Investments made by a credit union
pursuant to Sections
of the Financial Code shall be subject to the following provisions:
(1) The board of directors of a credit union
shall adopt and review at least annually, and the credit union shall comply
with, a written investment policy which sets out the goals of the credit
union's investment portfolio with respect to the yield, maturity, liquidity and
diversification, and risk management for its investments.
(2) A credit union shall maintain documentary
evidence that its investments are authorized pursuant to Sections
of the Financial Code and meet the requirements of this Section.
Pursuant to Section
of the Financial Code, a credit union is authorized to invest in the securities
issued by any person, as that term is defined in Section
of the Financial Code, subject to the limitation that the credit union's total
investments in the securities issued by any one person shall not exceed 10
percent of the credit union's equity capital, as that term is defined in
Financial Code. In addition, the following investments are authorized and not
subject to the 10-percent limit:
Obligations of the United States and those for which the faith and credit of
the United States are pledged for the payment of the principal and
Investments in an
"investment company" (commonly known as a "mutual fund") as defined in the
Investment Company Act of 1940 (15 U.S.C. Sec.
et seq.) or trusts, provided all
investments and investment practices of the investment company or trust would
be permissible if made directly by federal credit unions;
(iii) Investments in deposits of authorized
financial institutions; and
Funds sold to authorized financial institutions, provided that the interest or
other consideration received from the authorized financial institution is the
market value of 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.
Credit unions may not engage in the
following investment activities with respect to investments authorized by
(1) A credit union may not
buy or sell a standby commitment.
(2) A credit union may not buy or sell a
(3) A credit
union may not engage in adjusted trading.
(4) A credit union may not engage in a short
(5) A credit union's
directors, officials, committee members and employees, and their immediate
family members, may not receive pecuniary consideration in connection with the
making of an investment or deposit by the credit union.
For purposes of Subdivisions (b) and (c)
of this Section, the following definitions shall apply:
(1) "Adjusted trading" means any method or
transaction used to defer a loss whereby a credit union sells a security to a
vendor at a price above its current market price and simultaneously purchases
or commits to purchase from the vendor another security at a price above its
current market price.
"Authorized financial institution" means a national bank, state bank, trust
company, savings association, credit union, or other financial institution
which is organized under the laws of the State of California, or which is
insured by the Federal Deposit Insurance Corporation or the National Credit
Union Share Insurance Fund.
"Federal funds transaction" means a short-term or open-ended transfer of funds
to an authorized financial institution.
(4) "Futures contract" means a contract for
the future delivery of commodities, including certain government securities,
sold on commodities exchanges.
"Immediate family member" means a spouse, or a child, parent, grandchild,
grandparent, brother or sister, or the spouse of any such individual.
(6) "Market price" means the last established
price at which a security is sold.
(7) "Security" means any security,
obligation, account, deposit, or other item authorized for investment by a
(8) "Short sale"
means the sale of a security not owned by the seller.
(9) "Standby commitment" means a commitment
to either buy or sell a security, on or before a future date, at a
predetermined price. The seller of the commitment is the party receiving
payment for assuming the risk associated with committing either to purchase a
security in the future at a predetermined price, or to sell a security in the
future at a predetermined price. The seller of the commitment is required to
either accept delivery of a security (in the case of a commitment to buy) or
make delivery of a security (in the case of a commitment to sell), in either
case at the option of the buyer of the commitment.