DAR File No. 43815

Money Management Council, Administration

Rule R628-22

Conditions and Procedures for the use of Negotiable Brokered Certificates of Deposit

Notice of Proposed Rule

(New Rule)

DAR File No.: 43815
Filed: 06/14/2019 07:48:33 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

In the 2019 General Session, negotiable brokered certificates of deposit were added to Section 51-7-11 as allowable investments for public treasurers to utilize, subject to Money Management Council rule. This rule provides the conditions and procedures that must be followed for public entities to purchase negotiable brokered certificates of deposit.

Summary of the rule or change:

This rule provides the conditions that a public treasurer must follow when purchasing negotiable brokered certificates of deposit from a certified investment adviser or a certified broker dealer. There are limitations on the maximum length of maturity, par value, purchase price, and allowed and not allowed structures of types of brokered certificates of deposit. Public treasurers can only purchase these types of certificates of deposit from a certified investment adviser or a certified dealer as defined in Section 51-7-3 of the Utah Money Management Act.

Statutory or constitutional authorization for this rule:

• Subsection 51-7-11(3)(p)
• Subsection 51-7-17(4)

Anticipated cost or savings to:

the state budget:

There is no anticipated cost or savings to the state budget as these types of investments will not be utilized by the state treasurer. The investments are limited to par values under $250,000 and are too small for the state to utilize effectively.

local governments:

There are approximately 900 public entities in the state and it is anticipated that a number of them will use these investments. How many is inestimable because usage will vary due to the size of a entity's portfolio, budgetary concerns, and market conditions. Because of the variation in market conditions it is inestimable as to what the anticipated savings/additional earnings would be for a public treasurer when using these investment tools. Additionally, they will be used as one of a number of other investment instruments that will be used presumably to spread out risk and exposure and it would be difficult to quantify the additional earnings.

small businesses:

The Money Management Act requires that any broker or adviser that works with public treasurers be "certified", so although the NAICS #523120 for brokers shows 242 firms and #523930 for advisers shows 528 firms, there are only eight certified advisers on the list, five of which would qualify as small businesses. On the certified broker/dealer list there are sixteen certified firms, eleven of which would qualify as small businesses. As noted above, because of the variation in market conditions and inability to identify how many public treasurers would use these instruments, it is inestimable as to what the anticipated profits a small certified broker/dealer or certified investment adviser would receive from the sale of these investments to public treasurers.

persons other than small businesses, businesses, or local governmental entities:

There is no anticipated cost or savings to other persons as this rule is specific to public entities, certified investment advisers, and certified dealers.

Compliance costs for affected persons:

There are no other compliance costs for either certified brokers or certified advisers as they already paid a annual fee under Council Rules R628-15 and R628-16 to be certified to work with public entities.

Comments by the department head on the fiscal impact the rule may have on businesses:

As noted above, the count of affected certified broker dealers is sixteen and for certified investment advisers is eight although the NAICS shows 242 broker firms and 528 adviser firms. There are approximately 900 public entities in the state of Utah. The Council cannot estimate how many of these entities will use these investments nor what the impact will be on their portfolios as the markets affect interest rates earned on these certificates of deposit and the markets variations affect how many basis points a broker/adviser can charge.

Doug DeFries, Chair

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Money Management Council
Administration
Room 180 UTAH STATE CAPITOL COMPLEX
350 N STATE ST
SALT LAKE CITY, UT 84114

Direct questions regarding this rule to:

• Ann Pedroza at the above address, by phone at 801-538-1883, by FAX at 801-538-1465, or by Internet E-mail at apedroza@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

07/31/2019

This rule may become effective on:

08/07/2019

Authorized by:

Douglas DeFries, Chair

Appendix 1: Regulatory Impact Summary Table*

Fiscal Costs	FY 2020	FY 2021	FY 2022
State Government	$0	$0	$0
Local Government	$0	$0	$0
Small Businesses	$0	$0	$0
Non-Small Businesses	$0	$0	$0
Other Person	$0	$0	$0
Total Fiscal Costs:	$0	$0	$0
Fiscal Benefits
State Government	$0	$0	$0
Local Government	$0	$0	$0
Small Businesses	$0	$0	$0
Non-Small Businesses	$0	$0	$0
Other Persons	$0	$0	$0
Total Fiscal Benefits:	$0	$0	$0
Net Fiscal Benefits:	$0	$0	$0

 

*This table only includes fiscal impacts that could be measured. If there are inestimable fiscal impacts, they will not be included in this table. Inestimable impacts for State Government, Local Government, Small Businesses and Other Persons are described in the narrative. Inestimable impacts for Non - Small Businesses are described in Appendix 2.

