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CITY OF REDWOOD CITY <br />INVESTMENT POLICY <br /> draft update: 8/28/17 17 <br />OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the <br />open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the <br />volume of money and credit in the economy. Purchases inject reserves into the bank system and <br />stimulate growth of money and credit; sales have the opposite effect. Open market operations are the <br />Federal Reserve’s most important and most flexible monetary policy tool. <br />PORTFOLIO: Collection of securities held by an investor. <br />PRIMARY DEALER: A group of government securities dealers who submit daily reports of market <br />activity and positions and monthly financial statements to the Federal Reserve Bank of New York and <br />are subject to its informal oversight. Primary dealers include Securities and Exchange Commission <br />(SEC)-registered securities broker-dealers, banks, and a few unregulated firms. <br />PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, <br />such as a trustee, may invest money only in a list of securities selected by the custody state—the so- <br />called legal list. In other states the trustee may invest in a security if it is one which would be bought <br />by a prudent person of discretion and intelligence who is seeking a reasonable income and <br />preservation of capital. <br />QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the <br />payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has <br />segregated for the benefit of the commission eligible collateral having a value of not less than its <br />maximum liability and which has been approved by the Public Deposit Protection Commission to hold <br />public deposits. <br />RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market <br />price. This may be the amortized yield to maturity on a bond the current income return. <br />REPURCHASE AGREEMENT (REPO): A holder of securities sells these securities to an investor with an <br />agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the <br />“seller” money for the period of the agreement, and the terms of the agreement are structured to <br />compensate him for this. <br />REVERSE REPURCHASE AGREEMENT (REVERSE REPO): A reverse-repurchase agreement (reverse <br />repo) involves an investor borrowing cash from a financial institution in exchange for securities. The <br />investor agrees to repurchase the securities at a specified date for the same cash value plus an agreed <br />upon interest rate. Although the transaction is similar to a repo, the purpose of entering into a reverse <br />repo is quite different. While a repo is a straightforward investment of public funds, the reverse repo <br />is a borrowing. <br />SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of <br />all types and descriptions are held in the bank’s vaults for protection. <br />SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the <br />initial distribution. <br />SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities <br />transactions by administering securities legislation. <br />SEC RULE 15(C)3-1: See Uniform Net Capital Rule. <br />STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) <br />and corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate <br />coupons, derivative-based returns) into their debt structure. Their market performance is impacted by <br />6.1.B. - Page 43