tax revenues,
charges for services, bond proceeds, interest income, loans and funds received by the
City where the City performs a custodial function. However, this the policy Policy
does not apply to the assets administered for the benefit of the City by outside agencies
under deferred compensation programs or other retirement programs.
The City will consolidate cash balances from all funds to maximize investment
earnings, (except as otherwise required by covenants in bond ordinances, credit
agreements as defined in V.T.C.A.,Texas Government Code § Section 1371.001 or
other applicable regulations). Investment income will be allocated to the various funds
based on their respective participation and in accordance with generally accepted
accounting principles.
EXHIBIT A
City of West University Place
Investment Policy
2
IV. General Objectives
The primary objectives, in priority order, of the City’s investment activities shall be
safety, liquidity, public trust, and yield:
A. Safety – Safety of the principal is the primary objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure
the preservation of capital for the overall portfolio. The objective will be
to minimize credit risk and interest rate risk.
1. Credit Risk and Concentration of Credit Risk – The City will
minimize credit risk, which is the risk of loss due to the failure of
the security issuer or backer, and concentration of credit risk, the
risk of loss attributed to the magnitude of investment in a single
issuer, by:
Limiting investments to the types listed in Section VII
(“Suitable and Authorized Investments”) of this Policy,
Pre-qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which the City will do
business in accordance to Section VI.A (“Authorized Financial
Dealers and InstitutionsBroker/Dealers”) and Section VI.B
(“Financial Institutions”), and;
Diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
2. Interest Rate Risk – The City will minimize interest rate risk,
which is the risk that the market value of securities in the portfolio
will fall due to changes in market interest rates, by:
Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby
avoiding the need to sell securities on the open market prior to
maturity,
Investing operating funds primarily in investment pools shorter-
term securities, and money market funds that seek a stable
$1.00 price per share or stable $1.00 net asset value (NAV) to
avoid potential liquidity fees or redemption gates, or similar
local government investment pools,,
limiting Limiting the weighted average maturity of the portfolio
in accordance with Section IX (“Investment Strategies”),
and;
Diversifying maturities and stagger purchase dates to minimize
the impact of market movements over time in accordance
with Section VIII (“Investment Parameters”).
B. Liquidity – The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. This
is accomplished by structuring the portfolio so that securities mature
EXHIBIT A
City of West University Place
Investment Policy
3
concurrent with cash needs to meet anticipated demands. Furthermore,
EXHIBIT A
City of West University Place
Investment Policy
4
since all possible cash demands cannot be anticipated, a portion of the
portfolio will be invested in local government investment pools or money
market funds that seek a stable $1.00 NAV or local government
investment pools, which that offer same-day liquidity for short-term funds.
Additionally, all authorized securities will have portion of the portfolio will
consist of securities with active secondary or resale markets.
C. Public Trust – All participants in the City’s investment process shall seek
to act responsibly as custodians of the public trust. Investment Officers
and Investment Officials shall at all times be cognizant of the standard
of care and investment objectives and shall avoid any transaction that
might impair public confidence in the City’s ability to govern govern
effectively.
D. Yield – The investment portfolio shall be designed with the objective of
attaining a reasonable market rate of returnyield, throughout budgetary and
economic cycles, taking into account the investment risk constraints and
liquidity needs of the portfolio. Return on investmentYield is of least
importance compared to the safety, and liquidity, and public trust
objectives described above. The core of iInvestments is are limited to
relatively low riskhigh credit quality securities in anticipation of earning a
fair return yield relative to the risk being assumed. Securities shall not be
sold prior to maturity with the following exceptions:
A security with declining credit may be sold early to minimize loss of
principal
Liquidity needs of the portfolio require that the security to be
sold
A security that loses its required credit rating must be sold
V. Standards of Care
A. Prudence -– The standard of prudence to be used by the authorized
investing Investment oOfficers or designated investing officialsand
Investment Officials shall be the "prudent person" rule. This rule states
that “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 determination
of whether an investing officialthe Investment Officer or Investment
Official has exercised prudence with respect to an investment decision shall
be applied in the context of managing an overall portfolio rather than a
consideration as to the prudence of a single investment.
Investment Officers and Investment Officials acting in accordance with
written procedures and the investment pPolicy and exercising due
diligence shall be relieved of personal responsibility for an individual
EXHIBIT A
City of West University Place
Investment Policy
5
security's credit risk or market price changes, provided that deviations
from expectations are reported in a timely fashion and appropriate action is
taken to control unfavorable developments.
EXHIBIT A
City of West University Place
Investment Policy
6
B. Ethics and Conflicts of Interest – Investment Officer(s) and employees
involved in the investment processInvestment Officials agree to refrain
from personal business activity that could conflict with proper execution
and management of the investment program, or that could impair their
ability to make impartial investment decisions. The Investment
Officer(s) and Investment Official(s)s shall agree to disclose to the City
Council, with said disclosure held on file within the Finance Department,
any conflicts of interests or personal business relationship with financial
institutions that conduct business with the City. They shall further disclose
any personal financial/investment positions that could be related to the
performance of the investment portfolio. (See Exhibit B.)
A statement required under this subsection must be filed with the Texas
Ethics Commission and the City Council if:
a. The Investment Officer or Investment Official has a
personal business relationship with a business organization
offering to engage in an investment transaction with the
City; or
b. An Investment Officer or Investment Official who is
related within the second degree by affinity or
consanguinity, as determined under Texas Government
Code Chapter 573 of the Texas Government Code, to an
individual seeking to transact investment business with the
City.
