Title 200 | Chapter 014 | Regulation 081REG
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FINANCE AND ADMINISTRATION CABINET
State Investment Commission
(Amended at ARRS Committee)
200 KAR 14:081.Repurchase agreement.
Section 1.
Definitions.(1)
"Commission" means the State Investment Commission.(2)
"Eligible financial institution" means an entity approved for repurchase agreements by the commission.(3)
"Office" means the Office of Financial Management.(4)
"Repurchase agreement" means an actual, conditional purchase or sale of securities of the United States Treasury, an agency, instrumentality, or corporation of the United States, or another security authorized for investment pursuant to KRS 42.500(9)(a) or (b), with an agreement to resell or repurchase the securities to their original owner on a specific date in the future.Section 2.
Minimum Interest Rates.Section 3.
Reporting Requirements for Eligible Investment Institutions. The commission shall inform eligible financial institutions of the reporting requirements for the investment of state funds in eligible financial institutions established by this section. An eligible financial institution shall:(1)
Submit a copy of its quarterly financial reports including accompanying schedules, to the commission within thirty (30) days from the end of each quarter; and(2)
Complete and sign the Securities Industry and Financial Markets Association Master Repurchase Agreement, including completion of the Custodial Undertaking in Connection with Master Repurchase Agreement as needed or required, incorporated by reference in 200 KAR 14:011.Section 4.
Eligible Securities. Investment securities authorized for investment pursuant to KRS 42.500(9)(a) and (b) shall be considered eligible securities for repurchase agreements.Section 5.
Sufficiency of Securities Purchased.(1)
The securities purchased shall have a market value, including accrued interest, of at least(2)
The review for the sufficiency of collateral on all repurchase agreements shall occur every business day excluding holidays by the office(3)
The commission shall demand additional securities to be delivered immediately, duringSection 6.
Status of Parties.(1)
The commission and the eligible financial institutions authorized to enter into repurchase agreements:(a)
Shall be considered principals in repurchase agreements; and(b)
Shall not be considered agents for third parties.(2)
Contractual obligations shall apply to and be binding on the commission and the specific eligible financial institution with which the repurchase agreement is initially negotiated and settled.(3)
The commission shall approve the eligible financial institutions quarterly following fundamental analysis of the most recent financial releases.(4)
The officeSection 7.
Default.(1)
(a)
If an eligible financial institution with which the commission has entered into a repurchase agreement defaults, or is determined by the commission to be in danger of default, the commission shall set off claims and liquidate property held in respect to the repurchase agreement against obligations owing to the eligible financial institution under other repurchase agreements.(2)(b)
Payments, deliveries, and other transfers made under a repurchase agreement shall be deemed to have been made in consideration of payments, deliveries, and other transfers made under any other repurchase agreement by the eligible financial institution.(3)(c)
The obligation to make payments, deliveries, and other transfers under a repurchase agreement may be applied against the obligation to make payments, deliveries, and other transfers under any other repurchase agreements of the eligible financial institution and netted.(4)(2)
(a)
From the proceeds of liquidated property, the commission shall pay itself the full principal and accrued interest due as of the date of liquidation.(5)(b)
Remaining cash balances shall be forwarded to the financial institution with which the repurchase agreement was originally executed.Section 8.
