HomeMy WebLinkAboutFND-011-18Clarington
Finance Department
Report
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Report To: General Government Committee
Date of Meeting: June 18, 2018
Report Number: FND-011-18
File Number:
Report Subject: Investment Policy
Recommendations:
Resolution: GG -365-18
By-law Number:
1. That Report FND-011-18 be received;
2. That the proposed updated Investment Policy be approved; and
3. That Staff be directed to explore options for transitioning to prudent investor, if feasible
and report back in early 2019.
Municipality of Clarington Page 2
Report FND-011-18
Report Overview
On March 1, 2018 the Province of Ontario passed new regulations amending how
municipalities in Ontario may invest. These included changes to the legal list of eligible
investments and the creation of the prudent investor standard for eligible municipalities. The
proposed investment policy updates the existing policy to include all eligible investments and
updates restrictions to allow staff broader ability to tap into increasing rates of return. Staff
are also seeking direction to review options for moving towards the Prudent Investor
Standard, if feasible.
1. Background
1.1 The Municipality of Clarington is required under the Municipal Act, 2001 to have an
Investment Policy adopted and approved by Council. This policy was last reviewed in
November 2013 and prior to that it was reviewed in 2002.
1.2 As highlighted in report FND-010-18, at March 31, 2018 the Municipality had the following
investments (not including bank balances):
General Fund $30,240,500
Reserve Funds 1 $34,633,348
(Non -DC and Strategic
Capital)
Development Charges $28,660,878
Reserve Funds
High Interest Savings 100%
Account
GICs (99.3% of 99.3%
investments)
Provincial coupons .7%
ONE Fund Bonds 1 14.1%
ONE Fund Equity 1 1.7%
GICs 164.8%
Provincial Bonds 1 19.4%
1.3 The review of the Municipality's investment policy has been undertaken in part to ensure
that the Municipality is able to invest its funds in a manner that is reflective of best practices
in the municipal industry as well as the recent changes to the regulations surrounding
municipal investments which were approved in March 2018.
Municipality of Clarington Page 3
Report FND-011-18
1.4 On May 28, 2018 a transfer from the general bank account to the HISA was made for
$10,000,000. This represents additional annual interest of $14,000 while not impacting
liquidity or risk to the Municipality and increases the General Fund balance to over
$40,000,000.
1.5 By reviewing the Municipality's investments and being more active and strategic in
investments, there is the ability to generate new revenue without increasing taxes.
Investments is one of the few areas outside of property taxation and user fees that the
Municipality can earn additional revenue without relying on senior government grants.
Municipalities across Ontario are beginning to, if they haven't already, become less
conservative in their investing as they try to balance fiscal responsibilities and long-term or
asset management planning requirements.
2. Changes to Investment Policy
Ontario Regulations
2.1 All investments are made in accordance with the Ontario Municipal Act, 2001 5.418.
Eligible investments are prescribed by Ontario Regulation 438/97 and have been amended
most recently by O.Reg 43118 effective March 1, 2018.
2.2 The most recent changes to the legal list include:
a) The requirement to sell a downgraded investment within 180 days no longer applies if
the municipality first creates a Workout Plan that includes expected timelines for selling
the investment;
b} The minimum security credit ratings for securities in which municipalities can invest
has been reduced to A- (or equivalent) for:
Deposit receipts, deposit notes, certificates of deposits or investments with a
term of greater than two years and is guaranteed or endorsed by a Canadian
bank or loan or trust corporation;
Bonds, debentures, promissory notes or other debt securities with a term of
greater than two years issued or guaranteed by a Canadian bank or loan or trust
corporation;
Canadian corporate bonds with a term between 1 year to 5 years;
Municipality of Clarington Page 4
Report FND-011-18
Canadian corporate bonds with a term greater than 5 years.
C) Municipalities may invest in deposit securities, regardless of duration, issued or
guaranteed or endorsed by a credit union or league to which the Ontario Credit Unions
and Caisses Populaires Act, 1994 applies. This is limited up to $250,000 in aggregate,
unless the institution meets further regulations.
d) Municipalities may now invest in deposit securities denominated in US currency for any
term, issued, guaranteed or endorsed by a Canadian bank, Loan or Trust Corporation
or Credit Union or League.
e) Municipalities may accept any security acquired as a gift in a will or as a donation not
made for a charitable purpose, provided that the security is sold or converted into an
eligible security (or securities) in accordance with a Workout Plan.
f} The 180 day limitation that applied to bond forward agreement has been replaced with
a 12 month limit.
g} Municipalities may enter into investment agreements with an expanded range of
persons including LAS, CHUMS, AMO and MFOA.
Proposed Changes to Types of Investments
2.3 The current policy stipulates that the Municipality is "permitted to invest only in fixed
income instruments of the following issuers":
a) The Government of Canada
b) The Provinces of Canada
c) Ontario Municipal Governments as defined in the Municipal Act, 2001
d) Schedule I and II banks.
2.4 The current policy also allows the Municipality to invest in a pooled investment program
offered by ONE Investment including the Bond Fund and the Equity Fund. The
Municipality also has funds in a High Interest Savings Account offered by ONE, however
this is essentially a bank account.
Municipality of Clarington Page 5
Report FND-011-18
2.5 As the current policy stipulates specifically what the Municipality may invest in, there are
several types of investments which are allowed by the regulations which we are unable to
invest in. For example we are not able to invest in corporate bonds, although this is
allowed for A- rated or higher.
2.6 The proposed policy would allow the Municipality to invest in any of the eligible investments
as prescribed in the regulation. This does not mean that the Municipality would invest in all
of the eligible investments and individual investment decisions would still be made based
on the key factors of capital preservation, liquidity and return. Further, if the list changes
(for example 61313 ratings become eligible) the policy does not need to change.
2.7 The following table shows an example of return rates available at May 29, 2018:
Investment . -
General Bank Account
Liquidity
Immediate
Annual
Return
1.78%
HISA Bank Account
1 day
1.92%
1 Year GIC
5 Year GIC
8 Year Municipal Bond
8 Year Corporate Bond
n/a
2.32%
n/a
3.09%
3 days
2.87%
3 days
3.05%
8 Year Step Note
n/a
1 day
3.25%
1.09%
ONE Government Bond Fund (5 Year hold)
Municipality of Clarington
Resort FND-011-18
Page 6
ONE Corporate Bond Fund (5 Year hold)
2.8 A key point with the above rates is that for the ONE investment returns this is based on the
past 5 years (ie. April 2013 to April 2018) during low interest rate times, whereas the 5 -year
GIC rates are reflective of the increasing interest rates going forward. It is likely that the
bond funds held by ONE will have a higher return 5 years from now than if we were to have
invested in a GIC, further the fund is fully liquid compared to a GIC.
2.9 A further point is that the returns above assume that the investment is held to maturity.
Historically, the Municipality has held investments to maturity and does not engage in
speculative trading. The Municipality is not anticipating a change in this philosophy.
2.10 By opening up the types of investments to include all investments allowed by the
regulation, the Municipality benefits from being able to increase diversification of its
investment types without taking on significant risk. As the legal list is already restrictive to
top quality investments, further restricting the types of investments is not necessary and
only acts to limit income potential.
Proposed Changes to Limitations and Diversification
2.11 The current policy defines the quality of investment grade within the policy. The proposed
wording would rely on the eligible investment regulation. The purpose of this change is
that if there was a regulated change, or a change in convention for the various investment
grades the investment policy would have to be changed to reflect this. By referencing the
regulation, any changes to the regulation are automatically reflected in our policy.
Municipality of Clarington
Report FND-011-18
Page 7
2.12 The following table outlines the changes in the investment source limitation for the portfolio:
Investment Institution
[Government of Canada
Policy•
No limit (i.e. 100%)
/ / i Policy
100%
Province of Ontario
Maximum 40%
80%, maximum 20% per
province
Other Provinces of Canada
Maximum 30%
Included in above
Schedule I Banks
Maximum 30% per bank
50%, 20% per institution
Schedule II Banks
Maximum 10% per bank
Included in above
Ontario Municipal
Governments
Maximum 20%
35%, 10% per municipality
Municipal Investment
Pools
Maximum 30%
25%, 15% per portfolio
Corporate debt (non-
financial)
NIA
10%, 5% per corporation
Municipality of Clarington Page 8
Report FND-011-18
2.13 The following table compares the maturity ranges between the two policies
Term Length
<1 Year
2013 Policy
At least 10%
Proposed 2018 Policy
30% to 100%
From 1 Year to 5 Years
Not specified
0% to 85%
From 5 Years to 10 Years
Less than 10%
0 to 50%
From 10 Years to 20 Years
Not allowed
0% to 30%, tied to a specific
cash flow requirement
Other Proposed Changes
2.14 Currently the policy requires the Treasurer to provide a quarterly statement of investments
outstanding to Council. The recommendation is to provide a fuller annual report, as
required by the legislation, and provides for the ability to provide additional information as
deemed necessary.
2.15 The proposed policy has a new definitions section which includes definitions for the
investment policy.
3. Prudent Investor
Background
3.1 The Municipal Act, 2001 was amended to include new section 418.1 (1 ) which states that
"A municipality may, in accordance with this section and the regulations, invest money that
it does not require immediately in any security."