C. Delegation of Authority -– Authority to manage the City's investment
program is granted to the Finance Director, hereinafter referred to as the
Investment Officer, and derived from the following: City Charter Article
VII, Section 7.01c. Responsibility for the operation of the investment
program is hereby delegated to the Investment Officer, who shall act in
accordance with established procedures and internal controls for the
operation of the investment program consistent with this investment
policy. This The policy Policy includes explicit delegation of authority
to persons responsible for investment transactions. (See Exhibit A) No
person may engage in an investment transaction except as provided under
the terms of this pe Policy and the procedures established by the Investment
Officer. The Investment Officer shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate activities
of subordinate Investment Officials (Treasurer Finance Manager and Fiscal
Services Officer).
C.D. Training – The Investment Officer and Investment Officials must
complete at least 10 hours of investment training within 12 months of
taking office or assuming duties, and shall attend an investment training
session not less than once in a two year period and receive not less than
eight (8) hours of training after the initial 10 hours of instruction relating to
investment controls, security risks, strategy risks, market risks,
EXHIBIT A
City of West University Place
Investment Policy
7
diversification of investment portfolio, and compliance with PFIA.
D. Training - Investment Officer(s) and persons authorized to execute
investment transactions must complete at least 10 hours of investment
training within 12 months of taking office or assuming duties, and shall
attend an investment training session not less than once in a two year
period and receive not less than eight (8) hours of training after the initial
10 hours of instruction relating to investment controls, security risks,
EXHIBIT A
City of West University Place
Investment Policy
8
strategy risks, market risks, diversification of investment portfolio, and
compliance with the Act. The City shall provide the training through
courses and seminars offered by professional organizations and
associations in order to insure the quality and capability of the City’s
investment personnel are in compliance with PFIA. Professional
organizations and associations that may provide investment training
including the Government Treasurer’s Organization of Texas, the
University of North Texas, the Government Finance Officers Association
of Texas, Treasury Management Association, or the Texas Municipal
League.
E. Internal Controls -– The Finance Director is responsible for establishing
and maintaining an internal control structure designed to ensure that public
funds 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 (a) the cost of a control should not exceed the benefits likely to be
derived and (b) the valuation of costs and benefits requires estimates and
judgments by management. Therefore, the Finance Director shall
establish a process for annual independent review by an external auditor
during the annual financial audit to assure compliance with policies and
procedures.
VI. Safekeeping and CustodyFinancial Counter-Parties
A. Authorized Financial Dealers and InstitutionsBroker/Dealers –The
Investment Officer or Investment Official(s) will maintain a list of
financial institutions and security broker/dealers authorized to provide
investment services to the City (Exhibit
A. C) to the City. This list shall be reviewed, revised as necessary and adopted
at least annually by City Council. The Investment Officers or and Investment
Official(s) s shall not conduct business with any firm not approved by City
Council. No public deposit shall be made except in a qualified public
depository as established by state laws.
Those firmsBroker/dealers that request to become qualified bidders for
securities transactions will be required to provide 1) information regarding
creditworthiness, experience, references and reputation, and 2) a
certification stating the firm has received, read and understood the City’s
investment policy and agree to comply with the policyPolicy. Authorized
firms may include primary dealers or regional broker/dealers that qualify
under Securities & Exchange Commission Rule 15C3-1 (Uniform Net
Capital Rule), and qualified depositories. All investment providers, including
financial institutions, banks, money market funds, and local government
investment pools, must sign a certification acknowledging that the
organization has received and reviewed the City’s investment policy and that
reasonable procedures and controls have been implemented to preclude.
EXHIBIT A
City of West University Place
Investment Policy
9
B. Financial Institutions – Any financial institution used as a banking
services depository shall be a qualified depository by the State Comptroller
of Public Accounts. A banking services depository will be chosen by
Request for Proposal (RFP) at least every five (5) years. All funds in any
depository shall be FDIC insured or collateralized in accordance with the
Policy.
Should an approved institution merge with or be acquired by another while
on the City’s approved list, the new institution must agree to meet the same
collateralization and certification requirements before funds are deposited.
EXHIBIT A
City of West University Place
Investment Policy
10
investment transactions that are not authorized by the City’s policy. (See
Exhibit D)
Should an approved institution merge with or be acquired by another while
on the City’s approved list, the new institution must agree to meet the same
collateralization and certification requirements or will be removed from the
approved list.
Should an approved institution merge with or be acquired by another while
on the City’s approved list, the new institution must agree to meet the same
collateralization and certification requirements or will be removed from the
approved list.
C. Competitive Bids – The City’s policyPolicy requires that at least three
(3) competitive bids or offers must be solicited for all individual security
purchases and sales except for:
Ta) transactions with local government investment pools and money
market funds and local government investment pools (which are
deemed to be made at prevailing market rates), and
Tb) treasury and agency securities purchased at issuance through an
approved broker/dealer or financial institution, and
Fc) fully insured certificates of deposit placed in accordance with the
conditions prescribed in Section 2256.010(b) of the PFIA Act.
B. In situations where the exact security being offered is not offered
by other broker/dealers, offers on the closest comparable investment may
be used to establish a fair market price for the security.
