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 andRetirement 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 andRetirement Fund you pose questions about the authority of the trustees of the fund to enter into "securities lending agreements." You advise:

Securities lending contracts areusually 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 (soas to register the securities in theborrower's name as owner), and at the same time theborrower 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, asbetween theborrower and the lender, the lender remains the owner of the 'borrowed securities' (and the borrower remains 'owner' ofthe 'collateral' securities)with the lender entitled to receive (fromthe 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 inthe agreement that tkz borrower istobe invested with the indicia

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

of complete title to theborrowed securities, andhas the right to sell or transfer the borrowed securities to others, soas tohave, as to all third parties, ownership of the securities. At the conclusion of the period ofthe lending agreement, the borrower is required to 'return' theborrowed securities, ormore precisely, to deliver to the lender the same amount and type of securities borrowed, but not necessarily the same certificates: and the lender isrequired to redeliver to theborrower the 'collateral' securities. Briefs received in support ofthe 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 ina securi.tieslending agreement, title to the securities does notpass to theborrower and title to the collateral securities does notpass to the board. Such transactions donot involve investments by the lender in the securities loaned or in the collateral received: rather, they constitute investments in the contractual obligations of theborrower (to dealwith the loaned property inaparticular 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? [ofarticle 6243e.1, V.T.C.S.] Section 10, subsection (g),provides: ts) When, inthe opinion of the board of trustees, there is on hand in the fire fighter's relief and retirement fund of any city under thisAct a surplus over and above a reasonable and safe amount to take care of the current demands on the fund, the surplus, or somuch of itas in the judgment of the board isdeemed safe,may be invested in:

P. 6403Ms. Helen Campbell -Page 3 (JM-1210)

(1) United States Treasury notes, bonds, andbills; (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'orbetter by Standard and Poor's and 'A2'orbetter by Moody's bond ratings: (6) state, county, ormunicipal bonds; (7) shares or share accounts of savings and loan associations, ifthe shares or share accounts are insured by the Federal Savings and Loan Insurance Corporation: (8) shares or share accounts ofbanks, 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 inbank certificates ofdeposit: (10) notes and other evidence of debt secured bymortgages insured orguaranteed by the Federal Housing Administration under the National Housing Act (12U.S.C. Section 1701 et sea.): (11) common stocks of companies incorporatedwithin theUnited States that have paid cash dividends forat least five consecutive years immediately before thedate of purchase, are rated 'B'or better by Standard and Poor's bond ratings orare equivalent, and are listed onan exchange registered with the Securities and Exchange Commission: and (12) common stocks of foreign corporations that aredesignated inUnited States dollars and are registered with the Securities and Exchange Commission.

p. 6404Ms. 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,yTex. (a)(3) (investmentepolicy Const. art. XVI, § 67(a)(11, for retirement systems and related programs).
Inresponse toyour first question, we advise that the trustees of the fund arenot authorized by subsection (g)of section 10of article 6243e.1, V.T.C.S., or any other law, to enter into "securities lending agreements" with a corporate borrower. Inview of this answer, we donot reach your other questions.
SUMMARY

The trustees of the City ofAustin Fire Fighters Relief and Retirement Fund are not authorized to enter into "securities lending agreements" with acorporate borrower.

JIM MATTOX Attorney General of Texas
MARY KELLER FirstAssistant 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 byRick Gilpin Assistant Attorney General

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