| (D) the counterparty is rated in one of the three highest
long-term or counterparty rating categories by a NRSRO; and
(E) the credit union receives a daily assessment of
the market value of the repurchase securities, including accrued interest,
and maintains adequate margin that reflects a risk assessment of the
repurchase securities and the term of the transaction.
(4) Borrowing repurchase transactions. A credit union
may enter into a borrowing repurchase transaction, which is a borrowing
transaction subject to §123.201 of the Texas Finance Code, provided:
(A) any investments purchased by the credit union with
either borrowed funds or cash obtained by the credit union in the
transaction are authorized investments under Texas Finance Code §124.351
and this section;
(B) the credit union has entered into signed contracts
with all approved counterparties; and
(C) investments referred to in subparagraph (A) of
this paragraph mature no later than the maturity date of the borrowing
repurchase transaction; and
(D) the counterparty is rated in one of the three highest
long-term or counterparty rating categories by a NRSRO.
(5) Federal funds. A credit union may enter into a
federal funds transaction with a financial institution, provided that
the interest or other consideration received from the financial institution
is at the market rate for federal funds transactions and that the
transaction has a maturity of one or more business days or the credit
union is able to require repayment at any time.
(6) Yankee dollars. A credit union may invest in yankee
dollar deposits.
(7) Eurodollars. A credit union may invest in eurodollar
deposits.
(8) Bankers' acceptance. A credit union may invest
in bankers' acceptances.
(9) Open-end Investment Companies (Mutual Funds). A
credit union may invest funds in an open-end investment company established
for investing directly or collectively in any investment or investment
activity that is authorized under Texas Finance Code §124.351
and this section, including qualified money market mutual funds as
defined by Securities and Exchange Commission regulations.
(10) U.S. Government-sponsored enterprises. A credit
union may invest in obligations of U.S. Government sponsored enterprises
such as, for example: the Federal Home Loan Bank System, the Federal
Home Loan Mortgage Corporation, the Federal National Mortgage Association,
and the Federal Farm Credit Bank.
(11) Commercial paper. A credit union may invest in
commercial paper issued by a corporation domiciled within the United
States and having a short-term or commercial paper rating of no less
than A1 or P1 by Standard & Poor's or Moody's, respectively, or
an equivalent rating by a NRSRO.
(12) Corporate bonds. A credit union may invest in
corporate bonds issued by a corporation domiciled in the United States.
The bonds must be rated by a NRSRO in one of the two highest long-term
rating categories and have remaining maturities of seven years or
less.
(13) Municipal bonds. A credit union may invest in
municipal bonds rated by a NRSRO in one of the two highest long-term
rating categories with remaining maturities of seven years or less.
(14) Mortgage-related securities. With the exception
of the residual interest of the mortgage-related security, a credit
union may invest in mortgage-related securities backed by mortgages
secured by real estate upon which is located a residential dwelling,
a mixed residential and commercial structure, or a residential manufactured
home. The security must be rated by a NRSRO in one of the two highest
long-term rating categories.
(15) Asset-backed securities. Provided the underlying
collateral is domestic- and consumer-based, a credit union may invest
in asset-backed securities which are rated by a NRSRO in one of the
two highest long-term rating categories.
(16) Small business-related securities. A credit union
may invest in small business-related securities that represent an
interest in one or more promissory notes or leases of personal property
evidencing the obligation of a domestic small business concern and
originated by a financial institution, insurance company, or similar
institution which is regulated and supervised by a Federal or State
authority. The securities must be rated by a NRSRO in one of the
two highest long-term rating categories and have remaining maturities
of seven years or less.
(17) Derivative authority. A credit union may enter
into certain derivative transactions exclusively for the purpose of
decreasing interest rate risk. The transaction is used to manage risk
arising from otherwise permissible credit union activities and not
entered into for speculative purposes. Permissible derivatives include
interest rate swaps, options on swaps, interest rate caps, interest
rate floors, and Treasury futures. Derivative authority is restricted
to the provisions outlined under Subpart B of Part 703 of the National
Credit Union Administration Rules and Regulations.
(d) Documentation. A credit union shall maintain files
containing credit and other information adequate to demonstrate evidence
of prudent business judgment in exercising the investment powers under
the Act and this rule including:
(1) Except for investments that are issued, insured
or fully guaranteed as to principal and interest by the U.S. Government
or its agencies, enterprises, or corporations or fully insured (including
accumulated interest) by the National Credit Union Administration
or the Federal Deposit Insurance Corporation, a credit union must
conduct and document a credit analysis of the issuing entity and/or
investment before purchasing the investment. The credit union must
update the credit analysis at least annually as long as the investment
is held.
(2) Credit and other due diligence documentation for
each investment shall be maintained as long as the credit union holds
the investment and until it has been both audited and examined. Before
purchasing or selling a security, a credit union must obtain either
price quotations on the security (or a similarly-structured security)
from at least two broker-dealers or a price quotation on the security
(or similarly-structured security) from an industry-recognized information
provider. If a credit union is unable to obtain a price quotation
required by this subsection for a particular security, then it can
compare prices using nominal or option-adjusted spreads, or spreads
to TBA (to-be-announced) mortgage backed securities. This requirement
to obtain a price quotation does not apply to new issues purchased
at par or at original issue discount.
(3) The reference to and use of NRSRO credit ratings
in this rules provides a minimum threshold and is not an endorsement
of the quality of the ratings. Credit unions must conduct their own
independent credit analyses to determine that each security purchased
presents an acceptable credit risk, regardless of the rating.
(e) Classification. A credit union must classify a
security as hold-to-maturity, available-for-sale, or trading, in accordance
with generally accepted accounting principles and consistent with
the credit union's documented intent and ability regarding the security.
(f) Purchase or Sale of Investments Through a Third-Party.
(1) A credit union may purchase and sell investments
through a broker-dealer as long as the broker-dealer is registered
with the Securities and Exchange Commission under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) or is a financial institution
whose broker-dealer activities are regulated by a federal or state
regulatory agency.
(2) Before purchasing an investment through a broker-dealer,
a credit union must analyze and annually update the following information.
(A) The background of the primary sales representative
and the local broker-dealer firm with whom the credit union is doing
business, using information available from federal or state securities
regulators and securities industry self-regulatory organizations,
such as the Financial Industry Regulatory Authority and the North
American Securities Administrators Association, about any enforcement
actions against the broker-dealer firm, its affiliates, or associated
personnel.
(B) If the broker-dealer is acting as the credit union's
counterparty, the ability of the broker-dealer and its subsidiaries
or affiliates to fulfill commitments, as evidenced by capital strength,
liquidity, and operating results. The credit union should consider
current financial data, annual reports, long-term or counterparty
ratings that have been assigned by NRSROs, reports of NRSROs, relevant
disclosure documents such as annual independent auditor reports, and
other sources of financial information.
Cont'd... |
