MSRB Investment Policy

As a self-regulatory organization (SRO) formed pursuant to Section 15B of the Securities Exchange Act of 1934, the MSRB conducts rulemaking regarding the municipal securities activities of dealers and the municipal advisory activities of municipal advisors, and operates a number of programs to protect investors in municipal securities, municipal entities and obligated persons, and to foster a fair and efficient municipal securities market. Funding for the MSRB’s programs and services is derived primarily from fees that are directly tied to primary offerings of municipal securities and municipal securities transactions. In addition, the Board receives fees from registration of firms and individuals and from fine sharing.¹ Fine sharing revenue is volatile, not predictable, and subject to spending limitations. Each of these types of fees is subject to volatility based on market conditions. As an SRO that engages in rulemaking and maintains market information transparency programs relied upon by market participants, the MSRB must maintain sufficient reserves to operate the organization without interruption, regardless of market conditions and the level of underwriting and transaction activity. Therefore, in order to ensure the MSRB is always in a position to fulfill its mandate, the organization sets an organizational reserve target as set forth in the Funding Policy.

Investment Objectives

In order to meet its statutory obligations, the investment objective of the MSRB is to emphasize preservation of capital and liquidity, while realizing adequate returns. Additionally, the MSRB strives to avoid any real or perceived conflicts of interest with its constituents by not investing in municipal bonds or any instruments in which its Board members may have a vested interest.

Investment Guidelines

Permitted Investments

1. Obligations of the U.S. Government:
   a. U.S. Treasury Bills
   b. U.S. Treasury Notes
2. Non-callable and callable obligations of U.S. Government sponsored entities that are fully guaranteed by the U.S. Government, including obligations with step-up interest rate features. GSA STRIPS are not permitted.
3. Non-callable and callable Certificates of Deposit that are FDIC insured or collateralized by U.S. Government securities
4. Repurchase agreements collateralized by Permitted Investments #1 and #2.
5. Money-market funds investing in Permitted Investments #1, #2 and #4.

Cash

Cash maintained in the operating bank account should not exceed a reasonable daily operational level of approximately $1.5 million.

Procurement Methodology

To ensure the best available trade for investment purchases, the Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer must seek same-day quotes from at least two independent sources before making purchase decisions. If investment purchases exceed $2 million in a day, the purchase decision must receive secondary approval by an additional authorized approver (Chief Executive Officer, Chief Operating Officer or Chief Financial Officer).

Authorized Broker-Dealers

The MSRB seeks to invest with qualified, well-established broker-dealers able to provide favorable investment options within the scope of this Policy. New entities must be reviewed and approved by the Finance Committee prior to investment of funds.

The Chief Financial Officer will maintain a list of financial institutions approved by the Finance Committee to provide investment services to the MSRB.

Maturity

The goal is to hold investments until maturity in order to avoid realizing any principal loss. A cash flow schedule of expected maturity and income from the portfolio shall be constructed and used to meet the needs of the Board. The Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer are authorized to liquidate any holdings if they deem the action prudent and suitable. Liquidation prior to maturity of more than $2 million of investment holdings must receive approval from two of these authorized approvers.

Maturity restrictions are as follows:

• Maximum maturity for any single investment is three years.
• Weighted average maturity (WAM) of the portfolio is up to two years.
• Total investments maturing in any single month should not exceed 25% of the total portfolio balance at any time during the year.

Diversification

Portfolio diversification is not required with investments that are backed by the full faith and credit of the U.S. Government or its fully guaranteed agencies.