3.2 To follow the prudent investor standard Council must enact a by-law which is non -
revocable. Once the Municipality enacts a prudent investor by-law only a regulation from
the Minister will allow it to go back to the legal list method. The by-law may not be passed
until January 1, 2019; therefore a municipality cannot invest using the prudent investor
standard until at least 2019.
Municipality of Clarington Page 9
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3.3 O.Reg. 43/18 amended O.Reg. 438/97 by introducing Part II Prudent Investment to the
"Eligible Investments, Related Financial Agreements and Prudent Investment" regulation.
The regulation sets out the requirements that a municipality must meet in order to be
eligible for prudent investment status. The Municipality of Clarington currently meets these
requirements and may go to the prudent investor standard after January 1, 2019.
Investment Board or Joint Investment Board
3.4 A municipality that meets the prudent investor standard may invest money only by having
an Investment Board that meets the following criteria:
x The Investment Board has been established by the municipality;
x The Board has been given the control and management of the municipality's
investments by having the municipality delegate to the board both the powers to make
investments and the duties under O.Reg 43/18, s.10
3.5 If the municipality wishes to enter into an agreement with one or more municipalities to
invest through a Joint Investment Board it may do so. In this case, the municipality again
has to delegate the control and management of investments to the Joint Investment Board.
The Joint Investment Board must have been established by a municipality or group of
municipalities.
3.6 In all cases the municipality provides the Investment Board all "funds which it does not
require immediately". The municipality can establish in its investment policy what
constitutes funds that are required immediately; however it is envisioned that all reserve
fund investments as well as funds not required within 12-18 months would be given to the
Investment Board or the Joint Investment Board. It is currently not clear if the funds not
required immediately may be invested in a prudent manner or if the legal list applies.
3.7 The Investment Board or Joint Investment Board may not include an officer or employee of
any municipality for which it invests or a member of any council for any municipality for
which it invests. Only the Treasurer may sit on the Board to a maximum representation of
25% if there is a Joint Investment Board. There is no minimum or maximum number of
board members required through the regulation. This essentially places the Board as an
arms length entity.
3.8 The Municipality will be required to create an investment policy which is more specific than
the current investment policies required under the legal list. The policy will include the
Municipality's objectives for return on investment and risk tolerance, need for liquidity
including anticipated needs for funds and any other requirement for investment matters that
Municipality of Clarington Page 10
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Council considers to be in the interest of the municipality. The policy must be reviewed
annually under this regulation.
3.9 The Investment Board or Joint Investment Board will adopt and maintain an investment
plan. The plan will deal with how the Board will invest the municipality's money and set out
the projections for the investments. The plan will be reviewed annually by the Board.
3.10 The Board will also provide a report to Council on an annual basis which contains a
statement about the performance of the portfolio, and a statement from the Treasurer that
the investments are consistent with the investment policy adopted by Council.
3.11 The Board may hire agents to act on its behalf for the purposes of investing. It is not
required that the Board be licensed to perform investment transactions. The Municipality
must pay for the costs of establishing and maintaining the Board into the future.
ONE Investment Prudent Investor Status
3.12 Staff are aware that the ONE Investment Program, a partnership between the Municipal
Finance Officers' Association (MFOA) and the Association of Municipalities of Ontario
(AMO) is looking for sponsoring municipalities to establish a joint municipal investment
board. This would allow municipalities the ability to access the prudent investor regime
without having to establish the investment board on its own. it also would provide a lower-
cost alternative to establishing a board or joint board on our own.
3.13 The ONE Investment Program is already an established investment tool for municipalities
following the legal list approach and has multiple advisory boards and existing relationships
with professional investment managers.
3.14 While the cost of establishing the governance structure required under the prudent investor
status may be cost prohibitive for smaller municipalities, it may be feasible for the
Municipality if it can partner with several municipalities or the sector through a joint
investment board. As the ONE program already understands municipal finance this could
be a beneficial partnership.
3.15 Staff would like to explore options for transitioning to a prudent investor status through
discussions with the ONE program as well as explore other options for governance of the
investment board, if feasible. As municipalities cannot pass a by-law for prudent investor
until January 1, 2019, there is time to review the options and report to Council after the
upcoming municipal election.
Municipality of Clarington Page 11
Resort FND-011-18
4. Concurrence
Not Applicable
5. Conclusion
5.1 It is respectfully recommended that the attached updated Investment Policy be approved.
5.2 It is further recommended that Staff be directed to research options and processes for
transitioning to a Prudent Investor status, if feasible and report back to Council in 2019.
6. Strategic Plan Application
Not applicable.
Submitted by:
Nancy Taylor, BBA, CPA, CA,
Director of Finance/Treasurer
Reviewed by'
zA
Andrew C. Allison, B. Comm, LL.B
CAO
Staff Contact: Trevor Pinn, CPA, CA, Deputy Treasurer, 905-623-3379 or tpinn@clarington.net
There are no interested parties to be notified of Council's decision.
Attachment 1 — Draft Investment Policy
Attachment 2 — Ontario Regulation 438/97 — Eligible Investments
Corporate Policy
Attachment 1 to FND-011-18
ciffboon
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POLICY TYPE:
SUBSECTION:
POLICY TITLE:
POLICY #:
POLICY APPROVED BY
EFFECTIVE DATE:
REVISED:
APPLICABLE TO:
1. Purpose
Financial
Investments
G09
Council
November 18, 2002
July 3, 2018
All Employees
The Municipality of Clarington strives for the optimum utilization of its cash resources
within statutory limitations and the basic need to protect and preserve capital, while
maintaining solvency and liquidity to meet ongoing financial requirements.
2. Scope
This policy includes all funds that are managed by the Municipality of Clarington except
for the Municipality's investment in Veridian Corporation Inc.
3. Objectives
The primary objectives of the investment program, in order or priority, shall be:
i. Adherence to statutory requirements;
ii. Preservation of principal;
iii. Ensuring availability of cash to meet disbursements and other obligations;
iv. Maintaining liquidity;
V. Diversification of the investment portfolio, commensurate with constraints above;
vi. Earning a competitive rate of return, commensurate with constraints above;
vii. Regular review of the effectiveness of the policy in meeting the above objectives;
and
viii. Periodic audit of the investment program to ensure adherence to the policy.
3.1 Adherence to Statutory Requirements
All investment activities must be made in accordance with Section 418 (1) of the
Municipal Act, 2001, as amended which states that a municipality may invest money it
does not need immediately in securities, in accordance with prescribed rules and
regulations.
The prescribed securities that municipalities may invest in as well as the rules for
making investments, entering into related financial agreements and reporting on
activities is set out under Ontario Regulation 438/97, as amended. Any Provincial
Statutes or Regulations will supersede and take precedence over this policy.
Investments, unless limited further by Council, will be those deemed eligible under
O.Reg 438/97 as amended.
3.2 Preservation of Capital
Safety of principal is an important objective of the investment program. Investments
shall be undertaken in a manner that seeks to ensure the preservation of capital in the
overall portfolio.
Staff shall mitigate credit risk through the following:
Limiting investments to safer types of securities;
Diversifying the investment portfolio so that potential losses on individual
securities will be minimized.
Staff shall mitigate interest risk through the following:
i. Structuring the investment portfolio so that securities mature to meet ongoing
cash flow requirements, thereby reducing the need to sell securities on the open
market prior to maturity;
ii. Investing operating funds primarily in shorter -term securities or approved
investment pools; and
iii. Diversifying longer-term holdings to match term exposures to requirements of
underlying reserve funds and to mitigate effects of interest rate volatility.
3.3 Maintaining Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating or cash flow
requirements and limit temporary borrowing requirements. This shall be done where
possible by structuring the portfolio such that securities mature concurrent with
anticipated cash demands.
The portfolio shall consist largely of securities with active secondary or resale markets
to ensure liquidity. A portion of the portfolio may be placed in local government
investment pools which offer liquidity for short-term funds.
G09 - Investments Page 2 of 12
3.4 Competitive Rate of Return
Notwithstanding the other objectives of this policy, the Municipality shall maximize the
rate of return earned on its investment portfolio by implementing a dynamic strategy as
part of the investment program.
Diversification, as well as ensuring safety of principal by limiting exposure to credit,
sector or term risk, provides opportunities to enhance the investment return on the
Municipality's portfolio.
4. Standards of Care
4.1 Prudence
Investments shall be made in accordance with the policy, under the prevailing
circumstances. Consideration of the probable safety of the principal as well as income
to be derived should be of primary concern.
Staff acting in accordance with procedure and this investment policy and having
exercised due diligence, shall be relieved of personal responsibility for any individual
security's credit risks or market price changes, provided deviations from expectations
are reported in a timely fashion and the liquidation or sale of securities are carried out in
accordance with the terms of this policy.
4.2 Ethics and Conflict of Interest
Employees conducting investment activities on behalf of the Municipality shall at all
times comply with the Municipality's prevailing Code of Ethics policy.
Employees involved in the investment process shall refrain from personal business
activity that could conflict with the proper execution and management of the investment
program, or that could impair ability to make impartial decisions.
Employees involved in investment procedures shall disclose all material interests in
financial institutions with which they conduct business. They shall further disclose any
personal financial/investment positions that could be related to the performance of the
investment portfolio.
