1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Bailment for hire contract--A contract whereby a third party, bank, or other financial institution, for a fee, agrees to exercise ordinary care in protecting the securities held in safekeeping for its customers.
   2. (2) Bankers' acceptance--A time draft that is drawn on and accepted by a bank, and that represents an irrevocable obligation of the bank.
   3. (3) Cash forward agreement--An agreement to purchase or sell a security with delivery and acceptance being mandatory and at a future date in excess of 30 days from the trade date.
   4. (4) Eurodollar deposit--A deposit in a foreign branch of a United States financial institution.
   5. (5) Federal funds transaction--A short-term or open-ended transfer of funds to a financial institution.
   6. (6) Financial institution--A bank or similar entity savings and loan association, savings association, or mutual savings bank insured by an agency of the federal government, or a federal or state-chartered credit union or the National Credit Union Central Liquidity Facility.

   7. (7) Repurchase transaction--A transaction in which a credit union agrees to purchase a security from a vendor and to resell the same or any identical security to that vendor at a later date. A repurchase transaction may be one of the three following types.

      1. (A) An investment-type repurchase transaction is a repurchase transaction where the credit union purchasing the security takes physical possession of the security, or receives written confirmation of the purchase and a custodial or safekeeping receipt from a third party under a written bailment for hire contract, or is recorded as the owner of the security through the Federal Reserve book-entry system.
      2. (B) A financial institution-type repurchase transaction is a repurchase transaction with a financial institution.
      3. (C) A loan-type repurchase transaction is any repurchase transaction that does not qualify as an investment-type or financial institution-type repurchase transaction.
   8. (8) Reverse repurchase transaction--A transaction whereby a credit union agrees to sell a security to a purchaser and to repurchase the same or any identical security from that purchaser at a future date and at a specified price.
   9. (9) Security--Any security, obligation, account, deposit, or other item authorized for investment by the Act or this section other than an investment authorized by the Act, §8.01(1).
   10. (10) Settlement date--The date originally agreed to by a credit union and a vendor for settlement of the purchase or sale of a security.
   11. (11) Trade date--The date a credit union originally agrees, whether orally or in writing, to enter into the purchase or sale of a security.
   12. (12) Yankee Dollar deposit--A deposit in a United States branch of a foreign bank licensed to do business in the state in which it is located, or a deposit in a state chartered, foreign controlled bank.
   13. (13) Mortgage related security--A security which meets the definition of mortgage related security in United States Code Annotated, Title 15, §78c(a)(41).
   14. (14) Asset-backed security--A bond, note, or other obligation issued by a financial institution, trust, insurance company, or other corporation secured by either a pool of loans, extensions of credit which are unsecured or secured by personal property, or a pool of personal property leases.

2. (b) Authorized activities.

   1. (1) General authority. A credit union may contract for the purchase or sale of a security provided that delivery of the security is to be made within 30 days from the trade date.

   2. (2) Cash forward agreements. A credit union may enter into a cash forward agreement to purchase or sell a security, provided that:

      1. (A) the period from the trade date to the settlement date does not exceed 180 days;
      2. (B) if the credit union is the purchaser, it has written cash flow projections evidencing its ability to purchase the security;
      3. (C) if the credit union is the seller, it owns the security on the trade date; and
      4. (D) the cash forward agreement is settled on a cash basis at the settlement date.
   3. (3) Repurchase transactions. A credit union may enter into an investment-type repurchase transaction or a financial institution-type repurchase transaction provided the purchase price of the security obtained in the transaction is at or below the market price. A repurchase transaction not qualifying as either an investment-type or financial institution-type repurchase transaction will be considered a loan-type repurchase transaction subject to the Act.
   4. (4) Reverse repurchase transactions. A credit union may enter into a reverse repurchase transaction. A reverse repurchase transaction is a borrowing transaction subject to the Act.
   5. (5) Federal funds. A credit union may enter into a federal funds transaction with a financial institution, provided that the interest or other consideration received from the financial institution is at the market rate for 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.
   6. (6) Yankee Dollars. A credit union may invest in Yankee Dollar deposits.
   7. (7) Eurodollars. A credit union may invest in Eurodollar deposits.
   8. (8) Bankers' acceptance. A credit union may invest in bankers' acceptances.
   9. (9) Open-end investment companies (mutual funds). A credit union may invest funds, not used in loans to members, in an open-end investment company established for investing directly or collectively in any authorized investment. A credit union shall record each investment in an open-end investment company at the lower of its cost or market value, determined at the end of each month, and net of all purchase and load fees.
   10. (10) Government-sponsored enterprises. A credit union may invest in government-sponsored enterprise obligations such as Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Student Loan Marketing Association.
   11. (11) Commercial paper. A credit union may invest in commercial paper having a rating of A1 or P1 by Standard & Poor's or Moody's rating service.
   12. (12) Corporate bonds. A credit union may invest in corporate bonds that have a rating of "A" or better by Standard & Poor's or Moody's rating service and remaining maturities of five years or less.
   13. (13) Mortgage related securities. A credit union may invest in mortgage related securities, except not in the "accrual bond" (or Z-bonds) or the residual interest of the mortgage related security.
   14. (14) Asset-backed securities. A credit union may invest in asset-backed securities rated AA or better by Standard & Poor's or having an equivalent rating from another nationally recognized rating agency.

3. (c) Reporting investment activities to the board of directors. The president shall provide the board of directors a monthly comprehensive report of investment activities, including:

   1. (1) investments purchased and sold during the month;
   2. (2) unrealized market gains or losses compared to book value at month's end;
   3. (3) calculated yield to maturity (current yield on mutual funds) on each outstanding investment as of month's end;
   4. (4) net asset value (NAV) or market value of each marketable investment;
   5. (5) total book value of investments outstanding at month's end;
   6. (6) the total amount of investments having maturities exceeding three years and the ratio of the investments to total reserves and undivided earnings;
   7. (7) unrecorded and unreported obligations to buy or sell investments; and
   8. (8) amounts of investments, other than designated depositories, in other institutions which are not fully insured by the Federal Deposit Insurance Corporation, National Credit Union Share Insurance Fund, or federal or state governments or their agencies.

Source Note:The provisions of this §91.802 adopted to be effective February 20, 1986, 11 TexReg 699; amended to be effective May 6, 1988, 13 TexReg 1979; amended to be effective May 9, 1989, 14 TexReg 2025; amended to be effective December 8, 1992, 17 TexReg 8233; amended to be effective July 8, 1994, 19 TexReg 4938.