C.D. Delivery vs. Payment – All trades with the exception of local
government investment pools and money market funds will be executed
by delivery vs. payment (DVP) to ensure that securities are deposited in
an eligible financial institution prior to the release of funds. Securities
and collateral will be held in the City’s name by a third-party custodian
as evidenced by safekeeping receipts of the institution with which the
securities are deposited.
VII. Suitable and Authorized Investments
A. Eligible Investments – Funds of the City may be invested only in the
following instruments described below. All of these investments are
authorized by the Public Funds Investment ActPFIA. Only those
instruments listed in this section are authorized.
1. Direct Obligations of the United States of America, its agencies and
instrumentalities, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the full faith
and credit of the United States or its respective agencies and
EXHIBIT A
City of West University Place
Investment Policy
11
instrumentalities. with a maximum maturity of three (3) years,
excluding mortgage-backed securities.
2. Other Obligations of the United States of America, its agencies and
instrumentalities that are fully guaranteed or insured by the Federal
Deposit Insurance CorporationFDIC or by the explicit full faith and
credit of the United States with a maximum maturity of three (3) years.
3. Obligations of the state of Texas, its agencies, counties, cities, and
other political subdivisions rate as to investment quality by a nationally
recognized investment rating firm not less than AAA or its equivalent.
Individual issuer exposure shall be limited to 5% of the total
investment portfolio.
.
Certificates of Deposit issued by a depository institution that has
4. its main office or a branch in Texas and is selected from a list adopted
by the City. The certificate of deposit must be guaranteed or insured
by the Federal Deposit Insurance CorporationFDIC or its successor
and/or the National Credit Union Share Insurance Fund or its
successor and secured by obligations in a manner and amount as
provided by lawcollateralized in accordance with the Policy. In
addition, certificates of deposit obtained through a depository
institution that are fully collateralized under a pledge with a
maximum maturity of two (2) years.
agreement approved by the City, are authorized investments.
5. No-load Money Market Funds that 1) are registered and regulated by
the Securities and Exchange Commission, 2) have a dollar weighted
average stated maturity of 90 60 days or less, 3) seek to maintain a
stable net asset value (NAV) of $1.00 per share and 4) are rated no
lower than AAA or an equivalent rating by at least one nationally
recognized rating service.
6. Texas Local Government Investment Pools, authorized by a separate
resolution, which meet the requirements of Chapter Section 2256.016
of the Public Funds Investment ActPFIA and are rated no lower than
AAA or an equivalent rating by at least one nationally recognized
rating service. To become eligible, investment pools must be approved
by City Council action. Investments will be made in a local
government investment pool only after a thorough investigation of the
pool, which shall at least annually be reviewed, revised and adopted.be
reviewed annually.
7. Interest bearing checking accounts with a bank that is located in Texas
and insured by the FDIC and/or that are fully collateralized at 102% of
the ledger balancein accordance with the Policy.
EXHIBIT A
City of West University Place
Investment Policy
12
B. Collateralization – Collateralization will be required for all funds above
FDIC coverage on deposit with a depository bank., other than investments
in accordance with the requirements of this Policy and Chapter 2257,
Governmental Code (Public Funds Collateral Act”) and Financial
Institution Reform, Recovery, and Enforcement Act of 1989 (FIRREA). In
order to anticipate market changes and provide a level of security for all
funds, the The collateralization level will be one hundred and two
percent (102%) of market the total value of principal and plus accrued
interest on the deposits, less an amount insured by the FDIC.
Securities pledged as collateral will be held in the City’s name by an
independent third party with whom the City has a current custodial
agreement. The Finance Director is responsible for entering into
collateralization agreements with third- party custodians in compliance with
this the Policy. The collateralization agreements are to specify the
acceptable investment securities for collateral, including provisions related
to possession of the collateral, the substitution or release of investment
securities, ownership of securities, and the method of valuation of
securities. A clearly marked evidence of ownership (safekeeping receipt)
must be supplied to the City and retained.
Collateral shall be reviewed at least quarterly monthly to assure that the
market value of the pledged securities is adequate. The depository bank is
responsible for monitoring and maintaining the margin on the collateral
daily.
Eligible collateral includes a) direct obligations of the United States or
other obligations of the United States or other obligations, the principal
and interest of which are unconditionally guaranteed or insured by, or
backed by the full faith and credit of the United States, b) direct debt
obligations of an agency or instrumentality of the United States, c) direct
debt obligations of states, agencies, counties, cities, and other political
subdivisions of any state rate as to investment quality by a nationally
recognized investment rating firm not less than A or its equivalent. The
City’s Investment Officer or Investment Official(s) reserves(s) the right to
accept or reject any form of collateral or enhancement at their sole
discretion.
C. Existing Investments – Any investment currently held that does not meet
the guidelines of this pe Policy, but was an authorized investment at the
time of purchase, is not required to be liquidated; however, the City shall
take all prudent measures consistent with this Investment Pe Policy to
liquidate an investment that does not or no longer qualifies as an
authorized investment.
EXHIBIT A
City of West University Place
Investment Policy
13
VIII. Investment Parameters
A. Diversification – The investments shall be diversified by security type
and institution. With the exception of U.S. Treasury securities,
Government-sponsored enterprises (GSE’s), interest-bearing checking
accounts that are fully collateralized, and authorized local government
investment pools, the City will diversify the entire portfolio to comply with
the investment strategy. In no case shall any single investment transaction
be more than twenty five-percent (25%) of the entire portfolio at the time
of purchase of the security.
