§ 108.306. Authorized Investments Pursuant to CFC Section 6702(g).
10 CA ADC § 108.306Barclays Official California Code of Regulations
10 CCR § 108.306
§ 108.306. Authorized Investments Pursuant to CFC Section 6702(g).
(1) Interest-rate futures contract. A transferable agreement to make or take delivery of a standardized amount of an interest-bearing security, of standardized minimum quality grade, during a month specified in the agreement, under terms and conditions established by an exchange designated and regulated by the Commodity Futures Trading Commission.
(4) Mortgage-related securities. Securities based on and backed by mortgages, including GNMA-guaranteed mortgage-backed securities, Mortgage Participation Certificates of the Federal Home Loan Mortgage Corporation, and similar obligations issued by the association or in which the association is authorized to invest.
(5) Offset. To close out an obligation to make or take delivery of securities under a futures contract. A futures contract to purchase securities is offset by a futures contract to sell securities of the same type for the same delivery month. A futures contract to sell securities is offset by a futures contract to purchase securities of the same type for the same delivery month.
(b) Permitted transactions. To the extent that it has legal power to do so, an association may engage in interest-rate futures transactions to reduce its net interest-rate exposure. For purposes of this section, net interest-rate risk exposure is the volatility in an association's earnings that can arise from the mismatching of the effective maturities of assets and liabilities. An association may enter into short positions that are appropriate for reducing its net interest-rate risk exposure. Long positions, other than those that offset short positions, may be entered into only under the following conditions:
(1) The futures position must be matched against a firm forward commitment to sell mortgages not yet originated or to issue mortgage-related securities based on mortgages not yet originated. For purposes of this paragraph (B), a firm forward commitment is a written commitment obligating the seller to make delivery, and the buyer to take delivery, of mortgage loans not yet originated or mortgage-related securities based on mortgages not yet originated, at a price and on or before a date specified in the commitment; and
(2) An association may enter into and maintain long futures positions only to the extent that its firm forward commitments exceed 10 percent of long-term assets with fixed interest rates. For purposes of this section, long-term assets are those having remaining terms to maturity in excess of five years.
Until February 6, 1982, associations may continue to engage in mortgage rate futures transactions as authorized immediately prior to January 23, 1982. Associations with interest-rate futures positions entered into before February 6, 1982, that are not permitted under this paragraph (B), will be permitted to continue to hold those futures contracts; provided that the mortgage-rate futures transactions were authorized when entered into and the contracts are not renewed.
(d) Board of directors' authorization. Prior to engaging in interest-rate futures transactions, an association's board of directors must authorize such activity. In authorizing futures trading, the board of directors shall consider any plan to engage in interest-rate futures transactions, shall endorse specific written policies, and shall require the establishment of internal control procedures. Policy objectives must be specific enough to outline permissible contract strategies taking into account price and yield correlations between the assets or liabilities and the futures contracts with which they are matched, their relationship to the association's operations and how such strategies reduce the association's net interest-rate risk exposure. Internal control procedures shall include, at a minimum, periodic reports to management, segregation of duties and internal review procedures. In addition, the minutes of the meeting of the board of directors shall set forth limits applicable to futures transactions, identify personnel authorized to engage in futures transactions, and set forth the duties, responsibilities and limits of authority of such personnel. The board of directors shall review the position limit, all outstanding contract positions, and the unrealized gains or losses on those positions at each regular meeting of the board.
(1) Contract register. The association shall maintain a contract register adequate to identify and control all interest-rate futures contracts and including, at a minimum, the type and amount of each contract, the maturity date of each contract, the cost of each contract, the dollar amount and description of the asset or liability with which the futures contract is matched, and the date and manner in which a contract is closed out. Such register shall be prepared in a manner sufficient to indicate at any time the association's total outstanding long and short interest-rate futures positions.
(B) Authorized Personnel. The minutes of the board of directors of the association shall set out the names, duties, responsibilities, and current limits of authority of the association's personnel authorized to engage in forward commitment transactions for the association; the brokerage firms through which authorized personnel may conduct forwards activity; and the dollar limit on transactions with each such firm.
1. General. An association may make forward commitments to purchase securities, subject to the limits in paragraph 2 below, if that activity is conducted in a safe and sound manner. An example of an unsafe and unsound practice which may preclude further investment under this regulation is an inability to fund commitments when due. No association may sell a forward commitment or security under agreement to purchase another forward commitment or security at a price other than actual market value.
2. Percent of Assets. An association's outstanding forward commitments to purchase securities may not exceed an amount equal to ten percent of its total assets if statutory net worth is less than five percent of total assets, or 15 percent of total assets if statutory net worth is five percent or more of total assets.
1. A current register of all outstanding forward commitments, including the type (firm or standby), commitment date, amount, rate, price to be paid at settlement, market price at date of commitment, settlement date, commitment fees received, date and manner of disposal, sales price and market value at disposal if disposition is made on or prior to settlement date other than through funding, and seller's identify and confirmation; and
Credits
Note: Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.
History
1. Change without regulatory effect renumbering former Section 231.6 to Section 108.306 (Register 87, No. 14). For prior history, see Register 83, No. 16.
This database is current through 5/10/24 Register 2024, No. 19.
Cal. Admin. Code tit. 10, § 108.306, 10 CA ADC § 108.306
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