PA 10-150—SB 431

Finance, Revenue and Bonding Committee

AN ACT CONCERNING COLLATERAL FOR SECURITIES LENDING BY THE STATE TREASURER

SUMMARY: This act allows the state treasurer to accept securities guaranteed by certain foreign countries as collateral for loans and repurchase agreements involving securities owned by the state's trust funds, including the state employees', teachers', and municipal employees' retirement funds. To be acceptable, the foreign securities must be (1) guaranteed by a sovereign country that participates in the so-called “G 10” and (2) rated AA or better by at least one nationally recognized statistical rating organization. Prior law allowed the treasurer to accept only cash or securities guaranteed by the U. S. government or one of its agencies.

The act maintains requirements that (1) when the loan or repurchase agreement is executed, the collateral equal 100% of the market value of the securities sold or lent and (2) during the term of the loan or agreement, the value of the collateral not fall below 95% of, and $100,000 less than, the value of the securities sold or lent.

EFFECTIVE DATE: July 1, 2010

BACKGROUND

Repurchase Agreement

A repurchase agreement or “repo” is a contract under which a seller of securities agrees to buy them back at a specified time and price. A repo is similar to a secured loan, in which the buyer provides funds to the seller and holds the security as collateral to protect against default.

“G 10” Countries

Eleven countries currently participate in the General Agreements to Borrow or G 10: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States. The countries consult and cooperate on economic, monetary, and financial matters.

OLR Tracking: JSL: KM: VR: DF