B. Maximum Maturities – To the extent possible, the City shall attempt to
match its investments with anticipated cash flow requirements. Unless
matched to a specific cash flow, the City will not directly invest in
securities maturing more than three (3) years from the date of purchase.
The composite portfolio will have a weighted average maturity of 365
days or less. This dollar weighted average maturity will be calculated
using the stated final maturity date(s) of each security.
IX. Investment Strategies
The City maintains separate portfolios for individual funds or groups of funds
that are managed according to the terms of this Policy and the corresponding
investment strategies listed in Exhibit E. The investment strategy for
portfolios is established after the annual Investment Policy review and
adoption will be managed in accordance with the terms of this Policy and
applicable agreements until the next annual review, when a specific strategy
will be adopted.
The City maintains a pooled fund group that is an aggregation of the majority
of City funds including tax receipts, enterprise fund revenues, fine and fee
revenues, as well as some, but not all, bond proceeds, and grants. This
portfolio is maintained to meet anticipated daily cash needs for City
operations, capital projects and debt service. The objectives of this portfolio
are to ensure safety of principal; ensure adequate investment liquidity; limit
market and credit risk through diversification; and attain a market rate of
return in accordance with the objectives and restrictions set forth in this the
Policy.
X. Reporting
A. Methods – The Investment Officer shall prepare an investment report at
least quarterly, including a management summary that provides an
analysis of the status of the current investment portfolio and transactions
made over the last quarter. This management summary will be prepared
in a manner consistent with the requirements of Section 2256.023 (Internal
EXHIBIT A
City of West University Place
Investment Policy
14
Management Reports) of the PFIA, and that will allow the City to
ascertain whether investment activities during the reporting period have
conformed to the investment pPolicy. The report will be provided to the
City Council and the City Manager. .
An independent auditor shall formally review the reports prepared under
this section at least annually, and that auditor shall report instances of non-
compliance to City Council in the annual audit management letter.
B. Performance Standards – The investment portfolio shall be managed in
accordance with the objectives specified in this pe Policy (safety,
liquidity, public trust, and yield). The portfolio should obtain a market
average rate of return during a market/economic environment of stable
interest rates. The Investment Officer shall determine whether market
yields are being achieved by comparing the portfolio market yield to the
three (3) month
B. U.S. Treasury Bill, the six (6) month and one (1) year U.S. Treasury Bill
and the two (2) year U.S. Treasury Note.
C. Marking to Market – The market value of the portfolio shall be calculated
at least monthly and a statement of the market value of the portfolio
shall be issued at least monthly. The market value of each investment
shall be obtained from an independent source such as the Wall Street
Journal, reputable brokerage firm, or security pricing service, and
reported on the investment reports.
C. Marking to Market – The market value of the portfolio shall be calculated
at least monthly and a statement of the market value of the portfolio
shall be issued at least monthly. The market value of each investment
shall be obtained from a source such as the Wall Street Journal, or
a reputable brokerage firm, or security pricing service, and reported
on the investment reports.
EXHIBIT A
City of West University Place
Investment Policy
15
EXHIBIT A
City of West University Place
Authorized Investment Officer and Investment Officials
Finance Director – Investment Officer
Treasurer Finance Manager – Investment
Official
Fiscal Services Officer – Investment Official
EXHIBIT A
City of West University Place
Investment Policy
16
EXHIBIT B
City of West University Place
Statement of Ethics and Conflicts of Interest
Investment Officer(s) and designated Investment Official(s)s for the City of West University Place
shall refrain from personal business relationships with business organizations that could conflict
with the proper execution of the investment program, or which could impair their ability to make
partial investment decisions. This would only apply to personal business relationships with
business organizations that have been approved by City Council to conduct investment
transactions with the City of West University Place.
An Investment OfficerOfficial or Investment Officer Official is considered to
have a personal business relationship with a business organization if:
(1) The Investment Officericial or Investment Officer Official owns 10 percent or
more of the voting stock or shares of the business organization, or owns $5,000 or
more of the fair market value of the business.
(2) Funds received by the Investment Officerial or Investment Officer Official from
the business organization exceed 10 percent of the Investment Officer’s or
Investment Official’s gross income for the previous year.
(3) The Investment Officiaerl or Investment Officer Official has acquired from the
business organization during the previous year investments with a book value of
$2,500 or more for the personal account of the Investment Officer or Investment
Official.
I do hereby certify that I do not have a personal business relationship with any business
organization approved to conduct investment transactions with the City of West University
Place, nor am I related within the second degree by affinity or consanguinity, as determined
under Chapter 573 of the Texas Government Code, to an individual seeking to sell an
investment to the City of West University Place as of the date of this statement.
I do hereby certify that I do have a personal business relationship with a business
organization approved to conduct investment transactions with the City of West University
Place, and/or I am related within the second degree by affinity or consanguinity, as
determined under Chapter 573 of the Texas Government Code, to an individual seeking to
sell an investment to the City of West University Place as of the date of this statement, and
willfully remove myself from any activities or areas of professional conduct that would cause
a perception of ethical conflict and acknowledge that I am required to disclose said relation
to the City Council and Texas Ethics Commission.
