Iowa Administrative Code › Agency 187 - Banking Division › Chapter 2 - Application Procedures › Rule 187-2.16 - Contracts

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Scope.
Futures contracts
			 shall be defined as standardized contracts traded on and guaranteed by
			 organized exchanges to purchase or sell a specified security or a bank
			 certificate of deposit on a future date at a specified price. Forward contracts
			 shall be defined as over-the-counter contracts for forward placement or delayed
			 delivery of securities in which one party agrees to purchase and another to
			 sell a specified security at a specified price for future delivery. Contracts
			 specifying settlement in excess of 30 days following the trade date shall be
			 deemed to be forward contracts. Standby contracts shall be defined as optional
			 forward contracts. For an example, the buyer of a standby contract (put option)
			 pays a fee for the right or option to sell securities to the other party at a
			 stated price at a future time. The seller of a standby contract receives the
			 fee and must stand ready to buy the securities at the other party's option.
Futures contracts, forward contracts and standby contracts may
				be used by the state banks to reduce their existing interest rate risk exposure
				resulting from their overall investment activities and as a general hedge
				against interest rate exposure associated with undesired mismatches in
				interest-sensitive assets and liabilities. At no time shall futures, forward
				and standby contracts be used to speculate on future interest rate
				movements.
State banks may, without the prior approval of the
				superintendent, purchase shares in permissible investment companies, up to a
				maximum of 15 percent of aggregate capital, which use futures contracts,
				forward contracts and standby contracts, as well as repurchase agreements and
				securities lending arrangements as a part of their portfolio management
				strategies. However, it remains the responsibility of the board of directors
				making these purchases to ensure that a particular investment company is a
				proper holding for the bank's investment portfolio.
(2)
Application.
An
			 application by a state bank to engage in futures contracts, forward contracts
			 and standby contracts shall be in letter form and shall, at a minimum, contain
			 the following information.
a. A description of
			 the type(s) of contracts the state bank proposes to purchase and
			 sell.
b. A copy of the board of
			 directors' resolution authorizing the specific type(s) of contracts proposed to
			 be purchased and sold.
c. A copy of
			 the policy adopted by the state bank's board of directors which shall include
			 specific policy objectives that outline permissible contract strategies and
			 their relationship to overall investment activities and asset-liability
			 management; the names, responsibilities, and authority limits of the personnel
			 authorized to engage in futures, forward and standby contracts; limitations
			 applicable to futures, forward and standby contract positions; the personnel to
			 be used to review at least monthly the bank's contract positions to ascertain
			 compliance with such limits; the exchanges and firms through which authorized
			 personnel may conduct futures, forward and standby contracts; and the dollar
			 limit on transactions with each firm.
d. A representation that the state bank has
			 sufficient managerial resources to engage in futures, forward and standby
			 contracts.