2005 California Financial Code Sections 33560-33570 Article 3. Eligible Securities

FINANCIAL CODE
SECTION 33560-33570

33560.  In this article:
   (a) "Eligible security" means any United States currency eligible
security or foreign currency eligible security.
   (b) "Eligible securities rating service" means any securities
rating service which the commissioner has by regulation or order
declared to be an eligible securities rating service pursuant to
Section 33564.
   (c) "Eligible rating," when used with respect to any security or
class of securities and any eligible securities rating service, means
any rating assigned to such security or class of securities by such
eligible securities rating service which the commissioner has by
regulation or order declared to be an eligible rating pursuant to
Section 33565.
   (d) "Foreign currency eligible security" means any of the
following which is, or is denominated in, a foreign currency and
which the commissioner has not by regulation or order declared to be
ineligible pursuant to Section 33562:
   (1) Any of the following which is of comparable quality to the
United States currency eligible securities specified in paragraphs
(1) to (7), inclusive, of subdivision (f):
   (A) Cash.
   (B) Any deposit in an office of a bank located in a foreign
country.
   (C) Any bond, note, or other obligation.
   (2) Any other security or class of securities which the
commissioner has by regulation or order declared to be eligible
securities pursuant to Section 33563.
   (e) "Reported outstanding payment instrument," when used with
respect to a licensee, means any of the following:
   (1) Any payment instrument issued by the licensee which has been
sold directly by the licensee and which has not yet been paid by the
licensee.
   (2) Any payment instrument issued by the licensee which has been
sold by an agent of the licensee, which has been reported by such
agent to the licensee as having been sold (such report having been
received by the licensee), and which has not yet been paid by the
licensee.
   (f) "United States currency eligible security" means any of the
following which is, or is denominated in, United States currency and
which the commissioner has not by regulation or order declared to be
ineligible pursuant to Section 33562:
   (1) Cash.
   (2) Any deposit in an insured bank or an insured savings and loan
association.
   (3) Any bond, note, or other obligation which is issued or
guaranteed by the United States or by any agency of the United
States.
   (4) Any bond, note, or other obligation which is issued or
guaranteed by any state of the United States or by any governmental
agency of or within any state of the United States and which is
assigned an eligible rating by an eligible securities rating service.
   (5) Any bankers acceptance which is eligible for discount by a
federal reserve bank.
   (6) Any commercial paper which is assigned an eligible rating by
an eligible securities rating service.
   (7) Any bond, note, or other obligation or preferred stock which
is assigned an eligible rating by an eligible securities rating
service.
   (8) Any share of an investment company that is an open-end
management company, that is registered under the Investment Company
Act of 1940 (12 U.S.C. Sec. 80a-1 et seq.), that holds itself out to
investors as a money market fund, and that operates in accordance
with all provisions of the Investment Company Act of 1940 and of the
regulations of the Securities and Exchange Commission applicable to
money market funds, including Section 270.2a-7 of the regulations of
the Securities and Exchange Commission (17 C.F.R. Sec. 270.2a-7).
   For purposes of this paragraph and paragraph (9), "investment
company," "management company," and "open-end" have the meanings set
forth in Sections 3, 4, and 5, respectively, of the Investment
Company Act of 1940 (12 U.S.C. Secs. 80a-3, 80a-4, and 80a-5,
respectively).
   (9) Any share of an investment company that is an open-end
management company, that is registered under the Investment Company
Act of 1940 (12 U.S.C. Sec. 80a-1 et seq.), and that invests
exclusively in securities that constitute United States currency
eligible securities under the other provisions of this subdivision.
   (10) Any account due to any licensee from any agent of such
licensee on account of the sale by such agent of reported outstanding
payment instruments issued by the licensee, if the account is
current and not past due or otherwise doubtful of collection.
   (11) Any other security or class of securities that the
commissioner has by regulation or order declared to be eligible
securities pursuant to Section 33563.
   (g) "Value" means:
   (1) When used with respect to an eligible security owned by a
licensee which consists of an account due to such licensee from an
agent of the licensee on account of the sale by such agent of
reported outstanding payment instruments issued by the licensee, net
carrying value as determined in conformity with generally accepted
accounting principles.  However, in computing the value of the
account due to the licensee, any amount due on account of the sale of
a payment instrument shall be excluded if the time elapsed between
the sale and the date of computation exceeds the average time that
elapses between the time of sale and the time of payment of payment
instruments issued by the licensee.
   (2) When used with respect to any other eligible security owned by
a licensee:
   (A) In case the practice and policy of such licensee is to hold
eligible securities to maturity, net carrying value as determined in
conformity with generally accepted accounting principles.
   (B) In any other case, market value.
33561.  (a) For purposes of this article, a licensee shall be deemed
to own an eligible security only if:
   (1) The licensee owns the eligible security solely and exclusively
in its own right, both of record and beneficially;
   (2) The eligible security is not subject to any pledge, lien, or
