PURPOSE: This rule establishes collateral requirements for nonstate funds collected and invested by the Department of Revenue. These requirements are designed to guarantee that nonstate funds are secured against loss while they are being invested in safe, competitive yield investment instruments prior to distribution of principal and earned interest to local political subdiuisions.

1. (1) Any depository investing nonstate funds as an investment agent of the director of revenue must guarantee there will be no deficiencies in daily transactions, nor losses in any principal or interest due to the department on investment transactions.
2. (2) Any depository investing nonstate funds as an investment agent of the director of revenue must be subject to examination bythe Federal Deposit Insurance Corporation (FDIC) or other like federal government agency, the Securities and Exchange Commission (SEC), the Missouri Division of Finance or other like state agency, and independent auditors. Theinvestment agent also shall have an internal audit program which meets the specifications of the Department of Revenue Investment Group.

3. (3) Any depository investing nonstate funds as an investment agent of the director of revenue must adhere to the following rules governing collateral:

   1. (A) Before the investment agent places deposits with time depository institutions, the investment agent must require that the institutions pledge collateral security. The following general procedures will be used:

      1. 1. Only securities listed as follows are

acceptable to secure nonstate funds:

1. A. Marketable Treasury securities of

the United States, excluding coupons under book entry (CUBES);

1. B. General obligation debt securities

issued by Missouri;

1. C. General obligation bonds of any city

in this state having a population of not less than two thousand (2000);

1. D. General obligation bonds of any

county in this state;

1. E. General obligation bonds approved

and registered of any school district situated in this state;

1. F. General obligation bonds approved

and registered of any special road district situated in this state;

1. G. General obligation state bonds of

any of the fifty (50) states; 12 CSRlO-43-REVENUE

1. H. Debt securities of the Federal Farm

Credit System or any of the Banks of Cooperative, Federal Intermediate Credit Banks or Federal Land Banks

1. I. Debt sect&es of the Federal Home

Loan Banks (FHLBs), excluding zero-coupon bonds (ZEROS);

1. J. Debt securities of the Federal

National Mortgage Association (FNMA), including mortgage-backed securities, but excluding collateralized mortgage obligations (CMOS), real estate mortgage investment conduits (REMICs), separate trading of registered interest and principal securities (STRIPS) and ZEROS (All mortgage-backed securities shall be valued at ninety percent (90%) of market value.);

1. K. Debt securities of the Student Loan

Marketing Association (SLMA), excluding STRIPS and ZEROS

1. L. Debt securiiies of the Government

National Mortgage Association (GNMA), including mortgage-backed securities, but excluding CMOS, REMICs, STRIPS and ZEROS. Nonbook-entry registered securities must be in nominee name (All mortgagebacked securities shall be valued at ninety percent (90%) of market value.);

1. M. Farmers Home Administration

insured notes (CBOs);

1. N. Bonds of any political subdivision

established under the provisions of Section 30, Article VI of the Constitution of Missouri;

1. 0. Tax anticipation notes issued by any

county of class one in Missouri;

1. P. Public housing notes and bonds

(projects notes and bonds) issued by public housing agencies, guaranteed as to the payment of principal and interest by the government ofthe United States or any agency or instrumentality of the United States; Q, Revenue bonds issued by the Missouri Board of Public Buildings or Department of Natural Resources;

1. R. Revenue bonds of the Missouri

Housing Development Commission, Missouri Health and Education Facilities Authority, Missouri Higher Educational Loan Authority, Missouri Environmental Improvement and Energy Resource Authorities, Missouri Agricultural and Small Business Development Authority, Missouri Industrial Development Board or state-owned education institutions so long as any of the mentioned are rated A or better by Moodys or Standard and Poors (Ml on notes), or are secured by a federal agency guarantee (directly or through guaranteed loans);

1. S. Debt securities of the Federal Home

Loan Morteaae Coruoration (FHLMC). including mcrtgage-backed securities” but excluding mortgage cash flow obligaiions, CMOS, REMICs, STRIPS and ZEROS (All

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mortgage-backed securities shall be valued at ninety percent (90%) of market value.);

1. T. Guaranteed loan pool certificates of

the Small Business Administration (SBA). Nonbook-entry registered securities must bein nominee’s name (SBA pool certificates shall be valued at seventy-five percent (75%) of market value.);

1. U. Debt securities of the Resolution

Funding Corporation (REFCORP), excluding STRIPS and ZEROS; and

1. V. Revenue bonds are accepted only

underitemslistedinsubparagraphs(3)(A)l.B., Q. and R.;

1. 2. Accrued interest for time deposits must

be covered by the market value of securities pledged less applicable FDIC or other like insurance;

1. 3. The investment agent may not disburse

funds for investment until it is assured that adequate and proper collateral has been pledged. Telephone confirmation of securities pledged from a third-party custodian is acceptable pending receipt of the actual safekeeping document;

1. 4. Securities may not be released until

time deposit funds, including accrued interest, are received from the time depository institution;

1. 5. The investment agency may allow

substitution of acceptable collateral securities with equal or greater market value if the substitution occurs on a simultaneous basis. That is, the new collateral must be received before or at the same time the old collateral is released;

1. 6. Excess collateral may be released if it is

reasonable as determined by the investment agent. The investment agent will determine the market value of all collateral every two (2) weeks and compare that to the amount of time deposits at each time deposit institution. When the value of collateral falls below the amount of time deposits, the investment agent must immediately demand additional collateral. If the time depository institution fails to post the additional collateral within two (2) days of the day requested, the investment agent will request withdrawal of all time deposits at that institution; and

1. 7. The director of revenue, upon the

recommendation of the Department of Revenue Investment Group, may require an institution pledging collateral to use a different third-party custodian which will be acceptable to the director;

1. (B) Repurchase Agreements and Reverse Repurchase Agreements will be handled in a manner similar to the state treasurer’s procedures and are restricted as follows:

   1. 1. Transactions will be on an overnight

b$; or for a period not to exceed thirty (30) Division IO-Director of Revenue

1. 2. Market value of collateral securities

must be at least equal to one hundred percent (100%) of the repurchase agreement; and

1. 3. Securities will be priced daily before

they are accepted;

1. (C) The investment agent must provide adequate collateral security for department funds in the investment agent’s custody and control. These funds consist of each day’s deposits plus any uncollected funds and any other noninvested funds; and

2. (D) The investment agent’s collateral system must be subject to on-line electronic access by the department’s employees. This system must include the following features:

   1. 1. The investment agent will price all

securities before they are placed on the system. The investment agent will ensure that securities are acceptable and marketable and will periodically review securities for these features;

1. 2. On a daily basis, the investment agent

will compare collateral security to all deposited funds;

1. 3. The investment agent will generate

appropriate exception reports. These will include, at a minimum, identifying those securities for which the safekeeping receipt has not yet been received. The investment agent will immediately follow-up on any deposit for which the safekeeping receipt is not received within five (5) working days; and

1. 4. The investment agent will produce a

report identifying deficiencies in collateral. This report will be produced daily and the investment agent will follow-up on a same day basis to ensure that adequate collateral is pledged. Auth: section 136.120, RSMo (1986). Original rule filed May 2,1986, ejjectiue Aug. 11, 1986. Amended: Filed April 21, 1987, effective July 23, 1987. Amended: Filed June 14, 1988, effective Oct. 27, 1988. Amended: Filed Jan. 18, 1989, effective June 11, 1989. Amended: Filed Aug. 28, 1990, effective Dec. 31, 1990. Amended: Filed Jan. 14, 1992, effective May 14,1992.

(S/4/92) Roy D. Blunt seeretay of state