Employees and officers shall not undertake personal investment transactions with the
same individual with whom business is conducted on behalf of the Municipality.
If a staff member of the Finance Department or any elected or appointed member of the
Municipality is party to, or has a direct or indirect beneficial interest in an investment
transaction of the Municipality, he or she must provide full disclosure of that interest to
G09 - Investments Page 3 of 12
the Director of Finance/Treasurer (or designate). The Director of Finance (or designate)
will determine whether the Municipality's investment is to continue to be retained or sold
forthwith.
4.3 Safekeeping and Custody
All securities shall be held for safekeeping by a financial institution approved by the
Municipality. Individual accounts shall be maintained for each portfolio. All securities
shall be held in the name of the Municipality.
The depository shall issue a safekeeping receipt to the Municipality listing the specific
instrument, rate, maturity and other pertinent information. On a periodic basis
(preferably monthly), the depository will also provide reports, which lists all securities
held by the Municipality, the book value of holdings and the market value as of month-
end.
5. Delegation of Authority
The Director of Finance/Treasurer has overall responsibility of the investment portfolio.
The Director of Finance/Treasurer shall be responsible for all transactions undertaken,
and shall establish a system of controls to regulate the activities of subordinate officials
and shall exercise control over that staff. The Director of Finance/Treasurer or
designate have the authority to make investment decisions for the Municipality
The Director of Finance/Treasurer or designate shall be authorized to enter into
arrangements with banks, investment dealers and brokers, and other financial
institutions for the purchase, sale, redemption, issuance, transfer and safekeeping of
securities in a manner that conforms to the Municipal Act, 2001 and the Municipality's
policies. It is generally understood that the designate would be the Deputy Treasurer.
6. Approval Requirements
All investment transactions must be approved by any two of the following:
i. CAO
ii. Director of Finance/Treasurer
iii. Deputy Treasurer
This is consistent with the existing bank signing authority.
G09 - Investments Page 4 of 12
7. Council Reporting
The Director of Finance/Treasurer shall provide an annual investment report to Council
which shall contain at a minimum:
L A statement about the performance of the portfolio of investments during the
period covered by the Report;
ii. The balance of the current outstanding investment portfolio;
iii. A statement as to whether or not all investments were in accordance with the
investment policies and goals of the Municipality;
iv. If applicable, a description of the estimated proportion of investments that are
invested in the Municipality's own long-term and short-term securities and a
description of the change, if any, in the estimated proportion since the previous
report;
V. If applicable, a record of the date of each transaction in or disposal of its own
securities, including a statement of the purchase and sale price of each security;
and
vi. Contains such other information that the Council may require or that, in the
opinion of the Treasurer or designate, should be included.
If an investment made by the Municipality is, in the Treasurer or designate's opinion, not
consistent with the investment policies and goals adopted by the Municipality, the
Treasurer shall report the inconsistency to Council within 30 days after becoming aware
of it.
8. Eligible Investments and Statutory Requirements
8.1 Investment Funds
The Municipality maintains the following funds:
Fund Name
General Fund
:Purpose
To provide a source of
funding for operating and
non -DC supported capital
expenditures.
The investment horizon for
this fund is typically within
24 months. However
longer term investments
may be made to recognize
increased returns.
G09 - Investments Page 5 of 12
Fund Name Purpose
Non -Development
Charges Reserve Fund
Development Charges
Reserve Fund
Strategic Capital Fund
To provide a source of
funding for operating and
capital expenditures which
are not funded by
Development Charges.
Typically requirements
relate to the Municipality's
capital plan.
To provide a source of
funding for growth -related
activities funded through
development charges.
Long-term asset
management strategic
financing tool; Investment
in debt financing
opportunities through
internal debenture
issuance; investment in
servicing of non-residential
areas as a front -ending
tool
The investment horizon for
these funds is typically
within 5 years. There will
be deposits annually from
budgeted contributions as
well as withdrawals to
support the annual budget
requirements.
The DC study has a
horizon of 10 years, within
this fund there will be
withdrawals and deposits
annually.
The key investment driver
is to ensure liquidity in the
portfolio that can be used
to finance approved
growth -related
expenditures.
This fund has an
investment horizon of over
5 years.
The key investment driver
is to earn a return which
can be used to fund other
activities while preserving
capital.
This fund does not see
significant levels of
transactions annually and
is more focused on specific
projects which qualify
under the establishing by-
law.
G09 - Investments Page 6 of 12
Investment Horizon
Trust Funds May include funds held for This fund has an
the perpetual care of investment horizon of 5
cemeteries under the years.
control of the Municipality.
Trusts may also include
bequests made to the
Municipality. These
bequests may be restricted
As these funds are held in
trust for other parties, the
key investment driver is
maintain the capital while
earning a reasonable
in use, which varies based return.
on the individual.
The above categories are funds which manage similar accounts. For example the
Development Charge Reserve Fund invests for all individual DC Reserve Funds,
individual accounts are not required to be established. An individual investment security
may be made utilizing funds from different sources (i.e. a GIC in the DC Reserve Fund
may relate to general government, parks and road DC reserve funds).
8.2 Eligible Securities
Eligible securities are prescribed under O.Reg 438/97, as amended.
Investments shall be diversified by:
i. Limiting investments to avoid over -concentration in securities from a specific
issuer or sector (excluding Government of Canada securities);
ii. Limiting investment in securities to those that have higher credit ratings;
iii. Investing in securities with varying maturity dates;
iv. Investing primarily in liquid, marketable securities which have an active
secondary market, to ensure appropriate liquidity.
8.3 Investment Limitations
To promote diversification, the following percentage weightings for each type of
investment within the portfolio shall be established and maintained:
G09 - Investments Page 7 of 12
Federal Debt 100%
Provincial Debt 80% 20% per province
Municipal Debt 35% 10% per municipality
Financial Institutions 60% 20% per financial instiution
Corporate Debt (non-financial) 10% 5% per corporation
ONE Investment Pools 25% 15% per portfolio
To promote diversification and ensure liquidity, the following percentage weightings for
the investment portfolio shall be established and maintained:
Ll ' tion an.- .Investment
W it
Less than 90 days 20% to 100%
Less than 1 year
30% to 100%
From 1 year up to, but not including 5 0% to 85%
years
From 5 years up to, but not including 0% to 50%
10 years
From 10 years to 20 years 0% to 30%
Unless matched to a specific cash flow, the Municipality will not directly invest in
securities maturing more than 10 years from the date of purchase. Reserve funds and
G09 - Investments Page 8 of 12
other funds with longer-term investment horizons may be invested in securities
exceeding ten (10) years, provided they match as practicably as possible to the
expected use of funds.
Portfolio size limitations listed above will be applicable based on the allowable
percentage of the portfolio on the day the investment is made. Limitations relate to the
total investment portfolio and are to be applied to the Municipalities' separate funds that
it manages.
When determining the portfolio limitation:
The total portfolio (denominator) shall include all cash, cash equivalents, short-
term investments and long-term investments (excluding investment in Veridian
Corporation Inc.)
Funds held within general or high interest savings accounts shall not be used to
determine the maximum category or sector limitations (numerator). For further
clarification, funds held in a bank account do not count towards the 20% limit for
the institution.
The Municipality may invest in US denominated funds, as allowed by regulation,
provided that the purpose of the investment relates to a pending or anticipated purchase
which is to be denominated in US funds and it is prudent to mitigate from foreign
exchange risk.
9. Definitions
9.1 Asset Backed Securities
Fixed income securities (other than a government security) issued by a Special Purpose
Entity, substantially all of the assets of which consist of Qualifying Assets.
9.2 Basis Point
A unit that is equal to 1/100th of 1 %, and is used to denote the change in a financial
instrument. The basis point is commonly used for calculating changes in interest rates,
equity indexes and the yield of a fixed-income security.
9.3 CHUMS Financing Corporation (CHUMS)
A subsidiary of the Municipal Finance Officers Association of Ontario (MFOA) which in
conjunction with the Local Authority Services Limited (LAS) operates the ONE
Investment Program.
G09 - Investments Page 9 of 12
9.4 Credit Risk
The risk to an investor that an issuer will default in the payment of interest and/or
principal of a security.
9.5 Discount
The amount by which the par value of a security exceeds the price paid for the security.
9.6 Diversification
A process of investing assets among a range of security types by class, sector, maturity
and quality rating.
9.7 Duration
A measure of the timing of the cash flows, such as the interest payments and the
principal repayment, to be received from a given fixed-income security. This calculation
is based on three variables: term to maturity, coupon rate, and yield to maturity. The
duration of a security is a useful indicator of its price volatility for given changes in
interest rates.
9.8 Holding Period Classification
Cash Equivalent: short-term highly liquid investments that are readily convertible to
known amounts of cash and that are subject to an insignificant risk of changes in value.
Short-term: securities with a holding period of one year or less.
Long-term: securities with a holding period of greater than one year.
9.9 Liquidity
A measure of an assets' convertibility to cash.
9.10 Local Authorities Service Limited (LAS)
A subsidiary of the Association of Municipalities of Ontario (AMO) which in conjunction
with CHUMS operates the ONE Investment Program.