security interest; and
   (3) The licensee can freely negotiate, assign, or otherwise
transfer the eligible security.
   (b) Notwithstanding the provisions of subdivision (a), no licensee
shall be deemed not to own an eligible security solely on account of
any of the following facts, provided that, but for such fact, such
licensee would be deemed to own such eligible security under the
provisions of subdivision (a):
   (1) The fact that the eligible security is owned of record by a
documented nominee of the licensee or by a securities depository
which is licensed under, or exempt from licensing under, Division 14
(commencing with Section 30000).
   (2) The fact that the licensee has pledged the eligible security
with the United States or any state of the United States to secure
payment by the licensee of payment instruments issued by the
licensee.
33562.  If the commissioner finds that any eligible security or
class of eligible securities is not of sufficient liquidity or
quality to be eligible securities, the commissioner may by regulation
or order declare such security or class of securities to be
ineligible.
33563.  If the commissioner finds that any security or class of
securities which is not an eligible security is of sufficient
liquidity and quality to be an eligible security, the commissioner
may by regulation or order declare such security or class of
securities to be eligible securities.
33564.  If the commissioner finds that a securities rating service:
   (a) Has been continuously engaged in the business of rating
securities for a period of not less than three years;
   (b) Is competent to rate securities and is nationally recognized
for rating securities in a competent manner; and
   (c) Publishes its ratings of securities on a nationwide basis:
   The commissioner may by regulation or order declare such
securities rating service to be an eligible securities rating
service.
33565.  If the commissioner finds that a rating assigned to a class
of securities by an eligible securities rating service indicates that
such class of securities is of sufficient quality to be eligible
securities, the commissioner may by regulation or order declare such
rating to be an eligible rating.
33567.  (a) Each licensee shall at all times own United States
currency eligible securities having an aggregate value not less than
the aggregate face amount of all reported outstanding United States
currency payment instruments issued by it.
   (b) Each licensee shall at all times own eligible securities
having an aggregate value not less than the aggregate face amount of
all reported outstanding foreign currency payment instruments issued
by it.
33568.  (a) In computing for purposes of Section 33567 the aggregate
value of eligible securities owned by a licensee, all of the
following shall be excluded:
   (1) The value of any eligible security if and to the extent that
the value of such eligible security, when combined with the aggregate
value of all other eligible securities owned by such licensee which
are issued or guaranteed by the same person or by any affiliate of
the same person by whom such eligible security is issued or
guaranteed, exceeds 10 percent of the aggregate value of all eligible
securities owned by the licensee.
   (2) The portion of the aggregate value of all eligible securities
of the type described in paragraph (10) of subdivision (f) of Section
33560 that exceeds 10 percent of the aggregate value of all eligible
securities owned by the licensee or any higher percentage, up to a
maximum of 20 percent, that the commissioner may approve for the
licensee.
   (b) Subdivision (a) shall not be deemed to require the exclusion
of the value of any of the following eligible securities, and each of
the following eligible securities shall be exempted from the
limitations of subdivision (a):
   (1) The following United States currency eligible securities:
   (A) Cash.
   (B) Any deposit in an insured bank or an insured savings and loan
association.
   (C) Any bond, note, or other obligation for the payment of which
the full faith and credit of the United States are pledged.
   (2) Any eligible security which the commissioner, in view of the
financial condition of the obligor or issuer and such other factors
as may in the opinion of the commissioner be relevant, finds to be of
such quality that exclusion of the value of such eligible security
pursuant to subdivision (a) is not necessary for the purposes of this
division and which the commissioner by regulation or order exempts
from the limitations of subdivision (a).
33569.  In computing for purposes of subdivision (b) of Section
33567 the aggregate value of foreign currency eligible securities
owned by a licensee, there shall be excluded the value of any foreign
currency eligible security if and to the extent that the value of
such foreign currency eligible security, when combined with the value
of all other foreign currency eligible securities owned by such
licensee which are, or are denominated in, the same foreign currency
as such foreign currency eligible security, exceed the aggregate face
amount of all reported outstanding foreign currency payment
instruments issued by the licensee which are denominated in such
foreign currency.
33570.  In the case of a licensee which is also licensed under
Chapter 14A (commencing with Section 1851) of Division 1, the amount
of aggregate value of eligible securities which such licensee is
required to own under Section 33567 is in addition to the amount of
aggregate value of eligible securities which the licensee is required
to own under Section 1876.8.  Whenever the amount of aggregate value
of eligible securities owned by such a licensee is less than the sum
of (a) the aggregate value required under Section 33567 and (b)  the
aggregate value required under Section 1876.8, such licensee shall
be deemed to be in violation of Section 33567 and of Section 1876.8.


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