City of West University Place
Investment Officer/Official(s)
Finance Director/Officer Date
TreasurerFinance Manager/Official Date
EXHIBIT A
City of West University Place
Investment Policy
17
Fiscal Services Officer/Official Date
EXHIBIT A
City of West University Place
Investment Policy
18
EXHIBIT C
City of West University Place
Approved Broker/Dealers, Financial Institutions, and
Investment Pools
Broker/Dealers
Cantor Fitzgerald & Company
FTN FHN Financial (formerly “Coastal Securities” and “FTN Financial”)
Hilltop Securities (formerly “First Southwest Company”)
Multi-Bank Securities
Wells Fargo Securities LLC
Public DepositoriesFinancial Institutions
JP Morgan Chase, NA (Primary)
Local Government Investment Pools
TexPool
Texas Class
EXHIBIT A
City of West University Place
Investment Policy
19
EXHIBIT D
City of West University Place
Certification by Business Organization
(date)
City of West University Place, Texas
(Attn: Designated Investment Official)
3800 University Blvd.
West University Place, TX 77005
Dear Mr/s. (Investment Official):
This certification is executed on behalf of the City of West University Place, Texas (the Investor)
and (the Business Organization),
pursuant to the Public Funds Investment Act, Chapter 2256, Texas Government Code, (the Act)
in connection with investment transactions conducted between the Investor and the Business
Organization.
The undersigned Registered Principal or authorized representative of the Business Organization
hereby certifies on behalf of the Business Organization that:
1. The undersigned is a Registered Principal or authorized representative of the Business
Organization offering to enter an investment transaction with the Investor (Note: as such
terms are used in the Public Funds Investment Act, chapter 2256, Texas Local Government
Code) and;
2. The Registered Principal or authorized representative of the Business Organization has
received and reviewed the Investment Policy furnished by the Investor and;
3. The Registered Principal or authorized representative of the Business Organization has
implemented reasonable procedures and controls in an effort to preclude investment
transactions conducted between the Business Organization and the Investor that are not
authorized by the Investor’s investment policy, except to the extent that this authorization is
dependent on an analysis of the makeup of the investor’s entire portfolio or requires and
interpretation of the subjective investment standards.
Registered Principal or Broker Assigned to the Account
Aauthorized representativeRepresentative
Signed By:
Printed Name
Title
Date
EXHIBIT A
City of West University Place
Investment Policy
20
EXHIBIT E
INVESTMENT STRATEGIESInvestment Strategies
The City of West University’s investment portfolio will be designed and managed to
ensure that it will meet all the requirements established by the City of West University’s
investment Investment policy Policy and the Public Funds Investment Act. The overall
investment strategy outlined in the investment Investment policy Policy has been further
refined in this investment strategy statement by the following fund types.
Operating Funds:
Operating Funds generally have greater cash flow needs than other funds types.
The operating fund portfolio may consist of any approved investment type with
the understanding that the financial requirements of the operating funds will dictate
the maturity dates of the investment. Of utmost importance is the preservation and
safety of the investment principal.
Additionally, each investment will be viewed for its liquidity and marketability of
the investment if the need arises to liquidate the investment before maturity. The
final determining factors for the investment strategy will be the diversification of
the investment portfolio and the yield of the investment.
To achieve short-term needs of one (1) to one hundred and eighty (180) days,
funds will be invested in approved authorized local government investment pools.
For longer-term needs of six (6)
(6) months to three (3) years, funds will be invested in approved investments
with objectives prioritized as follows:
1) understanding the suitability of the investment to the financial
requirements of the City of West University Place;
2) preservation and safety of principal;
3) liquidity;
4) marketability of the investment if the need arises to liquidate the
investment before maturity;
diversification of the investment portfolio; and
5)
6) yield.
5) yield.
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INVESTMENT STRATEGIESInvestment Strategies (Continued)
Debt Service Funds:
The debt service requirements are usually semi-annual, thus allowing the
investment strategy to mirror debt obligation payment dates. The strategy for
debt service funds allows greater flexibility since the actual requirements are
known into the future. Investments will comply with the Investment Pstill meet
the adopted policiesy; however, planning maturity dates to match debt
requirement dates will be the primary objective.
The investment instruments will be invested primarily in approved investment
types with maturities at six (6) or twelve (12) months established to match debt
requirement dates. Shorter-term investment may be used to meet these objectives
and longer-term investments may be used when fund balance reserves exceed
one year’s debt service requirements.
To achieve this strategy the following objectives are prioritized to evaluate
investment opportunities:
1) understanding the suitability of the investment to the financial
requirements of the City of West University Place;
2) preservation and safety of principal;
3) yield;
4) marketability of the investment if the need arises to liquidate the
investment before maturity;
5) diversification of the investment portfolio; and
6) liquidity.
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Investment Strategies (Continued)
INVESTMENT STRATEGIES (Continued)
Capital Improvement Funds:
Bond proceeds can be invested over the life of the project; however, the exact
disbursement of the funds is not always known. The investment objective of the
capital improvement funds is to schedule maturities to maximize investment
earnings while preserving principleprincipal and meeting liquidity needs. The key
to an effective strategy is to be aware of the project needs and match maturities
to the period funds are needed.
The investment objective for capital projects funds is still to match investment
maturities with funding needs. As short-term needs are recognized, investment
maturities will be moved into approved authorized local government investment
pools to meet financial requirements. Longer-term needs will be invested with
the following objectives as prioritized for capital improvement funds:
1) understanding the suitability of the investment to the financial
requirements of the City of West University Place;
2) preservation and safety of principal;
3) diversification of the investment portfolio;
4) yield;
5) liquidity; and
6) marketability of the investment if the need arises to liquidate the
investment before maturity.
