Code of Colorado Regulations3 CCR 704-1
Division of Securities
DEPARTMENT OF REGULATORY AGENCIES
Division of Securities
RULES UNDER THE COLORADO SECURITIES ACT
3 CCR 704-1
[Editor’s Notes follow the text of the rules at the end of this CCR Document.]
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CHAPTER 9LOCAL GOVERNMENT INVESTMENT POOL TRUST FUNDS
519.1Authority
The regulations provided in this Chapter 9 have been adopted pursuant to the authority granted to the securities commissioner in sections 11-51-901, et seq. C.R.S. and 24-75-701, et seq., C.R.S.
519.2Definitions
For purposes of this rule, the terms identified below shall have the following meanings:
A.“Board of trustees” shall have the same meaning as that term is defined in 2475701(2), et seq., C.R.S.;
B.“Investment adviser” shall have the same meaning as that term is in section 2475701(5), C.R.S.;
C.“Local government investment pool trust fund” shall mean a trust fund established pursuant to sections 11-51-901, et seq. C.R.S. and 24-75-701, et seq., C.R.S.;
D.“Participating local government” shall mean a governmental entity lawfully participating in a local government investment pool trust fund established pursuant to sections 11-51-901, et seq. and 24-75-701, et seq., C.R.S.; and
E.“Securities commissioner shall have the same meaning as that term is in sections 11-51-701 and 2475701(11), C.R.S.
519.3Registration, Reports and Bookkeeping of the Local Government Investment Pool Trust Funds
A.Prior to a local government investment pool trust fund’s investment of any trust fund assets, the local government investment pool trust fund board of trustees must register the local government investment pool trust fund with the Securities Commissioner pursuant to section 11-51-905, C.R.S.
B.Quarterly reports to the Securities Commissioner pursuant to section 1151906(2), C.R.S., shall be filed by all local governments investment pool trust funds with the Securities Commissioner within thirty (30) days after the end of the quarter and shall contain the following information:
1.Form TRQ1 (QUARTERLY REPORT TO MEMBERS);
2.Form TRQ2 (PORTFOLIO ASSETS); and
3.Financial Statements that contain a Statement of Net Assets, an Statement of Operations, and a Statement of Changes in Net Assets for the previous quarter.
C.Pursuant to section 2475703(1)(n), C.R.S., quarterly reports to each participating local government shall contain, at a minimum, a Statement of Net Assets, a Statement of Operations, a Statement of Changes in Net Assets and the Quarterly Report to Members Form (Form TRQ1). In addition, the quarterly report to each participating local government shall contain a listing of portfolio assets that, at a minimum, describes each investment instrument by issuer, face value, yield at purchase, final maturity date, cost, and market value.
519.4Written Policies and Procedures
All local government investment pool trust funds shall establish, maintain, and enforce written policies procedures that are reasonably designed to achieve compliance with the following requirements:
A.Written policies and procedures to ensure that the local government investment pool trust fund complies with GASB Statement No. 79, Certain External Investment Pools and Pool Participants, if the fund elects to report on an amortized cost basis. A local government investment pool trust fund that does not comply with GASB Statement No. 79 may continue to operate as a stable Net Asset Value pool but must use fair value for financial reporting purposes in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, or FASB Accounting Standards Codification 820, Fair Value Measurement.
B.Written investment policies and procedures that define the credit, liquidity, maturity, and diversification objectives of the local government investment pool trust fund and the means to achieve these objectives. These policies and procedures shall, at a minimum, address:
1.Safety of capital as a priority so as to ensure preservation of principal;
2.Sufficient liquidity be maintained to enable funding of all reasonably expected cash needs given the participant composition and history as well as economic and market conditions;
3.Investment return, taking into consideration a pool’s cash flow expectations;
4.Diversification of investment, including deposits adequate to reduce portfolio risks from an over concentration in any specific maturity, issuer, counterparty, depository, security, or class of securities;
5.Defining, monitoring and controlling interest rate risk; and,
6.Compliance with section 24-75-601.1, C.R.S.
