Chapter 11.5Governmental Investors

Section § 6930

Explanation

This law defines terms related to the investment activities of certain government officials and entities in California. Firstly, it describes a 'governmental investor' as key figures involved with managing large public funds, including the state Treasurer and boards handling retirement systems. It explains 'soft dollar and directed brokerage arrangements' as specific brokerage and research services. 'Transaction cost' refers to the total cost of a securities transaction, including various fees. Finally, 'responsible' is defined as conducting thorough checks on transactions, ensuring they're necessary and costs are reasonable, with a focus on the broker's abilities and service quality.

As used in this chapter:
(a)CA Government Code § 6930(a) “Governmental investor” means the Treasurer, the Teachers’ Retirement Board, and the Board of Administration of the Public Employees’ Retirement System. “Governmental investor” also means each county treasurer, each city treasurer, each public governing or investing body or public investing officer, who exercises investment discretion over public funds in excess of ten million dollars ($10,000,000) or over public pension or retirement funds in excess of ten million dollars ($10,000,000).
(b)CA Government Code § 6930(b) “Soft dollar and directed brokerage arrangements” means the brokerage and research services described by Section 28 (e) of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78bb(e)).
(c)CA Government Code § 6930(c) “Transaction cost” means the overall cost of the transaction, including, but not limited to, commissions, services, and the price of the securities.
(d)CA Government Code § 6930(d) “Responsible” means with the due diligence required of a fiduciary to examine a presented transaction for: necessity of soft dollar services provided and for commission cost; quality of the trade; quality of the broker-dealer’s research; the broker-dealer’s execution capabilities; and the broker-dealer’s quality of service.
governmental investor Treasurer retirement boards investment discretion soft dollar arrangements directed brokerage Securities Exchange Act transaction cost commissions fiduciary duty broker-dealer investment oversight public funds quality of service securities transaction
(Added by Stats. 1990, Ch. 709, Sec. 1.)

Section § 6931

Explanation

This law requires that any securities transaction or brokerage agreement made for a government investor using a soft dollar or directed brokerage arrangement must be executed at the lowest possible cost that is still considered responsible.

Each securities transaction or brokerage agreement carried out for a governmental investor pursuant to a soft dollar and directed brokerage arrangement, as defined in subdivision (b) of Section 6930, shall be executed at the lowest responsible transaction cost available.
government investor securities transaction brokerage agreement soft dollar arrangement directed brokerage arrangement lowest transaction cost responsible cost brokerage execution investment cost efficiency transaction cost savings brokerage services for government financial transaction regulation
(Added by Stats. 1990, Ch. 709, Sec. 1.)

Section § 6932

Explanation

This law requires that any agreement from 1991 onward between a government entity and an investment manager for managing public fund assets include specific stipulations concerning 'soft dollar' and directed brokerage arrangements. These arrangements involve using brokerage services to get research and other benefits. The investment manager must keep thorough records of any billed services related to these arrangements. The services a broker-dealer can provide under these arrangements need to be clearly defined.

The agreement must disclose several things to the government investor: all services billed under these arrangements, reasons for each service, the maximum percentage of investments used in these arrangements, an annual report of all billed services from the previous year, and whether the services are exclusive or shared across other clients.

Any written contract entered into between a governmental investor and an investment manager on or after January 1, 1991, for the management of assets of a public fund or a public pension or retirement fund, which includes a soft dollar and directed brokerage arrangement, shall contain the following requirements:
(a)CA Government Code § 6932(a) The investment manager shall maintain complete and detailed records of all billed services provided pursuant to soft dollar and directed brokerage arrangements.
(b)CA Government Code § 6932(b) The services which may be provided by a broker-dealer pursuant to soft dollar and directed brokerage arrangements shall be clearly defined.
(c)CA Government Code § 6932(c) The investment manager shall, in the customer agreement letters with governmental investors, disclose:
(1)CA Government Code § 6932(c)(1) A list of all billed services provided pursuant to soft dollar and directed brokerage arrangements with respect to investment transactions for the governmental investor.
(2)CA Government Code § 6932(c)(2) The justification for providing each of those services.
(3)CA Government Code § 6932(c)(3) The maximum percentage of the investment transactions of the governmental investor planned for use in soft dollar and directed brokerage arrangements.
(4)CA Government Code § 6932(c)(4) An annual statement of all billed services provided during the previous year under soft dollar and directed brokerage arrangements with respect to investment transactions for the governmental investor.
(5)CA Government Code § 6932(c)(5) A determination of whether each service provided under soft dollar and directed brokerage arrangements with respect to investment transactions for the governmental investor is proprietary or is being shared by other clients of the investment manager.
investment manager obligations soft dollar arrangements directed brokerage disclosure public fund management government investor agreement broker-dealer services service record keeping investment transaction services annual statement requirement service exclusivity public pension fund management asset management contracts billed service justification
(Added by Stats. 1990, Ch. 709, Sec. 1.)

Section § 6933

Explanation

This law states that soft dollar and directed brokerage arrangements don't have to follow any bidding competition rules. It clarifies that this doesn't change existing law but reinforces what's already in place.

Soft dollar and directed brokerage arrangements are not subject to any statutory competitive bidding requirements.
This section does not constitute a change in, but is declaratory of, existing law.
soft dollar arrangements directed brokerage competitive bidding statutory requirements financial arrangements brokerage rules declaratory law existing law clarification non-competitive bidding financial services broker compensation investment context California financial regulations regulatory compliance brokerage practices
(Added by Stats. 1990, Ch. 709, Sec. 1.)

Section § 6934

Explanation

This law states that all contracts made, renewed, or extended from January 1, 1991, onwards must follow the rules outlined in this chapter.

This chapter shall apply to contracts entered into, renewed, or extended on and after January 1, 1991.
contract applicability contract renewal contract extension effective date January 1 1991 contract terms contractual obligations new contracts renewed contracts extended contracts
(Added by Stats. 1990, Ch. 709, Sec. 1.)