|(a) Security transaction policy.
(1) The following principles shall guide all Texas
Permanent School Fund (PSF) transactions.
(A) Each manager shall be responsible for complying
fully with PSF policies for trading securities and selecting brokerage
firms, as specified in this section. In particular, the emphasis of
security trading shall be on best execution; that is, the highest
proceeds to the PSF and the lowest costs, net of all transaction expenses.
Placing orders shall be based on the financial viability of the brokerage
firm and the assurance of prompt and efficient execution.
(B) Ongoing efforts must be made to reduce trading
costs, in terms of both commissions and market impact, provided the
investment returns of the PSF are not jeopardized.
(2) The State Board of Education (SBOE) may enter into
brokerage commission recapture agreements or soft dollar agreements.
(3) The SBOE may evaluate transaction activity annually
through a trading cost analysis.
(b) Directed trades. The SBOE may adopt directed trade
procedures for the PSF portfolio according to procedures developed
by the SBOE Committee on School Finance/Permanent School Fund.
(c) Guidelines for selecting a brokerage firm and standards
of ethical conduct for brokerage firms.
(1) Introduction and basic principles.
(A) The SBOE intends that any transaction of publicly
traded security occur through a brokerage firm or automated trading
system, regardless of location, to obtain the lowest transaction cost
consistent with best execution.
(B) Each investment manager shall be responsible for
selecting brokerage firms or automated trading systems through which
PSF trading shall be completed. The selections must meet PSF guidelines
and be for the exclusive benefit of the PSF.
(2) Guidelines for selection and standards of ethical
conduct. The broker or dealer firm must:
(A) have appropriate trading and market expertise;
(B) have comprehensive, proprietary, in-house research
(C) be in compliance with applicable federal and Texas
laws related to conducting business as a broker or dealer, including
the Anti-Fraud provisions of the Securities Exchange Act of 1934;
(D) be a member in good standing of the major financial
(E) have on-site, in-house trading capability and direct
access to major markets;
(F) have in-house access to trading support equipment;
(G) trade for competitive rates that provide the lowest
transaction cost consistent with best execution;
(H) be financially able to accommodate a capital commitment
trade over an industry standard settlement period;
(I) have the ability and record to clear and settle
trades without unnecessary delays or fails; and
(J) have been in business as a broker or dealer for
a reasonable period of time to ensure financial and operational stability.
(A) Broker/dealer firms that are certified as Texas
based historically underutilized businesses (HUBs) are exempted from
the requirements specified in paragraph (2)(B), (D), and (H) of this
(B) broker/dealer firms that are operating as electronic
communication networks are exempted from the requirements specified
in paragraph (2)(B) of this subsection.
(4) Reporting requirements. The executive administrator
of the PSF will report to the SBOE Committee on School Finance/Permanent
School Fund, on an ongoing basis, a list of broker dealers with whom
the PSF has conducted business during the fiscal year that have been
granted exemptions under paragraph (2)(B), (D), and (H) of this subsection
and will identify the specific exemptions granted.
(5) Review and evaluation. At least annually, the SBOE
Committee on School Finance/Permanent School Fund shall review the
brokerage firms used by PSF investment managers and all transactions
for compliance with the provisions of this section.
(6) Broker expenditure report. A broker shall file
a report annually on April 15 of each year on the expenditure report
provided in §33.5(n)(2)(J) of this title (relating to Code of
Ethics) entitled "Report of Expenditures of Persons Providing Services
to the State Board of Education Relating to the Management and Investment
of the Permanent School Fund." The report shall be for the time period
beginning on January 1 and ending on December 31 of the previous year.
The expenditure report must describe in detail any expenditure of
more than $50 made by the person on behalf of:
(A) an SBOE Member;
(B) the commissioner of education; or
(C) an employee of the Texas Education Agency or of
a nonprofit corporation created under the Texas Education Code, §43.006.
|Source Note: The provisions of this §33.40 adopted to be effective September 1, 1996, 21 TexReg 4609; amended to be effective September 1, 1998, 23 TexReg 7777; amended to be effective April 2, 2000, 25 TexReg 2568; amended to be effective October 11, 2000, 25 TexReg 10151; amended to be effective March 31, 2004, 29 TexReg 3174; amended to be effective October 10, 2004, 29 TexReg 9354; amended to be effective June 4, 2012, 37 TexReg 4039