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Investment Strategies (Continued)
INVESTMENT STRATEGIES(Continued)
Reserve Funds:
Certain reserve funds have been established as required by bond covenants. The
investment objective is to invest reserve funds to the extent that maturities are
established to the limit of the investment Investment policy Policy or to the end of
the bond requirements whichever is shorter.
The overall investment strategy for reserve funds will not rely on investment
poolsuse longer-term securities; however, the use of pools is not prohibited.
Longer-term investment objectives are prioritized as follows:
1) understanding the suitability of the investment to the financial
requirements of the City of West University Place;
2) diversification of the investment portfolio;
3) preservation and safety of principal;
4) yield;
liquidity; and
5)
6) marketability of the investment if the need arises to liquidate the
investment before maturity
5) marketability of the investment if the need arises to liquidate the
investment before maturity.
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INVESTMENT STRATEGIES (Continued)
Investment Pool:
The City’s Investment Pool is an aggregation of the majority of City funds, which
includes tax receipts, enterprise fund revenues, fine and fee revenues, and grants.
This portfolio is maintained to meet anticipated daily cash needs for the City
operations, capital projects and debt service.
1) understanding the suitability of the investment to the financial
requirements of the City of West University Place;
2) diversification of the investment portfolio;
3) preservation and safety of principal;
4) yield;
5) liquidity; and
6) marketability of the investment if the need arises to liquidate the
investment before maturity.
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GLOSSARY
ACCRETION OF DISCOUNT: Periodic straight-line increases in the book or carrying
value of a security so the amount of the purchase price discount below face value is
completely eliminated by the time the bond matures or by the call date, if applicable.
ACCRUED INTEREST: The interest accumulated on a security from its issue date or
since the last payment of interest up to but not including the purchase date. The
purchaser of the security pays to the seller the market price plus accrued interest.
AMORTIZATION OF PREMIUM: Periodic straight-line decreases in the book or
carrying value of a security so the premium paid for a bond above its face value or call
price is completely eliminated.
ASK: The price at which securities are offered by sellers.
BARBELL MATURITY STRATEGY: A maturity pattern within a portfolio in which
maturities of the assets in the portfolio are concentrated in both the short and long ends of
the maturity spectrum.
BASIS POINT: One one-hundredth (1/100) of one percent; 0.0001 in decimal form.
BENCHMARK: A comparative base for performance evaluation. A benchmark can be
a broad-based bond index, a customized bond index, or a specific objective.
BID: The price offered for securities by purchasers. (When selling securities, one asks
for a bid.)
BOND EQUIVALENT YIELD: Used to compare yields available from discounted
securities that pay interest at maturity with yields available from securities that pay
interest semi-annually.
BOOK ENTRY SECURITIES: Stocks, bonds, other securities, and some certificates
of deposit that are purchased, sold, and held as electronic computer entries on the records
of a central holder. These securities are not available for purchase in physical form;
buyers get a receipt or confirmation as evidence of ownership.
BOOK VALUE: The original cost of the security as adjusted for amortization of any
premium paid or accretion of discount since the date of purchase.
BROKER: A party who brings buyers and sellers together. Brokers do not take
ownership of the property being traded. They are compensated by commissions. They
are not the same as dealers; however, the same firms that act as brokers in some
transactions may act as dealers in other transactions.
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CALLABLE BOND: A bond that the issuer has the right to redeem prior to maturity at
a specified price. Some callable bonds may be redeemed on one call date while others
may have multiple call dates. Some callable bonds may be redeemed at par while others
can be redeemed only at a premium. Some callable bonds are step-up bonds that pay an
initial coupon rate for the first period, and then the coupon rate increases for the
following periods if the bonds are not called by the issuer.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity
evidenced by a certificate. Large-denomination (over $100,000) CD’s are typically
negotiable.
CODE: The Internal Revenue Code of 1986, as amended.
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 monies.
COLLATERALIZED MORTGAGE OBLIGATION (CMO): A type of mortgage-
backed security created by dividing the rights to receive the principal and interest cash
flows from an underlying pool of mortgages in separate classes or tiers.
COMMERCIAL PAPER: Short-term unsecured promissory notes issued by
corporations for a maturity specified by the buyer. It is used primarily by corporations
for short-term financing needs at a rate which is generally lower than the prime rate.
CONFIRMATION: The document used to state in writing the terms of the trade which
had previously been agreed to verbally.
COUPON RATE: The stated annual rate of interest payable on a coupon bond
expressed as a percentage of the bond’s face value.
CREDIT RISK: The risk that (1) the issuer is downgraded to a lower quality category
and/or (2) the issuer fails to make timely payments of interest or principal.
CUSIP NUMBER: A nine-digit number established by the Committee on Uniform
Securities Identification Procedures that is used to identify publicly traded securities.
Each publicly traded security receives a unique CUSIP number when the security is
issued.
CUSTODY: The service of an organization, usually a financial institution, of holding
(and reporting) a customer’s securities for safekeeping. The financial institution is
known as the custodian.
DEALER: A firm which buys and sells for its own account. Dealers have ownership,
even if only for an instant, between a purchase from one party and a sale to another party.
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DEALER: A firm which buys and sells for its own account. Dealers have ownership,
even if only for an instant, between a purchase from one party and a sale to another party.
They are compensated by the spread between the price they pay and the price they
receive. Dealers are not the same as brokers; however, the same firms which act as
dealers in some transactions may act as brokers in other transactions.