G09 - Investments Page 10 of 12
9.11 ONE Investment Program
A professionally managed group of pooled investments that meet eligibility criteria as
defined by regulations under the Municipal Act 2001. Also includes the High Interest
Savings Account (HISA).
9.12 Market Risk
The risk that the value of a security will rise or decline as a result of changes in market
conditions.
9.13 Market Value
The current market price of a security.
9.14 Maturity
The date on which payment of a financial obligation is due. The final stated maturity is
the date on which the issuer must retire a bond and pay the face value to the
bondholder.
9.15 Par
The face value or principal value of a bond.
9.16 Premium
The amount by which the price paid for a security exceeds the security's par value.
9.17 Principal
The face or par value of a debt instrument or the amount of capital investment in a given
security.
9.18 Rate of Return
The yield obtainable on a security based on its purchase price or its current market
price. Yield reflects coupon, term, liquidity and credit quality.
G09 - Investments Page 11 of 12
9.19 Schedule I Banks
Schedule I banks are domestic banks and are authorized under the Bank Act to accept
deposits, which may be eligible for deposit insurance provided by the Canadian Deposit
Insurance Corporation.
9.20 Schedule II Banks
Schedule II banks are foreign bank subsidiaries authorized under the Bank Act to
accept deposits, which may be eligible for deposit insurance provided by the Canada
Deposit Insurance Corporation. Foreign bank subsidiaries are controlled by eligible
foreign institutions.
9.21 Sinking Fund
Money accumulated on a regular basis, through regular contributions and interest
earnings, in a separate custodial account that is used to redeem debt securities by a
specified date.
9.22 Weighted Average Maturity (WAM)
The average maturity of all the securities that comprise a portfolio.
9.23 Yield to Maturity (YTM)
The annual return on a bond held to maturity when interest payments and price
appreciation (if priced below par) or depreciation (if priced above par) are considered.
G09 - Investments Page 12 of 12
Franriais
Municipal Act, 2001
ONTARIO REGULATION 438/97
fonnerly under Municipal Act
Attachment 2 to FND-011-18
ELIGIBLE INVESTMENTS, RELATED FINANCIAL AGREEMENTS AND PRUDENT
INVESTMENT
Consolidation Period: From March 1, 2018 to the a -Laws currency date.
Last amendment: 43/18.
Legislative History: 248/01, 265/02, 399/02, 655/05, 607/06, 39/07, 292/09, 52/11, 373/11, 74/16, 43/18.
This is the English version of a bilingual regulation.
13
Definitions
CONTENTS
Application
15.
PARTI
16.
ELIGIBLE INVESTMENTS AND FORWARD RATE AGREEMENTS
1.
Investment under s. 418 of the Act
2.
Eligible investments
19.
2_1
Eligible investments, continued
Investment report
3.
Ratings, financial indicators
22.
4.
Investment limit
Withdrawal from investment arrangement
4.1
Conditions
25.
5.
School purposes
Transitional matters, s. 418.1 of the Act
6.
Canadian dollars
7.
Statement of policies and goals
8.
Investment report
$_1
Inconsistencies, treasurer's duty
9.
Investments pre March 6, 1997
FORWARD RATE AGREEMENTS
l4,
Forward rate agreements
11.
Statement of policies and goals
12.
Report to council
PART II
PRUDENT INVESTMENT
13
Definitions
14.
Application
15.
Requirements under s. 418.1 (3) of the Act
16.
Limitation, school board securities
17
Investments only through Investment Board or Joint Investment Board
18.
Investment policy
19.
Investment plan
20.
Investment report
21.
Inconsistencies, treasurer's duty
22.
Agents of the Investment Board
23.
Withdrawal from investment arrangement
24.
Application of Part, withdrawal or dissolution
25.
Transitional matters, what may be done in advance
26.
Transitional matters, s. 418.1 of the Act
PART
ELIGIBLE INVESTMENTS AND FORWARD RATE AGREEMENTS
Investment under s. 418 of the Act
1. (1) This Part applies in respect of investments by a municipality under section 418 of the Act. O. Reg. 43/18, s. 2.
(2) A municipality does not have the power to invest under section 418 of the Act in a security other than a security
prescribed under this Part. O. Reg. 43/18, s. 2.
Eligible investments
2. The following are prescribed, for the purposes of subsection 418 (1) of the Act, as securities that a municipality may
invest in:
1. Bonds, debentures, promissory notes or other evidence of indebtedness issued or guaranteed by,
i. Canada or a province or territory of Canada,
ii. an agency of Canada or a province or territory of Canada,
iii. a country other than Canada,
iv. a municipality in Canada including the municipality making the investment,
iv.1 the Ontario Infrastructure and Lands Corporation,
v, a school board or similar entity in Canada,
v.1 a university in Ontario that is authorized to engage in an activity described in section 3 of the Post -secondary
Education Choice and Excellence Act, 2000,
v.2 a college established under the Ontario Colleges of Applied Arts and Technology Act, 2002,
vi. a local board as defined in the Municipal Affairs Act (but not including a school board or a municipality) or a
conservation authority established under the Conservation Authorities Act,
vi.1 a board of a public hospital within the meaning of the Public Hospitals Act,
vi.2 a non-profit housing corporation incorporated under section 13 of the Housing Development Act,
vi.3 a local housing corporation as defined in section 24 of the Housing Services Act, 2011, or
vii. the Municipal Finance Authority of British Columbia.
2. Bonds, debentures, promissory notes or other evidence of indebtedness of a corporation if,
i. the bond, debenture or other evidence of indebtedness is secured by the assignment, to a trustee, as defined in the
Trustee Act, of payments that Canada or a province or territory of Canada has agreed to make or is required to
make under a federal, provincial or territorial statute, and
ii. the payments referred to in subparagraph i are sufficient to meet the amounts payable under the bond, debenture
or other evidence of indebtedness, including the amounts payable at maturity.
3. Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments the terms of
which provide that the principal and interest shall be fully repaid no later than two years after the day the investment
was made, if the receipt, note, certificate or instrument was issued, guaranteed or endorsed by,
i. a bank listed in Schedule I, II or III to the Bank Act (Canada),
ii. a loan corporation or trust corporation registered under the Loan and Trust Corporations Act, or
iii. a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies.
3.1 Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments the terms of
which provide that the principal and interest shall be fully repaid more than two years after the day the investment was
made, if the receipt, note, certificate or instrument was issued, guaranteed or endorsed by,
i. a bank listed in Schedule I, II or III to the Bank Act (Canada), or
ii. a loan corporation or trust corporation registered under the Loan and Trust Corporations Act.
iii. REVOKED: O. Reg. 43/18, s. 3 (1).
4. Bonds, debentures, promissory notes or other evidence of indebtedness, the terms of which provide that the principal
and interest shall be fully repaid no later than two years after the day the investment was made if issued or guaranteed
by an institution listed in paragraph 3.1.
4.1 Bonds, debentures, promissory notes or other evidence of indebtedness, the terms of which provide that the principal
and interest shall be fully repaid more than two years after the day the investment was made if issued or guaranteed by
an institution listed in paragraph 3.1.
4.2 Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments, the terms of
which provide that the principal and interest shall be fully repaid more than two years after the day the investment was
made if the receipt, note, certificate or instrument was issued, guaranteed or endorsed by a credit union or league to
which the Credit Unions and Caisses Populaires Act, 1994 applies.
4.3 Bonds, debentures, promissory notes or other evidence of indebtedness issued or guaranteed by a credit union or
league to which the Credit Unions and Caisses Populaires Act, 1994 applies.
5. Short term securities, the terms of which provide that the principal and interest shall be fully repaid no later than three
days after the day the investment was made, that are issued by,
i. a university in Ontario that is authorized to engage in an activity described in section 3 of the Post -secondary
Education Choice and Excellence Act, 2000,
ii. a college established under the Ontario Colleges of Applied Arts and Technology Act, 2002, or
iii. aboard of a public hospital within the meaning of the Public Hospitals Act.
6. Bonds, debentures, promissory notes, other evidence of indebtedness or other securities issued or guaranteed by the
International Bank for Reconstruction and Development.
6.1. Bonds, debentures, promissory notes or other evidence of indebtedness issued or guaranteed by a supranational
financial institution or a supranational governmental organization, other than the International Bank for Reconstruction
and Development.
7. Securities that are arrangements for the sale of assets that entitle the purchaser to an undivided beneficial interest in a
pool of assets.
7.1 Bonds, debentures, promissory notes or other evidence of indebtedness issued by a corporation that is incorporated
under the laws of Canada or a province of Canada, the terms of which provide that the principal and interest shall be
fully repaid more than five years after the date on which the municipality makes the investment.
7.2 Bonds, debentures, promissory notes or other evidence of indebtedness issued by a corporation that is incorporated
under the laws of Canada or a province of Canada, the terms of which provide that the principal and interest shall be
fully repaid more than one year and no later than five years after the date on which the municipality makes the
investment.
8. Negotiable promissory notes or commercial paper, other than securities referred to in paragraph 7, maturing one year
or less from the date of issue, if that note or commercial paper has been issued by a corporation that is incorporated
under the laws of Canada or a province of Canada.
