North Dakota Administrative Code
Title 13 - Department of Financial Institutions
Article 13-03 - Credit Unions
Chapter 13-03-22 - Investment Activities
Section 13-03-22-01 - Definitions

1. "Adjusted trading" means selling an investment to a counterparty at a price above its current fair value and simultaneously purchasing or committing to purchase from the counterparty another investment at a price above its current market value.

2. "Borrowing repurchase transaction" means a transaction in which the credit union agrees to sell a security to a counterparty and to repurchase the same or identical security from the counterparty at a specified future date and at a specified price.

3. "Call" means an option that gives the holder the right to buy the underlying security at a specified price during a fixed time period.

4. "Charitable contributions and donations" means gifts provided to assist others through contributions of staff, equipment, money, or other resources through charities that are exempt from taxation under 501(c)(3) of the Internal Revenue Code.

5. "Counterparty" means a swap dealer, derivatives clearing organization, exchange, or commercial loan customers that participates as the other party in a derivatives transaction with a credit union.

6. "Derivatives" means a financial contract that derives its value from the value and performance of some other underlying financial instrument or variable, such as an index or interest rate.

7. "Derivatives clearing organization" has the meaning as defined by the commodity futures trading commission in 17 CFR 1.3 effective March 15, 2021.

8. "Distribution in kind" means acceptance of remaining charitable donation account assets, upon termination of the account, in their original form instead of in cash resulting from the liquidation of assets.

9. "Domestic interest rates" means interest rates derived in the United States and are United States dollar-denominated.

10. "Earnings at risk" means the changes to earnings, typically in the short term, for example, twelve to thirty-six months, caused by changes in interest rates.

11. "Economic effectiveness" means the extent to which a derivatives transaction results in offsetting changes in the interest rate risk that the transaction was, and is, intended to provide.

12. "Embedded option" means a characteristic of an investment that gives the issuer or holder the right to alter the level and timing of the cashflows of the investment. Embedded options include call and put provisions and interest rate caps and floors. Since a prepayment option in a mortgage is a type of call provision, a mortgage-backed security composed of mortgages that may be prepaid is an example of an investment with an embedded option.

13. "Eurodollar deposit" means a United States dollar denominated deposit in a foreign branch of a United States depository institution.

14. "European financial options contract" means an option that can be exercised only on its expiration date.

15. "External service provider" means any entity that provides services to management in carrying out its derivatives program and the requirements of this chapter.

16. "Fair value" means the amount at which an instrument could be exchanged in a current, arms-length transaction between willing parties, as opposed to a forced or liquidation sale.

17. "Financial options contract" means an agreement to make or take delivery of a standardized financial instrument upon demand by the holder of the contract as specified in the agreement.

18. "Futures commission merchant" has the meaning as defined by the commodity futures trading commission in 17 CFR 1.3 effective March 15, 2021.

19. "Industry-recognized information provider" means an organization that obtains compensation by providing information to investors and receives no compensation for the purchase or sale of investments.

20. "Interest rate risk" means the current and prospective risk to a credit union's capital and earnings arising from movements in interest rates.

21. "Introducing broker" means a futures brokerage firm that deals directly with the client, while the trade execution is done by a futures commission merchant.

22. "Investment repurchase transaction" means a transaction in which an investor agrees to purchase a security from a counterparty and to resell the same or an identical security to that counterparty at a specified future date and at a specified price.

23. "Margin" means the minimum amount of eligible collateral, as defined in subdivision c of subsection 3 of section 13-03-22-16, that must be deposited between parties to a derivatives transaction, as detailed in a master services agreement.

24. "Master services agreement" means a document agreed upon between two parties that sets out standard terms that apply to all transactions entered into between those parties. The most common form of a master services agreement for derivatives is an international swap dealer association master agreement.

25. "Maturity" means the date the last principal amount of a security is scheduled to come due and does not mean the call date or the weighted average life of a security.

26. "Noncleared" means transactions that do not go through a derivatives clearing organization.

27. "Put" means a financial options contract that entitles the holder to sell, entirely at the holder's option, a specified quantity of a security at a specified price at any time until the stated expiration date of the contract.

28. "Qualified charity" means a charitable organization or other nonprofit entity recognized as exempt from taxation under section 501(c)(3) of the Internal Revenue Code.

29. "Real estate mortgage investment conduit" means a mortgage passthrough security and is synonymous with the terms MBS and passthrough. The scope of the MBS market extends to structured mortgage securities such as collateralized mortgage obligations, real estate mortgage conduits, and strips, for which passthroughs are the most common form of collateral.

30. "Registered investment adviser" means an investment advisor registered with the securities and exchange committee pursuant to the Investment Advisors Act of 1940.

31. "Registered investment company" means an investment company that is registered with the securities and exchange commission under the Investment Company Act of 1940 [ 15 U.S.C. 80 a]. Examples of registered investment companies are mutual funds and unit trust investments.

32. "Residual interest" means the remainder cashflows from collateralized mortgage obligations or real estate mortgage conduits, or other mortgage-backed security transaction, after payments due bondholders and trust administrative expenses have been satisfied.

33. "Security" means a share, participation, or other interest in property or in an enterprise of the issuer or an obligation of the issuer that:

34. "Senior executive officer" means a person who participates or has authority to participate in major policymaking and decisionmaking functions of the credit union, whether or not the officer has an official title. The chief executive officer, chief financial officer, chief credit officer, president, vice president, and controller are considered senior executive officers.

35. "Structured liability offering" means a share product created by a credit union with contractual option features, such as periodic caps and calls, similar to those found in structured securities or structured notes.

36. "Swap dealer" has the meaning as defined by the commodity futures trading commission in 17 CFR 1.3 effective March 15, 2021.

37. "Threshold amount" means an unsecured credit exposure that a party to a derivatives transaction is prepared to accept before requesting additional eligible collateral, as defined in subdivision c of subsection 3 of section 13-03-22-16, from the other party.

38. "Total return" means the actual rate of return on all investments in a charitable donation account over a given period of up to five years, including realized interest, capital gains, dividends, and distributions, but exclusive of account fees, and expenses provided they were not paid to the credit union that established the account or any of its affiliates. For the purpose of this definition, affiliate is an entity the credit union has an ownership interest in, directly or indirectly, but not an ownership interest due to funding of employee benefits.

39. "Weighted average life" means the weighted average time to the return of a dollar of principal. Calculated by multiplying each portion of principal received by the time at which it is expected to be received, based on a reasonable and supportable estimate of that time, and then summing and dividing by the total amount of principal.

40. "Zero coupon investment" means an investment that makes no periodic interest payments but instead is sold at a discount from its face value. The holder of a zero coupon investment realizes the rate of return through the gradual appreciation of the investment, which is redeemed at face value on a specified maturity date.