Washington Administrative Code › Title 208 - Financial Institutions, Department of (See also Titles 50, 419, and 460) › Chapter 208-436 - Rules governing supervisory approval of credit union investment practices › Section 208-436-090 - Investment limitations - Other requirements

Current through Register Vol. 24-14, July 15, 2024
The director finds that investments in common trust funds under
						RCW 31.12.425(1)(f) present potential serious risks to credit unions and that
						rules establishing specific procedures for those investments are necessary to
						protect the safety and soundness of credit unions. These rules are not intended
						to either endorse or encourage credit union investment in common trust funds.
						Credit unions investing in common trust funds as authorized by RCW
						31.12.425(1)(f) are therefore subject to the following limitations:
(1) Prior to making any investment in a
					common trust fund, the board of directors shall approve an investment policy
					detailing the maximum investment the credit union may have in common trust
					funds and specific investment guidelines. The policy shall also specify who is
					to authorize such investments.
(2)
					A credit union shall not invest an aggregate amount of greater than fifteen
					percent of its total assets in all such common trust funds.
(3) A credit union shall not invest an
					aggregate amount greater than five percent of its total assets in common trust
					funds without the director's prior written approval of its investment
					policy.
(4) A credit union shall
					not invest an aggregate amount greater than ten percent of its total assets in
					common trust funds without the director's prior written approval to make such
					investment.
(5) A credit union
					whose aggregate investment in common trust funds exceeds ten percent of its
					total assets shall establish, by transfer from undivided earnings, a special
					investment valuation reserve in an amount equal to five percent of the
					aggregate investment in common trust funds exceeding ten percent of total
					assets. The special reserve shall be adjusted not less than quarterly based on
					the aggregate investment in common trust funds amount exceeding ten percent of
					total assets.
(6) Prior to making
					any investment in a common trust fund, a credit union shall obtain a prospectus
					for such fund and determine that all investments, investment activities and
					deposits of such common trust fund would be legal investments if held by the
					credit union.
(7) Prior to making
					any investment in a common trust fund, a credit union shall secure from the
					investment company marketing the fund a written statement, in addition to any
					prospectus, specifying that the fund is not engaged in and will not engage in
					any speculative marketing activity including but not limited to adjusted
					trading, futures contracts, short sales, and standby commitments, defined as
					follows:
(a) Adjusted trading means any method
					of transaction used to defer a loss by selling a security at a price above its
					current market price and simultaneously purchasing or committing to purchase
					from that same party another security at a price above its current market
					price, including interest rate swaps.
(b) Futures contract means a contract for the
					future delivery of commodities, including certain government securities, sold
					on commodities exchanges.
(c) Short
					sale means the sale of a security not owned by the seller.
(d) Standby commitment means a commitment to
					either buy or sell a security, on or before a future date, at a predetermined
					price. The seller of the commitment is the party receiving payment for assuming
					the risk associated with committing either to purchase a security in the future
					at a predetermined price, or to sell a security in the future at a
					predetermined price. The seller of the commitment is required to either accept
					delivery of a security (in the case of a commitment to buy) or make delivery of
					a security (in the case of a commitment to sell), in either case at the option
					of the buyer of the commitment.