Kentucky Bank Repurchase Program.(1)
Repurchase agreements with commercial banks and savings and loan associations chartered by the Commonwealth of Kentucky or by the U.S. government with offices located in Kentucky before being placed shall meet the following criteria:(a)
A loan to deposit ratio equal to or greater than seventy (70) percent;(b)
A nonperforming loan to capital ratio of equal to or less than twenty-five (25) percent;(c)
A capital to assets ratio equal to or greater than eight (8) percent or regulatory requirements; and(d)
A return on assets ratio greater than one-half(2)
Repurchase agreements with maturities equal to or greater than 365 days with commercial banks and savings and loan associations chartered by the Commonwealth of Kentucky or by the U.S. government with offices located in Kentucky shall be limited to $5,000,000 per institution.(3)
The office shall review the financial ratios listed quarterly to determine eligibility of institutions. Existing repurchase agreements with institutions which fail to meet the minimum criteria for two (2) consecutive quarters shall be subject to call at par value by the commission. Repurchase agreements shall be placed according to:(a)
Availability of funds;(b)
Demand for funds by the institutions; and(c)
Highest loan to deposit ratio of eligible institutions.(4)
(a)
A repurchase agreement with a commercial bank or savings and loan shall not be an amount in excess of its capital structure or ten (10) percent of the institution's deposits, whichever is less.(5)(b)
The commission shall not enter into a Kentucky Bank Repurchase Program repurchase agreement with a commercial bank or savings and loan association that will cause that institution to exceed in aggregate a total of $50,000,000(6)(5)
Yield charged and collateral requirements for commercial banks and savings and loans.(a)
A commercial bank or savings and loan submitting U.S. Treasuries and agencies excluding mortgage backed securities and collateralized mortgage obligations as collateral shall be charged the(b)
A commercial bank or savings and loan submitting mortgage-backed securities and collateralized mortgage obligations shall be charged the(7)(6)
Payment for and holding collateral(a)
Each transaction shall be conducted on a payment-versus-delivery basis.(b)
The office(c)
Securities purchased from commercial banks or savings and loan associations in a repurchase agreement shall be received, verified, and heldFILED WITH LRC: November 13, 2024
CONTACT PERSON: Laura Sharp, Administrative Specialist III, Office of General Counsel, 200 Mero Street, 5th Floor, Frankfort, Kentucky 40622; phone (502)564-6660, fax (502)564-9875, email laura.sharp@ky.gov.
FINANCE AND ADMINISTRATION CABINET
State Investment Commission
(Amended at ARRS Committee)
200 KAR 14:081.Repurchase agreement.
Section 1.
Definitions.(1)
"Commission" means the State Investment Commission.(2)
"Eligible financial institution" means an entity approved for repurchase agreements by the commission.(3)
"Office" means the Office of Financial Management.(4)
"Repurchase agreement" means an actual, conditional purchase or sale of securities of the United States Treasury, an agency, instrumentality, or corporation of the United States, or another security authorized for investment pursuant to KRS 42.500(9)(a) or (b), with an agreement to resell or repurchase the securities to their original owner on a specific date in the future.Section 2.
Minimum Interest Rates. The commission shall not invest public funds in a repurchase agreement with a yield less than may be received on a directly purchased United States Treasury security of comparable maturity.Section 3.
Reporting Requirements for Eligible Investment Institutions. The commission shall inform eligible financial institutions of the reporting requirements for the investment of state funds in eligible financial institutions established by this section. An eligible financial institution shall:(1)
Submit a copy of its quarterly financial reports including accompanying schedules, to the commission within thirty (30) days from the end of each quarter; and(2)
Complete and sign the Securities Industry and Financial Markets Association Master Repurchase Agreement, including completion of the Custodial Undertaking in Connection with Master Repurchase Agreement as needed or required, incorporated by reference in 200 KAR 14:011.Section 4.
Eligible Securities. Investment securities authorized for investment pursuant to KRS 42.500(9)(a) and (b) shall be considered eligible securities for repurchase agreements.Section 5.
Sufficiency of Securities Purchased.(1)
The securities purchased shall have a market value, including accrued interest, of at least 102 percent of the face value of the repurchase agreement.(2)
The review for the sufficiency of collateral on all repurchase agreements shall occur every business day excluding holidays by the office.(3)
The commission shall demand additional securities to be delivered immediately, during market conditions that cause the value of the securities purchased to drop below 102 percent of the face value of the repurchase agreement.Section 6.
Status of Parties.(1)
The commission and the eligible financial institutions authorized to enter into repurchase agreements:(a)
Shall be considered principals in repurchase agreements; and(b)
Shall not be considered agents for third parties.(2)
Contractual obligations shall apply to and be binding on the commission and the specific eligible financial institution with which the repurchase agreement is initially negotiated and settled.(3)
The commission shall approve the eligible financial institutions quarterly following fundamental analysis of the most recent financial releases.(4)
The office shall monitor credit worthiness of eligible financial institutions daily based on financial market indicators.Section 7.