C.Written policies and procedures that require the local government investment pool trust fund to monitor redemptions and reduce risk of unusually high redemptions in order to meet participants daily cash flow needs. Each local government investment pool trust fund shall meet or exceed the following minimum liquidity standard:
1.A minimum of 90 percent of a fund’s portfolio should be comprised of highly liquid investments and deposits. Liquid investments includes investment that can be redeemed or sold within five business days.
2.A minimum of 10 percent of a fund’s portfolio should be comprised of overnight investments or demand deposits;
3.A minimum of 30 percent of a fund’s portfolio should be comprised of investments maturing or subject to demand within five business days.
D.Written policies and procedures for managing credit that require a thorough, constant and independent credit analysis process that preserves a stable NAV. These policies shall at a minimum require the following:
1.Utilization of an experienced credit analyst that has the ability to manage and analyze credit risk;
2.For securities other than U.S. Treasuries and Agencies, an approved issuer list that is updated regularly; and
3.Policies that address assessing and liquidating positions in distressed credit situations as well as assessing and monitoring the credit quality and value of pledged collateral.
E.Written policies and procedures requiring the local government investment pool trust fund to perform and maintain the results of, and assumptions used in, connection with, monthly, or more frequent, stress testing. Such written policies and procedures shall further require the board of trustees and investment adviser of the applicable local government investment pool trust fund to review the results of each stress test performed by the local government investment pool trust fund.
F.Written policies and procedures that require each local government investment pool trust fund that utilizes amortized cost accounting to calculate a “shadow” NAV at least monthly.
G.Written policies and procedures that require compliance reviews to be performed at least weekly to assure compliance with investment policies, guidelines and procedures.
H.Written policies and procedures intended to ensure that private information of local government investment pool trust fund participants remains confidential at all times;
I.Written policies and procedures intended to ensure that the local government investment pool trust fund’s and its investment adviser(s)’ computers, servers, cloud storage and backup system(s), and web-based portals and applications are reasonably protected against cyber-attacks and hardware failure;
J.Written business continuity plan intended to ensure continuous, efficient and timely critical business operations in the event of an emergency and/or unforeseen disruption to normal business operations of the local government investment pool trust fund and/or its investment adviser(s).
519.5Recordkeeping
A. For a period of not less than five years following a local government investment pool trust fund’s replacement of any written policies or procedures with new written policies or procedures, the applicable investment pool trust fund must maintain preserve copies of the replaced policies and/or procedures.
B.For a period of not less than five years following a board of trustees’ considerations and actions in connection with the discharge of the board of trustees’ responsibilities, a written record of such considerations and actions must be maintained and preserved by the applicable local government investment pool trust fund.
519.6Notice to the Commissioner
Each local government investment pool trust fund shall promptly notify the Securities Commissioner, or the Securities Commissioner’s designee, by electronic mail of any:
A.Default or insolvency of any issuer of a security that is held by the investment local government investment pool trust fund; and
B.Instance wherein a board of trustees believes that the applicable local government investment pool trust fund may be unable to comply with an actual or potential request by a participating local government to liquidate the participating local government’s funds.
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Editor’s Notes
History
Sections 51-3.5, 51-3.7, 51-4.7, 51-4.8(1A) eff. 12/01/2008.
Sections 51-2.1; 51-3.9(a-g), 51-3.10b; 51-4.1B, 51-4.3, 51-4.4; 51-4.1(1A)(C-D), 51-4.3(1A)(G-I), 51-4.4(1A) A, E-H, 51-4.5(1A)C, 51-4.6(1A)A15(c), 51-4.8(1A)R, 51-4.10(1A), 51-7.1 eff. 11/30/2010.
Section 51-2.1.1.B eff. 10/15/2013.
Sections 51-4.7.G-51-4.7.I eff. 01/30/2015.
Sections 51-4.3.K, 51-4.4(IA).I eff. 06/01/2015.
Sections 51-3.20-51-3.30 emer. rules eff. 08/05/2015.
Sections 51-3.20-51.3.30 eff. 10/15/2015.
Sections 51-3.1, 51-3.7 eff. 01/30/2016.
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