8.1 Shares issued by a corporation that is incorporated under the laws of Canada or a province of Canada.
9. Bonds, debentures, promissory notes and other evidences of indebtedness of a corporation incorporated under section
142 of the Electricity Act, 1998.
10. Any security if the municipality acquires the security as a gift in a will or as a donation not made for a charitable
purpose.
11. REVOKED: O. Reg. 43/18, s. 3 (5).
12. Shares of a corporation if,
L the corporation has a debt payable to the municipality,
ii. under a court order, the corporation has received protection from its creditors,
iii. the acquisition of the shares in lieu of the debt is authorized by the court order, and
iv. the treasurer of the municipality is of the opinion that the debt will be uncollectible by the municipality unless
the debt is converted to shares under the court order. O. Reg. 438/97, s. 2; 0. Reg. 265/02, s. 1; O. Reg. 399/02,
s. 2; 0. Reg. 655/05, s. 2; 0. Reg. 607/06, s. 1; 0. Reg. 39/07, s. 1; 0. Reg. 373/11, s. 1; O. Reg. 74/16, s. 1, 2; O.
Reg. 43/18, s. 3.
Eligible investments, continued
2.1 A security is prescribed for the purposes of subsection 418 (1) of the Act as a security that a municipality may invest
in if,
(a) the municipality invested in the security before January 12, 2009; and
(b) the terms of the municipality's continued investment in the security have been changed pursuant to the Plan
Implementation Order of the Ontario Superior Court of Justice dated January 12, 2009 (Court file number 08 -CL -
7440) and titled "In the matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 as amended and in
the matter of a plan of compromise and arrangement involving Metcalfe & Mansfield Alternative Investments II Corp.
et at". 0. Reg. 292/09, s. 1.
Ratings, financial indicators
3. (1) A municipality shall not invest in a security under subparagraph 1 iii, v.1, v.2, vi.l, vi.2 or vi.3 or paragraph 4 of
section 2 unless the bond, debenture, promissory note or evidence of indebtedness is rated,
(a) REVOKED: O. Reg. 265/02, s. 2 (1).
(b) by Dominion Bond Rating Service Limited as "AA(low)" or higher;
(b.1) by Fitch Ratings as "AA-" or higher;
(c) by Moody's Investors Services Inc. as "Aa3" or higher; or
(d) by Standard and Poor's as "AA-" or higher. 0. Reg. 438/97, s. 3 (1); O. Reg. 265/02, s. 2 (1); 0. Reg. 399/02, s. 3 (1);
O. Reg. 655/05, s. 3 (1, 2); O. Reg. 607/06, s. 2; 0. Reg. 39/07, s. 2; 0. Reg. 43/18, s. 4 (1).
(2) A municipality shall not invest in a security under paragraph 3.1 or 4.1 of section 2 unless the bond, debenture,
promissory note or evidence of indebtedness is rated,
(a) by Dominion Bond Rating Service Limited as "A(low)" or higher;
(b) by Fitch Ratings as "A-" or higher;
(c) by Moody's Investors Services Inc. as "A3" or higher; or
(d) by Standard and Poor's as "A-" or higher. O. Reg. 43/18, s. 4 (2).
(2.0.1) If a municipality's total investments in securities under subparagraph 3 iii and paragraph 4.2 of section 2 have, in
the opinion of the treasurer, a value in excess of $250,000, the municipality shall not invest in any additional security under
paragraph 4.2 of section 2 unless the credit union or league that issues, guarantees or endorses the security provides, within
30 days before the day the investment is made,
(a) audited financial statements indicating that the financial indicators mentioned in subsection (2.0.2) are met by the
credit union or league; or
(b) certification in writing that all of the financial indicators mentioned in subsection (2.0.2) are met by the credit union or
league. 0. Reg. 43/18, s. 4 (2).
(2.0.2) For the purposes of subsection (2.0.1), the financial indicators to be met by the credit union or league are the
following:
1. Positive retained earnings in its audited financial statements for its most recently completed fiscal year.
2. Regulatory capital of at least the percentage of its total assets set out in subsection (2.03) as of the date of the latest
audited financial statements, calculated in accordance with Ontario Regulation 237/09 (General) made under the
Credit Unions and Caisses Populaires Act, 1994.
3. Regulatory capital of at least the percentage of its total risk weighted assets set out in subsection (2.0.4) as of the date
of the latest audited financial statements, calculated in accordance with Ontario Regulation 237/09 (General).
4. Positive net income in its audited financial statements for three of its five most recently completed fiscal years. O. Reg.
43/18, s. 4 (2).
(2.0.3) The percentage mentioned in paragraph 2 of subsection (2.0.2) is the percentage obtained by adding one percent to
the minimum percentage set out in paragraph 1 of subsection 15 (3) of Ontario Regulation 237/09 (General). O. Reg. 43/18,
s.4(2).
(2.0.4) The percentage mentioned in paragraph 3 of subsection (2.0.2) is the percentage obtained by adding one percent to
the minimum percentage set out in paragraph 2 of subsection 15 (3) of Ontario Regulation 237/09 (General). 0. Reg. 43/18,
s.4(2).
(2.0.5) A municipality shall not invest in securities under paragraph 4.3 of section 2 unless the credit union or league that
issues or guarantees the security satisfies the conditions set out in subsection (2.0.1). 0. Reg. 43/18, s. 4 (2).
(2.1) A municipality shall not invest in a security under paragraph 6.1 of section 2 unless the security is rated,
(a) by Dominion Bond Rating Service Limited as "AAA";
(b) by Fitch Ratings as "AAA";
(c) by Moody's Investors Services Inc. as "Aaa' ; or
(d) by Standard and Poor's as "AAA". O. Reg. 655/05, s. 3 (4).
(3) A municipality shall not invest in a security under paragraph 7 of section 2 that matures more than one year from the
date of issue unless the security is rated,
(a) by Dominion Bond Rating Service Limited as "AAA";
(a.1) by Fitch Ratings as "AAA';
(b) by Moody's Investors Services Inc. as "Aaa"; or
(c) by Standard and Poor's as "AAA". O. Reg. 265/02, s. 2 (2); 0. Reg. 399/02, s. 3 (2); O. Reg. 655/05, s. 3 (5); 0. Reg.
43/18, s. 4 (3).
(4) A municipality shall not invest in a security under paragraph 7 of section 2 that matures one year or less from the date
of issue unless the security is rated,
(a) by Dominion Bond Rating Service Limited as "R-1 (high)";
(a.l) by Fitch Ratings as "Fl+";
(b) by Moody's Investors Services Inc. as "Prime -1"; or
(c) by Standard and Poor's as "A-1+". 0. Reg. 265/02, s. 2 (2); O. Reg. 399/02, s. 3 (3); 0. Reg. 655/05, s. 3 (6); O. Reg.
43/18, s. 4 (4).
(4.1) A municipality shall not invest in a security under paragraph 7.1 or 7.2 of section 2 unless the security is rated,
(a) by Dominion Bond Rating Service Limited as "A(low)" or higher;
(b) by Fitch Ratings as "A-" or higher;
(c) by Moody's Investors Services Inc. as "A3" or higher; or
(d) by Standard and Poor's as "A-" or higher. 0. Reg. 43/18, s. 4 (5).
(4.2) REVOKED: 0. Reg. 43/18, s. 4 (5).
(5) A municipality shall not invest in a security under paragraph 8 of section 2 unless the promissory note or commercial
paper is rated,
(a) by Dominion Bond Rating Service Limited as "R-1(mid)" or higher;
(a.1) by Fitch Ratings as "Fl +";
(b) by Moody's Investors Services Inc. as "Prime -1"; or
(c) by Standard and Poor's as "A-1+". 0. Reg. 265/02, s. 2 (2); O. Reg. 399/02, s. 3 (4); 0. Reg. 655/05, s. 3 (8).
(6) If an investment made under subparagraph 1 iii, v.1, v.2, vi.l, vi.2 or vi.3 of section 2 or paragraph 3.1, 4, 4.1, 6.1, 7,
7.1, 7.2 or 8 of section 2 falls below the standard required by this section, the municipality shall create a plan, including
expected timelines, for selling the investment and shall sell the investment in accordance with the plan. 0. Reg. 43/18, s. 4
(6).
(6.1) Subsection (6) does not apply with respect to an investment made by a municipality under paragraph 7 of section 2
on a day before the day this subsection comes into force. 0. Reg. 292/09, s. 2 (3).
(6.1.1) If a municipality's total investments in securities under subparagraph 3 iii and paragraph 4.2 of section 2 have, in
the opinion of the treasurer, a value in excess of the limit mentioned in subsection (2.0.1) of this section and one of the
following circumstances applies, the municipality shall create a plan, including expected timelines, for selling investments
made under paragraph 4.2 of section 2 in excess of that limit and shall sell the investments in accordance with the plan:
1. The financial indicators mentioned in subsection (2.0.2) are not met.
2. The credit union or league fails to provide audited financial statements or a certification as mentioned in subsection
(2.0.1). 0. Reg. 43/18, s. 4 (7).
(6.1.2) For the purposes of determining the value of investments under subsection (6.1.1), the value of all investments
under subparagraph 3 iii of section 2 shall be counted as part of the total first, followed by the value of all investments made
under paragraph 4.2 of section 2. 0. Reg. 43/18, s. 4 (7).
