P 

P 

August 20, 1990 

Ms. Helen Campbell Opinion No. JM-1210 

Commissioner 

Office of Firemenrs Re: Authority of the City of 

Pension Commissioner Austin Fire Fighter's Relief 

3910 South IH 35, Suite 235 and Retirement Fund to enter 

Austin, Texas 78704 into "securities lending 

agreements" with a corporate 

borrower (RQ-1847) 

Dear Ms. Campbell: 

On behalf of the City of Austin Fire Fighters Relief 

and Retirement Fund you pose questions about the authority 

of the trustees of the fund to enter into "securities 

lending agreements." You advise: 

Securities lending contracts are usually made 

between a corporate securities dealer, as 

'borrower,' and a pension fund or other 

investor, as 'lender,' and involve securities 

already owned by the lender. Under the 

lending agreement, the lender agrees to 

deliver and transfer the securities to the 

borrower (so as to register the securities in 

the borrower's name as owner), and at the 

same time the borrower delivers to the lender 

collateral securities of equal or greater 

value than the borrowed securities. During 

the period of the 'loan,' these agreements 

provide that, as between the borrower and the 

lender, the lender remains the owner of the 

'borrowed securities' (and the borrower 

remains 'owner' of the 'collateral' securities) with the lender entitled to receive 

(from the borrower) the amount of dividends, 

interest, or earnings attributable to the 

'borrowed' securities, and the borrower is 

entitled to receive from the lender the 

dividends or earnings attributable to the 

'collateral' securities. However, it ' 

expressly provided in the agreement that tkz 

borrower is to be invested with the indicia 

P. 6402 
Ms. Helen Campbell - Page 2 (JM-1210) 

of complete title to the borrowed securities, 

and has the right to sell or transfer the 

borrowed securities to others, so as to have, 

as to all third parties, ownership of the 

securities. At the conclusion of the period 

of the lending agreement, the borrower is 

required to 'return' the borrowed securities, 

or more precisely, to deliver to the lender 

the same amount and type of securities 

borrowed, but not necessarily the same 

certificates: and the lender is required to 

redeliver to the borrower the 'collateral' 

securities. 

Briefs received in support of the power of the fund to 

enter such agreements characterize them as similar to 

"repurchase agreements." The only difference, it is said, 

between a securities lending agreement and such a purchase/ 

sale agreement is that in a securi.ties lending agreement, 

title to the securities does not pass to the borrower and 

title to the collateral securities does not pass to the 

board. 

Such transactions do not involve investments by the 

lender in the securities loaned or in the collateral 

received: rather, they constitute investments in the 

contractual obligations of the borrower (to deal with the 

loaned property in a particular way). m Attorney General 

Opinion JM-1201 (1990); JM-23 (1983). 

Your first question reads: 

Are the trustees of the Fund authorized 

under subsection (g) of Section 10, or 

other law to enter into "securities 

lending agreements" with a corporate 

borrower? [of article 6243e.1, V.T.C.S.] 

Section 10, subsection (g), provides: 

ts) When, in the opinion of the board of 

trustees, there is on hand in the fire 

fighter's relief and retirement fund of any 

city under this Act a surplus over and above 

a reasonable and safe amount to take care of 

the current demands on the fund, the surplus, 

or so much of it as in the judgment of the 

board is deemed safe, may be invested in: 

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Ms. Helen Campbell - Page 3 (JM-1210) 

(1) United States Treasury notes, bonds, 

and bills; 

(2) United States government agency obligations; 

(3) corporate bonds rated 'A' or better 

by Moody's or Standard and Poor's bond 

ratings: 

(4) preferred corporate stocks: 

(5) commercial paper rated 'P2' or better 

by Standard and Poor's and 'A2' or better by 

Moody's bond ratings: 

(6) state, county, or municipal bonds; 

(7) shares or share accounts of savings 

and loan associations, if the shares or share 

accounts are insured by the Federal Savings 

and Loan Insurance Corporation: 

(8) shares or share accounts of banks, if 

the shares or share accounts are insured by 

the Federal Deposit Insurance' Corporation: 

(9) short-term investment funds, mutual 

funds, or their equivalent, which may include 

investments in bank certificates of deposit: 

(10) notes and other evidence of debt 

secured by mortgages insured or guaranteed by 

the Federal Housing Administration under the 

National Housing Act (12 U.S.C. Section 1701 

et sea.): 

(11) common stocks of companies incorporated within the United States that have paid 

cash dividends for at least five consecutive 

years immediately before the date of purchase, are rated 'B' or better by Standard 

and Poor's bond ratings or are equivalent, 

and are listed on an exchange registered with 

the Securities and Exchange Commission: and 

(12) common stocks of foreign corporations that are designated in United States 

dollars and are registered with the 

Securities and Exchange Commission. 

p. 6404 
Ms. Helen Campbell - Page 4 (JM-1210) 

The legislature did not include "securities lending 

agreements" among the transactions the statute would 

sanction. See Attorney General Opinion MN-506 (1982) 

(firemen's relief fund may not be invested in local 

partnership under statute). See aen ralJ,y Tex. 

(a)(3) (investmentepolicy 

Const. art. 

XVI, § 67(a) (11, for retirement 

systems and related programs). 

In response to your first question, we advise that the 

trustees of the fund are not authorized by subsection (g) of 

section 10 of article 6243e.1, V.T.C.S., or any other law, 

to enter into "securities lending agreements" with a corporate borrower. In view of this answer, we do not reach your 

other questions. 

SUMMARY 

The trustees of the City of Austin Fire 

Fighters Relief and Retirement Fund are not 

authorized to enter into "securities lending 

agreements" with a corporate borrower. 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

MU MCCRHARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RENEA HICKS 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Rick Gilpin 

Assistant Attorney General 

p. 6405