 

Appendix 2: Regulatory Impact to Non - Small Businesses

The Money Management Act requires that any broker or adviser that works with public treasurers be "certified", so although the NAICS code 523120 for brokers shows 242 firms and the code for advisers #523930,shows 528 firms, there are only eight certified advisers on the list, three of which would qualify as non-small businesses. On the certified broker list there are sixteen certified firms, five of which would qualify as non-small businesses.

 

Because of the variation in market conditions and inability to identify how many public treasurers would use these instruments, it is inestimable as to what the anticipated profits a non-small certified broker/dealer or certified investment adviser would receive from the sale of these investments to public treasurers.

 

The head of Money Management Council, Doug DeFries, has reviewed and approved this fiscal analysis.

 

 

R628. Money Management Council, Administration.

R628-22. Conditions and Procedures for the Use of Negotiable Brokered Certificates of Deposit.

R628-22-1. Authority.

This rule is issued pursuant to Section 51-7-11(3)(p) and 51-7-17(4).

 

R628-22-2. Scope.

This rule applies to all public treasurers who purchase negotiable brokered certificates of deposit.

 

R628-22-3. Purpose.

The purpose of this rule is to establish requirements for the investing of public funds in negotiable brokered certificates of deposit.

 

R628-22-4. Definitions.

For purposes of this rule the following terms are defined in Section 51-7-3 of the Act and when used in this rule have the same meaning as in the Act:

(1) Council;

(2) Public funds;

(3) Public treasurer;

(4) Certified dealer, and

(5) Certified investment adviser.

"Negotiable brokered certificate of deposit" means: a certificate of deposit issued by a financial institution that is guaranteed by the applicable federal deposit insurance limit and that can be sold in a secondary market, but cannot be cashed in before maturity.

"Step up" negotiable brokered certificates of deposit means: the interest rate automatically increases at specified intervals.

"LIBOR" means: London Interbank Offered Rate, which is a benchmark interest rate or LIBOR's subsequent replacement.

 

R628-22-5. General Rule.

(1) A public treasurer may invest public funds in negotiable brokered certificates of deposit only through a certified investment adviser or a certified broker dealer. These negotiable certificates of deposit shall be:

(a) limited to a maximum maturity of five years from the time of purchase settlement;

(b) limited to a purchased par value not to exceed 97% of the stated applicable federal deposit insurance limit per each financial institution at the time of purchase, and;

(c) limited to purchases where the purchase price does not exceed par.

(2) The public treasurer shall ensure that there is no overlap of purchased certificates of deposits in other deposit accounts of the financial institution when purchasing brokered certificates of deposit that would cause the public entity to exceed the applicable federal deposit insurance limit.

 

R628-22-6. Allowed Structures.

Structures allowed for negotiable brokered certificates of deposit are:

(1) Fixed rate;

(2) callable;

(3) Step up rates, and

(4) Floating rate certificates of deposit based on Libor or Libor's subsequent replacement.

 

R628-22-7. Types of Structures Not Allowed.

Negotiable brokered deposits that are issued based on the following are not allowed:

(1) inflation linked;

(2) index linked;

(3) equity linked, or

(4) other types of derivate linked securities.

 

R628-22-8. Reporting Requirements.

A public entity shall file a report with the Council of negotiable brokered CD's along with all other deposits and investments on or before July 31 and January 31 of each year for deposits held on June 30 and December 31 respectively.

 

KEY: public funds, investments, brokered certificates of deposit

Date of Enactment or Last Substantive Amendment: 2019

Authorizing, and Implemented or Interpreted Law: 51-7-17(4); 51-7-11(3)(p)