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<br />8. Commercial paper rated AI/PI or its equivalent by two nationally recognized rating <br />agencies and not to exceed 180 days to stated final maturitYa <br />9. AAA-rated, SEC registered money market funds as defined by the Public Funds <br />Investment Act. <br /> <br />XI. COLLATERALIZATION <br /> <br />Collateralization will be required on time and demand deposits and repurchase agreements a In order <br />to anticipate market changes and provide a level of security for all funds, the collateralization level <br />will be a minimum of 102% of market valuea All collateral shall be priced and monitored daily by <br />the counter partYa The counter party shall be made contractually liable for monitoring and maintains <br />the collateral and required margins at all timesa <br /> <br />The City chooses to limit collateral on time deposits to those authorized investments listed in Section <br />IX, subdivision (1) - (4) and to Section IX, subdivision (1) for repurchase agreements a Collateral will <br />always be held by an independent third party with whom the City has a current custodial agreementa <br />A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the City and <br />retained. The right of collateral substitution is granted with prior City approval. <br /> <br />XII. SAFEKEEPING AND CUSTODY <br /> <br />In order to ensure custodial protection, the City has established delivery and possession procedures <br />for all transactions, except pools and money market funds, which have no book entry delivery. <br />Specifically, all security transactions, including collateral for repurchase agreements, entered into by <br />the City shall be conducted on a delivery versus payment (DVP) basis to the City's depository or <br />City approved third party custodiana Securities will be held by a third party custodian approved by <br />the Investment Officer(s) and evidenced by proof of ownership (original safekeeping receipts)a <br /> <br />If the brokerage subsidiary of the City's banking services bank is used, any security purchased for it <br />must be safekept in the bank's trust department to fulfill DVP requirements. <br /> <br />XIII. DIVERSIFICATION <br /> <br />Diversification of the overall portfolio will be maintained in accordance with the following <br />diversification limitsa <br /> <br />Security Type <br /> <br />Maximum % of Portfolio <br /> <br />US Government Treasury Obligations <br />US Government Agencies and Instrumentalities <br />Municipal Instruments <br />Certificates of Deposit <br /> <br />90% <br />80% <br />20% <br />20% <br /> <br />City of San Marcos Investment Policy <br /> <br />Page 6 <br />