DELIVERY VERSUS PAYMENT (DVP): The safest method of settling a trade
involving a book entry security. In a DVP settlement, the funds are wired from the
buyer’s account and the security is delivered from the seller’s account in simultaneous,
interdependent wires.
DEPOSITORY TRUST COMPANY (DTC): An organization that holds physical
certificates for stocks and bonds and issues receipts to owners. Securities held by DTC
are immobilized so that they can be traded on a book entry basis.
DERIVATIVE: A security that derives its value from an underlying asset, group of
assets, reference rate, or an index value. Some derivatives can be highly volatile and
result in a loss of principal in changing interest rate environments.
DISCOUNT: The amount by which the price paid for a security is less than its face
value.
DISCOUNT SECURITIES: Securities that do not pay periodic interest. Investors earn
the difference between the discount issue price and the full face value paid at maturity.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns, to reduce risk inherent in particular securities.
DURATION: A sophisticated measure of the weighted average maturity of a bond’s
cash flow stream, where the present values of the cash flows serve as the weights.
ECONOMIC CYCLE (BUSINESS CYCLE): As the economy moves through the
business cycle, interest rates tend to follow the levels of production, output, and
consumption - rising as the economy expands and moves out of recession and declining
after the economy peaks, contracts, and heads once again into recession.
EFFECTIVE MATURITY: The average maturity of a bond, given the potential for
early call. For a non-callable bond, the final maturity date serves as the effective
maturity. For a callable bond, the effective maturity is bounded by the first call date and
the final maturity date; the position within this continuum is a function of the call price,
the current market price, and the reinvestment rate assumed.
FACE VALUE: The principal amount due and payable to a bondholder at maturity; par
value. Also, the amount on which coupon interest is computed.
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FAIL: The event of a securities purchase or sale transaction not settling as intended by
the parties.
FAIR VALUE: The amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced or liquidation sale.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency
that insures bank deposits.
FEDERAL FARM CREDIT BANKS (FFCB): A government-sponsored corporation
that was created in 1916 and is a nationwide system of banks and associations providing
mortgage loans, credit, and related services to farmers, rural homeowners, and
agricultural and rural cooperatives. The banks and associations are cooperatively owned,
directly or indirectly, by their respective borrowers. The Federal Farm Credit System is
supervised by the Farm Credit Administration, an independent agency of the U.S.
government. (See Government Sponsored Enterprise)
FEDERAL FUNDS: Monies within the Federal Reserve System representing a member
bank’s surplus reserve funds. Banks with excess funds may sell their surplus to other
banks whose funds are below required reserve levels. Normally, Federal funds are
employed in settling all government securities transactions. The Federal Funds Rate is
the rate of interest at which Fed funds are traded. This rate is currently pegged by the
Federal Reserve through open-market operations.
FEDERAL HOME LOAN BANKS (FHLB): Government-sponsored wholesale banks
(currently twelve regional banks) which lend funds and provide correspondent banking
services to member commercial bank, 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. (See Government Sponsored
Enterprises)
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or “Freddie
Mac”): A government-sponsored corporation that was created in July 1970, by the
enactment of Title III of the Emergency Home Finance Act of 1970. Freddie Mac was
established to help maintain the availability of mortgage credit for residential housing,
primarily through developing and maintaining an active, nationwide secondary market in
conventional residential mortgages. (See Government Sponsored Enterprises)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae):
FNMA, like GNMA was chartered under the Federal National Mortgage Association Act
in 1938. FNMA is a federal corporation working under the auspices of the Department of
Housing and Urban Development (HUD). It is the largest single provider of residential
mortgage funds in the United States. Fannie Mae is a private stockholder-owned
corporation. FNMA securities are highly liquid and are widely accepted. FNMA
assumes and guarantees that all security holders will receive timely payment of principal
and interest. (See Government Sponsored Enterprises)
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FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members
of the Federal Reserve Board and five of the twelve 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.
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.,
twelve regional banks and about 5700 commercial banks that are members of the system.
FIXED-INCOME SECURITY: A financial instrument promising a fixed amount of
periodic income over a specified future time span.
GOVERNMENT-SPONSORED ENTERPRISES (GSE’s): Payment of principal and
interest on securities issued by these corporations is not guaranteed explicitly by the U.S.
government, however, most investors consider these securities to carry an implicit U.S.
government guarantee. The debt is fully guaranteed by the issuing corporations. GSE’s
include: Farm Credit System, Federal Home Loan Bank System, Federal Home Loan
Mortgage Corporation, and Federal National Mortgage Association.
INSTRUMENTALITIES: See Government-Sponsored Enterprises
INTEREST RATE RISK: The risk that the general level of interest rates will change,
causing unexpected price appreciations or depreciations.
LADDERED MATURITY STRATEGY: A maturity pattern within a portfolio in
which maturities of the assets in the portfolio are equally spaced. Over time, the
shortening of the remaining lives of the assets provides a steady source of liquidity or
cash flow. Given a normal yield curve with a positive slope this passive strategy
provides the benefit of being able to take advantage of the higher, longer-term yields
without sacrificing safety or liquidity.
LIQUIDITY: An entity’s capacity to meet future monetary outflows (whether they are
required or optional) from available resources. Liquidity is often obtained from
reductions of cash or by converting assets into cash.
LIQUIDITY RISK: The risk that an investment will be difficult to sell at a fair market
price in a timely fashion.