Default.(1)
If an eligible financial institution with which the commission has entered into a repurchase agreement defaults, or is determined by the commission to be in danger of default, the commission shall set off claims and liquidate property held in respect to the repurchase agreement against obligations owing to the eligible financial institution under other repurchase agreements.(2)
Payments, deliveries, and other transfers made under a repurchase agreement shall be deemed to have been made in consideration of payments, deliveries, and other transfers made under any other repurchase agreement by the eligible financial institution.(3)
The obligation to make payments, deliveries, and other transfers under a repurchase agreement may be applied against the obligation to make payments, deliveries, and other transfers under any other repurchase agreements of the eligible financial institution and netted.(4)
From the proceeds of liquidated property, the commission shall pay itself the full principal and accrued interest due as of the date of liquidation.(5)
Remaining cash balances shall be forwarded to the financial institution with which the repurchase agreement was originally executed.Section 8.
Kentucky Bank Repurchase Program.(1)
Repurchase agreements with commercial banks and savings and loan associations chartered by the Commonwealth of Kentucky or by the U.S. government with offices located in Kentucky before being placed shall meet the following criteria:(a)
A loan to deposit ratio equal to or greater than seventy (70) percent;(b)
A nonperforming loan to capital ratio of equal to or less than twenty-five (25) percent;(c)
A capital to assets ratio equal to or greater than eight (8) percent or regulatory requirements; and(d)
A return on assets ratio greater than one-half (0.5) percent.(2)
Repurchase agreements with maturities equal to or greater than 365 days with commercial banks and savings and loan associations chartered by the Commonwealth of Kentucky or by the U.S. government with offices located in Kentucky shall be limited to $5,000,000 per institution.(3)
The office shall review the financial ratios listed quarterly to determine eligibility of institutions. Existing repurchase agreements with institutions which fail to meet the minimum criteria for two (2) consecutive quarters shall be subject to call at par value by the commission. Repurchase agreements shall be placed according to:(a)
Availability of funds;(b)
Demand for funds by the institutions; and(c)
Highest loan to deposit ratio of eligible institutions.(4)
A repurchase agreement with a commercial bank or savings and loan shall not be an amount in excess of its capital structure or ten (10) percent of the institution's deposits, whichever is less.(5)
The commission shall not enter into a Kentucky Bank Repurchase Program repurchase agreement with a commercial bank or savings and loan association that will cause that institution to exceed in aggregate a total of $50,000,000 in repurchase agreements.(6)
Yield charged and collateral requirements for commercial banks and savings and loans.(a)
A commercial bank or savings and loan submitting U.S. Treasuries and agencies excluding mortgage backed securities and collateralized mortgage obligations as collateral shall be charged the repurchase rate with an equivalent term as quoted by Bloomberg L.P.and shall have a market value of 102 percent of the repurchase agreement face value.(b)
A commercial bank or savings and loan submitting mortgage-backed securities and collateralized mortgage obligations shall be charged the repurchase rate with an equivalent term as posted on Bloomberg L.P., plus fifty (50) basis points and shall have a market value of 105 percent of the repurchase agreement face value.(7)
Payment for and holding collateral of purchases.(a)
Each transaction shall be conducted on a payment-versus-delivery basis.(b)
The office shall not allow state funds to be released until delivery of adequate, negotiable collateral has been verified.(c)
Securities purchased from commercial banks or savings and loan associations in a repurchase agreement shall be received, verified, and held by the state's custodial bank or its agent.FILED WITH LRC: November 13, 2024
CONTACT PERSON: Laura Sharp, Administrative Specialist III, Office of General Counsel, 200 Mero Street, 5th Floor, Frankfort, Kentucky 40622; phone (502)564-6660, fax (502)564-9875, email laura.sharp@ky.gov.