North Dakota Administrative Code › Title 13 - Department of Financial Institutions › Article 13-03 - Credit Unions › Chapter 13-03-22 - Investment Activities › Section 13-03-22-01 - Definitions

Current through Supplement No. 393, July, 2024
The following definitions apply to this chapter:
1. "Adjusted trading" means selling an
				investment to a counterparty at a price above its current fair value and
				simultaneously purchasing or committing to purchase from the counterparty
				another investment at a price above its current market value.
2. "Borrowing repurchase transaction" means a
				transaction in which the credit union agrees to sell a security to a
				counterparty and to repurchase the same or identical security from the
				counterparty at a specified future date and at a specified price.
3. "Call" means an option that gives the
				holder the right to buy the underlying security at a specified price during a
				fixed time period.
4. "Charitable
				contributions and donations" means gifts provided to assist others through
				contributions of staff, equipment, money, or other resources through charities
				that are exempt from taxation under 501(c)(3) of the Internal Revenue
				Code.
5. "Counterparty" means a
				swap dealer, derivatives clearing organization, exchange, or commercial loan
				customers that participates as the other party in a derivatives transaction
				with a credit union.
6.
				"Derivatives" means a financial contract that derives its value from the value
				and performance of some other underlying financial instrument or variable, such
				as an index or interest rate.
7.
				"Derivatives clearing organization" has the meaning as defined by the commodity
				futures trading commission in  17 CFR 1.3  effective March 15, 2021.
8. "Distribution in kind" means acceptance of
				remaining charitable donation account assets, upon termination of the account,
				in their original form instead of in cash resulting from the liquidation of
				assets.
9. "Domestic interest
				rates" means interest rates derived in the United States and are United States
				dollar-denominated.
10. "Earnings
				at risk" means the changes to earnings, typically in the short term, for
				example, twelve to thirty-six months, caused by changes in interest
				rates.
11. "Economic effectiveness"
				means the extent to which a derivatives transaction results in offsetting
				changes in the interest rate risk that the transaction was, and is, intended to
				provide.
12. "Embedded option"
				means a characteristic of an investment that gives the issuer or holder the
				right to alter the level and timing of the cashflows of the investment.
				Embedded options include call and put provisions and interest rate caps and
				floors. Since a prepayment option in a mortgage is a type of call provision, a
				mortgage-backed security composed of mortgages that may be prepaid is an
				example of an investment with an embedded option.
13. "Eurodollar deposit" means a United
				States dollar denominated deposit in a foreign branch of a United States
				depository institution.
14.
				"European financial options contract" means an option that can be exercised
				only on its expiration date.
15.
				"External service provider" means any entity that provides services to
				management in carrying out its derivatives program and the requirements of this
				chapter.
16. "Fair value" means the
				amount at which an instrument could be exchanged in a current, arms-length
				transaction between willing parties, as opposed to a forced or liquidation
				sale.
17. "Financial options
				contract" means an agreement to make or take delivery of a standardized
				financial instrument upon demand by the holder of the contract as specified in
				the agreement.
18. "Futures
				commission merchant" has the meaning as defined by the commodity futures
				trading commission in  17 CFR 1.3  effective March 15, 2021.
19. "Industry-recognized information
				provider" means an organization that obtains compensation by providing
				information to investors and receives no compensation for the purchase or sale
				of investments.
20. "Interest rate
				risk" means the current and prospective risk to a credit union's capital and
				earnings arising from movements in interest rates.
21. "Introducing broker" means a futures
				brokerage firm that deals directly with the client, while the trade execution
				is done by a futures commission merchant.
22. "Investment repurchase transaction" means
				a transaction in which an investor agrees to purchase a security from a
				counterparty and to resell the same or an identical security to that
				counterparty at a specified future date and at a specified price.
23. "Margin" means the minimum amount of
				eligible collateral, as defined in subdivision c of subsection 3 of section 13-03-22-16, that must be deposited between parties to a derivatives
				transaction, as detailed in a master services agreement.
24. "Master services agreement" means a
				document agreed upon between two parties that sets out standard terms that
				apply to all transactions entered into between those parties. The most common
				form of a master services agreement for derivatives is an international swap
				dealer association master agreement.
25. "Maturity" means the date the last
				principal amount of a security is scheduled to come due and does not mean the
				call date or the weighted average life of a security.
26. "Noncleared" means transactions that do
				not go through a derivatives clearing organization.
27. "Put" means a financial options contract
				that entitles the holder to sell, entirely at the holder's option, a specified
				quantity of a security at a specified price at any time until the stated
				expiration date of the contract.
28. "Qualified charity" means a charitable
				organization or other nonprofit entity recognized as exempt from taxation under
				section 501(c)(3) of the Internal Revenue Code.
29. "Real estate mortgage investment conduit"
				means a mortgage passthrough security and is synonymous with the terms MBS and
				passthrough. The scope of the MBS market extends to structured mortgage
				securities such as collateralized mortgage obligations, real estate mortgage
				conduits, and strips, for which passthroughs are the most common form of
				collateral.
30. "Registered
				investment adviser" means an investment advisor registered with the securities
				and exchange committee pursuant to the Investment Advisors Act of
				1940.
31. "Registered investment
				company" means an investment company that is registered with the securities and
				exchange commission under the Investment Company Act of 1940 [ 15 U.S.C. 80 a].
				Examples of registered investment companies are mutual funds and unit trust
				investments.
32. "Residual
				interest" means the remainder cashflows from collateralized mortgage
				obligations or real estate mortgage conduits, or other mortgage-backed security
				transaction, after payments due bondholders and trust administrative expenses
				have been satisfied.
33. "Security"
				means a share, participation, or other interest in property or in an enterprise
				of the issuer or an obligation of the issuer that:
a. Either is represented by an instrument
				issued in bearer or registered form or, if not represented by an instrument, is
				registered in books maintained to record transfers by or on behalf of the
				issuer;
b. Is of a type commonly
				recognized in any area in which it is issued or dealt in as a medium for
				investment; and
c. Either is one of
				a class or series or by its terms is divisible into a class or series of
				shares, participations, interests, or obligations.