MARKET RISK: The risk that the value of a security will rise or decline as a result of
changes in market conditions. It is that part of a security’s risk that is common to all
securities of the same general class (stocks and bonds) and thus cannot be eliminated by
diversification; also known as systematic risk.
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MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold.
MARKING-TO-MARKET: The practice of valuing a security or portfolio according to
its market value, rather than its cost or book value.
MASTER REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to 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 to liquidate the underlying securities in the event of default by the
seller.
MATURITY DATE: The date on which the principal or face value of an investment
becomes due and payable.
MONEY MARKET INSTRUMENT: Generally, a short-term debt instrument that is
purchased from a broker, dealer, or bank. Sometimes the term “money market” with
“short-term”, defines an instrument with no more than 12 months remaining from the
purchase date until the maturity date. Sometimes the term “money market” is used more
restrictively to mean only those instruments that have active secondary markets.
MORTGAGE-BACKED SECURITIES (MBS): Securities composed of, or
collateralized by, loans that are themselves collateralized by liens on real property.
OFFER: The price asked by a seller of securities. (When purchasing securities, one
asks for an offer.)
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.
OPPORTUNITY COST: The cost of pursuing one course of action measured in terms
of the foregone return that could have been earned on an alternative course of action that
was not undertaken.
PAR: See Face Value
PFIA OR ACT: The Public Funds Investment Act, Chapter 2256, Texas Government
Code, as amended.
POOLED FUND GROUP: An internally created fund of an investing entity in which
one or more institutional accounts of the investing entity are invested (as defined by the
Public Funds Investment Act).
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PREMIUM: The amount by which the price paid for a security exceeds its face value.
PRIMARY DEALER: A group of government securities dealers that 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. Primary dealers
include Securities and Exchange Commission (SEC)-registered securities broker-dealers,
banks, and a few unregulated firms.
PRINCIPAL: The face or par value of an instrument, exclusive of accrued interest.
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. 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.
QUALIFIED REPRESENTATIVE: A person who holds a position with - and is
authorized to act on behalf of - a business organization (as defined by the Public Funds
Investment Act).
RATE OF RETURN: The amount of income received from an investment, expressed as
a percentage. A market rate of return is the yield that an investor can expect to receive in
the current interest-rate environment utilizing a buy-and-hold to maturity investment
strategy.
REINVESTMENT RATE: The interest rate earned on the reinvestment of coupon
payments.
REINVESTMENT RATE RISK: The risk that the actual reinvestment rate falls short
of the expected or assumed reinvestment rate.
REPURCHASE AGREEMENT (RP or REPO): An agreement of one party to sell
securities at a specified price to a second party and a simultaneous agreement of the first
party to repurchase the securities at a specified price on demand or at a specified later
date. The difference between the selling price and the repurchase price provides the
interest income to the party that provided the funds. Every transaction where a security is
sold under an agreement to be repurchased is a repo from the seller/borrower’s point of
view and a reverse repo from the buyer/lender’s point of view.
REVERSE REPURCHASE AGREEMENT: (See Repurchase Agreement)
SAFEKEEPING: A procedure where securities are held by a third party acting as
custodian for a fee.
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SECONDARY MARKET: A market made for the purchase and sale of outstanding
issues following the initial distribution.
SECURITIES AND EXCHANGE COMMISSION (SEC): Agency created by
Congress to protect investors in securities transactions by administering securities
legislation.
SECURITIES LENDING: The temporary transfer of securities by one party, the
lender, to another, the borrower. The securities borrower is required to provide
acceptable assets as collateral to the securities lender in the form of cash or other
securities. If the borrower provides securities as collateral to the lender, it pays a fee to
borrow the lent securities. If it provides cash as collateral, the lender pays interest to the
borrower and reinvests the cash at a higher rate.
SEC RULE 15C3-1: See Uniform Net Capital Rule
STRUCTURED NOTES: Debt obligations whose principal or interest payments are
determined by an index or formula.
SEPARATELY INVESTED ASSET: An account or fund of a state agency or local
government that is not invested in a pool ed fund group (as defined by the Public Funds
Investment Act).
SPREAD: Most commonly used when referring to the difference between the bid and
asked prices in a quote. Additionally, it may also refer to additional basis points that a
non-Treasury security earns over and above a Treasury with a comparable maturity date.
STRIPS: Separation of the principal and interest cash flows due from any interest-
bearing securities into different financial instruments. Each coupon payment is separated
from the underlying investment to create a separate security. Each individual cash flow
is sold at a discount. The amount of the discount and the time until the cash flow is paid
determine the investor’s return.
SWAP: The trading of one asset for another. Sometimes used in active portfolio
management to increase investment returns by “swapping” one type of security for
another.
TOTAL RETURN: Interest income plus capital gains (or minus losses) on an
investment.
TREASURY BILLS: A non-interest bearing discount security issued by the U.S.
Treasury, generally having initial maturities of 3 months, 6 months, or 1 year.
TREASURY BONDS: Long-term, coupon bearing U.S. Treasury securities having
initial maturities of more than 10 years.
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TREASURY NOTES: Intermediate-term, coupon bearing U.S. Treasury securities
having initial maturities of 2 - 10 years.
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.
YIELD TO MATURITY (YTM): The promised return assuming all interest and principal
payments are made and reinvested at the same rate taking into account price appreciation
(if priced below par) or depreciation (if priced above par).
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