(6.1.3) If one of the circumstances in paragraph 1 or 2 of subsection (6.1.1) applies, the municipality shall create a plan,
including expected timelines, for selling investments made under paragraph 4.3 of section 2 and shall sell the investments in
accordance with the plan. 0. Reg. 43/18, s. 4 (7).
(7) A municipality shall not invest in a security under paragraph 9 of section 2 unless, at the time the investment is made
and as long as it continues, the investment ranks, at a minimum, concurrently and equally in respect of payment of principal
and interest with all unsecured debt of the corporation. 0. Reg. 265/02, s. 2 (2).
(8) A municipality shall not invest in a security under paragraph 9 of section 2 unless, at the time the investment is made, the
total amount of the municipality's investment in debt of any corporation incorporated under section 142 of the Electricity Act,
1998 that would result after the proposed investment is made does not exceed the total amount of investment in debt, including
any interest accrued on such debt, of the municipality in such a corporation that existed on the day before the day the proposed
investment is to be made. 0. Reg. 265/02, s. 2 (2).
(9) Any investment made under paragraph 9 of section 2, including any refinancing, renewal or replacement thereof, may
not be held for longer than a total of 10 years from the date such investment is made. 0. Reg. 265/02, s. 2 (2).
(10) Subsections (7), (8) and (9) do not prevent a municipality from holding or disposing of a security described in
paragraph 9 of section 2 issued by a corporation incorporated under section 142 of the Electricity Act, 1998, if the
municipality acquired the security through a transfer by-law or otherwise under that Act. 0. Reg. 655/05, s. 3 (9).
(11) If a municipality acquires a security under paragraph 10 of section 2 that is not otherwise prescribed under this Part,
the municipality shall create a plan, including expected timelines, for selling the investment and shall sell the investment in
accordance with the plan. O. Reg. 43/18, s. 4 (8).
(12) REVOKED: O. Reg. 292/09, s. 2 (4).
Investment limit
4. (1) A municipality shall not invest more than 25 per cent of the total amount in all sinking and retirement funds in
respect of debentures of the municipality, as estimated by its treasurer on the dale of the investment, in short-term debt issued
or guaranteed by the municipality. O. Reg. 438/97, s. 4 (1).
(2) In this section,
"short-term debt" means any debt, the terms of which provide that the principal and interest of the debt shall be fully repaid
no later than 364 days after the debt is incurred. O. Reg. 438/97, S. 4 (2).
Conditions
4.1 (1) A municipality shall not invest in a security under paragraph 7 of section 2 or in a promissory note or commercial
paper under paragraph 8 of section 2 unless, on the date that the investment is made,
(a) the municipality itself is rated, or all of the municipality's long-term debt obligations are rated,
(i) by Dominion Bond Rating Service Limited as "AA(low)" or higher,
(i.l) by Fitch Ratings as "AA-" or higher,
(ii) by Moody's Investors Services Inc, as "Aa3" or higher, or
(iii) by Standard and Poor's as "AA—' or higher; or
(b) the municipality has entered into an agreement with the Local Authority Services and the CHUMS Financing
Corporation to act together as the municipality's agent for the investment in that security, promissory note or
commercial paper. O. Reg. 265/02, s. 3; O. Reg. 399/02, s. 4; O. Reg. 655/05, s. 4 (1, 2); O. Reg. 43/18, s. 5 (1).
(1.1) A municipality shall not invest in a security under paragraph 7.1 or 8.1 of section 2 unless, on the date the investment
is made, the municipality has entered into an agreement with the Local Authority Services and the CHUMS Financing
Corporation to act together as the municipality's agent for the investment in the security. O. Reg. 655/05, s. 4 (3); 0. Reg.
43/18, s. 5 (2).
(1.2) Subsection (I.1) does not apply to investments in securities by the City of Ottawa if all of the following requirements
are satisfied:
1. Only the proceeds of the sale by the City of its securities in a corporation incorporated under section 142 of the
Electricity Act, 1998 are used to make the investments.
2. The investments are made in a professionally -managed fund.
3. The terms of the investments provide that,
i. where the investment is in debt instruments, the principal must be repaid no earlier than seven years after the date
on which the City makes the investment, and
ii. where the investment is in shares, an amount equal to the principal amount of the investment cannot be
withdrawn from the fund for at least seven years after the date on which the City makes the investment.
4. The City establishes and uses a separate reserve fund for the investments.
5. Subject to paragraph 6, the money in the reserve fund, including any returns on the investments or proceeds from their
disposition, are used to pay capital costs of the City and for no other purpose.
6. The City may borrow money from the reserve fund but must repay it plus interest. O. Reg. 655/05, s. 4 (3).
(2) The investment made under clause (1) (b) or described in subsection (1.1), as the case may be, must be made in the
One Investment Program of the Local Authority Services and the CHUMS Financing Corporation with,
(a) another municipality;
(b) a public hospital;
(c) a university in Ontario that is authorized to engage in an activity described in section 3 of the Post -secondary
Education Choice and Excellence Act, 2000;
(d) a college established under the Ontario Colleges of Applied Arts and Technology Act, 2002;
(d.1) a foundation established by a college mentioned in clause (d) whose purposes include receiving and maintaining a
fund or funds for the benefit of the college;
(e) a school board;
(f) any agent of an institution listed in clauses (a) to (e);
(g) Local Authority Services;
(h) CHUMS Financing Corporation;
(i) Association of Municipalities of Ontario; or
0) Municipal Finance Officers' Association of Ontario. O. Reg. 265/02, s. 3; O. Reg. 655/05, s. 4 (4); O. Reg. 607/06,
s. 3; 0. Reg. 292/09, s. 3; 0. Reg. 52/11, s. 1; 0. Reg. 74/16, s. 1, 3; 0. Reg. 43/18, s. 5 (3-5).
School purposes
S. A municipality shall not invest in a security issued or guaranteed by a school board or similar entity unless,
(a) the money raised by issuing the security is to be used for school purposes; and
(b) REVOKED: 0. Reg. 248/01, s. 1.
0. Reg. 438/97, s. 5; O. Reg. 248/01, s. 1.
Canadian dollars
6. (l) Subject to subsection (3), a municipality shall not invest in a security that is expressed or payable in any currency
other than Canadian dollars. O. Reg. 43/18, s. 6 (1).
(2) Subsection (1) does not prevent a municipality from continuing an investment, made before this Regulation comes into
force, that is expressed and payable in the currency of the United States of America or the United Kingdom. O. Reg. 438/97,
s. 6 (2).
(3) Subsection (1) does not apply in respect of securities listed in paragraphs 3, 3.1 and 4.2 of section 2, which may also be
expressed or payable in the currency of the United States of America. O. Reg. 43/18, s. 6 (2).
Statement of policies and goals
7. (1) Before a municipality invests in a security prescribed under this Part, the council of the municipality shall, if it has
not already done so, adopt a statement of the municipality's investment policies and goals. 0. Reg. 438/97, s. 7; O. Reg.
43/18, s. 7.
(2) In preparing the statement of the municipality's investment policies and goals under subsection (1), the council of the
municipality shall consider,
(a) the municipality's risk tolerance and the preservation of its capital;
(b) the municipality's need for a diversified portfolio of investments; and
(c) obtaining legal advice and financial advice with respect to the proposed investments. 0. Reg. 265/02, s. 4.
(3) REVOKED: O. Reg. 655/05, s. 5.
(4) In preparing the statement of the municipality's investment policies and goals under subsection (1) for investments
made under paragraph 9 of section 2, the council of the municipality shall consider its plans for the investment and how the
proposed investment would affect the interest of municipal taxpayers. 0. Reg. 265/02, s. 4.
Investment report
8. (1) If a municipality has an investment in a security prescribed under this Part, the council of the municipality shall
require the treasurer of the municipality to prepare and provide to the council, each year or more frequently as specified by
the council, an investment report. 0. Reg. 438/97, s. 8 (1); O. Reg. 43/18, s. 7.
(2) The investment report referred to in subsection (1) shall contain,
(a) a statement about the performance of the portfolio of investments of the municipality during the period covered by the
report;
(b) a description of the estimated proportion of the total investments of a municipality that are invested in its own long-
term and short-term securities to the total investment of the municipality and a description of the change, if any, in that
estimated proportion since the previous year's report;
(c) a statement by the treasurer as to whether or not; in his or her opinion, all investments are consistent with the
investment policies and goals adopted by the municipality;
(d) a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and
sale price of each security; and
(e) such other information that the council may require or that, in the opinion of the treasurer, should be included. 0. Reg.
438/97, s. 8 (2); O. Reg. 655/05, s. 6.
(2.1) The investment report referred to in subsection (1) shall contain a statement by the treasurer as to whether any of the
following investments fall below the standard required for that investment during the period covered by the report:
1. An investment described in subparagraph 1 iii, v.1, v.2, vi. 1, vi.2 or vi.3 of section 2.
2. An investment described in paragraph 3.1, 4, 4.1, 6.1, 7, 7.1, 7.2 or 8 of section 2.
3. An investment described in subsection 9 (1). O. Reg. 292/09, s. 4; O. Reg. 43/18, s. 8 (1).
(2.2) The investment report referred to in subsection (1) shall contain a statement by the treasurer as to whether any
investments under paragraphs 4.2 and 4.3 of section 2 are affected by the circumstances set out in paragraphs 1 and 2 of
subsection 3 (6.1.1) during the period covered by the report. 0. Reg. 43/18, S. 8 (2).
