The city retirement board, if there is one, or the city treasurer with the approval of the city council, may enter into security loan agreements with broker-dealers and with California or national banks for the purpose of prudently supplementing the income normally received from investments.

(b) “Security loan agreement” means a written contract whereby a legal owner, the lender, agrees to lend specific marketable corporate or government securities for a period not to exceed one year. The lender retains the right to collect from the borrower all dividends, interest, premiums, rights, and any other distributions to which the lender would otherwise have been entitled. The lender waives the right to vote the securities during the term of the loan. The lender may terminate the contract upon not more than five business days’ notice as agreed, and the borrower may terminate the contract upon not less than two business days’ notice as agreed. The borrower shall provide collateral to the lender in the form of cash or bonds or other interest-bearing notes and obligations of the United States or federal instrumentalities eligible for investment by a lending retirement fund.

Such collateral shall be in an amount equal to at least 102 percent of the market value of the loaned securities as agreed. The lender shall monitor the market value of the loaned securities daily. The loan agreement shall provide for payment of additional collateral on a daily basis, or at such times as the value of the loaned securities increases, to agreed-upon ratios. In no event, shall the amount of the collateral be less than the market value of the loaned securities.

(c) “Marketable securities” means securities that are freely traded on recognized exchanges or marketplaces.

(d) Each board or city treasurer entering into security loan agreements shall do all of the following:

(1) Maintain detailed records of all security loans.

(2) Develop controls and reports to monitor the conduct of the transactions.

(3) Publicize the net results of the security loan transaction separate from the results of other investment activities.

(Added by Stats. 1982, Ch. 508, Sec. 1.)