2007 California Financial Code Article 5.1. Eligible Securities

CA Codes (fin:1876.1-1876.12)

1876.1.  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 1876.5.
   (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 the security, or class of securities, by the
eligible securities rating service which the commissioner has by
regulation or order declared to be an eligible rating pursuant to
Section 1876.6.
   (d) "Foreign currency eligible security" means any of the
following which are, or are denominated in, a foreign currency and
which the commissioner has not by regulation or order declared to be
ineligible pursuant to Section 1876.3.
   (1) Any of the following which are of comparable quality to the
United States currency eligible securities specified in paragraphs
(1) to (7), inclusive, of subdivision (g):
   (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 1876.4.
   (e) "Insured bank" means any bank the deposits of which are
insured by the Federal Deposit Insurance Corporation.  However,
"insured bank" does not include any office of a foreign (other
nation) bank other than an office which is insured by the Federal
Deposit Insurance Corporation.
   (f) "Insured savings and loan association" means any savings and
loan association the accounts of which are insured by the Federal
Deposit Insurance Corporation.
   (g) "United States currency eligible security" means any of the
following which are, or are denominated in, United States currency
and which the commissioner has not by regulation or order declared to
be ineligible pursuant to Section 1876.3.
   (1) Cash.
   (2) Any deposit in an insured bank or an insured savings
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. Sec. 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 the
licensee on account of the sale by the agent of outstanding
travelers checks 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 1876.4.
   (h) "Value" means:
   (1) When used with respect to an eligible security owned by a
licensee which consists of an account due to the licensee from an
agent of the licensee on account of the sale by the agent of
outstanding travelers checks 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 travelers
check 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 travelers checks 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 the 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.



1876.2.  (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 travelers checks issued by the licensee.



1876.3.  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.



1876.4.  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.



1876.5.  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.



1876.6.  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.


1876.8.  (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 outstanding United States currency
travelers checks 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 outstanding foreign currency travelers checks issued by it.



1876.9.  (a) In computing for purposes of Section 1876.8 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 aggregate value of all eligible securities of the type
described in paragraph (10) of subdivision (g) of Section 1876.1 if
and to the extent that that aggregate value 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
superintendent 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
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).



1876.10.  In computing for purposes of subdivision (b) of Section
1876.8 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 outstanding foreign currency travelers checks issued
by the licensee which are denominated in such foreign currency.



1876.11.  In the case of a licensee which is also licensed under
Division 16 (commencing with Section 33000), the amount of aggregate
value of eligible securities which such licensee is required to own
under Section 1876.8 is in addition to the amount of aggregate value
of eligible securities which the licensee is required to own under
Section 33567.  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 1876.8 and (b)  the aggregate
value required under Section 33567, such licensee shall be deemed to
be in violation of Section 1876.8 and of Section 33567.



1876.12.  (a) (1) Upon application, the commissioner may exempt from
this article a licensee, or an applicant for licensure under this
chapter.
   (2) An application for an exemption shall be in writing and in a
form prescribed by the commissioner and shall contain whatever
information may be necessary to process the application.
   (3) The commissioner shall approve an application for exemption if
he or she finds that the financial condition, operations, and
management of the licensee are satisfactory; otherwise the
commissioner shall deny the application.
   (b) The commissioner may suspend or revoke any exemption granted
pursuant to this section if he or she finds that the financial
condition, operations, or management of the licensee is not
satisfactory.