(3) Upon disposition of any investment made under paragraph 9 of section 2, the council of the municipality shall require the
treasurer of the municipality to prepare and provide to the council a report detailing the proposed use of funds realized in the
disposition. O. Reg. 265/02, s. 5.
Inconsistencies, treasurer's duly
8.1 If an investment made by the municipality is, in the treasurer's opinion, not consistent with the investment policies and
goals adopted by the municipality, the treasurer shall report the inconsistency to the council of the municipality within 30
days after becoming aware of it. 0. Reg. 655/05, s. 7.
Investments pre March 6,1997
9. (1) Despite this Part, an investment by a municipality in bonds, debentures or other indebtedness of a corporation made
before March 6, 1997 may be continued if the bond, debenture or other indebtedness is rated,
(a) REVOKED: O. Reg. 265/02, s. 6.
(b) by Dominion Bond Rating Service Limited as "AA(low)" or higher;
(b.1) by Fitch Ratings as "AA-" or higher;
(c) by Moody's Investors Services Inc. as "Aa3" or higher; or
(d) by Standard and Poor's as "AA-" or higher. 0. Reg. 438/97, s. 9 (1); 0. Reg. 265/02, s. 6; O. Reg. 399/02, s. 5;
O. Reg. 655/05, s. 8; O. Reg. 43/18, s. 7.
(1.1) REVOKED: 0. Reg. 43/18, s. 9 (1).
(2) If the rating of an investment continued under subsection (1) falls below the standard required by that subsection, the
municipality shall create a plan, including expected timelines, for selling the investment and.shall sell the investment in
accordance with the plan. O. Reg. 43/18, s. 9 (2).
FORWARD RATE AGREEMENTS
Forward rate agreements
10. (1) A municipality that enters into an agreement to make an investment on a future date in a security prescribed by
section 2 may enter one or more forward rate agreements with a bank listed in Schedule I, II or IR to the Bank Act (Canada)
in order to minimize the cost or risk associated with the investment because of fluctuations in interest rates. O. Reg. 655/05,
S.9.
(2) A forward rate agreement shall provide for the following matters:
1. Specifying a forward amount, which is the principal amount of the investment or that portion of the principal amount
to which the agreement relates.
2. Specifying a settlement day, which is a specified future date.
3. Specifying a forward rate of interest, which is a notional rate of interest applicable on the settlement day.
4. Specifying a reference rate of interest, which is the market rate of interest payable on a specified future date on an
acceptance issued by a bank listed in Schedule I, II or III to the Bank Act (Canada).
5. Requiring a settlement payment to be payable on the settlement day if the forward rate and the reference rate of
interest are different. O. Reg. 655/05, s. 9.
(3) A municipality shall not enter a forward rate agreement if the forward amount described in paragraph 1 of subsection
(2) for the investment whose cost or risk the agreement is intended to minimize, when added to all forward amounts under
other forward rate agreements, if any, relating to the same investment, would exceed the total amount of the principal of the
investment. 0. Reg. 655/05, s. 9.
(4) A municipality shall not enter a forward rate agreement unless the settlement day under the agreement is within 12
months of the day on which the agreement is executed. O. Reg. 655/05, s. 9.
(5) A municipality shall not enter a forward rate agreement if the settlement payment described in paragraph 5 of
subsection (2) exceeds the difference between the amount of interest that would be payable on the forward amount calculated
at the forward rate of interest for the period for which the investment was made and the amount that would be payable
calculated at the reference rate of interest. O. Reg. 655/05, s. 9.
(6) A municipality shall not enter a forward rate agreement except with a bank listed in Schedule I, II or III to the Bank
Act (Canada) and only if the bank's long-term debt obligations on the day the agreement is entered are rated,
(a) by Dominion Bond Rating Service Limited as "A(high)" or higher;
(b) by Fitch Ratings as "A+" or higher;
(c) by Moody's Investors Service Inc. as "Al" or higher; or
(d) by Standard and Poor's as "A+" or higher. O. Reg. 655/05, s. 9.
Statement of policies and goals
11. (1) Before a municipality passes a by-law authorizing a forward rate agreement, the council of the municipality shall
adopt a statement of policies and goals relating to the use of forward rate agreements. O. Reg. 655/05, s. 9.
(2) The council of the municipality shall consider the following matters when preparing the statement of policies and
goals:
1. The types of investments for which forward rate agreements are appropriate.
2. The fixed costs and estimated costs to the municipality resulting from the use of such agreements.
3. A detailed estimate of the expected results of using such agreements.
4. The financial and other risks to the municipality that would exist with, and without, the use of such agreements.
5. Risk control measures relating to such agreements, such as,
i. credit exposure limits based on credit ratings and on the degree of regulatory oversight and the regulatory capital
of the other party to the agreement,
ii. standard agreements, and
iii. ongoing monitoring with respect to the agreements. O. Reg. 655/05, s. 9.
Report to council
12. (1) If a municipality has any subsisting forward rate agreements in a fiscal year, the treasurer of the municipality shall
prepare and present to the municipal council once in that fiscal year, or more frequently if the council so desires, a detailed
report on all of those agreements. O. Reg. 655/05, s. 9.
(2) The report must contain the following information and documents:
1. A statement about the status of the forward rate agreements during the period of the report, including a comparison of
the expected and actual results of using the agreements.
2. A statement by the treasurer indicating whether, in his or her opinion, all of the forward rate agreements entered during
the period of the report are consistent with the municipality's statement of policies and goals relating to the use of
forward rate agreements.
3. Such other information as the council may require.
4. Such other information as the treasurer considers appropriate to include in the report. O. Reg. 655/05, s. 9.
PART H
PRUDENT INVESTMENT
Definitions
13. In this Part,
"Investment Board" means a municipal service board that is established under section 196 of the Act by a municipality for
the purposes of this Part and includes, for the purposes of paragraph 3 of section 15, subsection 17 (3) and sections 21 and
23, the Toronto Investment Board; ("commission des placements")
"Joint Investment Board" means a municipal service board that is established under section 202 of the Act by two or more
municipalities for the purposes of this Part; ("commission mixte des placements")
"Toronto Investment Board" means the board of the City of Toronto described in subsection 46 (2) of Ontario Regulation
610/06 (Financial Activities) made under the City of Toronto Act, 2006. ("Commission des placements de Toronto") O.
Reg. 43/18, s. 10.
Application
14. This Part applies in respect of investments by a municipality under section 418.1 of the Act. O. Reg. 43/18, s. 10.
Requirements under s. 415.1(3) of the Act
15. A municipality must satisfy one of the following requirements on the day referred to in subsection 418.1 (3) of the Act
in order to pass a by-law for the purposes of that subsection:
1. The municipality must have, in the opinion of its treasurer, at least,
i. $100,000,000 in money and investments that it does not require immediately, or
ii. $50,000,000 in net financial assets, as indicated in Schedule 70 of the most recent Financial Information Return
supplied to the Ministry of Municipal Affairs by the municipality under the Act and posted on the Ministry's
website on the day the municipality passes the by-law under subsection 418.1 (2) of the Act.
2. The municipality must have entered into an agreement to establish and invest through a Joint Investment Board with
one or more other municipalities, and all of the municipalities must have, in the opinion of each of their treasurers, a
combined total of at least $100,000,000 in money and investments that the municipalities do not require immediately.
3. The municipality must have entered into an agreement with the following parties to invest through an Investment
Board or a Joint Investment Board that was established by another municipality or municipalities before the day the
municipality passes the by-law:
i. The Investment Board or Joint Investment Board, as the case may be.
ii. Any other municipalities investing through the Investment Board or Joint Investment Board on the day the
municipality passes the by-law. 0. Reg. 43/18, s. 10.
Limitation, school board securities
16. A municipality shall not invest money in a security issued or guaranteed by a school board or similar entity in Canada
unless the money raised by issuing the security is to be used for school purposes. 0. Reg. 43/18, s. 10.
Investments only through Investment Board or Joint Investment Board
17. (1) A municipality that satisfies the requirement set out in paragraph 1 of section 15 may invest money only by having
an Investment Board that meets the following criteria do so on its behalf:
1. The Investment Board has been established by the municipality.
2. The Investment Board has been given the -control and management of the municipality's investments by the
municipality delegating to the Investment Board,
i. the municipality's powers to make the investments, and
ii. the municipality's duties under section 418.1 of the Act. 0. Reg. 43/18, s. 10.
(2) A municipality that satisfies the requirement set out in paragraph 2 of section 15 may invest money only by having a
Joint Investment Board that satisfies the following criteria do so on its behalf.
1. The Joint Investment Board is the subject of an agreement referred to in paragraph 2 of section 15.
2. The Joint Investment Board has been given the control and management of the municipality's investments, together
with that of all the other municipalities that are party to the agreement referred to under paragraph 2 of section 15, by
each municipality delegating to the Joint Investment Board,
i. the municipality's powers to make the investments, and
ii, the municipality's duties under section 418.1 of the Act. 0. Reg. 43/18, s. 10.
