703.14—Permissible investments.
(a) Variable rate investment.
A Federal credit union may invest in a variable rate investment, as long as the index is tied to domestic interest rates and not, for example, to foreign currencies, foreign interest rates, or domestic or foreign commodity prices, equity prices, or inflation rates. For purposes of this part, the U.S. dollar-denominated London Interbank Offered Rate (LIBOR) is a domestic interest rate.
(b) Corporate credit union shares or deposits.
A Federal credit union may purchase shares or deposits in a corporate credit union, except where the NCUA Board has notified it that the corporate credit union is not operating in compliance with part 704 of this chapter. A Federal credit union's aggregate amount of paid-in capital and membership capital, as defined in part 704 of this chapter, in one corporate credit union is limited to two percent of its assets measured at the time of investment or adjustment. A Federal credit union's aggregate amount of paid-in capital and membership capital in all corporate credit unions is limited to four percent of its assets measured at the time of investment or adjustment.
(c) Registered investment company.
A Federal credit union may invest in a registered investment company or collective investment fund, as long as the prospectus of the company or fund restricts the investment portfolio to investments and investment transactions that are permissible for Federal credit unions.
(d) Collateralized mortgage obligation/real estate mortgage investment conduit.
A Federal credit union may invest in a fixed or variable rate collateralized mortgage obligation/real estate mortgage investment conduit.
(e) Municipal security.
A Federal credit union may purchase and hold a municipal security, as defined in Section 107(7 )(K) of the Act, only if a nationally-recognized statistical rating organization has rated it in one of the four highest rating categories.
(f) Instruments issued by institutions described in
A Federal credit union may invest in the following instruments issued by an institution described in Section 107(8) of the Act:
(g) European financial options contract.
A Federal credit union may purchase a European financial options contract or a series of European financial options contracts only to fund the payment of dividends on member share certificates where the dividend rate is tied to an equity index provided:
(2)
Proceeds from the options are used only to fund dividends on the equity-linked share certificates;
(3)
Dividends on the share certificates are derived solely from the change in the domestic equity index over a specified period;
(5)
The certificate may be redeemed prior to the maturity date only upon the member's death or termination of the corresponding option;
(6)
The total costs associated with the purchase of the option is known by the Federal credit union prior to effecting the transaction;
(8)
The counterparty to the transaction is a domestic counterparty and has been approved by the Federal credit union's board of directors;
(i)
Has a long-term, senior, unsecured debt rating from a nationally-recognized statistical rating organization of AA− (or equivalent) or better at the time of the transaction, and the contract between the counterparty and the Federal credit union specifies that if the long-term, senior, unsecured debt rating declines below AA− (or equivalent) then the counterparty agrees to post collateral with an independent party in an amount fully securing the value of the option; or
(ii)
Posts collateral with an independent party in an amount fully securing the value of the option if the counterparty does not have a long-term, senior unsecured debt rating from a nationally-recognized statistical rating organization.
(10)
Any collateral posted by the counterparty is a permissible investment for Federal credit unions and is valued daily by an independent third party along with the value of the option;
(11)
The aggregate amount of equity-linked member share certificates does not exceed the credit union's net worth;
(12)
The terms of the share certificate include a guarantee that there can be no loss of principal to the member regardless of changes in the value of the option unless the certificate is redeemed prior to maturity; and
(13)
The Federal credit union provides its board of directors with a monthly report detailing at a minimum:
(h) Mortgage note repurchase transactions.
A federal credit union may invest in securities that are offered and sold pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 77d(5), only as a part of an investment repurchase agreement under § 703.13(c), subject to the following conditions:
(1)
The aggregate of the investments with any one counterparty is limited to 25 percent of the credit union's net worth and 100 percent of its net worth with all counterparties;
(2)
At the time a federal credit union purchases the securities, the counterparty, or a party fully guaranteeing the transaction, must have outstanding debt with a long-term rating no lower than A−or its equivalent and outstanding debt with a short-term rating, if any, no lower than A-1 or its equivalent;
(3)
The federal credit union must obtain a daily assessment of the market value of the securities under § 703.13(c)(1) using an independent qualified agent;
(5)
All mortgage note repurchase transactions will be conducted under tri-party custodial agreements; and
Code of Federal Regulations
Code of Federal Regulations
Code of Federal Regulations
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