(3) A municipality that satisfies the requirement under paragraph 3 of section 15 may invest money only by having an
Investment Board or Joint Investment Board, as the case may be, that satisfies the following criteria do so on its behalf:
I. The Investment Board or Joint Investment Board is the subject of an agreement referred to in paragraph 3 of section
15.
2. The Investment Board or Joint Investment Board has been given the control and management of the municipality's
investments by the municipality delegating to the Investment Board or Joint Investment Board,
i. the municipality's powers to make the investments, and
ii. the municipality's duties under section 418.1 of the Act. 0. Reg. 43/18, s. 10.
(4) The following persons may not be appointed as members of the Investment Board or Joint Investment Board:
1. An officer or employee of any municipality for which it invests.
2. A member of council of any municipality for which it invests. 0. Reg. 43/18, s. 10.
(5) Subsection (3) does not apply to any treasurer of a municipality for which the board invests provided that treasurers do
not make up more than one quarter of the members. 0. Reg. 43/18, s. 10.
Investment policy
18. (1) The council of a municipality shall adopt and maintain an investment policy in relation to investing under this
Part. 0. Reg. 43/18, s. 10.
(2) The investment policy shall include requirements with respect to the following:
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1. The municipality's objectives for return on investment and risk tolerance.
2. The municipality's need for liquidity including, for greater certainty, the municipality's anticipated needs for funds for
planned projects and the municipality's needs to have funds available for unanticipated contingencies. 0. Reg. 43/18,
s. 10.
(3) The investment policy may include other requirements with respect to investment matters that council considers to be
in the interests of the municipality. 0. Reg. 43/18, s. 10.
(4) At least annually, the council shall review the investment policy and update it, as necessary, as a result of the review.
0. Reg. 43/18, s. 10.
Investment plan
19. (1) An Investment Board or Joint Investment Board shall adopt and maintain an investment plan in respect of all
municipalities that have delegated to it,
(a) the municipality's powers to make investments; and
(b) the municipality's duties under section 418.1 of the Act. 0. Reg. 43/18, s. 10.
(2) The investment plan shall deal with how the Investment Board or Joint Investment Board will invest each
municipality's money and set out the Board's projections of the proportions of each municipality's portfolio of investments
to be invested at the end of the year in each type of security selected by the Investment Board or Joint Investment Board and
may include other requirements. O. Reg. 43/18, s. 10.
(3) At least annually, following each council's review of the investment policy under subsection 18 (4), the Investment
Board or Joint Investment Board shall review the investment plan and update it, as necessary, as a result of the reviews. 0.
Reg. 43/18, s. 10.
Investment report
20. (1) An Investment Board or Joint Investment Board shall prepare and provide to the council of each municipality
referred to in subsection 19 (1), each year or more frequently as specified by the council, an investment report. O. Reg. 43/18,
s. 10.
(2) The investment report shall contain,
(a) a statement about the performance of the municipality's portfolio of investments during the period covered by the
report;
(b) a statement by the treasurer of the municipality as to whether or not, in the opinion of the treasurer, all investments are
consistent with the municipality's investment policy under section 18 and the investment plan for the municipality
under section 19; and
(c) such other information that the council may require or that, in the opinion of the treasurer, should be included. O. Reg.
43/18, s. 10.
Inconsistencies, treasurer's duty
21. If an investment made by an Investment Board or a Joint Investment Board is, in the opinion of the municipality's
treasurer, not consistent with the municipality's investment policy under section 18 and the investment plan for the
municipality under section 19 of this Regulation or section 48.1 of Ontario Regulation 610/06 (Financial Activities) made
under the City of Toronto Act, 2006, as the case may be, the treasurer shall report the inconsistency to the council within 30
days after becoming aware of it. 0. Reg. 43/18, s. 10.
Agents of the Investment Board
22. (1) Subject to subsections (2) and (3), an Investment Board or Joint Investment Board may authorize an agent to
exercise any of the board's functions to the same extent that a prudent investor, acting in accordance with ordinary
investment practice, would authorize an agent to exercise any investment function. 0. Reg. 43/18, s. 10.
(2) An Investment Board or Joint Investment Board may not authorize an agent under subsection (1) unless a written
agreement between the board and the agent is in effect and the agreement includes,
(a) a requirement that the agent comply with the requirements included in the investment policy or policies under section
18 and with the investment plan under section 19; and
(b) a requirement that the agent report to the board at regular stated intervals. 0. Reg. 43/18, s. 10.
(3) An Investment Board or Joint Investment Board shall exercise prudence in selecting an agent, in establishing the terms
of the agent's authority and in monitoring the agent's performance to ensure compliance with those terms. 0. Reg. 43/18, s.
10.
(4) For the purpose of subsection (3), prudence in monitoring an agent's performance includes,
(a) reviewing the agent's reports; .
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(b) regularly reviewing the agreement between the Investment Board or Joint Investment Board and the agent and how it
is being put into effect, including assessing whether the requirement described in clause (2) (a) is being complied with;
(c) considering whether directions should be provided to the agent or whether the agent's appointment should be revoked;
and
(d) providing directions to the agent or revoking the appointment if the Investment Board or Joint Investment Board
considers it appropriate to do so. O. Reg. 43/18, s. 10.
(5) This section does not prevent the investment, by the Investment Board or Joint Investment Board, in mutual funds,
pooled funds or segregated funds under variable insurance contracts, and the manager of such a fund is not an agent for the
purpose of this section. O. Reg. 43/18, s. 10.
Withdrawal from investment arrangement
23. A municipality may withdraw from investing through an Investment Board or Joint Investment Board that the
municipality has not established if all of the following conditions are met:
1. All the municipalities investing through the board agree to the withdrawal.
2. The municipality has done one of the following:
i. Entered into an agreement with another municipality that has established an Investment Board, that Investment
Board and any other municipalities investing through that Investment Board, to invest through that Investment
Board.
ii. Entered into an agreement with the municipalities that have established a Joint Investment Board, that Joint
Investment Board and any other municipalities investing through that Joint Investment Board, to invest through
that Joint Investment Board.
iii. Established an Investment Board on its own or established a Joint Investment Board with one or more other
municipalities.
3. The municipality has given the Investment Board or Joint Investment Board through which it will be investing the
control and management of the municipality's investments by delegating to the board,
i. the municipality's powers to make the investments, and
ii. the municipality's duties under section 418.1 of the Act. O. Reg. 43/18, s. 10.
Application of Part, withdrawal or dissolution
24. (1) This section applies if a municipality establishes an Investment Board or aJoint Investment Board,
(a) in order to meet the condition set out in subparagraph 2 iii of section 23 with respect to withdrawing from investing; or
(b) in order to meet a condition set out in Ontario Regulation 42/18 (Dissolution of and Prescribed Changes to Investment
Board or Joint Investment Board) made under the Act. O. Reg. 43/18, S. 10.
(2) The municipality must satisfy the requirement set out in paragraph 1 or 2 of section 15 at the time of establishing the
board and the reference in subparagraph 1 ii of section 15 to "the day the municipality passes the by-law under subsection
418.1 (2) of the Act" is deemed for the purposes of this section to be a reference to "the day the Investment Board is
established". 0. Reg. 43/18, s. 10.
(3) Subsections 17 (1) and (2) apply to the municipality. O. Reg. 43/18, s. 10.
(4) Sections 16 and 18 to 22 apply with respect to the investment of money by the Investment Board or Joint Investment
Board. 0. Reg. 43/18, s. 10.
Transitional matters, what may be done in advance
25. For greater certainty, before a municipality passes a by-law under subsection 418.1 (2) of the Act and before the
effective date of the by-law,
(a) the municipality may establish an Investment Board or Joint Investment Board and appoint the members;
(b) the municipality may enter into an agreement described in paragraph 2 or 3 of section 15;
(c) the municipality may adopt an investment policy under section 18;
(d) an Investment Board or Joint Investment Board may adopt an investment plan under section 19; and
(e) an Investment Board or Joint Investment Board may authorize an agent under section 22. 0. Reg. 43/18, s. 10.
Transitional matters, s. 418.1 of the Act
26. (1) No municipality shall pass a by-law under subsection 418.1 (2) of the Act until January 1, 2019. 0. Reg. 43/18, s.
10.
(2) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act,
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(a) section 8 of this Regulation continues to apply to the municipality for the purposes of reporting in respect of any
period up to and including the effective date of the by-law; and
(b) section 20 of this Regulation applies to an Investment Board or Joint Investment Board for the purposes of reporting in
respect of any period following the effective date of the by-law. O. Reg. 43/18, s. 10.
(3) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act,
(a) section 8.1 of this Regulation continues to apply with respect to investments made on or before the effective date of
the by-law; and
(b) section 21 of this Regulation applies with respect to investments made following the effective date of the by-law. O.
Reg. 43/18, s. 10.
(4) Despite the passing of a by-law by a municipality under subsection 418.1 (2) of the Act, reports shall be made by the
treasurer under subsection 12 (1) of this Regulation until reports have been made covering the periods up to and including the
period ending on the effective date of the by-law. O. Reg. 43/18, s. 10.
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